nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒07‒30
102 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Asymmetric Effects of Monetary Policy on Economic Activity in Turkey By Tunc, Cengiz; Kılınç, Mustafa
  2. An Economic Theory of Islamic Finance Regulation By Al-Jarhi, Mabid
  3. Unconventional Monetary Policy, Fiscal Side Effects and Euro Area (Im)balances By Michael Hachula; Michele Piffer; Malte Rieth
  4. The Impact of the ECB’s Conventional and Unconventional Monetary Policies on Stock Markets By Reinder Haitsma; Deren Unalmis; Jakob de Haan
  5. QE in the future: the central bank's balance sheet in a fiscal crisis By Ricardo Reis
  6. Financial Stability Indicators – the Case of Croatia By Mirna Dumièiæ
  7. Forecasting Financial Returns with a Structural Macroeconomic Model By Eric Jondeau; Michael Rockinger
  8. The Business Cycle with Nominal Contracts and Search Frictions By Moon, Weh-Sol
  9. Optimal Unemployment Insurance and International Risk Sharing By Moyen, Stephane; Stähler, Nikolai; Winkler, Fabian
  10. Estimation of Unobserved Inflation Expectations in India using State-Space Model By Chattopadhyay, Siddhartha; Sahu, Sohini; Jha, Saakshi
  11. Corporate Cash and Employment By Philippe BACCHETTA; Kenza BENHIMA; Céline POILLY
  12. The New Keynesian Transmission Mechanism: A Heterogenous-Agent Perspective By Broer, Tobias; Harbo Hansen, Niels-Jakob; Krusell, Per; Öberg, Erik
  13. Collateralization, Leverage, and Stressed Expected Loss By Eric JONDEAU; Amir KHALILZADEH
  14. Household Leverage and the Recession By Midrigan, Virgiliu; Philippon, Thomas
  15. A Dynamic Approach to Analyzing the Effect of the Global Crisis on Non-Performing Loans : Evidence from the Turkish Banking Sector By Vuslat Us
  16. Constrained Random Walk Models for Euro/Swiss Franc Exchange Rates: Theory and Empirics By Sandro Claudio LERA; Didier SORNETTE
  17. Sources of Asymmetry and Non-linearity in Pass-Through of Exchange Rate and Import Price to Consumer Price Inflation for the Turkish Economy during Inflation Targeting Regime By Suleyman Hilmi Kal; Ferhat Arslaner; Nuran Arslaner
  18. Assessing Bankruptcy Reform in a Model with Temptation and Equilibrium Default By Nakajima, Makoto
  19. Fiscal Consolidation Under Imperfect Credibility By Lemoine, Matthieu; Lindé, Jesper
  20. Leverage ratio, central bank operations and repo market By Annalisa Bucalossi; Antonio Scalia
  21. Wage Flexibility and Employment Fluctuations: Evidence from the Housing Sector By Jörn-Steffen Pischke
  22. The Economy-wide Impact of a Rise in Commercial Bank Capital Adequacy Ratios By James A. Giesecke; Peter B. Dixon; Maureen T. Rimmer
  23. A Brief Introduction to the World of Macroprudential Policy By Mirna Dumièiæ
  24. Why is the real interest rate so high in Brazil? The role of pensions By Brian Bolarinwa Ogundairo; Mauro Rodrigues
  25. The (F)Laws of Piketty’s Capitalism: A Fundamental Approach By de la Fonteijne, Marcel R.
  26. Aging and Health Financing in the US:A General Equilibrium Analysis By Juergen Jung; Chung Tran; Matthew Chambers
  27. The Tail that Wags the Economy: Belief-Driven Business Cycles and Persistent Stagnation By Venky Venkateswaran; Laura Veldkamp; Julian Kozlowski
  28. An economic theory of Islamic finance By Al-Jarhi, Mabid
  29. Interest Rate Dynamics, Variable-Rate Loans, and the Business Cycle By Yi Wen; Xiaochuan Xing; Patrick Pintus
  30. Progressive taxation and (in)stability in an endogenous growth model with human capital accumulation By Aleksandar Vasilev
  31. Runs versus Lemons: Information Disclosure and Fiscal Capacity By Faria-e-Castro, Miguel; Martinez, Joseba; Philippon, Thomas
  32. Progressive taxation and (in)stability in an endogenous growth model with human capital accumulation: the case of Bulgaria By Vasilev, Aleksandar
  33. Bond Market Exposures to Macroeconomic and Monetary Policy Risks By Dongho Song
  34. Persistence of Shocks and the Reallocation of Labor By Roys, Nicolas
  35. Challenges for Central Banks' Macro Models By Lindé, Jesper; Smets, Frank; Wouters, Rafael
  36. Reconciling output gaps: unobserved components model and Hodrick-Prescott filter By Joshua C.C. Chan; Angelia L. Grant
  37. Oil Price Elasticities and Oil Price Fluctuations By Caldara, Dario; Cavallo, Michele; Iacoviello, Matteo
  38. Faiz Koridoru ve Banka Faizleri : Parasal Aktarim Mekanizmasina Dair Bazi Bulgular By Mahir Binici; Hakan Kara; Pinar Ozlu
  39. Nonparametric Empirical Evidence for Krugman's Target Zone Model By Sandro Claudio LERA; Didier SORNETTE
  40. Estimating the distributional impact of the Greek crisis (2009-2014) By Chrysa Leventi; Manos Matsaganis
  41. Financial Stress Indicators for Small, Open, Highly Euroised Countries – the Case of Croatia By Mirna Dumièiæ
  42. Secular Bipolar Growth Rate of the Real US GDP Per Capita: Implications for Understanding Past and Future Economic Growth By Sandro Claudio LERA; Didier SORNETTE
  43. Search for Resources in a High Income State: A Study of State Finances of Sikkim. By Jena, Pratap Ranjan; Bhadra, Kausik K.; Sikdar, Satadru
  44. How do regulated and unregulated labor markets respond to shocks? Evidence from immigrants during the Great Recession By Guriev, Sergei; Speciale, Biagio; Tuccio, Michele
  45. Effects of Long Cycles in Cash Flows on Present Value By Bell, Peter N
  46. A Tale of Two Narratives : a presentation at St. Louis Gateway Chapter of the National Association for Business Economics (NABE), July 12, 2016. By Bullard, James B.
  47. Search by Firms and Labor Market Policies By Gonul Sengul
  48. Cross-Border Capital Flows in Emerging Markets : Demand-Pull or Supply-Push? By Kurmas Akdogan; Neslihan Kaya Eksi; Ozan Eksi
  49. Determinants of Consumer Sentiment over Business Cycles: Evidence from the U.S. Surveys of Consumers By Kajal Lahiri; Yongchen Zhao
  50. Aggregate Bank Capital and Credit Dynamics By Nataliya Klimenko; Sebastian Pfeil; Jean-Charles Rochet; Gianni De Nicolo
  51. Deep habits and exchange rate pass-through By Punnoose Jacob; Lenno Uusküla
  52. On Estimation of the Normalized CES Production Function for Turkey By Selen Baser Andic
  53. Do Consumers Really Follow a Rule of Thumb? Three Thousand Estimates from 130 Studies Say “Probably Not” By Tomáš Havránek; Anna Sokolova
  54. A New Characterization of the U.S. Macroeconomic and Monetary Policy Outlook : a speech at the Society of Business Economists Annual Dinner, London, United Kingdom, June 30, 2016. By Bullard, James B.
  55. Corporate Finance and Monetary Policy By Randall Wright; Cathy Zhang; Guillaume Rocheteau
  56. Direct Taxation in Romania: an Empirical Analysis By Cristian PANA
  57. Negative Interest Rate and Mudarabah Investment Deposits Rate: A Short Essay By Uddin, Md Akther
  58. Has the Forecasting Performance of the Federal Reserve’s Greenbooks Changed over Time? By Ozan Eksi; Cuneyt Orman; Bedri Kamil Onur Tas
  59. Produsul intern brut. Istorie, relevanţă şi limitări în interpretare By Georgescu, George
  60. Intangible Capital and Measured Productivity By Ellen McGrattan
  61. A Response of the Economy to Changes in Employment Structure By Shapoval Alexander; Goncharenko Vasily
  62. In Search of the Drivers of the Turkish Consumer Confidence By Tugrul Gurgur; Zubeyir Kilinc
  63. Near-Money Premiums, Monetary Policy, and the Integration of Money Markets : Lessons from Deregulation By Carlson, Mark A.; Wheelock, David C.
  64. Sources of Regional Inflation in Poland By Pawel Gajewski
  65. In Pursuit of Understanding Markups in Restaurant Services Prices By Mustafa Utku Ozmen
  66. Investment, Price Changes, and Monetary Policy: Models and Micro Data By Thomas Winberry; Joseph Vavra
  67. Framework for Monitoring Macroeconomic Imbalances in the European Union - Significance for Croatia By Mislav Brkiæ; Ana Šabiæ
  68. Integration of Sovereign Bonds Markets: Time Variation and Maturity Effects By Ines CHAIEB; Vihang ERRUNZA; Rajna GIBSON BRANDON
  69. Immigration and Prices : Quasi-Experimental Evidence from Syrian Refugees in Turkey By Binnur Balkan Konuk; Semih Tumen
  70. Cross-subsidization in employer-based health insurance and the effects of tax subsidy reform By Pashchenko, Svetlana; Porapakkarm, Ponpoje
  71. Quantifying the Effects of Loan-to-Value Restrictions: Evidence from Turkey By Yavuz Arslan; Gazi Kabas; Ahmet Ali Taskin
  72. Fiscal Policy with Limited-Time Commitment By Alex Clymo; Andrea Lanteri
  73. Countercyclical Foreign Currency Borrowing: Eurozone Firms in 2007-2009 By Philippe BACCHETTA; Ouarda MERROUCHE
  74. Efficiency and Policy with Endogenous Learning By Luigi Iovino; Jennifer La'O; George-Marios Angeletos
  75. Monetary Policy Effectiveness, Net Foreign Currency Exposure and Financial Globalisation By Josip Tica; Tomislav Globan; Vladimir Arčabić
  76. How Many Harberger Triangles Does it Take to Fill one Okun Gap? By Aart Gerritsen
  77. The FinTech Opportunity By Philippon, Thomas
  78. Equity and Efficiency in Rationed Labor Markets By Aart Gerritsen
  79. Coordination and the Dynamics of Unemployment By Mathieu Taschereau-Dumouchel; Edouard Schaal
  80. Consistent Re-Calibration in Yield Curve Modeling: An Example By Mario V. Wuthrich
  81. Entrepreneurship and Income Distribution Dynamics: Why Are Top Income Earners Unaffected by Business Cycles? By Noh-Sun Kwark; Eunseong Ma
  82. Para Politikasý Belirsizliði Altýnda Aktarým Mekanizmasý : Türkiye Örneði By Mustafa Bulut; Hatice Gokce Karasoy
  83. Microeconomic Aspects of the Impact of the Global Crisis on the Growth of Non-financial Corporations in the Republic of Croatia By Tomislav Galac
  84. Importance of Foreign Ownership and Staggered Adjustment of Capital Outflows By Ozgur Ozel; Mustafa Utku Ozmen; Erdal Yilmaz
  85. On the exposure of the BRIC countries to global economic shocks By Belke, Ansgar; Dreger, Christian; Dubova, Irina
  86. Concavity of the Consumption Function with Recursive Preferences By Semyon MALAMUD
  87. Forecasting GDP during and after the Great Recession: A contest between small-scale bridge and large-scale dynamic factor models By Patrice Ollivaud; Pierre-Alain Pionnier; Elena Rusticelli; Cyrille Schwellnus; Seung-Hee Koh
  88. Measuring House Price Bubbles By Steven C. BOURASSA; Martin HOESLI; Elias OIKARINEN
  89. Making public finances more growth and equity-friendly in the euro area By Álvaro Pina
  90. Distributional Risk, Stochastic Volatility and Precautionary Savings By Suen, Richard M. H.
  91. Exact Smooth Term Structure Estimation By Damir Filipović; Sander Willems
  92. The Impact of Treasury Supply on Financial Sector Lending and Stability By Arvind KRISHNAMURTHY; Annette VISSING-JORGENSEN
  93. The End of Cheap Labour: Are Foreign Investors Leaving China? By Julian Donaubauer; Christian Dreger
  94. The Equity Premium, Long-Run Risk, and Optimal Monetary Policy By Anthony Diercks
  95. Endogenizing Total Factor Productivity: The Foreign Direct Investment channel in the case of Bulgaria (2004-2013) By Pesheva, Milena; Vasilev, Aleksandar
  96. Dating the Financial Cycle: A Wavelet Proposition By Diego Ardila; Didier Sornette
  97. "I Just Ran Four Million Regressions" for Backcasting Turkish GDP Growth By Mahmut Gunay
  98. Does Multiplicity of Equilibria Arise in the Eaton-Gersovitz Model of Sovereign Default? By Yasin Kursat Onder
  99. Investissements Sociaux et Pauvreté en R.D.Congo: Une Approche en Équilibre Général By Nlemfu Mukoko, Jean Blaise
  100. Selective Immigration Policy and Its Impacts on Natives: A General Equilibrium Analysis By Serife Genc Ileri
  101. Market Efficiency, Trading Institutions and Information Mirages: Evidence from an Experimental Asset Market By Andrea Morone; Simone Nuzzo
  102. Firmalarýn Sabit Sermaye Yatirim Kararlarinin Analizi : Turkiye Imalat Sanayine Dair Bulgular By Evren Erdogan Cosar

  1. By: Tunc, Cengiz; Kılınç, Mustafa
    Abstract: In this paper, we look at the sector-level asymmetric effects of the monetary policy shocks on economic activity in Turkey. Using business cycles for the state of the economy, we find that monetary policy shocks have strong effects on both aggregate GDP, services and industrial production and sub-sectors during recessionary periods. The results are weaker for the expansionary periods. We further study whether the results depend on the state of the credit cycles. Similar results emerge in that the monetary policy is more effective during credit slowdowns with economically more feasible quantitative effects compared to the business cycles.
    Keywords: Monetary Policy Transmission, Markov Switching Models, Business Cycles, Credit Cycles.
    JEL: E32 E44 E52
    Date: 2016–02–22
  2. By: Al-Jarhi, Mabid
    Abstract: We argue that regulation can improve the performance of conventional banks up to a limit, but cannot eliminate the deficiencies resulting from the use of the conventional loan contract. Islamic finance requires complicated and costly procedures compared to conventional finance. Yet, it has significant macroeconomic benefits, which cannot be internalized by individual banks. Therefore, Islamic bankers tend to mimic conventional finance in order to cut costs and maximize short-term profits. Regulation can modify bankers’ incentives in order to capture the benefits of Islamic finance. Based on Al-Jarhi’s macroeconomic model (1983), we construct an economic theory of Islamic banking regulation. Results point out to the potential of designing regulations that discourage mimicking conventional finance in order to benefit from the Islamic finance advantages.
    Keywords: Al-Jarhi’s model, Islamic banking, Islamic finance, monetary economics, financial economics, banking, banking regulation, banking regulation, banking supervision, Islamic economics, financial economics, finance, financial intermediaries.
    JEL: E4 E42 E43 E50 E52 E58 E6
    Date: 2015–11–01
  3. By: Michael Hachula; Michele Piffer; Malte Rieth
    Abstract: We study the macroeconomic effects of unconventional monetary policy in the euro area using structural vector autoregressions, identified with an external instrument. The instrument is the common unexpected variation in euro area sovereign spreads for different maturities on policy announcement days. We first show that expansionary monetary surprises are effective at lowering public and private interest rates and increasing economic activity, consumer prices, and inflation expectations. We also find, however, that the shocks lead to a rise in primary public expenditures, a divergence of consumer prices within the union, and a widening of internal trade balances.
    Keywords: Central banks, structural VAR with external instruments, fiscal policy, monetary union
    JEL: E52 E58 E63
    Date: 2016
  4. By: Reinder Haitsma; Deren Unalmis; Jakob de Haan
    Abstract: Using an event study method, we examine how stock markets respond to the policies of the European Central Bank during 1999-2015. We use market prices of futures (government bonds) to identify surprises in (un)conventional monetary policy. Our results suggest that especially unconventional monetary policy surprises affect the EURO STOXX 50 index. We also find evidence for the credit channel, notably for unconventional monetary policy surprises. Our results also suggest that value and past loser stocks show a larger reaction to monetary policy surprises. These results are confirmed if identification of monetary policy surprises is based on the Rigobon-Sack heteroscedasticity approach.
    Keywords: Monetary policy surprises, Stock prices, Event studies approach, Identification through heteroscedasticity
    JEL: E43 E44 E52
    Date: 2016
  5. By: Ricardo Reis
    Abstract: Analysis of quantitative easing (QE) typically focus on the recent past studying the policy’s effectiveness during a financial crisis when nominal interest rates are zero. This paper examines instead the usefulness of QE in a future fiscal crisis, modeled as a situation where the fiscal outlook is inconsistent with both stable inflation and no sovereign default. The crisis can lower welfare through two channels, the first via aggregate demand and nominal rigidities, and the second via contractions in credit and disruption in financial markets. Managing the size and composition of the central bank’s balance sheet can interfere with each of these channels, stabilizing inflation and economic activity. The power of QE comes from interest-paying reserves being a special public asset, neither substitutable by currency nor by government debt. Also published as a CEPR discussion paper and an NBER working paper.
    Keywords: new-style central banks; unconventional monetary policy
    JEL: E44 E58 E63
    Date: 2016–07
  6. By: Mirna Dumièiæ (The Croatian National Bank, Croatia)
    Abstract: This paper considers financial stability through the processes of the accumulation and materialisation of systemic risks. To this purpose, the method of principal component analysis on the example of Croatia has been used to construct two composite indicators – a systemic risk accumulation index and an index reflecting the consequences of systemic risk materialisation. In the construction of the indices, the features and risks specific to small open economies were considered. Such an approach to systemic risk analysis facilitates the monitoring and understanding of the degree of financial stability and communication of macroprudential policy makers with the public.
    Keywords: financial stability, systemic risks, financial system resilience, principal component analysis, Croatia
    JEL: E44 E50 E58
    Date: 2015–09
  7. By: Eric Jondeau (University of Lausanne; Swiss Finance Institute); Michael Rockinger (University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Centre for Economic Policy Research (CEPR); Swiss Finance Institute)
    Abstract: This paper investigates the ability of a fully structural macro-finance model to forecast long-term financial returns. We estimate a Dynamic Stochastic General Equilibrium (DSGE) model that describes the dynamics of the U.S. economy. The model includes government bond and stock market returns, which allows us to describe bond and stock risk premia. We first show that these risk premia are fundamentally related to other shocks in the economy. Second, the DSGE model reproduces the mean reversion in the term structure of risks for bond and stock returns. It also generates long-term forecasts of financial returns that outperform unrestricted VAR models.
    Keywords: DSGE model, VAR model, Financial returns, Long-term forecast
    JEL: C11 E44 E47
  8. By: Moon, Weh-Sol
    Abstract: Macroeconomic models of the economy with rigid wage structures tend to predict unrealistically volatile labor hours and countercyclical productivity. This study extends the Cho--Cooley model by incorporating labor market frictions and efficient bargaining as an alternative contracting scheme in which contracts are forward looking and specify labor hours and wage rates. By accounting for search frictions and realistic contractual schemes, the extended model overcomes two counterfactual predictions: (1) excess volatility of employment and output and (2) countercyclical productivity.
    Keywords: Business Cycles, Search Frictions, Nominal Wage Contracts, Efficient Bargaining
    JEL: E24 E32
    Date: 2016–07–21
  9. By: Moyen, Stephane; Stähler, Nikolai; Winkler, Fabian
    Abstract: We discuss how cross-country unemployment insurance can be used to improve international risk sharing. We use a two-country business cycle model with incomplete financial markets and frictional labor markets where the unemployment insurance scheme operates across both countries. Cross-country insurance through the unemployment insurance system can be achieved without affecting unemployment outcomes. The Ramsey-optimal policy however prescribes a more countercyclical replacement rate when international risk sharing concerns enter the unemployment insurance trade-off. We calibrate our model to Eurozone data and find that optimal stabilizing transfers through the unemployment insurance system are sizable and mainly stabilize consumption in the periphery countries, while optimal replacement rates are countercyclical overall. Moreover, we find that debt-financed national policies are a poor substitute for fiscal transfers.
    Keywords: Fiscal Union ; International Business Cycles ; International Risk Sharing ; Unemployment Insurance
    JEL: E32 E62 H21 J64
    Date: 2016–07
  10. By: Chattopadhyay, Siddhartha; Sahu, Sohini; Jha, Saakshi
    Abstract: Inflation expectations is an important marker for monetary policy makers. India being a new entrant to the group of countries that pursue inflation targeting as its monetary policy objective, estimating the inflation expectation is of paramount importance. This paper estimates the unobserved inflation expectations in India between 1993:Q1 to 2016:Q1 from the Fisher equation relation using the state space approach (Kalman Filter). We find that our results match well with the inflation forecasts made by the Survey of Professional Forecasters conducted by the Rerserve Bank of India and by the International Monetary Fund for the Indian economy. We apply the estimated series on inflation expectation to show that there is a long-run equilibrium relation between inflation expectations and monetary policy in India during the post liberalization period.
    Keywords: Fisher Equation, Kalman Filter, Expected Inflation, India
    JEL: E52 E58
    Date: 2016–07–21
  11. By: Philippe BACCHETTA (University of Lausanne and Swiss Finance Institute); Kenza BENHIMA (University of Lausanne and CEPR); Céline POILLY (University of Lausanne)
    Abstract: In the aftermath of the U.S. financial crisis, both a sharp drop in employment and a surge in corporate cash have been observed. In this paper, based on U.S. data, we document that the negative relationship between the corporate cash ratio and employment is systematic, both over time and across firms. We develop a dynamic general equilibrium model where heterogenous firms need cash in their production process and where financial shocks are made of both credit and liquidity shocks. We show that external liquidity shocks generate a negative comovement between the cash ratio and employment. We analyze the dynamic impact of aggregate shocks and the cross-firm impact of idiosyncratic shocks. With a calibrated version of the model, the model yields a negative comovement that is close to the data.
    Keywords: working capital, liquidity shocks, cash management
    JEL: E24 E44 G32
  12. By: Broer, Tobias; Harbo Hansen, Niels-Jakob; Krusell, Per; Öberg, Erik
    Abstract: We argue that a 2-agent version of the standard New Keynesian model - where a 'worker' receives only labor income and a'capitalist' only profit ncome - offers insights about how income inequality affects the monetary transmission mechanism. Under rigid prices, monetary policy affects the distribution of consumption, but it has no effect on output as workers choose not to change their hours worked in response to wage movements. In the corresponding representativeagent model, in contrast, hours do rise after a monetary policy loosening due to a wealth effect on labor supply: profits fall, thus reducing the representative worker's income. If wages are rigid too, however, the monetary transmission mechanism is active and resembles that in the corresponding representative-agent model. Here, workers are not on their labor supply curve and hence respond passively to demand, and profits are procyclical.
    Keywords: Heterogeneous Agents; inequality; Monetary Transmission; New Keynesian Model
    JEL: E31 E32 E52
    Date: 2016–07
  13. By: Eric JONDEAU (University of Lausanne and Swiss Finance Institute); Amir KHALILZADEH (University of Lausanne)
    Abstract: We describe a general equilibrium model with a banking system in which the deposit bank collects deposits from households and the merchant bank provides funds to firms. Merchant banks borrow collateralized short-term funds from deposit banks. In a financial downturn, as the value of collateral decreases, the merchant bank must sell assets on short notice, reinforcing the crisis, and default if their cash buffer is insufficient. The deposit bank suffers from loss because of the depreciated assets. If the value of the deposit bank’s assets is insufficient to cover deposits, it also defaults. Deposits are insured by the government. The premium paid by the deposit bank is its expected loss on the deposits. We define the bank’s capital shortfall in the crisis as the expected loss on deposits under stress. We calibrate the model on the U.S. economy and show how this measure of stressed expected loss behaves. In the absence of regulation, a 40% decline of the securities market would induce a loss of 17.8% in the ex-ante value of the assets or 80.7% of the ex-ante value of the equity.
    Keywords: Real business cycle model, Capital shortfall, Systemic risk, Collateral, Leverage
    JEL: D5 E2 E32 E44 G2
  14. By: Midrigan, Virgiliu; Philippon, Thomas
    Abstract: A salient feature of the Great Recession is that regions that experienced larger declines in household debt also experienced larger declines in employment. We study a model in which liquidity constraints amplify the response of employment to changes in debt. We estimate the model using panel data on consumption, employment, wages and debt for U.S. states. Though successful in matching the cross-sectional evidence, the model predicts that deleveraging cannot, by itself, account for the large drop in aggregate employment in the U.S. The 25% decline in household debt observed in the data leads to a modest 1.5% drop in the natural rate of interest, and is easily offset by monetary policy. Household deleveraging is more potent, however, in the presence of other shocks that trigger the zero lower bound on interest rates. In the presence of such shocks household deleveraging accounts for about half of the decline in U.S. employment.
    Keywords: great recession; Household Debt; Regional Evidence; zero lower bound
    JEL: E2 E4 E5 G0 G01
    Date: 2016–07
  15. By: Vuslat Us
    Abstract: This paper analyzes the effect of the global crisis on the determinants of non-performing loans in the Turkish banking sector by using dynamic panel estimation techniques. Empirical findings suggest that non-performing loans present persistence, which is more evident after the crisis, while other regressors have also persistent effects in the post-crisis period. Moreover, non-performing loans are mostly shaped by bank-specific variables before the crisis, whereas, after the crisis, non-performing loans are also driven by macroeconomic and policy-related variables. In particular, the post-crisis significance of GDP, policy rate and sovereign debt shows that robust economic activity, tight monetary policy and strong fiscal balances restrict non-performing loans, thereby enhancing financial stability. On the other hand, the significance of inflation in both sub-periods indicates that commitment to price stability objective is indispensable for limiting non-performing loans and promoting financial stability. In the period ahead, the speed and the direction of normalization in global monetary policies may determine the course of financial conditions, which therefore have implications regarding non-performing loan dynamics and financial stability.
    Keywords: Global crisis, Non-performing loans, Turkish banking sector, Dynamic panel estimation, Persistence, Financial stability, Price stability, Normalization
    JEL: C23 E44 E52 G10 G21
    Date: 2016
  16. By: Sandro Claudio LERA (ETH Zurich, Singapore-ETH Centre); Didier SORNETTE (ETH Zurich and Swiss Finance Institute)
    Abstract: We study the performance of the euro/Swiss franc exchange rate in the extraordinary period from September 6, 2011 and January 15, 2015 when the Swiss National Bank enforced a minimum exchange rate of 1.20 Swiss francs per euro. Within the general framework built on geometric Brownian motions (GBM), the first-order effect of such a steric constraint would enter a priori in the form of a repulsive entropic force associated with the paths crossing the barrier that are forbidden. It turns out that this naive theory is proved empirically to be completely mistaken. The clue is to realise that the random walk nature of financial prices results from the continuous anticipations of traders about future opportunities, whose aggregate actions translate into an approximate efficient market with almost no arbitrage opportunities. With the Swiss National Bank stated commitment to enforce the barrier, trader's anticipation of this action leads to a volatility of the exchange rate that depends on the distance to the barrier. This effect described by Krugman's model [P.R. Krugman. Target zones and exchange rate dynamics. The Quarterly Journal of Economics, 106(3):669-682, 1991] is supported by non-parametric measurements of the conditional drift and volatility from the data. To the best of our knowledge, our results are the first to provide empirical support for Krugman's model, likely due to the exceptional pressure on the euro/Swiss franc exchange rate that made the barrier effect particularly strong. Despite the obvious differences between "brainless" physical Brownian motions and complex financial Brownian motions resulting from the aggregated investments of anticipating agents, we show that the two systems can be described with the same mathematics after all. Using a recently proposed extended analogy in terms of a colloidal Brownian particle embedded in a fluid of molecules associated with the underlying order book, we derive that, close to the restricting boundary, the dynamics of both systems is described by a stochastic differential equation with a very small constant drift and a linear diffusion coefficient. As a side result, we present a simplified derivation of the linear hydrodynamic diffusion coefficient of a Brownian particle close to a wall.
    Keywords: Exchange rate dynamics, target zone, order book fluid, econophysics
    JEL: E50 E51 E52 E58
  17. By: Suleyman Hilmi Kal; Ferhat Arslaner; Nuran Arslaner
    Abstract: Some recent studies indicate that exchange rate pass-through and import price pass-through is better characterized in a non-linear way. Having a better understanding of non-linearity of exchange rate pass-through (ERPT) and import prices pass-through (IPPT) under different conditions will contribute to the critical decisions on the proper role and magnitude of the exchange rate movements in the monetary policy. In this paper, we implement a state based non-linear method (Markov process) to identify, decompose, quantify and analyze the nonlinearities for both types of concurrent (same period) pass-through for the years between 2003 and 2014 for the Turkish economy. According to the results, both ERPT and IPPT are lower during appreciation and low volatility periods of nominal exchange rate. Even though ERPT does not differ depending on the level of business activity, IPPT is lower during contractionary periods compared to expansionary periods. The findings in this paper will allow for more nuanced monetary policy approaches to deal with pass-through stemming from different sources.
    Keywords: Asymmetry, Non-linearity, Inflation targeting, Pass-through of exchange rate and import price, Volatility, Markov switching regression
    JEL: C22 C52 E52 E58 F31
    Date: 2015
  18. By: Nakajima, Makoto (Federal Reserve Bank of Philadelphia)
    Abstract: A life-cycle model with equilibrium default in which agents with and without temptation coexist is constructed to evaluate the 2005 bankruptcy law reform. The calibrated model indicates that the 2005 reform reduces bankruptcies, as seen in the data, and improves welfare, as lower default premia allows better consumption smoothing. A counterfactual reform of changing income garnishment rate is also investigated. Interesting contrasting welfare effects between two types of agents emerge. Agents with temptation prefer a lower garnishment rate as tighter borrowing constraint prevents them from over-borrowing, while those without prefer better consumption smoothing enabled by a higher garnishment rate. (First draft: May 23, 2008)
    Keywords: Consumer Bankruptcy; Debt; Default; Borrowing Constraint; Temptation and Self-Control; Hyperbolic Discounting; Heterogeneous Agents; Incomplete Markets
    JEL: D91 E21 E44 G18 K35
    Date: 2016–07–11
  19. By: Lemoine, Matthieu; Lindé, Jesper
    Abstract: This paper examines the effects of expenditure-based fiscal consolidation when credibility as to whether the cuts will be long-lasting is imperfect. We contrast the impact limited credibility has when the consolidating country has the means to tailor monetary policy to its own needs, with the impact when the country is a small member of a currency union with a negligible effect on interest rates and on nominal exchange rates of the currency union. We find two key results. First, in the case of an independent monetary policy, the adverse impact of limited credibility is relatively small, and consolidation can be expected to reduce government debt at a relatively low output cost given that monetary policy provides more accommodation than it would under perfect credibility. Second, the lack of monetary accommodation under currency union membership implies that the output cost may be significantly larger, and that progress in reducing government debt in the short and medium term may be limited under imperfect credibility.
    Keywords: Currency Union.; DSGE model; Front-Loaded vs. Gradual Consolidation; Monetary and Fiscal Policy; Sticky Prices and Wages
    JEL: E32 F41
    Date: 2016–07
  20. By: Annalisa Bucalossi (Bank of Italy); Antonio Scalia (Bank of Italy)
    Abstract: Using estimates of the Basel III leverage ratio, we show the rapid convergence of banks in the euro area towards levels well above the preliminary 3 per cent threshold. Contrary to predictions that the new requirement might interfere with the conduct of monetary policy and its transmission via the money market, throughout 2014 we find that leverage-constrained banks have decreased neither Eurosystem refinancing nor trading volume on repo markets. We measure the extent to which banks in the euro area have until now benefited from improvements in their regulatory capital, the low reporting frequency of the leverage ratio, and the favourable treatment of repo and derivatives trades with central counterparties in calculating the ratio, achieving an average of 5 per cent at end-June 2015. This level is likely to fall to around 4.5 per cent by March 2017, as a consequence of the Eurosystem Asset Purchase Programme, which causes an expansion of banks’ balance sheets and, therefore, an increase in the denominator of the leverage ratio.
    Keywords: Basel III, leverage ratio, central bank operations, European banks, repo market
    JEL: E58 G21 G28 G1
    Date: 2016–07
  21. By: Jörn-Steffen Pischke
    Abstract: Many economists suspect that downward nominal wage rigidities in ongoing labor contracts are an important source of employment fluctuations over the business cycle but there is little direct empirical evidence on this conjecture. This paper compares three occupations in the housing sector with very different wage setting institutions, real estate agents, architects, and construction workers. I study the wage and employment responses of these occupations to the housing cycle, a proxy for labor demand shocks to the industry. The employment of real estate agents, whose pay is far more flexible than the other occupations, indeed reacts less to the cycle than employment in the other occupations. However, unless labor demand elasticities are large, the estimates do not suggest that the level of wage flexibility enjoyed by real estate agents would buffer employment fluctuations in response to demand shocks by more than 10 to 20 percent compared to completely rigid wages.
    Keywords: wage setting, wage rigidity, commissions, real estate agents, architects, construction workers
    JEL: E24 J20 J44
    Date: 2016–07
  22. By: James A. Giesecke; Peter B. Dixon; Maureen T. Rimmer
    Abstract: Financial regulators are requiring banks to raise additional equity capital to finance their acquisition of physical assets (e.g. buildings) and financial assets (e.g. loans). The benefits of this are understood in terms of reducing the risk of incurring the significant costs of another financial crisis. But there are potential costs from securing these benefits, in the form of unanticipated macroeconomic impacts as banks reduce leverage ratios. In this paper, we explore the economic consequences of a 100 basis point increase in commercial bank capital adequacy ratios using a financial computable general equilibrium model of the Australian economy. We find that the macroeconomic consequences of the policy are small. Our results suggest that prudential regulators can move forward to secure the financial system stability benefits that they expect from higher capital adequacy requirements, without concern that significant costs will be imposed on the wider economy in the form of macroeconomic disruption.
    Keywords: Capital adequacy ratio, financial stability, macroeconomic disruption
    JEL: E17 E44 G21 C68
    Date: 2016–05
  23. By: Mirna Dumièiæ (The Croatian National Bank, Croatia)
    Abstract: Notwithstanding the rapid growth in the popularity of and the increasing number of research papers on macroprudential policy, the general public still has a relatively unclear perception of this concept. The main purpose of this paper is to explain briefly the most important concepts related to macroprudential policy and describe its objectives. Emphasis is put on explaining the main stages of a macroprudential cycle, the relationship between macroprudential policy and other economic policies and the costs and benefits of macroprudential regulations.
    Keywords: macroprudential policy, financial stability, systemic risks
    JEL: E52 E58 E61
    Date: 2015–08
  24. By: Brian Bolarinwa Ogundairo; Mauro Rodrigues
    Abstract: This paper studies how Brazil’s high real interest rate is related to the country’s pay-as-you-go (PAYG) pension system, which features exceptionally large expenses. We use a standard version of the overlapping generations model, with a mixed pension system (part PAYG part fully funded). We calibrate the model to the Brazilian economy between 2000 and 2014. We consider a steady state which reproduces the average real interest rate in this period, with a PAYG system. We then simulate a pension reform to replicate Chile’s pension expenses. Like Brazil, Chile is a Latin American middle income country, but its pension system is mostly of the fully-funded type. In our preferred specification, the model predicts a 1 percentage point decrease in the long-run annual real interest rate. This corresponds to 18% of the average interest differential between Brazil and Chile during the 2000-2014 period.
    Keywords: real interest rate, pensions, Brazil, overlapping generations
    JEL: E21 E43 H55
    Date: 2016–07–25
  25. By: de la Fonteijne, Marcel R.
    Abstract: The book 'Capital in the Twenty-First Century' by the French economist Piketty about the inequality of income and wealth distribution is already quite a while in the spotlights. Throughout his book he uses two formulas which he has named ‘the first fundamental law of capitalism’ and ‘the second fundamental law of capitalism’. With his reasoning he tries to show that, with these laws in place, he is capable to explain inequality phenomena with respect to the income and wealth distribution. Without going into the significance of his reasoning and conclusions, we will show that the use of the laws, the way he does, is fundamentally wrong. We suggest alternative formulas and a new approach. The inequality r>g is in our opinion not a meaningful equation with respect to inequality.
    Keywords: sustainability, inequality, unemployment, GDP growth, income, wealth distribution
    JEL: E00 E10 E20 E60 H20 H30 H60
    Date: 2014–12–24
  26. By: Juergen Jung; Chung Tran; Matthew Chambers
    Abstract: We quantify the effects of population aging on the US healthcare system. Our analysis is based on a stochastic general equilibrium overlapping generations model of endogenous health accumulation calibrated to match pre-2010 U.S. data. We find that population aging not only leads to large increases in medical spending but also a large shift in the relative size of public vs. private insurance. Without the Affordable Care Act (ACA), aging itself leads to a 36:6 percent increase in health expenditures by 2060 and a 5 percent increase in GDP which is driven by the expansion of the healthcare sector. The group-based health insurance (GHI) market shrinks, while the individual-based health insurance (IHI) market and Medicaid expand significantly. Additional funds equivalent to roughly 4 percent of GDP are required to finance Medicare in 2060 as the elderly dependency ratio increases. The introduction of the ACA increases the fraction of insured workers to 99 percent by 2060, compared to 81 percent without the ACA. This additional increase is mainly driven by the further expansion of Medicaid and the IHI market and the stabilization of the GHI market. Interestingly, the ACA reduces aggregate health care spending by enrolling uninsured workers into Medicaid which pays lower prices for medical services. Overall, the ACA adds to the fiscal cost of population aging mainly via the Medicare and Medicaid expansion.
    Keywords: Population aging, calibrated general equilibrium OLG model, health expenditures, Medicare & Medicaid, Affordable Care Act 2010, Grossman model of health capital, endogenous health spending and financing.
    JEL: H51 I13 J11 E21 E62
    Date: 2016–07
  27. By: Venky Venkateswaran (New York University); Laura Veldkamp (New York University Stern School of Busi); Julian Kozlowski (New York University)
    Abstract: The Great Recession was a deep downturn with long-lasting effects on credit markets, labor markets and output. We explore a simple explanation: This recession has been more persistent than others because it was perceived as an extremely unlikely event before 2007. Observing such an episode led all agents to re-assess macro risk, in particular, the probability of tail events. Since changes in beliefs endure long after the event itself has passed and through its effects on prices and choices, it produces long-lasting effects on investment, employment and output. To model this idea, we study a production economy with agents who use standard econometric tools to estimate the distribution of aggregate shocks. When they observe a new shock, they re-estimate the distribution from which it was drawn. Even transitory shocks have persistent effects because, once observed, they stay forever in the agents’ data set. We feed a time-series of US macro data into our model and show that our belief revision mechanism can explain the 12% downward shift in US trend output.
    Date: 2016
  28. By: Al-Jarhi, Mabid
    Abstract: We have demonstrated by using macroeconomic, banking and finance theories that Islamic finance, when applied according to our paradigm (Al-Jarhi, 1981) would have distinct advantages. In addition, it provides a justifiable prescription for reforming the contemporary market economy. The advantages of Islamic finance formulated above, although noteworthy, are not sufficient to induce Islamic bankers to be true to Islamic finance. The reason is that such advantages are mostly external and can only induce behavior after being internalized. An important policy implication is that such internalization is left to banking and finance regulators. Only when the license of Islamic banking is strictly enforced by the monetary authority that Islamic bankers would stop mimicking conventional finance. Our main policy implications are only one headline that requires more detailed explanation that is found somewhere else (Al-Jarhi, 2014). In addition, some Islamic finance contracts require special guidelines in order to reduce the amount of information asymmetry associated with them. In addition, certain modifications have to be introduced to the corporate governance of Islamic banks, especially in allowing investment account holders to be represented on their boards of directors.
    Keywords: Keywords: Islamic monetary economics, Islamic finance, information asymmetry, adverse selection, moral hazard, lemon problem, nominal transactions, real transactions, debt sustainability, monetary policy.
    JEL: E03 E4 E42 G02 G20
    Date: 2016–07–20
  29. By: Yi Wen (Federal Reserve Bank of St. Louis); Xiaochuan Xing (Tsinghua University); Patrick Pintus (Banque de France)
    Abstract: The interest rate at which US firms borrow funds has two features: (i) it moves in a countercyclical fashion and (ii) it is an inverted leading indicator of real economic activity: low interest rates forecast booms in GDP, consumption, investment, and employment. We show that a Kiyotaki-Moore model accounts for both properties when business-cycle movements are driven, in a significant way, by animal spirit shocks to credit-financed investment demand. The credit-based nature of such self-fulfilling equilibria is shown to be essential: the dynamic correlation between current loanable funds rate and future aggregate economic activity depends critically on the property that the loan has a variable-rate component. In addition, Bayesian estimation of our benchmark DSGE model on US data 1975-2010 shows that movements in investment driven by animal spirits are quantitatively important and result in a better fit to the data than both standard RBC models and Kiyotaki-Moore type models with unique equilibrium.
    Date: 2016
  30. By: Aleksandar Vasilev
    Abstract: We show that in an endogenous growth model with human accumulation calibrated to Bulgarian data under the progressive taxation regime (1993-2007), the artificial economy exhibits equilibrium indeterminacy. These results are in line with the recent findings in Chen and Guo (2015) in the context of an AK endogenous growth model. Also, the findings are in contrast to Guo and Lansing (1988) who argue that progressive taxation works as an automatic stabilizer. Progressive taxation in our setup leads to equilibrium indeterminacy. This indeterminacy result could explain, at least partially, why the economic performance under the progressive taxation regime in Bulgaria was not impressive.
    Keywords: Progressive Income Taxation; Endogenous growth; Human capital; Equilibrium (In)determinacy.
    JEL: E32 E62 O41
    Date: 2016–07–18
  31. By: Faria-e-Castro, Miguel; Martinez, Joseba; Philippon, Thomas
    Abstract: We study the optimal use of disclosure and fiscal backstops during financial crises. Providing information can reduce adverse selection in credit markets, but negative disclosures can also trigger inefficient bank runs. In our model governments are thus forced to choose between runs and lemons. A fiscal backstop mitigates the risk of runs and allows a government to pursue a high disclosure strategy. Our model explains why governments with strong fiscal positions are more likely to run informative stress tests, and, paradoxically, how they can end up spending less than governments that are more fiscally constrained.
    JEL: E5 E6 G1 G2
    Date: 2016–07
  32. By: Vasilev, Aleksandar
    Abstract: We show that in a endogenous growth model with human accumulation calibrated to Bulgarian data under the progressive taxation regime (1993-2007), the artificial economy exhibits equilibrium indeterminacy. These results are in line with the recent findings in Chen and Guo (2015) in the context of an AK endogenous growth model. Also, the findings are in contrast to Guo and Lansing (1988) who argue that progressive taxation works as an automatic stabilizer. Progressive taxation in our setup lead to equilibrium indeterminacy. This indeterminacy result could explain, at least partially, why the economic performance under the progressive taxation regime in Bulgaria was not impressive.
    Keywords: Progressive Income Taxation,Human capital,Endogenous Growth,Equilibrium (In)determinacy
    JEL: E32 E62
    Date: 2016
  33. By: Dongho Song (Boston College)
    Abstract: The paper estimates a model that allows for shifts in the aggressiveness of monetary policy and time variation in the distribution of macroeconomic shocks. These model features induce variations in the cyclical properties of inflation and the riskiness of bonds. The estimation identifies inflation as procyclical from the late 1990s, when the economy shifted toward aggressive monetary policy and experienced procyclical macroeconomics shocks. Since bonds hedge stock market risks when inflation is procylical, the stock-bond return correlation turned negative in the late 1990s. The risks of encountering countercyclical inflation in the future could lead to an upward-sloping yield curve, like in the data.
    Keywords: bond market, inflation, monetary policy
    Date: 2016–05–25
  34. By: Roys, Nicolas (Federal Reserve Bank of St. Louis)
    Abstract: This paper proposes a theoretical and quantitative analysis of the reallocation of labor across firms in response to idiosyncratic shocks of different persistence. Creating and destroying jobs is costly and workers are paid a share of the value of the marginal worker. The model predicts that employment and labor costs react differently to transitory shocks and permanent shocks. Quantitative evaluation of the model on a panel of French firms shows the model’s performance. Modest adjustment costs are needed to reproduce observed job reallocation and inaction rates. Removing adjustment costs leads to productivity gains of 1% at the steady state. These gains are 50% larger in a economy with only transitory shocks and an order of magnitude lower in an economy with only permanent shocks. Bargaining dampens the reallocation of labor across firms, leading to larger efficiency losses from adjustment costs.
    Keywords: Firm Dynamics; Adjustment Costs; Misallocation; Persistence of Shocks
    JEL: E24 J21 J23
    Date: 2016–07–12
  35. By: Lindé, Jesper; Smets, Frank; Wouters, Rafael
    Abstract: In this paper we discuss a number of challenges for structural macroeconomic models in the light of the Great Recession and its aftermath. It shows that a benchmark DSGE model that shares many features with models currently used by central banks and large international institutions has difficulty explaining both the depth and the slow recovery of the Great Recession. In order to better account for these observations, the paper analyses three extensions of the benchmark model. First, we estimate the model allowing explicitly for the zero lower bound constraint on nominal interest rates. Second, we introduce time-variation in the volatility of the exogenous disturbances to account for the non-Gaussian nature of some of the shocks. Third and finally, we extend the model with a financial accelerator and allow for time-variation in the endogenous propagation of financial shocks. All three extensions require that we go beyond the linear Gaussian assumptions that are standard in most policy models. We conclude that these extensions go some way in accounting for features of the Great Recession and its aftermath, but they do not suffice to address some of the major policy challenges associated with the use of non-standard monetary policy and macroprudential policies.
    Keywords: and VAR models; DSGE; Financial Frictions; great recession; macroprudential policy; Monetary policy; Open economy.; Regime-Switching; zero lower bound
    JEL: E52 E58
    Date: 2016–07
  36. By: Joshua C.C. Chan; Angelia L. Grant
    Abstract: This paper reconciles two widely used trend-cycle decompositions of GDP that give markedly different estimates: the correlated unobserved components model yields output gaps that are small in amplitude, whereas the Hodrick-Prescott (HP) filter generates large and persistent cycles. By embedding the HP filter in an unobserved components model, we show that this difference arises due to differences in the way the stochastic trend is modeled. Moreover, the HP filter implies that the cyclical components are serially independent—an assumption that is decidedly rejected by the data. By relaxing this restrictive assumption, the new model provides comparable model fit relative to the standard correlated unobserved components model.
    Keywords: trend-cycle decomposition, HP filter, structural break
    JEL: C11 C52 E32
    Date: 2016–07
  37. By: Caldara, Dario; Cavallo, Michele; Iacoviello, Matteo
    Abstract: We study the identification of oil shocks in a structural vector autoregressive (SVAR) model of the oil market. First, we show that the cross-equation restrictions of a SVAR impose a nonlinear relation between the short-run price elasticities of oil supply and oil demand. This relation implies that seemingly plausible restrictions on oil supply elasticity may map into implausible values of the oil demand elasticity, and vice versa. Second, we propose an identification scheme that restricts these elasticities by minimizing the distance between the elasticities allowed by the SVAR and target values that we construct from a survey of relevant studies. Third, we use the identified SVAR to analyze sources and consequences of movements in oil prices. We find that (1) oil supply shocks and global demand shocks explain 50 and 35 percent of oil price fluctuations, respectively; (2) a drop in oil prices driven by supply shocks boosts economic activity in advanced economies, whereas it depresses economic activity in emerging economies; and (3) the selection of oil market elasticities is essential for understanding the source of oil price movements and to measuring the multipliers of oil prices on economic activity.
    Keywords: Oil Prices ; Vector Autoregressions ; Commodity Prices
    JEL: Q43 C32 E32
    Date: 2016–07
  38. By: Mahir Binici; Hakan Kara; Pinar Ozlu
    Abstract: Geleneksel faiz koridoru sistemlerinde merkez bankalari para politikasini tek bir politika faizi uzerinden yurutmekte ve bankalarin kisa vadeli fonlama maliyetinin bu faize yakin gerceklesmesini saglamaktadir. Ote yandan, Turkiye Cumhuriyet Merkez Bankasi (TCMB) 2010 yilinin sonlarindan itibaren finansal oynakliga vakitli tepki verebilmek amaciyla sira disi bir faiz koridoru ve fonlama politikasi uygulamistir. Bu dogrultuda, TCMB’nin piyasaya sagladigi kisa vadeli fonlarin kompozisyonu yuksek frekanslarda degistirilerek gerekli gorulen donemlerde piyasa faizlerinin TCMB fonlama faizinden ve ilan edilen resmi faizlerden sapmasi tercih edilmistir. Konvansiyonel olmayan bu yaklasimda, para politikasinin finansal sistemle etkilesimi de klasik faiz koridoru uygulamasina kiyasla daha karmasik bir yapi almaktadir. Bu calisma, anilan donemde para politikasi durusunun ve parasal aktarim mekanizmasinin daha iyi anlasilmasina katkida bulunmayi amaclamaktadir. Calismada ozellikle sira disi koridor politikasi kapsaminda merkez bankasi tarafindan ilan edilen faizler (resmi faizler) ile bankalarin fiiliyatta maruz kaldiklari faizler (fiili faizler) arasindaki farklilasmanin parasal aktarim mekanizmasi acisindan yansimalari ele alinmaktadir. Bu dogrultuda, oncelikle TCMB’nin uyguladigi faiz koridoru politikasinin operasyonel cercevesi basit bir gosterimle sunularak para politikasinin etki alanindaki faizlerin bankalar acisindan onemi degerlendirilmektedir. Daha sonra da panel tahmin yontemleri ile banka bazinda akim veriler kullanilarak kredi ve mevduat faizleri ile para politikasi faizleri arasindaki iliski incelenmektedir. Bulgularýmiza gore, para politikasinin bankacilik sistemine aktarimi acisindan resmi faizlerden ziyade fiili faizler one cikmaktadir. Ozellikle bankalararasi gecelik piyasada olusan faizin kredi ve mevduat fiyatlamasinda belirleyici rol oynadigi gözlenmektedir.
    Keywords: Para politikasi aktarim mekanizmasi, Faiz kanali, Kredi kanali, Turkiye
    JEL: E44 E51 E52
    Date: 2016
  39. By: Sandro Claudio LERA (ETH Zurich); Didier SORNETTE (ETH Zurich and Swiss Finance Institute)
    Abstract: Krugman(1991)’s target zone model has become the reference of a large part of this literature. Despite its simplicity and elegance, empirical evidence has been lacking. Deriving from Krugman’s model analytical expressions for the conditional volatility and density distribution close to the target zone limit, we present clear and direct evidence that the bounded EUR/CHF exchange rate between September 2011 and January 2015 was quantitatively well described by Krugman’s model. Krugman’s target zone model holds after all, but apparently only under extreme and sustained pressure that pushes continuously the exchange rate very close to the boundary of the target zone.
    Keywords: Exchange rate dynamics, target zone, conditional volatility
    JEL: E50 E51 E52 E58
  40. By: Chrysa Leventi; Manos Matsaganis
    Abstract: Estimating the impact of the crisis on income distribution requires up-to-date information. Due to the complexity of income surveys such as EU-SILC, income data usually become available with considerable delay. In this context, micro-simulation models are an appropriate and widely used alternative to bridge the gap in official data, allowing for an early evaluation of the distributional impact of changes in tax-benefit policies and in the wider economy. This paper analyses the effects of the Greek crisis on inequality and poverty in 2009-2014 using the micro-simulation model EUROMOD. Specifically, the paper updates earlier OECD estimates of distributional effects of the crisis in 2009-2012, and provides new estimates for 2013-2014, a period for which survey data are not yet publicly available. The results indicate that inequality, as measured by most indicators, rose in 2010-2013 as the recession deepened and unemployment rose, and fell back in 2014 as the economy stabilised. Relative poverty seems to have increased in 2012, after remaining broadly unchanged in the previous two years; in 2013 it appears to have stabilised, while in 2014 it fell back to only slightly above its level in 2010 (13.8% vs.13.2% respectively). This pattern is more pronounced when poverty is measured against an “anchored” benchmark: the proportion of population whose income fell below a poverty line anchored in pre-crisis terms increased steadily and steeply, until 2014 when it finally stabilised at 27.4% (from 13.2% in 2010). Not all population groups were affected evenly by recent developments: the rise of poverty in 2010-2013 especially affected the unemployed, the self-employed, the young, the middle-aged, families living in Athens, families paying rent or mortgage rather than outright owning their dwelling; on the contrary, relative poverty actually fell among groups traditionally seen as ‘poor’, such as farmers and the elderly – although in the latter case the relative improvement in terms of income may have been offset by difficulties in access to health care. The paper also assesses first-round effects of austerity policies on the income distribution given changes in the wider economy, i.e. abstracting from second-round effects associated with the deflationary impact of austerity on output. In this sense, early austerity policies per se appear to have had a small positive distributional impact, partly offsetting the increases in inequality and poverty due to the recession. As fiscal consolidation intensified in 2012, tax and benefit policies appear to have exacerbated the adverse distributional effects of the recession, causing poverty and inequality to rise further. From 2013, austerity policies seem to have had a more equalizing effect, especially at the bottom of the distribution and in terms of its distance from the top. This working paper relates to the 2016 OECD Economic Survey of Greece ( Estimer les effets de la crise grecque sur la distribution des revenus (2009-2014) La présente étude s’appuie sur des modèles de microsimulation afin d’actualiser les estimations réalisées par l'OCDE quant aux effets de la crise sur les inégalités et la pauvreté en Grèce en 2009-2012, et en produire de nouvelles pour 2013-2014. À l’aune de la plupart des indicateurs utilisés pour les mesurer, les inégalités se sont creusées en 2010-2013 parallèlement à l’aggravation de la récession et à la montée du chômage, pour reculer ensuite en 2014 à la faveur de la stabilisation de l’économie. Le taux de pauvreté relative semble avoir augmenté en 2012, après être resté globalement inchangé au cours des deux années précédentes. Il s’est ensuite stabilisé en 2013 pour retomber, en 2014, en deçà du niveau de 2012. Cette tendance est encore plus marquée lorsque la pauvreté est mesurée par rapport à un seuil « ancré ». Toutes les populations n’ont pas été touchées dans les mêmes proportions par l’aggravation de la pauvreté relative : la montée de la pauvreté en 2010-2013 a particulièrement touché les chômeurs, les travailleurs indépendants, les jeunes, les personnes d’âge moyen, les ménages résidant à Athènes, et les ménages qui paient un loyer ou remboursent un prêt immobilier. À l’inverse, la pauvreté relative a en fait reculé parmi les populations traditionnellement considérées comme « pauvres », comme les exploitants agricoles et les personnes âgées – même si, pour ces dernières, l’amélioration relative des revenus pourrait avoir été compensée par des difficultés d’accès aux services de santé. Il semble que les politiques d’austérité en elles-mêmes (hors effets de l’assainissement budgétaire sur la production) ont eu un modeste impact sur les inégalités et la pauvreté relative dans un premier temps, atténuant en partie les effets de la récession. Avec l’intensification de l’effort d’assainissement des finances publiques en 2012, les politiques fiscales et sociales semblent avoir favorisé une hausse de la pauvreté et des inégalités. Depuis 2013, les mesures d’austérité semblent avoir contribué à réduire les inégalités, surtout au bas de l’échelle de distribution des revenus et en termes d’écart entre le bas et le haut de la distribution. La part de la population dont le revenu est tombé sous le seuil de la pauvreté ancrée avant la crise a augmenté avec chaque cycle de mesures d’austérité, et la hausse régulière du chômage n’a fait qu’amplifier le mouvement, jusqu’en 2014 lorsqu’elle a fini par se stabiliser. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Grèce 2016 ( ique-grece.htm).
    Keywords: taxation, poverty, labour market, inequality, distributional impact, impact distributif, marché du travail, inégalité, pauvreté, imposition
    JEL: D31 D63 E62 H22 I32 I38
    Date: 2016–07–26
  41. By: Mirna Dumièiæ (The Croatian National Bank, Croatia)
    Abstract: The main objective of this paper is to construct high-frequency composite indicators of financial stress for Croatia that will enable the monitoring of the total level of financial stress and its components on the domestic financial market. Emphasis is placed on the choice of variables appropriate to small, open, highly euroised economies characterised by bank-centric financial systems dominantly owned by foreign banks. Apart from that, these countries are often characterized by shallow financial markets that because of the shortfall of domestic saving have to a great extent become dependent on foreign capital. Timely identification of stress disruptions on the financial markets and understanding of the specific channels by which they might spill over to the rest of the financial system and onto real economy are a precondition for effective reactions on the part of economic policy makers.
    Keywords: financial stress, financial stability, financial markets, systemic risk, composite index
    JEL: E44 E50 G10
    Date: 2014–12
  42. By: Sandro Claudio LERA (ETH Zurich); Didier SORNETTE (ETH Zurich and Swiss Finance Institute)
    Abstract: We present a quantitative characterisation of the fluctuations of the annualized growth rate of the real US GDP per capita growth at many scales, using a wavelet transform analysis of two data sets, quarterly data from 1947 to 2015 and annual data from 1800 to 2010. Our main finding is that the distribution of GDP growth rates can be well approximated by a bimodal function associated to a series of switches between regimes of strong growth rate Phigh and regimes of low growth rate Plow. The succession of such two regimes compounds to produce a remarkably stable long term average real annualized growth rate of 1.6% from 1800 to 2010 and approximately 2.0% since 1950, which is the result of a subtle compensation between the high and low growth regimes that alternate continuously. Thus, the overall growth dynamics of the US economy is punctuated, with phases of strong growth that are intrinsically unsustainable, followed by corrections or consolidation until the next boom starts. We interpret these findings within the theory of “social bubbles” and argue as a consequence that estimations of the cost of the 2008 crisis may be misleading. We also interpret the absence of strong recovery since 2008 as a protracted low growth regime Plow associated with the exceptional nature of the preceding large growth regime.
    Keywords: Wavelet transform, Economic growth, GDP per capita, Business cycle
    JEL: C46 E01 E32
  43. By: Jena, Pratap Ranjan (National Institute of Public Finance and Policy); Bhadra, Kausik K. (National Institute of Public Finance and Policy); Sikdar, Satadru (National Institute of Public Finance and POlicy)
    Abstract: The paper examines the public financial management (PFM) of Sikkim focusing mainly on resources generation effort and budget management practices. We note that any deviation from the Central transfers creates fiscal stress as the State depends heavily on them to fund vast expanse of social and economic services and infrastructure. The sparse internal resources reduce flexibility to invest in the sectors where the State has inherent advantages. The search for resources to drive the development needs and create higher employment opportunities remain a major drag for the State. The paper looks at the possibilities of strengthening internal resources and improving the efficiency of public spending to ensure value for money. The fiscal stress faced by the State due to decline in Central assistance to the State plan should be considered as an opportunity to make an unbiased assessment of its fiscal capacity and development commitment.
    Keywords: Budget management system ; tax effort ; public expenditure management ; fiscal rules ; expenditure restructuring
    JEL: E62 H50 H61 H70 H71 H72 H76
    Date: 2016–05
  44. By: Guriev, Sergei; Speciale, Biagio; Tuccio, Michele
    Abstract: We study wage adjustment during the recent crisis in regulated and unregulated labor markets in Italy. Using a unique dataset on immigrant workers, we show that before the crisis wages in the formal and informal sectors moved in parallel (with a 15 percent premium in the formal labor market). During the crisis, however, formal wages did not adjust down while wages in the unregulated informal labor market fell so that by 2013 the gap had grown to 32 percent. The difference was particularly salient for workers in "simple" occupations where there is high substitutability between immigrant and native workers. Calibrating a simple model of spillovers between formal and informal markets, we find that less than 10 percent of workers who lost a formal job during the crisis move to the informal sector. We also find that if the formal sector wages were fully flexible, the decline in formal employment would be in the range of 1.5-4.5 percent - much lower than 16 percent decline that we observe in the data.
    Keywords: great recession; Immigration; Labor market regulation; wage rigidity
    JEL: E24 J31 J61
    Date: 2016–07
  45. By: Bell, Peter N
    Abstract: This paper explores how present value varies over time when the underlying cash flow has a deterministic period. I assume that cash flows are known with certainty and follow a cycle with a long or short period. When the cash flow has a short period, the present value is relatively stable over time because the present value calculation smooths out several cycles. However, when the cash flow has a long period the present value itself develops a long and large cycle. These results are driven by the mathematical definition of the present value and are relevant to the use of present value as a pricing tool in situations where the cash flows of an investment have a long cycle.
    Keywords: Present Value, Investment, Simulation.
    JEL: C6 C65 E4 E44 G1 G12
    Date: 2015–11–11
  46. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: While addressing business economists during a meeting in St. Louis, President James Bullard discussed how the St. Louis Fed’s new approach to near-term U.S. macroeconomic and monetary policy projections differs from the old approach. He noted the previous narrative was based on the idea that the economy is converging to a single, long-run steady state. Under the new narrative, he said that the economy instead may visit a set of possible regimes, or states. Bullard said that the projected policy rate path is the main difference in the new approach: The policy rate under the old narrative would likely rise over the forecast horizon to be consistent with its steady state value, whereas the policy rate under the new narrative would likely remain essentially flat over the forecast horizon to remain consistent with the current regime.
    Date: 2016–07–12
  47. By: Gonul Sengul
    Abstract: This paper develops a model of search by employers in which search to fill a vacancy affects firms' probability of hiring, duration of the employment relationship, cost of a vacancy and the expected productivity of the job. I employ a model with uncertainty about the quality of a match: it could be of good or bad quality. Firms conduct interviews where they learn the probability of the match being of good quality and select the worker with the highest probability. Hence, more interviews increase the chance of getting a good quality match thereby reducing separations. I find that firms mostly adjust the number of interviews they conduct when labor market policies are introduced to the model. Counterfactual exercises where firms cannot adjust the number of interviews reveal that selection channel mostly mitigates the effect of policy on unemployment rate.
    Keywords: Labor market search, Unemployment, Search by employer, Labor market policies
    JEL: E24 J64 J63
    Date: 2016
  48. By: Kurmas Akdogan; Neslihan Kaya Eksi; Ozan Eksi
    Abstract: We disentangle the cross-border capital flows into demand-pull and supply-push components for four selected emerging markets : Brazil, Indonesia, Malaysia and Turkey. We employ vector autoregressions with sign restrictions method, using two variables: noncore liabilities of banks and the money market rates. Demand shocks are defined as those that move these two variables in the same direction and supply shocks as those that move them in opposite directions. Our results imply that, in the wake of the global financial crisis, worsening demand conditions in the recipient countries and the high levels of uncertainty were the main determinants of the decline in cross border flows. However, once the unconventional policy measures by the advanced economies were put into effect, the proliferation of global liquidity worked as a push factor for cross border flows.
    Keywords: Financial stability, Capital flows, Non-core liabilities, Sign restrictions
    JEL: C32 E44 G21
    Date: 2016
  49. By: Kajal Lahiri (Department of Economics, University at Albany, State University of New York); Yongchen Zhao (Department of Economics, Towson University)
    Abstract: We study the information content of the University of Michigan’s Index of Consumer Sentiment as well as its five components. Using household data from the Surveys of Consumers, we identify the main determinants of these indicators and document their varying role over the business cycle. Our results suggest that while at the aggregate level, macroeconomic conditions explain sentiment well, important and additional information is contained at the level of households. We compare the role of objective and subjective information in determining household level sentiment, and show that significant heterogeneity in the absorption of news from local network sources is a major feature of consumer sentiment. The differential interpretation of current macroeconomic conditions is found to be more pervasive in periods of falling sentiment that typically predates business cycle peaks, and thus helps sentiment to foreshadow recessions.
    Keywords: Consumer confidence, Cross-sectional heterogeneity, Asymmetry, News, Recessions.
    JEL: E27 E27 C25 C55
    Date: 2016–07
  50. By: Nataliya Klimenko (University of Zurich); Sebastian Pfeil (University of Bonn); Jean-Charles Rochet (University of Zurich, University of Toulouse I and Swiss Finance Institute); Gianni De Nicolo (International Monetary Fund and CESifo)
    Abstract: We develop a novel dynamic model of banking showing that aggregate bank capital is an important determinant of bank lending. In our model commercial banks finance their loans with deposits and equity, while facing equity issuance costs. Because of this financial friction, banks build equity buffers to absorb negative shocks. Aggregate bank capital determines the dynamics of lending. Notably, the equilibrium loan rate is a decreasing function of aggregate capitalization. The competitive equilibrium is constrained inefficient, because banks do not internalize the consequences of individual lending decisions for the future loss-absorbing capacity of the banking sector. In particular, we find that unregulated banks lend too much. Imposing a minimum capital ratio helps tame excessive lending, which enhances stability of the banking system.
    Keywords: macro-model with a banking sector, aggregate bank capital, pecuniary externality, capital requirements
    JEL: E21 E32 F44 G21 G28
  51. By: Punnoose Jacob; Lenno Uusküla
    Abstract: Habit persistence at the level of individual goods varieties can explain incomplete exchange rate pass-through to international prices. Deep habits give rise to a dynamic import demand function that leads to import price markup adjustments, independently of nominal pricing frictions. Augmenting a standard New Keynesian two-country model with deep habits, we obtain low exchange rate pass-through to import prices even when local currency prices are relatively flexible. As prices become more rigid, the presence of deep habits further reduces the pass-through of exchange rate fluctuations. Without deep habits, the model requires implausibly high degrees of price stickiness to match the pass-through dynamics triggered by an exchange rate shock in a vector autoregression
    Keywords: Exchange Rate Pass-through, Deep Habits, Sticky Prices, Price Markups, Local Currency Pricing
    JEL: F41 E31
    Date: 2016–07–19
  52. By: Selen Baser Andic
    Abstract: This paper estimates a normalized constant elasticity of substitution production function for Turkey using the data between 1991-2014. Employing a system approach, the elasticity of substitution, direction of the technical change and total factor productivity are determined. The results indicate that elasticity of substitution is around 0.8 and significantly below unity in Turkey. The dynamics of the technical progresses of inputs signal a slowing productivity growth in labour, and a falling productivity in capital. These findings imply that in Turkey, the average growth of the total factor productivity is very low, if not zero, and labour-augmenting technical progress is slightly dominant over time.
    Keywords: CES function, Elasticity of substitution, Technical change, Factor shares, Turkey
    JEL: C22 E23 E25
    Date: 2016
  53. By: Tomáš Havránek (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nábreží 6, 111 01 Prague 1, Czech Republic; Czech National Bank); Anna Sokolova (Higher School of Economics, Moscow)
    Abstract: We show that three factors combine to explain the mean excess sensitivity reported in studies estimating consumption Euler equations: the use of macro data, publication bias, and liquidity constraints. When micro data are used, publication bias is corrected for, and the households under examination do not face liquidity constraints, the literature implies no evidence for the excess sensitivity of consumption to income. Hence little remains for pure rule-of-thumb behavior. The results hold when we control for 45 additional variables reflecting the methods employed by researchers and use Bayesian model averaging to account for model uncertainty. The estimates of excess sensitivity are also systematically affected by the order of approximation of the Euler equation, the treatment of non-separability between consumption and leisure, and the choice of proxy for consumption.
    Keywords: Excess sensitivity, rule-of-thumb consumers, liquidity constraints, publication bias, Bayesian model averaging
    JEL: C83 D12 E21
    Date: 2016–07
  54. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: In London, President James Bullard discussed the St. Louis Fed’s new characterization of the U.S. macroeconomic and monetary policy outlook, which more explicitly takes into account uncertainty about possible medium- and longer-run outcomes. He also explained the slow and steady evolution of his thinking on this topic since December.
    Date: 2016–06–30
  55. By: Randall Wright (University of Wisconsin); Cathy Zhang (Purdue University); Guillaume Rocheteau (University of California, Irvine)
    Abstract: This paper provides a theory of external and internal finance where entrepreneurs finance random investment opportunities with fiat money, bank liabilities, or trade credit. Loans are distributed in an over-the-counter credit market where the terms of the loan contract, including size, rate, and down payment, are negotiated in a decentralized fashion subject to pledgeability constraints. The model has implications for the cross-sectional distribution of corporate loan rates and loan sizes, interest rate pass-through, and the transmission of monetary policy (described either as money growth or open market operations) with or without liquidity requirements.
    Date: 2016
  56. By: Cristian PANA (Faculty of Economics, Ecological University of Bucharest)
    Abstract: There is a widespread agreement that fiscal policy can positively or negatively influence growth. Thus, taxes on income and profits in particular are those that can have the greatest effect, while consumption and property taxes have the lowest negative effects on growth. In the context of the financial and economic crisis, the EU Member States have adopted various measures in order to counter-balance the negative effects. Based on these considerations, the paper is analysing the evolution of overall tax rate and in particular of direct taxes in Romania in the European Union context.
    Keywords: fiscal policy, taxation, direct taxes, tax rate
    JEL: E62 H21 H24 H25
    Date: 2015–11
  57. By: Uddin, Md Akther
    Abstract: Negative interest rate is quite a new phenomenon and many economists are quite puzzled by this new development after the global financial crisis of 2008/2009 and warned about its negative consequences. Whether negative interest rate can be considered as a Riba, literally interest rate, in Islamic finance is not settled yet. According to the classical text, the logic behind prohibition of interest rate, Riba, is actually inherent injustice; it may be to borrower or lender. There is no ruling or fatwa regarding negative interest rate. However, by following the analogy of injustice in Riba, we can argue that negative interest rate should be equated wtih Riba. One of the most controversial issues in current Islamic banking practice is that the return on Mudarabah investment deposits and interest rate on savings accounts are quite identical if not the same. Three key reasons for this paradox are briefly explained and number of measures has been recommended which might help delinking interest rate from profit rate.
    Keywords: negative interest rate, Riba, Islamic finance, mudarabah investment deposits
    JEL: E4 E5 P0 P00
    Date: 2016–04–01
  58. By: Ozan Eksi; Cuneyt Orman; Bedri Kamil Onur Tas
    Abstract: We investigate how the forecasting performance of the Federal Reserve Greenbooks has changed relative to commercial forecasters between 1974 and 2009. To this end, we analyze time-variation in the Greenbook coefficients in forecast encompassing regressions. Assuming that model coefficients change continuously, we estimate unobserved components models using Bayesian inference techniques. To verify that our results do not depend on the specific way change is modeled, we also allow the coefficients to change discretely rather than continuously and test for structural breaks using classical inference techniques. We find that the Greenbook forecasts have been consistently superior to the commercial forecasts at all horizons throughout our sample period. Although the forecasting performance gap has narrowed at more distant horizons after the early-to-mid 1980s, it remains significant.
    Keywords: Greenbook inflation forecasts, SPF inflation forecasts, Evaluating forecasts, Time-variation in coefficients
    JEL: C11 E52 E43
    Date: 2015
  59. By: Georgescu, George
    Abstract: Despite theoretical and methodological improvements by national accounts framework revisions, not without disputes and confrontations of views, the growing complexity of economic and social phenomena under globalization circumstances has led to increasing difficulties in the design, monitoring and implementation of specific policies depending on GDP indicator. The paper focuses on the analysis of the GDP relevance and limitations in its interpretation, including a retrospective view. Some inconsistencies as regards the metrics of GDP (illegal activities, unobserved economy, self-consumption in rural households, owner’s imputed rents) are highlighted. Because the GDP does not take into account the impact of important factors of progress (depletion of natural resources, environmental factors, urban concentration and rural depopulation etc.) and does not reflects neither the citizens wellbeing (starting from Easterlin Paradox), efforts to develop new statistical standards in order to complement/substitute GDP with other indicators and/or building composite indicators that integrates various aspects of quality of life have been made, but without meeting a general consensus at the global level.
    Keywords: System of National Accounts; GDP limitations; International Comparison Program; wellbeing; EU convergence.
    JEL: B15 B41 C82 E01 N10 O11
    Date: 2016–07–10
  60. By: Ellen McGrattan (University of Minnesota)
    Abstract: Because firms invest heavily in R&D, software, brands, and other intangible assets—at a rate close to that of tangible assets—changes in measured GDP, which does not include all intangible investments, understate the actual changes in total output. If changes in the labor input are more precisely measured, then it is possible to observe little change in measured total factor productivity coincidentally with large changes in hours and investment. This mismeasurement leaves business cycle modelers with large and unexplained labor wedges accounting for most of aggregate fluctuations. Intangible investments are introduced in a multi-sector general equilibrium model with income and cost shares matched to data from the U.S. input and output tables, which now include some intangible investments along with final goods and services. I use MLE methods and observations on sectoral business receipts and per capita hours to estimate processes for latent sectoral TFPs--that have common and idiosyncratic components—-and a time-varying labor wedge. I find that the model’s common TFP component accounts for most of the variation in the observed series, including the downturn of 2008–2009, while the time-varying labor wedge accounts for almost none. The correlation of the model’s common TFP component and measured U.S. TFP is roughly zero.
    Date: 2016
  61. By: Shapoval Alexander; Goncharenko Vasily
    Abstract: This paper examines the response of economies to shocks in demand. The analysis is performed by using a general equilibrium model with monopolisti ompetition in hi-tech sectors, perfect ompetition in a traditional sector, labor market frictions, and bargaining that determines wages. We posit that labor market frictions result in unemployment in the equilibrium. Under a positive shock in demand, new individuals become unemployed. If the elasticity of substitution between varieties of dierentiated goods is a decreasing/increasing function, then the intersector wage inequality enlarges/falls. In the first case, all individuals gain but those who lost their jobs.
    JEL: L11 D11 E2 J31
    Date: 2016–07–22
  62. By: Tugrul Gurgur; Zubeyir Kilinc
    Abstract: Both the empirical and theoretical literature examines the significance of ‘willingness to buy’ channel in household’s consumption decision. It suggests that the consumer confidence might carry valuable information to robustly predict consumption. It also emphasizes its power while explaining consumption particularly in times of high economic and political uncertainty. In this study we initially examine the drivers of the consumer confidence in a major developing economy, namely Turkey. We show that consumer prices, exchange rate, interest rates on consumer loans and unemployment rate are the major drivers of the confidence. We then find that consumers are asymmetric in their responses to the changes in these variables. In particular, our results show that the consumer confidence is more responsive to currency depreciation than currency appreciation and more responsive to slowdown in inflation than acceleration in inflation. Besides, the relative importance of macroeconomic and financial variables in shaping the consumer confidence is not stable as the latter gains more weight when financial volatility rises. Finally, we show that political uncertainty, such as elections have an important influence over the consumer confidence that goes beyond their impact on macroeconomic and financial variables.
    Keywords: Autoregressive Distributed Lag (ARDL) Model Consumer Confidence, Error Correction Model, Pesaran Bounds Testing, Structural Break Test and Turkey
    JEL: C22 C52 D12 E21
    Date: 2015
  63. By: Carlson, Mark A. (Bank for International Settlements and Board of Governors of the Federal Reserve System); Wheelock, David C. (Federal Reserve Bank of St. Louis)
    Abstract: The 1960s and 1970s witnessed rapid growth in the markets for new money market instruments, such as negotiable certificates of deposit (CDs) and Eurodollar deposits, as banks and investors sought ways around various regulations affecting funding markets. In this paper, we investigate the impacts of the deregulation and integration of the money markets. We find that the pricing and volume of negotiable CDs and Eurodollars issued were influenced by the availability of other short-term safe assets, especially Treasury bills. Banks appear to have issued these money market instruments as substitutes for other types of funding. The integration of money markets and ability of banks to raise funds using a greater variety of substitutable instruments has implications for monetary policy. We find that, when deregulation reduced money market segmentation, larger open market operations were required to produce a given change in the federal funds rate, but that the pass through of changes in the funds rate to other market rates was also greater.
    Keywords: money markets; deregulation; market integration; monetary policy implementation; Eurodollars; Regulation Q
    JEL: E50 G18 N22
    Date: 2016–06–01
  64. By: Pawel Gajewski (Department of Economics, Faculty of Economics and Sociology, University of Lodz, Lodz, Poland)
    Abstract: This paper aims at shedding some light on the sources of regional inflation in Poland. More specifically, it investigates the role of external, national and idiosyncratic shocks. In a two-step procedure, we estimate orthogonal components corresponding to each of these shocks, while performing variance decomposition to assess their relative importance in explaining inflation in individual regions. In the course of the paper we develop two ad hoc hypotheses. First, that regional inflation rates are largely driven by national shocks, while the impact of external shocks is smaller. Second, that shocks to inflation which are asymmetric between Poland and its external environment contribute to the cross-regional divergence of inflation rates in Poland. Empirical evidence supports both of these assertions. Indeed, we show that the importance of idiosyncratic shocks in the Polish regions is strikingly low. However, regional differences in inflation co-movements can be attributed to the diverse importance of global and national shocks. In auxiliary regressions we confirm that shocks which strongly and asymmetrically affect inflation in Poland and the EU, also contribute to crossregional inflation divergence in Poland. To the best of our knowledge this is the first attempt to investigate sources of regional inflation in a CEE country.
    Keywords: regional inflation, principal components, parallel analysis, regional economic dynamics
    JEL: E31 R11
    Date: 2016–06
  65. By: Mustafa Utku Ozmen
    Abstract: Measuring markups in the services sector is a difficult task. For the case of restaurants, although the sales price is observed, cost of the product served is unobserved. Here we employ an intuitive framework and focus specifically on markups on soft drinks. This is reasonable in two ways: First, there is no quality bias as we consider the relative price of canned soft drinks served at restaurants compared to those sold in supermarkets. Second, beverages are considered as an important source of profit for restaurants. We analyze the determinants of markups on soft drinks in restaurants in Turkey over the 2006-2014 period. Results suggest that current demand and cyclical conditions (net minimum wage, output gap), major cost items (food and energy prices, exchange rate) and economic uncertainty (measured as exchange rate volatility) significantly affect markups. This identification strategy enables the detection of relevant factors which may not be possible to identify otherwise.
    Keywords: Restaurant services, Markup, Minimum wage, Turkey
    JEL: C22 D22 E31 L11
    Date: 2016
  66. By: Thomas Winberry (University of Chicago); Joseph Vavra (University of Chicago)
    Abstract: The effects of monetary policy on the economy are shaped by two broad frictions: nominal frictions, such as price adjustment costs, determine the demand for output; and real frictions, such as capital adjustment costs, determine the supply of output. Although there are active literatures exploring each of these frictions in isolation, there is so far little work exploring their interaction. In this paper, we argue that ignoring these interactions is not innocuous. We show that in a quantitative model with endogenous state-dependent investment and pricing decisions, capital adjustment costs amplify price stickiness and thus the effects of monetary policy. However, the extent of these effects depends crucially on the size of the two key frictions at the micro level. We therefore estimate the model by combining confidential P.P.I. data on prices with Compustat data on investment, and use this estimated model to reassess the aggregate effects of monetary policy in models with realistic micro rigidities.
    Date: 2016
  67. By: Mislav Brkiæ (The Croatian National Bank, Croatia); Ana Šabiæ (The Croatian National Bank, Croatia)
    Abstract: A package of legislation aiming at enhancing the resilience of the EU economy to future financial crises entered into force in the European Union in December 2011. One of the most important elements of the new economic governance framework is the establishment of the Macroeconomic Imbalance Procedure (MIP). The MIP is created to complement the system of surveillance of Member States' economies because enhanced surveillance in the existing framework existed only in the area of fiscal indicators, in accordance with the provisions of the Stability and Growth Pact. Since there was no surveillance mechanism for other variables, Member States that recorded other types of macroeconomic imbalances were not obliged to conduct any corrective measures with regard to the identified imbalances. The establishment of the MIP should thus improve the resilience of the EU economy since its consistent implementation would decrease the probability of unwanted events of the kind that occurred after the last financial crisis. A total of 11 indicators are monitored within the MIP and they assist in identifying macroeconomic imbalances. In addition to indicators of external vulnerabilities and internal imbalances, the MIP encompasses also indicators that can imply the weakening of the competitiveness of an economy. When an excess over the threshold for a certain indicator is identified for an individual Member State, the European Commission initiates an in-depth review of its economy in order to identify possible macroeconomic imbalances, and if there are some, assesses whether they are excessive or not. Starting with the MIP for 2014 Croatia is also covered by this monitoring of macroeconomic imbalances in the EU, so this paper serves to further assess Croatia's performance with regard to individual indicators, and it discusses the possible consequences of participation in such a procedure for the Croatian economy.
    Keywords: Macroeconomic Imbalance Procedure, macroeconomic imbalances, economic governance reform, Croatia, European Union
    JEL: E61 F55
    Date: 2014–10
  68. By: Ines CHAIEB (University of Zurich and Swiss Finance Institute); Vihang ERRUNZA (McGill University); Rajna GIBSON BRANDON (University of Geneva and Swiss Finance Institute)
    Abstract: We examine time varying integration of developed (DM) and emerging (EM) market government bonds. Although we find an upward trend for most countries and maturity bands, we do observe reversals and negative trends among both DMs and EMs and for some maturities during the financial crisis. We examine potential factors that could explain the integration of the long vs. the short maturity bond segments and show that enhanced institutional quality, higher credit quality and better future investment opportunities would jointly contribute to a higher integration of the long vs. the short maturity bonds by about 15%.
    Keywords: market integration, term structure of integration, sovereign bond markets, political risk, developed markets, emerging markets, sovereign risk
    JEL: G15 G12 E44 F31
  69. By: Binnur Balkan Konuk; Semih Tumen
    Abstract: We exploit the regional variation in the unexpected (or forced) inflow of Syrian refugees as a natural experiment to estimate the impact of immigration on consumer prices in Turkey. Using a difference-in-differences strategy and a comprehensive data set on the regional prices of CPI items, we find that general level of consumer prices has declined by approximately 2.5 percent due to immigration. Prices of goods and services have declined in similar magnitudes. We highlight that the channel through which the price declines take place is the informal labor market. Syrian refugees supply inexpensive informal labor and, thus, substitute the informal native workers especially in informal labor intensive sectors. We document that prices in these sectors have fallen by around 4 percent, while the prices in the formal labor intensive sectors have almost remained unchanged. Increase in the supply of informal immigrant workers generates labor cost advantages and keeps prices lower in the informal labor intensive sectors.
    Keywords: Immigration, Consumer prices, Syrian refugees, Natural experiment, Informal employment
    JEL: C21 E31 J46 J61
    Date: 2016
  70. By: Pashchenko, Svetlana; Porapakkarm, Ponpoje
    Abstract: A major source of insurance coverage for non-elderly adults in the US is the employer-based health insurance market. Every participant in this market receives a tax subsidy because premiums are excluded from taxable income. However, people have different incentives to participate in the employer-based pool - since premiums are independent of individual risk, high-risk individuals receive implicit cross-subsidies from low-risk individuals. In this paper, we explore several ways to reform the tax subsidy by taking this implicit cross- subsidization into account. Using a general equilibrium heterogeneous agents model, we find that even though the complete elimination of the tax subsidy leads to the unraveling of the employer-based pool, there is still room for substantial savings by targeting the tax subsidy. More specifically, the same level of risk-sharing in the employer-based market can be achieved at one- third of the current costs if i) the tax subsidy is targeted only towards low- risk individuals who have weak incentives to participate in the pool, and ii) employer-based insurance premiums become age-adjusted. To improve the welfare outcome of this reform, the modified tax subsidy should also be targeted to low-income individuals.
    Keywords: health insurance, tax subsidies, tax deductions, general equilibrium, life-cycle, health reform
    JEL: D52 D91 E2 E21 E65 H20 I10
    Date: 2013–05–08
  71. By: Yavuz Arslan; Gazi Kabas; Ahmet Ali Taskin
    Abstract: We examine the effect of loan-to-value restriction on automobile loans using primary market car sales in Turkey. We identify the effect of the policy using the specific nature of the regulation that imposes higher downpayment restriction for automobile loans with higher prices. We observe that the drop in automobile sales growth is higher for more expensive cars net of other controlled factors.
    Keywords: Macroprudential policy, Loan-to-value policy, Automobile loans, Car sales
    JEL: G21 G28 E44
    Date: 2015
  72. By: Alex Clymo (University of Amsterdam, the Netherlands); Andrea Lanteri (Duke University, United States)
    Abstract: We consider models where the Ramsey-optimal fiscal policy under Full Commitment (FC) is time-inconsistent and define a new notion of optimal policy, Limited-Time Commitment (LTC). Successive one-period lived governments can commit to future plans over a finite horizon. We provide a sufficient condition on the mapping from finite policy sequences to allocations, such that LTC and FC lead to the same outcomes. We then show that this condition is verified in several existing models, allowing FC Ramsey plans to be supported with a finite commitment horizon (often a single period). We relate the required degree of commitment to the economic environment: in economies without capital, the minimum degree of commitment required is given by the government debt maturity; in economies with capital and government balanced-budget constraints, the required commitment is given by the horizon over which the budget has to be balanced. Finally, we solve numerically for the LTC equilibrium of an economy where the equivalence result fails and show that a single year of commitment to capital taxes provides substantial welfare gains relative to the No-Commitment time-consistent policy.
    Keywords: Optimal fiscal policy; time-inconsistency; limited commitment
    JEL: E61 E62 H21 H63
    Date: 2016–07–26
  73. By: Philippe BACCHETTA (University of Lausanne and Swiss Finance Institute); Ouarda MERROUCHE (University of Lausanne and CEPR)
    Abstract: Despite international financial disintegration, we document a dramatic increase in dollar borrowing among leveraged Eurozone corporates during the Great Financial Crisis. Using loan-level data, we trace this increase to the twin crisis in the credit market and in funding markets. The reduction in the supply of credit by Eurozone banks caused riskier borrowers to shift to foreign banks, in particular US banks. The coincident rise in the relative cost of euro wholesale funding and the disruptions in the FX swap market caused a rise in dollar borrowing from US banks, especially for firms in export-oriented sectors. Although global bank lending is often reported to amplify the international credit cycle, we show that foreign banking acted as a shock absorber that weathered the real consequences of the credit crunch in Europe.
    Keywords: Money market, swaps, credit crunch, corporate debt, foreign banks
    JEL: G21 G30 E44
  74. By: Luigi Iovino (Bocconi University); Jennifer La'O (Columbia University); George-Marios Angeletos (M.I.T.)
    Abstract: This paper studies how the endogeneity of information affects the efficiency of the business cycle and the nature of optimal policy. The business cycle is found to be excessively noisy. Optimal taxes and optimal monetary policy are shown to be countercyclical. Such policies incentivize agents to make their choices more sensitive to their idiosyncratic sources of information, which in turn improves the informativeness of market signals and macro statistics.
    Date: 2016
  75. By: Josip Tica (Faculty of Economics and Business, University of Zagreb); Tomislav Globan (Faculty of Economics and Business, University of Zagreb); Vladimir Arčabić (Faculty of Economics and Business, University of Zagreb)
    Abstract: In this paper we use an innovative methodological approach to investigate how the classic Mundell-Flemming trilemma monetary policy mix is affected by global financial integration ("dilemma" hypothesis), accumulation of international reserves ("quadrilemma" hypothesis) and foreign exchange rate exposure of developing, emerging and transition countries. In order to compare competing policy mix hypotheses within the single methodological framework we use two threshold variables simultaneously in a dynamic panel threshold model. Thresholds values are endogenously estimated using a grid search. Exchange rate stability index is used as a primary threshold variable and international reserves, financial openness and foreign currency exposure are rotated as secondary threshold variables. Results imply that there are significant differences between fixed and flexible exchange rate regimes even at the high levels of financial integration and that transmission of international business cycle might be a consequence of an exchange rate regime choice (due to foreign currency exposure) of developing and emerging countries and not a consequence of inability to implement counter-cyclical monetary policy.
    Keywords: Mundell-Fleming, Dillemma vs. trilemma, Foreign currency exposure, Qaudrilemma, Panel threshold model
    JEL: F15 F31 F41 E42
    Date: 2016–07–01
  76. By: Aart Gerritsen
    Keywords: Economic costs of rationing, economic costs of taxation
    JEL: H21 J21 E24
    Date: 2016–03
  77. By: Philippon, Thomas
    Abstract: This paper assesses the potential impact of FinTech on the finance industry. I document first that financial services remain surprisingly expensive, which explains the emergence of new entrants. I then argue that the current regulatory approach is subject to significant political economy and coordination costs, and therefore unlikely to deliver much structural change. FinTech can improve both financial stability and access to services, but this requires significant changes in the focus of regulations.
    JEL: E2 G2 N2
    Date: 2016–07
  78. By: Aart Gerritsen
    Abstract: The social welfare implications of income tax policy are shown to critically depend on whether or not labor markets are rationed – i.e., on the existence of involuntary unemployment. With rationed labor markets, raising taxes on the employed and transfers towards the unemployed might improve both equity and efficiency. It improves equity by redistributing income from the employed to the unemployed; it improves efficiency as it encourages people with a small utility surplus of employment to exit the labor market, leaving their jobs for people with a higher utility surplus. I derive conditions under which this result continues to hold when only part of the labor market is rationed. I also show that conventional tax incidence results break down in rationed labor markets.
    Keywords: Involuntary unemployment, inefficient rationing, optimal taxation
    JEL: H21 J21 E24
    Date: 2016–03
  79. By: Mathieu Taschereau-Dumouchel (University of Pennsylvania Wharton School); Edouard Schaal (New York University)
    Abstract: We introduce a standard aggregate demand externality into the Mortensen-Pissarides benchmark model of equilibrium unemployment. Because firms worry about the demand for their products, an increase in unemployment lowers the incentives to post vacancies which further increase unemployment. This positive feedback creates a coordination problem among firms and naturally leads to multiple equilibria. To handle this indeterminacy, we show that the economy features a unique equilibrium for a small departure from common knowledge. The unique equilibrium exhibits interesting dynamic properties. In particular, the influence of the mechanism on the economy grows with the size and duration of shocks, such that multiple stationary points in the dynamics of unemployment can exist. We calibrate the model to the U.S. economy and show that the aggregate demand channel generates substantial additional volatility and persistence in labor market variables. In particular, the model generates deep, long-lasting recessions. We document features of the U.S. dataWe should do the VAR exercise we did in uncertainty traps. that are consistent with the unusual dynamic properties of the model.
    Date: 2016
  80. By: Mario V. Wuthrich (ETH Zurich and Swiss Finance Institute)
    Abstract: Popular yield curve models include affine term structure models. These models are usually based on a fixed set of parameters which is calibrated to the actual financial market conditions. Under changing market conditions also parametrization changes. We discuss how parameters need to be updated with changing market conditions such that the re-calibration meets the premise of being free of arbitrage. We demonstrate this (consistent) re-calibration with the Hull-White extended discrete time Vasicek model at hand, but this concept applies to a wide range of related term structure models.
    Keywords: yield curve modeling, term structure model, affine term structure model, interest rate model, spot rate model, Vasicek model, Hull-White extension, Heath-Jarrow-Morton framework, HJM, calibration, consistent re-calibration, CRC.
    JEL: E43 C51
  81. By: Noh-Sun Kwark (Department of Economics, Sogang University, Seoul); Eunseong Ma (Department of Economics, Texas A&M University, College Station)
    Abstract: Business cycles affect income shares of low- and high-income groups in the U.S. econ- omy. Income shares of the bottom three income quintiles are procyclical; while those of the other quintiles are countercyclical. However, the very top ?ve percent income group is unaffected by the business cycle. This study attempts to explain the cyclical behavior of the income distribution over the business cycle, focusing on the top ?ve percent in- come earners?share, by incorporating an entrepreneurial choice to a heterogeneous agent model with indivisible labor. Two main results emerge. First, the model economy success- fully reproduces the acyclical behavior of the income share of the top ?ve percent income earners. Economic expansions allow top income earners to have more entrepreneurial op- portunities, which o¢´set a decline in the income share of the top income earners from the workers?side. Second, the model economy replicates reasonably well the income transition matrices over occupational choices obtained from the U.S. data, which documents that entrepreneurial activities are shown to be related to upward movement to higher income groups.
    Keywords: Income distribution dynamics, Heterogeneity, Entrepreneurs
    Date: 2016–04
  82. By: Mustafa Bulut; Hatice Gokce Karasoy
    Abstract: [TR] Bu calisma, para politikasina iliskin belirsizligin arttigi ya da azaldigi donemlerde politika kararlarinin finansal piyasalara aktarimini incelemektedir. Turkiye icin Haziran 2010-Ocak 2015 donemi, vaka analizi yontemiyle incelenmis; para politikasina iliskin belirsizlik TCMB Beklenti Anketi katilimcilarinin beklenti uyusmazligi ile olculmustur. Ampirik bulgular para politikasinin aktarim mekanizmasinin politikaya iliskin belirsizlik ile yakindan iliskili olabilecegini gostermektedir. Ornegin, surpriz politika faizi artisi dusuk belirsizlik ortaminda Turk lirasinin ABD dolari karsisinda deger kazanmasini saglarken yuksek belirsizlik ortaminda deger kaybetmesine sebep olabilmektedir. Ayrica temel politika araci olan bir hafta vadeli repo faizinde surpriz bir artis, tüm belirsizlik duzeyleri icin getiri egrisini yataylastirmaktadir. Ote yandan getiri egrisindeki yataylasma dusuk belirsizlik ortaminda daha belirgin olmakta ve uzun vadeli faizler pozitif para politikasi surprizine yaygin kaninin aksine dusus yonunde tepki vermektedir. Para politikasina iliskin belirsizligin dusuk oldugu donemlerde, pozitif para politikasi surprizinin enflasyon beklentileri araciligiyla uzun vadeli faizleri etkiledigi dusunulmektedir. [EN] This study investigates the transmission of monetary policy decisions to financial markets under varying levels of monetary policy uncertainty. We conducted an event study for the period June 2010-January 2015. The uncertainty regarding to monetary policy is measured by the disagreement of expectations in the CBRT Survey of Expectations. Empirical findings indicate that the effectiveness of monetary transmission mechanism is highly affected by policy uncertainty. For example, a positive policy surprise leads to an appreciation of Turkish lira against US dollar under low levels of uncertainty, whereas Turkish lira depreciates when uncertainty is high. Furthermore, an increase in the main policy rate flattens the yield curve for all uncertainty levels. On the other hand, this pattern is more pronounced while uncertainty is low and contrary to expectations, long term rates decreases after a positive policy surprise. During the periods when uncertainty regarding monetary policy is low, positive policy surprise decreases long term rates via anchoring inflation expectations.
    Date: 2016
  83. By: Tomislav Galac (The Croatian National Bank, Croatia)
    Abstract: The conducted research shows linear relationships between individual corporation characteristics before the outbreak of the global financial and economic crisis in 2008 and corporation growth measured by the number of employed persons during the economic crisis in the period 2009 – 2013. The most important conclusion is that the characteristics associated with faster corporation growth in the pre-crisis period (2003 – 2007) were mainly the same as those associated with faster growth during the crisis, from 2009 – 2013, but only if corporation management during crisis is not factored in. The second most important conclusion is that corporation management during the crisis is relevant for growth. However, even when corporation management during the crisis is factored in, it can be concluded that smaller corporations, state-owned enterprises, corporations that engaged at least to some extent in exporting and corporations that relied less on internal funding, operated on a more efficient scale and were less labourintensive before the crisis, grew faster during the crisis. The relationships found to exist at this stage of research between growth and other corporation characteristics are only partial correlations in the context of assumed linear models.
    Keywords: global crisis, Croatia, corporation growth
    JEL: D22 E32 J23 L25
    Date: 2015–07
  84. By: Ozgur Ozel; Mustafa Utku Ozmen; Erdal Yilmaz
    Abstract: Global financial markets have experienced a liquidity glut since the beginning of the new millennium especially in the aftermath of the 2008-2009 global financial crisis. In this era, the flow of foreign funds to emerging markets have elevated, somewhat more to Turkey. This flow increased foreign investor holdings in emerging markets. This study puts forward the increased share of foreign investors as a potential stabilizer for local financial markets, because domestic investors’ weak absorption capacity may create liquidity constraints acting as an obstacle for foreign outflows. In order to pin down the effect of foreign investor dominance, we present empirical evidence from a detailed stock-ownership data. The detailed micro level data not only helps us unveil the behavior of foreign investors, but also helps us to discuss macroeconomic implications of their micro level decisions. In addition, given that the foreigner’s recent share in Turkish equity market is considerably high both from an historical viewpoint and from a cross section comparison with other emerging markets, the conclusions we reach regarding the market stabilization effect of foreigner share are unique. Overall, in an emerging market with high foreign ownership and low domestic absorption capacity at play, capital outflows might be staggered, rather than sudden.
    Keywords: Capital outflows, Staggered adjustment, Liquidity constraint, Absorption capacity, Foreigner effect
    JEL: C58 E44 F32 G11
    Date: 2015
  85. By: Belke, Ansgar; Dreger, Christian; Dubova, Irina
    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.
    Abstract: Obwohl sich große Schwellenländern recht schnell von dem Wachstumsschock in der Finanzkrise erholten, sind die Zuwachsraten des Bruttoinlandsprodukts in den letzten Jahren rückläufig, trotz der mittlerweile einsetzenden wirtschaftlichen Erholung in den Industrieländern. Die zunehmende Divergenz der Konjunkturzyklen ist eng mit der wirtschaftlichen Transformation in China verbunden. Zu Zeiten der Krise hat dortige Konjunkturpaket nicht nur einen Rückgang des Wachstums der Produktion in China verhindert, sondern hat für ressourcenreiche Länder einen Puffer bereitgestellt, weil die Rohstoffnachfrage aus China hoch geblieben ist. Mit dem Wechsel hin zu einem konsumorientierten Wachstumsmodell in China haben sich die Bedingungen für andere Länder geändert. Diese Interpretation stützt sich auf Bayesianische VAR-Modelle, die für die BRIC Staaten (Brasilien, Russland, Indien und China) spezifiziert werden. Die Ergebnisse zeigen zunächst, dass die Entwicklung an den internationalen Märkten wesentlich das Wachstum in den untersuchten Ländern beeinflusst. Im Gegensatz zu den anderen Ländern spielt jedoch China eine entscheidende Rolle für die Entwicklung von Welthandel und Ölpreisen. Die Änderung der chinesischen Wachstumsstrategie verschärft also den Druck auf andere Schwellenländer, strukturelle Reformen für ein nachhaltiges Wachstum einzuleiten.
    Keywords: business cycle divergence,Chinese transformation,Bayesian VARs
    JEL: F44 E32 C32
    Date: 2016
  86. By: Semyon MALAMUD (Ecole Polytechnique Fédérale de Lausanne and Swiss Finance Institute)
    Abstract: Carroll and Kimball (1996) show that the consumption function for an agent with time-separable, isoelastic preferences is concave in the presence of income uncertainty. In this paper I show that concavity breaks down if we abandon time-separability. Namely, if an agent maximizing an isoelastic recursive utility has preferences for early resolution of uncertainty, there always exists a distribution of income risk such that consumption function is not concave in wealth. I also derive sufficient conditions guaranteeing that the consumption function is concave if the agent has preferences for late resolution of uncertainty.
    Keywords: consumption, saving, marginal propensity to consume, recursive preferences, resolution of uncertainty
    JEL: D14 D91 E21
  87. By: Patrice Ollivaud; Pierre-Alain Pionnier; Elena Rusticelli; Cyrille Schwellnus; Seung-Hee Koh
    Abstract: This paper compares the short-term forecasting performance of state-of-the-art large-scale dynamic factor models (DFMs) and the small-scale bridge models routinely used at the OECD. Pseudo-real time out-of-sample forecasts for France, Germany, Italy, Japan, United Kingdom and the United States during and after the Great Recession (2008-2014) suggest that large-scale DFMs are not systematically more accurate than small-scale bridge models, especially at short forecast horizons. Moreover, DFM parameters appear to be highly unstable during the Great Recession (2008-2009), making forecast revisions between successive vintages difficult to explain as revisions cannot be fully attributed to news on specific groups of indicators. The implication for OECD forecasting practice is that there would be no gain from switching from the current small-scale bridge models to large-scale DFMs. Prévoir le PIB pendant et après la Grande Récession : Une comparaison des modèles d'étalonnage de petite taille et des modèles à facteurs dynamiques de grande taille Cet article compare les performances en prévision à court terme de modèles à facteurs dynamiques (DFMs) de grande taille standard dans la littérature à celles des modèles d’étalonnage de petite taille couramment utilisés à l’OCDE pour les exercices de prévision. Des prévisions hors échantillon en pseudo temps réel pour la France, l’Allemagne, l’Italie, le Japon le Royaume-Uni et les États-Unis pendant et après la Grande Récession (2008-2014) montrent que les DFMs de grande taille ne sont pas plus performants, en moyenne, que les modèles d’étalonnage de petite taille, notamment aux horizons les plus courts. De plus, les paramètres des DFMs sont très instables pendant la Grande Récession, ce qui rend les révisions des prévisions d’un exercice à l’autre plus difficiles à expliquer et à relier à différents groupes d’indicateurs. En pratique, nous en concluons que l’OCDE n’aurait pas intérêt, pour ses exercices de prévision, à abandonner les modèles d’étalonnage de petite taille pour les DFMs de grande taille.
    Keywords: dynamic factor models, bridge models, big data, nowcasting, prévision en temps réel, modèle d’étalonnage, modèles à facteurs dynamiques, mégadonnées
    JEL: C53 E37
    Date: 2016–07–26
  88. By: Steven C. BOURASSA (Florida Atlantic University); Martin HOESLI (University of Geneva, GFRI, Swiss Finance Institute, University of Aberdeen Business School, and Kedge Business School); Elias OIKARINEN (University of Turku)
    Abstract: Using data for six metropolitan housing markets in three countries, this paper provides a comparison of methods used to measure house price bubbles. We use an asset pricing approach to identify bubble periods retrospectively and then compare those results with results produced by six other methods. We also apply the various methods recursively to assess their ability to identify bubbles as they form. In view of the complexity of the asset pricing approach, we conclude that a simple price-rent ratio measure is a reliable method both ex post and in real time. Our results have important policy implications because a reliable signal that a bubble is forming could be used to avoid further house price increases.
    Keywords: Housing; Bubble; Overvaluation; Asset Pricing; Price-Rent Ratio; Policy Measures
    JEL: R31 G12 E58
  89. By: Álvaro Pina
    Abstract: Across the euro area, the ability of public finances to support equitable growth has tended to deteriorate. Concerns about high and rising public debt, together with market pressure in some cases, led to sharp fiscal consolidation in 2011-13, against the backdrop of a weak economic situation at the time, which is considered to have made the recession deeper and longer. Consolidation has slowed down afterwards, but countries with fiscal space have made limited use of the leeway allowed under EU fiscal rules to support euro area aggregate demand. The expenditure composition has generally become less growth-friendly, with large cuts in public investment. On the revenue side, already high taxes on labour have tended to increase further. Structural reforms with direct positive implications for the composition or efficiency of public finances have stalled. While most policy levers to improve public finances remain at the country level, European and national policies can be mutually reinforcing in fiscal governance and public investment. To achieve a euro area fiscal stance that fosters the recovery, countries with fiscal space under the Stability and Growth Pact rules should use budgetary support to raise growth, and existing incentives and flexibility should be taken advantage of to pursue reforms of tax and spending policies. At the national level, it is essential to further upgrade budgetary frameworks, including through the adoption of expenditure rules and regular performance of spending reviews. To promote capital formation and make it more effective, EU budget resources for investment should be deployed in a way to crowd in national public funds and private financing, and foster greater investment productivity. At the national level, better coordination of investment across levels of government and upgraded administrative capacity would increase investment efficiency. This Working Paper relates to the 2016 OECD Economic Survey of the euro area ( Rendre les finances publiques plus favorables à la croissance et à l'équité dans la zone euro Dans la zone euro, la capacité des finances publiques à soutenir la croissance équitable s’est globalement détériorée. Face aux inquiétudes suscitées par le niveau élevé et croissant de l’endettement public, et parfois sous la pression exercée par les marchés, les autorités des pays ont procédé à un effort d’assainissement budgétaire massif en 2011-13 dans un contexte de conjoncture économique défavorable, ce qui est généralement considéré comme ayant contribué à intensifier et à prolonger la récession. Le processus d’assainissement s’est ensuite ralenti, mais les pays disposant d’une marge de manoeuvre budgétaire ont peu utilisé la souplesse autorisée par les règles budgétaires de l’UE pour stimuler la demande globale dans la zone euro. De manière générale, la composition des dépenses est devenue moins favorable à la croissance du fait de coupes drastiques dans les investissements publics. Sur le plan des recettes, la fiscalité du travail, déjà élevée, s’est encore alourdie. Les réformes structurelles qui peuvent avoir des retombées positives directes sur la composition ou l’efficience des finances publiques ont marqué le pas. Si la plupart des leviers d’action permettant d’améliorer les finances publiques restent situés au niveau des pays, les politiques européennes et nationales peuvent se renforcer mutuellement dans les domaines de la gouvernance budgétaire et de l’investissement public. Pour faire en sorte que l’orientation budgétaire de l’ensemble de la zone euro contribue à alimenter la reprise, les pays qui disposent d’une marge de manoeuvre budgétaire au sens des règles du Pacte de stabilité et de croissance devraient recourir à l’appui budgétaire pour stimuler la croissance, et il faudra mettre à profit les dispositifs d’incitation existants et la souplesse prévue par les règles en vigueur pour poursuivre la réforme des politiques fiscales et de dépenses. Au niveau national, il est essentiel de poursuivre l’amélioration des cadres budgétaires, y compris en adoptant des règles de dépenses et en procédant à des examens réguliers des dépenses. Pour promouvoir la formation de capital et rendre celui-ci plus efficace, les ressources budgétaires de l’UE disponibles pour l’investissement devraient être déployées de façon à créer un effet d’attraction sur les fonds publics et les financements privés nationaux et à rendre l’investissement plus productif. À l’échelon national, des investissements mieux coordonnés entre les différents niveaux d’administration et des capacités administratives renforcées conféreraient aux investissements une efficience accrue. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de la Zone euro 2016 ( conomique-union-europeenne-et-zone-euro. htm)
    Keywords: stability and growth pact, euro area, public investment, fiscal councils, fiscal consolidation, assainissement budgétaire, organismes budgétaires indépendants, zone Euro, pacte de stabilité et de croissance, investissement public
    JEL: E62 F45 H20 H50 H54 H61
    Date: 2016–07–26
  90. By: Suen, Richard M. H.
    Abstract: This paper analyses the optimal saving behaviour of a risk-averse and prudent consumer who faces two sources of income risk: risk as described by a given probability distribution and risk in the distribution itself. The latter is captured by the randomness in the parameters underlying the probability distribution and is referred to as distributional risk. Stochastic volatility, which generally refers to the randomness in the variance, can be viewed as a form of distributional risk. Necessary and sufficient conditions by which an increase in distributional risk will induce the consumer to save more are derived under two specifications of preferences: expected utility preferences and Selden/Kreps-Porteus preferences. The connection (or lack of) between these conditions and stochastic volatility is addressed. The additional conditions under which a prudent consumer will save more under greater volatility risk are identified.
    Keywords: Stochastic volatility, stochastic convexity, precautionary saving.
    JEL: D81 D91 E21
    Date: 2016–07–19
  91. By: Damir Filipović (Ecole Polytechnique Fédérale de Lausanne; Ecole Polytechnique Fédérale de Lausanne - Swiss Finance Institute); Sander Willems (Ecole Polytechnique Fédérale de Lausanne; Ecole Polytechnique Fédérale de Lausanne - Swiss Finance Institute)
    Abstract: We introduce a novel method to estimate the discount curve from market quotes based on the Moore-Penrose pseudoinverse such that 1) the market quotes are exactly replicated, 2) the curve has maximal smoothness, 3) no ad hoc interpolation is needed, and 4) no numerical root-finding algorithms are required. We provide a full theoretical framework as well as practical applications for both single-curve and multi-curve estimation.
    Keywords: Bootstrap, Discount Curve, Forward Curve, Splines, Term Structure Estimation
    JEL: C61 E43 G12
  92. By: Arvind KRISHNAMURTHY (Stanford University and National Bureau of Economic Research); Annette VISSING-JORGENSEN (National Bureau of Economic Research, University of California, Berkeley, and Center for Economic Policy Research)
    Abstract: We present a theory in which the key driver of short-term debt issued by the financial sector is the portfolio demand for safe and liquid assets by the nonfinancial sector. This demand drives a premium on safe and liquid assets that the financial sector exploits by owning risky and illiquid assets and writing safe and liquid claims against them. The central prediction of the theory is that safe and liquid government debt should crowd out financial sector lending financed by short-term debt. We verify this prediction with US data from 1875 to 2014. We take a series of approaches to rule out standard crowding out via real interest rates and to address potential endogeneity concerns.
    Keywords: Treasury Supply, Monetary Economics, Financial stability, Banking
    JEL: G12 G2 E4
  93. By: Julian Donaubauer; Christian Dreger
    Abstract: China’s government is promoting the shift towards a consumption-based economy since a few years. The explicit goal to significantly raise the percentage of wages in the national household income is integral part of the 12th Five-Year Plan (2011-15). The changes in the economic strategy are likely to affect the attractiveness of the country to foreign investors. In this paper, we raise the hypothesis that soaring wages negatively affect FDI inflows to China and alter the distribution of FDI over Chinese provinces. In addition, low-wage countries in the geographical surrounding might benefit from the changed direction of FDI inflows. By performing panel models with spatial effects for both Chinese provinces and developing ASEAN countries, regional dependencies are explicitly addressed. We provide strong and robust evidence that the wage increases change the distribution of FDI within China. In addition, we show that the changes in China’s economic strategy improve the chances of its low-income neighbours to attract FDI.
    Keywords: Foreign direct investment, Chinese economic transformation, spatial correlation
    JEL: F15 F21 F63 E22
    Date: 2016
  94. By: Anthony Diercks (Federal Reserve Board)
    Abstract: In this study I examine the welfare implications of monetary policy by constructing a novel production-based asset pricing New Keynesian model. I find that the Ramsey optimal monetary policy yields an inflation rate above 3.5% and inflation volatility close to 1.5%. The same model calibrated to a counterfactually low equity premium implies an optimal inflation rate close to zero and inflation volatility less than 10 basis points, consistent with much of the existing literature. Relatively higher optimal inflation is due to the greater welfare costs of recessions associated with matching the equity premium. The standard optimal policy that focuses on stabilizing inflation tends to amplify long-run risk. Furthermore, the interest rate rule that comes closest to matching the dynamics of the optimal Ramsey policy puts a sizable weight on capital growth along with the price of capital, as it emphasizes reducing long-run risk.
    Date: 2016
  95. By: Pesheva, Milena; Vasilev, Aleksandar
    Abstract: This paper estimates the contribution of Foreign Direct Investment (FDI) to the Total Factor Productivity (TFP) of Bulgaria for the period 2004-2013. Since TFP captures the joint efficiency of capital and labor, it is likely to be influenced by investments from abroad. As predicted by theory, a positive relationship between TFP and FDI is documented. The effect of ignoring the implications of this model on the economy is explored through simulations and it is proven that this action leads to a distorted view of the growth path of the economy. The standard Ramsey (optimal) growth model, augmented with the FDI channel is used to compare the speed of convergence to an identical setup without FDI. The results of the study can serve as justification for introduction of policies and development of governmental strategies for attracting FDI inflows.
    Keywords: TFP,FDI
    JEL: E13 E22
    Date: 2016
  96. By: Diego Ardila (ETH Zurich); Didier Sornette (Swiss Finance Institute; ETH Zürich - Department of Management, Technology, and Economics (D-MTEC))
    Abstract: We propose to date and analyze the financial cycle using the Maximum Overlap Discrete Wavelet Transform (MODWT). Our presentation points out limitations of the methods derived from the classical business cycle literature, while stressing their connection with wavelet analysis. The fundamental time-frequency uncertainty principle imposes replacing point estimates of turning points by interval estimates, which are themselves function of the scale of the analysis. We use financial time series from 19 OECD countries to illustrate the applicability of the tool.
    Keywords: Financial cycle, wavelet transform, multi-scale analysis, BBQ algorithm, turning points, interval estimates
    JEL: C40 E30
  97. By: Mahmut Gunay
    Abstract: In this paper we backcast Turkish GDP growth with bridge equations. In the backcasting models, we consider indicators from production, international trade, consumer and firm surveys, employment, inflation and real exchange rate. We use a systematic search process for finding the combination of variables in the bridge equations that make the least backcast error in the period under investigation. We find that using information from different blocks of data in a bridge equation improves backcasting performance. Our results points out to the importance of using timeliness advantage of soft indicators, such as PMI, effectively. Similar to other studies in the literature, average of backcasts of models makes less backcast error than individual models.
    Keywords: GDP Forecasting, Bridge Equations, Forecast Combination
    JEL: C22 E37
    Date: 2015
  98. By: Yasin Kursat Onder
    Abstract: No, at least for a rich parameter space. A common view within the class of sovereign default models is they are subject to multiple equilibria. This paper quantitatively analyzes such claims by using the model and the extensions of Eaton and Gersovitz (1981); a benchmark sovereign default model for quantitative investigation of endogenous default risks. It is shown that within the confines of a rich parameter space the issue of multiplicity never arises in the model simulations when the government debt has one-period or long-term maturity. This paper also shows that inclusion of renegotiation process for endogenous debt recovery to these models as well as inflation and non-defaultable debt along with non-state contingent defaultable debt do not generate multiplicity. This paper sharpens our understanding of such models and presents that the quantitative implications of the literature following these models are not byproduct of bad equilibrium selection.
    Keywords: Sovereign default, Multiple equilibria
    JEL: E58 D71 D78
    Date: 2016
  99. By: Nlemfu Mukoko, Jean Blaise
    Abstract: This work examines the impact of social investments and poverty in the D.R.Congo. The general equilibrium approach was used. To this end, a recursive dynamic computable general equilibrium model was built and calibrated based on the 2013 Social Accounting Matrix. Three scenarios were considered in terms of simulations: in the first, an increase in investment expenditure in the education sector has been envisaged; in the second, the corresponding increase in the health sector has been considered and the last scenario combines the two aforementioned. The results show the extent of the implications of such investments on the output and poverty. They reveal also transmission channels by which stakeholders are likely to be affected, while emphasizing the order of magnitude of impacts. The study concludes with a contribution.
    Keywords: Social Accounting Matrix, Computable General Equilibrium Model
    JEL: C82 E10 E16
    Date: 2016–07
  100. By: Serife Genc Ileri
    Abstract: This paper uses a quantitative general equilibrium model to analyze the impacts of selective immigration policy targeting skilled immigrants on the college attainment rate, earnings inequality and welfare of natives. 1981-2008 period is analyzed in Canada, which is a country with a unique immigration policy explicitly targeting highly educated individuals. The results from the quantitative analysis reveal that the increase in the share of highly skilled immigrants generates a 7 percentage points lower college attainment rate among natives. The size and compositional changes in the immigrant population together lead to a 2.15 percentage points higher growth rate of college premium during this period. This increase is mainly driven by the rise in the relative size of the foreign-born labor force. An analysis of the long-run compensating differentials reveals that immigration generates a loss that corresponds to 3.59 to 4.45 percent permanent reduction in the consumption of natives. The increase in the relative share of immigrants is the main reason for this welfare loss. On the other hand, the compositional change towards college graduates benefits natives at the bottom and middle of the ability distribution.
    Keywords: International Migration, Aggregate Factor Income Distribution, Human capital, Wage differentials by Skill
    JEL: F22 E25 J24 J31
    Date: 2015
  101. By: Andrea Morone; Simone Nuzzo
    Abstract: We investigate traders’ behaviour in an experimental asset market where uninformed agents cannot be sure about the presence of insiders. In this framework we compare two trading institutions: the continuous double auction and the call market. The purpose of this comparison is to test which of the two trading mechanisms performs better in promoting a convergence towards the efficient equilibrium price. In a framework where the presence of insiders is neither certain nor common knowledge, inspired by Plott and Sunder (1982) and Camerer and Weigelt (1991), we first test whether a discrete time mechanism of trading, like the call market, might be able to prevent the occurrence of information mirages and promote a greater level of efficiency when no inside information is in the market. Second, we also compare the efficiency of the two trading institutions during periods when insiders are present in the market.
    Keywords: Experimental Markets, Market Efficiency, Information Mirages, Trading Institutions.
    JEL: D61 E02 G12
    Date: 2016–07–17
  102. By: Evren Erdogan Cosar
    Abstract: Bu calismada Turkiye Cumhuriyet Merkez Bankasi tarafindan yayimlanan Yatirim Anketi’nden alinan firmalarin kendi sabit sermaye yatirimlarina iliskin tahminleri panel veri teknikleri kullanilarak incelenmistir. Sonuclar tahminlerin rasyonel bir yapi sergilemedigine isaret ederken firmalarin tahminlerini olustururken bir onceki yil yaptiklari hatalari goz onunde bulundurduklarina isaret etmektedir. Firmalarin icinde bulunulan yil icin verdikleri tahminlere iliskin hatalarin ortanca degeri ve standart sapmasi, bir yil once verdikleri tahminlerinkinden daha dusuktur. Firmalarin tahmin verdikleri doneme kiyasla talep, finansman kaynaklari ve beklenen karlara iliskin goruslerindeki degisimler tahmin hatalari ile iliskili bulunmustur. Ekonomi genelini etkileyen bir kur belirsizligi, sektorel belirsizlik ve $/TL kurundaki degisimler yatirim harcamasi gerceklesmelerinin tahminlerin altinda kalmasina neden olurken firmaya ozgu belirsizligin tahmin hatalarina etkisi bulunmamistir. Bununla birlikte 2014-2015 doneminde kur belirsizligindeki artisin firmalarin yatirim kararlarini azaltici yonde etkilemedigi dikkat cekmektedir.
    Keywords: Yatirim anketi, Rasyonel beklentiler, Uyarlanabilir beklentiler, Gerileyen beklentiler, Tahmin guncellemeleri, Belirsizlik
    JEL: C23 D81 D84 E22
    Date: 2016

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