nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒07‒23
97 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Macroeconomic effectiveness of non-standard monetary policy and early exit. A model-based evaluation By Lorenzo Burlon; Andrea Gerali; Alessandro Notarpietro; Massimiliano Pisani
  2. Central Bank Collateral Frameworks By Kjell G. NYBORG
  3. Quarterly Report on the Euro Area (QREA), Vol.14, No.3 (2015) By European Commission
  4. Monetary Policy under the Microscope: Intra-bank Transmission of Asset Purchase Programs of the ECB By Cycon, Lisa; Koetter, Michael
  5. Monetary-Fiscal Policy Interaction and Fiscal Inflation: A Tale of Three Countries By Kliem, Martin; Kriwoluzky, Alexander; Sarferaz, Samad
  6. Quarterly Report on the Euro Area (QREA), Vol.15, No.2 (2016) By Narcissa Balta; Francesca D’Auria; Plamen Nikolov; Borek Vasicek
  7. Extracting the Information Shocks from the Bank of England Inflation Density Forecasts By Carlos Diaz Vela
  8. Financing Asset Sales and Business Cycles By Marc ARNOLD; Dirk HACKBARTH; Tatjana XENIA PUHAN
  9. Quarterly Report on the Euro Area (QREA), Vol.14, No.2 (2015) By European Commission
  10. QE in the future: the central bank's balance sheet in a financial crisis By Ricardo Reis
  11. What Determines Price Changes and the Distribution of Prices? Evidence from the Swiss CPI By Föllmi, Reto; Minsch, Rudolf; Schnell, Fabian
  12. Exit Expectations and Debt Crises in Currency Unions By Kriwoluzky, Alexander; Müller, Gernot J.; Wolf, Martin
  13. Intuitive and Reliable Estimates of the Output Gap from a Beveridge-Nelson Filter By Gunes Kamber; James Morley; Benjamin Wong
  14. Quarterly Report on the Euro Area (QREA), Vol.14, No.1 (2015) By European Commission
  15. Fiscal implications of central bank balance sheet policies By Orphanides, Athanasios
  16. On the Distribution of the Welfare Losses of Large Recessions By Krueger, Dirk; Mitman, Kurt; Perri, Fabrizio
  17. Fiscal and Monetary Policy Interactions in Pakistan Using a Dynamic Stochastic General Equilibrium Framework By Shahid, Muhammad; Qayyum, Abdul; Shahid, Waseem
  18. Time-varying Volatility, Financial Intermediation and Monetary Policy By Eickmeier, Sandra; Metiu, Norbert; Prieto, Esteban
  19. Oil Prices and the Global Economy: Is It Different This Time Around? By Kamiar Mohaddes; M. Hashem Pesaran
  20. Optimal automatic stabilizers By Alisdair McKay; Ricardo Reis
  21. Economic Growth and Public and Private Investment Returns By António Afonso; Miguel St. Aubyn
  22. Precautionary saving in Spain during the Great Recession: evidence from a panel of uncertainty indicators By Lugilde, Alba; Bande, Roberto; Riveiro, Dolores
  23. A “reverse Robin Hood”? The distributional implications of non-standard monetary policy for Italian households By Marco Casiraghi; Eugenio Gaiotti; Lisa Rodano; Alessandro Secchi
  24. Much ado about nothing: Sovereign ratings and government bond yields in the OECD By El-Shagi, Makram
  25. A post-Keynesian theory for the yield on equity markets By Javier Lopez Bernardo
  26. Expenditure-based Consolidation: Experiences and Outcomes – Workshop proceedings By Karim Triki
  27. Toward a Unified Framework of Credit Creation By Susanne VON DER BECKE; Didier SORNETTE
  28. Toward Removal of the Swiss Franc Cap: Market Expectations and Verbal Interventions By Mirkov, Nikola; Pozdeev, Igor; Soderlind, Paul
  29. The Product Life Cycle and Sample Representativity Bias in Price Indexes By Daniel Melser; Iqbal A. Syed
  30. Determinants of Consumer Price Inflation versus Producer Price Inflation in Asia By Jongwanich, Juthathip; Wongcharoen, Petchtharin; Park, Donghyun
  31. Expenditure and Confidence: Using Daily Data to Identify Shocks to Consumer Confidence By Marta Lachowska
  32. Unconventional monetary policies: a re-appraisal By Claudio Borio; Anna Zabai
  33. Financial Vulnerabilities, Macroeconomic Dynamics, and Monetary Policy By Aikman, David; Lehnert, Andreas; Liang, J. Nellie; Modugno, Michele
  34. Is financial VAT neutral to financial sector size? By López-Laborda, Julio; Peña, Guillermo
  35. Economic size and debt sustainability against Piketty's capital inequality By cho, hyejin
  36. Forecasting China's Economic Growth and Inflation By Higgins, Patrick C.; Zha, Tao; Zhong, Karen
  37. Self-Defeating Austerity? Assessing the Impact of Fiscal Consolidations on Unemployment By João Ferreira do Amaral; João Carlos Lopes
  38. Quarterly Report on the Euro Area (QREA), Vol.14, No.4 (2015) By Alexis Loublier; Philipp Mohl; Eric Ruscher; Borek Vasicek; Thomas Walsh
  39. Merger Activity in Industry Equilibrium By Theodosios DIMOPOULOS; Stefano SACCHETTO
  40. The Information Contained in Money Market Interactions: Unsecured vs. Collateralized Lending. By A. Bernales; M. di Filippo
  41. On the cost of opportunistic behavior in the public sector: A General-Equilibrium approach By Vasilev, Aleksandar
  42. On the Exposure of the BRIC Countries to Global Economic Shocks By Ansgar Belke; Christian Dreger; Irina Dubova
  43. Currency Wars, Coordination, and Capital Controls By Olivier Blanchard
  44. Regional Banking Instability and FOMC Voting By Eichler, Stefan; Lähner, Tom; Noth, Felix
  45. Monetarism, Indeterminacy and the Great Inflation By Qureshi, Irfan
  46. Monetary Policy, Financial Conditions, and Financial Stability By Adrian, Tobias; Liang, Nellie
  47. New Keynesian Phillips Curve Estimation: The Case of Hungary /1981-2006/ By Vasilev, Aleksandar
  48. Macroeconomic determinants of economic growth in Botswana: The Keynesian approach By Teboho Jeremiah Mosikari; Diteboho Lawrance Xaba; Johannes Tshepiso Tsoku
  49. Redistribution of Local Demand Shocks through Firms' Internal Networks By Xavier Giroud; Holger M. Mueller
  50. Who's coming to the rescue? Revenue-sharing slumps and implicit bailouts during the Great Recession By Foremny, Dirk; Solé-Ollé, Albert
  51. Consumption Smoothing and Borrowing Constraints: Evidence from Household Surveys of Iran By Einian, Majid; Nili, Masoud
  52. Further Evidence on the Contribution of Services Outsourcing to the Decline in Manufacturing’s Employment Share in Canada By Matthew Calver; Evan Capeluck
  53. The Common Origin of Uncertainty Shocks By Nicholas Kozeniauskas; Anna Orlik; Laura Veldkamp
  54. Exploring Risk-Adjusted Fiscal Sustainability Analysis for Asian Economies By Kopits, George; Ferrarini, Benno; Ramayandi, Arief
  55. Finding the equilibrium real interest rate in a fog of policy deviations By Taylor, John B.; Wieland, Volker
  56. Fiscal Reaction Functions for European Union Countries By Katia Berti; Eugeniu Colesnic; Cyril Desponts; Stephanie Pamies; Etienne Sail
  57. A Double Counting Problem in the Theory of Rational Bubbles By Hajime Tomura
  58. Quarterly Report on the Euro Area (QREA), Vol.15, No.1 (2016) By Erik Canton; Jan In't Veld; Romanos Priftis
  59. Does a Higher Frequency of Micro-level Price Changes Matter for Macro Price Stickiness?: Assessing the Impact of Temporary Price Changes By Yoshiyuki Kurachi; Kazuhiro Hiraki; Shinichi Nishioka
  60. Censored Fractional Response Model: Estimating Heterogeneous Relative Risk Aversion of European Households By Xiong, Qizhou
  61. Is the supply of long-term debt independent of the term premia? Evidence from Portugal By António Afonso,; Manish K. Singh
  62. Equilibrium real interest rates and secular stagnation: An empirical analysis for euro area member countries By Belke, Ansgar; Klose, Jens
  63. Monetary policy, the financial cycle and ultra-low interest rates By Mikael Juselius; Claudio Borio; Piti Disyatat; Mathias Drehmann
  64. Limited Commitment and the Demand for Money By Aleksander Berentsen
  65. Testing the Saving-Investment Relationship for the Country Groups Classified by Income Levels By MUSTAFA KIZILTAN; ANNA GOLOVKO
  66. Model-based Business Cycle and Financial Cycle Decomposition for Europe and the U.S. By Siem Jan Koopman; Rutger Lit; Andre Lucas
  67. Monetary Policy Through Production Networks: Evidence from the Stock Market By Michael Weber; Ali Ozdagli
  68. Global Food Prices and Business Cycle Dynamics in an Emerging Market Economy By Holtemöller, Oliver; Mallick, Sushanta
  69. Linear-Rational Term Structure Models By Damir FILIPOVIC; Martin LARSSON; Anders TROLLE
  70. Catching Up, Structural Transformation, and Inequality: Lessons from Asia By Martorano, Bruno; Park, Donghyun; Sanfilippo, Marco
  71. Symmetric Thermal Optimal Path and Time-Dependent Lead-Lag Relationship: Novel Statistical Tests and Application to UK and US Real-Estate and Monetary Policies By Hao MENG; Wei-Xing ZHOU; Didier SORNETTE
  72. Advance Information and Distorted Beliefs in Macroeconomic and Financial Fluctuations By Kyle Jurado
  73. Optimal Long-Term Allocation with Pension Fund Liabilities By Eric JONDEAU; Michael ROCKINGER
  74. On the dynamics of the investment income balance By Knetsch, Thomas A.; Nagengast, Arne J.
  75. Central Bank Transparency and Cross-border Banking By Eichler, Stefan; Littke, Helge; Tonzer, Lena
  76. Involuntary Unemployment and the Business Cycle By Mathias Trabandt; Karl Walentin; Lawrence Christiano
  77. The effects of replacing income tax with consumption tax on the state and the individual: a Canadian example By Jim Fischer
  78. Pronóstico del Consumo Privado: Usando datos de alta frecuencia para el pronóstico de variables de baja frecuencia By Gustavo Adolfo HERNANDEZ DIAZ; Margarita MARÍN JARAMILLO
  79. Building a Healthy Long-Term Economy: Economy League of Greater Philadelphia, Philadelphia PA July 13, 2016 By Harker, Patrick T.
  80. Controlling Public Debt without Forgetting Inflation By Giorgio Ferrari
  81. An Update on Ending Too Big to Fail / Neel Kashkari, President ... Washington, D.C. ... June 20, 2016 By Kashkari, Neel
  82. Drivers of Growth in Russia By Markus Brueckner; Birgit Hansl
  83. For Better and for Worse Effects of Access to High-Cost Consumer Credit By Dobridge, Christine L.
  84. Recall and Unemployment By Shigeru Fujita; Giuseppe Moscarini
  85. Payment Instruments, Enforceability and Development: Evidence from Mobile Money Technology By Thorsten Beck; Ravindra Ramrattan; Haki Pamuk; Burak R. Uras
  86. Deflation in Asia: Should the Dangers Be Dismissed? By Eichengreen, Barry; Park, Donghyun; Shin, Kwanho
  87. The Gift of Moving: Intergenerational Consequences of a Mobility Shock By Emi Nakamura; Jósef Sigurdsson; Jón Steinsson
  88. Nunavik's Labour Market and Educational Attainment Paradox By Jasmin Thomas
  89. Public Employment Effects over the Business Cycle: the Czech Case By Vedunka Kopecna
  90. Tweet-tales: moods of socio-economic crisis? By Grazia Biorci; Antonella Emina; Michelangelo Puliga; Lisa Sella; Gianna Vivaldo
  91. Long-Term Fiscal Sustainability in Advanced Economies By Alan J Auerbach
  92. Sentiments in SVARs By Patrick Feve
  93. Asymmetric Investment Responses to Firm-specific Uncertainty By Buchholz, Manuel; Tonzer, Lena; Berner, Julian
  94. Minimum quantitative requirements for commercial lending with interest rate caps: The case of Argentina By Mario Ravioli
  95. 20. Century’s Economic Crises and Their Effects on Turkey’s Economy By İsmail CAKMAK
  96. Creating Opportunity in Inuit Nunangat: The Crisis in Inuit Education and Labour Market Outcomes By Nico Palesch
  97. Herausforderungen bei der Messung von Wohlfahrt By Beate Jochimsen; Christian Raffer

  1. By: Lorenzo Burlon (Bank of Italy); Andrea Gerali (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Massimiliano Pisani (Bank of Italy)
    Abstract: This paper evaluates the macroeconomic effects of the Eurosystem’s expanded Asset Purchase Programme (APP) under alternative strategies as regards (i) the unwinding of asset positions accumulated under the APP and (ii) communication of current and future paths of the policy rate (forward guidance). To this purpose, we simulate a New Keynesian model of the euro area. Our results are as follows. First, as the monetary authority brings forward the selling of long-term sovereign bonds, the stimulus from the APP on inflation and economic activity is correspondingly reduced. In particular, if the bonds are sold immediately after purchases end, the impact on inflation is negligible. Second, if the monetary authority communicates that it will hold the policy rate constant for one year instead of two, the APP is less effective, and the inflation increase is halved. Third, the subdued impact of the APP associated with an early exit from the programme delays the return to a standard monetary policy regime.
    Keywords: DSGE models, open-economy macroeconomics, non-standard monetary policy, zero lower bound
    JEL: E43 E52 E58
    Date: 2016–07
  2. By: Kjell G. NYBORG (University of Zurich, Swiss Finance Institute, and CEPR)
    Abstract: This paper seeks to inform about a feature of monetary policy that is largely overlooked, yet occupies a central role in modern monetary and financial systems, namely central bank collateral frameworks. Their importance can be understood by the observation that the money at the core of these systems, central bank money, is injected into the economy on terms, not defined in a market, but by the collateral frameworks and interest rate policies of central banks. Using the collateral framework of the Eurosystem as a basis of illustration and case study, the paper brings to light the functioning, reach, and impact of collateral frameworks. A theme that emerges is that collateral frameworks may have distortive effects on financial markets and the wider economy. They can, for example, bias the private provision of real liquidity and thereby also the allocation of resources in the economy as well as contribute to financial instability. Evidence is presented that the collateral framework in the euro area promotes risky and illiquid collateral and, more generally, impairs market forces and discipline. The paper also emphasizes the important role of ratings and government guarantees in the Eurosystem’s collateral framework.
    Keywords: central bank, banks, collateral, money, liquidity, monetary system, financial system, monetary policy, ratings, guarantees, haircuts, Eurosystem, ECB
    JEL: E58 E42 E52 E44 G10 G01 G21
  3. By: European Commission
    Abstract: This edition of the QREA compares the euro area’s economic recovery since the crisis to similar events in the past and in other major economies. Other chapters evaluate the performance of the EU’s methodology for calculating output gaps; inflation; and the performance of Ireland’s economic adjustment programme.
    Keywords: Economic recovery,output gap,inflation,financial assistance,economic adjustment programme
    JEL: A10 C10 C20 E00 E30 E31 E32 E37 E61 E63 E65 E66 F15 F45 G01 H12 O52
    Date: 2015–10
  4. By: Cycon, Lisa; Koetter, Michael
    Abstract: With a unique loan portfolio maintained by a top-20 universal bank in Germany, this study tests whether unconventional monetary policy by the European Central Bank (ECB) reduced corporate borrowing costs. We decompose corporate lending rates into refinancing costs, as determined by money markets, and markups that the bank is able to charge its customers in regional markets. This decomposition reveals how banks transmit monetary policy within their organizations. To identify policy effects on loan rate components, we exploit the co-existence of eurozone-wide security purchase programs and regional fiscal policies at the district level. ECB purchase programs reduced refinancing costs significantly, even in an economy not specifically targeted for sovereign debt stress relief, but not loan rates themselves. However, asset purchases mitigated those loan price hikes due to additional credit demand stimulated by regional tax policy and enabled the bank to realize larger economic margins.
    Keywords: unconventional monetary policy,asset purchase programs,ECB,interest rate channel,internal capital markets
    JEL: G01 G21 E42 E43 E52
    Date: 2015
  5. By: Kliem, Martin; Kriwoluzky, Alexander; Sarferaz, Samad
    Abstract: We study the impact of the interaction between fiscal and monetary policy on the low-frequency relationship between the fiscal stance and inflation using cross-country data from 1965 to 1999. In a first step, we contrast the monetary-fiscal narrative for Germany, the U.S. and Italy with evidence obtained from simple regression models and a time-varying VAR. We find that the low-frequency relationship between the fiscal stance and inflation is low during periods of an independent central bank and responsible fiscal policy and more pronounced in times of high fiscal budget deficits and accommodative monetary authorities. In a second step, we use an estimated DSGE model to interpret the low-frequency measure structurally and to illustrate the mechanisms through which fiscal actions affect inflation in the long run. The findings from the DSGE model suggest that switches in the monetary-fiscal policy interaction and accompanying variations in the propagation of structural shocks can well account for changes in the low-frequency relationship between the fiscal stance and inflation.
    Keywords: time-varying VAR,inflation,public deficits
    JEL: E42 E58 E61
    Date: 2015
  6. By: Narcissa Balta; Francesca D’Auria; Plamen Nikolov; Borek Vasicek
    Abstract: Volume 15 N. 2 (2016) of the QREA looks at the role of cross-border risk sharing, both through financial and labour market incomes generated across borders and through cross-border fiscal transfers, in mitigating asymmetric shocks, and compares the situation in the euro area to that of the United States. Other sections examine the mechanisms through which financial markets effect the real economy and confidence spillovers in the euro area.
    Keywords: Cross-border risk sharing,convergence,macro-financial linkages,consumer confidence,spillovers
    JEL: A10 C10 C11 C23 C54 D12 E00 E21 E32 E61 F15 F45
    Date: 2016–07
  7. By: Carlos Diaz Vela
    Abstract: This paper shows how to extract the density of the shocks of information perceived by the Bank of England between two consecutive releases of its inflation density forecasts. These densities are used to construct a new measure of ex ante in ex ante inflation uncertainty, and a measure of news incorporation into subsequent forecasts. Also dynamic tests of point forecast optimality is constructed. It is shown that inflation uncertainty as perceived by the Bank was decreasing before the financial crisis, increasing sharply during the period 2008-2011. Since then, uncertainty seems to have stabilized, but it remains still above its pre-crisis levels. Finally, it is shown that forecast optimality is lost at some points during the financial crisis, and that there are more periods of optimal forecasts in long term than in short term forecasting. This could be also interpreted as that short term forecasts are subject to profound revisions.
    Keywords: Inflation, density forecast, uncertainty, revisions, optimal forecasts.
    JEL: C22 C53 C63 E31 E37 E58
  8. By: Marc ARNOLD (University of St. Gallen); Dirk HACKBARTH (Boston University School of Management); Tatjana XENIA PUHAN (University of Zurich and Swiss Finance Institute)
    Abstract: Using a dynamic model of financing, investment, and macroeconomic risk, we investigate when firms sell assets to fund investments (financing asset sales) across the business cycle. The model reveals that financing asset sales entail a lower wealth transfer from equity to debt than otherwise identical but equity financed investments. Exploring the dynamics of this motive across business cycles helps explain novel stylized facts about asset sales and their business cycle patterns that cannot be rationalized by traditional motives for selling assets.
    Keywords: Asset Sales, Wealth Transfer Problem, Leverage, Business Cycles, Real Options
    JEL: D92 E32 E44 G12 G32 G33
  9. By: European Commission
    Abstract: The focus section of the report looks at euro area services sectors. It finds evidence that service sectors in the euro area are underperforming, meaning that reforms to address structural bottlenecks and support greater competition could contribute to boosting exports, growth and competitiveness. The two special features of the report deal with the economic impact of oil prices and business cycle synchronisation. The former finds that the recent fall in oil prices is likely to have had a substantial effect on economic growth and inflation. The latter shows that, due in particular to differences in deleveraging needs, the sovereign crisis has propagated heterogeneously across Member States, causing significant cross-country differences in domestic demand and persistent business cycle divergence.
    Keywords: Services sectors,productivity,structural reforms,oil prices,inflation,economic growth,employment,economic convergence,business cycles
    JEL: A10 C10 C11 C15 C20 C32 C33 E20 E30 E32 E61 F15 F40 F45 L80 L84 L89 Q41
    Date: 2015–07
  10. By: Ricardo Reis (Tel Aviv University; London School of Economics (LSE); Centre for Macroeconomics (CFM))
    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 in ation 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 in ation 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
  11. By: Föllmi, Reto; Minsch, Rudolf; Schnell, Fabian
    Abstract: This paper examines how firms set and adjust their prices, depending on macroeconomic, sectoral and individual conditions. A large panel of 345,963 observations of quarterly firm and product price data, underlying the Swiss sectoral CPIs from 1993 to 2012, is used for this purpose. The data allows us to trace the pricing decisions of the identified firm over time and in detail (without regular interruption of the price series as in the case of the US CPI). Among several macroeconomic factors, the appreciation of the Swiss franc results in an increase in the probability of a positive price change and, to a lesser extent, in the size of price changes. Singling out one policy measure, we found that an increase in the VAT is over-proportionally shifted to prices by firms who change their prices. Finally, the data set allows for the analysis of the development of price dispersion at the product level. We can demonstrate that an increase in the VAT led to a decrease in the variance in prices, whereas macroeconomic factors have no impact.
    Keywords: Price Setting Behavior of Firms , Frequency of Price Changes, Price Dispersion.
    JEL: E31 E37 E52
    Date: 2016–07
  12. By: Kriwoluzky, Alexander; Müller, Gernot J.; Wolf, Martin
    Abstract: We study the impact of the interaction between fiscal and monetary policy on the low-frequency relationship between the fiscal stance and inflation using cross-country data from 1965 to 1999. In a first step, we contrast the monetary-fiscal narrative for Germany, the U.S. and Italy with evidence obtained from simple regression models and a time-varying VAR. We find that the low-frequency relationship between the fiscal stance and inflation is low during periods of an independent central bank and responsible fiscal policy and more pronounced in times of high fiscal budget deficits and accommodative monetary authorities. In a second step, we use an estimated DSGE model to interpret the low-frequency measure structurally and to illustrate the mechanisms through which fiscal actions affect inflation in the long run. The findings from the DSGE model suggest that switches in the monetary-fiscal policy interaction and accompanying variations in the propagation of structural shocks can well account for changes in the low-frequency relationship between the fiscal stance and inflation.
    Keywords: currency union,exit,sovereign debt crisis,fiscal policy,redenomination premium,euro crisis,regime-switching model
    JEL: E52 E62 F41
    Date: 2015
  13. By: Gunes Kamber (Bank for International Settlements); James Morley (School of Economics, UNSW Business School, UNSW); Benjamin Wong (Reserve Bank of New Zealand)
    Abstract: The Beveridge-Nelson (BN) trend-cycle decomposition based on autoregressive forecasting models of U.S. quarterly real GDP growth produces estimates of the output gap that are strongly at odds with widely-held beliefs about the amplitude, persistence, and even sign of transitory movements in economic activity. These antithetical attributes are related to the autoregressive coefficient estimates implying a very high signal-to-noise ratio in terms of the variance of trend shocks as a fraction of the overall quarterly forecast error variance. When we impose a lower signal-to-noise ratio, the resulting BN decomposition, which we label the “BN filter”, produces a more intuitive estimate of the output gap that is large in amplitude, highly persistent, and typically positive in expansions and negative in recessions. Real time estimates from the BN filter are also reliable in the sense that they are subject to smaller revisions and predict future output growth and inflation better than for other methods of trend-cycle decomposition that also impose a low signal-to-noise ratio, including deterministic detrending, the Hodrick-Prescott filter, and the bandpass filter.
    Keywords: Beveridge-Nelson decomposition, output gap, signal-to-noise ratio
    JEL: C18 E17 E32
    Date: 2016–07
  14. By: European Commission
    Abstract: The first section analyses recent developments in cross-border capital flows into and out of euro area Member States. Between 2008 and the summer of 2012 – when the ECB announced its OMT programme – a substantial proportion of cross-border financial flows was taken over by official financing by central banks or governments. Since the summer of 2012, net private financial flows have resumed, while official flows have generally come down, a sign of regained confidence in the euro area. However, the analysis of gross financial flows also indicates that the strong dynamics of cross-border financial asset acquisition observed in pre-crisis years has yet to return.
    Keywords: Quarterly report on the euro area,medium-term projections,growth,potential GDP,structural reforms,spillovers,rebalancing,imbalances,unemployment,firm-level,investment,credit supply,indebtedness,taxation,ICT capital
    JEL: A10 C10 C11 C15 C20 C32 C33 E20 E22 E27 E61 F15 F32 F34 F35 F39 F40 F45 H20 H23 J20 J60 J61 J68 R31
    Date: 2015–03
  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: quantitative easing,lender of last resort,monetary financing,loss sharing,central bank independence,central bank accountability,central bank governance,rules vs discretion
    JEL: E52 E58 E61 G01 H12
    Date: 2016
  16. By: Krueger, Dirk (University of Pennsylvania); Mitman, Kurt (Stockholm University); Perri, Fabrizio (Federal Reserve Bank of Minneapolis)
    Abstract: How big are the welfare losses from severe economic downturns, such as the U.S. Great Recession? How are those losses distributed across the population? In this paper we answer these questions using a canonical business cycle model featuring household income and wealth heterogeneity that matches micro data from the Panel Study of Income Dynamics (PSID). We document how these losses are distributed across households and how they are affected by social insurance policies. We find that the welfare cost of losing one’s job in a severe recession ranges from 2% of lifetime consumption for the wealthiest households to 5% for low-wealth households. The cost increases to approximately 8% for low-wealth households if unemployment insurance benefits are cut from 50% to 10%. The fact that welfare losses fall with wealth, and that in our model (as in the data) a large fraction of households has very low wealth, implies that the impact of a severe recession, once aggregated across all households, is very significant (2.2% of lifetime consumption). We finally show that a more generous unemployment insurance system unequivocally helps low-wealth job losers, but hurts households that keep their job, even in a version of the model in which output is partly demand determined, and therefore unemployment insurance stabilizes aggregate demand and output.
    Keywords: Great Recession; Wealth inequality; Social insurance; Welfare loss from recessions
    JEL: E21 E32 J65
    Date: 2016–07–18
  17. By: Shahid, Muhammad; Qayyum, Abdul; Shahid, Waseem
    Abstract: Currently Pakistan’s economy is under stress and registered a sluggish growth for many years in a row. The performance of major economic indicators is not satisfactory. Low investment, double digit inflation, fiscal imbalances and low external capital inflows indicates the severity of the grave economic situation. This paper investigates fiscal and monetary policy interaction in Pakistan using dynamic stochastic general equilibrium model. Finding of the paper reveals that fiscal and monetary policy interacts with each other and with other macroeconomic variables. Inflation responds to fiscal policy shocks in the form of government spending, revenue and borrowing shocks. Monetary authority’s decisions are also affecting fiscal policy variables. It is also evident that fiscal discipline is critical for the effective formulation and execution of monetary policy.
    Keywords: Monetary Policy, Fiscal Dominance, DSGE, Pakistan
    JEL: E5 E52 H3
    Date: 2016–07
  18. By: Eickmeier, Sandra; Metiu, Norbert; Prieto, Esteban
    Abstract: We document that expansionary monetary policy shocks are less effective at stimulating output and investment in periods of high volatility compared to periods of low volatility, using a regime-switching vector autoregression. Exogenous policy changes are identified by adapting an external instruments approach to the non-linear model. The lower effectiveness of monetary policy can be linked to weaker responses of credit costs, suggesting a financial accelerator mechanism that is weaker in high volatility periods. To rationalize our robust empirical results, we use a macroeconomic model in which financial intermediaries endogenously choose their capital structure. In the model, the leverage choice of banks depends on the volatility of aggregate shocks. In low volatility periods, financial intermediaries lever up, which makes their balance sheets more sensitive to aggregate shocks and the financial accelerator more effective. On the contrary, in high volatility periods, banks decrease leverage, which renders the financial accelerator less effective; this in turn decreases the ability of monetary policy to improve funding conditions and credit supply, and thereby to stimulate the economy. Hence, we provide a novel explanation for the non-linear effects of monetary stimuli observed in the data, linking the effectiveness of monetary policy to the procyclicality of leverage.
    Keywords: monetary policy,credit spread,non-linearity,intermediary leverage,financial accelerator
    JEL: C32 E44 E52
    Date: 2016
  19. By: Kamiar Mohaddes; M. Hashem Pesaran
    Abstract: The recent plunge in oil prices has brought into question the generally accepted view that lower oil prices are good for the US and the global economy. In this paper, using a quarterly multi-country econometric model, we first show that a fall in oil prices tends relatively quickly to lower interest rates and inflation in most countries, and increase global real equity prices. The effects on real output are positive, although they take longer to materialize (around 4 quarters after the shock). We then re-examine the effects of low oil prices on the US economy over different sub-periods using monthly observations on real oil prices, real equity prices and real dividends. We confirm the perverse positive relationship between oil and equity prices over the period since the 2008 financial crisis highlighted in the recent literature, but show that this relationship has been unstable when considered over the longer time period of 1946.2016. In contrast, we find a stable negative relationship between oil prices and real dividends which we argue is a better proxy for economic activity (as compared to equity prices). On the supply side, the effects of lower oil prices differ widely across the different oil producers, and could be perverse initially, as some of the major oil producers try to compensate their loss of revenues by raising production. Taking demand and supply adjustments to oil price changes as a whole, we conclude that oil markets equilibrate but rather slowly, with large episodic swings between low and high oil prices.
    Keywords: Oil prices, equity prices, dividends, economic growth, oil supply, global oil markets, and international business cycle
    JEL: C32 E17 E32 F44 F47 O51 Q43
    Date: 2016–07–06
  20. By: Alisdair McKay; Ricardo Reis
    Abstract: Should the generosity of unemployment benefits and the progressivity of income taxes de- pend on the presence of business cycles? This paper proposes a tractable model where there is a role for social insurance against uninsurable shocks to income and unemployment, as well as inefficient business cycles driven by aggregate shocks through matching frictions and nominal rigidities. We derive an augmented Baily-Chetty formula showing that the optimal generosity and progressivity depend on a macroeconomic stabilization term. Using a series of analytical examples, we show that this term typically pushes for an increase in generosity and progressivity as long as slack is more responsive to social programs in recessions. A calibration to the U.S. economy shows that taking concerns for macroeconomic stabilization into account raises the optimal unemployment benefits replacement rate by 13 percentage points but has a negligible impact on the optimal progressivity of the income tax. More generally, the role of social insurance programs as automatic stabilizers affects their optimal design.
    Keywords: Counter-cyclical fiscal policy; redistribution; distortionary taxes.
    JEL: E62 H21 H30
    Date: 2016–06–17
  21. By: António Afonso; Miguel St. Aubyn
    Abstract: We study the macroeconomic effects of public and private investment in 17 OECD economies through a VAR analysis with annual data from 1960 to 2014. From impulse response functions we find that public investment had a positive growth effect in most countries, and a contractionary effect in Finland, UK, Sweden, Japan, and Canada. Public investment led to private investment crowding out in Belgium, Ireland, Finland, Canada, Sweden, the UK and crowding-in effects in the rest of the countries. Private investment has a positive growth effect in all countries; crowds-out (crowds-in) public investment in Belgium and Sweden (in the rest of the countries). The partial rates of return of public and private investment are mostly positive. Key Words : fiscal policy, public investment, private investment, impulse response functions, VAR
    JEL: C32 E22 E62
    Date: 2016–07
  22. By: Lugilde, Alba; Bande, Roberto; Riveiro, Dolores
    Abstract: The aim of this paper is to study empirically the effect of uncertainty on private consumption using a sample of Spanish households, and to check whether the appropriate measure of uncertainty varies with the macroeconomic context. Using data provided by the Spanish Survey of Household Finances (EFF) and the Labour Force Survey (LFS) we construct several uncertainty measures commonly used in the literature and an additional indicator based on job insecurity data and estimate different econometric models under the life-cycle/permanent income hypothesis, using these measures of uncertainty. Our results are twofold: first, we find evidence in favour of the precautionary saving hypothesis. Secondly, we find that the sources of uncertainty vary with the business cycle: the job insecurity indicator is an appropriate variable to approximate income uncertainty in any macroeconomic context, especially when the unemployment rate is low. When unemployment soars, however, it becomes the main uncertainty source for households, together with the degree of instability at the current job.
    Keywords: precautionary savings; macroeconomic uncertainty; consumption; EFF
    JEL: D12 D14 E21
    Date: 2016–07–07
  23. By: Marco Casiraghi (Bank of Italy); Eugenio Gaiotti (Bank of Italy); Lisa Rodano (Bank of Italy); Alessandro Secchi (Bank of Italy)
    Abstract: We study empirically the distributional implications of a non-standard monetary policy expansion, considering the measures implemented by the Eurosystem in 2011-2012 and exploiting a rich micro dataset on Italian households’ income and wealth, in order to take contemporaneously into account a number of income- and wealth-related channels. Our results do not support the claim that an unconventional monetary loosening acts as a “reverse Robin Hood”. Larger benefits accrue to households at the bottom of the income scale, as the effects via the stimulus to economic activity and employment outweigh those via financial variables. The response of net wealth is U-shaped: less wealthy households take advantage of their leveraged positions, wealthier households of their larger share of financial assets. Overall, the effects on inequality are negligible. The results also suggest that the risk of an “expropriation of savers” is not likely to materialize, as the decrease in the remuneration of savings is compensated by support to labour income and by capital gains.
    Keywords: monetary policy, interest rates, policy effects, inequality
    JEL: E52 E58 I14
    Date: 2016–07
  24. By: El-Shagi, Makram
    Abstract: In this paper, we propose a new method to assess the impact of sovereign ratings on sovereign bond yields. We estimate the impulse response of the interest rate, following a change in the rating. Since ratings are ordinal and moreover extremely persistent, it proves difficult to estimate those impulse response functions using a VAR modeling ratings, yields and other macroeconomic indicators. However, given the highly stochastic nature of the precise timing of ratings, we can treat most rating adjustments as shocks. We thus no longer rely on a VAR for shock identification, making the estimation of the corresponding IRFs well suited for so called local projections - that is estimating impulse response functions through a series of separate direct forecasts over different horizons. Yet, the rare occurrence of ratings makes impulse response functions estimated through that procedure highly sensitive to individual observations, resulting in implausibly volatile impulse responses. We propose an augmentation to restrict jointly estimated local projections in a way that produces economically plausible impulse response functions. We develop a semiparametric local projections method where smoothness can be imposed as constraint without assuming a specific functional form. The degree of smoothing can be assessed using a standard information criterion. While rating downgrades can play some role, we find no evidence for an impact of ratings in the most critical case of countries that are unusually well rated compared to their debt situation. Rather, ratings seem to be adjusted when the market evaluation of the risk associated with the high level of debt has already peaked.
    Keywords: local projections,semi parametric estimation,impulse response function,sovereign rating,bond yields
    JEL: C14 C30 E43 E44
    Date: 2016
  25. By: Javier Lopez Bernardo (Kingston University)
    Abstract: This paper offers a novel post-Keynesian theory, in a stock-flow consistent framework, to understand equity returns and their links with economic growth and consumption decisions from a long-run perspective. The main features of such a theory can be summarised as follows. First, there is a negative relationship between Tobin’s q and economic growth. Second, the effect of economic growth on dividend yields and earnings growth is positive, but its effect on the growth in the number of shares is negative (i.e. a ‘dilution effect’), which makes the relationship between equity returns and economic growth undetermined a priori. Third, consumption decisions emerge as crucial drivers for shareholder profitability in the long-run, being such a result very close to Kalecki’s theory of profits, but now applied to financial markets. And fourth, in the post-Keynesian theory the equity yield is determined by aggregate demand, and no theory of risk is needed. Finally, the post-Keynesian theory will be compared against the mainstream financial theory, which features the famous risk-return nexus where asset returns are given by the volatility of the asset with respect to consumption. It will be claimed that the use of risk for determining equity returns at the macroeconomic level is problematic, and that depending on the risk definition assumed, the risk-return relationship can be either positive or negative – being thus such a nexus of little theoretical significance and posing serious problems for mainstream finance.
    Keywords: equity yield, dividend yield, Tobin’s q, post-Keynesian macroeconomic theory, Kaleckian growth models, stock-flow consistent models, mainstream finance
    JEL: E12 E22 E44 G10 O42
    Date: 2016–07
  26. By: Karim Triki
    Abstract: A proper design of fiscal adjustment is an essential aspect of a successful approach to consolidation. Economists often advocate putting emphasis on expenditure restraint as part of a well-designed consolidation strategy. There is no optimal government size, but the common presumption is that both potential efficiency gains in spending and the opportunity cost of incremental taxation increase more than proportionately with the size of the public sector. In this context, the aim of the workshop, held by DG ECFIN on 20 January 2015, was to discuss theoretical and policy issues associated with expenditure-based consolidations. The workshop was organised in three sessions, Session 1: " Expenditure-based consolidation or tax based consolidation: evidence from a cross-country perspective", session 2: "Interaction between private and public sector in difficult times: impact of uncertain economic environments on consolidations" and session 3 "Structural and institutional reforms in the context of an expenditure-based consolidation". The proceedings display the high quality contributions that were presented in each of these sessions.
    JEL: E32 E47 E61 E62 F41 H3 H5
    Date: 2016–03
  27. By: Susanne VON DER BECKE (ETH Zurich); Didier SORNETTE (ETH Zurich and Swiss Finance Institute)
    Abstract: We identify the origin of the contradicting perspectives on credit creation offered by Austrian, Mainstream and Post Keynesian economists as the neglect of the primacy of such assets as goods, properties and securities, which always pre-exist any transaction and loan. We develop a unified framework of credit creation based on three leading variables: (i) the amount of collateral assets accepted, (ii) the level of leverage and (iii) the level of trust and confidence. As credit expands along these dimensions, the money supply becomes more endogenous and the financial system more vulnerable to internally generated instabilities manifested as booms and busts. Empirical evidence demonstrates a significant shift in the components of bank balance sheets and a decoupling of bank assets from deposits since the mid-1980s, marking a shift from credit creation within traditional fractional reserve banking to "securitized-fractional reserve banking". Applying our framework of credit creation to the global financial crisis, we argue that growth over recent decades has been increasingly financed by credit creation and that the subprime crisis was both a signature and only one possible trigger in an increasingly unstable financial system. As trust began to recede, so did leverage and the amount of assets accepted as collateral, leading to a contraction in credit and to liquidity spirals. Subsequent measures by policymakers can be interpreted as attempts to avoid further contraction along these three variables.
    Keywords: Credit creation, Financial crises, Leverage, Liquidity, Confidence
    JEL: B53 E12 E13 E51 G01
  28. By: Mirkov, Nikola; Pozdeev, Igor; Soderlind, Paul
    Abstract: We ask whether the markets expected the Swiss National Bank (SNB) to discontinue the 1.20 cap on the Swiss franc against the euro in January 2015. In the run-up to the SNB announcement, neither options on the euro/Swiss franc nor FX liquidity indicated a significant shift in market expectations. Furthermore, we find that the SNB's verbal interventions during the period of cap enforcement increased the credibility of the cap by reducing the uncertainty of future euro/Swiss franc rate. Therefore, we conclude that the markets did not anticipate the discontinuation of the policy.
    Keywords: Swiss franc, implied volatilities, market expectations
    JEL: E58 E44 G12
    Date: 2016–07
  29. By: Daniel Melser (RMIT University); Iqbal A. Syed (School of Economics and CAER, UNSW Business School, UNSW Australia)
    Abstract: Official price indexes are usually calculated using matched samples of products. If products exhibit systematic price trends at different points in their life cycle then matched sample methods may introduce bias if the life cycle movement in the sample does not adequately reflect that in the population. This article explores the extent of these life cycle pricing effects and then examines the bias it can introduce in measured inflation. A large US supermarket scanner data set for 6 cities and 6 products over 12 years is used. Using hedonic methods we find that the life cycle component of price change is important across a range of products and cities. To explore the bias introduced by these movements we use simulations which construct indexes with different sample update frequency. For indexes which are never completely resampled we find an annual bias of 0.88 and 0.59 percentage points depending upon whether we use the actual prices or prices imputed from our hedonic model. This compares with absolute biases of 0.24 and 0.08 percentage points for the corresponding cases for samples which are re-selected annually. Thus our results provide strong support for more frequently updating index samples. ]
    Keywords: Consumer price index (CPI), lifecycle pricing, hedonic regression, survey sampling
    JEL: C43 E31
    Date: 2016–07
  30. By: Jongwanich, Juthathip (Thammasat University); Wongcharoen, Petchtharin (Thammasat University); Park, Donghyun (Asian Development Bank)
    Abstract: We empirically examine and compare the determinants of producer and consumer price inflation in 10 Asian economies during 2000–2015. In this connection, we also investigate the pass-through of global oil prices, global food prices, and exchange rates to domestic producer and consumer prices. Overall, we find that cost-push factors such as oil and food prices are more important in explaining producer price inflation than consumer price inflation in the 10 Asian economies. On the other hand, for consumer prices, demand-pull factors still explain much of the inflation. Finally, we find that the pass-through of global oil prices, global food prices, and exchange rates tend to be higher for producer prices than consumer prices in Asia.
    Keywords: Asia; commodity price shocks; consumer price; exchange rate; inflation; monetary policy; pass-through; producer price
    JEL: E31 F43 O53
    Date: 2016–07–14
  31. By: Marta Lachowska (W.E. Upjohn Institute for Employment Research)
    Keywords: consumer confidence, economic activity
    JEL: E21 E32 C32
  32. By: Claudio Borio; Anna Zabai
    Abstract: We explore the effectiveness and balance of benefits and costs of so-called "unconventional" monetary policy measures extensively implemented in the wake of the financial crisis: balance sheet policies (commonly termed "quantitative easing"), forward guidance and negative policy rates. Our objective is to provide the reader with a helpful entry point to the burgeoning empirical literature and with a specific perspective on the complex issues involved. We reach three main conclusions: there is ample evidence that, to varying degrees, these measures have succeeded in influencing financial conditions even though their ultimate impact on output and inflation is harder to pin down; the balance of the benefits and costs is likely to deteriorate over time; and the measures are generally best regarded as exceptional, for use in very specific circumstances. Whether this will turn out to be the case, however, is doubtful at best and depends on more fundamental features of monetary policy frameworks. In the paper, we also provide a critique of prevailing analyses of "helicopter money" and explore in more depth the role of negative nominal interest rates in our fundamentally monetary economies, highlighting some risks.
    Keywords: unconventional monetary policies, balance sheet policies, forward guidance, negative interest rates
    Date: 2016–07
  33. By: Aikman, David; Lehnert, Andreas; Liang, J. Nellie; Modugno, Michele
    Abstract: We define a measure to be a financial vulnerability if, in a VAR framework that allows for nonlinearities, an impulse to the measure leads to an economic contraction. We evaluate alternative macrofinancial imbalances as vulnerabilities: nonfinancial sector credit, risk appetite of financial market participants, and the leverage and short-term funding of financial firms. We find that nonfinancial credit is a vulnerability: impulses to the credit-to-GDP gap when it is high leads to a recession. Risk appetite leads to an economic expansion in the near-term, but also higher credit and a recession in later years, suggesting an intertemporal tradeoff. Monetary policy is generally ineffective at slowing the economy once the credit-to-GDP gap is high, suggesting important benefits from avoiding excessive credit growth. Financial sector leverage and short-term funding do not lead directly to contractions and thus are not vulnerabilities by our definition.
    Keywords: Financial stability and risk ; Monetary policy ; Credit
    JEL: E58 E65 G28
    Date: 2016–07–07
  34. By: López-Laborda, Julio; Peña, Guillermo
    Abstract: The influence of the taxation of financial services in VAT on financial sector size is analyzed empirically. The authors use data from 36 countries of the European Union and the OECD for the period between 1961 and 2012. Dynamic panel data techniques are used, concretely the GMM System. An unbalanced panel is handled. The results allow them to support the theoretical analysis that states financial VAT has no significant effect on financial sector development, being neutral in relation to this variable. Results are robust to the specifications of the dependent variable.
    Keywords: financial VAT,panel data,financial depth
    JEL: H25 H21 E62 E44 G21
    Date: 2016
  35. By: cho, hyejin
    Abstract: This article presents a methodology designed to facilitate alternative variables measuring economic growth. A capital-labor split of Cobb-Douglas function is adapted for use in the context of economic growth. A capital/income ratio and two fundamental laws of capitalism originated by Thomas Piketty illustrate capital inequality undervalued with respect to labor inequality. In addition, the article includes export and external debt as strong alternatives. Empirical data of the World Bank are analyzed to demonstrate broad differences in economic sizes. The case analysis on Latin America as an example of different sized economy is also discussed
    Keywords: capital-labor split, factors of production, capital/income ratio, Thomas Piketty, capitalism, economic size, debt sustainability, Latin America, import substitution industrialization (ISI) model, insolvent external debt, openness, external debt to exports ratio
    JEL: E01 E22 G00 G01 H63
    Date: 2015–03
  36. By: Higgins, Patrick C. (Federal Reserve Bank of Atlanta); Zha, Tao (Federal Reserve Bank of Atlanta); Zhong, Karen (Shanghai Jiaotong University)
    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 gross domestic product (GDP) growth and consumer price index 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 usable for policy analysis under different scenarios. It predicts that China's future GDP growth will be of an L-shape rather than a U-shape.
    Keywords: out of sample; policy projections; scenario analysis; probability bands; density forecasts; random walk; Bayesian priors
    JEL: C53 E10 E40
    Date: 2016–07–01
  37. By: João Ferreira do Amaral; João Carlos Lopes
    Abstract: The great recession of 2008/2009 has had a huge impact on unemployment and public finances in most advanced countries, and these impacts were magnified in the southern Euro area countries by the sovereign debt crisis of 2010/2011. The fiscal consolidation imposed by the European Union on highly indebted countries was based on the assumptions of the so-called expansionary austerity. However, the reality so far shows proof to the contrary, and the results of this paper support the opposing view of a selfdefeating austerity. Based on the input-output relations of the productive system, an unemployment rate/budget balance trade-off equation is derived, as well as the impact of a strong fiscal consolidation based on social transfers and the notion of neutral budget balance. An application to the Portuguese case confirms the huge costs of a strong fiscal consolidation, both in terms of unemployment and social policy regress, and it allows one to conclude that too much consolidation in one year makes consolidation more difficult in the following year. Key Words : Self-defeating austerity; Fiscal consolidation; Unemployment; Input-output analysis; Portugal
    JEL: E23 E62 C67 D57
    Date: 2016–07
  38. By: Alexis Loublier; Philipp Mohl; Eric Ruscher; Borek Vasicek; Thomas Walsh
    Abstract: This edition of the QREA reviews the issue of shocks and adjustment in the light of recent crises. It analyses the functioning of a key internal adjustment process in EMU, the "relative price mechanism", as well as the "real interest rate mechanism". It also reviews the different implications of high levels of indebtedness.
    Keywords: Economic adjustment,economic shocks,macroeconomic convergence
    JEL: A10 C10 E00 E61 F15 F45
    Date: 2016–01
  39. By: Theodosios DIMOPOULOS (University of Lausanne and Swiss Finance Institute); Stefano SACCHETTO (Tepper School of Business, Carnegie Mellon University)
    Abstract: We study a dynamic industry-equilibrium model that features mergers, entry, and exit by heterogeneous firms. We show how different sources of synergies affect merger cyclicality. Improvements in marginal productivity between merging firms generate a procyclical motive for mergers, while reductions in fixed costs of production generate a countercyclical one. The presence of a merger market makes poorly performing firms less likely to exit the industry in recessions, and it increases the mean and variance of the cross-sectional distribution of firm-level productivities. Consistent with the empirical evidence, we show that announcement returns for large acquirers are lower than for small acquirers, despite large acquirers' higher Tobin's Q.
    Keywords: Mergers, Industry Equilibrium
    JEL: D21 D92 E22 E32 G34
  40. By: A. Bernales; M. di Filippo
    Abstract: We study the information contained in the interaction between unsecured and collateralized money markets. We present a model to capture probabilities of migration between lending segments, and probabilities of liquidity shocks (which move the trading-activity in both markets in the same direction). We apply our model to a novel dataset of European interbank-lending, and we show that useful information is obtained from money market interactions. We report that information captured by our model describes historical macroeconomic and liquidity events in the European banking system, and explains interest rate spreads after controlling for different measures commonly used to characterize money markets. In particular, an increase in 10% of the probability of migration from the Unsecured to Secured Market is associated to a 20% percent increase in the spread between Unsecured and Secured rates.
    Keywords: Money markets, collateralized lending, unsecured lending, equilibrium model, structural model, systemic risk, liquidity.
    JEL: E42 E58 G21 G28
    Date: 2016
  41. By: Vasilev, Aleksandar
    Abstract: This paper studies the wasteful effect of bureaucracy on the economy by addressing the link between opportunistic behavior of government bureaucrats and the public sector wage bill. In particular, public officials are modeled as individuals competing for a larger share of those public funds. A simple extraction technology in the gov- ernment administration is introduced in a standard Real-Business-Cycle (RBC) setup augmented with detailed public sector. The model is calibrated to German data for the period 1970-2007. The main findings are: (i) the model performs well vis-a-vis the data; (ii) Due to the existence of a significant public sector wage premium and the high public sector employment, a substantial amount of working time is spent in opportunistic activities, which in turn leads to significant losses in terms of output; (iii) The model-based loss measures obtained for the EU-12 countries are highly-correlated to indices of bureaucratic inefficiency.
    Keywords: rent-seeking,opportunism,bureaucracy,government emloyment and wages
    JEL: E69 E62 E32 J45
    Date: 2016
  42. By: Ansgar Belke; Christian Dreger; Irina Dubova
    Abstract: The financial crisis led to a deep recession in many industrial countries. While large emerging countries recovered relatively quickly from the financial crisis, their performance deteriorated in the last years, despite the modest recovery in advanced economies. The higher divergence of business cycles is closely linked to the Chinese transformation. During the crisis, the Chinese fiscal stimulus prevented a decline in GDP growth not only in that country, but also in resource-rich economies. The Chinese shift to consumption-driven growth led to a decline in commodity demand, and the environment became more challenging for many emerging markets. This view is supported by Bayesian VARs specified for the BRIC (Brazil, Russia, India, and China) countries. The results reveal a strong impact of international variables on GDP growth. In contrast to the other countries, China plays a crucial role in determining global trade and oil prices. Hence, the change in the Chinese growth strategy puts additional reform pressure on countries with abundant natural resources.
    Keywords: Business cycle divergence, Chinese transformation, Bayesian VARs
    JEL: F44 E32 C32
    Date: 2016
  43. By: Olivier Blanchard (Peterson Institute for International Economics)
    Abstract: The strong monetary policy actions undertaken by advanced economies' central banks have led to complaints of "currency wars" by some emerging-market economies and to widespread demands for more macroeconomic policy coordination. This paper reviews cross-border effects of advanced economies' monetary policies on emerging economies, through goods markets, foreign exchange markets, and financial markets, and examines the scope for coordination. Blanchard concludes that, while advanced economies' monetary policies indeed have had substantial spillover effects on emerging-market economies, there was and still is little room for coordination. He argues that, given the limits on fiscal policy, restrictions on capital flows (i.e., capital controls) were and still are the appropriate macroeconomic instrument to advance the objectives of both macro and financial stability.
    Keywords: Exchange Rates, Capital Controls, Capital Flows, Monetary Policy, Macroeconomic Policy Coordination
    JEL: F3 F36 F42
    Date: 2016–07
  44. By: Eichler, Stefan; Lähner, Tom; Noth, Felix
    Abstract: This study analyzes if regionally affiliated Federal Open Market Committee (FOMC) members take their districts' regional banking sector instability into account when they vote. Considering the period from 1978 to 2010, we find that a deterioration in a district's bank health increases the probability that this district's representative in the FOMC votes to ease interest rates. According to member-specific characteristics, the effect of regional banking sector instability on FOMC voting behavior is most pronounced for Bank presidents (as opposed to governors) and FOMC members who have career backgrounds in the financial industry or who represent a district with a large banking sector.
    Keywords: FOMC voting,regional banking sector instability,lobbying
    JEL: E43 E52 E58 G21
    Date: 2016
  45. By: Qureshi, Irfan (Department of Economics, University of Warwick)
    Abstract: I study whether money growth targeting leads to indeterminacy in the price level. I extend a conventional framework and show that the price level may be indeterminate if the central bank's response to money growth is weak even when the Taylor principle is satisfied. Based on this reasoning, policy coefficients estimated using novel FOMC meeting-level data propose a new channel of the policy mistakes that may have triggered indeterminacy during the Great Inflation. I show that 'passively' pursuing money growth objectives generates significantly larger welfare loss compared to alternative specifications of the monetary policy rule but 'active' money growth targeting drastically minimizes welfare and loss. I confirm the relationship between money and growth objectives and macroeconomic volatility using cross-country evidence.
    Keywords: Money Growth Objectives, Time-Varying Policy, Indeterminacy, Macroeconomic Volatility
    JEL: I30 I31
    Date: 2016
  46. By: Adrian, Tobias; Liang, Nellie
    Abstract: We review a growing literature that incorporates endogenous risk premiums and risk taking in the conduct of monetary policy. Accommodative policy can create an inter-temporal tradeoff between improving current financial conditions at a cost of increasing future financial vulnerabilities. In the U.S., structural and cyclical macroprudential tools to reduce vulnerabilities at banks are being implemented, but may not be sufficient because activities can migrate and there are limited tools for nonbank intermediaries or for borrowers. While monetary policy itself can influence vulnerabilities, its efficacy as a tool will depend on the costs of tighter policy on activity and inflation. We highlight how adding a risk-taking channel to traditional transmission channels could significantly alter a cost-benefit calculation for using monetary policy, and that considering risks to financial stability—as downside risks to employment--is consistent with the dual mandate.
    Keywords: financial conditions; financial stability; leaning against the wind; macroprudential policy; monetary policy rules; monetary policy transmission; risk taking channel of monetary policy
    Date: 2016–07
  47. By: Vasilev, Aleksandar
    Abstract: This paper investigates for the presence of a New Keynesian Phillips (NKPC) curve in Hungary in the period 1981:3-2006:2, following the methodology proposed by Gali and Gertler (1999). They claim that a potential source of inflation may be the sluggish adjustment of real marginal costs to movements in output. The empirical model we test features forward-looking firms who pre-set prices for a couple of periods ahead, using Calvo (1983) pricing rule. In addition, measures of real marginal cost are used instead of the old-fashioned output gap. The reason is that marginal costs are a better proxy for the impact of the productivity gains on inflation, which the ad hoc measure output gap misses. We also estimate a hybrid version of NKPC, where some of the firms are backward-looking, and others are forward-looking in their price-setting behavior. Real marginal costs and forward-looking behavior are statistically significant and quantitatively important in the NKPC. However, there are some econometric issues to be considered, such as the weak identification of the parameters of the structural NKPC as well as those of the hybrid NKPC.
    Keywords: New Keynesian Phillips curve,Hungary,instrumental non-linear GMM Estimation,weak identification
    JEL: C22 C26 E24
    Date: 2015
  48. By: Teboho Jeremiah Mosikari (North West University); Diteboho Lawrance Xaba (North West University); Johannes Tshepiso Tsoku (North West University)
    Abstract: The interest of this study is to examine the macroeconomic determinants of economic growth in Botswana. The paper is motivated by poverty and unemployment figures rampaging the economy of Botswana, therefore, it is necessary to investigate its growth empirics. The study adopted the Keynesian expenditure approach to identify the factors influencing Botswana’s economic growth. The study used the time series data spanning from 1966 to 2014. The paper applied a robust Engle-Granger approach to examine the long run equilibrium between Keynesian macroeconomic factors and economic growth. In an attempt to examine the long run equilibrium, the results of the study reviled that all the variables performed according to Keynesian theory expectation. Furthermore, although imports impact negatively to economic growth according to Keynes theory and it is empirically proven. The study recommends that economic policy makers in Botswana should reconsider the import structure of the economy in such a way that they promote import of capital goods that will impact positively to economic growth in the long run that will translate to eradicate poverty and reduce unemployment.
    Keywords: economic growth, Keynesian theory, cointegration
    JEL: B41 C01 E20
  49. By: Xavier Giroud; Holger M. Mueller
    Abstract: Local labor market shocks are difficult to insure against. Using confidential micro data from the U.S. Census Bureau’s Longitudinal Business Database, we document that firms redistribute the adverse employment impacts of local demand shocks across regions through their internal networks of establishments. We find large elasticities of non-tradable establishment-level employment with respect to house prices in other counties in which the firm has establishments. Consistent with theory, these elasticities increase with the extent of firms’ financial constraints. Further, and consistent with the notion that firms smooth out the impacts of local demand shocks across regions, we find that establishments of firms with more expansive regional networks exhibit lower elasticities with respect to house prices in the establishment’s own county. To account for general equilibrium adjustments, we also consider total non-tradable employment at the county level. Similar to what we found at the establishment level, we find that non-tradable county-level employment responds strongly to local demand shocks in other counties linked through firms’ internal networks of establishments. These results are not driven by direct demand spillovers from nearby counties, common county-level shocks to house prices, or local demand shocks affecting non-tradable employment in distant counties indirectly through the trade channel. Overall, our results suggest that firms play an important role in the extent to which local labor market risks are shared across regions.
    JEL: E24 E32 G31 J23 J63
    Date: 2016–07
  50. By: Foremny, Dirk; Solé-Ollé, Albert
    Abstract: This paper analyzes the distribution of discretionary transfers from higher tiers of government in the process of fiscal adjustment in local jurisdictions which were hit by a negative revenue shock in formula transfers. Spanish local governments experienced a 30% fall in their revenue-sharing revenues at the beginning of the Great Recession. We use a 'difference-in-discontinuities' design to identify the causal effect of that shock on the amount of discretionary grants provided by three higher tiers of government (i.e., central, regional, and provincial) and on other budget items (i.e., spending and taxation). We identify these effects using an exogenous variation in formula transfers, as the losses during the crisis of municipalities above the 5,000 population threshold were greater than the losses of those below this threshold. We find that, on average, municipalities above and below the 5,000 inhabitant threshold did not differentially adjust their budgets during the crisis. Rather, we find that for themost indebted municipalities, a substantial share of the shock was absorbed by discretionary grants provided by regional and provincial governments.
    Keywords: intergovernmental transfers,bailouts,fiscal consolidation
    JEL: E62 H72 R5
    Date: 2016
  51. By: Einian, Majid; Nili, Masoud
    Abstract: We use Iranian Household Expenditure and Income Survey," to analyze the dynamics of consumption of the households. We observe evidence of excess sensitivity in a cohort pseudo panel of Iranian households. Excess sensitivity, however, is absent for government employees who have better access to finance due to the structure of labor market and banking system in Iran. Our results support the idea that borrowing constraints is the main cause for evidence of excess sensitivity. This indicates that actual consumption prole is sub-optimal and hence deepening financial access will decrease the welfare loss of this sub-optimality. In the paper, we have also provided estimates of elasticity of inter-temporal substitution for the Iranian households for the first time, and they are consistent with those of other developing countries.
    Keywords: Consumption Smoothing, Permanent Income Hypothesis, Euler Equation, Excess Sensitivity, Borrowing Constraints
    JEL: C55 D12 D14 E21 O53
    Date: 2016–07–05
  52. By: Matthew Calver; Evan Capeluck
    Abstract: In October 2015, the Centre for the Study of Living Standards released a report examining how outsourcing of work from the manufacturing sector to the services sector contributed to the recorded decline in Canadian manufacturing employment over the past four decades. The evidence was mixed. An examination of the input-output structure of the economy suggested that the effect of services outsourcing was very small while a decomposition of employment growth by industry and occupation suggested that the effect may have been substantial. This report revisits these results using new custom data products provided by Statistics Canada. In particular, the earlier work examined an input-output structure based on current dollar data which may have skewed the results due to large price swings, particularly in the oil and gas sector. This report uses chained dollar estimates to avoid this problem. Similarly, the employment decomposition used highly aggregated occupational data which may have overstated the contribution of outsourcing to manufacturing’s declining employment share. We use more detailed occupational data from the Census / National Household Survey. We find that the results regarding the contribution of services outsourcing are fairly robust to the choice of data. Furthermore, we are able to reconcile the differing estimates of the importance of services outsourcing between the input-output and occupational decomposition methodologies by noting that much of the decline in manufacturing employment in services occupations might be expected to occur if the manufacturing sector shrank for reasons unrelated to services outsourcing. In particular, the expected share of the decline associated with service occupations in response to a negative shock to the manufacturing sector should be roughly equal to the share of service occupations in total manufacturing employment. Adjusting for this, we find that both exercises suggest the contribution of services outsourcing to the decline of manufacturing’s employment share was quite small, explaining no more than 8.3 per cent.
    Keywords: Manufacturing, Outsouring, Employment, Canada, Input-Output
    JEL: M55 E24 L60 N32 N22 N62
    Date: 2016–07
  53. By: Nicholas Kozeniauskas; Anna Orlik; Laura Veldkamp
    Abstract: Various types of uncertainty shocks can explain many phenomena in macroeconomics and finance. But does this just amount to inventing new, exogenous, unobserved shocks to explain challenging features of business cycles? This paper argues that three conceptually distinct fluctuations, all called uncertainty shocks, have a common origin. Specifically, we propose a mechanism that generates micro uncertainty (uncertainty about firm-level shocks), macro uncertainty (uncertainty about aggregate shocks) and higher-order uncertainty (disagreement) shocks from a common origin and causes them to covary, just as they do in the data. When agents use standard maximum likelihood techniques and real-time data to re-estimate parameters that govern the probability of disasters, the result is that micro, macro and higher-order uncertainty fluctuate and covary just like their empirical counterparts. Our findings suggest that time-varying disaster risk and the many types of uncertainty shocks are not distinct phenomena. They are outcomes of a quantitatively plausible belief updating process.
    JEL: E0
    Date: 2016–07
  54. By: Kopits, George (Woodrow Wilson International); Ferrarini, Benno (Asian Development Bank); Ramayandi, Arief (Asian Development Bank)
    Abstract: The paper explores risk-based fiscal analytical approaches to complement a standard debt sustainability analysis when applied under conditions of risk and uncertainty. To outline a possible road map for risk-adjusted fiscal sustainability analysis, the paper first examines the types of vulnerability faced by different emerging economies in Asia and reviews a range of stochastic methods that attempt to explicitly incorporate risk in their analysis. Drawing on international experience, we note that the usefulness of applying a stochastic approach hinges on policy makers’ capacity to identify the sources and extent of risks in assessing fiscal sustainability, which should then allow them to simulate the impact of a hypothetical corrective action on the baseline trajectory of debt or net worth and on its stochastic distribution, including fat-tail risks of default.
    Keywords: fiscal sustainability; risk-based fiscal analysis; sovereign debt; stochastic approach
    JEL: D81 E62 G13 H63
    Date: 2016–05–13
  55. By: Taylor, John B.; Wieland, Volker
    Abstract: Recently there has been an explosion of research on whether the equilibrium real interest rate has declined, an issue with significant implications for monetary policy. A common finding is that the rate has declined. In this paper we provide evidence that contradicts this finding. We show that the perceived decline may well be due to shifts in regulatory policy and monetary policy that have been omitted from the research. In developing the monetary policy implications, it is promising that much of the research approaches the policy problem through the framework of monetary policy rules, as uncertainty in the equilibrium real rate is not a reason to abandon rules in favor of discretion. But the results are still inconclusive and too uncertain to incorporate into policy rules in the ways that have been suggested.
    Date: 2016
  56. By: Katia Berti; Eugeniu Colesnic; Cyril Desponts; Stephanie Pamies; Etienne Sail
    Abstract: This paper estimates country-specific fiscal reaction functions (FRFs) for selected European countries and tests for a change in fiscal behaviour since the beginning of the economic and financial crisis. The estimated country-specific FRFs, as well as a panel FRF for Central and Eastern European countries, are used in medium-term projections of the public debt-to-GDP ratio. Additional results in terms of fiscal risk assessment based on this FRF debt projection scenario and on the degree of realism of fiscal projections underlying public debt projections are also derived. Most EU countries are found to positively adjust their fiscal policy to rising levels of public debt, although to a weak extent in some cases. Since 2009, fiscal responsiveness to public debt appears to have generally increased over the sub-sample of EU countries considered. When using FRFs to project public debt ratios, results are on average less favourable than under the standard baseline no-fiscal policy change scenario used by the Commission services. However, for most countries, results generally corroborate the summary medium-term sustainability risk assessment made by the European Commission services (2016) based on more traditional debt projection scenarios and sensitivity tests. The paper also identifies a set of countries that are potentially at risk of fiscal fatigue.
    JEL: C22 C23 E62 H68
    Date: 2016–04
  57. By: Hajime Tomura (Faculty of Political Science and Economics,Waseda University,)
    Abstract: In a standard overlapping generations model, the unique equilibrium price of a Lucas' tree can be decomposed into the present discounted value of dividends and the stationary monetary equilibrium price of fiat money, the latter of which is a rational bubble. Thus, the standard interpretation of a rational bubble as the speculative component in an asset price double-counts the value of pure liquidity that is already part of the fundamental price of an interest-bearing asset.
    Keywords: rational bubbles; liquidity.
    JEL: E3
    Date: 2016–05
  58. By: Erik Canton; Jan In't Veld; Romanos Priftis
    Abstract: Structural reform measures underway in Italy, France, Spain and Portugal could have significant economic benefits and raise GDP, model simulations presented in this edition of the QREA show. Other chapters in this edition look at the effects of population ageing and slowing total factor productivity growth on GDP, inflation and interest rates; and the drivers of total factor productivity growth.
    JEL: A10 C10 C23 C54 D24 E00 E61 F15 F45 J21
    Date: 2016–04
  59. By: Yoshiyuki Kurachi (Bank of Japan); Kazuhiro Hiraki (Bank of Japan); Shinichi Nishioka (Bank of Japan)
    Abstract: Even though prices at the macro level in Japan, like in Europe and the United States, are sticky, individual prices as measured in micro data change frequently. The reason for this puzzle, it has been argued in the context of the United States, is the presence of temporary price changes due to sales and other promotions. In other words, the impact of temporary price changes on the inflation rate is negligible, since some price cuts during sales are cancelled out by other price rebounds from the previous sale prices. The hypothesis thus is that what affects macro-level inflation is not temporary price changes but changes in regular prices, which change only infrequently and hence are responsible for sticky prices at the macro level. We investigate this hypothesis using the micro data underlying Japan's consumer price index (CPI) and find that, in general, that the hypothesis is supported in Japan's case. Unlike in the United States, however, the frequency of temporary price changes has trended upward since the 1990s, so that the impact of temporary price changes on the inflation rate has gradually increased. If this development were to continue, it could lead to greater elasticity of the inflation rate in the future.
    Date: 2016–07–12
  60. By: Xiong, Qizhou
    Abstract: This paper estimates relative risk aversion using the observed shares of risky assets and characteristics of households from the Household Finance and Consumption Survey of the European Central Bank. Given that the risky share is a fractional response variable belonging to [0, 1], this paper proposes a censored fractional response estimation method using extremal quantiles to approximate the censoring thresholds. Considering that participation in risky asset markets is costly, I estimate both the heterogeneous relative risk aversion and participation cost using a working sample that includes both risky asset holders and non-risky asset holders by treating the zero risky share as the result of heterogeneous self-censoring. Estimation results show lower participation costs and higher relative risk aversion than what was previously estimated. The estimated median relative risk aversions of eight European countries range from 4.6 to 13.6. However, the results are sensitive to households' perception of the risky asset market return and volatility.
    Keywords: European household finance,relative risk aversion,censored fractional response model,extremal quantile regression
    JEL: C21 C24 E44 G11
    Date: 2015
  61. By: António Afonso,; Manish K. Singh
    Abstract: An important assumption in the statistical analysis of the nancial market effects of the central bank's large scale asset purchase program is that the `long-term debt stock variables were exogenous to term premia'. We test this assumption for a small open economy in a currency union over the period 2000M3 to 2015M10, via the determinants of shortterm financing relative to long-term nancing. Empirical estimations indicate that the maturity composition of debt does not respond to the level of interest rate or to the term structure. These ndings suggest a lower adherence to the cost minimization mandate of debt management. However, we nd that volatility and relative market size respectively decrease and increase short-term financing relative to long-term nancing, while it decreases with an increase in government indebtedness. Key Words : sovereign debt management, long-term interest rate, portfolio balance channel, Bank of Portugal
    JEL: E43 E52
    Date: 2016–05
  62. By: Belke, Ansgar; Klose, Jens
    Abstract: Is secular stagnation a valid concern for Euro Area countries? We tackle this question using the well-established Laubach-Williams model to estimate the unobservable equilibrium real interest rate and compare it to the actual real rate. We apply our approach to twelve Euro Area countries, since heterogeneity among member countries has become considerably extensive since the beginning of the financial crisis. Hence, the question of secular stagnation has to be answered at the country level. Our results indicate that secular stagnation does not appear to be a significant threat to most Euro Area countries. But there is one exception: Greece.
    Abstract: Ist säkulare Stagnation ein Problem in den Ländern des Euro Raums? Wir widmen uns dieser Frage, indem wir das etablierte Modell von Laubach und Williams (2003) anwenden, um den unbeobachtbaren gleichgewichtigen Realzins zu schätzen und mit dem tatsächlichen Realzins zu vergleichen. Der Ansatz wird für zwölf Länder des Euro Raums angewendet, weil die Heterogenität zwischen den Mitgliedstaaten seit Ausbruch der Finanzkrise erheblich zugenommen hat. Deshalb muss die Frage der säkularen Stagnation auf Länderebene beantwortet werden. Die Ergebnisse zeigen, dass säkulare Stagnation für die meisten Staaten der Währungsunion keine signifikante Bedrohung darstellt. Aber es gibt eine Ausnahme: Griechenland.
    Keywords: equilibrium real interest rate,secular stagnation,Euro Area countries,heterogeneity
    JEL: E43 F45 C32
    Date: 2016
  63. By: Mikael Juselius; Claudio Borio; Piti Disyatat; Mathias Drehmann
    Abstract: Do the prevailing unusually and persistently low real interest rates reflect a decline in the natural rate of interest as commonly thought? We argue that this is only part of the story. The critical role of financial factors in influencing medium-term economic fluctuations must also be taken into account. Doing so for the United States yields estimates of the natural rate that are higher and, at least since 2000, decline by less. As a result, policy rates have been persistently and systematically below this measure. Moreover, we find that monetary policy, through the financial cycle, has a long-lasting impact on output and, by implication, on real interest rates. Therefore, a narrative that attributes the decline in real rates primarily to an exogenous fall in the natural rate is incomplete. The influence of monetary and financial factors should not be ignored. Exploiting these results, an illustrative counterfactual experiment suggests that a monetary policy rule that takes financial developments systematically into account during both good and bad times could help dampen the financial cycle, leading to higher output even in the long run.
    Keywords: natural interest rate, financial cycle, monetary policy, credit, business cycle
    Date: 2016–07
  64. By: Aleksander Berentsen (University of Basel)
    Abstract: Understanding money demand is important for our comprehension of macroeconomics and monetary policy. Its instability has made this a challenge. Common explications for the instability are financial regulations and financial innovations that shift the money demand function. We provide a complementary view by showing that a model where borrowers have limited commitment can significantly improve the fit between the theoretical money demand function and the data. Limited commitment can also explain why the ratio of credit to M1 is currently so low, despite that nominal interest rates are at their lowest recorded levels. In a low interest rate environment, incentives to default are high and so credit constraints bind tightly, which depresses credit activities.
    Date: 2016
  65. By: MUSTAFA KIZILTAN (Hacettepe University); ANNA GOLOVKO (Sosyoekonomi Society)
    Abstract: After the 1980s capital mobility has increased along with the globalization process in the world economy. In particular countries that suffering from savings gap are trying to attract foreign capital to finance investments, to reduce budget deficits and to deal with the current account deficit problem. However, international mobility of capital has also lead to global instabilities and its magnitude became enough to throw any country’s economy into grave crisis. Therefore, regular capital flows are extremely important for balanced growth. For this reason in the literature the capital mobility is examined through saving-investment relationship. This study analyzes the relationship between saving and investment for 1980-2014 period based on country groups’ data which is aggregated according to their development level. For this purpose, the analyze has been performed by using Johansen Co-Integration and Vector Error Correction Models within the framework of the Feldstein-Horioka Puzzle hypothesis which is accepted in the literature as a robust tool for examining short and long term saving-investment relationship. Our results suggest that capital mobility vary among country groups with the income level.
    Keywords: Capital mobility, Saving and Investment, Feldstein-Horioka Puzzle, Cointegration Tests
    JEL: C22 E20 F21
  66. By: Siem Jan Koopman (VU University Amsterdam, the Netherlands); Rutger Lit (VU University Amsterdam, the Netherlands); Andre Lucas (VU University Amsterdam, the Netherlands)
    Abstract: We develop a multivariate unobserved components model to extract business cycle and financial cycle indicators from a panel of economic and financial time series of four large developed economies. Our model is flexible and allows for the inclusion of cycle components in different selections of economic variables with different scales and with possible phase shifts. We find clear evidence of the presence of a financial cycle with a length that is approximately twice the length of a regular business cycle. Moreover, cyclical movements in credit related variables largely depend on the financial cycle, and only marginally on the business cycle. Property prices appear to have their own idiosyncratic dynamics and do not substantially load on business or financial cycle components. Systemic surveillance policies should therefore account for the different dynamic components in typical macro financial variables.
    Keywords: financial cycle; business cycle; phase shift; multivariate state space model; Kalman filtering; panel time series
    JEL: E32 C22
    Date: 2016–07–11
  67. By: Michael Weber (University of Chicago); Ali Ozdagli (Federal Reserve Bank of Boston)
    Abstract: Monetary policy shocks have a large impact on aggregate stock market returns in narrow event windows around press releases by the Federal Open Market Committee. A one percentage point higher than expected Federal Funds rate leads to a drop in the stock market by 4 percentage points within a 30 minutes event window. We decompose the overall event into a direct (demand) effect and an indirect (network) effect using spatial autoregressions. We use the empirical input-output structure from the Bureau of Economic Analysis to construct a spatial-weighting matrix. We attribute 50% to 85% of the overall effect to indirect effects. The effect is robust to different sample periods, event windows, type of announcements, and is symmetric in the shock sign. We rationalize our findings in a simple model with intermediate inputs. Our findings indicate that production networks might not only be important for the propagation of idiosyncratic shocks but might also be a propagation mechanism of monetary policy to the real economy.
    Date: 2016
  68. By: Holtemöller, Oliver; Mallick, Sushanta
    Abstract: This paper investigates a perception in the political debates as to what extent poor countries are affected by price movements in the global commodity markets. To test this perception, we use the case of India to establish in a standard SVAR model that global food prices influence aggregate prices and food prices in India. To further analyze these empirical results, we specify a small open economy New-Keynesian model including oil and food prices and estimate it using observed data over the period from 1996Q2 to 2013Q2 by applying Bayesian estimation techniques.
    Keywords: commodity prices,food prices,New-Keynesian macroeconometric model,inflation,India,structural vector autoregressive model
    JEL: C32 E31 Q02
    Date: 2015
  69. By: Damir FILIPOVIC (EPFL and Swiss Finance Institute); Martin LARSSON (EPFL and Swiss Finance Institute); Anders TROLLE (EPFL and Swiss Finance Institute)
    Abstract: We introduce the class of linear-rational term structure models, where the state price density is modeled such that bond prices become linear-rational functions of the current state. This class is highly tractable with several distinct advantages: i) ensures nonnegative interest rates, ii) easily accommodates unspanned factors affecting volatility and risk premiums, and iii) admits analytical solutions to swaptions. A parsimonious model specification within the linear-rational class has a very good fit to both interest rate swaps and swaptions since 1997 and captures many features of term structure, volatility, and risk premium dynamics – including when interest rates are close to the zero lower bound.
    Keywords: Swaps, Swaptions, Unspanned Factors, Zero Lower Bound
    JEL: E43 G12 G13
  70. By: Martorano, Bruno (Institute of Development Studies); Park, Donghyun (Asian Development Bank); Sanfilippo, Marco (University of Antwerp)
    Abstract: While structural transformation, driven by technological progress, productivity growth, and capital deepening, has contributed to Asia’s sustained rapid growth, its effect on income inequality is uncertain. The central objective of our paper is to empirically examine the effect of structural change on wage inequality in Asia, using industry-level data for three skill groups of workers. Our evidence indicates that structural change, pushed by productivity catch-up with advanced economies, capital deepness, and the shift of the economic structures to more skill-intensive industries, has exacerbated inequality in the region. However, we also find that policy responses, especially investment in education matching the higher demand for skills and competitive exchange rates, can mitigate the increase in inequality.
    Keywords: Asia; inequality; productivity; structural change; wage gap
    JEL: E24 L16
    Date: 2016–06–21
  71. By: Hao MENG (East China University of Science and Technology); Wei-Xing ZHOU (East China University of Science and Technology); Didier SORNETTE (ETH Zurich and Swiss Finance Institute)
    Abstract: We present the symmetric thermal optimal path (TOPS) method to determine the time-dependent lead-lag relationship between two stochastic time series. This novel version of the previously introduced TOP method alleviates some inconsistencies by imposing that the lead-lag relationship should be invariant with respect to a time reversal of the time series after a change of sign. This means that, if ‘X comes before Y’, this transforms into ‘Y comes before X’ under a time reversal. We show that previously proposed bootstrap test lacks power and leads too often to a lack of rejection of the null that there is no lead-lag correlation when it is present. We introduce instead two novel tests. The first free energy p-value p criterion quantifies the probability that a given lead-lag structure could be obtained from random time series with similar characteristics except of the lead-lag information. The second self-consistent test embodies the idea that, for the lead-lag path to be significant, synchronising the two time series using the time varying lead-lag path should lead to a statistically significant correlation. We perform intensive synthetic tests to demonstrate their performance and limitations. Finally, we apply the TOPS method with the two new tests to the time dependent lead-lag structures of house price and monetary policy of the United Kingdom (UK) and United States (US) from 1991 to 2011. We find that, for both countries, the TOPS paths indicate that interest rate changes were lagging behind house price index changes until the crisis in 2006-2007. The TOPS paths also suggest a catch up of the UK central bank and of the Federal Reserve still not being on top of the game during the crisis itself, as diagnosed by again the significant negative values of TOPS paths until 2008. Only later did the central banks interest rates as well as longer maturity rates lead the house price indices, confirming the occurrence of the transition to an era where the central bank is causally influencing the housing markets more than the reverse. The TOPS approach stresses the importance of accounting for change of regimes, so that similar pieces of information or policies may have drastically different impacts and developments, conditional on the economic, financial and geopolitical conditions. This study reinforces the view that the hypothesis of statistical stationarity is highly questionable.
    Keywords: Lead-lag structure, Symmetric thermal optimal path, Statistical test, Housing market, Monetary policy
    JEL: C1 E52 E42 R31 R38 H31
  72. By: Kyle Jurado (Duke University)
    Abstract: Fluctuations in the beliefs of economic agents can be driven by current fundamentals, advance information about future fundamentals, or distortions resulting from informational or psychological limitations. This paper presents a dynamic stochastic general equilibrium (DSGE) model that jointly considers all three possibilities and estimates their relative importance for explaining macroeconomic and financial data. To discipline the estimation, direct data on subjective forecasts is included in the set of observable variables. Results indicate that both advance information and distorted beliefs are important. On average about two-thirds of the fluctuations in endogenous variables can be attributed to these two sources. While they are equally important for output and employment, advance information is most important for explaining inflation and investment, and distorted beliefs are most important for explaining stock returns and consumption.
    Date: 2016
  73. By: Eric JONDEAU (University of Lausanne and Swiss Finance Institute); Michael ROCKINGER (University of Lausanne and Swiss Finance Institute)
    Abstract: We build a macroeconomic model for Switzerland, the Euro Area, and the USA that drives the dynamics of several asset classes and the liabilities of a representative Swiss (defined-contribution) pension fund. This encompassing approach allows us to generate correlations between returns on assets and liabilities. We calibrate the economy using quarterly data between 1985:Q1 and 2013:Q2. Using a certainty equivalent approach, we demonstrate that a liabilities hedging portfolio outperforms an assets-only strategy by between 5% and 15% per year. The main reason for such a large improvement is that the optimal assets-only portfolio is typically long in cash, whereas hedging liabilities require the pension fund to be short in cash. It follows that imposing positivity restrictions in the construction of the portfolio also results in a large cost, between 4% and 8% per year. This estimate suggests that allowing pension funds to hedge their liabilities through borrowing cash and investing in a diversified bond portfolio helps to enhance the global portfolio return.
    Keywords: Asset Liability Management, Defined Contributions, Surplus maximization
    JEL: E43 C53 G23 G28
  74. By: Knetsch, Thomas A.; Nagengast, Arne J.
    Abstract: While the positive return differential of the United States has attracted a lot of attention in the literature, the factors underlying the dynamics of the investment income balance have so far not been systematically investigated. Here, we propose a novel decomposition framework that accounts for the changes in net investment income. This allows us to disentangle contributions of changes in yield level and yield spread from those of changes in stocks as well as composition and portfolio effects. The analysis contributes conceptually to the question of how investment income might facilitate international risk sharing. We apply our decomposition framework to a rich German dataset spanning 11 different investment classes and provide a forensic account of the increase in the German investment income balance between 1999 and 2014. Focusing exclusively on the aggregate development of external assets and liabilities falls short of explaining the growth in German net investment income and around 40% of the increase is explained by changes in yields. Furthermore, our results highlight the importance of considering the composition of external assets and liabilities as well as portfolio changes in order to understand the dynamics of the investment income balance.
    Keywords: Investment income balance,Return differential,Exorbitant privilege,International risk sharing
    JEL: E50 F36 F45 G15
    Date: 2016
  75. By: Eichler, Stefan; Littke, Helge; Tonzer, Lena
    Abstract: We analyze the effect of central bank transparency on cross-border bank activities. Based on a panel gravity model for cross-border bank claims for 21 home and 47 destination countries from 1998 to 2010, we find strong empirical evidence that a rise in central bank transparency in the destination country, on average, increases cross-border claims. Using interaction models, we find that the positive effect of central bank transparency on cross-border claims is only significant if the central bank is politically independent. Central bank transparency and credibility are thus considered complements by banks investing abroad.
    Keywords: central bank transparency,cross-border banking,gravity model
    JEL: E58 F30 G15
    Date: 2016
  76. By: Mathias Trabandt (Freie Universität Berlin); Karl Walentin (Sveriges Riksbank (Bank of Sweden)); Lawrence Christiano (Northwestern University)
    Abstract: Can a model with limited labor market insurance explain standard macro- and labor market data jointly? We seek to construct a monetary model in which: i) the unemployed are worse off than the employed, i.e. unemployment is involuntary and ii) the labor force participation rate varies with the business cycle. To illustrate key features of our model, we start with the simplest possible New Keynesian framework with no capital. We then integrate the model into a medium sized DSGE model and show that the resulting model does as well as existing models at accounting for the response of standard macroeconomic variables to monetary policy shocks and two technology shocks. In addition, the model does well at accounting for the response of the labor force and unemployment rate to these three shocks.
    Date: 2016
  77. By: Jim Fischer (Mount Royal University)
    Abstract: Consumption tax has been lauded as an alternative to income tax, in that it promotes savings and investment, and enables increased consumption over time. Despite these claims, no state has opted to replace income tax with consumption tax as the prime source of revenue. It is proposed that when consumption tax replaces income tax as the means of financing the state, investment increases, individuals are able to consume more over a lifetime, and levels of government revenue can be maintained. This study compares an average Canadian taxpayer in Canada’s current hybrid tax regime with a taxpayer in a hypothetical consumption tax regime. The rate of consumption tax is calculated to provide the equivalent amount of revenue the Canadian government currently receives. Comparisons are made between the two regimes in three scenarios to reflect different taxpayer behavior: holding investment steady, holding consumption steady, and maximizing the use of current tax shelters. The study concludes that in any scenario, individuals are able to enjoy more total consumption and purchasing power over time, adjusted for inflation, when a consumption tax substitutes for income tax. On the other hand, government revenue received from the average taxpayer in some scenarios is less when consumption tax replaces income tax, and is more in others. Government revenue was more when comparisons were made between taxpayers in the income tax regime who made use of current tax shelters, and those in the consumption tax regime who maximized their investment. This is the ideal behavior one would expect of taxpayers who are left with more disposable income. Opportunities for further study are suggested.
    Keywords: consumption tax, income tax, government revenue, tax policy
    JEL: H27 E21 D31
  78. By: Gustavo Adolfo HERNANDEZ DIAZ; Margarita MARÍN JARAMILLO
    Abstract: Uno de los componentes más importantes del PIB es el consumo de los hogares, por lo cual el pronóstico de esta variable es clave para poder evaluar y predecir el comportamiento de la actividad económica. En este trabajo se introducen dos elementos innovadores para su predicción, primero se incorpora dentro de la función de consumo el índice de confianza al consumidor, con el fin de involucrar un indicador líder del comportamiento de los consumidores y el segundo es el uso de metodologías econométricas en las que se incorporan series de alta frecuencia para el pronóstico de series de baja frecuencia, con el fin de no perder información que pueda ser valiosa. Se encuentra que el pronóstico dentro de la muestra ha sido bastante cercano a los datos reales, aunque los intervalos de confianza del pronóstico pueden ser amplios.
    Keywords: Consumo Privado, Pronósticos, Modelos Bridge, MIxed DAta Sample (MIDAS)
    JEL: C38 C67 E01 Y B51
    Date: 2016–07–13
  79. By: Harker, Patrick T. (Federal Reserve Bank of Philadelphia)
    Abstract: President Patrick T. Harker presents his economic outlook at the Economy League of Greater Philadelphia's 2016 World Class Summit. He also offers his views on monetary policy.
    Keywords: Economic overview; Human capital; Leadership
    Date: 2016–07–13
  80. By: Giorgio Ferrari
    Abstract: Consider the problem of a government that wants to control its debt-to-GDP (gross domestic product) ratio, while taking into consideration the evolution of the inflation rate of the country. The uncontrolled inflation rate follows an Ornstein-Uhlenbeck dynamics and affects the growth rate of the debt ratio. The level of the latter can be reduced by the government through fiscal interventions. The government aims at choosing a debt reduction policy which minimises the total expected cost of having debt, plus the total expected cost of interventions on debt ratio. We model such problem as a two-dimensional singular stochastic control problem over an infinite time-horizon. We show that it is optimal for the government to adopt a policy that keeps the debt-to-GDP ratio under an inflation-dependent ceiling. This curve is the free-boundary of an associated fully two-dimensional optimal stopping problem, and it is shown to be the unique solution of a nonlinear integral equation.
    Date: 2016–07
  81. By: Kashkari, Neel (Federal Reserve Bank of Minneapolis)
    Date: 2016–06–20
  82. By: Markus Brueckner; Birgit Hansl
    Abstract: Between the end of the 1990s and the first decade of the 2000s Russia experienced significant growth in GDP per capita that was driven by transitional convergence, structural reforms, and improvements in the terms of trade. Reforms to the structure of the economy boosted growth by over 2 percentage points per annum with improvements in telecommunication infrastructure, financial development, and a reduction in the GDP share of government consumption being the most important structural reforms. The paper discusses Russia's growth performance relative to comparator countries: countries in the European and Central Asia regions, advanced natural resource exporting countries and the BRICS countries. Economic growth was significantly lifted in advanced natural resource exporting countries due to the international commodity price boom, for example, in Russia improvements in the terms of trade lifted growth by over 1 percentage point per annum. In the group of advanced natural resource exporting countries and BRICS countries, Russia is at the forefront in terms of growth benefits arising from structural reforms.
    Date: 2016–07
  83. By: Dobridge, Christine L.
    Abstract: I provide empirical evidence that the effect of high-cost credit access on household material well-being depends on if a household is experiencing temporary financial distress. Using detailed data on household consumption and location, as well as geographic variation in access to high cost payday loans over time, I find that payday credit access improves wellbeing for households in distress by helping them smooth consumption. In periods of temporary financial distress—after extreme weather events like hurricanes and blizzards—I find that payday loan access mitigates declines in spending on food, mortgage payments, and home repairs. In an average period, however, I find that access to payday credit reduces well-being. Loan access reduces spending on nondurable goods overall and reduces housing- and food-related spending particularly. These results highlight the state dependent nature of the effects of high-cost credit as well as the consumption-smoothing role that it plays for households with limited access to other forms of credit.
    Keywords: Household finance ; Consumption ; Consumer credit ; Payday loans
    JEL: D14 E21 G23
    Date: 2016–07
  84. By: Shigeru Fujita (Federal Reserve Bank of Philadelphia); Giuseppe Moscarini (Yale University)
    Abstract: Using data from the Survey of Income and Program Participation (SIPP) covering 1990-2013, we document that a surprisingly large number of workers return to their previous employer after a jobless spell, and experience very different unemployment and employment outcomes than job switchers. Furthermore, the probability of recall is much less cyclical and volatile than the probability of finding a new job. Building on these facts, we introduce a recall option in a canonical search-and-matching business- cycle model of the labor market. The recall option is lost when the unemployed worker accepts a new job. New matches are mediated by a matching function, which brings together costly vacancy postings and costly search effort by unemployed workers. In contrast, recalls are frictionless and free, and triggered both by aggregate and job-specific shocks. A quantitative version of the model captures well our cross-sectional and cyclical facts through selection of recalled matches. Model analysis shows that recall and search effort significantly amplify the cyclical volatility of job finding and separation rates.
    Date: 2016
  85. By: Thorsten Beck; Ravindra Ramrattan (Innovations for Poverty Action); Haki Pamuk (Development Economics Group, Wageningen University); Burak R. Uras (Tilburg University)
    Abstract: The relationship between efficient payment instruments and enforcement constraints is studied in the context of economic development. Using a novel enterprise survey from Kenya, we document a strong positive association between the use of mobile money as a method to pay suppliers and access to trade credit. We propose a dynamic general equilibrium model with heterogeneous entrepreneurs, limited financial commitment and the risk of theft to account for this empirical pattern. Mobile money dominates fiat money as a medium of exchange in its capacity to avoid theft, but it comes with electronic transaction costs. The interaction between risk of theft and limited enforcement of trade credit contracts generates demand for mobile money as a payment method with suppliers. The use of mobile money in turn reinforces valuation of trade credit contracts and relaxes enforcement constraints. Calibrating the stationary equilibrium of the model to match a set of moments in Kenyan enterprise data, the importance of the endogenous interactions between mobile money and trade credit on entrepreneurial performance and macroeconomic development is investigated.
    Date: 2016
  86. By: Eichengreen, Barry (UC Berkeley); Park, Donghyun (Asian Development Bank); Shin, Kwanho (Korea University)
    Abstract: Deflation has emerged as a new concern for Asian policy makers. The traditional view is that deflation can lead to a vicious cycle of falling demand and prices, and is thus a dangerous condition. However, another school of thought emphasizes the role of positive supply shocks and takes a more benign view of deflation. In a recent paper that examines the relationship between deflation and economic growth, using consumer prices time series, Borio et al. (2015) find some evidence that casts doubt on the traditional view. In this paper, we revisit the relationship and find some grounds for concern about the harmful effect of deflation on growth.
    Keywords: deflation; growth; producer prices
    JEL: E31
    Date: 2016–07–06
  87. By: Emi Nakamura; Jósef Sigurdsson; Jón Steinsson
    Abstract: We exploit a volcanic “experiment” to study the costs and benefits of geographic mobility. We show that moving costs (broadly defined) are very large and labor therefore does not flow to locations where it earns the highest returns. In our experiment, a third of the houses in a town were covered by lava. People living in these houses where much more likely to move away permanently. For those younger than 25 years old who were induced to move, the “lava shock” dramatically raised lifetime earnings and education. Yet, the benefits of moving were very unequally distributed within the family: Those older than 25 (the parents) were made slightly worse off by the shock. The town affected by our volcanic experiment was (and is) a relatively high income town. We interpret our findings as evidence of the importance of comparative advantage: the gains to moving may be very large for those badly matched to the location they happened to be born in, even if differences in average income are small.
    JEL: E24 J61 O15 R23
    Date: 2016–07
  88. By: Jasmin Thomas
    Abstract: Nunavik, the northern Québec region of Inuit Nunangat, had stronger labour market performance than the other three Inuit Nunangat regions between 1996 and 2011. For example, Nunavik's employment rate was 54.1 per cent in 2011, while the aggregate employment rate for Inuit Nunangat excluding Nunavik was only 42.9 per cent. Nunavik enjoyed this higher employment rate despite the fact that its Inuit population had, on average, 0.2 fewer years of schooling than Inuit Nunangat as a whole. In this paper, we examine a number of factors that could explain this paradox. Of all the factors examined, (1) public sector job provision and (2) child care availability and cost appear to have the most important impact on Nunavik’s labour market outcomes. First, Nunavik’s public sector, representing two-thirds of the experienced labour force, is a more important component of the overall economy than the public sector in the other three Inuit Nunangat regions, where it represents approximately half of the experienced labour force. Second, due to the implementation of the First Nations and Inuit Child Care Initiative and the Québec Government's family policies in the late-1990s, Nunavik has the greatest availability of child care services and the lowest daily child care fee of the four Inuit Nunangat regions. Both the ample supply of child care and the low cost have contributed to large increases in female labour force participation since 1996 (7.4 percentage points).
    Keywords: Nunavik, Inuit, Inuit Nunangat, Child Care, Public Sector, Employment Structure, Macroeconomy, Labour Market, Employment, Unemployment, Canada, Quebec, Cost of Living, Housing
    JEL: E24 J13 J15 N32 J45 O18 O11 O12 I25
    Date: 2016–07
  89. By: Vedunka Kopecna (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: The paper contributes to understanding the effects stemming from the public sector employment changes in the Czech Republic and their impacts on the labor market through the lens of a New Keynesian dynamic stochastic general equilibrium model with search and matching frictions. The size of the public sector has been generally expanding over the last decade contrary to many other European countries with the exception of the years 2011 - 2012 when the economic crisis became more evident even in the otherwise financially stable Czech Republic. We model the labor market dynamics across the business cycle and examine the impacts of the varying number of public workers on the labor market variables as private employment, unemployment rate and market tightness as well as on the overall economic growth. We aim at determining whether a portion of unemployment can be explained by either the increased public hiring or shrinking of the number of public employees in the last decade. As the results suggest, in re cessionary times the expansion of the public sector managed to keep the unemployment rate from attaining higher values. However, the following turnover of government size development threw the labor market into a deeper crisis than it would have been if the public sector size had remained unaltered.
    Keywords: search and matching frictions, DSGE, labor market, public employment
    JEL: E37 J21 J45 J48 J64
    Date: 2016–07
  90. By: Grazia Biorci (CNR-Ircres, Genova); Antonella Emina (CNR-Ircres, Moncalieri); Michelangelo Puliga (IMT School for Advanced studies Lucca); Lisa Sella (CNR-Ircres, Moncalieri); Gianna Vivaldo (IMT School for Advanced studies Lucca)
    Abstract: The widespread adoption of highly interactive social media like Twitter, Facebook and other platforms allow users to communicate moods and opinions to their social network. Those platforms represent an unprecedented source of information about human habits and socio-economic interactions. Several new studies have started to exploit the potential of these big data as fingerprints of economic and social interactions. The present analysis aims at exploring the informative power of indicators derived from social media activity, with the aim to trace some preliminary guidelines to investigate the eventual correspondence between social media indices and available labour market indicators at a territorial level. The study is based on a large dataset of about 4 million Italian-language tweets collected from October 2014 to December 2015, filtered by a set of specific keywords related to the labour market. With techniques from machine learning and user’s geolocalization, we were able to subset the tweets on specific topics in all Italian provinces. The corpus of tweets is then analyzed with linguistic tools and hierarchical clustering analysis. A comparison with traditional economic indicators suggests a strong need for further cleaning procedures, which are then developed in detail. As data from social networks are easy to obtain, this represents a very first attempt to evaluate their informative power in the Italian context, which is of potentially high importance in economic and social research.
    Keywords: Big data, social media, Twitter, hierarchical clustering, unemployment
    JEL: C4 C49 C55 C81 E24
    Date: 2016–07
  91. By: Alan J Auerbach
    Abstract: With the Great Recession leaving nearly all advanced economies with substantially higher debt–gross domestic product ratios, this paper re-evaluates the long-term fiscal sustainability of these economies based on current estimates of their current-policy fiscal trajectories. Through measuring fiscal imbalance, we find that for many countries, short-term fiscal measures such as the debt–gross domestic product ratio and current budget deficits as a share of gross domestic product bear little relationship to the sustainability of policy. The longer-term challenges these countries face are related much more to the future fiscal challenge of growing primary deficits, associated with the cost of providing pensions and health care in the face of growing old-age dependency ratios. While focusing on managing the short-term debt burden may help avoid crises like the one being played out in Greece, attention and policy actions must eventually turn to the longer-term fiscal problem.
    Keywords: fiscal policy, intergenerational, economic policy
    Date: 2016–07–01
  92. By: Patrick Feve (University of Toulouse)
    Abstract: This paper investigates the contribution of sentiments shocks to US fluctuations in a Structural VAR setup. Sentiments shocks are identified as shocks orthogonal to fundamentals that accounts for most of the variance of confidence. We assess our identification procedure from simulation experiments and show that it performs pretty well. From actual data, we obtain that, contrary to news shocks on total factor productivity, sentiments shocks explain very little of quantities and prices. Sentiments shocks mostly appear as an idiosyncratic component of confidence. These results are robust to various perturbations of the benchmark model.
    Date: 2016
  93. By: Buchholz, Manuel; Tonzer, Lena; Berner, Julian
    Abstract: This paper analyzes how firm-specific uncertainty affects firms' propensity to invest. We measure firm-specific uncertainty as firms' absolute forecast errors derived from survey data of German manufacturing firms over 2007-2011. In line with the literature, our empirical findings reveal a negative impact of firm-specific uncertainty on investment. However, further results show that the investment response is asymmetric, depending on the size and direction of the forecast error. The investment propensity declines significantly if the realized situation is worse than expected. However, firms do not adjust their investment if the realized situation is better than expected, which suggests that the uncertainty effect counteracts the positive effect due to unexpectedly favorable business conditions. This can be one explanation behind the phenomenon of slow recovery in the aftermath of financial crises. Additional results show that the forecast error is highly concurrent with an ex-ante measure of firm-specific uncertainty we obtain from the survey data. Furthermore, the effect of firm-specific uncertainty is enforced for firms that face a tighter financing situation.
    Keywords: risk climate,microeconomic survey data,forecast errors,firm investment,uncertainty
    JEL: D22 D84 E32
    Date: 2016
  94. By: Mario Ravioli (Universitat Rovira i Virgili)
    Abstract: In 2012, Argentina passed a regulation imposing a minimum level of commercial lending on large banks. The regulation was meant to boost lending to SMEs in less favored regions via improved credit availability and capped interest rates, with the ultimate goal of spurring private investment. This paper studies two outcomes of the aforementioned regulation. First, using a difference-in- difference setup, it studies the degree to which this regulation fostered credit supplied by those banks affected by the new rules, and the speed of loan creation.Second, it investigates the performance of loans created as a result of the regulation. Overall, the paper highlights the potential bright and dark sides of imposing supply of banking services and products on private banks.
    Keywords: Interest rate caps, Priority lending schemes, Directed credit, SMEs
    JEL: G28 G21 E58
  95. By: Ä°smail CAKMAK (Hacettepe University, Department of Economics, Ankara)
    Abstract: Crises has evolved from one country’s or one region’s crisis to global systemic crisis which can affect the whole world because of the fact that overseas of the capital get easy anymore. In this context, the aim of this study examined economic crises which occur in 20. Century and analyzed their effects on Turkey’s economy. 1929 Great Depression Crisis and 1974 crises were global crises in essence whereas 1958, 1994 and 2000-2001 crises have been identified as Turkey-based crises. The reasons of these crises, Turkey’s interventions to get rid of crises and disruptions in country’s economy were analyzed in this study.
    Keywords: Turkey, Economic Crises, Great Depression, 2001 Crisis, Petrol Crisis
    JEL: G01 B22 E60
  96. By: Nico Palesch
    Abstract: This report documents the labour market, educational, and economic development outcomes for the Inuit in Inuit Nunangat by examining past and present labour market outcomes and tying these together with developments in the major industries across the four regions of Inuit Nunangat. The current status and future outlook for employment and growth in the dominant sectors of Inuit Nunangat, namely the public sector and mining, are also examined. In addition, the effects of low education, limited skills, high living costs, reduced mobility, and insufficient housing, all common factors of life in Inuit Nunangat, are discussed. Finally, the report makes some broad recommendations for how the crisis in labour market and educational outcomes among the Inuit may be ameliorated, while identifying further areas of study that could help increase the understanding of Inuit Nunangat’s economic performance.
    Keywords: Inuit, Inuit Nunangat, Nunavik, Nunavut, Inuivialuit Region, Nunatsiavut, Canada, Education, Labour Market
    JEL: E24 J13 J15 N32 J45 O18 O11 O12 I25
    Date: 2016–07
  97. By: Beate Jochimsen; Christian Raffer
    Abstract: Initiiert von einer lebhaften öffentlichen und wissenschaftlichen Debatte um die Eignung des Bruttoinlandsprodukts als Indikator für materiellen Wohlstand sind zahlreiche alternative Maße zur Wohlstands- und Wohlfahrtsmessung entwickelt worden. Fällt dabei die Wahl auf einen Indikatorensatz, ist die Bestimmung der optimalen Anzahl der Indikatoren eine zentrale Herausforderung. Je mehr Indikatoren ausgewählt werden, desto besser können zwar die Bestandteile der Wohlfahrt abgebildet werden, desto schlechter ist aber die Kommunizierbarkeit. Beate Jochimsen und Christian Raffer analysieren mit Hilfe mehrerer statistischer Methoden die Verbindungen der 10 W³-Leitindikatoren des Deutschen Bundestages untereinander. Es zeigt sich, dass – je nach Messverfahren – drei bis sechs dieser Indikatoren ohne großen Informationsverlust weggelassen werden können, da sie mit den verbleibenden eng korreliert sind. Ein kleiner W³-Indikatorensatz könnte wesentlich leichter erklärt und kommuniziert werden. Im Ergebnis bedeutet dies, dass der Umfang aller nationaler und internationaler Indikatorensätze zur Wohlfahrtsmessung kritisch zu würdigen ist. Triggered by the lively public and academic debate on the gross domestic product as welfare indicator numerous alternative welfare measurements emerged. If a set of indicators as welfare measurement is chosen the identification of an optimal number of indicators is a challenging question. The more indicators are included in the set the more comprehensive welfare can be mapped, thus, the more complicated is the communication of results. Based on several statistical methods Beate Jochimsen and Christian Raffer analyze the linkage of the ten W³-Indicators which the German Bundestag developed. They find that – depending on the statistical method – between three and six of those ten indicators could be easily excluded as they are closely correlated with the remaining ones. A smaller set of W³-Indicators could be explained far easier to the public. This result suggests to critically evaluate the number of indicators in various welfare measures onnational and international level.
    Keywords: Welfare measurement, gross domestic product, W³-Indicators, correlation and principle component analysis;Wohlfahrtsmessung, Bruttoinlandsprodukt, W³-Indikatorensatz, Korrelations- und Hauptkomponentenanalyse
    JEL: I31 D6 E01 C18 I32 Y1
    Date: 2016

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