nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒08‒21
73 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Fiscal Stimulus and Consumer Debt By Demyanyk, Yuliya; Loutskina, Elena; Murphy, Daniel P.
  2. Inequality, Technical Change or Leverage? By Goren, Amir
  3. Autonomous government expenditure growth, deficits, debt and distribution in a neo-Kaleckian growth model By Eckhard Hein
  4. Inflation expectations, disagreement, and monetary policy By Hoffmann, Mathias; Hürtgen, Patrick
  5. The euro zone crisis: What would John Maynard do? By Ehnts, Dirk
  6. Did the Founding of the Federal Reserve Affect the Vulnerability of the Interbank System to Systemic Risk? By Carlson, Mark A.; Wheelock, David C.
  7. Negative Interest Rate Policies: Sources and Implications By Arteta, Carlos; Kose, Ayhan; Stocker, Marc; Taskin, Temel
  8. Optimal Domestic (and External) Sovereign Default By Pablo D'Erasmo; Enrique G. Mendoza
  9. The Dominant Borrower Syndrome: The Case of Pakistan By Sajawal Khan; Farooq Pasha; Muhammad Rehman; Muhammad Ali Choudhary
  10. Negative Interest Rate Policies: Sources and Implications By Carlos Arteta; M. Ayhan Kose; Marc Stocker; Temel Taskin
  11. VAT non-compliance in Poland under scrutiny (Problem nieœci¹galnoœci VAT w Polsce pod lup¹) By Grzegorz Poniatowski; dr. Jaros³aw Neneman; Tomasz Michalik
  12. Credit contractions and unemployment By Mihály Tamás Bors
  13. The Risk-Adjusted Monetary Policy Rule By Nakata, Taisuke; Schmidt, Sebastian
  14. A Portfolio Model of Quantitative Easing By Christensen, Jens H. E.; Krogstrup, Signe
  15. Bond finance, bank credit, and aggregate fluctuations in an open economy By Chang, Roberto; Fernández, Andrés; Gulan, Adam
  16. Unsecured and Secured Funding By Ranaldo, Angelo; Wrampelmeyer, Jan
  17. A Minskyan criticism on the shareholder pressure approach of financialisation By Dögüs, Ilhan
  18. Business Cycle Accounting: Bulgaria after the introduction of the currency board arrangement (1999-2014) By Vasilev, Aleksandar
  19. Optimal Macroprudential and Monetary Policy in a Currency Union By Dmitriy Sergeyev
  20. The Elusive Costs of Inflation: Price Dispersion during the U.S. Great Inflation By Emi Nakamura; Jón Steinsson; Patrick Sun; Daniel Villar
  21. Cross-border Spillover Effects of Unconventional Monetary Policies on Swiss Asset Prices By Severin Bernhard; Till Ebner
  22. Distributional Incentives in an Equilibrium Model of Domestic Sovereign Default By D'Erasmo, Pablo; Mendoza, Enrique G.
  23. US Health and Aggregate Fluctuations By Vasilev, Aleksandar
  24. Infrequent but Long-Lived Zero-Bound Episodes and the Optimal Rate of Inflation By Marc Dordal-i-Carreras; Olivier Coibion; Yuriy Gorodnichenko; Johannes Wieland
  25. News Shocks under Financial Frictions By Christoph Görtz; John D. Tsoukalas
  26. Velocity in the Long Run: Money and Structural Transformation By Antonio Mele; Radoslaw Stefanski
  27. Velocity in the Long Run: Money and Structural Transformation By Antonio Mele; Radoslaw Stefanski
  28. Coordination in Price Setting and the Zero Lower Bound: A Global Games Approach By Mitsuru Katagiri
  29. Continuous time, continuous decision space prisoner’s dilemma: A bridge between game theory and economic GCD-models By Glötzl, Erhard
  30. The supply of 'safe' assets and fiscal policy By Schuknecht, Ludger
  31. Price-Setting and Exchange Rate Pass-Through in the Mexican Economy: Evidence from CPI Micro Data By Kochen Federico; Sámano Daniel
  32. Understanding the Dynamics of Labor Income Inequality in Latin America By Carlos Rodríguez-Castelán; Luis F. López-Calva; Nora Lustig; Daniel Valderrama
  33. Bank enforcement actions and the terms of lending By Deli, Yota; Delis, Manthos D.; Hasan, Iftekhar; Liu, Liuling
  34. The Impact of Fiscal Decentralization on Growth, Inflation, and Inequality in the Americas By Antonio N. Bojanic
  35. The Cyclicality of the Income Elasticity of Trade By Borin, Alessandro; Di Nino, Virginia; Mancini, Michele; Sbracia, Massimo
  36. Budget-neutral labour tax wedge reductions: A simulation-based analysis for selected euro area countries By Attinasi, Maria-Grazia; Prammer, Doris; Stähler, Nikolai; Tasso, Martino; Van Parys, Stefan
  37. Unemployment, Sovereign Debt, and Fiscal Policy in a Currency Union By Pablo Ottonello; Ignacio Presno; Javier Bianchi
  38. The Case for Flexible Exchange Rates in a Great Recession By Corsetti, Giancarlo; Kuester, Keith; Müller, Gernot
  39. The Intensity of Job Search and Search Duration By Faberman, R. Jason; Kudlyak, Marianna
  40. Growth Trends and Systematic Patterns of Booms and Busts - Testing 200 Years of Business Cycle Dynamics - By Marlon Fritz; Thomas Gries; Yuanhua Feng
  41. Tracking and stress-testing U.S. household leverage By Fuster, Andreas; Guttman-Kenney, Benedict; Haughwout, Andrew F.
  42. Understanding the Brazilian demand regime: A Kaleckian approach By Tomio, Bruno Thiago
  43. Walras' law in the context of pre-analytic visions: A note By Heise, Arne
  44. Trends and cycles in small open economies: Making the case for a general equilibrium approach By Kan Chen; Mario Crucini
  45. An Aggregate Model for Policy Analysis with Demographic Change By McGrattan, Ellen R.; Prescott, Edward C.
  46. Does Unemployment Invariance Hypothesis Hold for Canada? By Aysit Tansel; Zeynel Abidin Ozdemir; Emre Aksoy
  47. On What States Do Prices Depend? Answers From Ecuador By Craig Benedict; Mario J. Crucini; Anthony Landry
  48. Analysis of the balance between U.S. monetary and fiscal policy using simulated wavelet-based optimal tracking control By Crowley, Patrick M.; Hudgins, David
  49. A macrofinance view of US Sovereign CDS premiums By Lukas Schmid; Andres Schneider; Mikhail Chernov
  50. Fiscal Decentralization, Economic Freedom, and Political and Civil Liberties in the Americas By Antonio N. Bojanic
  51. Global price of risk and stabilization policies By Adrian, Tobias; Stackman, Daniel; Vogt, Erik
  52. Sentiment-driven investment, non-linear corporate debt dynamics and co-existing business cycle regimes By Lojak, Benjamin
  53. Firms’ expectations and price-setting: evidence from micro data By Boneva, Lena; CLoyne, James; Weale, Martin; Wieladek, Tomasz
  54. A Spatial Production Economy Explains Zipf’s Law for Gross Metropolitan Product By Watanabe, Hiroki
  55. Explaining Non-Performing Loans in Greece: A Comparative Study on the Effects of Recession and Banking Practices By Platon Monokroussos; Dimitrios D. Thomakos; Thomas A. Alexopoulos
  56. Ambiguity and Time-Varying Risk Aversion in Sovereign Debt Markets By Christoph Große Steffen; Maximilian Podstawski
  57. The Dynamics of Public Debt in Serbia - A Nonlinear Analysis By Andric, Vladimir; Arsic, Milojko; Mladenovic, Zorica
  58. The condition of and prospects for the private equity funds market in Poland (Stan i perspektywy rozwoju rynku funduszy private equity w Polsce) By Barbara Nowakowska; Piotr Noceñ; Micha³ Surowski; Micha³ Popio³ek
  59. U.S. Economic Outlook: Quarterly developments By -
  60. VAT Evasion in Bulgaria: A General-Equilibrium Approach By Vasilev, Aleksandar
  61. Lending Conditions and Loan Default: What Can We Learn From UK Buy-to-Let Loans? By Kelly, Robert; O'Toole, Conor
  62. Consistency and stability analysis of models of a monetary growth imperative By Richters, Oliver; Siemoneit, Andreas
  63. Informality as a Stepping Stone: A Search-Theoretical Assessment of Informal Sector and Government Policy By Tumen, Semih
  64. Approximating fixed-horizon forecasts using fixed-event forecasts By Knüppel, Malte; Vladu, Andreea L.
  65. An empirical assessment of exchange arrangements and inflation performance By Cruz-Rodríguez, Alexis
  66. Can monetary policy drive economic growth? empirical evidence from Tanzania By Nyorekwa, Enock Twinoburyo; Odhiambo, Nicholas Mbaya
  67. 10 Jahre Nationaler Normenkontrollrat: Ein bewährtes Konzept zum Bürokratieabbau weiterentwickeln By Kroker, Rolf; Bardt, Hubertus
  68. Trade Patterns and Endogenous Institutions: Global Evidence By Richard Frensch; Roman Horváth; Stephan Huber
  69. Azar, Determinismo e Indecidibilidad en la Teoría del Ciclo Económico. By Escañuela Romana, Ignacio
  70. Dissemination of Information by the Federal Reserve System: An Overview and Benchmark By Araujo, Luiz Nelson
  71. Essays in Macroeconometrics By Mikkel Plagborg-Møller
  72. Trading Relationships in the OTC Market for Secured Claims : Evidence from Triparty Repos By Han, Song; Nikolaou, Kleopatra
  73. The Effect of Gender-Targeted Conditional Cash Transfers on Household Expenditures: Evidence from a Randomized Experiment By Armand, Alex; Attanasio, Orazio; Carneiro, Pedro; Lechene, Valerie

  1. By: Demyanyk, Yuliya (Federal Reserve Bank of Cleveland); Loutskina, Elena (Federal Reserve Bank of Cleveland); Murphy, Daniel P. (Darden School of Business, University of Virginia)
    Abstract: In the aftermath of consumer debt-induced recession, policymakers have questioned whether fiscal stimulus is effective during the periods of high consumer indebtedness. This study empirically investigates this question. Using detailed data on Department of Defense spending for the 2006-2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer indebtedness. The results suggest that fiscal policy can mitigate the adverse effect of consumer (over)leverage on real economic output during a recession. We then exploit detailed microdata to evaluate aggregate demand and aggregate supply-side economic mechanisms potentially underlying this result.
    Keywords: Recession; fiscal stimulus;
    JEL: E21 E32 E44 E62 H56 H57
    Date: 2016–08–10
  2. By: Goren, Amir
    Abstract: Exploring the determinants of growing income inequality, I show how constant capital income shares and inequality can be explained without technical change. I show why despite the fact that technical change is capital augmenting, rather than labor augmenting, it may not be sufficient to explain the last few decades of growing capital share of income and inequality due to the balancing mechanism of depreciation. Finally, I show how the growth of leverage, which coincided with the growth of inequality, can explain the growth of capital share of income and inequality. I introduce a simple model of leverage and business cycle and show how leverage is justified by more leverage and how depressed interest rate allows leveraging and inequality growth to persist.
    Keywords: Inequality, Technical Change, Leverage, Credit, Business Cycle
    JEL: E00 E10 E13 E32
    Date: 2016–08–10
  3. By: Eckhard Hein (Berlin School of Economics and Law)
    Abstract: This paper is linked to some recent attempts at including a non-capacity creating autonomous expenditure category as the driver and determinant of growth into Kaleckian distribution and growth models. Whereas previous contributions have focussed on taming Harrodian instability, generated by the deviation of the goods market equilibrium rate of capacity utilisation from a normal or target rate of utilisation, we rather focus on the so far neglected issues of deficit, debt and distribution dynamics in such models. For this purpose we treat the growth of government expenditures on goods and services, financed by credit creation, as the exogenous growth rate driving the system. We examine the medium-run convergence of the system towards such a growth rate, analyse the related long-run debt dynamics and deal with stability and income distribution issues. Finally we touch upon the economic and, in particular, fiscal policy implications of our model results.
    JEL: E11 E12 E25 E62
    Date: 2016–08
  4. By: Hoffmann, Mathias; Hürtgen, Patrick
    Abstract: Survey data on inflation expectations show that: (i) private sector forecasts and central bank forecasts are not fully aligned and (ii) private sector forecasters disagree about inflation expectations. To reconcile these two facts we introduce dispersed information in a New Keynesian model, where as a result, inflation expectations differ between the private sector and the central bank. We show that output and inflation responses change markedly when the central bank responds to private sector inflation expectations rather than to their own.
    Keywords: business cycles,survey data,learning,disagreement,monetary policy
    JEL: E52 E31 D83
    Date: 2016
  5. By: Ehnts, Dirk
    Abstract: In his letter to US President Franklin D. Roosevelt Keynes (1933) wrote about "the technique of recovery itself". An increase in output is brought about by an increase in purchasing power, Keynes argues, which can come from three sectors: households, firms and government. Using the IS/MY macroeconomic model developed by Ehnts (2014), which features sectoral balances and endogenous money, the situation of some euro zone members is examined with a focus on the three techniques of recovery: increases in debt of the respective sectors as defined by Keynes. A fourth technique, an increase in spending by the rest of the world, is added. The conclusion is that the policy recommendation given by Keynes in his letter also holds for the euro zone at present: a rise in debt-financed government expenditure. Some reform at the institutional level in Europe would enable "the technique of recovery" to work via the TARGET2 payment system, which is organized along Keynes' International Clearing Union proposal and a solid foundation to build on.
    Keywords: deficit spending,fiscal policy,sectoral balances,Keynes,Keynesian economics
    JEL: E12 E32 E62
    Date: 2016
  6. By: Carlson, Mark A.; Wheelock, David C. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: As a result of legal restrictions on branch banking, an extensive interbank system developed in the United States during the 19th century to facilitate interregional payments and flows of liquidity and credit. Vast sums moved through the interbank system to meet seasonal and other demands, but the system also transmitted shocks during banking panics. The Federal Reserve was established in 1914 to reduce reliance on the interbank market and correct other defects that caused banking system instability. Drawing on recent theoretical work on interbank networks, we examine how the Fed’s establishment affected the system’s resilience to solvency and liquidity shocks and whether these shocks might have been contagious. We find that the interbank system became more resilient to solvency shocks but less resilient to liquidity shocks as banks sharply reduced their liquidity after the Fed’s founding. The industry’s response illustrates how the introduction of a lender of last resort can alter private behavior in a way that increases the likelihood that the lender will be needed.
    Keywords: Federal Reserve System; Contagion; Systemic risk; Seasonal liquidity demand; Interbank networks; Banking panics; National Banking system
    JEL: E42 E44 E58 G21 N11 N12 N21 N22
    Date: 2016–07–18
  7. By: Arteta, Carlos; Kose, Ayhan; Stocker, Marc; Taskin, Temel
    Abstract: Against the background of continued growth disappointments, depressed inflation expectations, and declining real equilibrium interest rates, a number of central banks have implemented negative interest rate policies (NIRP) to provide additional monetary policy stimulus over the past few years. This paper studies the sources and implications of NIRP. We report four main results. First, monetary transmission channels under NIRP are conceptually analogous to those under conventional monetary policy but NIRP present complications that could limit policy effectiveness. Second, since the introduction of NIRP, many of the key financial variables have evolved broadly as implied by the standard transmission channels. Third, NIRP could pose risks to financial stability, particularly if policy rates are substantially below zero or if NIRP are employed for a protracted period of time. Potential adverse consequences include the erosion of profitability of banks and other financial intermediaries, and excessive risk taking. However, there has so far been no significant evidence that financial stability has been compromised because of NIRP. Fourth, spillover implications of NIRP for emerging market and developing economies are mostly similar to those of other unconventional monetary policy measures. In sum, NIRP have a place in a policy maker’s toolkit but, given their domestic and global implications, these policies need to be handled with care to secure their benefits while mitigating risks.
    Keywords: developing countries; emerging markets; event study; financial stability; negative yields; quantitative easing; bank profitability; Unconventional Monetary Policy
    JEL: E52 E58 E60
    Date: 2016–08
  8. By: Pablo D'Erasmo; Enrique G. Mendoza
    Abstract: Infrequent but turbulent episodes of outright sovereign default on domestic creditors are considered a “forgotten history” in Macroeconomics. We propose a heterogeneous-agents model in which optimal debt and default on domestic and foreign creditors are driven by distributional incentives and endogenous default costs due to the value of debt for self-insurance, liquidity and risk-sharing. The government's aim to redistribute resources across agents and through time in response to uninsurable shocks produces a rich dynamic feedback mechanism linking debt issuance, the distribution of government bond holdings, the default decision, and risk premia. Calibrated to Spanish data, the model is consistent with key cyclical co-movements and features of debt-crisis dynamics. Debt exhibits protracted fluctuations. Defaults have a low frequency of 0.93 percent, are preceded by surging debt and spreads, and occur with relatively low external debt. Default risk limits the sustainable debt and yet spreads are zero most of the time.
    JEL: E6 E62 F34 G01 H63
    Date: 2016–08
  9. By: Sajawal Khan (State Bank of Pakistan); Farooq Pasha (State Bank of Pakistan); Muhammad Rehman (State Bank of Pakistan); Muhammad Ali Choudhary (State Bank of Pakistan)
    Abstract: In this paper, we analyse the pressure fiscal expansion exerts on the economy via credit markets in Pakistan. We extend Melina and Villa (2014) by allowing government to compete with the private borrowers (firms) for the bank credit in monopolistically competitive banking industry to the extent that it can come to dominate banks balance-sheets, a feature observed in Pakistan following 2008 Global Financial Crisis. Our DSGE model captures the counter cyclical behavior of government borrowings that leads to counter cyclical spreads in loans market. Furthermore, we also find that consumption tax is the preferable policy instrument to address the fiscal deficit in bad times rather than resorting to the dominant borrower behaviour.
    Keywords: DSGE, Commercial Banks, Government Borrowing, Business Cycles, Emerging Economies
    JEL: E3 E52 E6 H2
    Date: 2016–08
  10. By: Carlos Arteta (Development Prospects Group, World Bank); M. Ayhan Kose (Development Prospects Group, World Bank; Brookings Institution; CEPR; CAMA); Marc Stocker (Development Prospects Group, World Bank); Temel Taskin (Development Prospects Group, World Bank)
    Abstract: Against the background of continued growth disappointments, depressed inflation expectations, and declining real equilibrium interest rates, a number of central banks have implemented negative interest rate policies (NIRP) to provide additional monetary policy stimulus over the past few years. This paper studies the sources and implications of NIRP. We report four main results. First, monetary transmission channels under NIRP are conceptually analogous to those under conventional monetary policy but NIRP present complications that could limit policy effectiveness. Second, since the introduction of NIRP, many of the key financial variables have evolved broadly as implied by the standard transmission channels. Third, NIRP could pose risks to financial stability, particularly if policy rates are substantially below zero or if NIRP are employed for a protracted period of time. Potential adverse consequences include the erosion of profitability of banks and other financial intermediaries, and excessive risk taking. However, there has so far been no significant evidence that financial stability has been compromised because of NIRP. Fourth, spillover implications of NIRP for emerging market and developing economies are mostly similar to those of other unconventional monetary policy measures. In sum, NIRP have a place in a policy maker’s toolkit but, given their domestic and global implications, these policies need to be handled with care to secure their benefits while mitigating risks.
    Keywords: Unconventional monetary policy, quantitative easing; bank profitability, financial stability, negative yields, event study, emerging markets, developing countries.
    JEL: E52 E58 E60
    Date: 2016–09
  11. By: Grzegorz Poniatowski; dr. Jaros³aw Neneman; Tomasz Michalik
    Abstract: Since 2009, despite constant growth in the tax base and only slight variations in effective rates, the trend in VAT revenue in Poland has been reversed, and inflows have become less stable. The ongoing decline in VAT collection and the increase in the uncertainty related to the main component of budget revenues is a very important problem, which in the light of growing budget spending may threaten the stability of public finances. Three experts: Grzegorz Poniatowski, dr. Jaros³aw Neneman and Tomasz Michalik examine the structure and the causes of the VAT gap as well as the legal context and possible methods of improving VAT compliance at national and European level.
    Keywords: Economics and Finance, Macroeconomics and Monetary Economics
    JEL: E E02 E5 E6 E42
    Date: 2016–06
  12. By: Mihály Tamás Bors (Universitat Ramon Llull)
    Abstract: This paper investigates the impact of private credit contractions on labor market performance. Impulse responses for total, youth, and long-term unemployment are estimated using local projections for a panel of 20 OECD countries over the period 1980-2013. The empirical findings suggest that a decline in private credit can generate sizable and statistically significant increases in all three unemployment measures. On average, credit contractions in the sample increase total unemployment rates by nearly 1 percentage point at the peak. This effect is even stronger for youth unemployment. The persistent impact on long-term unemployment emphasizes the sluggish recovery of labor markets following a credit downturn. The results also reveal that increases in joblessness depend heavily on the scale of the build-up in financial leverage prior to the onset of a contraction. Specifically, excessive credit booms tend to be followed by a significantly larger rise in unemployment in the subsequent bust phase. Moreover, credit contractions associated with rigid labor market institutions lead to disproportionately greater increases in unemployment. These findings underline the important relationship between disruptions in the credit market and unemployment fluctuations.
    Keywords: financial leverage, private credit, labor market, unemployment, local projections
    JEL: E24 E44 G10 J01
    Date: 2016–08
  13. By: Nakata, Taisuke; Schmidt, Sebastian
    Abstract: Macroeconomists are increasingly using nonlinear models to account for the effects of risk in the analysis of business cycles. In the monetary business cycle models widely used at central banks, an explicit recognition of risk generates a wedge between the inflation-target parameter in the monetary policy rule and the risky steady state (RSS) of inflation---the rate to which inflation will eventually converge---which can be undesirable in some practical applications. We propose a simple modification to the standard monetary policy rule to eliminate the wedge. In the proposed risk-adjusted policy rule, the intercept of the rule is modified so that the RSS of inflation equals the inflation-target parameter in the policy rule.
    Keywords: Effective Lower Bound ; Inflation Targeting ; Monetary Policy Rule ; Risk ; Risky Steady State
    JEL: E32 E52
    Date: 2016–07
  14. By: Christensen, Jens H. E. (Federal Reserve Bank of San Francisco); Krogstrup, Signe (Swiss National Bank)
    Abstract: This paper presents a portfolio model of asset price effects arising from central bank large-scale asset purchases, commonly known as quantitative easing (QE). Two financial frictions—segmentation of the market for central bank reserves and imperfect asset substitutability—give rise to two distinct portfolio effects. One derives from the reduced supply of the purchased assets. The other runs through banks’ portfolio responses to the created reserves and is independent of the assets purchased. The results imply that central bank reserve expansions can affect long-term bond prices even in the absence of long-term bond purchases.
    JEL: E43 E50 E52 E58 G11
    Date: 2016–07–21
  15. By: Chang, Roberto; Fernández, Andrés; Gulan, Adam
    Abstract: Corporate sectors in emerging markets have noticeably increased their reliance on foreign financing, presumably reflecting low global interest rates. The evidence also shows a rebalancing from bank loans towards bonds. To study these developments, we develop a dynamic open economy model where these modes of finance are determined endogenously. The model replicates the stylized facts following a drop in world interest rates; in particular, rebalancing towards bonds occurs because bank credit becomes relatively more expensive, reflecting the scarcity of bank equity. More generally, the model is suitable for studying interactions between modes of finance and the macroeconomy.
    Keywords: emerging markets, corporate debt, bonds, bank credit
    JEL: E32 E44 F41 G31
    Date: 2016–08–05
  16. By: Ranaldo, Angelo; Wrampelmeyer, Jan
    Abstract: We provide the first joint analysis of the secured and unsecured money markets of the euro area using bank-level data. After the Lehman crisis, two important substitution mechanisms emerge: banks with higher credit risk offset reductions of unsecured borrowing with secured funding. Riskier banks replace unsecured lending by granting more secured loans. However, high leverage and reliance on short-term funding hamper banks' ability to substitute. Moreover, banks enduring money market strains contribute to the credit crunch. Overall, our findings suggest that the secured segment of the euro money market contributes to financial stability, mitigating systemic effects such as short-term funding strains and contagion.
    Keywords: Money markets, bank funding, short-term debt, financial crisis, counterparty risk, liquidity
    JEL: E42 E43 E58 G01 G21 G28
    Date: 2016
  17. By: Dögüs, Ilhan
    Abstract: In this paper, the Post-Kaleckian approach on financialisation which argues that investment of Nonfinancial Corporations in real capital assets has been restricted by the rising dividend and interest payments due to shareholder pressure will be criticized based on a Minskyan understanding of investment. It will be put forward that, reinvestment of profits in capital assets has decreased because of declined quasi-rent expectations induced by depressed demand.
    Keywords: financialisation,shareholder pressure,Minsky,capital assets,financial assets
    JEL: E12 E22 E44
    Date: 2016
  18. By: Vasilev, Aleksandar
    Abstract: This paper focuses on explaining the economic fluctuations in Bulgaria after the introduction of the currency board arrangement in 1997, the period of macroeconomic stability that ensued, the EU accession, and the episode of the recent global financial crisis. This paper follows Chari et al. (2002) and performs business cycle accounting (BCA) for Bulgaria during the period 1999-2014. As in Cavalcanti (2007), who studies the Portuguese business cycles, most of the volatility in output per capita in Bulgaria over the period is due to variations in the efficiency and labor wedges.
    Keywords: Business Cycle Accounting,Bulgarian economy,efficiency and labor wedges
    JEL: E32 E37 O47
    Date: 2016
  19. By: Dmitriy Sergeyev (Bocconi University)
    Abstract: I solve for optimal macroprudential and monetary policies for members of a currency union in an open economy model with nominal price rigidities, demand for safe as- sets, and collateral constraints. Monetary policy is conducted by a single central bank, which sets a common interest rate. Macroprudential policy is set at a country level through the choice of reserve requirements. I emphasize two main results. First, with asymmetric countries and sticky prices, the optimal macroprudential policy has a country-specific stabilization role beyond optimal regulation of financial sectors. This result holds even if optimal fiscal transfers are allowed among the union members. Second, there is a role for global coordination of country-specific macroprudential policies. This is true even when countries have no monopoly power over prices of internationally traded goods or assets. These results build the case for coordinated macroprudential policies that go beyond achieving financial stability objectives.
    Date: 2016
  20. By: Emi Nakamura; Jón Steinsson; Patrick Sun; Daniel Villar
    Abstract: A key policy question is: How high an inflation rate should central banks target? This depends crucially on the costs of inflation. An important concern is that high inflation will lead to inefficient price dispersion. Workhorse New Keynesian models imply that this cost of inflation is very large. An increase in steady state inflation from 0% to 10% yields a welfare loss that is an order of magnitude greater than the welfare loss from business cycle fluctuations in output in these models. We assess this prediction empirically using a new dataset on price behavior during the Great Inflation of the late 1970's and early 1980's in the United States. If price dispersion increases rapidly with inflation, we should see the absolute size of price changes increasing with inflation: price changes should become larger as prices drift further from their optimal level at higher inflation rates. We find no evidence that the absolute size of price changes rose during the Great Inflation. This suggests that the standard New Keynesian analysis of the welfare costs of inflation is wrong and its implications for the optimal inflation rate need to be reassessed. We also find that (non-sale) prices have not become more flexible over the past 40 years.
    JEL: E31 E50
    Date: 2016–08
  21. By: Severin Bernhard; Till Ebner
    Abstract: Unconventional monetary policies (UMPs) by the Federal Reserve, the European Central Bank, the Bank of England and the Bank of Japan exert important spillover effects on asset prices in Switzerland if market anticipation of UMP announcements is properly accounted for. Using a broad event set and a long-term bond futures-based measure as a proxy for market anticipation of the announcements, we show that the unexpected part of those UMPs boost Swiss government and corporate bond prices, induce the CHF to appreciate, and dampen Swiss equity prices. Four extensions provide additional insights: First, the estimated effects are strongest for announcements by the ECB. Second, the impact on government bonds is largest for bonds with residual maturities of 7-10 years. Third, the impact of foreign UMP shocks on exchange rates and Swiss bond yields is less pronounced after the introduction of the EURCHF-floor by the Swiss National Bank on September 6, 2011. Fourth, the sign of spillover effects differs for positive and negative UMP surprises, but their strength does not. Our results hint at an important role played by both international portfolio re-balancing channels and international signalling channels in the transmission of foreign monetary policy shocks to Swiss asset prices.
    JEL: E52 E58 E65 F31 F42 G12
    Date: 2016
  22. By: D'Erasmo, Pablo (Federal Reserve Bank of Philadelphia); Mendoza, Enrique G. (University of Pennsylvania, National Bureau of Economic Research,)
    Abstract: Europe’s debt crisis resembles historical episodes of outright default on domestic public debt about which little research exists. This paper proposes a theory of domestic sovereign default based on distributional incentives affecting the welfare of risk-averse debt and non-debtholders. A utilitarian government cannot sustain debt if default is costless. If default is costly, debt with default risk is sustainable, and debt falls as the concentration of debt ownership rises. A government favoring bondholders can also sustain debt, with debt rising as ownership becomes more concentrated. These results are robust to adding foreign investors, redistributive taxes, or a second asset.
    Keywords: Public debt; Sovereign default; European debt crisis
    JEL: E44 E6 F34 H63
    Date: 2016–08–09
  23. By: Vasilev, Aleksandar
    Abstract: This paper aims to shed light on the importance of health considerations for business cycle fluctuations and the effect of health status on labor productivity and availability of labor input for productive use. To this end, Grossman's (2000) partial-equilibrium framework with endogenous health is incorporated in an otherwise standard Real- Business-Cycle (RBC) model. Health status in this setup is modelled as a utility-enhancing, intangible, and non-transferrable capital stock, which depreciates over time. The household can improve their health ("produce health") through investment using a health-recovery technology. The main results are: (i) overall, the model compares well vis-a-vis data; (ii) the behavior of the price of healthcare is adequately approximated by the shadow price of health in the model; (iii) the model-generated health variable exhibits moderate- to high correlation with a large number of empirical health indicators.
    Keywords: real business cycles,health status,health investment
    JEL: E32 E37
    Date: 2016
  24. By: Marc Dordal-i-Carreras; Olivier Coibion; Yuriy Gorodnichenko; Johannes Wieland
    Abstract: Countries rarely hit the zero-lower bound on interest rates, but when they do, these episodes tend to be very long-lived. These two features are difficult to jointly incorporate into macroeconomic models using typical representations of shock processes. We introduce a regime switching representation of risk premium shocks into an otherwise standard New Keynesian model to generate a realistic distribution of ZLB durations. We discuss what different calibrations of this model imply for optimal inflation rates.
    JEL: E3 E4 E5
    Date: 2016–08
  25. By: Christoph Görtz; John D. Tsoukalas
    Abstract: This paper examines the dynamic eects and empirical role of aggregate and sectoral TFP news shocks in the context of frictions in nancial markets. Financial frictions result in credit spreads that contain important information about expectations of future economic activity. A TFP news shock identied from the VAR model generates a signicant decline in the corporate bond spread and a broad based expansion in activity in anticipation of a future TFP improvement. A DSGE model enriched with a nancial sector of the Gertler-Kiyotaki type generates very similar quantitative dynamics and shows that strong linkages between leveraged equity and capital prices are critical for the amplication of TFP news shocks. The consistent assessment from both methodologies provides support for the traditional `news view' of aggregate uctuations. The analysis sheds light on important dierences in the propagation of sectoral TFP news shocks.
    Keywords: News shocks, Business cycles, DSGE, VAR, Bayesian estimation
    JEL: E2 E3
    Date: 2016–06
  26. By: Antonio Mele (University of Surrey); Radoslaw Stefanski (University of St Andrews)
    Abstract: Monetary velocity declines as economies grow. We argue that this is due to the process of structural transformation - the shift of workers from agricultural to non-agricultural production associated with rising income. A calibrated, two-sector model of structural transformation with monetary and non-monetary trade accurately generates the long run monetary velocity of the US between 1869 and 2013 as well as the velocity of a panel of 92 countries between 1980 and 2010. Three lessons arise from our analysis: 1) Developments in agriculture, rather than non-agriculture, are key in driving monetary velocity; 2) Inflationary policies are disproportionately more costly in richer than in poorer countries; and 3) Nominal prices and inflation rates are not `always and everywhere a monetary phenomenon': the composition of output influences money demand and hence the secular trends of price levels.
    Keywords: structural transformation, monetary shares, velocity, agricultural productivity, nonmonetary exchange 1 We would like to thank Martin Ellison, Alexander Berentsen, Fernando Martin, Domenico Ferraro, B
    JEL: O1 O4 E4 E5 N1
    Date: 2016–07–28
  27. By: Antonio Mele (University of Surrey); Radoslaw Stefanski (University of St Andrews)
    Abstract: Monetary velocity declines as economies grow. We argue that this is due to the process of structural transformation - the shift of workers from agricultural to non-agricultural production associated with rising income. A calibrated, two-sector model of structural transformation with monetary and non-monetary trade accurately generates the long run monetary velocity of the US between 1869 and 2013 as well as the velocity of a panel of 92 countries between 1980 and 2010. Three lessons arise from our analysis: 1) Developments in agriculture, rather than non-agriculture, are key in driving monetary velocity; 2) Inflationary policies are disproportionately more costly in richer than in poorer countries; and 3) Nominal prices and inflation rates are not `always and everywhere a monetary phenomenon': the composition of output influences money demand and hence the secular trends of price levels.
    Keywords: structural transformation, monetary shares, velocity, agricultural productivity, nonmonetary exchange 1 We would like to thank Martin Ellison, Alexander Berentsen, Fernando Martin, Domenico Ferraro, B
    JEL: O1 O4 E4 E5 N1
    Date: 2016–07–28
  28. By: Mitsuru Katagiri (Bank of Japan)
    Abstract: Abstract: In this paper, I construct a two-period general equilibrium model and describe price competition among monopolistically competitive firms as a coordination game. While the model has multiple equilibria with different levels of inflation (positive or zero), the equilibrium selection in line with global games implies that the economy with a high natural interest rate, i.e., high expected productivity growth, tends to move into the equilibrium with positive inflation. The policy analyses indicate that monetary policy measures such as an increase in the target inflation rate and a decrease in the lower bound of nominal interest rates can prevent the economy from moving into the zero inflation equilibrium even in the face of low expected productivity growth.
    Keywords: Inflation Indeterminacy; Effective Lower Bound; Global Games
    JEL: D82 E31 E52
    Date: 2016–08–08
  29. By: Glötzl, Erhard
    Abstract: General Constrained Dynamic models (GCD – models) in economics are inspired by classical mechanics with constraints. Most macroeconomic models can be understood as special cases of GCD – models. Moreover, in this paper it will be shown that not only macroeconomic models but also game theoretic models are strongly related to GCD – models. GCD models are characterized by a system of differential equations in continuous time while most game theoretical models are set up in discrete time. Therefore it is necessary to build a bridge from game theoretical models denominated in discrete time to game theoretical models using continuous time. This bridge is illustrated in the following using the example of a continuous time, continuous decision space prisoner’s dilemma. Furthermore, it is shown that the differential equations which determine other continuous game theoretic models can be understood to a certain extent as special cases of the GCD – differential equations. Well known types of continuous game theoretic models include for instance “Evolutionary Game Theory” with the replicator equation, “Adaptive Dynamics” with the canonical equation, which is nothing else than a replicator – mutator equation, and the so called “Differential Games”, which are strongly related to optimal control theory with two controls and two different objectives (goals). Most of the GCD – models are characterised by 3 key feature: - mutual influence, - Power-factors - Constraints Nowak (2006b) and Taylor & Nowak (2007) show that there are five mechanisms which, under certain conditions, can lead to the evolution of cooperation in an iterated prisoner’s dilemma. Inspired by this, we apply the 3 key features of GCD – models to the standard prisoner’s dilemma in discrete time which yields 3 additional mechanisms which enable the evolution of cooperation. The assumption or axiom of the free market economy is that an individual optimisation strategy will lead to an overall optimum by virtue of Adam Smith’s invisible hand. Without additional conditions this assumption alone is fundamentally wrong. As in prisoner’s dilemma also in economics cooperation is essential to get an overall optimum. The big question of political economy is to analyse which additional measures could guarantee that the individual optimisation strategy characterising a free market economy leads to cooperation as precondition to get an overall optimum. From this point of view the different economic theories could be characterised in terms of which measures they assume to be sufficient to guarantee an overall optimum without abandoning the principle of individual optimisation.
    Keywords: economic models, economic GCD-models, continuous Game Theory, Evolutionary Game Theory , Prisoner’s Dilemma, Cooperation, Political Economy
    JEL: B41 C02 C60 C70 C72 E10 E66 P26
    Date: 2016–03–26
  30. By: Schuknecht, Ludger
    Abstract: This study looks at the interrelationship between fiscal policy and safe assets as there is surprisingly little analysis about this beyond fleeting references. The study argues that from a certain point more public debt will not "buy" more safety: countries face a kind of "safe-assets Laffer curve" with a maximum amount of safe assets at some level of indebtedness. The position and "stability" of this curve depend on a number of national and international factors, including the international risk appetite and, as a more recent factor, QE policies by central banks. The study also finds evidence of declining safe assets as reflected in government debt ratings.
    Keywords: fiscal policy,public debt,safe assets,financial markets
    JEL: E62 G10
    Date: 2016
  31. By: Kochen Federico; Sámano Daniel
    Abstract: As a consequence of the international environment, the currencies of many emerging market economies have experienced important depreciations in a context of high volatility in financial markets. The Mexican peso has not been the exception to the above situation. In this setting, the exchange rate pass-through into consumer prices deserves special attention as it allows us to evaluate the anchoring of inflation expectations in the Mexican economy. To address this issue, in this paper we use non-public micro data from the Mexican Consumer Price Index (CPI) to analyze the relation between exchange rate and price-setting in Mexico for the period between January 2011 and April 2016. Our estimates suggest that the exchange rate pass-through into consumer prices is low.
    Keywords: Exchange Rate Pass-Through;Price Micro Data;Nominal Stickiness
    JEL: E31 F31 F41
    Date: 2016–08
  32. By: Carlos Rodríguez-Castelán (Poverty and Equity Global Practice, World Bank); Luis F. López-Calva (Poverty and Equity Global Practice, World Bank); Nora Lustig (Department of Economics, Tulane University); Daniel Valderrama (Poverty and Equity Global Practice, World Bank)
    Abstract: Since the early 2000s, after a long period of wide and persistent gaps, Latin America has experienced a steady decline in income inequality. This paper presents evidence of a trend reversal in labor income inequality, which is considered the main factor behind such a decline in income inequality across the region. Our analysis shows that, while labor income inequality increased during the 1990s, with heterogeneous experiences across countries, it fell in a synchronized way across countries beginning in the early 2000s. This systematic decline was supported by an expansion in real hourly earnings among the bottom of the wage distribution and, to a lesser extent, the middle part of the earnings distribution, thus reducing both upper and lower tail inequality. This trend reversal is explained by a lower dispersion of earnings among workers with observable different attributes and by a much less extensive dispersion of residual labor inequality. Regarding the earnings differentials among workers with observable different attributes, our analysis concludes that the decline in labor inequality in Latin America has been closely associated with a reduction in the college/primary education premium and in the urban-rural earnings gap, coupled with a steady drop in the high school/primary education premium, which accelerated markedly since the 2000s, as well as a reduction in the experience premium across all age-groups.
    Keywords: Inequality, Labor Incomes, Education Premium, Experience Premium, Latin America.
    JEL: D63 E24 J21 J31 O54
    Date: 2016–08
  33. By: Deli, Yota; Delis, Manthos D.; Hasan, Iftekhar; Liu, Liuling
    Abstract: Formal enforcement actions issued against banks for violations of laws and regulations related to safety and soundness can theoretically have both positive and negative effects on the terms of lending. Using hand-collected data on such enforcement actions issued against U.S. banks, we show that they have a strong negative effect on price terms (loan spreads and fees) for corporate loans and a positive one on non-price terms (loan maturity, size, covenants, and collateral). The results also indicate that in the absence of enforcement actions, the cost of borrowing during the subprime crisis would have been much higher, while punished banks intensify use of collateral.
    Keywords: bank supervision, enforcement actions, syndicated loans, price and non-price terms of lending
    JEL: E44 E51 G21 G28
    Date: 2016–08–06
  34. By: Antonio N. Bojanic (Department of Economics, Tulane University)
    Abstract: This paper analyzes the impact of fiscal decentralization on economic growth, the inflation rate, and the GINI coefficient in eleven American countries. The findings suggest that the expected positive impacts of this process have been modest, with revenue decentralization being more effective at preventing inflation, and expenditure decentralization showing greater tendency to positively influence growth. The flipside of these findings is that in the full sample of countries revenue decentralization deters growth while expenditure decentralization seems to foster inflation. With regards to the impact on the GINI coefficient, fiscal decentralization seems to be, at best, a marginal, negative influence on income distribution. The main recommendation is that American nations should pause and analyze the reasons why this process of fiscal devolution of responsibilities has not delivered on its promise of greater growth, price stability, and less income inequality.
    Keywords: Fiscal decentralization, economic growth, inflation, income inequality.
    JEL: E62 H70 O10 O50
    Date: 2016–08
  35. By: Borin, Alessandro; Di Nino, Virginia; Mancini, Michele; Sbracia, Massimo
    Abstract: In 2011-2015 global trade volumes have systematically surprised on the downside, to a much larger extent than real GDP. We show that two key features of real trade flows --- their high volatility and their procyclicality --- determine a cyclicality of the income elasticity of trade. This property is such that when real GDP growth is positive but lower than its long-run trend, then the income elasticity of trade is also smaller than its own long-run trend. As a consequence, when real GDP growth turns out to be weaker than expected, the forecast error on trade volumes is amplified by the fact that also the income elasticity of trade happens to be smaller than predicted. Our analysis shows, in particular, that long-run and cyclical forces have contributed to a similar extent to the recent weakness of trade volumes. As a by-product, we also explain how the high volatility and procyclicality of real trade flows, together with the size of the non-tradeable-goods sector, contribute to determine cross-country differences in the income elasticity of trade.
    Keywords: global trade; income elasticity; international business cycle
    JEL: E32 F1 F4
    Date: 2016–08–08
  36. By: Attinasi, Maria-Grazia; Prammer, Doris; Stähler, Nikolai; Tasso, Martino; Van Parys, Stefan
    Abstract: Budget-neutral tax wedge reductions rank high in the policy agenda of several EMU member states. Using a New Keynesian DSGE model of a monetary union with a complex labour market structure and a comprehensive public sector, we evaluate the macroeconomic and welfare effects of reducing the firms' and workers' labour tax rates under alternative financing instruments. Overall, a tax wedge reduction is beneficial in terms of both welfare and output, as long as the financing measure does not harm private-sector productivity and/or the incentive for private capital investments over-proportionately. While financing the labour tax wedge reduction by an increase in consumption taxation yields most favourable output effects, financing it by a reduction in government spending is more beneficial in terms of welfare as the latter does not imply a policy-induced increase in private consumption costs. We also show that, when we assume that firms can adjust the ex- and intensive labour margin in response to policy changes, a reduction in the workers' and not the firms' burden is most beneficial.
    Keywords: Fiscal Policy,Tax Reforms,DSGE Modelling,Macroeconomics
    JEL: H2 J6 E32 E62
    Date: 2016
  37. By: Pablo Ottonello (University of Michigan); Ignacio Presno (Universidad de Montevideo); Javier Bianchi (Federal Reserve Bank of Minneapolis)
    Abstract: Is fiscal stimulus desirable when financing the government spending might imply a surge in borrowing costs and potentially lead to a sovereign debt crisis? This paper studies the optimal fiscal policy for a small open economy in a currency union in which the government cannot commit. In our two-sector dynamic model, the presence of downward nominal wage rigidity coupled with financial frictions may give rise to the welfare-improving effects of an expansionary fiscal policy. The government is confronted with a trade-off between the benefits of reducing unemployment and the financial costs of increasing external borrowing. A quantitative analysis is conducted to assess the desirability of austerity plans and stimulus programs in the context of the ongoing European debt crisis. In our theoretical framework, the response of the economic activity to government expenditures is highly nonlinear in the stock of external debt and the magnitude of the shocks.
    Date: 2016
  38. By: Corsetti, Giancarlo; Kuester, Keith; Müller, Gernot
    Abstract: We analyze macroeconomic stabilization in a small open economy which faces a large recession in the rest of the world. We show that for the economy to remain isolated from the shock, the exchange rate must depreciate not only to offset the collapse in external demand, but also to decouple domestic prices from deflation in the rest of the world. If monetary policy becomes constrained by the zero lower bound, the scope of exchange rate depreciation is limited. Still, in this case there is a ``benign coincidence'': fiscal policy is particularly effective in stabilizing economic activity. Under fixed exchange rates, instead, the impact of the external shock is particularly severe and the effectiveness of fiscal policy reduced.
    Keywords: Benign coincidence; Exchange rate; external shock; External-demand multiplier; Fiscal Multiplier; great recession; zero lower bound
    JEL: E31 F41 F42
    Date: 2016–08
  39. By: Faberman, R. Jason (Federal Reserve Bank of Chicago); Kudlyak, Marianna (Federal Reserve Bank of San Francisco)
    Abstract: We use panel data on individual applications to job openings on a job search website to study search intensity and search duration. Our data allow us to control for the composition of job seekers and changes in the number of available job openings over the duration of search. We find that (1) the number of applications sent by a job seeker declines over the duration of search, and (2) longer-duration job seekers send relatively more applications per week throughout their entire search. The latter finding contradicts the implications of standard labor search models. We argue that these models fail to capture an income effect in search effort that causes job seekers with the lowest returns to search to exert the highest effort. We present evidence in support of this idea.
    JEL: E24 J24 J31
    Date: 2016–07–23
  40. By: Marlon Fritz (Paderborn University); Thomas Gries (Paderborn University); Yuanhua Feng (Paderborn University)
    Abstract: We study the dynamic pattern of business cycles using US GDP data between 1790 and 2010. To address difficulties in the trend and cycle decomposition, we introduce a semiparametric estimation approach with an iterative plug-in (IPI) algorithm for endogenous bandwidth selection. This algorithm identifies continuously Moving Growth Rate Trends (MGT) with a time length of 24 years. Afterwards, nonlinear SETAR models are fitted parametrically. Additionally, we test the trend in a recent developed test and the estimated SETAR models against their linear alternatives. The results indicate asymmetric characteristics during booms and busts.
    Keywords: Business Cycles, Trend and Cycle Decomposition, Semiparametric Estimation, SETAR model
    JEL: E32 C14 C22 C51
    Date: 2016–09
  41. By: Fuster, Andreas (Federal Reserve Bank of New York); Guttman-Kenney, Benedict (U.K. Financial Conduct Authority); Haughwout, Andrew F. (Federal Reserve Bank of New York)
    Abstract: Borrowers’ housing equity is an important component of their wealth and a critical determinant of their vulnerability to shocks. In this paper, we create a unique data set that allows us to provide a comprehensive look at the ratio of housing debt to housing values—what we refer to as household leverage—at the micro level. An advantage of our data is that we are able to study the evolution of household leverage over time and across locations in the United States. We find that leverage was at a very low point just prior to the large declines in house prices that began in 2006, but it rose very quickly thereafter, despite reductions in housing debt. As of late 2015, leverage statistics are approaching their pre-crisis levels, as house prices have risen over 30 percent nationally since 2012. We use our borrower-level leverage measures and another unique feature of our data—updated borrower credit scores—to conduct “stress tests”: projecting leverage and defaults under various adverse house price scenarios. We find that while the riskiness of the household sector has declined significantly since 2012, it remains vulnerable to very severe declines in house prices.
    Keywords: mortgages; leverage; stress testing
    JEL: D14 E27 G21
    Date: 2016–08–01
  42. By: Tomio, Bruno Thiago
    Abstract: The empirical literature on Kaleckian growth and distribution models has almost exclusively investigated developed countries. These studies have used varied econometric techniques and estimation methods, but little attention was given to the developing countries. Onaran and Galanis (2013) provide an extensive review on this literature, and they complement it by estimating models for some developing countries. Nevertheless, due to lack of data, they were unable to estimate the model for Brazil. The contribution of this paper is to expand this empirical literature by adding the results that were found for Brazil. Hence, the Brazilian demand regime is analyzed in the period of 1956-2008, with the functional distribution of income data supplied by Adalmir Marquetti (which was developed in a paper by Marquetti et al., 2010). By applying the single-equation technique in the open economy Bhaduri/Marglin model, as outlined in Hein and Vogel (2008), the results of the estimation show that the demand regime in Brazil is wage-led, both domestically and as an open economy. Therefore, increases in the profit share tend to harm the demand. Finally, based on the estimated results and findings, policy implications are drawn.
    Keywords: demand-led accumulation regimes,single equation approach,wage-led,Brazil
    JEL: B50 E12 E25
    Date: 2016
  43. By: Heise, Arne
    Abstract: Walras' law is central to the formation of economic theory. For mainstream economics, it is a device for testing rigorousness and consistency of model-building; for heterodox economists, the refutation of Walras' law is key to understanding Keynes' revolutionary contribution to a new economic paradigm. The purpose of this short research note is to elaborate on the possibility of a refutation of Walras' law and to inquire into its preconditions. It will be argued that this can only be achieved on the basis of an alternative pre-analytic vision of a genuine monetary economy as forshadowed by John Maynard Keynes.
    Keywords: Walras' law,equilibrium,disequilibrium,heterodoxy,orthodoxy
    JEL: B50 D50 D51 E
    Date: 2016
  44. By: Kan Chen; Mario Crucini
    Abstract: Economic research into the causes of business cycles in small open economies is almost always undertaken using a partial equilibrium model. This approach is characterized by two key assumptions. The first is that the world interest rate is unaffected by economic developments in the small open economy, an exogeneity assumption. The second assumption is that this exogenous interest rate combined with domestic productivity is sufficient to describe equilibrium choices. We demonstrate the failure of the second assumption by contrasting general and partial equilibrium approaches to the study of a cross-section of small open economies. In doing so, we provide a method for modeling small open economies in general equilibrium that is no more technically demanding than the small open economy approach while preserving much of the value of the general equilibrium approach.
    Date: 2016–08
  45. By: McGrattan, Ellen R. (Federal Reserve Bank of Minneapolis); Prescott, Edward C. (Federal Reserve Bank of Minneapolis)
    Abstract: Many countries are facing challenging fiscal financing issues as their populations age and the number of workers per retiree falls. Policymakers need transparent and robust analyses of alternative policies to deal with demographic changes. In this paper, we propose a simple framework that can easily be matched to aggregate data from the national accounts. We demonstrate the usefulness of our framework by comparing quantitative results for our aggregate model with those of a related model that includes within-age-cohort heterogeneity through productivity differences. When we assess proposals to switch from the current tax and transfer system in the United States to a mandatory saving-for-retirement system with no payroll taxation, we find that the aggregate predictions for the two models are close.
    Keywords: Taxation; Retirement; Social Security; Medicare
    JEL: E13 H55 I13
    Date: 2016–08–11
  46. By: Aysit Tansel (Department of Economics, Middle East Technical University, IZA, ERF Cairo); Zeynel Abidin Ozdemir (Department of Economics, Gazi University, ERF Cairo); Emre Aksoy (Department of Economics, Kirikkale University)
    Abstract: This article explores the long-run relationship between unemployment rate and labor force participation rate in Canada. The cointegration analysis vindicates the existence of a long-run relationship between these two variables. This finding leads us to doubt the pertinence of the unemployment invariance hypothesis for Canada. This is consistent with the empirical studies for Japan, Sweden and the United States, but contradicts the empirical studies for Australia, Romania and Turkey. There are contradictory studies for the United Kingdom.
    Keywords: Unemployment Invariance Hypothesis; Unemployment; Labor Force Participation; Cointegration; Canada.
    JEL: E24 J64 J21
    Date: 2016–08
  47. By: Craig Benedict; Mario J. Crucini; Anthony Landry
    Abstract: In this paper, we argue that differences in the cost structure across sectors play an important role in the decision of firms to adjust their prices. We develop a menu-cost model of pricing in which retail firms intermediate trade between producers and consumers. An important facet of our analysis is that the labor-cost share of retail production differs across goods and services in the consumption basket. For example, the price of gasoline at the retail pump is predicted to adjust more frequently and by more than the price of a haircut due to the high volatility in wholesale gasoline prices relative to the wages of unskilled labor, even when both retailers face a common menu cost. This modeling approach allows us to account for some of the cross-sectional differences observed in the frequency of price adjustments across goods. We apply this model to Ecuador to take advantage of inflation variations and the rich panel of monthly retail prices.
    JEL: E3 E58 F3 F41
    Date: 2016–08
  48. By: Crowley, Patrick M.; Hudgins, David
    Abstract: This paper uses wavelet-based optimal control to simulate fiscal and monetary strategies under different levels of policy restrictions. The model applies the Maximal Overlap Discrete Wavelet Transform (MODWT) to United States quarterly GDP data, and then uses the decomposed variables to build a large 80 dimensional state-space linear-quadratic tracking model. Using a political targeting design for the frequency range weights, we simulate jointly optimal fiscal and monetary policy where: (1) both fiscal and monetary policy are dually emphasized, (2) fiscal policy is unrestricted while monetary policy is restricted to achieving a steady increase in the market interest rate, and (3) only monetary policy is relatively active, while fiscal spending is restricted to achieving a target growth rate. The results show that fiscal policy must be more aggressive when the monetary authorities are not accommodating the fiscal expansion, and that the dual-emphasis policy leads a series of interest rate increases that are balanced between a steadily increasing target and a low, fixed rate. This research is the first to construct integrated fiscal and monetary policies in an applied wavelet-based optimal control setting using U.S. data.
    Keywords: fiscal policy, linear-quadratic, monetary policy, optimal tracking control, discrete wavelet analysis
    JEL: C49 C61 C63 C88 E58 E61
    Date: 2016–08–04
  49. By: Lukas Schmid (Duke University); Andres Schneider (UCLA); Mikhail Chernov (UCLA)
    Abstract: Premiums on US sovereign CDS have risen to persistently elevated levels since the financial crisis. In this paper, we ask whether these premiums reflect the probability of a US \emph{fiscal default}, namely a state in which budget balance can no longer be restored by further raising taxes or eroding the real value of debt by raising inflation. To that end, we develop a tractable equilibrium macrofinance model of the US economy, in which the fiscal and monetary policy stance jointly endogenously determine nominal debt, taxes, inflation and growth. While US CDS cannot be valued using standard replication arguments, we show how in our equilibrium model, CDS premiums reflect endogenous risk adjusted fiscal default probabilities. A calibrated version of the model is quantitatively consistent with high premiums on US sovereign CDS.
    Date: 2016
  50. By: Antonio N. Bojanic (Department of Economics, Tulane University)
    Abstract: This paper analyzes the impact of fiscal decentralization on economic freedom and political and civil liberties in the Americas. Regarding the latter and with the full sample of countries, the findings suggest that decentralization initially worsens but eventually improves political and civil liberties, underlining the importance of fiscal decentralization as a driver for achieving basic liberties. When Canada and the US are excluded, the evidence shows that decentralization may eventually be a detriment for political and civil liberties. With respect to the impact of fiscal decentralization on economic freedom, decentralization first hinders but eventually increases freedom when all countries are included, emphasizing the point that a decentralization regime takes time to develop and function properly. When Canada and the US are excluded, decentralization initially increases but ultimately hampers freedom, demonstrating that if the decentralization regime does not address important matters like fiscal discipline, wealth inequality, and political accountability, economic freedom – like political and civil liberties – will also deteriorate.
    Keywords: Fiscal decentralization, economic freedom, political and civil liberties.
    JEL: E62 H70 O23 P52
    Date: 2016–08
  51. By: Adrian, Tobias (Federal Reserve Bank of New York); Stackman, Daniel (Federal Reserve Bank of New York); Vogt, Erik (Federal Reserve Bank of New York)
    Abstract: We estimate a highly significant price of risk that forecasts global stock and bond returns as a nonlinear function of the CBOE Volatility Index (VIX). We show that countries’ exposure to the global price of risk is related to macroeconomic risks as measured by output, credit, and inflation volatility, the magnitude of financial crises, and stock and bond market downside risk. Higher exposure to the global price of risk corresponds to both higher output volatility and higher output growth. We document that the transmission of the global price of risk to macroeconomic outcomes is mitigated by the magnitude of stabilization in the Taylor rule, the degree of countercyclicality of fiscal policy, and countries’ tendencies to employ prudential regulations. The estimated magnitudes are quantitatively important and significant, with large cross-sectional explanatory power. Our findings suggest that macroeconomic and financial stability policies should be considered jointly.
    Keywords: financial stability; monetary policy; fiscal policy; regulatory policy
    JEL: G01 G12 G17
    Date: 2016–08–01
  52. By: Lojak, Benjamin
    Abstract: Recent evidence on the development of corporate debt suggests that firms' leverage ratios increased enormously during the past few decades. Taking into account firms financing concerns, the present work provides a dynamic disequilibrium model that is able to generate cyclical patterns of various key economic variables. One of the main features of the model is that a dynamic law governing the evolution of investor sentiment determines firms' investment through their sales expectations according to recurrent and endogenously determined waves of optimism and pessimism. The model further incorporates commercial banks providing loans to firms with the respective lending rate exhibiting a mark-up that changes endogenously with the evolution of the firms' indebtedness. It is shown that the model generates sentiment-driven business cycle fluctuations for two economic environments that exist contemporaneously: a "normal-" and "high-indebted" regime.
    Keywords: Minsky Cycles,De-Leveraging,Paradox of Debt,Financial Accelerator,Business Sentiment,Kaleckian Model,Disequilibrium Model
    Date: 2016
  53. By: Boneva, Lena (Monetary Policy Committee Unit, Bank of England); CLoyne, James (Monetary Policy Committee Unit, Bank of England); Weale, Martin (Monetary Policy Committee Unit, Bank of England); Wieladek, Tomasz (Monetary Policy Committee Unit, Bank of England)
    Abstract: In many forward-looking macroeconomic models, such as the New Keynesian model, firms’ expectations about the future play a key role in determining outcomes today. We examine this hypothesis using a novel panel dataset on firms actual and expected price changes collected by the Confederation of British Industry. Our microeconometric approach overcomes the identification issues faced by previous empirical studies. The results suggest that firms’ expectations play a key role in their price-setting behaviour, with a coefficient on firm’s expectations consistent with the discount factor typically assumed in macroeconomic models.
    Keywords: Pricing-setting; survey data; inflation expectations; New Keynesian Phillips Curve
    JEL: C23 C26 E31
    Date: 2016–08–11
  54. By: Watanabe, Hiroki
    Abstract: This paper provides a theoretical and empirical analysis of the distribution of GDP at city level (henceforth referred to as gross metropolitan product, GMP) with the aim of bridging the gap betwen the literature on agglomeration economies and the city-size distribution. We show that 1) it shares the same characteristics to the city-size counterpart: They are both fat-tailed, and 2) a 1% increase in employment leads to a 1.117% (or 1.180% in theory) increase in GMP. Free mobility of household forces a city to operate at the size where scale economies are present, or else, the city cannot offset the reduced housing consumption and increased congestion due to crowding set off by agglomeration economies, and loses its population and GMP to elsewhere. We establish a production economy model to break down the interplay above and derive the equilibrium GMP distribution, which tests well with the US data on GMP.
    Keywords: Zipf’s Law, Gibrat’s Law, GDP by City, Production Economy
    JEL: D51 E2 R12
    Date: 2015–11–05
  55. By: Platon Monokroussos; Dimitrios D. Thomakos; Thomas A. Alexopoulos
    Abstract: Using a new dataset of macroeconomic and banking-related variables we attempt to explain the evolution of “bad” loans in Greece over the period 2005-2015. Our findings suggest that the primary cause of the sharp increase in non-performing loans (NPLs) following the outbreak of the sovereign debt crisis can be mainly attributed to the unprecedented contraction of domestic economic activity and the subsequent rise in unemployment. Furthermore, our results offer no empirical evidence in support of a range of examined hypotheses assuming overly aggressive lending practices by major Greek credit institutions or any systematic efforts to boost current earnings by extending credit to lower credit quality clients. We find that the transmission of macroeconomic shocks to NPLs takes place relatively fast, with the estimated magnitude of the respective responses being broadly comparable with that documented in some earlier studies for other euro area periphery economies. Overall, our results support a swift implementation of reforms agreed with official lenders in the context of the new (3rd) bailout programme. These envisage the modernization the county’s private sector insolvency framework and the creation of a more efficient model for the management of NPLs. A vigorous implementation of these reforms is key for allowing a resumption of positive credit creation, by freeing up valuable resources that are currently trapped in unproductive sectors of the domestic economy. This, in turn, would facilitate a speedier return to positive economic growth and a gradual reduction in unemployment.
    Date: 2016–08
  56. By: Christoph Große Steffen; Maximilian Podstawski
    Abstract: This paper introduces changes in the level of ambiguity as a complementary source of time-varying risk aversion. We show in a consumption-based asset pricing model with simultaneously risky and ambiguous assets that a rise in the level of ambiguity raises investors' risk aversion. The effect is quantified in an application to European sovereign debt markets using a structural VAR to achieve identification in the data. We proxy for ambiguity using a measure of macroeconomic uncertainty and decompose empirically credit default swaps (CDS) for Spain and Italy into three shocks: fundamental default risk, risk aversion, and uncertainty. We find that shocks to uncertainty significantly increase international investors' risk aversion, accounting for about one fifth of its variation at a five week horizon, and have a significant and economically relevant impact on sovereign financing premia
    Keywords: Time-varying risk aversion, Ambiguity, Uncertainty, Sovereign debt, Identification via heteroscedasticity, Maxmin
    JEL: C32 D80 E43 G01 H63
    Date: 2016
  57. By: Andric, Vladimir; Arsic, Milojko; Mladenovic, Zorica
    Abstract: We analyse the dynamics of public debt in Serbia between 2004Q3 and 2014Q3. Our results are as follows: i) traditional unit root tests do not reject the unit root hypothesis for public debt; ii) unit root tests robust to sample size and high AR (1) coefficient provide mixed evidence with respect to unit root testing; iii) unit root tests with a breakpoint unequivocally reject the unit root hypothesis; iv) structural break in public debt dynamics ocurred in 2008Q2-2008Q4 due to the arrival of the Great Recession to Serbia; v) the estimated SETAR model shows how public debt persistence tends to be higher above the 45% debt/GDP fiscal rule limit.
    Keywords: Serbia,Great Recession,public debt sustainability,unit root tests,SETAR model
    JEL: E62 H63 P20
    Date: 2016
  58. By: Barbara Nowakowska; Piotr Noceñ; Micha³ Surowski; Micha³ Popio³ek
    Abstract: In the publication, Barabara Nowakowska and Piotr Noceñ discuss 'Poland’s Private Equity Market: Current Conditions and Development Prospects', and Micha³ Surowski and Micha³ Popio³ek describe 'Private Equity From a Bank’s Perspective'.
    Keywords: Financial Markets and the Macroeconomy, Financial institutions and Services, Non-bank Financial Institutions, Institutional Investors
    JEL: E44 G2 G23
    Date: 2016–02
  59. By: -
    Abstract: U.S. economic growth disappointed in the first quarter of 2016, as global conditions continued to have an adverse impact. According to the U.S. Department of Commerce’s third estimate, the GDP grew at a 1.1% annualized pace in the first quarter, up from a previous estimate of 0.8%, and down from 1.4% in the fourth quarter of 2015. Growth was under 1.5% for the last two quarters, the worst six-month performance in nearly three years.
    Date: 2016–06
  60. By: Vasilev, Aleksandar
    Abstract: This paper utilizes an otherwise standard micro-founded general-equilibrium setup, which is augmented with a revenue-extraction mechanism to assess the magnitude of VAT evasion. The model is calibrated to Bulgaria after the introduction of the currency board (1999-2014), as one of the very few countries in Europe with a non-differentiated consumption tax rate, and an economy where VAT revenue makes almost half of total government tax revenue. A computational experiment performed within this setup estimates that on average, the size of evaded VAT is a bit more than one-fourth of output, an estimate which is in line with the figures provided in both Philip (2014) and the European Commission (2014). In addition, model-based simulations suggest that increases in spending on law and order could generate substantial welfare gains by decreasing VAT evasion.
    Keywords: VAT evasion,general equilibrium,Bulgaria
    JEL: D58 E26 H26 K42
    Date: 2016
  61. By: Kelly, Robert (Central Bank of Ireland); O'Toole, Conor (Central Bank of Ireland)
    Abstract: This research considers one approach as to how originating lending conditions on debtservice ratios and loan-to-value ratios affect future default risk in the “Buy-to-Let” market. Using a sample of mortgage loans for the UK, we estimate a “double trigger” default model, with originating equity and affordability terms. We find default increasing with originating loan-to-value (OLTV) and falling in original rent coverage (ORC). A non-linear cubic spline model is used to identify threshold effects in the relationship between OLTV, ORC and default, with loans of OLTV greater than 75 and ORC below 1.5 showing a large increase in default risk. These results provide empirical evidence for the non-linear nature of default in these origination terms and provides useful insights into for understanding OLTV and ORC limits in a macro prudential context. In addition, we investigate how multiple loan portfolios interact with these thresholds. While there is no impact on the main findings of 75 and 1.5, there is strong evidence to support tighter restrictions on loans for second and subsequent properties.
    Keywords: Macroprudential, Credit Risk, Mortgages, UK.
    JEL: E32 E51 F30 G21 G28
    Date: 2016–06
  62. By: Richters, Oliver; Siemoneit, Andreas
    Abstract: Is fostering economic growth a question of political will or "unavoidable" to maintain economic stability? It is disputed whether such 'growth imperatives' are located within the current monetary system, creating a conflict with sustainability. To examine the claim that compound interest causes the growth imperative, we present five post-Keynesian models and perform a stability analysis in the parameter space. A stationary state with zero net saving and investment can be reached with positive interest rates, if the parameter "consumption out of wealth" is above a threshold that rises with the interest rate. The other claim that retained profits from the interest revenues of banks create an imperative is based on circuitist models that we consider refutable. Their accounting is not consistent, and a modeling assumption central for a growth imperative is not underpinned theoretically: Bank's equity capital has to increase even if debt does not. This is a discrepancy between the authors' intentions in their texts and their actual models. We conclude that a monetary system based on interest-bearing debt-money with private banks does not lead to an "inherent" growth imperative. If the stationary state is unstable, it is caused by decisions of agents, not by structural inevitableness.
    Abstract: Ist das Streben nach Wirtschaftswachstum eine Frage des politischen Willens oder eine notwendige Bedingung für ökonomische Stabilität? Es ist umstritten, ob solche "Wachstumszwänge" im heutigen Geldsystem bestehen, und einen Konflikt mit Nachhaltigkeit hervorrufen. Zur Untersuchung der ersten Behauptung, dass Zinseszinsen einen Wachstumszwang hervorrufen, stellen wir fünf post-Keynesianische Modelle vor und führen eine Stabilitätsanalyse im Parameterraum durch. Eine stationäre Ökonomie mit Spar- und Investitionsquote von null kann bei positivem Zinssatz erreicht werden, wenn der Parameter "Konsum aus dem Bestand" oberhalb eines Schwellenwerts liegt, der mit dem Zinssatz ansteigt. Die andere Behauptung, dass die Bildung von Gewinnrücklagen aus den Zinseinnahmen der Banken zu einem Wachstumszwang führt, basiert auf Modellen des monetären Kreislaufs die wir für widerlegbar halten. Ihre Bilanzierung ist inkonsistent, und eine zentrale Modellannahme ist nicht theoretisch begründet, aber die Hauptursache des Wachstumszwangs: Das Eigenkapital der Bank muss gesteigert werden, selbst wenn ihre Verbindlichkeiten nicht wachsen, was eine Diskrepanz zwischen der Intention der Autoren und dem eigentlichen Modell ist. Wir kommen zum Schluss dass das heutige Geldsystem auf der Basis von zinstragendem Kreditgeld mit privaten Banken nicht zu einem "inhärenten" Wachstumszwang führt. Falls der stationäre Zustand instabil ist, liegt es an Entscheidungen wirtschaftlicher Agenten und nicht an struktureller Unvermeidbarkeit.
    Keywords: Ecological Macroeconomics,Zero Growth,Growth Imperative,Monetary Economy,Ökologische Makroökonomik,Nullwachstum,Wachstumszwang,monetäre Ökonomie
    Date: 2016
  63. By: Tumen, Semih (Central Bank of Turkey)
    Abstract: This paper develops a model of sequential job search to understand the factors determining the effect of tax and enforcement policies on the size (i.e., employment share) of the informal sector. The focus is on the role of informal sector as a stepping stone to formal jobs. I argue that the stepping-stone role of informal jobs is an important concept determining how strongly government policies affect the size of informal sector. I measure the extent of the stepping-stone role with the intensity of skill accumulation in the informal sector. If informal jobs help workers acquire skills, gain expertise, and build professional networks for boosting the chances to switch to a formal job, then the size of the informal sector is less sensitive to government policy. In this case, the option value of a job in the informal sector will be high and a worker with an informal job will not rush to switch to a formal job when a policy encouraging formal employment is in effect. If, on the other hand, the informal sector does not provide satisfactory training opportunities, then the size of the informal sector becomes more sensitive to government policy. Calibrating the model to the Brazilian data, I perform numerical exercises confirming that the effect of government policy on the size of the informal sector is a decreasing function of the intensity of skill acquisition in the informal sector.
    Keywords: informal sector, stepping stone, government policy, job search, human capital, option value
    JEL: E26 J24 J38 J64
    Date: 2016–08
  64. By: Knüppel, Malte; Vladu, Andreea L.
    Abstract: In recent years, survey-based measures of expectations and disagreement have received increasing attention in economic research. Many forecast surveys ask their participants for fixed-event forecasts. Since fixed-event forecasts have seasonal properties, researchers often use an ad-hoc approach in order to approximate fixed-horizon forecasts using fixed-event forecasts. In this work, we derive an optimal approximation by minimizing the mean-squared approximation error. Like the approximation based on the ad-hoc approach, our approximation is constructed as a weighted sum of the fixed-event forecasts, with easily computable weights. The optimal weights tend to differ substantially from those of the ad-hoc approach. In an empirical application, it turns out that the gains from using optimal instead of ad-hoc weights are very pronounced. While our work focusses on the approximation of fixedhorizon forecasts by fixed-event forecasts, the proposed approximation method is very flexible. The forecast to be approximated as well as the information employed by the approximation can be any linear function of the underlying high-frequency variable. In contrast to the ad-hoc approach, the proposed approximation method can make use of more than two such informationcontaining functions.
    Keywords: survey expectations,forecast disagreement
    JEL: C53 E37
    Date: 2016
  65. By: Cruz-Rodríguez, Alexis
    Abstract: This article provides empirical support for the hypothesis that different exchange rate regimes have an impact on inflation in advanced, emerging and developing countries. The effects of different exchange rate regimes on inflation performance are examined through least squares dummy variables regressions using panel data on 125 countries for the post-Bretton Woods (1974-1999). Also, this article addresses the issue of measurement errors in the classification of exchange rate regimes by using four different classification schemes. Three de facto and one de jure classifications are used. Consequently, the sensitivity of these results to alternative exchange rate classifications is also tested. The empirical findings indicate that countries with fixed regimes tend to have a lower inflation rate compared to floating and intermediate exchange rate regimes, particularly in emerging and developing countries.
    Keywords: Exchange rate regimes, inflation
    JEL: E31 F31 F33
    Date: 2016–07–28
  66. By: Nyorekwa, Enock Twinoburyo; Odhiambo, Nicholas Mbaya
    Abstract: The role of monetary policy in promoting economic growth remains empirically an open research question. This paper attempts to bridge the knowledge gap by investigating the impact of monetary policy on economic growth in Tanzania during the period from 1975 to 2013 ??? using the autoregressive distributed lag (ARDL) bounds-testing approach. The study uses two proxies of monetary policy, namely, money supply and interest rate, to examine this linkage. The empirical results of this study confirm the existence of long-run monetary policy neutrality ??? irrespective of the proxy used to measure monetary policy. However, the short-run results only confirm the existence of monetary policy neutrality ??? but only when the interest rate is used as a proxy for monetary policy. When money supply is used to measure monetary policy, a negative relationship between monetary policy and economic growth is found to predominate
    Keywords: Monetary Policy, Economic Growth, Interest Rate, Money Supply
    Date: 2016–08
  67. By: Kroker, Rolf; Bardt, Hubertus
    JEL: D73 E61 D61
    Date: 2016
  68. By: Richard Frensch (IOS Regensburg); Roman Horváth; Stephan Huber
    Abstract: We proposeanovel way to measure the rule of law intensity of exports at the goods level based on nearly 100 million disaggregated bilateral trade flows around the globe. We categorise goods into three groups: fragmented, primary and other. The theoretical literature on hold-up problems connected to incomplete or incompletely enforceable contracts or property rights predicts that goods resulting from fragmented production processes should be the most rule of law intensive. However, we find that the rule of law intensity of other goods is, on average, only slightly lower than that of fragmented goods. We examine how exogenous variation in countries’ trade patterns influences the quality of institutions. Our regressions show that trade flows generated by fragmented and other processes of production improve rule of law, while trade flows generated by primary production do not.
    Keywords: trade patterns, rule of law
    JEL: C83 D91 E21
    Date: 2016–07
  69. By: Escañuela Romana, Ignacio
    Abstract: The scientific literature that studies the economic cycles contains a historical debate between random and deterministic models. On the one hand, models with explanatory variables that follow a stochastic trajectory and produce, through transmission mechanisms, the observed cycles. Its rationale: the so-called Slutsky-Yule effect. In addition, models in which the system state at time t fixes, ceteris paribus condition applying, the state at time t + 1. The cycle would be the product of variables, making it possible to predict and enabling economic policies to combat recessions. The thesis of this paper is as follows. The application of the theorems of Chaitin of undecidability shows that it is not possible to conclude that debate. It is impossible to determine with absolute certainty whether the observed cycles follow a deterministic or stochastic model. To reach this result, I outline the fundamental theories of the business cycle, providing a classification and examples of mathematical models. I review the definition of randomness, and I consider the demonstration of Chaitin about the impossibility of deciding whether a data set is stochastic or not. A consequence, he says, of Gödel incompleteness theorems. I conclude that to consider a series of economic data, aggregated or not, as random or deterministic, depends on the theory. This applies to all cyclical phenomena of any kind. Specific mathematical models have observable consequences. But probabilism and determinism are only heuristic programs that guide the advancement of knowledge.
    Keywords: Randomness; business cycle theories; undecidability; heuristic.
    JEL: B40 C00 D50 E32
    Date: 2016–08–10
  70. By: Araujo, Luiz Nelson
    Abstract: This paper examines the Federal Reserve System’s dissemination of information strategy to see how well it has worked and how it can be improved. The System provides information to a broad spectrum of individuals and organizations. The evidence collected, for the first time, shows a high level of discrepancy in relation to the use of social media channels to disseminate information among Banks in the Federal Reserve System. Overall, the Federal Reserve System adopts and makes available to stakeholders the same platforms for the dissemination of information. They use the same general structure of alternatives, but with significant differences in accessibility, availability, and quality. There are many options to improve the current offerings in these three attributes when one takes into account not only the best practice within the System but also that adopt by central banks in other jurisdictions, and even organizations in the private sector.
    Keywords: Federal Reserve System, Federal Reserve Banks, Fed, Central Bank Communication, Central Bank Dissemination of Information, Social Media Channels
    JEL: E58 E59
    Date: 2016–08–15
  71. By: Mikkel Plagborg-Møller
    Abstract: This dissertation consists of three independent chapters on econometric methods for macroeconomic analysis. In the first chapter, I propose to estimate structural impulse response functions from macroeconomic time series by doing Bayesian inference on the Structural Vector Moving Average representation of the data. This approach has two advantages over Structural Vector Autoregression analysis: It imposes prior information directly on the impulse responses in a flexible and transparent manner, and it can handle noninvertible impulse response functions. The second chapter, which is coauthored with B. J. Bates, J. H. Stock, and M. W. Watson, considers the estimation of dynamic factor models when there is temporal instability in the factor loadings. We show that the principal components estimator is robust to empirically large amounts of instability. The robustness carries over to regressions based on estimated factors, but not to estimation of the number of factors. In the third chapter, I develop shrinkage methods for smoothing an estimated impulse response function. I propose a data-dependent criterion for selecting the degree of smoothing to optimally trade off bias and variance, and I devise novel shrinkage confidence sets with valid frequentist coverage.
    Date: 2016–01
  72. By: Han, Song; Nikolaou, Kleopatra
    Abstract: We use a new panel data set on intraday transactions of triparty repos (TPR) to study trading relationships in the over-the-counter market. We test the prediction that search frictions lead to relationship formation. We find that TPR trading parties form relationships with a broad number of counterparties but tend to focus their transaction volumes on only a small set of counterparties. We also find that having stable relationships and broader interactions across other funding markets positively shapes the relationships of investors with dealers in the TPR market. Finally, our results suggest that relationships affect the likelihood of a trade and terms of trade and help buffer demand and supply shocks to liquidity. Specifically, the Fed's Reverse Repurchase (RRP) exercise draws funds away from lenders in the TPR market, effectively generating a negative shock to the supply of funds for dealers. Meanwhile, Treasury auctions introduce a positive shock to the demand for funds by dealers. We find that in both cases, shocks are absorbed better by trade partners with stronger relationships.
    Keywords: Triparty repos ; OTC markets ; Trade relationships ; RRP exercise ; Treasury Auctions ; Search frictions
    JEL: G12 G24 E58
    Date: 2016–03
  73. By: Armand, Alex (University of Navarra); Attanasio, Orazio (University College London); Carneiro, Pedro (University College London); Lechene, Valerie (University College London)
    Abstract: This paper studies the differential effect of targeting cash transfers to men or women on the structure of household expenditures on non-durables. We study a policy intervention in the Republic of Macedonia, offering cash transfers to poor households, conditional on having their children attending secondary school. The recipient of the transfer is randomized across municipalities to be either the household head or the mother. Using data collected to evaluate the conditional cash transfer program, we show that the gender of the recipient has an effect on the structure of expenditure shares. Targeting transfers to women increases the expenditure share on food by about 4 to 5%. To study the allocation of expenditures within the food basket, we estimate a demand system for food and we find that targeting payments to mothers induces, for different food categories, not only a significant intercept shift, but also a change in the slope of the Engel curve.
    Keywords: CCT, intra-household, gender, expenditure
    JEL: D12 D13 E21 O12
    Date: 2016–08

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