nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒07‒16
85 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Financialisation, Debt and Inequality – scenarios based on a stock flow consistent model By Daniel Detzer
  2. Forward Guidance as a Monetary Policy Rule By Mitsuru Katagiri
  3. South Africa's real business cycles: The cycle is the trend By Hilary Patroba; Leroi Raputsoane
  4. The science of monetary policy: an imperfect knowledge perspective By Eusepi, Stefano; Preston, Bruce
  5. EAGLE-FLI. A macroeconomic model of banking and financial interdependence in the euro area By Bokan, Nikola; Gerali, Andrea; Gomes, Sandra; Jacquinot, Pascal; Pisani, Massimiliano
  6. On the Welfare Costs of Monetary Policy By Nlemfu Mukoko, Jean Blaise
  7. The Financial Stability Dark Side of Monetary Policy By Frank Smets; Stefania Villa
  8. Monetary Policy on Twitter and its Effect on Asset Prices: Evidence from Computational Text Analysis By Jochen Lüdering; Peter Tillmann
  9. QE in the future: the central bank's balance sheet in a fiscal crisis By Reis, Ricardo
  10. The Legacy of the Crisis: Policy Options in a Favorable Environment By LaGarda, Guillermo; Manzano, Osmel; Prat, Jordi
  11. Money and Capital in a Persistent Liquidity Trap By Bacchetta, Philippe; Benhima, Kenza; Kalantzis, Yannick
  12. Modelling interest payments for macroeconomic assessment By Celestino Girón; Marta Morano; Enrique M. Quilis; Daniel Santabárbara; Carlos Torregrosa
  13. The Cyclical Behavior of the Markups in the New Keynesian Models By Nlemfu Mukoko, Jean Blaise
  14. Redeem or Revalue? Some Public-Debt Calculus. By Bar-Ilan, Avner; Gliksberg, Baruch
  15. Fiscal Implications of Central Bank Balance Sheet Policies By Orphanides, Athanasios
  16. Money and Capital in a Persistent Liquidity Trap By Philippe Bacchetta; Kenza Benhima; Yannick Kalantzis
  17. Macroeconomic effects of mortgage interest deduction By Cenkhan Sahin
  18. In the Eye of a Storm: Manhattan's Money Center Banks during the International Financial Crisis of 1931 By Richardson, Gary; Van Horn, Patrick
  19. A new insight on the inflation persistence: the role of severance pay By Thomas COUDERT
  20. Extreme Events and Optimal Monetary Policy By Jinill KIM; Francisco RUGE-MURCIA
  21. House prices and interest rates: Bayesian evidence from Germany By Hanck, Christoph; Prüser, Jan
  22. Foreign direct investment and economic growth: ADRL and causality analysis for South Africa By Sunde, Tafirenyika
  23. Measuring Underlying Inflation Using Dynamic Model Averaging By Yuto Iwasaki; Sohei Kaihatsu
  24. Accounting for Business Cycles By Brinca, Pedro; Chari, V. V.; Kehoe, Patrick J.; McGrattan, Ellen R.
  25. Do Investors Listen to Fiscal Policy? – Study case Bucharest Stock Exchange By Stoian, Andreea; Iorgulescu, Filip
  26. RBC Models and the Hours-Wages Puzzle: Puzzle Solved! By Vasilev, Aleksandar
  27. The effect of bank shocks on firm-level and aggregate investment By Amador, João; Nagengast, Arne J.
  28. The Extrinsic Value of Low-Denomination Money Holdings By Hernandez-Chanto, Allan
  29. A stock-flow-fund ecological macroeconomic model By Yannis Dafermos; Maria Nikolaidi; Giorgos Galanis
  30. Insurance in Human Capital Models with Limited Enforcement By Krebs, Tom; Kuhn, Moritz; Wright, Mark L. J.
  31. Observing and shaping the market: the dilemma of central banks By Romain Baeriswyl; Camille Cornand; Bruno Ziliotto
  32. Business, housing and credit cycles By Rünstler, Gerhard; Vlekke, Marente
  33. Heterogeneity of households and the effects of fiscal policy in CEE countries By Piotr Krajewski
  34. Measuring the Effect of the Zero Lower Bound on Monetary Policy By Carlos Viana de Carvalho; EriC Hsu; Fernanda Necchio
  35. Efectos de los cambios de la tasa de interés de Estados Unidos sobre Colombia, Perú y Chile By Carlos Fernando Daza Moreno; Jorge Mario Uribe
  36. Working Paper 04-16 - La modélisation de l’impôt des personnes physiques dans les modèles macroéconomiques de court et moyen terme du BFP - Adaptation des modèles suite à la 6e réforme de l’État et au SEC2010 By Vincent Frogneux; Michel Saintrain
  37. Forecasting China's Economic Growth and Inflation By Patrick Higgins; Tao Zha; Karen Zhong
  38. Volatility spillovers in EMU sovereign bond markets By Fernando Fernández-Rodríguez; Marta Gómez-Puig; Simón Sosvilla-Rivero
  39. Protectionism in a liquidity trap By Lechthaler, Wolfgang
  40. Actual Problems and Perspective with Positive Impact on the Activity of Banking System in Romania By Dana Gabriela SISEA
  41. Women's Liberation as a Financial Innovation By Hazan, Moshe; Weiss, David; Zoabi, Hosny
  42. Structural Breaks in Potential GDP Of Three Major Economies: Just Impaired Credit or the “New Normal”? By Alexander Yu. Apokin; Irina B. Ipatova
  43. Modeling Real Private Consumption Expenditure in Bulgaria after the Currency Board Implementation (1997-2005) By Vasilev, Aleksandar
  44. Changes in the relationship between short-term interest rate, inflation and growth: Evidence from the UK, 1820-2014 By Bataa, Erdenebat; Wohar, Mark; Vivian, Andrew
  45. Bescheidener Aufschwung im Osten – Bremsklotz EU-Fiskalregeln By Mario Holzner
  46. Bank capital structure and the credit channel of central bank asset purchases By Darracq Pariès, Matthieu; Hałaj, Grzegorz; Kok, Christoffer
  47. Elusive Recovery: South Georgia Coast Counties since the Great Recession By Mathews, Don
  48. Informal Sector Misallocation By López-Martín Bernabé
  49. Financial stress transmission in EMU sovereign bond market volatility: A connectedness analysis By Fernando Fernández-Rodríguez; Marta Gómez-Puig; Simón Sosvilla-Rivero
  50. Causas del desempleo en Colombia en el siglo XXI: Evidencia a partir de un modelo var-x cointegrado By Oscar Andrés Espinosa Acuña; Paola Andrea Vaca González
  51. Assessing the economic value of probabilistic forecasts in the presence of an inflation target By Christopher McDonald; Craig Thamotheram; Shaun P. Vahey; Elizabeth C. Wakerly
  52. Nominal GDP targeting and the tax burden By Hatcher, Michael
  53. Collective Versus Individual Decisionmaking : A Case Study of the Bank of Israel Law By Francisco RUGE-MURCIA; Alessandro RIBONI
  54. Repurchase agreements as an instrument of monetary policy at the time of the Accord By Garbade, Kenneth D.
  55. Enhancing private investment in the Netherlands By Sanne Zwart
  56. LTV policy as a macroprudential tool: The case of residential mortgage loans in Asia By Morgan, Peter; Regis, Paulo José; Salike, Nimesh
  57. Money Creation, Monetary Policy, and Capital Regulation By Faure, Salomon; Gersbach, Hans
  58. Does uncertainty affect non-response to the European Central Bank's survey of professional forecasters? By López-Pérez, Víctor
  59. This paper studies the link between demographic factors and labour shares as well as tries to answer the question whether population ageing is responsible for the global decline in labour shares. We found that the link depends on the elasticity of substitution between labour and capital as production factors. Given the empirical estimates of this parameter, we conclude that population ageing is not responsible for the global decline in labour shares. On the contrary, it reduces the speed of this decline. By Igor Fedotenkov
  61. Egalitarian Policies, Effective Demand, and Globalization: Considering Budget Constraint By Taro Abe
  62. Is There an Output Free Lunch for Fiscal Inationary Policies? By Moises S. Andrade; Tiago Berriel
  63. The investment-profit nexus in an era of financialisation and globalisation. A profit-centred perspective By Cedric Durand; Maxime Gueuder
  64. The (Unintended?) Consequences of the Largest Liquidity Injection Ever By Miguel Faria-e-Castro; Luis Fonseca; Matteo Crosignani
  65. Aggregate Consequences of Dynamic Credit Relationships By Stephane Verani
  66. From Sunspots to Black Holes: Singular dynamics in macroeconomic models By Brito, Paulo; Costa, Luís F.; Dixon, Huw David
  67. Reviving the limit cycle view of macroeconomic fluctuations By Franck Portier; Dana Galizia; Paul Beaudry
  68. Public Credit Guarantees and Access to Finance By Carlos Gozzi, Juan & Schmukler, Sergio
  69. The (In)Validity of the Ricardian Equivalence Theorem—Findings from a Representative German Population Survey By Bernd Hayo; Florian Neumeier
  70. The scope and nature of privatisation in the financial sector By Janusz J. Tomidajewicz
  71. The U.S. Economic Outlook and Monetary Policy: The European Economics and Financial Centre, Distinguished Speakers Seminar, London, U.K. - July 1, 2016 By Mester, Loretta J.
  72. Episodes of financial deepening: credit booms or growth generators? By Peter L. Rousseau; Paul Wachtel
  73. Mobile Phone Penetration, Mobile Banking and Inclusive Development in Africa By Simplice Asongu; Jacinta C. Nwachukwu
  74. Is the intrinsic value of macroeconomic news announcements related to their asset price impact? By Gilbert, Thomas; Scotti, Chiara; Strasser, Georg; Vega, Clara
  75. Self-fulfilling Prophecies in Sovereign Debt Markets By Nicolini, Juan Pablo
  76. Unconventional Monetary Policy and International Risk Premia By Rogers, John H.; Scotti, Chiara; Wright, Jonathan H.
  77. Diseño de política económica para enfrentar la volatilidad de la tasa de cambio: un análisis econométrico Garch de los periodos de apreciación y depreciación y sus costos y resultados By Carlos Eduardo Méndez Conde; Juan Camilo Méndez Vizcaíno
  78. International and Domestic Financialisation in Middle Income Countries; The Brazilian Experience By Annina Kaltenbrunner; Juan Pablo Painceira
  79. The risky steady state and the interest rate lower bound By Hills, Timothy; Nakata, Taisuke; Schmidt, Sebastian
  80. Matrice de Comptabilité Sociale de 2013 pour la R.D.Congo By Nlemfu Mukoko, Jean Blaise
  81. How harmful are cuts in public employment and wage in times of high unemployment? By Thomas COUDERT; Thierry BETTI
  82. Oil shocks on unemployment in Central and Eastern Europe By Juan Carlos Cuestas; Luis A. Gil-Alana
  83. Reallocation of Resources between Tradable and Non-Tradable Sectors in Portugal: Developing a new Identification Strategy for the Tradable Sector By Ana Fontoura Gouveia; Filipa Canas
  84. Home sweet home? Macroeconomic conditions in home countries and the well-being of migrants. By Akay, Alpaslan; Bargain, Olivier; Zimmermann, Klaus F.
  85. Ecotecnología en las viviendas Mexicanas: El Programa Hipoteca Verde y sus implicaciones en la rentabilidad de las empresas inmobiliarias By Víctor Manuel Castillo Girón; Manuel Machuca Martínez; Suhey Ayala Ramírez; David López Jimenez

  1. By: Daniel Detzer (Berlin School of Economics and Law)
    Abstract: In the era of financialisation, increasing income inequality could be observed in most developed and many developing countries. Despite these similar developments in inequality, the growth performance and drivers for growth differed markedly among countries, allowing clusters of different growth regimes to be identified. Among them two extreme types: the debt-led private-demand boom type and the export-led mercantilist type. Whereas the former relies mainly on credit-financed household consumption in order to compensate for the potential lack of demand (associated with the depressing effect of financialisation), the latter relies on net exports as the main driver of aggregate demand. After a short review of the different channels through which financialisation is expected to affect a countries development, a theoretical discussion on the conditions that tend to support the occurrence of either of the two regimes will build the base for the following model exercise. With the help of a stock-flow consistent model it will be demonstrated then how increasing inequality, depending on a countries institutional structure and regulatory framework, affects growth differently, explaining the occurrence of both regime types. Based on the insights of the theoretical discussion and the model results, a foresight exercise will be performed examining how further increase in inequality might affect development of economies around the world but particularly of the Euro area.
    Keywords: Euro area, finance-dominate capitalism, financialisation, foresight, household debt, international imbalances, consumption emulation
    JEL: E02 E12 E21 E25 E44 E65 F40 F41 F43
    Date: 2016–01–30
  2. By: Mitsuru Katagiri (Bank of Japan)
    Abstract: Many central banks implement forward guidance according to an implicit or explicit policy rule in practice, and thus it is expected to influence the economy by changing expectations formation of private agents. In this paper, I investigate the effects of forward guidance particularly via expectations formation by formulating forward guidance as a monetary policy rule in a non-linear new Keynesian model. A quantitative analysis using the U.S. and Japanese data implies that a rule-based forward guidance significantly mitigates a decline in inflation and output growth in a crisis period via changing expectations formation.
    Keywords: Forward Guidance; Expectations Formation; Effective Lower Bound; Particle Filter
    JEL: E31 E32 E42 E52
    Date: 2016–06–27
  3. By: Hilary Patroba (Department of Economics, University of Stellenbosch); Leroi Raputsoane (Department of Economics, Tshwane University of Technology)
    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 flat autocorrelation function. Financial frictions such as country risk premium shocks help to explain the fluctuations 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
  4. By: Eusepi, Stefano (Federal Reserve Bank of New York); Preston, Bruce (University of Melbourne)
    Abstract: New Keynesian theory identifies a set of principles central to the design and implementation of monetary policy. These principles rely on the ability of a central bank to manage expectations precisely, with policy prescriptions typically derived under the assumption of perfect information and full rationality. However, the challenging macroeconomic environment bequeathed by the financial crisis has led many to question the efficacy of monetary policy, and, particularly, to question whether central banks can influence expectations with as much control as previously thought. In this paper, we survey the literature on monetary policy design under imperfect knowledge and asses to what degree its policy prescriptions deviate from the rational expectations benchmark.
    Keywords: monetary policy; expectations formation; learning
    JEL: E31 E32 E52
    Date: 2016–06–01
  5. By: Bokan, Nikola; Gerali, Andrea; Gomes, Sandra; Jacquinot, Pascal; Pisani, Massimiliano
    Abstract: We incorporate financial linkages in EAGLE, a New Keynesian multi-country dynamic general equilibrium model of the euro area (EA) by including financial frictions and country-specific banking sectors. In this new version of the model, termed EAGLE-FLI (Euro Area and GLobal Economy with Financial LInkages), banks collect deposits from domestic households and cross- country interbank market and raise capital to finance loans issued to domestic households and firms. In order to borrow from local (regional) banks, households use domestic real estate as collateral whereas firms use both domestic real estate and physical capital. These features – together with the full characterization of trade balance and real exchange rate dynamics and with a rich array of financial shocks – allow to properly assess domestic and cross-country macroeconomic effects of financial shocks. Our results support the views that (1) the business cycles in the EA can be driven not only by real shocks, but also by financial shocks, (2) the financial sector can amplify the transmission of (real) shocks, and (3) the financial/banking shocks and the banking sectors can be sources of business cycle asymmetries and spillovers across countries in a monetary union. JEL Classification: E51, E32, E44, F45, F47
    Keywords: banks, DSGE models, econometric models, financial frictions, open-economy macroeconomics, policy analysis
    Date: 2016–06
  6. By: Nlemfu Mukoko, Jean Blaise
    Abstract: This paper analyses the implications of monetary policy changes on the welfare in the U.S economy over the pre-1984 and post-1984 periods. We use a New-Keynesian model with trend inflation based on Ascari, Phaneuf and Sims (2015). First, our results show that the welfare costs respond symmetrically to a rise and a decline in trend inflation, trend growth and the level of volatility of output, output growth and inflation over the sample periods. Second, we find that changes in monetary policy and in trend inflation across the two subsamples play an important role in the shift of macroeconomic variables volatilities unconditionally and conditionally to neutral technology, marginal efficiency of investment and monetary shocks.
    Keywords: Welfare, trend in ation, New Keynesian Models
    JEL: E31 E32
    Date: 2016–06
  7. By: Frank Smets (European Central Bank); Stefania Villa (KU Leuven; University of Foggia)
    Abstract: This paper examines whether financial conditions of the non-financial corporate sector can explain why the recovery from recessions in the United States is slower since the mid-1980s. Leverage by the corporate sector has increased significantly since the financial deregulation of the mid-1980s. Empirical evidence shows that slow recoveries are associated with a significant drop in the growth rates of investment and bank loans, and with a surge in the growth rates of corporate bonds. In an estimated dynamic stochastic general equilibrium model with a financial accelerator, counterfactual experiments based on estimates of two samples - 1965-1983 and 1984-2007 - show that the non-financial corporate indebtedness affects only marginally the speed of the recovery in the two samples.
    Keywords: speed of recoveries, indebtedness, financial frictions, estimated DSGE model.
    JEL: E32 E44
    Date: 2016–06
  8. By: Jochen Lüdering (University of Giessen); Peter Tillmann (University of Giessen)
    Abstract: In this paper we dissect the public debate about the future course of monetary policy and trace the effects of selected topics of this discourse on U.S. asset prices. We focus on the “taper tantrum” episode in 2013, a period with large revisions in expectations about Fed policy. Based on a novel data set of 90,000 Twitter messages (“tweets”) covering the entire debate of Fed tapering on Twitter we use Latent Dirichlet Allocation, a computational text analysis tool to quantify the content of the discussion. Several estimated topic frequencies are then included in a VAR model to estimate the effects of topic shocks on asset prices. We find that the discussion about Fed policy on social media contains price-relevant information. Shocks to shares of “tantrum”-, “QE”- and “data”-related topics are shown to lead to significant asset price changes. We also show that the effects are mostly due to changes in the term premium of yields consistent with the portfolio balance channel of unconventional monetary policy.
    Keywords: Monetary Policy, Fed, Latent Dirichlet Allocation, Text Analysis, VAR
    JEL: E32 E44 E52
    Date: 2016
  9. By: Reis, Ricardo
    Abstract: Analysis of quantitative easing (QE) typically focus on the recent past studying the policy's effectiveness during a financial crisis when nominal interest rates are zero. This paper examines instead the usefulness of QE in a future fiscal crisis, modeled as a situation where the fiscal outlook is inconsistent with both stable inflation and no sovereign default. The crisis can lower welfare through two channels, the first via aggregate demand and nominal rigidities, and the second via contractions in credit and disruption in financial markets. Managing the size and composition of the central bank's balance sheet can interfere with each of these channels, stabilizing inflation and economic activity. The power of QE comes from interest-paying reserves being a special public asset, neither substitutable by currency nor by government debt.
    Keywords: new-style central banks; Unconventional Monetary Policy
    JEL: E44 E58 E63
    Date: 2016–07
  10. By: LaGarda, Guillermo; Manzano, Osmel; Prat, Jordi
    Abstract: The region comprising Central America, Panama and Dominican Republic is on path towards a favorable economic environment, characterized by higher growth in the United States (its main trade partner), lower oil prices, and still low financing costs. This environment represents a window of opportunity for the region to overcome the vulnerabilities inherited from the financial crisis and assure long-term growth. The first legacy of the crisis has been higher public debt, which in turn raised risks of deteriorating credit quality. The second legacy involves higher external flows, which had lead to greater financial complexity and created new channels of contagion. This report identifies risks and lays forward guidelines to mitigate them. In addition, it further illustrates how a deterioration in the external environment can generate lower growth prospects for the region, emphasizing the importance of advancing with the aforementioned reforms. - See more at: 19/6821#sthash.6zIWwBoC.dpuf
    Keywords: public debt, creditworthiness, economic fundamentals, structural reforms, debt tolerance, fiscal space, financing flows, networks, financial complexity, concentration of flows, contagion, macroprudential regulation, oil prices, growth.
    JEL: E0 E01 E62 E66 F3 G17 G2 G38 H3 H30 H5 H6 H60
    Date: 2015–01
  11. By: Bacchetta, Philippe; Benhima, Kenza; Kalantzis, Yannick
    Abstract: In this paper we analyze the implications of a persistent liquidity trap in a monetary model with asset scarcity and price flexibility. We show that a liquidity trap leads to an increase in cash holdings and may be associated with a long-term output decline. This long-term impact is a supply-side effect that may arise when agents are heterogeneous. It occurs in particular with a persistent deleveraging shock, leading investors to hold cash yielding a low return. Policy implications differ from shorter-run analyses. Quantitative easing leads to a deeper liquidity trap. Exiting the trap by increasing expected inflation or applying negative interest rates does not solve the asset scarcity problem.
    Keywords: Asset scarcity; Deleveraging; liquidity trap; zero lower bound
    JEL: E22 E40 E58
    Date: 2016–07
  12. By: Celestino Girón (European Central Bank); Marta Morano (Autoridad independiente de responsabilidad fiscal); Enrique M. Quilis (Autoridad independiente de responsabilidad fiscal); Daniel Santabárbara (Banco de España); Carlos Torregrosa (Banco de España)
    Abstract: In this paper we present a methodology designed to estimate the future path of the interest payments of central government. The basic idea is to represent in a compact way the joint dynamics of debt liabilities and interest payments as a function of four elements: the initial outstanding amounts of debt, the expected primary funding needs, the expected yield curves and the expected issuance strategy to be followed by the government. The procedure is amenable to scenario-based simulation and produces a detailed representation of the debt term structure. We provide results for the period 2015-2025.
    Keywords: interest payments, yield curve, forward rates, debt dynamics
    JEL: E43 E44 E47 E63
    Date: 2016–06
  13. By: Nlemfu Mukoko, Jean Blaise
    Abstract: Different methods have been used in the literature to mesure and analyze price markup cyclical behavior. We use a medium-scale DSGE Model with positive trend in ation, in which aggregate fluctuations are driven by neutral technology, marginal efficiency of investment (MEI) and monetary policy shocks and, where both price and wage markups vary. We find that when raising trend inflation from 0 to 4 percent, wage markup is more important than price markup in explaining the dynamics effects of shocks. Thus, the interactions between positive trend inflation and MEI shocks have greater cyclical effects on wage markup than on price markup. These results put into question the focus on the price markup cyclicality in the literature which ignore the implications of trend inflation.
    Keywords: Markups, cyclicality, New Keynesian Models
    JEL: E31 E32
    Date: 2015–06
  14. By: Bar-Ilan, Avner (Department of Economics, University of Haifa); Gliksberg, Baruch (Department of Economics, University of Haifa)
    Abstract: This paper studies the scal-monetary response to a sharp increase in the level of the public debt. To that end, we employ a general equilibrium model with distortionary income tax, distortionary nancing, and endogenous capital accumulation. The model is calibrated to the US and EU economies. A main result is that in both economies the QE is superior, welfare-wise, to other policy prescriptions to the problem of explosive debt. A major di¤erence between the EU and the US is that a Taylor rule of tight monetary and scal policy could reduce the US public debt, but given the fundamental properties of the EU economy, this policy cannot achieve this goal in Europe.
    Keywords: Distorting Taxes; Fiscal Solvency; La¤er curve in a monetary economy; Liquidity ; Rate of self nancing of tax cuts; Quantitative Easing
    JEL: E44 E47 E58 E63 H30 H63
  15. By: Orphanides, Athanasios
    Abstract: Under ordinary circumstances, the fiscal implications of central bank policies tend to be seen as relatively minor and escape close scrutiny. The global financial crisis of 2008, however, demanded an extraordinary response by central banks which brought to light the immense power of central bank balance sheet policies as well as their major fiscal implications. Once the zero lower bound on interest rates is reached, expanding a central bank's balance sheet becomes the central instrument for providing additional monetary policy accommodation. However, with interest rates near zero, the line separating fiscal and monetary policy is blurred. Furthermore, discretionary decisions associated with asset purchases and liquidity provision, as well as with lender-of-last-resort operations benefiting private entities, can have major distributional effects that are ordinarily associated with fiscal policy. In the euro area, discretionary central bank decisions can have immense distributional effects across member states. However, decisions of this nature are incompatible with the role of unelected officials in democratic societies. Drawing on the response to the crisis by the Federal Reserve and the ECB, this paper explores the tensions arising from central bank balance sheet policies and addresses pertinent questions about the governance and accountability of independent central banks in a democratic society.
    Keywords: central bank accountability; central bank governance; central bank independence; lender of last resort; loss sharing; monetary financing; Quantitative easing; rules vs discretion.
    JEL: E52 E58 E61 G01 H12
    Date: 2016–07
  16. By: Philippe Bacchetta; Kenza Benhima; Yannick Kalantzis
    Abstract: In this paper we analyze the implications of a persistent liquidity trap in a monetary model with asset scarcity and price exibility. We show that a liquidity trap leads to an increase in cash holdings and may be associated with a long-term output decline. This long-term impact is a supply-side effect that may arise when agents are heterogeneous. It occurs in particular with a persistent deleveraging shock, leading investors to hold cash yielding a low return. Policy implications differ from shorter-run analyses. Quantitative easing leads to a deeper liquidity trap. Exiting the trap by increasing expected inflation or applying negative interest rates does not solve the asset scarcity problem.
    Keywords: Zero lower bound; liquidity trap; asset scarcity; deleveraging
    JEL: E40 E22 E58
    Date: 2016–06
  17. By: Cenkhan Sahin
    Abstract: This paper develops a general equilibrium model featuring tax deductible mortgage interest. There are two main results: (i) a higher mortgage interest deduction leads to higher house prices, more levered households, and a higher rate of mortgage default; (ii) when mortgage risk is high the presence of mortgage interest deduction leads to more volatile responses of the main macro-variables to exogenous shocks (i.e. preference, productivity, and mortgage riskiness shocks). The empirical and theoretical evidence presented support the idea that mortgage interest deductibility may be a relevant factor in the occurrence of homeowner foreclosures.
    Keywords: Mortgage interest deduction; house prices; mortgage default; DSGE
    JEL: E32 E44
    Date: 2016–07
  18. By: Richardson, Gary (Federal Reserve Bank of Richmond); Van Horn, Patrick (Southwestern University)
    Abstract: In 1931, a financial crisis began in Austria, spread to Germany, forced Britain to abandon the gold standard, crossed the Atlantic, and afflicted financial institutions in the United States. This article describes how banks in New York City, the central money market of the United States, reacted to this trans-Atlantic financial disturbance. An array of sources tells a consistent tale. Banks in New York anticipated events in Europe, prepared for them by accumulating substantial reserves, and during the crisis, continued business as usual. New York's leading bankers deliberately and collectively decided on the business-as-usual policy in order to minimize the impact of the panic in the United States.
    JEL: E51 E52 E58 G21 G28 N12 N22
    Date: 2016–07–06
  19. By: Thomas COUDERT (LaRGE Research Center, Université de Strasbourg)
    Abstract: The aim of this paper is to highlight the interaction between inflation persistence and the labor market institutions in a New Keynesian model with a search and matching labor market. In this framework, I reintroduce severance pay and show that the negotiation of this severance pay creates a new real rigidity into wage dynamics. Indeed, following the bonding critique, in a context of free negotiation and in presence of firing costs, workers agree to pay a share of severance pay in order to reduce the burden on firms. Then, a contribution system appears, affecting the real wage dynamics and inflation persistence through the New Keynesian Phillips curve.
    Keywords: Labor Market Search, Severance Pay, Wage Bargaining, Inflation Persistence.
    JEL: E31 E32 J31
    Date: 2016
  20. By: Jinill KIM; Francisco RUGE-MURCIA
    Abstract: This paper studies the positive and normative implication of extreme shocks for monetary policy. The analysis is based on a small-scale new Keynesian model with sticky prices and wages where shocks are drawn from asymmetric generalized extreme value (GEV) distributions. A nonlinear perturbation of the model is estimated by the simulated method of moments. Under both the Taylor and Ramsey policies, the central bank responds nonlinearly and asymmetrically to shocks. The trade-off between targeting a gross ináation rate above 1 as insurance against extreme shocks and strict price stability is unambiguously decided in favour of strict price stability.
    Keywords: extreme value theory, nonlinear models, skewness risk, monetary policy, third-order perturbation, simulated method of moments
    JEL: E4 E5
    Date: 2016
  21. By: Hanck, Christoph; Prüser, Jan
    Abstract: This study uses a Bayesian VAR to demonstrate that the recent house price boom in Germany can be explained by falling interest rates and that higher interest rates are likely suciffient to stop the increase of German house prices. The latter suggests a potential drawback of the current monetary policy of the ECB. The BVAR's prior information shrinks the model parameters towards a parsimonious benchmark. We provide a simulation study to compare the frequentist properties of two useful strategies to select the informativeness of the prior. The study reveals that prior information helps to obtain more precise estimates of impulse response functions in small samples. To choose relevant control variables, we use a new Bayesian variable selection approach by Ding and Karlsson (2014). In addition to impulse responses and variance decompositions, we use a Bayesian conditional forecast to test the hypothetical effect of an increase of interest rates on house prices. This approach has the crucial advantage that it is invariant to the ordering of the variables.
    Abstract: Diese Studie verwendet ein Bayesianisches VAR (BVAR), um zu zeigen, dass der jüngste Hauspreisboom in Deutschland durch fallende Zinsen erklärt werden kann und dass ein höheres Zinsniveau wahrscheinlich zu einem Ende des Booms führen würde. Dies impliziert einen potentiellen Nachteil der aktuellen Geldpolitik der EZB. Die a priori Information schrumpft die BVAR Modellparameter in Richtung eines naiven Benchmarks. In einer Simulationsstudie vergleichen wir die frequentistischen Eigenschaften von zwei nützlichen Strategien, um den Informationsgehalt des Priors zu wählen. Die Studie zeigt, dass a priori Informationen helfen können, um präzisere Schätzungen von Impuls-Antwort-Funktionen in kleinen Stichproben zu erhalten. Um die relevanten Kontrollvariablen auszuwählen, verwenden wir ein neues Bayesianisches Variablen Auswahlverfahren von Ding und Karlsson (2014). Neben Impuls-Antwort-Funktionen und Varianzzerlegungen benutzen wir Bayesianische bedingte Prognosen, um den hypothetischen Effekt von steigenden Zinsen auf Häuserpreise zu analysieren. Dieser Ansatz hat den entscheidenden Vorteil, nicht von der Anordnung der Variablen abhängig zu sein.
    Keywords: Bayesian VAR,shrinkage,house prices
    JEL: C11 C32 C53 E37 E43
    Date: 2016
  22. By: Sunde, Tafirenyika
    Abstract: The article empirically investigated economic growth as a function of foreign direct investment and exports in South Africa. The article applied the autoregressive distributed lag model, known as the ARDL bounds testing approach to cointegration for the long run relationship between economic growth, foreign direct investment and exports. The error correction model was used to examine the short run dynamics; and the VECM Granger causality approach was used to investigate the direction of causality. The article confirmed cointegration between economic growth, foreign direct investment and exports. The article indicates that both foreign direct investment and exports spur economic growth. The VECM Granger causality analysis found unidirectional causality between economic growth and foreign direct investment running from foreign direct investment to economic growth, unidirectional causality between foreign direct investment and exports running from foreign direct investment to exports and bidirectional causality between economic growth and exports. The article confirms the FDI-led growth hypothesis for South Africa. On the policy front, the government should stimulate foreign direct investment through incentives to investors, creation of a good macroeconomic environment and a careful utilisation of loose monetary policy to grow the economy.
    Keywords: Economic growth, foreign direct investment, ARDL, stationarity, South Africa
    JEL: E2 E22 E6
    Date: 2016–03
  23. By: Yuto Iwasaki (Bank of Japan); Sohei Kaihatsu (Bank of Japan)
    Abstract: This paper presents a new framework for measuring underlying inflation with multiple core indicators for Japan's consumer price index (CPI). Specifically, a combined core indicator is constructed by applying an econometric method based on dynamic model averaging as a weighted average of individual core indicators. The combined core indicator has time-varying combination weights reflecting changes in the predictive performance of each individual core indicator on a real time basis. Thus, the combined core indicator has the potential to adapt to changes in the nature and sources of price movements. Empirical evidence indicates that the combined core indicator firmly outperforms the individual core indicators over time. In addition, the combination weights for the exclusion-based indicators (e.g., the CPI excluding fresh food) tend to be high when aggregate shocks drive the overall inflation. In contrast, combination weights for the distribution-based indicators (e.g., trimmed mean) tend to be high when idiosyncratic shocks are dominant.
    Keywords: Consumer price; Core inflation measure; Dynamic model averaging
    JEL: C52 C53 E31
    Date: 2016–06–29
  24. By: Brinca, Pedro (Nova School of Business and Economics); Chari, V. V. (Federal Reserve Bank of Minneapolis); Kehoe, Patrick J. (Federal Reserve Bank of Minneapolis); McGrattan, Ellen R. (Federal Reserve Bank of Minneapolis)
    Abstract: We elaborate on the business cycle accounting method proposed by Chari, Kehoe, and McGrattan (2007), clear up some misconceptions about the method, and then apply it to compare the Great Recession across OECD countries as well as to the recessions of the 1980s in these countries. We have four main findings. First, with the notable exception of the United States, Spain, and Ireland, the Great Recession was driven primarily by the efficiency wedge. Second, in the Great Recession, the labor wedge plays a dominant role only in the United States, and the investment wedge plays a dominant role in Ireland and Spain. Third, in the recessions of the 1980s the labor wedge played a dominant role only in Denmark and the United Kingdom. Finally, overall in the Great Recession the efficiency wedge played a much more important role and the investment wedge played a much less important role than they did in the recessions of the 1980s.
    Keywords: Business cycle accounting; Great Recession; 1982 recession
    JEL: E60 E61 G28 G33
    Date: 2016–06–28
  25. By: Stoian, Andreea; Iorgulescu, Filip
    Abstract: The aim of this paper is to examine whether information on fiscal policy includes in the stock prices in a way which is consistent with the Efficiency Market Hypothesis. We conduct our investigation for the Bucharest Stock Exchange which is one emerging stock market from Central and Eastern Europe. For the purpose of our study, we employ the methodology suggested by Darrat (1988). We analyse the influence of past fiscal policy on current stock market return using two distinct datasets comprising of quarterly and monthly data. The results indicate that when we do not control for the anticipated and unanticipated effects of fiscal policy, past lags of changes in the overall budget balance and in public debt-to-GDP ratio have a significant impact on stock market return and, thus, we fail in accepting the semi-strong form of the efficiency market hypothesis.
    Keywords: fiscal policy, stock return, budget balance, public debt, Efficiency Market Hypothesis
    JEL: E44 E62 G14 H6
    Date: 2016–06–06
  26. By: Vasilev, Aleksandar
    Abstract: This paper shows that a modified real business cycle (RBC) model, one that includes home production and fiscal spending shocks, can solve one of the RBC puzzles and generates zero correlation between wages and hours. In addition, the micro-founded model presented here provides a sound theoretical model to analyze fiscal policy in a neoclassical framework and is able to capture many aspects of the data that the benchmark RBC model was missing.
    Keywords: fiscal policy,home production,government spending shock,indivisible labor
    JEL: C63 E62 E32
    Date: 2015
  27. By: Amador, João; Nagengast, Arne J.
    Abstract: We show that credit supply shocks have a strong impact on firm-level as well as aggregate investment by applying the methodology developed by Amiti and Weinstein (2013) to a rich dataset of matched bank-firm loans in the Portuguese economy for the period 2005 to 2013. We argue that their decomposition framework can also be used in the presence of small firms with only one banking relationship as long as they account for only a small share of the total loan volume of their banks. The growth rate of individual loans in our dataset is decomposed into bank, firm, industry and common shocks. Adverse bank shocks are found to impair firm-level investment in all firms in our sample, but in particular for small firms and those with no access to alternative financing sources. For the economy as a whole, granular shocks in the banking system account for around 20-40% of aggregate investment dynamics.
    Keywords: Banks,Credit Dynamics,Investment,Firm-level data,Portuguese Economy
    JEL: E32 E44 G21 G32
    Date: 2016
  28. By: Hernandez-Chanto, Allan
    Abstract: There have been many episodes in history where low-denomination money holdings have been exchanged with a premium over its face value. The most recent occurred in Panama only twenty five years ago, under a modern banking system. In such episodes, even where there is an entity capable to provide convertibility of money holdings at a fixed rate, and when agents expect this rate to prevail in the long run, arbitrage possibilities in the denomination of money arise as a consequence of a shortage of liquid assets and the presence of low prices in the economy. Despite of its relevance and recurrence, this phenomenon cannot be explained by current models of fiat money. To explain it we need a model where: (i) fiat money comes in different denominations which are used as a medium of exchange, (ii) there is an entity that provides convertibility of denominations at fixed rate, (iii) the natural rate is a feasible equilibrium of the model, and (iv) there are parameterizations where low denomination money holdings are given an extrinsic value. In this paper we build a money search model with all this characteristics and determine theoretically the specific conditions under which such equilibrium naturally arises.
    Keywords: Convertibility, Extrinsic value, Money holdings, Poisson technology
    JEL: E50 E52
    Date: 2016–01–15
  29. By: Yannis Dafermos (University of the West of England); Maria Nikolaidi; Giorgos Galanis
    Abstract: This paper develops a stock-flow-fund ecological macroeconomic model that combines the stock-flow consistent approach of Godley and Lavoie with the flow-fund model of Georgescu-Roegen. The model has the following key features. First, monetary and physical stocks and flows are explicitly formalised taking into account the accounting principles and the laws of thermodynamics. Second, Georgescu-Roegen’s distinction between stock-flow and fund-service resources is adopted. Third, output is demand-determined but supply constraints might arise either due to environmental damages or due to the exhaustion of natural resources. Fourth, climate change influences directly the components of aggregate demand. Fifth, finance affects macroeconomic activity and the materialisation of investment plans that determine ecological efficiency. The model is calibrated using global data. Simulations are conducted to investigate the trajectories of key environmental, macroeconomic and financial variables under (i) different assumptions about the sensitivity of economic activity to the leverage ratio of firms and (ii) different types of green finance policies.
    Keywords: ecological macroeconomics, stock-flow consistent modelling, laws of thermodynamics, climate change, finance
    JEL: E12 E44 Q54 Q57
    Date: 2016–07
  30. By: Krebs, Tom (University of Mannheim - IZA); Kuhn, Moritz (University of Bonn - IZA); Wright, Mark L. J. (Federal Reserve Bank of Chicago)
    Abstract: This paper develops a tractable human capital model with limited enforceability of contracts. The model economy is populated by a large number of long-lived, risk-averse households with homothetic preferences who can invest in risk-free physical capital and risky human capital. Households have access to a complete set of credit and insurance contracts, but their ability to use the available financial instruments is limited by the possibility of default (limited contract enforcement). We provide a convenient equilibrium characterization that facilitates the computation of recursive equilibria substantially. We use a calibrated version of the model with stochastically aging households divided into 9 age groups. Younger households have higher expected human capital returns than older households. According to the baseline calibration, for young households less than half of human capital risk is insured and the welfare losses due to the lack of insurance range from 3 percent of lifetime consumption (age 40) to 7 percent of lifetime consumption (age 23). Realistic variations in the model parameters have non-negligible effects on equilibrium insurance and welfare, but the result that young households are severely underinsured is robust to such variations.
    Keywords: Human capital; Household; Insurance; Risk; Limited Enforcement
    JEL: D52 E21 E24 J24
    Date: 2016–03–26
  31. By: Romain Baeriswyl (Swiss National Bank, Boersenstrasse 15, 8022 Zurich, Switzerland); Camille Cornand (Univ Lyon, CNRS, GATE UMR 5824, F-69130 Ecully, France); Bruno Ziliotto (Paris Dauphine University, PSL Research University, Place du Maréchal de Lattre de Tassigny, F-75016 Paris, France)
    Abstract: While the central bank observes the market activity to assess economic fundamentals, it shapes the market outcome through its policy interventions. The more the central bank influences the market, the more it spoils the informational content of economic aggregates. How should the central bank act and communicate when it derives its information from observing the market? This paper analyses the optimal central bank's action and disclosure under endogenous central bank's information for three operational frameworks: pure communication, action and communication, and signaling action. When the central bank takes an action, it would be optimal for the central bank to be fully opaque to prevent its disclosure from deteriorating the information quality of market outcomes. However, in the realistic case where central bank's action is observable, it may be optimal to refrain from implementing any action.
    Keywords: heterogeneous information, public information, endogenous information, overreaction, transparency, coordination
    JEL: D82 E52 E58
    Date: 2016
  32. By: Rünstler, Gerhard; Vlekke, Marente
    Abstract: We use multivariate unobserved components models to estimate trend and cyclical components in GDP, credit volumes and house prices for the U.S. and the five largest European economies. With the exception of Germany, we find large and long cycles in credit and house prices, which are highly correlated with a medium-term component in GDP cycles. Differences across countries in the length and size of cycles appear to be related to the properties of national housing markets. The precision of pseudo real-time estimates of credit and house price cycles is roughly comparable to that of GDP cycles. JEL Classification: C32, E32, E44
    Keywords: credit cycle, financial cycles, house prices, model-based filters, unobserved components models
    Date: 2016–06
  33. By: Piotr Krajewski (Institute of Economics, Faculty of Economics and Sociology, University of Lodz, Poland)
    Abstract: We analyse the effects of fiscal policy in non-EMU Central and Eastern European counties. The analysis is based on new Keynesian model, which takes into account both optimizing Ricardian households and non-Ricardian households with liquidity constraints. Results of the study indicate that the share of non-Ricardians has significant impact on fiscal multipliers. The government spending multiplier reaches 3 in the country with highest share of non- Ricardian households, whereas in the country with lowest share of non-Ricardians is lower than one. Also effects of government spending shocks on consumption are very sensitive to the share of households with liquidity constraints.
    Keywords: fiscal policy, government spending, new Keynesian model, heterogeneity of households, non-Ricardian households.
    JEL: E32
    Date: 2016–05
  34. By: Carlos Viana de Carvalho (Department of Economics PUC-Rio); EriC Hsu (UC Berkeley); Fernanda Necchio (FRB San Francisco)
    Abstract: The Zero Lower Bound (ZLB) on interest rates is often regarded as an important constraint on monetary policy. To assess how the ZLB affected the Fed's ability to conduct policy, we estimate the effects of Fed communication on yields of different maturities in the pre-ZLB and ZLB periods. Before the ZLB period, communication affects both short- and long-dated yields. In contrast, during the ZLB period, the reaction of yields to communication is concentrated in longer-dated yields. Our findings support the view that the ZLB did not put such a critical constraint on monetary policy, as the Fed retained some ability to affect long-term yields through communication.
    Date: 2016–04
  35. By: Carlos Fernando Daza Moreno; Jorge Mario Uribe
    Abstract: En este documento se exploran los efectos de la política monetaria de Estados Unidos sobre las economías de Colombia, Perú y Chile. Se hace uso de modelos SVAR-X Se encuentra que la política monetaria estadounidense tiene efectos de escasa magnitud y diversos sobre las economías estudiadas. En Colombia, una política monetaria contractiva externa está acompañada de un leve incremento de la actividad económica dos meses después de su implementación, un escaso descenso de la inflación y una apreciación del tipo de cambio nominal sin persistencia. En Chile y Perú, solo son significativos los impactos sobre el nivel de producción, aunque estos van en sentidos opuestos en cada economía.
    Keywords: SVAR, VARX, Política monetaria, Estados Unidos, Economías Emergentes.
    JEL: E43 E52 F41 C32 F62
    Date: 2016–06–03
  36. By: Vincent Frogneux; Michel Saintrain
    Abstract: Within the framework of the sixth state reform, part of the personal income tax has been regionalised. What's more, in ESA2010, certain tax expenditures which were partly recorded as negative revenue in ESA95 are now recorded as general government expenditure. These changes motivate a revision of the personal income tax model which is used both for the short and medium term projections made by the FPB and for variant analyses. The new model makes a distinction between the “prepayment†tax (payroll tax and advance payments) and the “enrolment†tax (which fixes the amounts due under regional and local additional levies). It provides a better link to the macroeconomy and explicitly takes into account the schedule of tax enrolment.
    JEL: C19 E62 H24 H77
    Date: 2016–03–24
  37. By: Patrick Higgins; Tao Zha; Karen Zhong
    Abstract: Although macroeconomic forecasting forms an integral part of the policymaking process, there has been a serious lack of rigorous and systematic research in the evaluation of out-of-sample model-based forecasts of China's real GDP growth and CPI inflation. This paper fills this research gap by providing a replicable forecasting model that beats a host of other competing models when measured by root mean square errors, especially over long-run forecast horizons. The model is shown to be capable of predicting turning points and to be usable for policy analysis under different scenarios. It predicts that China's future GDP growth will be of L-shape rather than U-shape.
    JEL: C53 E1 E17
    Date: 2016–07
  38. By: Fernando Fernández-Rodríguez (Department of Quantitative Methods in Economics, Universidad de Las Palmas de Gran Canaria.); Marta Gómez-Puig (Department of Economic Theory, Universitat de Barcelona.); Simón Sosvilla-Rivero (Complutense Institute of International Studies, Universidad Complutense de Madrid.)
    Abstract: We analyse volatility spillovers in EMU sovereign bond markets. First, we examine the unconditional patterns during the full sample (April 1999-January 2014) using a measure recently proposed by Diebold and Yılmaz (2012). Second, we make use of a dynamic analysis to evaluate net directional volatility spillovers for each of the eleven countries under study, and to determine whether core and peripheral markets present differences. Finally, we apply a panel analysis to empirically investigate the determinants of net directional spillovers of this kind.
    Keywords: Sovereign debt crisis; Euro area; Market Linkages; Vector Autoregression; Variance Decomposition.
    JEL: C53 E44 F36 G15
    Date: 2015
  39. By: Lechthaler, Wolfgang
    Abstract: This paper studies the effects of protectionism as a business cycle instrument. In normal times, protectionism reduces international trade, distorts production and reduces output. However, in a liquidity trap protectionism lowers the real interest rate because inflation goes up while the nominal interest rate is stuck at the zero lower bound. This stimulates consumption and output.
    Keywords: Business cycle policy,Protectionism,Liquidity trap
    JEL: E12 E60 F13
    Date: 2016
  40. By: Dana Gabriela SISEA (Faculty of Economics, Ecological University of Bucharest)
    Abstract: The Romanian banking system, though under multiple layout characterized positive (capitalization, monitoring, regulation, solvency, risk factors, etc.), is involved in solving some major problems and in direct connection with the sides of his qualitative. Problems with positive impact on the work of the domestic banking system, customize under different aspect, between which: natural factors, they have generated, the directions in which action must be taken and the strategies imposed by the identification of solutions to solve each problem. Of these factors, the generator problem in the banking business, presents the importance. Many high-risk problems for the banking business are attributable to internal factors, management, management, regulation and monitoring of activities, methods for carrying out financial intermediation operations. Due to internal factors, banking entities are faced with significant problems, such as delays in the resumption of crediting in foreign currency lending priority (especially in CHF), the share of bad loans (most of them outsourced), lack of credibility towards consumers, etc. In regards to the problems stemming from external factors, they may be, in essence: financial disintermediation, delays in application of regulations the concurring with the new European vision in the field of banking activity, etc. Essential aspects relating to issues impacting the banking activity shall be entered in the following.
    Keywords: financial disintermediation, foreign liabilities, external financing lines, subprime loans, digitization of banking services
    JEL: E44 G32 H81
    Date: 2015–11
  41. By: Hazan, Moshe; Weiss, David; Zoabi, Hosny
    Abstract: Property rights are at the heart of capitalism's ability to efficiently allocate resources. Historically, married women have been one of the groups with the greatest legal disabilities in this regard, to the benefit of their husbands. Starting in the second half of the 19th century, common law countries, which were entirely dominated by men, gave married women property rights. Before this ``women's liberation,'' married women were subject to the laws of coverture. Coverture had detailed laws as to which spouse had ownership and control over various aspects of property both before and after marriage. These laws created a strong disincentive for women to invest in financial assets, such as stocks, bonds, and even bank deposits. This paper develops a general equilibrium model with endogenous determination of women's rights in which these laws affect portfolio choices, leading to inefficient allocations. We show how technological advancement eventually leads to men granting rights, and in turn how these rights affect development. Exploiting cross-state variation in the timing of rights, we show that increases in non-agricultural TFP predict the granting of rights. The granting of rights in turn leads to a dynamic labor reallocation towards the non-agricultural sector, representing further development. Finally, we show that women's rights are associated with lower interest rates and greater financial intermediation, consistent with an increase in the supply of credit.
    Keywords: Economic Growth; financial innovation; investor protection; political economy
    JEL: E02 E44 G11 J12 K11 K36 N11 N21 O11
    Date: 2016–07
  42. By: Alexander Yu. Apokin (National Research University Higher School of Economics); Irina B. Ipatova (National Research University Higher School of Economics)
    Abstract: This paper investigates the factors behind the recent growth slowdown (so-called Secular Stagnation) in the US, the euro area and Japan using the metrics of potential output growth. Specifically, our results offer limited support for an impaired credit transmission channel hypothesis (Reinhart and Rogoff, 2009a), while not supporting a supply slowdown hypothesis (Gordon, 2012). We propose a unified framework to test those hypotheses based on structural break tests of potential output. We estimate a variety of potential output growth models accounting for inflation, unemployment, and private credit dynamics (finance-neutral estimates) with multivariate Kalman filters and subject our estimates to structural break tests. We detect structural breaks between 2008 and 2010 for all three countries with Bai-Perron search procedure, the result being robust to the model specification and sample choice, with no significant difference between ordinary and finance-neutral estimates. We proceed with the Chen-Liu test to detect negative temporary change outliers in the Great Recession for the US and the euro area and negative level shift outliers for Japan. Moreover, original breaks in the Chen-Liu test disappear in the US and the euro area once we account for private credit and labour market dynamics, but do not change for Japan.
    Keywords: New Normal, Secular Stagnation, Great Slump, potential GDP, Kalman filter, Bai-Perron test, Chen-Liu test
    JEL: C53 E17 F44 O57
    Date: 2016
  43. By: Vasilev, Aleksandar
    Abstract: In this paper, an econometric model of consumption in Bulgaria for the period 1997-2005 is constructed. The Error-Correction Model (ECM) approach is employed and long-run relationship between household consumption and income was found. The primary purpose of this empirical paper is to get a better understanding of the factors driving household consumption in Bulgaria and to estimate a consumption function to be used for medium-term forecasting. It is shown that all households behave in a Keynesian way, basing their consumption decisions on current income.
    Keywords: Keynesian consumption function,Error-correction model
    JEL: E21 E27
    Date: 2015
  44. By: Bataa, Erdenebat; Wohar, Mark; Vivian, Andrew
    Abstract: This paper examines the dynamic relationship between interest rates, inflation and economic growth using the longest available dataset for the UK and a vector autoregression (VAR). The approach adopted enables structural breaks to be identified in the dynamic system. It then can ascribe breaks in covariance to changes in volatility or to changes in correlation. Our empirical findings indicate several structural breaks in the relationship, which lead to very different inference compared to a constant parameter model. For example, interest rates respond much more strongly to growth or inflation over recent decades. Furthermore, our evidence suggests that all variables become more persistent after the classical gold standard ended with the onset of WW1.
    Keywords: Short-term Interest Rate, Inflation, Growth, VAR, Structural Breaks
    JEL: C12 C32 E20
    Date: 2015–09–01
  45. By: Mario Holzner (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Zusammenfassung Bescheidener Aufschwung im Osten – Bremsklotz EU-Fiskalregeln Für die mittel-, ost-und südosteuropäischen Länder (MOSOEL) ist das internationale Umfeld insbesondere von der trägen Erholung des Euro-Raumes gekennzeichnet. Die rigiden EU-Fiskalregeln sind der größte Bremsklotz für einen nachhaltigen wirtschaftlichen Aufschwung in Europa. Mittelfristig erwarten wir für die MOSOEL ein BIP-Trendwachstum von bis zu 3%. Dabei ist der Haushaltskonsum vor allem in den mittel- und osteuropäischen EU-Mitgliedstaaten wachstumsbestimmend. In den Ländern des Westbalkans können auch Investitionen und Nettoexporte als wichtige Wachstumstreiber identifiziert werden. In der Gemeinschaft Unabhängiger Staaten und der Ukraine scheint die Talsohle erreicht worden zu sein. Nach einer Phase der Stagnation kann auch dort ein leichtes Wachstum erwartet werden. Österreich sollte ein Profiteur von der Erholung in den MOSOEL sein, da es sich um wichtige Handelspartner handelt. Für die österreichische Wettbewerbsfähigkeit stellen die MOSOEL aber nur eine geringe Gefahr dar. Längerfristig steigen dort die Löhne stärker als die Produktivität. Die Folgen des BREXIT stellen ein großes Risiko für ganz Europa dar. English Summary Modest recovery in the East – EU fiscal rules act as obstacle to growth The international environment for Central, East and Southeast Europe (CESEE) is affected by the weak recovery in the euro area. The rigid EU fiscal rules are an important obstacle to sustainable economic revival in Europe. Over the medium term, we expect a GDP trend growth rate of up to 3% for CESEE. Especially for the EU members of Central and Eastern Europe, household consumption will be an important component of economic growth. In the countries of the Western Balkans also investment and net exports will be important growth drivers. In the Commonwealth of Independent States and in Ukraine the economic downturn has bottomed out. After a period of stagnation, slow growth can be expected also there. Austria should gain from the recovery in CESEE, given that the region is home to important Austrian trading partners. These pose, however, only little danger for Austrian competitiveness. There, over the longer term wages will be rising faster than productivity. The BREXIT implications pose a substantial risk for all of Europe.
    Keywords: macroeconomic analysis, international trade, competitiveness, consumption, investment, global financial crisis
    JEL: E20 F34 G01 O52 O57 P24 P27 P33 P52
    Date: 2016–06
  46. By: Darracq Pariès, Matthieu; Hałaj, Grzegorz; Kok, Christoffer
    Abstract: With the aim of reigniting inflation in the euro area, in early 2015 the ECB embarked on a large-scale asset purchase programme. We analyse the macroeconomic effects of the Asset Purchase Programme via the banking system, exploiting the cross-section of individual bank portfolio decisions. For this purpose, an augmented version of the DSGE model of Gertler and Karadi (2013), featuring a segmented banking sector, is estimated for the euro area and combined with a bank portfolio optimisation approach using granular bank level data. An important feature of our modelling approach is that it captures the heterogeneity of banks’ responses to yield curve shocks, due to individual banks’ balance sheet structure, different capital and liquidity constraints as well as different credit and market risk characteristics. The deep parameters of the DSGE model which control the transmission channel of central bank asset purchases are then adjusted to reproduce the easing of lending conditions consistent with the bank-level portfolio optimisation. Our macroeconomic simulations suggest that such unconventional policies have the potential to strongly support the growth momentum in the euro area and significantly lift inflation prospects. The paper also illustrates that the benefits of the measure crucially hinge on banks’ ability and incentives to ease their lending conditions, which can vary significantly across jurisdictions and segments of the banking system. JEL Classification: C61, E52, G11
    Keywords: banking, DSGE, portfolio optimisation, quantitative easing
    Date: 2016–06
  47. By: Mathews, Don (Reg Murphy Center for Economic and Policy Studies)
    Abstract: This April 2016 study complements the February 2016 study and compares real personal income per capita in the six South Georgia Coast counties – Brantley, Camden, Charlton, Glynn, McIntosh, and Wayne – to that of the U.S., Georgia, and Georgia’s other 153 counties in three different time periods since 2000. Special attention is paid to Glynn County, the largest of the six South Georgia Coast counties.
    Keywords: Glynn County; Georgia; economic performance by county; great recession
    JEL: E32 R11
    Date: 2016–04–15
  48. By: López-Martín Bernabé
    Abstract: A quantitative framework of firm dynamics is developed where the size of the informal sector is determined by financial constraints and the burden of taxation. Improving access to credit for formal sector firms increases aggregate TFP and output while reducing the size of the informal sector. Introducing size-dependent taxes reduces the gains from financial development as they incentivize firms to produce at a relatively limited scale. The aggregate effects of eliminating formal sector registration costs are positive but modest relative to previous theoretical models and the gains generated by financial development, and consistent with empirical evidence based on micro-level data.
    Keywords: informal sector; misallocation; aggregate productivity; financial constraints; size-dependent taxes.
    JEL: E26 L11 O11 O17 O40
    Date: 2016–06
  49. By: Fernando Fernández-Rodríguez (Department of Quantitative Methods in Economics, Universidad de Las Palmas de Gran Canaria, 35017 Las Palmas de Gran Canaria, Spain.); Marta Gómez-Puig (Department of Economic Theory, Universitat de Barcelona. 08034 Barcelona, Spain.); Simón Sosvilla-Rivero (Complutense Institute of International Studies Department of Quantitative Economics, Universidad Complutense de Madrid.)
    Abstract: This paper measures the connectedness in EMU sovereign market volatility between April 1999 and January 2014, in order to monitor stress transmission and to identify episodes of intensive spillovers from one country to the others. To this end, we first perform a static and dynamic analysis to measure the total volatility connectedness in the entire period (the system-wide approach) using a framework recently proposed by Diebold and Yılmaz (2014). Second, we make use of a dynamic analysis to evaluate the net directional connectedness for each country and apply panel model techniques to investigate its determinants. Finally, to gain further insights, we examine the time-varying behaviour of net pair-wise directional connectedness at different stages of the recent sovereign debt crisis.
    Keywords: Sovereign debt crisis; Euro area; Market linkages; Vector autoregression; Variance decomposition.
    Date: 2015
  50. By: Oscar Andrés Espinosa Acuña; Paola Andrea Vaca González
    Abstract: Este artículo presenta los resultados de una investigación acerca de los posibles determinantes del desempleo en Colombia en el siglo XXI, mediante un modelo VAR-X cointegrado. El análisis de cointegración evidencia estadísticamente una relación de largo plazo entre las variables términos de intercambio, ventas reales, productividad laboral, empleo, salarios reales y desempleo. Al estimar el modelo y desarrollar el análisis de impulso respuesta, se concluye que las ventas reales son un factor importante para el desempleo en el corto plazo, como la productividad lo es en gran medida para el mediano y largo plazo. Este análisis se confirma con los resultados arrojados por la descomposición de varianza.
    Keywords: Desempleo, Colombia, VAR-X cointegrado, análisis de impulso respuesta, descomposición de varianza.
    JEL: C32 E24
    Date: 2014–12–12
  51. By: Christopher McDonald; Craig Thamotheram; Shaun P. Vahey; Elizabeth C. Wakerly
    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.
    Keywords: Forecasting inflation, Inflation targeting, Cost-loss ratio, Forecast evaluation, Monetary policy
    Date: 2016–06
  52. By: Hatcher, Michael
    Abstract: An overlapping generations model is set out in which monetary policy matters for distortionary taxes because unanticipated inflation has real wealth effects on households with nominal government debt. The model is used to study the tax burden under inflation and nominal GDP targeting. Nominal GDP targeting makes taxes less volatile than inflation targeting but raises average taxes. With a quadratic loss function, the expected tax burden is minimized with only indexed debt under inflation targeting, but with both indexed and nominal debt under nominal GDP targeting. Nominal GDP targeting lowers the tax burden relative to inflation targeting (except at very high indexation shares), but this conclusion hinges on risk aversion, productivity persistence and the loss function for the tax burden.
    Date: 2016–07–04
  53. By: Francisco RUGE-MURCIA; Alessandro RIBONI
    Abstract: The new Bank of Israel Law of 2010 changed monetary policy decisionmaking at the Bank of Israel from a setup where decisions are taken by the governor to one where decisions are taken by a committee of voting members. We use this institutional change as a natural experiment to compare individual versus collective decisionmaking. Empirical results show different dynamics for interest rate decisions across the two regimes and support the view that the status quo bias is larger when decisions are taken by a committee than when they are taken by a single individual.
    Keywords: committees, voting models, political economy of central banking
    JEL: D7 E5
    Date: 2016
  54. By: Garbade, Kenneth D. (Federal Reserve Bank of New York)
    Abstract: Following the Treasury–Federal Reserve Accord of March 3, 1951, the Federal Open Market Committee (FOMC) focused on free reserves—the difference between excess reserves (reserve deposits in excess of reserve requirements) and borrowed reserves—as the touchstone of U.S. monetary policy. However, managing free reserves was problematic because highly variable and not readily predictable autonomous factors, including float, Treasury balances at Federal Reserve Banks, and currency in the hands of the public, induced comparable volatility and unpredictability in reserve deposits and hence in free reserves. Managing free reserves effectively required policy instruments that could inject and drain large quantities of reserves quickly at low transaction costs. {{p}}This paper surveys the two leading policy instruments for reserves management: 1) open market purchases and sales of Treasury bills, and 2) repurchase agreements. Outright transactions in bills were specifically authorized by statute and used in unexceptional ways for managing reserves over relatively long periods, but they had significant drawbacks for short-term “in and out” operations when additional reserves were needed for only a few days. Repos, however, while not specifically authorized by statute, were ideally suited for in-and-out operations. The acceptance of repurchase agreements as an instrument of monetary policy, even in the face of active resistance by some FOMC members, illustrates how utility can sometimes trump concerns about statutory authority, equity, and need.
    Keywords: repurchase agreements; reserves management; accord
    JEL: E5 G2 N2
    Date: 2016–06–01
  55. By: Sanne Zwart
    Abstract: Investment has rebounded during the recent economic revival, but from a low level. The investment slump during the crisis was mostly caused by a fall in residential investment. However, business investment has been trending downwards since 1990, holding back capital stock accumulation and productivity. Raising residential investment is necessary to meet the growing demand, and in particular more private rental housing is needed as the current small stock, which reflects rental regulation and other housing policies, hampers the functioning of the housing market. Financing of owner-occupied housing can be made more resilient by stepping up measures taken after the crisis. Regarding business investment, further reinforcing the already good framework conditions would help to turn its cyclical upswing into a durably higher level. Meeting targets on R&D expenditure and renewable energy requires lifting investments in the related areas. Financing conditions, which are widely perceived as an important bottleneck, could be improved by stimulating competition in the banking sector and the development of alternative financing sources. Stimuler l'investissement privé aux Pays-Bas L’investissement s’est redressé depuis la reprise économique récente, mais à partir d’un niveau faible. La forte diminution observée pendant la crise était principalement imputable à la chute de l’investissement résidentiel. Cependant, l’investissement productif est orienté à la baisse depuis 1990, pesant sur l’accumulation du stock de capital et sur la productivité. Il est nécessaire d’accroître l’investissement résidentiel pour faire face à la demande croissante ; en particulier, il faut développer le parc locatif privé car le stock actuel, dont le niveau reflète l’encadrement des loyers et d’autres mesures en matière de logement, n’est pas favorable à un bon fonctionnement du marché immobilier. Étoffer les mesures prises après la crise pourrait permettre d’accroître la robustesse du financement des logements occupés par leurs propriétaires. Pour ce qui est de l’investissement des entreprises, continuer de renforcer les conditions cadres, déjà satisfaisantes, pourrait contribuer à transformer le redressement cyclique en amélioration durable. Atteindre les objectifs en matière de dépenses de R-D et d’énergies renouvelables nécessitera d’accroître les investissements dans les domaines concernés. Les conditions de financement, largement perçues comme un obstacle de taille, pourraient être améliorées par des mesures visant à stimuler la concurrence dans le secteur bancaire et par le développement d’autres sources de financement.
    Keywords: investment, housing market, SME financing, sustainable development, research and development
    JEL: E22 G21 G23 O38 Q01 R31
    Date: 2016–06–30
  56. By: Morgan, Peter (Asian Development Bank Institute); Regis, Paulo José (Division of Economics, Xi'an Jiaotong-Liverpool University); Salike, Nimesh (Division of Economics, Xi'an Jiaotong-Liverpool University)
    Abstract: Credit creation in the housing market has been a key source of systemic financial risk, and therefore is at the center of the debate on macroprudential policies. The loan-to-value (LTV) ratio is a widely-used macroprudential tool aimed at moderating mortgage loan creation, and its effectiveness needs to be estimated empirically. This paper is unique in that it analyzes the effect of LTV on mortgage lending, the direct channel of influence, using a large sample of banks in ten Asian countries. It uses estimation techniques to deal with the large presence of outliers in the data. Robust to outlier estimations show that countries with LTV polices have expanded residential mortgage loans by 6.7% per year while non-LTV countries have expanded by 14.6%, which suggests LTV policies have been effective.
    Keywords: macroprudential policies, financial stability, robust to outliers regression, mortgage loan creation
    JEL: C23 E58 G21 G28
    Date: 2015–08–25
  57. By: Faure, Salomon; Gersbach, Hans
    Abstract: We develop a general equilibrium model to study money creation by private banks and examine the impact of monetary policy and capital regulation. There are two production sectors, financial intermediation, aggregate shocks, safe deposits, and two types of money creation: private deposits when banks grant loans to firms or to other banks and central bank money when the central bank grants loans to private banks. We show that in the baseline model, equilibria yield the first-best level of money creation and lending, regardless of the monetary policy or capital regulation. If we add price rigidities coupled with the zero lower bound, there may be no equilibrium with banks, but under normal economic conditions, an adequate combination of monetary policy and capital regulation can restore the existence of equilibria and efficiency. Finally, we show that Forward Guidance and capital regulation can only avoid a slump in money creation and lending if economic conditions are sufficiently favorable.
    Date: 2016–06
  58. By: López-Pérez, Víctor
    Abstract: This paper explores how changes in macroeconomic uncertainty have affected the decision to reply to the European Central Bank's Survey of Professional Forecasters (ECB's SPF). The results suggest that higher (lower) aggregate uncertainty increases (reduces) non-response to the survey. This effect is statistically and economically significant. Therefore, the assumption that individual ECB's SPF data are missing at random may not be appropriate. Moreover, the forecasters that perceive more individual uncertainty seem to have a lower likelihood of replying to the survey. Consequently, measures of uncertainty computed from individual ECB's SPF data could be biased downwards.
    Keywords: Non-response,uncertainty,Survey of Professional Forecasters,European Central Bank
    JEL: D81 D84 E66
    Date: 2016
  59. By: Igor Fedotenkov (Bank of Lithuania)
    Keywords: labour shares, population ageing, CES production function
    JEL: E25 C51 J14
    Date: 2016–07–01
  60. By: Davor Iljkić (PUZ,Sektor kriminalističke policije)
    Abstract: U radu se prezentira pranje novca kao pojava s transnacionalnim elementima u kriminalističkom i kaznenopravnom smislu i uloga financijskih obavještajnih jedinica u prevenciji i sprečavanju pranja novca. Definirani su osnovni pojmovi, faze pranja novca, osnovna načela, međunarodni propisi, međunarodni kaznenopravni okvir, smjernice i Direktive EU, normativna struktura u Hrvatskoj obuhvaćena pravilnicima i Zakonom o sprječavanju pranja novca i financiranju terorizma. Kupovina dionica, nekretnina, osnivanje crnih fondova je prijetnja za sigurnost financijskog i banakarskog sustava. Zbog toga je od krucijalne važnosti pratiti korak u pristupu s preporukama Europe i težiti zakonodavnom unapređivanjum, modernizaciji susatva i usklađivanju. U tome je od velike pomoći predviđanje problema i zakonodavnih rješenja koje imaju zemlje s dugoročnom praksom u pranju novca poput Njemačke i SAD.
    Keywords: pranje novca, financiranje terorizma, prevencija, sumnjiva transakcija, oduzimanje ilegalnih prihoda, financiranje terorizma
    JEL: K42 E42 F38
    Date: 2015–04
  61. By: Taro Abe
    Abstract: This paper examines the effectiveness of redistribution policies under budget constraint considering government spending for the productivity improvement as Bowles (2012) and effective demand based on Abe (2015). It shows that an asset-based redistribution policy is not always effective under effective demand and budget constraint. However, the increase of effective demand because of income distribution improves employment, labor productivity, and wage rates because of increased government spending for productivity improvement as the results of saving rate from profit income show.
    Keywords: Egalitarianism, Redistribution, Effective Demand, Globalization
    JEL: E12 F60 J80 J88
    Date: 2016–02
  62. By: Moises S. Andrade (Department of Economics PUC-Rio); Tiago Berriel (Banco Central do Brasil)
    Abstract: Expansionary fiscal policies have been advocated to induce output expansions and inflation in deep recession or deflationary episodes. We show that, in a fiscalist setup, an increase in deficits can trigger a stagflation by negatively affecting financial intermediation of resources to investments. Financial intermediaries collect deposits to buy government bonds and lend through nominal long-term loans. When intermediaries face financial frictions and a maturity mismatch on their assets and liabilities, a surprise inflation and/or a revaluation of bonds prices impair their net-worth reducing lending, investments, and output. Recession comes with in- flation in a fiscal expansion because the fall on capital triggered on the financial sector rises production firms marginal costs. The probability of a recession is higher the greater is the maturity mismatch, the sensitivity of bonds prices to the policy rate, and the share of bonds on banks balances. These results: (1) give theoretical support for the negative relation documented between financial sector performance and inflation (2) help explaining high debt, high inflation environments coinciding with banking crisis and, more importantly, (3) expose drawbacks of fiscal inflation policies proposed to inflate and stimulate low inflation economies, where the setup stressed in this paper is more probable to be present.
    Date: 2016–04
  63. By: Cedric Durand (None); Maxime Gueuder
    Abstract: During the past decades, the link between profits and domestic investment has weakened in the biggest high-income economies. The present contribution explores this relaxation of the profits-investment nexus through a profit-centred perspective. Focusing on the impact of the origins and uses of profits, we study the investment behaviour of non-financial corporations in relation to their profits at the macro level since 1980, a period marked by financialisation and globalisation. We contrast three competing hypotheses – the Revenge of the Rentiers, the Financial Turn of Accumulation and Globalisation – and test them through a macro panel data analysis for France, Germany, Italy, Japan, the United Kingdom and the United States over the period 1980-2012.
    Keywords: profits, investment, financialisation, globalisation, macro panel analysis
    JEL: E22 F62 G35
    Date: 2016–07
  64. By: Miguel Faria-e-Castro (New York University); Luis Fonseca (London Business School); Matteo Crosignani (NYU Stern)
    Abstract: We analyze some of the potentially unintended consequences of the largest liquidity injection ever conducted by a central bank: the European Central Bank’s three-year Long-Term Refinancing Operations conducted in December 2011 and February 2012. Using an unique dataset on monthly security- and bank-level holdings of government bonds for Portugal, we analyze the impact of this unconventional monetary policy operation on the demand for government debt. We find that: (i) Portuguese banks significantly increased their holdings of domestic government bonds after the announcement of this policy; (ii) This increase in holdings was tilted towards shorter maturities, with banks rebalancing their sovereign debt portfolios towards shorter term bonds. We employ a theoretical framework to argue that domestic banks engaged in a “collateral trade†, which involved the purchase of high yield bonds with maturities shorter than the central bank borrowing in order to mitigate funding liquidity risk. Our model delivers general equilibrium implications that are consistent with the data: the yield curve for the Portuguese sovereign steepens after the announcement, and the timing and characteristics of government bond auctions are consistent with a strategic response by the debt management agency.
    Date: 2016
  65. By: Stephane Verani (Federal Reserve Board)
    Abstract: Which financial frictions matter in the aggregate? This paper presents a general equilibrium model in which entrepreneurs finance a firm with a long-term contract. The contract is constrained efficient because firm revenue is costly to monitor and entrepreneurs may default. The cost of monitoring firms and the entrepreneurs' outside options determine the significance of moral hazard relative to limited enforcement for financial contracting. Calibrating the model to the U.S. economy, I find that the relative welfare loss from financial frictions is about 5 percent in terms of aggregate consumption with moral hazard, while it is 1 percent with limited enforcement. Reforms designed to strengthen contract enforcement increase aggregate consumption in the short-run, but their long-run effects are modest when monitoring costs are high. Weak contract enforcement contribute to aggregate fluctuations by amplifying the effect of aggregate technological shocks, but moral hazard does not.
    Date: 2016
  66. By: Brito, Paulo; Costa, Luís F.; Dixon, Huw David (Cardiff Business School)
    Abstract: We present conditions for the emergence of singularities in DGE models. We distinguish between slow-fast and impasse singularity types, review geometrical methods to deal with both types of singularity and apply them to DGE dynamics. We find that impasse singularities can generate new types of DGE dynamics, in particular temporary determinacy/indeterminacy. We illustrate the different nature of the two types of singularities and apply our results to two simple models: the Benhabib and Farmer (1994) model and one with a cyclical fiscal policy rule.
    Keywords: slow-fast singularities; impasse singularities; macroeconomic dynamics; temporary indeterminacy
    JEL: C62 D43 E32
    Date: 2016–06
  67. By: Franck Portier (Toulouse School of Economics); Dana Galizia (University of British Columbia); Paul Beaudry (University of British Columbia)
    Abstract: There is a long tradition in macroeconomics suggesting that market imperfections may explain why economies repeatedly go through periods of booms and busts. This idea can be captured mathematically as a limit cycle. In this paper we present both a general structure and a particular model with the aim of giving new life to this mostly dismissed view of fluctuations. We begin by showing why and when models with strategic complementarities can give rise to unique-equilibrium dynamics characterized by a limit cycle. We then develop a fully-specified dynamic general equilibrium model that embeds a demand complementarity that allows for a limit cycle. Booms and busts arise endogenously in our setting because agents want to concentrate their purchases of goods at times when purchases by others are high, since in such situations unemployment is low and therefore taking on debt is perceived as being less risky. A key feature of our approach is that we allow limit-cycle forces to compete with exogenous disturbances in explaining the data. Our estimation results indicate that US business cycle fluctuations in employment and output can be well explained by endogenous demand-driven cycles buffeted by technological disturbances that render those fluctuations irregular.
    Date: 2016
  68. By: Carlos Gozzi, Juan & Schmukler, Sergio (Department of Economics, University of Warwick)
    Abstract: This paper studies a famous unsolved puzzle in quantitative social science. Why do some nations report such high levels of mental well-being? Denmark, for instance, regularly tops the league table of rich countries’ happiness; Britain and the US enter further down; some nations do unexpectedly poorly. The explanation for the longobserved ranking -- one that holds after adjustment for GDP and other socioeconomic variables -- is currently unknown. Using data on 131 countries, the paper cautiously explores a new approach. It documents three forms of evidence consistent with the hypothesis that some nations may have a genetic advantage in well-being.
    Keywords: credit guarantees, public guarantees, SME financing, access to finance, public risk absorption
    JEL: E44 G28 H11
    Date: 2016
  69. By: Bernd Hayo (University of Marburg); Florian Neumeier (University of Marburg)
    Abstract: In this paper, we utilise data from a German population survey to test the validity of the Ricardian equivalence theorem (RET). In 2013, 2,000 representatively chosen people were asked whether they have altered their consumption and saving behaviour in response to the significant increase in public debt that occurred between 2008 and 2012. Our findings suggest that, in general, RET does not hold. Only 7% of our respondents state that they consume a smaller proportion of their income and save a larger proportion in response to public debt accumulation. Moreover, using multinominal logit regressions, we find that individuals’ consumption responses are significantly related to their economic situation, time preferences, education, and age.
    Keywords: Ricardian equivalence; public debt; private consumption; private saving; survey; Germany
    JEL: D12 D91 E21 H31
    Date: 2016
  70. By: Janusz J. Tomidajewicz (Department of Economic and Local Government Policy Poznan University of Economics)
    Abstract: The processes of financial-system privatisation and commodification in the European countries investigated here took place mostly as a result of changes in the legal and organisational framework for conducting financial activity and as a consequence of individual privatisation decisions taken mainly for macroeconomic reasons. This suggests the predominance of ideological and macroeconomic reasons for the process in Europe. The phenomenon was most clearly visible in CEE countries, although it could also be seen in the privatisation processes taking place in countries of Western Europe. As a result, differences in the subjective and objective scope of financial-sector privatisation in particular European countries should be attributed much more to the influence of ideological reasons – an influence stemming largely from the impact of pressure groups interested in privatisation – than to pressure from the economic determinants of financial activity manifesting themselves in microeconomic reasons for privatisation
    Keywords: privatisation, commodification, financial sector, liberalisation
    JEL: L33 G18 E02
    Date: 2015–03–01
  71. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: I thank the European Economics and Financial Centre for the invitation to speak to this distinguished audience, in this venerable venue, at this historically significant time. I will focus my remarks today on the other side of the pond — in particular, the U.S. economy and monetary policy. But as you know, we live in a global world, and so we are monitoring very closely what is happening on this side of the pond and assessing the implications for the economic outlook and monetary policy on my side of the pond. Before I begin, I should note that the views I'll present today are my own and not necessarily those of the Federal Reserve System or my colleagues on the Federal Open Market Committee.
    Keywords: Economic growth; labor markets; inflation; Brexit; monetary policy;
    Date: 2016–07–01
  72. By: Peter L. Rousseau (Vanderbilt University); Paul Wachtel (Leonard N. Stern School of Business, New York University)
    Abstract: One strand of the economics literature addresses financial deepening as a precursor to economic growth. Another views it as a cause of financial crises. We examine historical data for 17 economies from 1870 to 1929 to distinguish episodes of growth induced by financial deepening from crises induced by credit booms. Cross-country panel regressions with five-year averages indicate that deepening episodes, defined as increases of more than thirty percent (and alternatively more than twenty percentage points) in the ratio of M2 to GDP over a ten year period, significantly enhanced the standard finance-growth dynamic, while deepening associated with financial crises sharply hindered it. We then describe some specific episodes of financial deepening in our sample.
    Keywords: finance-growth nexus, Atlantic economies, financial deepening, financial crisis
    JEL: E4 N1
    Date: 2016–07–07
  73. By: Simplice Asongu (Yaoundé/Cameroun); Jacinta C. Nwachukwu (Coventry University)
    Abstract: The study assesses the role of mobile phones and mobile banking in decreasing inequality in 52 African countries. The empirical procedure involves first, examining the income-redistributive effect of mobile phone penetration and then investigating the contribution of mobile banking services in this relationship. The findings suggest an equalizing income-redistributive effect of ‘mobile phone penetration’ and ‘mobile banking’, with a higher income-equalizing effect from mobile banking compared to mobile phone penetration. Poverty alleviation channels explaining this difference in inequality mitigating propensity are discussed.
    Keywords: Banking; Mobile Phones; Shadow Economy; Financial Development; Africa
    JEL: E00 G20 L96 O17 O33
    Date: 2016–01
  74. By: Gilbert, Thomas; Scotti, Chiara; Strasser, Georg; Vega, Clara
    Abstract: The literature documents a heterogeneous asset price response to macroeconomic news announcements: Some announcements have a strong impact on asset prices and others do not. In order to explain these differences, we estimate a novel measure of the intrinsic value of a macroeconomic announcement, which we define as the announcement's ability to nowcast GDP growth, inflation, and the Federal Funds Target Rate. Using the same nowcasting framework, we then decompose this intrinsic value into the announcement's characteristics: its relation to fundamentals, timing, and revision noise. We find that in the 1998–2013 period, a significant fraction of the variation in the announcements' price impact on the Treasury bond futures market can be explained by differences in intrinsic value. Furthermore, our novel measure of timing explains significantly more of this variation than the announcements' relation to fundamentals, reporting lag (which previous studies have used as a measure of timing), or revision noise. JEL Classification: G14, E44
    Keywords: coordination role of public information, learning, macroeconomic announcements, macroeconomic forecasting, price discovery
    Date: 2016–02
  75. By: Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis)
    Abstract: In this paper, we discuss conditions under which adverse expectations can trigger abrupt and large changes in the interest rate at which a sovereign country can borrow in international financial markets. We argue that such changes are caused by self-fulfilling expectations outcomes, in which interest rates are high because the perceptions of future defaults are high, but those perceptions are high precisely because the interest rates are high. {{p}} A model based on these elements successfully simulates the near-default experience of Greece, Italy, Spain and Portugal, among other countries. We show that self-fulfilling traps can occur when two conditions are met: First, the existing level of government debt must be relatively high; second, the probability that the country faces a long period of economic stagnation must be substantial. {{p}} We also show that if a sufficiently large institution is willing to lend to the country, these self-fulfilling traps can be eliminated. Our model thus suggests that the Outright Monetary Transactions (OMT) program adopted by the European Central Bank in the summer of 2012 saved southern European countries from a massive sovereign debt crisis.
    Date: 2016–06–28
  76. By: Rogers, John H.; Scotti, Chiara; Wright, Jonathan H.
    Abstract: We assess the relationship between monetary policy, foreign exchange risk premia and term premia at the zero lower bound. We estimate a structural VAR including U.S. and foreign interest rates and exchange rates, and identify monetary policy shocks through a method that uses these surprises as the crucial external instrument" that achieves identification without having to use implausible short-run restrictions. This allows us to measure effects of policy shocks on expectations, and hence risk premia. U.S. monetary policy easing shocks lower domestic and foreign bond risk premia, lead to dollar depreciation and lower foreign exchange risk premia. We present some evidence that U.S. monetary policy easing surprises at the ZLB shift options-implied skewness in the direction of dollar depreciation and also reduce the demand for the liquidity of short-term U.S. Treasuries. Both of these channels should lower foreign exchange risk premia.
    Date: 2016–05–31
  77. By: Carlos Eduardo Méndez Conde; Juan Camilo Méndez Vizcaíno
    Abstract: El presente trabajo evalúa los determinantes de la volatilidad de la tasa de cambio para el periodo comprendido entre 2000 y 2016 y tiene como objetivo establecer recomendaciones de política para enfrentar dicho comportamiento. Para ello, y partiendo de la revisión de estudios anteriores sobre el tema, se plantean distintos modelos econométricos, fundamentados en los modelos Autorregresivos de Heteroscedasticidad Condicional Generalizados (GARCH por sus siglas en inglés). Para satisfacer las necesidades del estudio se establecieron como variables de análisis algunas tanto de carácter interno como de carácter externo. Se concluye que tanto los factores internos como los externos tuvieron un impacto importante sobre el nivel de la tasa de cambio. Además, se encuentra que los factores externos tuvieron una mayor incidencia sobre la volatilidad de la tasa de cambio nominal, no obstante se encuentra además que las intervenciones en el mercado cambiario por parte del Banco de la República tuvieron impacto sobre la volatilidad de la tasa de cambio, haciendo que esta aumentara de forma significativa.
    Keywords: Tasa de cambio nominal, volatilidad de la tasa de cambio, diseño de política, GARCH, extensiones GARCH
    JEL: C10 C51 E61 F31 F41
    Date: 2016–06–29
  78. By: Annina Kaltenbrunner (Leeds University Business School); Juan Pablo Painceira (Central Bank of Brazil)
    Abstract: This paper analyses the recent changes in financial practices and relations in emerging capitalist economies (ECEs) on the basis of using the example of Brazil. It argues that in ECEs these financial transformations, which are akin to those observed in Core Capitalist Economies (CCEs) summarised under the heading of financialisation, are fundamentally shaped by their integration into a financialised and structured world economy. Moreover, this integration takes place in a subordinated way. The paper draws on the multidisciplinary framework of international currency hierarchies in order to analyse this subordinated financial integration and tendency toward financialisation. It shows how the existence of a hierarchic international monetary system has changed the financial behaviour of domestic economic agents as well as the structure of the domestic financial system. In doing so, the paper focuses on two specific channels. The first channel highlights the phenomenon of reserve accumulation and the changing behaviour of domestic banks. The second channel concerns the ECEs’ sustained external vulnerability and the impact of such vulnerability on the operations of Brazilian firms. The paper shows that not only have these financial transformations been shaped by ECEs’ subordinated financial integration, but also that these financialisation tendencies have contributed to cementing existing hierarchies and deepening uneven economic development.
    Keywords: Financialisation, Currency Hierarchy, Reserve Accumulation, External Vulnerability, Brazil
    JEL: F32 E52
    Date: 2016–02–28
  79. By: Hills, Timothy; Nakata, Taisuke; Schmidt, Sebastian
    Abstract: Even when the policy rate is not at the effective lower bound (ELB), the possibility that the policy rate will become constrained by the ELB in the future lowers today’s inflation by creating tail risk in future inflation and thus reducing expected inflation. In an empirically rich model calibrated to match key features of the U.S. economy, we find that the tail risk induced by the ELB causes inflation to undershoot the target rate of 2 percent by as much as 45 basis points at the economy’s risky steady state. Our model suggests that achieving the inflation target may be more difficult now than before the Great Recession, if the recent ELB experience has led households and firms to revise up their estimate of the ELB frequency. JEL Classification: E32, E52
    Keywords: liquidity trap, zero lower bound
    Date: 2016–06
  80. By: Nlemfu Mukoko, Jean Blaise
    Abstract: This work involves the construction of the 2013 Social Accounting Matrix for the D.R.Congo (MCS-CD2013). Three main sources of data were used namely Tables of Resources and Employment (TRE), the table of Integrated Economic Accounts (TCEI) for 2013, and data from the 1-2-3 survey on employment, the informal sector and household consumption for the year 2012. Given the nature of these data, we have resorted to the bottom-up approach to the development of this SAM and methods of RAS and cross-entropy for its balancing. After these steps, the obtained SAM past internal and external consistency tests. The results reflect macroeconomic accounting balances for the respective year. Therefore, this SAM is the basis for data Reference for macroeconomic studies and modeling of the Congolese economy.
    Keywords: Matrice de Comptabilité Sociale, Tableau des Ressources et Emplois,Tableau des Comptes Economiques Intégrés
    JEL: C82 E16
    Date: 2015–09
  81. By: Thomas COUDERT (LaRGE Research Center, Université de Strasbourg); Thierry BETTI
    Abstract: Since 2010 public employment and public-sector salaries have been significantly reduced in most Euro Area member states. In this article we show to what extent these cuts in the public sector have been costly particularly in terms of employment and output. In a New Keynesian model with a two-sector labor market, we demonstrate that the cost of these spending cuts on employment and output is significantly larger in periods of high unemployment. We also exhibit that cuts in public employment and wage in a Eurozone prone to high unemployment have only a limited ability to reduce deficit.
    Keywords: Fiscal Policy, Public Employment, Public Wage, Labor Market, Unemployment.
    JEL: E62 J38
    Date: 2016
  82. By: Juan Carlos Cuestas (EestiPank); Luis A. Gil-Alana (University of Navarra)
    Abstract: The aim of this paper is to shine some light on the effect of oil price movements on unemployment in Central and Eastern Europe. In order to do so, we disentangle oil prices movements by their sign. From there we analyse the separate effect of positive and negative movements of oil prices on unemployment rates. We find that although oil prices and unemployment are not very much correlated in the short run, the effect of oil price shocks on the natural rate of unemployment goes in the same direction, i.e. increases or decreases in oil prices increase or decrease the natural rate of unemployment.
    Keywords: unemployment rates; oil prices shocks; Central and Eastern Europe
    JEL: C22 E39 Q43
    Date: 2016–06–28
  83. By: Ana Fontoura Gouveia (Gabinete de Planeamento, Estratégia, Avaliação e Relações Internacionais / Office for Economic Policy and International Affairs - Ministério das Finanças / Ministry of Finance); Filipa Canas
    Abstract: Portugal implemented a large number of structural reforms in the recent years, which are expected to enhance the allocation of resources in the economy, namely from the non-tradable to the tradable sector. We argue that the methodology to identify the tradable sector used by some international institutions is outdated and may hamper an accurate assessment of the structural progress achieved so far. Based on an enhanced methodology to identify the tradable sector of the economy, we provide more solid ground for future assessments of structural economic developments. By looking at some standard economic indicators, we show that our new criterion provides a different picture of the resource allocation in the Portuguese economy and of the adjustment of the recent years as compared to the one provided by commonly used criteria.
    Keywords: Allocative Efficiency, Trade, Microeconomic Policy
    JEL: D61 F14 E D04
    Date: 2016–02
  84. By: Akay, Alpaslan (UNU-MERIT, Maastricht University, and University of Gothenburg); Bargain, Olivier (Aix-Marseille University); Zimmermann, Klaus F. (UNU-MERIT, Maastricht University, and Harvard University)
    Abstract: This paper examines whether the subjective well-being of migrants is responsive to fluctuations in macroeconomic conditions in their country of origin. Using the German Socio-Economic Panel for the years 1984 to 2009 and macroeconomic variables for 24 countries of origin, we exploit country-year variation for identification of the effect and panel data to control for migrants' observed and unobserved characteristics. We find strong evidence that migrants' well-being responds negatively to an increase in the GDP of their home country. That is, migrants seem to regard home countries as natural comparators, which grounds the idea of relative deprivation underlying the decision to migrate. The effect declines with years-since-migration and with the degree of assimilation in Germany.
    Keywords: Migrants, well-being, GDP, unemployment, relative concerns/deprivation
    JEL: C90 D63 F22 O15
    Date: 2016–06–28
  85. By: Víctor Manuel Castillo Girón; Manuel Machuca Martínez; Suhey Ayala Ramírez; David López Jimenez
    Abstract: El programa Hipoteca Verde (HV), del Instituto del Fondo Nacional de la Vivienda para los Trabajadores (Infonavit) de México, es un crédito adicional obligatorio –desde 2011– que busca la instalación de ecotecnologías en las viviendas. Sus principales resultados son favorables en los rubros de créditos colocados, ahorros obtenidos, satisfacción del cliente y reconocimiento nacional e internacional. Sin embargo, no existe evidencia de su impacto sobre la rentabilidad de las empresas que participan como sus oferentes. Este trabajo, con base en la teoría microeconómica y estudios que relacionan la Responsabilidad Social Empresarial (RSE) y el desempeño financiero, analiza dicho impacto sobre una muestra determinística de seis empresas listadas en la Bolsa Mexicana de Valores (BMV). Los resultados obtenidos muestran que existe una relación negativa entre HV y las variables de rentabilidad (RUN, ROA y ROE), lo cual se explica debido a que, teóricamente, la HV se comporta del mismo modo que lo hace un impuesto al comprador en el mercado de la vivienda.
    Keywords: Hipoteca Verde, Desarrollo Sustentable, Responsabilidad Social Empresarial (RSE), Impuesto al Comprador, Rentabilidad.
    JEL: E2 K0 M14
    Date: 2015–12–04

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