nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒07‒09
95 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. "From Antigrowth Bias to Quantitative Easing: The ECB's Belated Conversion?" By Jorg Bibow
  2. Inequality Causes Recessions: A Fallout from Ramsey's Conjecture By Belanger, Gilles
  3. The Impact of Oil Shocks in a Small Open Economy New-Keynesian Dynamic Stochastic General Equilibrium Model for South Africa By Rangan Gupta; Hylton Hollander
  4. Financial factors and monetary policy: Determinacy and learnability of equilibrium By Paul Kitney
  5. A Demand Theory of the Price Level By Hagedorn, Marcus
  6. Optimal Monetary Policy in an Open Emerging Market Economy By Iyer, Tara
  7. The Analytics of the Greek Crisis By Pierre-Olivier Gourinchas; Thomas Philippon; Dimitri Vayanos
  8. Firm investment and financial conditions in the euro area: evidence from firm-level data By Hiona Balfoussia; Heather D. Gibson
  9. The Nature of Money in Modern Economy – Implications and Consequences By Al-Jarhi, Mabid
  10. Monetary Policy with 100 Percent Reserve Banking: An Exploration By Prescott, Edward C.; Wessel, Ryan
  11. South Africa’s real business cycles: The Cycle is the trend By Hilary Patroba and Leroi Raputsoane
  12. How to explain errors in budget balance forecasts in euro area countries? Empirical evidence based on real-time data By Paloviita, Maritta; Ikonen, Pasi
  13. Persistence and Amplification of Financial Frictions By Shirai, Daichi
  14. A shadow rate model with time-varying lower bound of interest rates By Kortela, Tomi
  15. Did the Founding of the Federal Reserve Affect the Vulnerability of the Interbank System to Systemic Risk? By Carlson, Mark A.; Wheelock, David C.
  16. Search and matching frictions and business cycle fluctuations in Bulgaria By Vasilev, Aleksandar
  17. The Effect of Monetary Policy on Housing Tenure Choice as an Explanation for the Price Puzzle By Dias, Daniel A.; Duarte, Joao B.
  18. The Tail that Wags the Economy: Belief-Driven Business Cycles and Persistent Stagnation By Kozlowski, Julian; Veldkamp, Laura; Venkateswaran, Venky
  19. The Permanent Effects of Fiscal Consolidations By Antonio Fatás; Lawrence H. Summers
  20. Effects of Inflation and Wage Expectations on Consumer Spending: Evidence from Micro Data By Yuichiro Ito; Sohei Kaihatsu
  21. Macroeconomic regimes, technological shocks and employment dynamics By Tommaso Ferraresi; Andrea Roventini; Willi Semmler
  22. Financial Crisis Interventions By Josef Schroth
  23. Capital accumulation and the dynamic of secular stagnation By Gilles Le Garrec; Vincent Touzé
  24. No man is an island : the Impact of Heterogeneity and local interactions on Macroeconomic Dynamics By Mattia Guerini; Mauro Napoletano; Andrea Roventini
  25. Reserve requirements and optimal Chinese stabilization policy By Chang, Chun; Liu, Zheng; Spiegel, Mark M.; Zhang, Jingyi
  26. Global uncertainty and the global economy: Decomposing the impact of uncertainty shocks By Wensheng Kang; Ronald A. Ratti; Joaquin Vespignani
  27. Optimal Automatic Stabilizers By Alisdair McKay; Ricardo Reis
  28. Monetary versus macroprudential policies: causal impacts of interest rates and credit controls in the era of the UK radcliffe report By David Aikman; Oliver Bush; Alan M. Taylor
  29. Term Structure of Uncertainty in the Macroeconomy By Jaroslav Borovička; Lars Peter Hansen
  30. Do Fiscal Multipliers Depend on Fiscal Positions? By Huidrom, Raju; Kose, Ayhan; Lim, Jamus; Ohnsorge, Franziska
  31. Do Fiscal Multipliers Depend on Fiscal Positions? By Raju Huidrom; M. Ayhan Kose; Jamus J. Lim; Franziska L. Ohnsorge
  32. The Real-Time Properties of the Bank of Canada’s Staff Output Gap Estimates By Julien Champagne; Guillaume Poulin-Bellisle; Rodrigo Sekkel
  33. Near-Rational Expectations: How Far are Surveys from Rationality? By Sergey Ivashchenko; Rangan Gupta
  34. Forward Guidance and Macroeconomic Outcomes Since the Financial Crisis By Campbell, Jeffrey R.; Fisher, Jonas D. M.; Justiniano, Alejandro; Melosi, Leonardo
  35. Search-based endogenous asset liquidity and the macroeconomy By Cui, Wei; Radde, Sören
  36. Working Paper 06-16 - Young Firms and Industry Dynamics in Belgium By Michel Dumont; Chantal Kegels
  37. Monetary Versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report By Aikman, David; Bush, Oliver; Taylor, Alan M.
  38. Monetary Versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report By David Aikman; Oliver Bush; Alan M. Taylor
  39. Government spending effectiveness and the quality of fiscal institutions By Garayeva, Aygun; Tahirova, Gulzar
  40. Nowcasting Indian GDP By Daniela Bragoli; Jack Fosten
  41. Measuring the natural rate of interest: International trends and determinants By Holston, Kathryn; Laubach, Thomas; Williams, John C.
  42. Funding Liquidity Risk and the Cross-section of MBS Returns By Kitsul, Yuriy; Ochoa, Marcelo
  43. Employment and hours over the business cycle in a model with search frictions By Noritaka Kudoh; Hiroaki Miyamoto; Masaru Sasaki
  44. Volatility and Growth with Recursive Preferences By Barbara Annicchiarico; Alessandra Pelloni; Fabrizio Valenti
  45. The effects of productivity and benefits on unemployment: Breaking the link By Brown, Alessio; Kohlbrecher, Britta; Merkl, Christian; Snower, Dennis J.
  46. Challenges of Fiscal Policy in Emerging and Developing Economies By Huidrom, Raju; Kose, Ayhan; Ohnsorge, Franziska
  47. The Asset Management Industry and Systemic Risk: Is There a Connection? By Lopez, Claude; Markwardt, Donald; Savard, Keith
  48. The Effectiveness of Monetary Policy in South Africa under Inflation Targeting: Evidence from a Time-Varying Factor-Augmented Vector Autoregressive Model By Goodness C. Aye; Mehmet Balcilar; Rangan Gupta
  49. Fiscal Policy Rection and Sustainability of Fiscal Policy in Ukraine By Vdovychenko Artem
  50. Endogenous Second Moments: A Unified Approach to Fluctuations in Risk, Dispersion, and Uncertainty By Straub, Ludwig; Ulbricht, Robert
  51. Communication Frictions, Sentiments, and Nonlinear Business Cycles By Libo Xu; Apostolos Serletis
  52. Manajemen Zakat di Indonesia dan Brunei Darussalam By Jaelani, Aan
  53. Monetary policy and economic growth in Kenya:The role of money supply and interest rates By Nyorekwa, Enock Twinoburyo; Odhiambo, Nicholas Manya
  55. The Dynamics of Capital Accumulation in the US: Simulations after Piketty By Philippe De Donder; John E. Roemer
  56. The slow job recovery in a macro model of search and recruiting intensity By Leduc, Sylvain; Liu, Zheng
  57. How Successful Are Banking Sector Reforms in Emerging Market Economies? Evidence from Impact of Monetary Policy on Levels and Structures of Firm Debt in India By Bhaumik, Sumon K.; Kutan, Ali M.; Majumdar, Sudipa
  58. After the Financial Crisis; Reforms and Reform Options for Finance, Regulation and Institutional Structure By Hansjorg Herr
  59. The relationship between savings and economic growth at the disaggregated level By Guma, Nomvuyo; Bonga-Bonga, Lumengo
  60. Do GDP Forecasts Respond Efficiently to Changes in Interest Rates? By Croushore, Dean; Marsten, Katherine
  61. Saving and Bequest in China: An Analysis of Intergenerational Exchange. By Almås, Ingvild; Freddi, Eleonora; Thøgersen, Øystein
  62. "Have We Been Here Before? Phases of Financialization within the 20th Century in the United States" By Apostolos Fasianos; Diego Guevara; Christos Pierros
  63. Assessing the economic value of probabilistic forecasts in the presence of an inflation target By Chris McDonald; Craig Thamotheram; Shaun P. Vahey; Elizabeth C. Wakerly
  64. ncentivising Lending to Smes with the Funding for Lending Scheme: Some Evidence from Bank-Level Data in the United Kingdom By Olena Havrylchyk
  65. Flexibility versus stability. A difficult trade-off in the Eurozone By De Grauwe, Paul; Ji, Yuemei
  66. Changes in Prudential Policy Instruments ---- A New Cross-Country Database By Cerutti, Eugenio; Correa, Ricardo; Fiorentino, Elisabetta; Segalla, Esther
  67. Forecasting Economic Activity with Mixed Frequency Bayesian VARs By Brave, Scott; Butters, R. Andrew; Justiniano, Alejandro
  68. Credit, Money and Asset Equilibria with Indivisible Goods By Han Han; Benoit Julien; Asgerdur Petursdottir; Liang Wang
  69. Oil and Growth Challenge in Kazakhstan By Nurmakhanova Mira
  70. The long-run effect of fiscal consolidation on economic growth: Evidence from quantitative case studies By Kleis, Mischa; Moessinger, Marc-Daniel
  71. Macroprudential measures and housing markets: a note on the empirical literature By Eerola, Essi
  73. Estimación de una función de consumo para la economía cubana en el período 1975- 2012 By Leandro López Elías
  74. The macroeconomics of shadow banking By Alberto Botta; Eugenio Caversazi; Daniele Tori
  75. Effects of Credit Supply on Unemployment and Inequality By Bandyopadhyay, Subhayu; Dinopoulos, Elias; Unel, Bulent
  76. Effects of Credit Supply on Unemployment and Inequality By Bandyopadhyay, Subhayu; Dinopoulos , Elias; Unel, Bulent
  77. Dynamic Fiscal competition with public infrastructure investment: Austerity and attracting capital inflow By Huang, Wei Hong; Chen, Yang; Rudkin, Simon
  78. The Green Paradox and Interjurisdictional Competition across Space and Time By Habla, Wolfgang
  79. La politica economica della Democrazia Cristiana (1948-1963) e il dibattito all’interno del partito By Dafano, Alessandro
  80. The first debt ceiling crisis By Garbade, Kenneth D.
  81. Irish GDP between the Famine and the First World War By Andersson, Fredrik N. G.; Lennard, Jason
  83. How does the health sector benefit from trade openness? Evidence form panel data across sub-Saharan Africa countries. By Novignon, Jacob; Atakorah, Yaw Boateng
  85. The Political Economy of Underfunded Municipal Pension By Brinkman, Jeffrey; Coen-Pirani, Daniele; Sieg, Holger
  86. A Confusion of Capital in the United States By O'Sullivan, Mary
  87. Propuesta de un sistema de equilibrio general clásico de los precios con capital circulante susceptible de ofrecer diversas calidades By Iván A. Montoya Restrepo; Luz Alexandra Montoya Restrepo
  88. Health spending slowed down in spite of the crisis By DiMaggio, Marco; Haughwout, Andrew F.; Kermani, Amir; Mazewski, Matthew; Pinkovskiy, Maxim L.
  89. Inflation expectations and low inflation in New Zealand By Özer Karagedikli; Dr John McDermott
  90. Local House Price Growth Accelerations By Alexander N. Bogin; William M. Doerner; William D. Larson
  91. Intraday Dynamics of Euro Area Sovereign Credit Risk Contagion By Lubos Komarek; Kristyna Ters; Jorg Urban
  92. Drowned by Numbers? Designing an EU-wide Unemployment Insurance By Étienne Farvaque; Florence Huart
  93. Food Price Volatility and Its Implications for Food Security and Policy By Kalkuhl, Matthias; von Braun, Joachim; Torero, Maximo
  94. Dodd-Frank: Washington, We Have a Problem By lopez, claude; Saeidinezhad, Elham
  95. A crime 2.0 - cybercrime, e-talent, and institutions By Seo-Young Cho

  1. By: Jorg Bibow
    Abstract: This paper investigates the European Central Bank's (ECB) monetary policies. It identifies an antigrowth bias in the bank's monetary policy approach: the ECB is quick to hike, but slow to ease. Similarly, while other players and institutional deficiencies share responsibility for the euro's failure, the bank has generally done "too little, too late" with regard to managing the euro crisis, preventing protracted stagnation, and containing deflation threats. The bank remains attached to the euro area's official competitive wage-repression strategy, which is in conflict with the ECB's price stability mandate and undermines its more recent, unconventional monetary policy initiatives designed to restore price stability. The ECB needs a "Euro Treasury" partner to overcome the euro regime's most serious flaw: the divorce between central bank and treasury institutions.
    Keywords: Central Banking; Monetary Policy; Euro Crisis; Lender of Last Resort; Euro Treasury
    JEL: E30 E42 E52 E58 E61 E65
    Date: 2016–06
  2. By: Belanger, Gilles
    Abstract: Ramsey's conjecture implies that a market economy tends toward a politically impossible form of extreme inequality (with "the thrifty enjoying bliss and the improvident at the subsistence level"). Because political actions are not systematic, but arbitrary or random, the combination of market and political forces leads to instability, sometimes full-fledged crisis. I show how the mechanisms of debt relief, redistribution and the uncertainty related to them could boil down to a discount rate shock for an aggregate representative agent. Furthermore, to make this shock possible into a simple Real Business Cycle (RBC) model, I propose a two-capital setup, which provides an improved solution to the interest-rate-inelasticity issue than the usual investment adjustment costs. Finally, I show the model's generality by adding wage rigidity and inflation. Considering the simplicity of the general equilibrium model, results provide rich narratives for recessions.
    Keywords: Inequality, Credit crises, business cycles, discount factor heterogeneity.
    JEL: E21 E22 E24 E32 E37
    Date: 2016–07–02
  3. By: Rangan Gupta (Department of Economics, University of Pretoria); Hylton Hollander (Department of Economics, Stellenbosch University, Stellenbosch)
    Abstract: This paper studies the effects of foreign (real) oil price shocks on key macroeconomic variables for South Africa: a net-importer of oil. We develop and estimate a small open economy new-Keynesian dynamic stochastic general equilibrium model with a role for oil in consumption and production. The substitutability of oil for capital and consumption goods is low, import price pass-through is incomplete, domestic and foreign prices and wages are sticky, and the uncovered interest rate parity condition holds imperfectly. Foreign real oil price shocks have a strong and persistent effect on domestic production and consumption activities and, hence, are a fundamental driver of output, inflation and interest rates in both the short- and long-run. Oil price shocks also generate a trade-off between output and inflation stabilisation. As a result, episodes of endogenous tightening of monetary policy slow the recovery of South Africa's real economy. Our findings go further to suggest an important role for oil prices in predicting the South African output during and after the recession that followed the 2008 global financial crisis.
    Keywords: Oil shocks, small open economy, DSGE model, South Africa
    JEL: E31 E32 E37 E52 Q41 Q43
    Date: 2016–06
  4. By: Paul Kitney
    Abstract: This paper contributes to the debate whether central banks should respond to asset prices, credit spreads and other financial factors in setting monetary policy, by evaluating determinacy and expectational stability of equilibria under various monetary policy rules. With adaptive learning, beliefs constitute an additional set of state variables, which may require more than a response to inflation, that has traditionally been argued in the literature as sufficient to achieve central bank objectives under rational expectations. Furthermore, financial frictions are introduced by extending the determinacy and adaptive learning methodology embodied in Bullard and Mitra (2002) and Bullard and Mitra (2007), beyond the New Keynesian modelling framework by incorporating a Financial Accelerator (Bernanke, Gertler and Gilchrist 1999). A key result is that monetary policy rules responding to lagged asset prices and credit volume have less desirable determinacy and learnability characteristics than responding to current asset prices and credit spreads. This conclusion dovetails with recent research such as Gilchrist and Zakrajsek (2011) and Gilchrist and Zakrajsek (2012), who show that signals derived from credit spreads contain information which help explain business cycle fluctuations and demonstrate that a credit spread augmented monetary policy rule dampens cycle variability. Another result is that the conclusions in both Bullard and Mitra (2002) and Bullard and Mitra (2007) are robust to a New Keynesian model with financial frictions.
    Keywords: DSGE, financial frictions, learning, determinacy, e-stability, expectations, asset prices, credit spreads, financial factors, monetary policy, Taylor rule
    JEL: E43 E44 E50 E52 E58
    Date: 2016–07
  5. By: Hagedorn, Marcus
    Abstract: In this paper I show that the price level is globally unique in an incomplete market model. I base my argument on the simple idea that the price equates demand with supply in the goods market. Monetary policy works through setting nominal interest rates, e.g. an interest rate peg, while fiscal policy is committed to satisfying the present value budget constraint at all times (in contrast to the FTPL). Together, these determine the unique price level, as well as consumption and employment, jointly. In particular, the model predicts a unique equilibrium in response to a fiscal stimulus if the nominal interest is pegged, whereas there is a continuum of equilibria in the standard New Keynesian model. In contrast to the conventional view the long-run inflation rate is, in the absence of output growth, equal to the growth rate of nominal government spending, which is controlled by fiscal policy. This new theory where nominal government spending anchors aggregate demand, and therefore current and future prices, offers a different perspective on a range of important issues including the fiscal and monetary transmission mechanism, policy coordination, policies at the zero-lower bound, U.S. inflation history and recent attempts to stimulate inflation in the Euro area.
    Keywords: Fiscal policy; incomplete markets; inflation; Monetary policy; Price level
    JEL: D52 E31 E43 E52 E62 E63
    Date: 2016–06
  6. By: Iyer, Tara (University of Oxford)
    Abstract: The majority of households across emerging market economies are excluded from the financial markets and cannot smooth consumption. I analyze the implications of this for optimal monetary policy and the corresponding choice of domestic versus external nominal anchor in a small open economy framework with nominal rigidities, aggregate uncertainty and financial exclusion. I find that, if set optimally, monetary policy smooths the consumption of financially excluded agents by stabilizing their income. Even though Consumer Price Index (CPI) inflation targeting approximates optimal monetary policy when financial inclusion is high, targeting the exchange rate is appropriate if financial inclusion is limited. Nominal exchange rate stability, upon shocks that create trade-offs for monetary policy, directly stabilizes the import component of financially excluded agents’ consumption baskets, which smooths their consumption and reduces macroeconomic volatility. This study provides a counterpoint to Milton Friedman’s long-standing argument for a float.
    Keywords: Asymmetric Risk-Sharing; Fixed Exchange Rates; Financial Exclusion; Optimal Monetary Policy; Emerging Market Economies
    JEL: E24 E52 F21 F31 F43
    Date: 2016–06–20
  7. By: Pierre-Olivier Gourinchas; Thomas Philippon; Dimitri Vayanos
    Abstract: We provide an empirical and theoretical analysis of the Greek Crisis of 2010. We first benchmark the crisis against all episodes of sudden stops, sovereign debt crises, and lending boom/busts in emerging and advanced economies since 1980. The decline in Greece’s output, especially investment, is deeper and more persistent than in almost any crisis on record over that period. We then propose a stylized macro-finance model to understand what happened. We find that a severe macroeconomic adjustment was inevitable given the size of the fiscal imbalance; yet a sizable share of the crisis was also the consequence of the sudden stop that started in late 2009. Our model suggests that the size of the initial macro/financial imbalances can account for much of the depth of the crisis. When we simulate an emerging market sudden stop with initial debt levels (government, private, and external) of an advanced economy, we obtain a Greek crisis. Finally, in recent years, the lack of recovery appears driven by elevated levels of non-performing loans and strong price rigidities in product markets.
    JEL: E2 E3 E4 E5 E6 F3 F4
    Date: 2016–06
  8. By: Hiona Balfoussia (Bank of Greece); Heather D. Gibson (Bank of Greece)
    Abstract: We explore whether the sensitivity of firm-level investment to cash-flow, typically associated with an external financing premium, is time-varying and in particular whether it varies with overall financial conditions. We find that financial conditions have indeed played a significant role in corporate investment decisions over recent years, rendering financing constraints even more binding. This finding appears to be robust to a number of control variables and robustness tests. Moreover, the impact of credit conditions is not uniform across firms, but rather it varies depending on firm size and leverage, with constrained firms being substantially more likely to condition their investment decisions on overall credit conditions. Our results cast new light on the interplay between financial and real cycle downturns and underline the need for monetary, fiscal and macroprudential policy to be countercyclical with respect to financial conditions.
    Keywords: investment;financial conditions; euro area firms
    JEL: E22 E44 E50
    Date: 2016–06
  9. By: Al-Jarhi, Mabid
    Abstract: Reforming the contemporary monetary and financial system has come under the limelight with the onset of the last international financial crisis. Zarlenga and Poteat focus on the elimination of credit money and the return of the exclusive right of issuing money to the government as a key to reforming the system. In this comment, I argue that they are right, but reform should be wider and more comprehensive. My arguments are inspired by Al-Jarhi’s model of an Islamic monetary system (1981)
    Keywords: money, definition of money, monetary reform, Chicago Plan, Islamic economics, monetary policy, interest rate, seigniorage, Friedman's rule, information asymmetry, classical loan contract, Islamic finance
    JEL: E0 E19 E40 E42 E50 E52
    Date: 2016–05–10
  10. By: Prescott, Edward C. (Federal Reserve Bank of Minneapolis); Wessel, Ryan (Arizona State University)
    Abstract: We explore monetary policy in a world without fractional reserve banking. In our world, banks are purely transaction institutions. Money is a form of government debt that bears interest, which can be negative as well as positive. Services of money are a factor of production. We show that the national accounts must be revised in this world. Using our baseline economy, we determine a balanced growth path for a set of money interest rate policy regimes. Besides this interest rate, the only policy variable that differs across regimes is the labor income tax rate. Within this set of policy regimes, there is a balanced growth welfare-maximizing regime. We show that Friedman monetary satiation without deflation is possible in this world. We also examine a set of inflation rate targeting regimes. Here, the only other policy variable that differs across regimes is the inflation rate.
    Keywords: 100 percent reserve banking; Money in production function; Interest rate targeting; Inflation rate targeting; Friedman monetary satiation
    JEL: E00 E40 E50 E60
    Date: 2016–06–22
  11. By: Hilary Patroba and Leroi Raputsoane
    Abstract: This paper tests the ‘cycle is the trend’ hypothesis. We investigate how far permanent and transitory productivity shocks can account for the dynamics observed in the South African business cycle over the period 1946{2014. By estimating a standard small open economy real business cycle model and its financial frictions augmented counterpart, we show that permanent productivity shocks are more important than transitory ones in explaining this country’s business cycle fluctuations. This finding supports the ‘cycle is the trend’ hypothesis in the South African business cycle. The model with financial frictions successfully mimics the downward-sloping high autocorrelation of trade balance to output ratio observed in the data, whereas the benchmark model produces a at autocorrelation function. Financial frictions such as country risk premium shocks help to explain the uctuations in investment and in the trade balance to output ratio.
    Keywords: Small open economy, real business cycle, permanent shock, transitory shock, financial frictions, Bayesian
    JEL: E13 E32 F41 F44
    Date: 2016
  12. By: Paloviita, Maritta; Ikonen, Pasi
    Abstract: The aim of this study is to explore budget planning in the euro area countries in 2004-2014. Our analyses are based on annual real-time data from the IMF World Economic Outlook publications. As forecasts made by different institutions are strongly correlated, our dataset reasonably reflects information available for policy makers in real-time. We examine whether real-time forecasts of overall budget balance, real GDP growth and output gap have been systematically biased. We also analyse forecast accuracy of potential output growth, which we construct using different vintages of real-time data. Our results indicate systematic biases in forecasts. Further, we study how real-time macroeconomic conditions affect budget planning. For comparison, we also consider how ex post economic conditions and ex post budget balance developments are related. We find robust evidence of mean reversion in budget balances, in both real-time and revised data. Mean reversion is related only to negative budget balances, and it is systematically stronger with respect to revised information. Finally, we analyse errors in budget balance forecasts. We provide robust evidence that revisions to current budget balance have contributed to errors in budget balance forecasts. We also find that forecasted macroeconomic conditions (potential output growth and real GDP growth) and their revisions have affected errors in budget balance forecasts. Overall, our results indicate that real-time uncertainty and revisions materially affect budget planning.
    Keywords: fiscal policy, real-time data, economic crisis
    JEL: E62 E32
    Date: 2016–06–17
  13. By: Shirai, Daichi
    Abstract: We quantitatively evaluate the various types of working capital loans affected by borrowing constraints using a simple real business cycle model. We explore which borrowing constraints generate persistence and/or amplified output responses to productivity and financial shocks. We find that limiting investment on account of borrowing constraints generates a persistent response to a one-time transitory shock. This finding implies that investment wedge plays an important role in generating persistence. There is a trade-off relationship between persistence and amplification among models and the working capital loan channel does not always generate amplification.
    Keywords: Financing frictions, Business cycle propagation, Persistence, Business cycle accounting
    JEL: E32 E37 E44 G01
    Date: 2016–06–08
  14. By: Kortela, Tomi
    Abstract: Typically a constant – or zero – lower bound for interest rates is applied in shadow rate term structure models. However, euro area yield curve data suggest that a time-varying lower bound might be appropriate for the euro area. I show that this indeed is the case, i.e. a shadow rate model with time-varying lower bound outperforms the constant lower bound model in euro area data. I argue that the time-variation in the lower bound is related to the deposit facility rate and, thus, to monetary policy. This time-variation in the lower bound gives a new channel via which monetary policy may affect the yield curve in a shadow rate model. I show that the intensity of this channel depends on how tightly the lower bound restricts the yield curve, and I argue that this channel has recently become important for the euro area.
    Keywords: term structure models, shadow rates, policy liftoff, monetary policy, zero lower bound
    JEL: E43 E44 E52
    Date: 2016–06–22
  15. By: Carlson, Mark A. (Bank for International Settlements and Board of Governors of the Federal Reserve System); Wheelock, David C. (Federal Reserve Bank of St. Louis)
    Abstract: As a result of legal restrictions on branch banking, an extensive interbank system developed in the United States during the 19th century to facilitate interregional payments and flows of liquidity and credit. Vast sums moved through the interbank system to meet seasonal and other demands, but the system also transmitted shocks during banking panics. The Federal Reserve was established in 1914 to reduce reliance on the interbank market and correct other defects that caused banking system instability. Drawing on recent theoretical work on interbank networks, we examine how the Fed’s establishment affected the system’s resilience to solvency and liquidity shocks and whether these shocks might have been contagious. We find that the interbank system became more resilient to solvency shocks but less resilient to liquidity shocks as banks sharply reduced their liquidity after the Fed’s founding. The industry’s response illustrates how the introduction of a lender of last resort can alter private behavior in a way that increases the likelihood that the lender will be needed.
    Keywords: Federal Reserve System; contagion; systemic risk; seasonal liquidity demand; interbank networks; banking panics; National Banking system
    JEL: E42 E44 E58 G21 N11 N12 N21 N22
    Date: 2016–06–14
  16. By: Vasilev, Aleksandar
    Abstract: In this paper we investigate the quantitative importance of search and matching fric- tions in Bulgarian labor markets. This is done by augmenting an otherwise standard real business cycle model a la Long and Plosser (1983) with both a two-sided costly search and fiscal policy. This introduces a strong propagation mechanism that allows the model to capture the business cycles in Bulgaria better than earlier models. The model performs well vis-a-vis data, especially along the labor market dimension, and in addition dominates the market-clearing labor market framework featured in the stan- dard RBC model, e.g Vasilev (2009), as well as the indivisible labor extension used in Hansen (1985).
    Keywords: general equilibrium,unemployment and wages,business cycles,fiscal policy
    JEL: D51 E24 E32 J40
    Date: 2016
  17. By: Dias, Daniel A.; Duarte, Joao B.
    Abstract: In this paper we provide an alternative explanation for the price puzzle (Sims 1992) based on the effect of monetary policy on housing tenure choice and the weight of the shelter component in overall CPI. In the presence of nominal or financial frictions, when interest rates increase, the real cost of owning a house increases, and this increase may make some people prefer to rent instead of buying. This change in consumption behavior increases the price of rents relative to other goods. Starting in 1983, homeownership costs are based on a measure of implied owner equivalent rent, which is calculated using observed house rents. This change implies that, directly and indirectly, prices in the rental market almost entirely command the shelter component of CPI, which weighs around 30% in the overall index. When we take these two pieces into account and use CPI net of shelter services as a measure of inflation, we obtain impulse responses of prices to a monetary contraction shock more in line with what is predicted by theory. In addition, our results also suggest that inflation is much less persistent than what is implied by analyses using a measure of inflation that includes shelter services. Our results pass a long list of robustness check exercises and compare well against other explanations of the price puzzle.
    Keywords: Price puzzle ; Housing tenure choice ; Monetary policy ; SVAR
    JEL: E31 E43 R21
    Date: 2016–06
  18. By: Kozlowski, Julian; Veldkamp, Laura; Venkateswaran, Venky
    Abstract: The Great Recession was a deep downturn with long-lasting effects on credit markets, labor markets and output. We explore a simple explanation: This recession has been more persistent than others because it was perceived as an extremely unlikely event before 2007. Observing such an episode led all agents to re-assess macro risk, in particular, the probability of tail events. Since changes in beliefs endure long after the event itself has passed and through its effects on prices and choices, it produces long-lasting effects on investment, employment and output. To model this idea, we study a production economy with agents who use standard econometric tools to estimate the distribution of aggregate shocks. When they observe a new shock, they re-estimate the distribution from which it was drawn. Even transitory shocks have persistent effects because, once observed, they stay forever in the agents' data set. We feed a time-series of US macro data into our model and show that our belief revision mechanism can explain the 12% downward shift in US trend output.
    Keywords: belief-driven business cycles; Stagnation; tail risk
    JEL: D84 E32
    Date: 2016–06
  19. By: Antonio Fatás; Lawrence H. Summers
    Abstract: The global financial crisis has permanently lowered the path of GDP in all advanced economies. At the same time, and in response to rising government debt levels, many of these countries have been engaging in fiscal consolidations that have had a negative impact on growth rates. We empirically explore the connections between these two facts by extending to longer horizons the methodology of Blanchard and Leigh (2013) regarding fiscal policy multipliers. Our results provide support for the presence of strong hysteresis effects of fiscal policy. The large size of the effects points in the direction of self-defeating fiscal consolidations as suggested by DeLong and Summers (2012). Attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to GDP ratio through their long-term negative impact on output.
    JEL: E32 E62 O4
    Date: 2016–06
  20. By: Yuichiro Ito (Bank of Japan); Sohei Kaihatsu (Bank of Japan)
    Abstract: This paper employs a unique micro dataset in Japan to monitor inflation and wage expectations and investigate their effects on consumer spending. Based on our analysis, wage expectations increased moderately among wider range of employees after the introduction of Quantitative and Qualitative Monetary Easing (QQE). Real wage expectations also recovered recently, although it declined soon after the introduction of QQE, reflecting larger increases in inflation expectations compared with wage expectations. Increases in inflation expectations produced the positive effect on consumer spending on the whole since the positive effect of declines in real interest rates was larger than the negative effect of declines in real wage expectations. Wage expectations were generally influenced by wage perception and business performance outlook. This suggests that improvement in wage expectations needs to associate higher expectations about business performance outlook and realization of wage increases.
    Keywords: inflation expectations; wage expectations; Carlson-Parkin method; survey data; Quantitative and Qualitative Monetary Easing
    JEL: D12 D84 D91 E21 E52
    Date: 2016–06–21
  21. By: Tommaso Ferraresi (IRPE della Toscana, Firenze University of Pisa); Andrea Roventini (Scuola Superiore Sant'Anna, OFCE Sciences PO); Willi Semmler (New school for social research New School Universisty)
    Abstract: In this work we investigate the interrelations among technology, output and employment in the different states of the U.S. economy (recessions vs. expansions). More precisely, we estimate different threshold vector autoregression (TVAR) models with TFP, hours, and GDP, employing the latter as threshold variable, and we assess the ensuing generalized impulse responses of GDP and hours as to TFP shocks. We find that positive productivity shocks, while spurring GDP growth, display a neg- ative effect on hours worked at least on impact, independently of the state of the economy. In the 1957-2011 period, the effects of productivity shocks on employment are abundantly negative in downturns, but they are not significantly different from zero in good times. However, the impact of TFP shocks in different business cycle regimes depends on the chosen sample: after the mid eighties (1984-2011), produc- tivity shocks increase hours during recessions. Finally, we express and test some conjectures that might have caused the changes in the responses in different time periods.
    Keywords: Technology shocks, employment, threshold vector autoregression, generalized impulse, response functions.
    JEL: E32 O33 C32 E63 E20
    Date: 2016–06
  22. By: Josef Schroth
    Abstract: This paper develops a model of an economy where bank credit supports both productive investment and individual consumption smoothing in the face of idiosyncratic income risk. Bank credit is constrained by bank equity capital. When policy-makers inject equity capital during financial crises, they trade off stimulating credit supply immediately against long-term distortions related to funding equity injections. I calibrate my model and show that the bank equity capital injection that maximizes average utilitarian welfare redistributes from the poor to the wealthy. While wealthy savers benefit immediately from an increased supply of safe assets, less affluent borrowers and savers suffer from long-term distortions.
    Keywords: Credit and credit aggregates, Financial stability, Financial system regulation and policies, Lender of last resort
    JEL: E13 E32 E44
    Date: 2016
  23. By: Gilles Le Garrec (OFCE-Sciences Po); Vincent Touzé (OFCE-Sciences PO)
    Abstract: We characterize the dynamics of secular stagnation as a permanent regime switching from a full employment equilibrium to an underemployment equilibrium. In the latter, the natural interest rate is negative, and the economy is in deáation. Due to the non negativity condition imposed on policy rate, the zero lower bond (ZLB) applies which prevents targeting ináation. The secular stagnation equilibrium is achieved in a standard overlapping generations model with capital accumulation where two market imperfections are introduced: credit rationing and downward nominal wage rigidity. To Ögure out how to escape the secular stagnation trap, we study the impact of various macroeconomic policies. Raising the ináation target is only e§ective if the central bank has enough credibility. By supporting aggregate demand, Öscal policy can help the economy get out of the secular stagnation trap. However, this policy reduces the incentive to accumulate capital: there is a trade-o§ between exiting secular stagnation and depressing potential GDP. Dynamic multi- pliers are upper than one unless the Öscal stimilus is too strong. We also shed light on an asymmetry in the dynamics: recovery takes longer than falling into recession.
    Keywords: Secular stagnation, Capital accumulation, Zero lower bound
    JEL: D91 E31 E52
    Date: 2016–06
  24. By: Mattia Guerini (Scuola Superiore Sant'Anna); Mauro Napoletano (OFCE and SKEMA Business School); Andrea Roventini (Scuola Superiore Sant'Anna - OFCE Sciences Po)
    Abstract: We develop an agent-based model in which heterogeneous firms and households interact in labor and good markets according to centralized or decentralized search and matching protocols. As the model has a deterministic backbone and a full-employment equilibrium, it can be directly compared to Dynamic Stochastic General Equilibrium (DSGE) models. We study the effects of negative productivity shocks by way of impulse-response func- tions (IRF). Simulation results show that when search and matching are centralized, the economy is always able to return to the full employment equilibrium and IRFs are similar to those generated by DSGE models. However, when search and matching are local, co- ordination failures emerge and the economy persistently deviates from full employment. Moreover, agents display persistent heterogeneity. Our results suggest that macroeco- nomic models should explicitly account for agents’ heterogeneity and direct interactions.
    Keywords: Agent-based model, Local interaction, Heterogeneous agents, DGSE Model
    JEL: E03 E32 E37
    Date: 2016–06
  25. By: Chang, Chun (Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University); Liu, Zheng (Federal Reserve Bank of San Francisco); Spiegel, Mark M. (Federal Reserve Bank of San Francisco); Zhang, Jingyi (Shanghai Advanced Institute, Shanghai Jiao Tong University)
    Abstract: We build a two-sector DSGE model of the Chinese economy to study the role of reserve requirement policy for capital reallocation and business cycle stabilization. In the model, state-owned enterprises (SOEs) have lower average productivity than private firms, but they have superior access to bank loans because of government guarantees. Private firms rely on “shadow” bank financing. Commercial banks are subject to reserve requirement regulations but shadow banks are not. Our framework implies a tradeoff for reserve requirement policy: Increasing the required reserve ratio acts as a tax on SOE activity and reallocates resources to private firms, raising aggregate productivity. This reallocation is supported by empirical evidence. However, raising reserve requirements also increases the incidence of costly SOE failures. Under our calibration, reserve requirement policy can be complementary to interest rate policy for stabilizing macro fluctuations and improving welfare.
    JEL: D81 E21 P31
    Date: 2016–06–09
  26. By: Wensheng Kang; Ronald A. Ratti; Joaquin Vespignani
    Abstract: We constructed a new index of global uncertainty using the first principal component of the stock market volatility for the largest 15 economies. We evaluate the impact of global uncertainty on the global economy using the new global database from Global Economic Indicators (DGEI), Federal Reserve Bank of Dallas. Global uncertainty shocks are less frequent than those observed in data on the U.S. economy. Global uncertainty shocks are associated with a sharp decline in global inflation, global growth and in the global interest rate (based on official/policy interest rates set by central banks). Our decomposition of global uncertainty shocks shows that global financial uncertainty shocks are more important than non-financial shocks. Over the period 1981 to 2014 global financial uncertainty forecasts 18.26% and 14.95% of the variation in global growth and global inflation respectively. The non-financial uncertainty shocks have insignificant effects on global growth. The model for global variables shows more protracted and substantial negative effects of uncertainty on growth and inflation than does a panel model estimating associations of local country-level variables. This outcome is reversed for the effect of uncertainty on official interest rate.
    Keywords: Global, Uncertainty shocks, Monetary Policy, FAVAR
    JEL: D80 E44 E66 F62 G10
    Date: 2016–06
  27. By: Alisdair McKay (Department of Economics Boston University); Ricardo Reis (Columbia University; Centre for Macroeconomics (CFM))
    Abstract: Should the generosity of unemployment benefits and the progressivity of income taxes depend on the presence of business cycles? This paper proposes a tractable model where there is a role for social insurance against uninsurable shocks to income and unemployment, as well as ineficient 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-cuclical fiscal policy, Redistribution, Distortionary taxes
    JEL: E62 H21 H30
    Date: 2016–06
  28. By: David Aikman; Oliver Bush; Alan M. Taylor
    Abstract: We have entered a world of conjoined monetary and macroprudential policies. But can they function smoothly in tandem, and with what effects? Since this policy cocktail has not been seen for decades, the empirical evidence is almost non-existent. We can only fix this shortcoming in a historical laboratory. The Radcliffe Report (1959), notoriously skeptical about the efficacy of monetary policy, embodied views which led the UK to a three-decade experiment of using credit controls alongside conventional changes in the central bank interest rate. These non-price tools are similar to policies now being considered or used by macroprudential policymakers. We describe these tools, document how they were used by the authorities, and craft a new, largely hand-collected dataset to help estimate their effects. We develop a novel identification strategy, which we term Factor-Augmented Local Projection (FALP), to investigate the subtly different impacts of both monetary and macroprudential policies. Monetary policy acted on output and inflation broadly in line with consensus views today, but credit controls had markedly different effects and acted primarily to modulate bank lending
    Keywords: Historical National Accounts; Gross Domestic Income; Double deflation; Real Exchange Rate; Terms of Trade; Switzerland
    JEL: N0 F3 G3 E6
    Date: 2016–06
  29. By: Jaroslav Borovička; Lars Peter Hansen
    Abstract: Dynamic economic models make predictions about impulse responses that characterize how macroeconomic processes respond to alternative shocks over different horizons. From the perspective of asset pricing, impulse responses quantify the exposure of macroeconomic processes and other cash flows to macroeconomic shocks. Financial markets provide compensations to investors who are exposed to these shocks. Adopting an asset pricing vantage point, we describe and apply methods for computing exposures to macroeconomic shocks and the implied compensations represented as elasticities over alternative payoff horizons. The outcome is a term structure of macroeconomic uncertainty.
    JEL: C10 C32 C58 E44 G12 G32
    Date: 2016–06
  30. By: Huidrom, Raju; Kose, Ayhan; Lim, Jamus; Ohnsorge, Franziska
    Abstract: This paper analyzes the relationship between fiscal multipliers and fiscal positions of governments using an Interactive Panel Vector Auto Regression model and a large dataset of advanced and developing economies. Our methodology permits us to trace the endogenous relationship between fiscal multipliers and fiscal positions while maintaining enough degrees of freedom to draw sharp inferences. We report three major results. First, the fiscal multipliers depend on fiscal positions: the multipliers tend to be larger when fiscal positions are strong (i.e. when government debt and deficits are low) than weak. For instance, the long run multiplier can be as large as unity when fiscal position is strong, while it can be negative when the fiscal position is weak. Second, these effects are separate and distinct from the impact of the business cycle on the fiscal multiplier. Third, the state-dependent effects of the fiscal position on multipliers is attributable to two factors: an interest rate channel through which higher borrowing costs, due to investors' increased perception of credit risks when stimulus is implemented from a weak initial fiscal position, crowd out private investment; and, a Ricardian channel through which households reduce consumption in anticipation of future fiscal adjustments.
    Keywords: Fiscal multipliers; Fiscal position; State-dependency; Ricardian channel; Interest rate channel; Business cycle
    JEL: E62 H50 H60
    Date: 2016–06
  31. By: Raju Huidrom (World Bank, Development Prospects Group); M. Ayhan Kose (World Bank, Development Prospects Group; Brookings Institution; CAMA; CEPR); Jamus J. Lim (World Bank, Development Prospects Group); Franziska L. Ohnsorge (World Bank, Development Prospects Group)
    Abstract: This paper analyzes the relationship between fiscal multipliers and fiscal positions of governments using an Interactive Panel Vector Auto Regression model and a large dataset of advanced and developing economies. Our methodology permits us to trace the endogenous relationship between fiscal multipliers and fiscal positions while maintaining enough degrees of freedom to draw sharp inferences. We report three major results. First, the fiscal multipliers depend on fiscal positions: the multipliers tend to be larger when fiscal positions are strong (i.e. when government debt and deficits are low) than weak. For instance, the long run multiplier can be as large as unity when fiscal position is strong, while it can be negative when the fiscal position is weak. Second, these effects are separate and distinct from the impact of the business cycle on the fiscal multiplier. Third, the state-dependent effects of the fiscal position on multipliers is attributable to two factors: an interest rate channel through which higher borrowing costs, due to investors’ increased perception of credit risks when stimulus is implemented from a weak initial fiscal position, crowd out private investment; and, a Ricardian channel through which households reduce consumption in anticipation of future fiscal adjustments.
    Keywords: Fiscal multipliers, fiscal position, state-dependency, Ricardian channel, interest rate channel, business cycle
    JEL: E62 H50 H60
    Date: 2016–06
  32. By: Julien Champagne; Guillaume Poulin-Bellisle; Rodrigo Sekkel
    Abstract: We study the revision properties of the Bank of Canada’s staff output gap estimates since the mid-1980s. Our results suggest that the average staff output gap revision has decreased significantly over the past 15 years, in line with recent evidence for the U.S. Alternatively, revisions from purely statistical methods to estimate the gap have not experienced the same drop in magnitude. We then examine the usefulness of real-time gap estimates for forecasting inflation and find no deterioration in forecast performance when inflation projections are conditioned on real time rather than on final estimates of the gap.
    Keywords: Central bank research, Econometric and statistical methods, Potential output
    JEL: C38 E17 E32
    Date: 2016
  33. By: Sergey Ivashchenko (Saint Petersburg Institute for Economics and Mathematics (Russian Academy of Sciences)); Rangan Gupta (University of Pretoria, Pretoria, South Africa)
    Abstract: New simple forms of deviation from rational expectations (RE) are suggested: temporary near-rational expectations (TNRE) and persistent near-rational expectations (PNRE). The medium-scale DSGE model was estimated with the RE, the TNRE and the PNRE. It was estimated with and without observations from the survey's expectations. The quality of the out-of-sample forecasts was estimated. It is shown that near-rational concepts produce the same advantages as learning, without its disadvantages (including the absence of ‘learning expectations’ reactions on policy change). The influence of the observed expectations on forecasting quality was analysed.
    Keywords: DSGE, out-of-sample forecasts, survey expectations, near-rational expectations
    JEL: E32 E37 E47
    Date: 2016–07
  34. By: Campbell, Jeffrey R. (Federal Reserve Bank of Chicago); Fisher, Jonas D. M. (Federal Reserve Bank of Chicago); Justiniano, Alejandro (Federal Reserve Bank of Chicago); Melosi, Leonardo (Federal Reserve Bank of Chicago)
    Abstract: This paper studies the effects of FOMC forward guidance. We begin by using high frequency identification and direct measures of FOMC private information to show that puzzling responses of private sector forecasts to movements in federal funds futures rates on FOMC announcement days can be attributed entirely to Delphic forward guidance. However a large fraction of futures rates' variability on announcement days remains unexplained, leaving open the possibility that the FOMC has successfully communicated Odyssean guidance. We then examine whether the FOMC used Odyssean guidance to improve macroeconomic outcomes since the financial crisis. To this end we use an estimated medium-scale New Keynesian model to perform a counterfactual experiment for the period 2009q1−2014q4, in which we assume the FOMC did not employ any Odyssean guidance and instead followed its reaction function from before the crisis as closely as possible while respecting the effective lower bound. We find that a purely rule-based policy would have delivered better outcomes in the years immediately following the crisis than FOMC forward guidance did in practice. However starting toward the end of 2011, after the Fed's introduction of “calendar-based” communications, the FOMC's Odyssean guidance appears to have boosted real activity and moved inflation closer to target. We show that our results do not reflect Del Negro, Giannoni, and Patterson (2015)’s forward guidance puzzle.
    Keywords: Monetary policy; Business cycles; Great Recession; Counterfactual policy analysis
    JEL: E00 E50 E52
    Date: 2016–06–13
  35. By: Cui, Wei; Radde, Sören
    Abstract: We endogenize asset liquidity in a dynamic general equilibrium model with search frictions on asset markets. In the model, asset liquidity is tantamount to the ease of issuance and resaleability of private financial claims, which is driven by investors' participation on the search market. Limited market liquidity of private claims creates a role for liquid assets, such as government bonds or at money, to ease financing constraints. We show that endogenising liquidity is essential to generate positive comovement between asset (re)saleability and asset prices. When the capacity of the asset market to channel funds to entrepreneurs deteriorates, investment falls while the hedging value of liquid assets increases, driving up liquidity premia. Our model, thus, demonstrates that shocks to the cost of financial intermediation can be an important source of flight-to-liquidity dynamics and macroeconomic fluctuations, matching key business cycle characteristics of the U.S. economy. JEL Classification: E22, E44, G11
    Keywords: asset search markets, endogenous asset liquidity, financial shocks, financing constraints, liquidity premium
    Date: 2016–06
  36. By: Michel Dumont; Chantal Kegels
    Abstract: Recent studies reveal the importance of entrants and young firms for job creation, productivity and economic growth. Some scholars argue that the falling rate at which new firms are established, can explain, to a certain extent, the productivity slowdown witnessed in most OECD countries. Belgium appears to stand out unfavourably from other countries in its very low start-up rate. This paper reviews the empirical cross-country evidence, provides some additional analysis of the role of young firms in industry-level employment and productivity dynamics in Belgium and concludes with a discussion of the implications for economic policy.
    JEL: D22 D24 E23 E24 H32 L25 L26 L53
    Date: 2016–06–24
  37. By: Aikman, David; Bush, Oliver; Taylor, Alan M.
    Abstract: We have entered a world of conjoined monetary and macroprudential policies. But can they function smoothly in tandem, and with what effects? Since this policy cocktail has not been seen for decades, the empirical evidence is almost non-existent. We can only fix this shortcoming in a historical laboratory. The Radcliffe Report (1959), notoriously skeptical about the efficacy of monetary policy, embodied views which led the UK to a three-decade experiment of using credit controls alongside conventional changes in the central bank interest rate. These non-price tools are similar to policies now being considered or used by macroprudential policymakers. We describe these tools, document how they were used by the authorities, and craft a new, largely hand-collected dataset to help estimate their effects. We develop a novel identification strategy, which we term Factor-Augmented Local Projection (FALP), to investigate the subtly different impacts of both monetary and macroprudential policies. Monetary policy acted on output and inflation broadly in line with consensus views today, but credit controls had markedly different effects and acted primarily to modulate bank lending.
    Keywords: credit controls; macroprudential policy; Monetary policy
    JEL: E50 G18 N14
    Date: 2016–06
  38. By: David Aikman; Oliver Bush; Alan M. Taylor
    Abstract: We have entered a world of conjoined monetary and macroprudential policies. But can they function smoothly in tandem, and with what effects? Since this policy cocktail has not been seen for decades, the empirical evidence is almost non-existent. We can only fix this shortcoming in a historical laboratory. The Radcliffe Report (1959), notoriously skeptical about the efficacy of monetary policy, embodied views which led the UK to a three-decade experiment of using credit controls alongside conventional changes in the central bank interest rate. These non-price tools are similar to policies now being considered or used by macroprudential policymakers. We describe these tools, document how they were used by the authorities, and craft a new, largely hand-collected dataset to help estimate their effects. We develop a novel identification strategy, which we term Factor-Augmented Local Projection (FALP), to investigate the subtly different impacts of both monetary and macroprudential policies. Monetary policy acted on output and inflation broadly in line with consensus views today, but credit controls had markedly different effects and acted primarily to modulate bank lending.
    JEL: E50 G18 N14
    Date: 2016–06
  39. By: Garayeva, Aygun; Tahirova, Gulzar
    Abstract: The cyclical behaviors of government spending and output are investigated for the time period 1996-2013, in the sample of 45 countries divided between 3 groups of countries – Western European, Eastern European and CIS countries – with each one of these groups representing a different development stage. Panel data fixed effects model was used for estimation purposes. In developed countries the main determinant of government spending effectiveness is found to be institutional quality, but access to financial markets is more pronounced in developing countries.
    Keywords: fiscal policy, procyclicality, institutional quality, panel data, fixed effects
    JEL: D73 E02 E32 E62
    Date: 2016–06
  40. By: Daniela Bragoli (Universita Cattolica); Jack Fosten (University of East Anglia)
    Abstract: We propose a nowcasting model for the Indian real GDP growth rate which uses the flow of relevant information to update predictions on a daily basis and can serve as a timely barometer to track the Indian development process. There are several challenges faced when nowcasting GDP in developing economies such as India. The first challenge is to proxy im- portant missing variables such as international trade in the service sector. Our novel solution augments a baseline model with series on US and Euro-area output which improves predictions, particularly during the 2008-2009 global crisis. The second challenge is the impact of sizeable revisions to the GDP data. We construct a new series for real-time Indian GDP using press releases from the Central Statistics Office (CSO), finding that data revisions have a non-trivial influence on our results. Therefore, caution should be taken when evaluating predictions using the preliminary GDP release.
    Keywords: nowcasting, emerging markets, data revisions, dynamic factor model, economic growth
    JEL: C38 C53 E37 O11 O47
    Date: 2016–06–06
  41. By: Holston, Kathryn (Board of Governors of the Federal Reserve System); Laubach, Thomas (Board of Governors of the Federal Reserve System); Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: U.S. estimates of the natural rate of interest—the real short-term interest rate that would prevail absent transitory disturbances—have declined dramatically since the start of the global financial crisis. For example, estimates using the Laubach-Williams (2003) model indicate the natural rate in the United States fell to close to zero during the crisis and has remained there through the end of 2015. Explanations for this decline include shifts in demographics, a slowdown in trend productivity growth, and global factors affecting real interest rates. This paper applies the Laubach-Williams methodology to the United States and three other advanced economies—Canada, the Euro Area, and the United Kingdom. We find that large declines in trend GDP growth and natural rates of interest have occurred over the past 25 years in all four economies. These country-by-country estimates are found to display a substantial amount of comovement over time, suggesting an important role for global factors in shaping trend growth and natural rates of interest.
    JEL: C24 E43 E52 O40
    Date: 2016–06–20
  42. By: Kitsul, Yuriy; Ochoa, Marcelo
    Abstract: This paper shows that funding liquidity risk is priced in the cross-section of excess returns on agency mortgage-backed securities (MBS). We derive a measure of funding liquidity risk from dollar-roll implied financing rates (IFRs), which reflect security-level costs of financing positions in the MBS market. We show that factors representing higher net MBS supply are generally associated with higher IFRs, or higher funding costs. In addition, we find that exposure to systematic funding liquidity shocks embedded in the IFRs is compensated in the cross-section of expected excess returns| agency MBS that are better hedges to funding liquidity shocks on average deliver lower excess returns-and that these premiums are separate from the premiums associated with prepayment risks.
    Keywords: Agency mortgage-backed securities ; Dollar rolls ; Implied financing rates ; Liquidity ; Expected returns ; Large Scale Asset Purchase programs
    JEL: G1 G12 G19 E43 E58
    Date: 2016–06–07
  43. By: Noritaka Kudoh (Nagoya University); Hiroaki Miyamoto (University of Tokyo); Masaru Sasaki (Osaka University)
    Abstract: This paper studies a labor market search-matching model with multi-worker firms to investigate how firms utilize employment and hours of work over the business cycle. The earnings function derived from intra-firm bargaining determines the costs of utilizing the two margins of labor adjustment. We calibrate the model for the Japanese labor market, in which fluctuations in hours of work account for 79 percent of the variations in total labor input. The model replicates much of the fluctuations in total labor input, employment, and hours per employee without wage rigidity even though the source of fluctuations is total factor productivity (TFP) alone. If hours of work are determined by bargaining, then the intensive margin makes the unemployment volatility puzzle much harder to resolve.
    Keywords: search, hours of work, employment, business cycles, multi-worker firms
    JEL: E32 J20 J64
    Date: 2016–06
  44. By: Barbara Annicchiarico (DEF and CEIS, Università di Roma "Tor Vergata"); Alessandra Pelloni (DEF and CEIS, Università di Roma "Tor Vergata"); Fabrizio Valenti (DEF, Università di Roma "Tor Vergata")
    Abstract: This paper studies the relationship between volatility and long-run growth in a complete market economy with human capital accumulation and Epstein-Zin preferences. There is both crosscountry and time-series evidence that volatility is associated with lower growth. Matching this evidence has proved a challenge for growth models with no market failures as they tend to predict the opposite for values of risk aversion higher than unity. However in our model, risk aversion and intertemporal elasticity of substitution are allowed to move independently of each other, and when both are relatively high or relatively low, the relationship between volatility and growth is negative. Indeed this is the case for parametrizations of preferences in line with the literature.
    Keywords: Growth and Uncertainty; Epstein-Zin Preferences; Intertemporal Elasticity of Substitution; Risk Aversion
    JEL: D92 E22 E32 O49
    Date: 2016–06–24
  45. By: Brown, Alessio (UNU‐MERIT, Maastricht University); Kohlbrecher, Britta (Friedrich-Alexander-Universität Erlangen-Nürnberg); Merkl, Christian (Friedrich-Alexander-Universität Erlangen-Nürnberg, and IZA); Snower, Dennis J. (Kiel Institute for the World Economy, IZA, CEPR, and Christian -Albrechts-Universität Kiel)
    Abstract: In the standard macroeconomic search and matching model of the labour market, there is a tight link between the effects of (i) productivity on unemployment and (ii) unemployment benefits on unemployment. This tight link is at odds with the empirical literature. We present a two-sided model of labour market search where the household and firm decisions are decomposed into job offers, job acceptances, firing, and quits. In such a model, unemploy-ment benefits affect households’ behaviour directly, without having to run via the bargained wage. In line with the evidence, productivity shocks may have quantitatively large effects on unemployment, while benefits only have moderate effects. Our analysis shows the importance of investigating the effects of policies on the households’ work incentives and the firms’ employment incentives within the search process.
    Keywords: Unemployment benefits, search and matching, aggregate shocks, macro model, labour market
    JEL: E24 E32 J63 J64
    Date: 2016–05–24
  46. By: Huidrom, Raju; Kose, Ayhan; Ohnsorge, Franziska
    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: developing economies; expenditure frameworks; fiscal rules; Fiscal space; growth slowdown; stabilization funds
    JEL: E62 H50 H60
    Date: 2016–06
  47. By: Lopez, Claude; Markwardt, Donald; Savard, Keith
    Abstract: In the aftermath of the financial crisis, new legislation and regulation have pressured banks (and insurances) to reduce their size, leverage, and riskier lines of business in order to avoid another too-big-to-fail debacle. Nonbank financial intermediaries have naturally taken up some of that slack and, not surprisingly, regulatory scrutiny has turned toward these intermediaries to evaluate whether they could pose similar risks to financial stability that banks did pre-crisis. Owing to their stunning growth in the past decade, focus among nonbank intermediaries is now centering on asset managers, which include firms offering mutual funds, exchange-traded funds, hedge funds and private equity funds. This report explores whether there is a demonstrable link between the asset management industry and systemic risk. Key points: Systemic risk is distinct from run-of-the-mill financial or operational risk, an important difference when determining whether the sector poses a risk to the broader financial system with the potential for negative spillovers into the real economy. Because asset managers do not take on nearly the same level of leverage and do not guarantee balances on customer accounts as banks do with deposits, it is unlikely that the industry is the epicenter of (or creating) systemic risk in the financial system. Theoretically, however, they hold the potential transmit or amplify systemic risk in the system based on unique risk factors such as herding and liquidity mismatches. One major regulatory concern is the mismatch between asset management firms offering investors highly liquid investment terms for funds investing in highly illiquid assets, which could create fire sale scenarios that negatively impact financial markets. A close look at the role of high-yield debt markets suggests that major disruptions to the sector’s funding environment could have a significant impact on the real economy. However, even during periods of acute investor outflows, high-yield mutual funds have managed liquidity risk effectively to-date, and high-yield ETFs have actually been a supplemental liquidity source for institutional investors. In a post-crisis world, regulators have as much power (if not more) than financial firms’ shareholders. Considerations must include: i. The dynamic relationship between financial regulation and financial activity ii. The necessity of proper fiscal and monetary policies to complement prudential oversight iii. The reality that financial markets are connected globally .
    Keywords: systemic risk, asset managers, macroprudential policy, financial stability
    JEL: E6 F4 G1 G2
    Date: 2016–06
  48. By: Goodness C. Aye (Department of Economics, University of Pretoria); Mehmet Balcilar (Department of Economics, Eastern Mediterranean University and Department of Economics, University of Pretoria); Rangan Gupta (Department of Economics, University of Pretoria)
    Abstract: This paper examines the transmission mechanism of shocks to monetary policy in South Africa using quarterly data from 1980:1 to 2012:4. We also in addition identify demand and supply shocks. Our analyses are based on a factor-augmented vector autoregression with time-varying coefficients and stochastic volatility (TVP-FAVAR), which allows us to simultaneously analyse the changing impulse responses of a set of 177 macroeconomic variables. Our results based on the impulse response functions, are consistent with economic theory as we observe no price puzzle that is often associated with the standard VAR models. We find evidence of modest time variation in the transmission of shocks. Overall, the macroeconomic variables seemed to have responded slightly more to the monetary policy shocks in the post -2000 (inflation targeting) sub-period than the pre-2000 period, albeit the differences in the effects are statistically insignificant. Demand shocks are found to have contributed more to changes in macroeconomic variables in South Africa than monetary policy and supply shocks. Our results suggest the need for a more efficient role of the monetary authority as this will both improve its credibility and greater economic stability.
    Date: 2016
  49. By: Vdovychenko Artem
    Abstract: This article analyzes fiscal policy reaction function with switching regimes for Ukraine. We demonstrate that the fiscal policy reaction function in Ukraine has a nonlinear nature. The analysis revealed that the fiscal policy of Ukraine has been in a passive regime for a long time and a switch to this mode took place in late 2006 with the beginning of rapid economic growth. By means of the LSTR models, it is shown that at high levels of debt and the GDP gap the fiscal policy switches to an active regime. However, such switching is rare and short, and therefore does not have an impact on the overall picture. We also found an asymmetry in the response of fiscal policy on the GDP gap depending on the phase of the economic cycle. In our opinion, this asymmetry is the main obstacle to switching the fiscal policy in active regime.
    JEL: E62 H62 H63
    Date: 2016–06–21
  50. By: Straub, Ludwig; Ulbricht, Robert
    Abstract: Many important statistics in macroeconomics and finance -- such as cross-sectional dispersions, risk, volatility, or uncertainty -- are second moments. In this paper, we explore a mechanism by which second moments naturally and endogenously fluctuate over time as nonlinear transformations of fundamentals. Specifically, we provide general results that characterize second moments of transformed random variables when the underlying fundamentals are subject to distributional shifts that affect their means, but not their variances. We illustrate the usefulness of our results with a series of applications to (1) the cyclicality of the cross-sectional dispersions of macroeconomic variables, (2) the dispersion of MRPKs, (3) security pricing, and (4) endogenous uncertainty in Bayesian inference problems.
    Keywords: Cross-sectional dispersion, endogenous uncertainty, monotone likelihood ratio property, nonlinear transformations, risk, second moments, volatility.
    JEL: C19 D83 E32 G13
    Date: 2016–06
  51. By: Libo Xu (University of Calgary); Apostolos Serletis (University of Calgary)
    Abstract: In the context of a rational expectations macroeconomic model with communication fric- tions, we show that the level of economic activity is a nonlinear and time-varying function of aggregate economic fundamentals and sentiment shocks. In particular, because of communication frictions, it is possible for small sentiment shocks to cause large changes in aggregate output, and, similarly, for large changes in sentiment shocks to cause small changes in aggregate output. We also find that communication frictions have nonlinear effects on the variance of aggregate output, meaning that improving the communication does not always reduce the variance of aggregate output.
    Date: 2016–06–20
  52. By: Jaelani, Aan
    Abstract: This book describes a comparative zakat management, especially going to explain about the government's fiscal policy part of Indonesia and Brunei Darussalam on development programs and poverty reduction with charity instruments in both countries. For the sake of economy, zakat distributed for the mustahik poverty alleviation. Even the results of this research will test the theory of "income distribution" in the form of direct cash assistance in the form of money, materials, or other objects that are consumptive, and compared with the economic aid in the form of zakat that is productive. In addition, this book has an important meaning to analyse the effectiveness of the management of zakat by the government through regulation and the establishment of zakat management institutions.
    Keywords: zakah management, mustahik, poverty alleviation, income distribution,
    JEL: A13 D31 D63 D64 E62 H0 H27 H30 N3 P43 Z12
    Date: 2015–08–17
  53. By: Nyorekwa, Enock Twinoburyo; Odhiambo, Nicholas Manya
    Abstract: Using the autoregressive distributed lag (ARDL) bounds testing approach; this paper examines the short-run and long-run impact of monetary policy on economic growth in Kenya for the period 1973 to 2013. The paper uses both the broad money supply and the 3-month Treasury bill rate as proxies of monetary policy. Both short-run and long-run empirical results support monetary policy neutrality, implying that monetary policy has no effect on economic growth ??? both in the short run and in the long run. This could be due to the fact that the increasing fiscal deficits funded domestically in Kenya could have weakened the transmission of monetary policy actions into the real economy. The study recommends that policies aimed at improving the institutional and regulatory environment for the financial sector and monetary policy conduct should be pursued in Kenya. There is also a need for improvement in policy coordination, particularly monetary and fiscal policies.
    Keywords: Kenya,Money supply,intrerest rates and economic growth
    Date: 2016–06
  54. By: Lilia Cavallari (Università degli studi Roma Tre); Simone Romano (Università degli studi Roma Tre)
    Abstract: This paper provides evidence in support of the hypothesis that fiscal policy is largely anticipated and its effects depend on expectations. Based on a 2-country Bayesian VAR model between major European economies, we find that an unanticipated fiscal stimulus leads to expectations of strong deficit reversals. This in turn depresses domestic and foreign activity. Foresight shocks, on the contrary, have positive effects on domestic activity. Differences in the responses to surprise and foresight shocks reflect the role of expectations. The evidence in our study is consistent with a regime where deficit reversals are mainly based on taxation alone.
    Keywords: fiscal policy, VAR model, fiscal spillovers, fiscal multiplier.
    JEL: E62 F45 H62
    Date: 2016
  55. By: Philippe De Donder (Toulouse School of Economics); John E. Roemer (Dept. of Political Science & Cowles Foundation, Yale University)
    Abstract: We develop a dynamic model where a competitive ?rm produces a single good from labor and capital, with market clearing rates of return. Individuals are heterogeneous in skills, with an endowment in capital/wealth increasing in skill. Individuals aspire to a standard consumption level, with a constant marginal propensity to consume out of income above this level. We de?ne a steady state of this model as an equilibrium where factor returns and wealth shares remain constant. We calibrate the model to the US economy and obtain that a steady state exists. We then study three variants of the model: one with a higher rate of return for large capitals than for smaller ones, one with social mobility, and one with a capital levy ?nancing a lump sum transfer. In all variants, a steady state exists. We also run the model starting from the 2012 US wealth distribution and obtain convergence to the steady state in the basic model as well as in all variants. Convergence takes a long time and is non monotone, with factor returns and wealth shares moving away from their steady state values for long periods.
    Keywords: Piketty, dynamics of wealth accumulation, convergence to steady state, spirit of capitalism, differential rates of return to capital, intergenerational mobility, capital levy, US calibration
    JEL: D31 D58 E37
    Date: 2016–06
  56. By: Leduc, Sylvain (Bank of Canada); Liu, Zheng (Federal Reserve Bank of San Francisco)
    Abstract: Despite steady declines in the unemployment rate and increases in the job openings rate after the Great Recession, the hiring rate in the United States has lagged behind. Significant gaps remain between the actual job filling and finding rates and those predicted from the standard labor search model. To examine the forces behind the slow job recovery, we generalize the standard model to incorporate endogenous variations in search intensity and recruiting intensity. Our model features a vacancy creation cost, which implies that firms rely on variations in both the number of vacancies and recruiting intensity to respond to aggregate shocks, in contrast to the textbook model with costless vacancy creation and thus constant recruiting intensity. Cyclical variations in search and recruiting intensity drive a wedge into the matching function even absent exogenous changes in match efficiency. Our estimated model suggests that fluctuations in search and recruiting intensity help substantially bridge the gap between the actual and model-predicted job filling and finding rates in the aftermath of the Great Recession.
    JEL: E32 J63 J64
    Date: 2016–05–13
  57. By: Bhaumik, Sumon K. (University of Sheffield); Kutan, Ali M. (Southern Illinois University Edwardsville); Majumdar, Sudipa (Middlesex University, Dubai)
    Abstract: Many emerging markets have undertaken significant financial sector reforms especially in their banking sectors that have been quite critical for both financial development and real economic activity. In this paper, we investigate the success of banking reforms in India where significant banking reforms have been introduced since 1990s. Using the argument that well-functioning credit markets would reflect a bank channel for monetary policy at work, we test whether a change in monetary policy has predictable impact on borrowing behaviour of several types of firms, including business group affiliated, unaffiliated private firms, state-owned firms and foreign firms. The empirical results suggest that unaffiliated private firms have the most vulnerable to monetary policy stance during tight policy regimes. We also find that during tight monetary policy regimes, smaller firms are much more affected by monetary policy than large firms. In an easy money regime, monetary policy and the associated change in interest rate does not affect change in bank credit, change in total debt and the proportion of bank credit in total debt for any of the firms. We discuss the policy implications of the findings.
    Keywords: banking reforms, monetary policy, credit markets, bank debt, debt structure
    JEL: E52 G21 G28 G32 O16
    Date: 2016–06
  58. By: Hansjorg Herr (Berlin School of Economics and Law)
    Abstract: The finance dominated type of capitalism that has developed from the late 1970s and early 1980s on finds its nucleus in the deregulation of the national and international financial system and the switch to a shareholder oriented corporate governance system. Other aspects such as labour market deregulations (including policies to weaken trade unions), the aim of completely free trade around the globe, increasing freedom and power of multinational companies, and privatisation of formerly state functions also belong to the new regime. This finance dominated economic regime seems to be exhausted. The reforms implemented after the subprime crisis and the Great Recession are not sufficient to overcome the deeply rooted problems of the existing system. Reforms to the financial system did not substantially affect the functioning of the shadow banking system and the basic structures of the financial system were not changed. Both, the international financial system as well as the shareholder oriented corporate governance system were largely spared from reforms. Further labour market deregulations are still on the agenda of governments and international institutions. Policies to change income and wealth distribution are not on the political agenda. What is needed is a comprehensive reform agenda which searches for a new relationship between institutions, government policies, and markets.
    Keywords: financialisation, financial market regulation, demand management, income distribution
    JEL: E12 E44 F33 G28 P10
    Date: 2016–02–20
  59. By: Guma, Nomvuyo; Bonga-Bonga, Lumengo
    Abstract: While the literature, both international and in South Africa, is relatively rich in studies on the determinants of foreign direct investment as well as the determinants of savings, none of the work done on South Africa has made use of disaggregated savings data to understand whether there is an observable difference in the marginal propensity to save of the different economic sectors. Thus, this paper attempts to assess the marginal propensity to save by the household, corporate and government sectors in South Africa. The results of the econometric analysis demonstrate that the greatest responsiveness of savings to GDP growth occurs amongst corporates. These findings should inform the South African government on how to regulate sectoral taxation that intends to encourage savings, given the low level of savings in the country.
    Keywords: savings, corporates, households, government, cointegration
    JEL: C10 C13 E21 O40
    Date: 2016–06–15
  60. By: Croushore, Dean (Federal Reserve Bank of Philadelphia); Marsten, Katherine (Board of Governors of the Federal Reserve System)
    Abstract: In this paper, we examine and extend the results of Ball and Croushore (2003) and Rudebusch and Williams (2009), who show that the output forecasts in the Survey of Professional Forecasters (SPF) are inefficient. Ball and Croushore show that the SPF out-put forecasts are inefficient with respect to changes in monetary policy, as measured by changes in real interest rates, while Rudebusch and Williams show that the forecasts are inefficient with respect to the yield spread. In this paper, we investigate the robustness of both claims of inefficiency, using real-time data and exploring the impact of alternative sample periods on the results.
    Keywords: Real-Time Data; Output Forecasts; Yield Spread; Monetary Policy; Survey of Professional Forecasters (SPF);
    Date: 2016–06–22
  61. By: Almås, Ingvild (Stockholm University and NHH); Freddi, Eleonora (Stockholm School of Economics); Thøgersen, Øystein (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: Particularly high saving rates among the elderly in both rural and urban China call for an investigation of the involved bequest motive. Utilizing unique survey data from a diverse group of Chinese households, we document that the magnitude of the bequest from parent to child is synchronized with the level of personal assistance from child to parent. Moreover, both bequest and assistance are increasing in the parent's income and decreasing in the child's income. Comparing with the prediction from a stylized overlapping generations model, these ndings are consistent with an exchange-based bequest motive. This conclusion has implications for how public policies and transfer schemes may be designed in order to contribute to the government objective of increased private consumption. Our results indicate that an important driver for our result is the housing wealth as part of the bequest.
    Keywords: equest; intergenerational exchange; housing wealth; Chinese saving.
    JEL: D14 D64 E21
    Date: 2016–06–27
  62. By: Apostolos Fasianos; Diego Guevara; Christos Pierros
    Abstract: This paper explores from a historical perspective the process of financialization over the course of the 20th century. We identify four phases of financialization: the first, from the 1900s to 1933 (early financialization); the second, from 1933 to 1940 (transitory phase); the third, between 1945 and 1973 (definancialization); and the fourth period begins in the early 1970s and leads to the Great Recession (complex financialization). Our findings indicate that the main features of the current phase of financialization were already in place in the first period. We closely examine institutions within these distinct financial regimes and focus on the relative size of the financial sector, the respective regulation regime of each period, and the intensity of the shareholder value orientation, as well as the level of financial innovations implemented. Although financialization is a recent term, the process is far from novel. We conclude that its effects can be studied better with reference to economic history.
    Keywords: Financialization; Monetary Regimes; Speculation
    JEL: E42
    Date: 2016–06
  63. By: Chris McDonald; Craig Thamotheram; Shaun P. Vahey; Elizabeth C. Wakerly (Reserve Bank of New Zealand)
    Abstract: We consider the fundamental issue of what makes a 'good' probability forecast for a central bank operating within an inflation targeting framework. We provide two examples in which the candidate forecasts comfortably outperform those from benchmark specifications by conventional statistical metrics such as root mean squared prediction errors and average logarithmic scores. Our assessment of economic significance uses an explicit loss function that relates economic value to a forecast communication problem for an inflation targeting central bank. We analyse the Bank of England's forecasts for inflation during the period in which the central bank operated within a strict inflation targeting framework in our first example. In our second example, we consider forecasts for inflation in New Zealand generated from vector autoregressions, when the central bank operated within a flexible inflation targeting framework. In both cases, the economic significance of the performance differential exhibits sensitivity to the parameters of the loss function and, for some values, the differentials are economically negligible.
    Date: 2016–06
  64. By: Olena Havrylchyk
    Abstract: We investigate the potential impact of various proposed reforms intended to improve the quality of expert testimony while reducing its cost, and to facilitate the work of judges in appointing experts and reading their reports. To do so, we present a unilateral care model under strict liability in which the court cannot perfectly observe the amount of harm a tortfeasor has caused to a victim. However, the judge may appoint an expert to improve his chance of reaching a correct decision. In this context, we find that the likelihood of a victim filing a lawsuit decreases with the quality of the expert testimony and with the cost of the expertise procedure, and increases with the non-monetary cost for the judge to appoint an expert. Moreover, we find that the effects of these parameters on the injurer's level of precaution are ambiguous. We also find that the injurer's level of care is suboptimal. Finally, we make some public policy recommendations in order to (i) increase the injurer's level of care and (ii) reduce the expected cost of a trial in the event of an accident. We find that the policy maker faces a trade-off between these two objectives.
    Keywords: SME lending, banks, unconventional monetary policy, monetary transmission.
    JEL: G21 G28 E51
    Date: 2016
  65. By: De Grauwe, Paul; Ji, Yuemei
    Abstract: The optimal currency areas (OCA) theory has been influential in pushing eurozone countries towards structural reforms to make product and labour markets more flexible. The underlying assumption of the OCA prescription for structural reform is that asymmetric shocks are permanent. However, when shocks are temporary it does not follow that more flexibility is the answer. When shocks are the result of business cycle movements, the way to deal with them is by stabilisation efforts. We provide empirical evidence that suggests that the biggest shocks in the eurozone were the result of business cycle movements. These were relatively well synchronised, except for their amplitude. We argue that efforts to stabilise the business cycles should be strengthened relative to the efforts that have been made to impose structural reforms, and consider the implications for the governance of the eurozone.
    Keywords: Business Cycles; optimal currency areas; Structural reforms
    Date: 2016–07
  66. By: Cerutti, Eugenio; Correa, Ricardo; Fiorentino, Elisabetta; Segalla, Esther
    Abstract: This paper documents the features of a new database that focuses on changes in the intensity in the usage of several widely used prudential tools, taking into account both macro-prudential and microprudential objectives. The database coverage is broad, spanning 64 countries, and with quarterly data for the period 2000Q1 through 2014Q4. The five types of prudential instruments in the database are: capital buffers, interbank exposure limits, concentration limits, loan to value (LTV) ratio limits, and reserve requirements. A total of nine prudential tools are constructed since some useful further decompositions are presented, with capital buffers divided into four sub-indices: general capital requirements, real state credit specific capital buffers, consumer credit specific capital buffers, and other specific capital buffers; and with reserve requirements divided into two sub-indices: domestic currency capital requirements and foreign currency capital requirements. While general capital requirements have the most changes from the cross-country perspective, LTV ratio limits and reserve requirements have the largest number of tightening and loosening episodes. We also analyze the instruments’ usage in relation to the evolution of key variables such as credit, policy rates, and house prices, finding substantial differences in the patterns of loosening or tightening of instruments in relation to business and financial cycles.
    Keywords: Macroprudential policies ; Microprudential policies ; Financial cycles
    JEL: E43 E58 G18 G28
    Date: 2016–06
  67. By: Brave, Scott (Federal Reserve Bank of Chicago); Butters, R. Andrew (Indiana University); Justiniano, Alejandro (Federal Reserve Bank of Chicago)
    Abstract: Mixed frequency Bayesian vector autoregressions (MF-BVARs) allow forecasters to incorporate a large number of mixed frequency indicators into forecasts of economic activity. This paper evaluates the forecast performance of MF-BVARs relative to surveys of professional forecasters and investigates the influence of certain specification choices on this performance. We leverage a novel real-time dataset to conduct an out-of-sample forecasting exercise for U.S. real gross domestic product (GDP). MF-BVARs are shown to provide an attractive alternative to surveys of professional forecasters for forecasting GDP growth. However, certain specification choices such as model size and prior selection can affect their relative performance.
    Keywords: Mixed frequency; Bayesian VAR; Real-time data; Nowcasting
    JEL: C32 C53 E37
    Date: 2016–05–20
  68. By: Han Han (School of Economics Peking University); Benoit Julien (UNSW Australia); Asgerdur Petursdottir (University of Bath); Liang Wang (University of Hawaii Manoa)
    Abstract: We study the trade of indivisible goods using credit, divisible money and divisible assets in a frictional market. We show how indivisibility matters for equilibria. Bargaining generates a price that is not linked to nominal interest rates, dividend value of the asset, or the number of active buyers. To reestablish this connection, we consider price posting with competitive search. We provide conditions under which stationary equilibrium exists. With bargaining, we find that for negative dividend value on the asset, multiple equilibria occur. Otherwise, in all possible combinations of liquidity and price mechanisms the equilibrium is unique or generically unique.
    Keywords: Nash Bargaining; Competitive Search; Indivisibility; Multiplicity; Uniqueness
    JEL: D51 E40
  69. By: Nurmakhanova Mira
    Abstract: CIS countries possess extensive natural resources and rely heavily on revenues from primary commodity exports, in particular petroleum and natural gas. We use Kazakhstan’s dependence on revenues from the oil sector to demonstrate commodity producer vulnerability to external commodity price fluctuations. The goal of this paper is to examine the nature of the relationship between real GDP, fiscal revenues, real exchange rate, price level, and oil prices. We employ Bayesian approach to time series data for the period 2000–2015. We find evidence of significant effect of oil prices on Kazakhstani economy where one of the key channels playing a role in the effect of oil prices on real activity is related to the real effective exchange rate. Additionally, results of this research indicate that one possible channel for oil price shocks to affect the real exchange rate is through the upward pressure on domestic price level.
    JEL: E58 F31 F43 Q4
    Date: 2016–06–21
  70. By: Kleis, Mischa; Moessinger, Marc-Daniel
    Abstract: We contribute to the literature on the long-run effect of fiscal consolidation on economic growth by applying a novel method for quantitative case studies. Relying on a qualitative (narrative) definition of fiscal consolidations based on an examination of historical policy documents and using the synthetic control method (SCM), we investigate the evolution of post-consolidation trajectories of economic growth in six case studies of OECD countries. In contrast to recent studies that reject the hypothesis of non-Keynesian effects, our results do not offer clear-cut evidence on the long-run effect of fiscal consolidation on economic growth. Half of the case studies point to a positive effect with the other half indicating a negative effect. We further do not find a specific effect of the strength of the fiscal adjustment and the type of consolidation, i.e., whether the consolidation is rather based on expenditure cuts or revenue increases.
    Keywords: economic growth,fiscal adjustment,fiscal consolidation,synthetic control method
    JEL: O40 E62 H60
    Date: 2016
  71. By: Eerola, Essi
    Abstract: The global financial crisis has led to increased attention on the relationship of household indebtedness and systemic risks. As a result, macroprudential measures aimed at reducing the risks have been introduced in many countries. This note reviews the recent empirical literature on these measures focusing on the housing market. Thus far, the literature mostly consists of cross-country studies using aggregate data and looking at a large set of different measures. The studies typically report associations between the measures and outcome variables of interest (often credit growth and house price appreciation), but do not assess the causal effects of the different measures or the underlying mechanisms. Exploiting household level data together with policy reforms, should be a useful step forward in understanding the effects of the measures and uncovering the mechanisms through which they operate. Focusing on micro-data would also allow studying the distributional effects of the measures. Understanding the distributional effects is important in its own right, but also because the ultimate goals of the macroprudential policies are related not only to the aggregate level of credit but also to the distribution of leverage.
    Keywords: macroprudential policies, housing markets
    JEL: E58 G28
    Date: 2016–06–20
  72. By: Alessandro Dafano (Università degli studi Roma Tre)
    Abstract: The aim of this paper is to highlight the intellectual influence of Keynes in the building of Italian econometrics and how our scholars tried to find a way out from the stagflation occurred in Italy during the Seventies. We have chosen two case studies: the model designed by PROMETEIA, the think tank belonging to the University of Bologna, and DYANMOD, the main model of Confindustria (Confederation of Italian Industries). Although the Keynesian thought crucially influenced their structure and functioning, they managed to explain also the oil-shock-induced supply side effects, showing an unexpected degree of innovation within Keynesian thought. Furthermore, these models were conceived to join the larger Project LINK by Lawrence Klein, in order to connect the economies of many OECD countries. Given our microeconomic foundations, the main conclusions traced by these models were the focus on balance of payments equilibrium, capital accumulation and public finance constraints, thus asking for economic policies that could guarantee growth and disinflation.
    Keywords: econometrics, oil shock, Lawrence Klein, John Maynard Keynes, neoclassical synthesis, Nino Andreatta, Guido Carli.
    JEL: B23 B31 E12 E65
    Date: 2016
  73. By: Leandro López Elías
    Abstract: Este artículo tiene como objetivo estimar una función de consumo de los hogares para la economía cubana en el período 1975-2012. Para ello se realiza un análisis de series de tiempo. Los principales resultados obtenidos indican que la teoría keynesiana es la que más se ajusta para explicar el comportamiento del consumo en la economía cubana. El Producto Interno Bruto (PIB) y la variable Otros Ingresos explican las decisiones de consumo de los agentes. Según los supuestos asumidos sobre las variables exógenas del modelo se espera que el consumo de hogares muestre una tasa de crecimiento promedio de 5,4 % en el período 2013-2020.
    Keywords: Consumo, Series de Tiempo, Hogares
    JEL: C32 E21
    Date: 2015–12–04
  74. By: Alberto Botta; Eugenio Caversazi; Daniele Tori (University of Greenwich)
    Abstract: In this paper, we propose a simple short-run post-Keynesian model in which the key aspects of shadow banking, namely securitization and the production of structured finance instruments, are explicitly formalized. At the best of our knowledge, this is the first attempt to broaden purely real-side models and their traditional focus on shareholder-value orientation, the financialisation of non-financial firms, and the profit-led vs. wage-led dichotomy. We rather put emphasis on the role of financial institutions and rentier-friendly environment in determining the predominance of specific growth and distribution regimes. First, we illustrate the macroeconomic rationale of shadow banking practices. We show how, before the 2007-8 crisis, securitization and shadow banking allowed for an increase in profitability for the whole financial sector, while apparently keeping leverage under control. Second, we define a variety of shadow-banking-led regimes in terms of economic activity, productive capital accumulation, and income distribution. We show that both an ‘exhilarationist’ and a ‘stagnationist’ regime may prevail, nevertheless characterized by a probable increase in income inequality between rentiers and wage earners.
    Keywords: securitization, shadow banking, leverage, rentiers-led regimes, income distribution
    JEL: E02 E12 G23
    Date: 2016–06
  75. By: Bandyopadhyay, Subhayu (Federal Reserve Bank of St. Louis); Dinopoulos, Elias (University of Florida); Unel, Bulent (Louisiana State University)
    Abstract: The Great Recession, which was preceded by the financial crisis, resulted in higher unemployment and inequality. We propose a simple model where firms producing varieties face labor-market frictions and credit constraints. In the model, tighter credit leads to lower output, lower number of vacancies, and higher directed-search unemployment. Where workers are more productive at higher levels of firm output, lower credit supply increases firm capital intensity, raises inequality by increasing the rental of capital relative to the wage, and has an ambiguous effect on welfare. At initial high levels of labor share in total costs tighter credit lowers welfare. This pattern reverses during an expansionary phase caused by higher credit availability.
    Keywords: monopolistic competition, functional inequality, search unemployment, credit constraints
    JEL: D43 E24 G21 J31 J64 L11
    Date: 2016–06
  76. By: Bandyopadhyay, Subhayu (Federal Reserve Bank of St. Louis); Dinopoulos , Elias (University of Florida); Unel, Bulent (Louisiana State University)
    Abstract: The Great Recession, which was preceded by the financial crisis, resulted in higher unemployment and inequality. We propose a simple model where firms producing varieties face labor-market frictions and credit constraints. In the model, tighter credit leads to lower output, lower number of vacancies, and higher directed-search unemployment. Where workers are more productive at higher levels of firm output, lower credit supply increases firm capital intensity, raises inequality by increasing the rental of capital relative to the wage, and has an ambiguous effect on welfare. At initial high levels of labor share in total costs tighter credit lowers welfare. This pattern reverses during an expansionary phase caused by higher credit availability.
    Keywords: Monopolistic competition; functional inequality; search unemployment; credit constraints.
    JEL: D43 E24 G21 J31 J64 L11
    Date: 2016–06–15
  77. By: Huang, Wei Hong (Economics Division, HSS, Nanyang Technological University); Chen, Yang (Division of Economics, Xi'an Jiaotong-Liverpool University); Rudkin, Simon (School of Management, University of Bradford)
    Abstract: In a global economy characterised by austerity, regionalisation and bidding for mobile capital, fiscal competition models have a major contribution to make to the economic development debate. With labour proving immobile, even within borderless regions like the European Union, our extension of static models into a dynamic setting offers invaluable advice for policymakers. This paper presents the effects of fiscal competition, considering the inter-temporal interactions among the economic activity of firms, capital taxation and public infrastructure investment in a small-open economy. Four cases emerge, but most interestingly public and private capital being substitutes allows reductions in the net tax burden alongside infrastructure accumulation provided public capital is not too productive. We also review factor complementarity, where subsidies become attractive. Transitional impacts depend on the marginal product of public capital. Hence, from the first case, our model addresses the apparent puzzle of high infrastructure accompanying low taxation, and does so without imposing limitations on competition.
    Keywords: Dynamic fiscal competition, Infrastructure investment
    JEL: E6 H3 H4
    Date: 2014–01–01
  78. By: Habla, Wolfgang (Department of Economics, School of Business, Economics and Law, Göteborg University)
    Abstract: This paper demonstrates that unintended effects of climate policies (Green Paradox effects) also arise in general equilibrium when countries compete for mobile factors of production (capital and resources/energy). Second, it shows that countries have a rationale to use strictly positive source-based capital taxes to slow down resource extraction. Notably, this result comes about in the absence of any revenue requirements by the government, and independently of the elasticity of substitution between capital and resources in production. Third, the paper generalizes the results obtained by Eichner and Runkel (2012) by showing that the Nash equilibrium entails inefficiently high pollution.
    Keywords: Green Paradox; factor mobility; interjurisdictional competition; resource extraction; substitutability between capital and resources; capital taxation
    JEL: E22 H23 H77 Q31 Q58
    Date: 2016–06
  79. By: Dafano, Alessandro
    Abstract: This paper aims to analyze, in a first part, the economic policy carried out by the Christian Democracy from the post WWII until the early Sixties; in a second part, the goal is to trace the debate inside this party to highlight the different positions taken by its members in order to understand why those kind of policies were achieved. We will see that, a first period of unity (largely) within the party, together with a second one where the left-wing component came out and succeeded to lead the party, made possible to design Keynesian based policies in order to boost growth and employment that our country needed.
    Keywords: programmazione economica, miracolo economico, Democrazia Cristiana, ricostruzione postbellica, Amintore Fanfani, Ezio Vanoni, Pasquale Saraceno, Ferdinando di Fenizio, Cassa per il Mezzogiorno.
    JEL: B22 B31 E65 N14
    Date: 2016–06
  80. By: Garbade, Kenneth D. (Federal Reserve Bank of New York)
    Abstract: In the second half of 1953 the United States, for the first time, risked exceeding the statutory limit on Treasury debt. This paper describes how Congress, the White House, and Treasury officials dealt with the looming crisis—by deferring and reducing expenditures, monetizing “free” gold that remained from the devaluation of the dollar in 1934, and, ultimately, raising the debt ceiling.
    Keywords: debt ceiling; monetization of gold; U.S. Treasury
    JEL: E42 H63 N22
    Date: 2016–06–01
  81. By: Andersson, Fredrik N. G. (Department of Economics, Lund University); Lennard, Jason (Department of Economic History, Lund University)
    Abstract: A major issue in Irish economic history is the lack of historical national accounts before the interwar period. This paper addresses the gap with new annual estimates of GDP between 1841 and 1913 based on an original two-step methodology that makes use of existing time series data and of new benchmark estimates of GDP for six census years (Geary and Stark, 2015). On an aggregate basis, the results portray a slowly-growing economy that suffered output losses of a quarter during the Great Famine; on a per capita basis, the standard of living doubled over the period as a whole.
    Keywords: Ireland; GDP; Famine; Historical national accounts
    JEL: C38 E01 N13
    Date: 2016–06–27
  82. By: Elisabetta Montanaro (Ragnar Nurkse School of Innovation and Governance, Tallinn University of Technology)
    Abstract: The post-crisis political and theoretical developments have produced a profound reappraisal of central banks’ mandate in achieving and maintaining financial stability. This evolution has had important consequences for the institutional architecture of financial supervision and for the role assigned to central banks within it. The paper aims to analyse the rationale of this evolution and to what extent it has characterised the reforms introduced by EU countries after the crisis. The empirical analysis confirms the wider mandate for financial stability given to EU central banks, mainly in those countries whose structural vulnerabilities arise from high degree of financialisation. The reforms associated to this process always result from political choices: in this respect, the different path towards the new architecture, which has characterised the UK and Germany can be taken as the two most interesting cases. They show the complex interactions between political pressure, resistance and ambitions of the various existing authorities, and the country’s heritage, which characterise every stage of institutional reform, especially where significant supervisory failures have been found.
    Keywords: models of financial supervision; twin-peaks; central banks; financial reforms; Bank of England; Bundesbank; EU countries
    JEL: E58 G01 G28
    Date: 2016–01–30
  83. By: Novignon, Jacob; Atakorah, Yaw Boateng
    Abstract: The linkages between international trade integration and economic performance has received significant attention from both policy makers and researchers. There seem to be consensus in the literature to suggest that improved trade openness corresponds to improved economic growth. A missing link in the literature is how trade openness affects specific sectors of the economy. Here we argue that trade openness has significant impact on population health and health financing. The study employed panel data for forty-two (42) Sub-Saharan African (SSA) countries over the period 1995-2013. Population health status was measured by total life expectancy at birth, infant mortality rate and under-five mortality rate. Three main estimation procedures were used; (i) Fixed effect (FE), (ii) Random Effect (RE) and (iii) the Generalized Method of Moments (GMM) models were employed in estimating the relationships. The results showed a positive and significant relationship between trade openness and life expectancy, negative and significant relationship between trade openness and infant mortality rate and negative relationship between trade openness and under-five mortality rate. A positive relationship between trade openness and health financing. The findings of the study support international trade integration across countries in SSA and emphasizes the need for countries to be conscious of gains from trade within sub-sectors of the economy.
    Keywords: International trade, health status, health financing, SSA
    JEL: E0 F1 I1
    Date: 2016–06–28
  84. By: Mario Tonveronachi (Ragnar Nurkse School of Innovation and Governance, Tallinn University of Technology)
    Abstract: Europe is at a critical crossroads for the evolution of its overall political and institutional design. Its founding goal, the creation of the internal single market, is consistent neither with the existing setup, nor with the direction recently impressed to that evolution. The inconsistency between the fiscal, monetary and financial regulatory framework and the construction of the single market cannot be solved by reforming the EU treaties simply because there is no agreement on the new design. Following Minsky’s analysis, we single out the weaknesses and fragilities of that framework when the heterogeneous reality of the EU is taken into account. While constraints on fiscal and monetary reforms derive from the existing treaties, for financial regulation they come from mixing the international approach, which makes financial stability dependent on the financial morphology freely determined by financial markets, with the belief that the EU integration will come from the operation of private interests. We show that the current approach to financial regulation fails on both regards. Complying with the existing EU treaties, we propose a reform of ECB operations that would create the single financial market, at least for the euro area, and allow a reform of the existing fiscal rules capable of converting the current deflationary stance into a reflationary one. To complete the strengthening of the systemic cushions of safety, following the Minskyan approach a radical reform of financial regulation is presented that would combine higher financial resilience with finance more closely serving national economies. The three reforms would critically contribute to the consistency of the euro area design and make its membership attractive for the non-euro EU countries that currently strongly oppose entering into it, at least for those that do not want to go on playing the inshore-offshore game.
    Keywords: EU, Euro Area, ECB, fiscal rules, monetary policy, financial regulation
    JEL: E58 E61 G18 F02 F45 G18
    Date: 2016–01–30
  85. By: Brinkman, Jeffrey (Federal Reserve Bank of Philadelphia); Coen-Pirani, Daniele (University of Pittsburgh); Sieg, Holger (University of Pennsylvania and NBER)
    Abstract: This paper analyzes the determinants of underfunding of local government’s pension funds using a politico-economic overlapping generations model. We show that a binding down payment constraint in the housing market dampens capitalization of future taxes into current land prices. Thus, a local government’s pension funding policy matters for land prices and the utility of young households. Underfunding arises in equilibrium if the pension funding policy is set by the old generation. Young households instead favor a policy of full funding. Empirical results based on cross-city comparisons in the magnitude of unfunded liabilities are consistent with the predictions of the model.
    Keywords: Unfunded Liabilities; Political Economy; Land Prices; Capitalization
    JEL: E6 H3 H7 R5
    Date: 2016–05–27
  86. By: O'Sullivan, Mary
    Abstract: Thomas Piketty’s book, Capital in the Twenty-First Century, reopens fundamental questions about the role and rewards of capital that economists have never resolved. It does so by exploring the history of capital and derives much of its credibility from the evidence it marshals in defence of its claims. In this paper, I evaluate the basis for Piketty’s arguments by considering them in light of the history of US capitalism. I argue that it is extremely difficult to make economic sense of Piketty’s historical analysis of capital in the US in the 19th and 20th centuries. That is true, only in part, due to the distinctive choices he makes, compared to mainstream economists, in defining and measuring capital. Much more problematic, in fact, are theoretical commitments he shares with them that preclude an understanding of capital’s historical role and rewards in the US economy. Based on a discussion of several important features of US economic history, I have argued that such an understanding demands an historical analysis of capital, both productive and financial capital, in relation to the evolving social organisation of capitalism in the US.
    Keywords: History of capital, Capitalism, Capital theory, Theory of distribution, Finance capital, Productive capital
    JEL: B00 D20 D21 D24 D33 D92 E13 N00 O00
    Date: 2016
  87. By: Iván A. Montoya Restrepo; Luz Alexandra Montoya Restrepo
    Abstract: Este artículo busca hacer una contribución para proponer un sistema de equilibrio general clásico de los precios con capital circulante susceptible de ofrecer diversas calidades, mediante la inclusión de probabilidades para que los insumos puedan entrar de manera efectiva para la elaboración de los productos. Tiene como antecedentes las aportaciones de Sraffa (I960), Cuevas (2001) y Montoya y Montoya (2005; 2007). El documento retoma las principales aportaciones hechas respecto a un sistema como el propuesto; posteriormente, busca introducir en el análisis el problema de la consideración de las calidades, inspirándose en las funciones de utilidad de Von Neumann- Morgenstern empleadas eneconomía de la información y, finalmente, presenta una propuesta y enuncia brevemente las principales implicaciones de la misma.
    Keywords: Economía clásica, capital circulante, formación de precios.
    JEL: A1 B4 E3
    Date: 2015–06–19
  88. By: DiMaggio, Marco (Columbia University); Haughwout, Andrew F. (Federal Reserve Bank of New York); Kermani, Amir (University of California, Berkeley); Mazewski, Matthew (Columbia University); Pinkovskiy, Maxim L. (Federal Reserve Bank of New York)
    Abstract: Since the end of the Great Recession, growth in health care spending has declined to historically low levels. There is disagreement over whether this decline was caused by falling incomes during the Great Recession (and therefore is likely to reverse once the recovery is complete) or whether the decline represents a structural change in the health sector (and therefore is more likely to endure). We exploit plausibly exogenous regulatory changes in the mortgage lending market to estimate causal effects of the financial boom and bust cycle on personal income in the health sector in a panel of U.S. counties. We find that counties that were exogenously more exposed to the financial crisis because of the regulatory reforms experienced a greater rise in the size of the health sector over the course of the boom and bust relative to control counties, with the differential persisting through the recovery. We also provide evidence that both the boom and the bust periods of the financial crisis increased mortality in treated counties compared to control counties.
    Keywords: health spending; Great Recession; anti-predatory lending
    JEL: E3 G28 I11
    Date: 2016–06–01
  89. By: Özer Karagedikli; Dr John McDermott (Reserve Bank of New Zealand)
    Abstract: This paper finds that the changing behaviour of inflation expectations can explain much of the unusually low inflation in New Zealand. Across several empirical specifications of the Phillips curve, we observe that inflation expectations have become more backward-looking. We also find that the speed of adjustment in inflation expectations, proxied by the spread between short- and longer-term inflation expectations, can explain the unusually low inflation.
    Date: 2016–06
  90. By: Alexander N. Bogin (Federal Housing Finance Agency); William M. Doerner (Federal Housing Finance Agency); William D. Larson (Federal Housing Finance Agency)
    Abstract: We document real house price growth accelerations in U.S. ZIP codes between 1975 and 2015. Acceleration episodes, which are defined to include relatively extreme periods of price growth, tend to exhibit temporal clustering and occur with greater frequency in large versus small cities. We exploit within-city variation in price dynamics to provide evidence that growth accelerations initially overshoot sustainable price levels but, in some areas, may reflect positive underlying economic fundamentals. Price levels post-acceleration are most sustainable in large cities, especially near city centers. Dynamics are generally consistent with empirical mean-reversion models and theories regarding the effects of traffic congestion and the elasticity of housing supply on house price gradients within the city.
    Keywords: house price cycles, Great Recession, real estate, boom, bust, house price index
    JEL: E32 R30
    Date: 2016–06
  91. By: Lubos Komarek; Kristyna Ters; Jorg Urban
    Abstract: We examine the role of the CDS and bond markets during and before the recent euro area sovereign debt crisis as transmission channels for credit risk contagion between sovereign entities. We analyse an intraday dataset for GIIPS countries as well as Germany, France and central European countries. Our findings suggest that, prior to the crisis, the CDS and bond markets were similarly important in the transmission of financial shock contagion, but that the importance of the bond market waned during the crisis. We find flight-to-safety effects during the crisis in the German bond market that are not present in the pre-crisis sample. Our estimated sovereign risk contagion was greater during the crisis, with an average timeline of one to two hours in GIIPS countries. By using an exogenous macroeconomic news shock, we can show that, during the crisis period, increased credit risk was not related to economic fundamentals. Further, we find that central European countries were not affected by sovereign credit risk contagion, independent of their debt level and currency.
    Keywords: Contagion, credit default swaps, panel VAR, sovereign credit risk, sovereign debt crisis, spillover
    JEL: E44 G12 G14 G15
    Date: 2016–06
  92. By: Étienne Farvaque; Florence Huart
    Abstract: The severity of the recent crisis has given rise to several proposals for the creation of a European unemployment insurance system. In this paper, we first explore the theoretical backgrounds of a common insurance system. We, then, analyze the main features of an EU-wide unemployment insurance, and explore its financial and political sustainability, under different scenarios, including a “US-equivalent” one. We finally highlight key issues with regard to implementation and potential undesirable effects.
    Keywords: intergovernmental transfers; fiscal union; fiscal federalism; European integration; unemployment insurance,
    JEL: F45 F36 H77 H87 E60
    Date: 2016–06–22
  93. By: Kalkuhl, Matthias; von Braun, Joachim; Torero, Maximo
    Abstract: This book provides fresh insights into concepts, methods and new research findings on the causes of excessive food price volatility. It also discusses the implications for food security and policy responses to mitigate excessive volatility. The approaches applied by the contributors range from on-the-ground surveys, to panel econometrics and innovative high-frequency time series analysis as well as computational economics methods. It offers policy analysts and decision-makers guidance on dealing with extreme volatility.
    Keywords: Commodity markets; Risk management; Speculation; Financialization; Emergency reserve; Trade policy
    JEL: E3 F1 G1 I1 Q1
    Date: 2016
  94. By: lopez, claude; Saeidinezhad, Elham
    Abstract: The Dodd-Frank Act was the most far-reaching financial regulatory reform in the U.S. since the nation emerged from the Great Depression in the 1930s. The act aims to limit systemic risk, allow for the safe resolution of the largest intermediaries, submit risky nonbanks to greater scrutiny, and reform derivative trading. The public debate is often highly politicized and opinionated when it comes to Dodd-Frank. With that in mind, this paper seeks to assess Dodd-Frank implementation with respect to its initial goal of building “a safer, more stable financial system,” where proprietary trading and the business of banking are separated, and where taxpayers and small business will not have to bail out failing large financial firms.” To make the assessment, the paper first establishes a timeline summarizing the Dodd-Frank final-rule milestones and then compares their implementation to the initial goals.
    Keywords: Dodd-Frank, macroprudential policy, systemic risk, regulation
    JEL: E6 G0 G1 G2
    Date: 2016–06
  95. By: Seo-Young Cho (University of Marburg)
    Abstract: Cybercrime is typically profiled as a skill-intensive crime committed by educated, young criminals. This observation raises the controversial question of whether advanced knowledge and skills are a pull factor of cybercrime. In this paper, the linkage between e-skills and cybercrime is investigated using statistics from up to 28 European countries. Through the investigation, it is shown that electronic skills induce more cybercrime under weak institutions where the rules of law do not provide protection and incentives for productive entrepreneurial activities. This compound effect between e-skills and institutions suggests that institutional factors are crucial to allocating human capital between productive and criminal activities in cyberspace.
    Keywords: cybercrime, e-skills, institutions, entrepreneurship
    JEL: E24 K42 O15
    Date: 2016

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