nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒09‒18
103 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Effectiveness of Central Bank Forward Guidance under Inflation and Price-Level Targeting By Cole, Stephen J.
  2. Optimal Monetary Policy in a Collateralized Economy By Gary Gorton; Ping He
  3. Monetary policy transmission in an open economy: new data and evidence from the United Kingdom By Cesa-Bianchi, Ambrogio; Thwaites, Gregory; Vicondoa, Alejandro
  4. Bitcoin Mission Statement. Or What does it mean Sharing Economy and Distributed Trust? By Kosten, Dmitri
  5. The performativity of potential output: Pro-cyclicality and path dependency in coordinating European fiscal policies By Philipp Heimberger; Jakob Kapeller
  6. Unemployment Persistence, Inflation and Monetary Policy in A Dynamic Stochastic Model of the Phillips Curve By George Alogoskoufis
  7. Re-vitalizing Money Demand in the Euro Area: Still Valid at the Zero Lower Bound By Christian Dreger; Dieter Gerdesmeier; Barbara Roffia
  8. Манифест Биткойна или Крипто-Социализм как следующая фаза Социально-Экономического развития. By Kosten, Dmitri
  9. A dynamic model of financial balances for the United Kingdom By Burgess, Stephen; Burrows, Oliver; Godin, Antoine; Kinsella, Stephen; Millard, Stephen
  10. Fiscal multipliers across the credit cycle By Mihály Tamás Borsi
  11. Money, Asset Prices and the Liquidity Premium By Lee, Seungduck
  12. Nominal Rigidities in Debt and Product Markets By Carlos Garriga; Finn E. Kydland; Roman Šustek
  13. Credit cycles and real activity - the Swiss case By Gregor Bäurle; Rolf Scheufele
  14. The Signaling Effect of Raising Inflation By Jean Barthélemy; Eric Mengus
  15. Debt Constraints and Employment By Patrick Kehoe; Elena Pastorino; Virgiliu Midrigan
  16. Unconventional monetary policy in a small open economy By Margaux MacDonald; Michal Popiel
  17. Do expectations matter? Reassessing the effect of government spending on key macroeconomic variables in Germany By Gründler, Klaus; Sauerhammer, Sarah
  18. The Importance of Unemployment Insurance as an Automatic Stabilizer By Marco Di Maggio; Amir Kermani
  19. Is the ECB unconventional monetary policy effective? By Inês Pereira
  20. Post-GFC external shocks and Indonesian economic performance By Prayudhi Azwar; Rod Tyers
  21. Sovereign Debt Portfolios, Bond Risks, and the Credibility of Monetary Policy By Wenxin Du; Carolin E. Pflueger; Jesse Schreger
  22. The evolution of bad debts in Italy during the global financial crisis and the sovereign debt crisis: a counterfactual analysis By Alessandro Notarpietro; Lisa Rodano
  23. Aging, (Pension) Reforms and the Shadow Economy in Southern Europe By Daniel Baksa; Zsuzsa Munkacsi
  24. Monetary policy, market structure and the income shares in the U.S By George C. Bitros
  25. Wage flexibility and employment fluctuations: evidence from the housing sector By Jörn-Steffen Pischke
  26. Endogenous Search, Price Dispersion, and Welfare By Liang Wang
  27. Regime Shifts in India's Monetary Policy Response Function. By Kumawat, Lokendra; Bhanumurthy, N. R.
  28. The Impact of Macroeconomic News on the Euro-Dollar Exchange Rate By Alberto Caruso
  29. A Detailed Description of OGRE, the OLG Model By Daniel Baksa; Zsuzsa Munkacsi
  30. Learning in the Oil Futures Markets: Evidence and Macroeconomic Implications By Leduc, Sylvain; Moran, Kevin; Vigfusson, Robert J.
  31. Republic of Serbia; Fourth and Fifth Reviews Under the Stand-By Arrangement and Rephasing of the Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Republic of Serbia By International Monetary Fund.
  32. The impact of long-run macroeconomic experiences on personality By Vellekoop, Nathanaël
  33. Forecasting US GNP Growth: The Role of Uncertainty By Mawuli Segnon; Rangan Gupta; Stelios Bekiros; Mark E. Wohar
  34. The theory of unconventional monetary policy By Farmer, Roger; Zabczyk, Pawel
  35. A unified approach to estimating demand and welfare By Stephen J. Redding; David E. Weinstein
  36. Dating Business Cycles in India. By Pandey, Radhika; Patnaik, Ila; Shah, Ajay
  37. Measuring the Natural Rate of Interest : International Trends and Determinants By Holston, Kathryn; Laubach, Thomas; Williams, John C.
  38. Product switching and the business cycle By Andrew B. Bernard; Toshihiro Okubo
  39. Spillovers of the ECB's non-standard monetary policy into CESEE economies By Alessio Ciarlone; Andrea Colabella
  40. Sentiments and Economic Activity: Evidence from U.S. States By Benhabib, Jess; Spiegel, Mark M.
  41. Networks and lending conditions: Empirical evidence from the Swiss franc money markets By Silvio Schumacher
  42. Velocity in the Long Run: Money and Structural Transformation By Antonio Mele; Radoslaw Stefanski
  43. Finance neutral potential output: an evaluation on an emerging market monetary policy context By J. Sebastián Amador-Torres
  44. The Impact of the BRICS alliance on South Africa economic growth - a VECM approach By Ncube, Prince; Cheteni, Priviledge
  45. Self-Employment, Wealth and Start-up Costs: Evidence from a Financial Crisis By Koffi Elitcha; Raquel Fonseca Benito
  46. Population aging and the transmission of monetary policy to consumption By Arlene Wong
  47. Antecedentes del Banco de la República, 1904 -1922. By Adolfo Meisel-Roca.
  48. Testing the Predictability of Consumption Growth: Evidence from China By Liping Gao; Hyeongwoo Kim
  49. Bond Market Asymmetries across Recessions and Expansions: New Evidence on Risk Premia By Martin M. Andreasen; Tom Engsted; Stig V. Møller; Magnus Sander
  50. Labour Market Institutions in Open Economy By Povilas Lastauskas; Julius Stakenas
  51. The Coevolution of Money Markets and Monetary Policy, 1815–2008 By Clemens Jobst; Stefano Ugolini
  52. Modeling Business Cycle Fluctuations through Markov Switching VAR:An Application to Iran By Moradi, Alireza
  53. Random Categorization and Bounded Rationality By David Laidler
  54. State of confidence, overborrowing and the macroeconomic stabilization puzzle: a system dynamic approach By Eleonora Cavallaro; Bernardo Maggi
  55. Financial Safety Nets By Julien Bengui; Javier Bianchi; Louphou Coulibaly
  56. Quantitative Easing and the Liquidity Channel of Monetary Policy By Lucas Herrenbrueck
  57. Monetary Policy and Durable Goods By Miles Kimball; Christopher House; Christoph Boehm; Robert Barsky
  58. La carga tributaria sobre los ingresos laborales y de capital en Colombia: el caso del impuesto sobre la renta y el IVA By Jorge Armando Rodríguez; Javier Ávila Mahecha
  59. The Gross Domestic Product. History, relevance and limitations in its interpretation By Georgescu, George
  60. Quantitative Easing in the Euro Area: The Dynamics of Risk Exposures and the Impact on Asset Prices. By R. S.J. Koijen; F. Koulischer; B. Nguyen; M. Yogo
  61. Interconnection of Fiscal Policies on Sustainability of Public Debt By Atsumasa Kondo
  62. Gini coefficients of education for 146 countries, 1950-2010 By Ziesemer, Thomas
  63. Do Loan-to-Value Ratio Regulation Changes Affect Canadian Mortgage Credit? By Kronick, Jeremy
  64. Income or Consumption: Which Better Predicts Subjective Wellbeing? By Thomas Carver; Arthur Grimes
  65. The Welfare Cost of Retirement Uncertainty By Frank N. Caliendo; Maria Casanova; Aspen Gorry; Sita Slavov
  66. Political Business Cycles 40 Years after Nordhaus By Eric Dubois
  67. Committing to Fiscal Policy: The Influence of the U.S. President on Consumer Confidence and Output By Philipp Adämmer; T. Philipp Dybowski
  68. Labour Market Regulations and Capital Intensity By Gilbert Cette; Jimmy Lopez; Jacques Mairesse
  69. The Effect of Financial Regulation Mandate on Inflatin Bias: A Dynamic Panel Approach By Diana Lima; Ioannis Lazopoulos; Vasco Gabriel
  70. Real-Time Forecast Evaluation of DSGE Models with Stochastic Volatility By Francis X. Diebold; Frank Schorfheide; Minchul Shin
  71. Optimal Bailout of Systemic Banks By Charles Nolan; Plutarchos Sakellaris; John D. Tsoukalas
  72. Effects of Commodity Price Shocks on Inflation: A Cross-Country Analysis By SEKINE Atsushi; TSURUGA Takayuki
  73. Welfare Implications of the Term Structure of Returns: Should Central Banks Fill Gaps or Remove Volatility? By Pierlauro Lopez
  74. Optimal Fiscal Policy in a Model of Firm Entry and Financial Frictions By Tatiana Damjanovic; Dudley Cooke
  75. Mobile Collateral versus Immobile Collateral By Gary Gorton; Tyler Muir
  76. Reassessing Longer-Run U.S. Growth: How Low? By Fernald, John G.
  77. Deposit Insurance in General Equilibrium By Hans Gersbach; Volker Britz; Hans Haller
  78. Trading gains: new estimates of swiss gdp, 1851 to 2008 By Stohr, Christian
  79. Kiribati; 2016 Article IV Consultation-Press Release;Staff Report; and Statement by the Executive Director for Kiribati By International Monetary Fund.
  80. Rationality of announcements, business cycle asymmetry, and predictabilityof revisions. The case of French GDP. By M. Mogliani; T. Ferrière
  81. The Impact of Alternative Transitions to Normalized Monetary Policy By Serguei Maliar; John Taylor; Lilia Maliar
  82. A Lesson from the Great Depression that the Fed Might have Learned: A Comparison of the 1932 Open Market Purchases with Quantitative Easing By Michael Bordo; Arunima Sinha
  83. A Welfare Analysis of Macroprudential Policy Rules in the Euro Area By Jean-Christophe Poutineau; Gauthier Vermandel
  84. Agency Business Cycles By Guido Menzio; Mikhail Golosov
  85. Bosnia and Herzegovina; Request for Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for Bosnia and Herzegovina By International Monetary Fund.
  86. Expenditure Visibility and Voter Memory: A Compositional Approach to the Political Budget Cycle in Indian States, 1959 – 2012 By J. Stephen Ferris; Bharatee B. Dash
  87. On the Efficiency of Monetary Equilibrium when Agents are Wary By Aloisio Araujo; Juan Pablo Gama-Torres; Rodrigo Novinski; Mario Pascoa
  88. Public Debt and Private Firm Funding: Evidence from Chinese Cities By Yi Huang; Marco Pagano; Ugo Panizza
  89. Labor Productivity Slowdown in the Developed Economies. Another Productivity Puzzle? By Georg Erber; Ulrich Fritsche; Patrick Harms
  90. Real Interest Rates, Imbalances and the Curse of Regional Safe Asset Providers at the Zero Lower Bound By Pierre-Olivier Gourinchas; Hélène Rey
  91. Has the wage Phillips curve changed in the euro area? By Guido BUlligan; Eliana Viviano
  92. Role of IST and TFP Shocks in Business Cycle Fluctuations: The Case of India By Parantap Basu; Shesadri Banerjee
  93. The Liquidity Coverage Ratio and Security Prices By Lucas Marc Fuhrer; Benjamin Müller; Luzian Steiner
  94. Endogenous Fluctuations and Social Welfare under Credit Constraints and Heterogeneous Beliefs By Maurizio MOTOLESE; NAKATA Hiroyuki
  95. Whither Inflation Targeting? Speech to the Hayek Group, Reno, Nevada, September 6, 2016 By Williams, John C.
  96. Essays on business cycles with liquidity constraints and firm entry-exit dynamics under incomplete information By Ma, Zhixia
  97. On the behaviour of the functional components ofgovernment expenditures during fiscal consolidations By Vitor Castro
  98. Do Stronger Patents Stimulate or Stifle Innovation? The Crucial Role of Financial Development By Chu, Angus C.; Cozzi, Guido; Pan, Shiyuan; Zhang, Mengbo
  99. Risk Management and the Money Multiplier By Tatiana Damjanovic; Vladislav Damjanovic; Charles Nolan
  100. Money and Credit: Health and Health Inequality during the Great Recession: Evidence from the PSID By Huixia Wang; Chenggang Wang; Timothy Halliday
  101. Analysis of the relationship between Oil price, Exchange rate and Stock market in Nigeria By Raheem, Aremu Idowu; Ayodeji, Musa Adebiyi
  102. Methodology of the National Health Account for Germany - Database, compilation and results By Schwärzler, Marion Cornelia; Kronenberg, Tobias
  103. Distributive Conflict, Growth, and the ‘Entrepreneurial State’. By Daniele Tavani; Luca Zamparelli

  1. By: Cole, Stephen J. (Department of Economics Marquette University)
    Abstract: This paper examines the effectiveness of central bank forward guidance under inflation and price-level targeting monetary policies. The results show that the attenuation of the effects of forward guidance can be solved if a central bank switches from inflation targeting to price-level targeting. Output and inflation respond more favorably to forward guidance with price-level targeting than inflation targeting. A monetary policy rule that aggressively reacts to inflation and includes interest rate inertia narrows the performance gap between the two policy regimes. However, forward guidance with price-level targeting is still preferred to forward guidance with inflation targeting after performing multiple robustness checks.
    Keywords: Forward Guidance, In ation Targeting, Price-Level Targeting, Monetary Policy
    JEL: E30 E31 E50 E52 E58 E60
    Date: 2016–08
  2. By: Gary Gorton; Ping He
    Abstract: In the last forty or so years the U.S. financial system has morphed from a mostly insured retail deposit-based system into a system with significant amounts of wholesale short-term debt that relies on collateral, and in particular Treasuries, which have a convenience yield. In the new economy the quality of collateral matters: when Treasuries are scarce, the private sector produces (imperfect) substitutes, mortgage-backed and asset-backed securities (MBS). When the ratio of MBS to Treasuries is high, a financial crisis is more likely. The central bank’s open market operations affect the quality of collateral because the bank exchanges cash for Treasuries (one kind of money for another). We analyze optimal central bank policy in this context as a dynamic game between the central bank and private agents. In equilibrium, the central bank sometimes optimally triggers recessions to reduce systemic fragility.
    JEL: E02 E42 E44 E5 E52
    Date: 2016–09
  3. By: Cesa-Bianchi, Ambrogio (Bank of England); Thwaites, Gregory (Bank of England); Vicondoa, Alejandro (European University Institute)
    Abstract: This paper constructs a new series of monetary policy surprises for the United Kingdom and estimates their effects on macroeconomic and financial variables, employing a high-frequency identification procedure. First, using local projections methods, we find that monetary policy has persistent effects on real interest rates and breakeven inflation. Second, employing our series of surprises as an instrument in a SVAR, we show that monetary policy affects economic activity, prices, the exchange rate, exports and imports. Finally, we implement a test of overidentifying restrictions, which exploits the availability of the narrative series of monetary policy shocks computed by Cloyne and Huertgen (2014), and find no evidence that either set of shocks contains any endogenous response to macroeconomic variables.
    Keywords: Monetary policy transmission; external instrument; high-frequency identification; structural VAR; local projections
    JEL: E31 E32 E43 E44 E52 E58
    Date: 2016–09–02
  4. By: Kosten, Dmitri
    Abstract: Technological advancements in the means of production are the driving force behind the changes in the prevailing system of socio-economic relations. Feudalism was transformed into capitalism as a result of such advancements. While man obtained physical freedom, the financial freedom remained under the control of the centralized authority. A deep level of collaboration is required to attain the next level of productivity provided by new technological advancements. However, the present system with a centralized control of governance and finance appears to constrain and restrain the value producing economy. This constriction becomes especially evident when the business environment requires collaboration to create, as it underlines the inherent conflict of centralized control. The most recent tech sector innovations, such as smart contracts and cryptocurrencies, are poised to disrupt the system of centralized control. The removal of a centralized authority from the position of control will change the fabric of the society to reflect the mesh network of shared resources. The society will transform to the new form of socio-economic relations – the era of Crypto-Socialism.
    Keywords: Bitcoin, Blockchain, Crypto-Socialism, socio-economic transformation, socio-economic framework, smart contract, sharing economy, distributed trust, function of money, financial decentralization, financial desintermediation
    JEL: B50 B53 E00 E02 E40 E41 E42 E43 E44 E49 E5 E50 E51 E52 E58 E59 K00 K20 P00 P20 P40
    Date: 2015–11–15
  5. By: Philipp Heimberger (Vienna Institute for International Economic Studies); Jakob Kapeller (Johannes Kepler University)
    Abstract: This paper analyzes the performative impact of the European Commission’s model for estimating ‘potential output’, which is used as a yardstick for measuring the ‘structural budget balance’ of EU countries and, hence, is crucial for coordinating European fiscal policies. In pre-crisis years, potential output estimates amplified the build-up of private debt, housing bubbles and macroeconomic imbalances. After the financial crisis, they were revised downwards, which increased fiscal consolidation pressures. By focusing on the euro area’s economies during 1999-2014, we identify two performative aspects of the potential output model. First, the political implications of the model led to a pro-cyclical feedback loop, reinforcing general economic developments. Second, the model has contributed to national lock-ins on path dependent debt trajectories, fueling ‘structural polarization’ between core and periphery.
    Keywords: performativity, potential output, path dependency, Eurozone crisis, fiscal policy, austerity.
    JEL: E24 E61 E62 F15
    Date: 2016–08
  6. By: George Alogoskoufis (Athens University of Economics and Business)
    Abstract: This paper puts forward an alternative “new Keynesian” dynamic stochastic general equilibrium model of aggregate fluctuations. The model is characterized by one period nominal wage contracts and endogenous persistence of deviations of unemployment from its natural rate. Aggregate fluctuations are analyzed under both a Taylor nominal interest rate rule and under the assumption of optimal discretionary monetary policy. Under both types of monetary policy, the persistence of unemployment results in persistent inflation as the central bank responds to deviations of unemployment from its natural rate. Econometric evidence from the United States since the 1890s cannot reject the main predictions of the model.
    Keywords: Aggregate Fluctuations, Unemployment Persistence, Inflation, Monetary Policy, Insiders Outsiders, Natural Rate
    JEL: E3 E4 E5
    Date: 2016–03
  7. By: Christian Dreger; Dieter Gerdesmeier; Barbara Roffia
    Abstract: The analysis of monetary developments have always been a cornerstone of the ECB’s monetaryanalysis and, thus, of its overall monetary policy strategy. In this respect, money demandmodels provide a framework for explaining monetary developments and assessing price stabilityover the medium term. It is a well-documented fact in the literature that, when interestrates are at the zero lower bound, the analysis of money stocks become even more importantfor monetary policy. Therefore, this paper re-investigates the stability properties of M3 demandin the euro area in the light of the recent economic crisis. A cointegration analysis isperformed over the sample period 1983 Q1 and 2015 Q1 and leads to a well-identified modelcomprising real money balances, income, the long term interest rate and the own rate of M3holdings. The specification appears to be robust against the Lucas critique of a policy dependentparameter regime, in the sense that no signs of breaks can be found when interest ratesreach the zero lower bound. Furthermore, deviations of M3 from its equilibrium level do notpoint to substantial inflation pressure at the end of the sample. Excess liquidity models turnout to outperform the autoregressive benchmark, as they deliver more accurate CPI inflationforecasts, especially at the longer horizons. The inclusion of unconventional monetary policymeasures does not contradict these findings.
    Keywords: Euro area money demand, inflation forecasts, unconventional monetary policy
    JEL: E41 E44 E52 G11 G15
    Date: 2016
  8. By: Kosten, Dmitri
    Abstract: Technological advancements in the means of production are the driving force behind the changes in the prevailing system of socio-economic relations. Feudalism was transformed into capitalism as a result of such advancements. While man obtained physical freedom, the financial freedom remained under the control of the centralized authority. A deep level of collaboration is required to attain the next level of productivity provided by new technological advancements. However, the present system with a centralized control of governance and finance appears to constrain and restrain the value producing economy. This constriction becomes especially evident when the business environment requires collaboration to create, as it underlines the inherent conflict of centralized control. The most recent tech sector innovations, such as smart contracts and crypto-currencies, are poised to disrupt the system of centralized control. The removal of a centralized authority from the position of control will change the fabric of the society to reflect the mesh network of shared resources. The society will transform to the new form of socio-economic relations – the era of Crypto-Socialism. Технический прогресс и технологические достижения в области производства являются главной движущей силой в эволюции систем социально-экономических отношений. Благодаря таким достижениям феодализм сменился капитализмом. Несмотря на то, что индивид приобрел личную и физическую свободы, его материально-финансовая свобода по прежнему контролируется централизованной властью. Для достижения качественно нового уровня продуктивности, заложенного в потенциале новых технологий, необходим качественно новый уровень сотрудничества. Однако, существующая система централизованного контроля управления и финансов ограничивает и сдерживает производственную экономику. Это ограничение становится особенно очевидным и подчеркивает внутренний конфликт централизованного управления, в то время как для созидания на качественно ином уровне необходимо сотрудничество нового типа. Самые последние достижения технологического прогресса, такие как "умные контракты" и криптовалюты, направлены на глубокую реорганизацию систем. Удаление централизованной власти с управляющего положения изменит текстуру общества, и точнее отразит естественную ячеистую сеть социально-экономических отношений и совместного использования производственных ресурсов. Произойдет переход общества в новую форму социально-экономических отношений, в эпоху Крипто-Социализма.
    Keywords: биткоин, блокчеин, крипто-социализм, социально-экономические отношения, децентрализация финансового посредничества, деньги, криптовалюта, пирамида Маслоу, частичное резервирование, эмиссия. Bitcoin, Blockchain, crypto-socialism, socio-economic relations, decentralization of financial intermediation, money, crypto-currencies, Maslow pyramid, system of fractional reserve, devaluation.
    JEL: E0 E1 E4 E5 E6 G0 G1 G2 G3 H0 H2 H3 H6 O3 P0 P2 P3 P4 P5
    Date: 2016–09–05
  9. By: Burgess, Stephen (Bank of England); Burrows, Oliver (Bank of England); Godin, Antoine (Kingston University); Kinsella, Stephen (University of Limerick); Millard, Stephen (Bank of England)
    Abstract: We construct a new scenario analysis model for the United Kingdom using ONS data from 1987 to the present. The model links decisions about real variables to credit creation in the financial sector and decisions about asset allocation among investors for a wide array of financial assets. We develop, estimate, and calibrate the model from first principles as well as describing the stock-flow coherent database we construct to validate the model. We impose several scenarios on the model to test its usefulness as a medium term scenario analysis tool, including increases in banks’ capital ratios, sudden stops, changes in investment, increases in house prices and fiscal expansions.
    Keywords: Sectoral balances; flow of funds; macroeconomic modelling
    JEL: E21 E22 E25 E37
    Date: 2016–09–02
  10. By: Mihály Tamás Borsi (Universitat Ramon Llul)
    Abstract: This paper studies the differences between fiscal multipliers in OECD economies across the credit cycle. Impulse responses are obtained using a state-dependent model with direct projections, in which multipliers depend on the state of credit markets. Identification of the effects of fiscal stimulus and austerity measures is achieved by distinguishing between unanticipated increases and decreases in government spending. The empirical results imply that the financial environment matters. Expansionary fiscal policies are associated with large multipliers during credit crunch episodes, and spending increases likewise foster economic growth in periods of rapid credit expansion, albeit to a lesser extent. In contrast, the output effect of contractionary fiscal policies is never statistically different from zero. Regime-specific multipliers of the individual components of GDP and the unemployment rate suggest that reductions in public expenditure should help constrain the economy during unsustainable credit booms, whereas spending increases in financial recessions should facilitate the repair of private sector balance sheets in order to revive market confidence and boost economic recovery.
    Keywords: credit cycle, fi scal multiplier, fi scal policy, government spending, state dependence
    JEL: E20 E44 E62 G10
    Date: 2016–09
  11. By: Lee, Seungduck
    Abstract: This paper examines the effect of monetary policy on the liquidity premium, i.e., the market value of the liquidity services that financial assets provide. To guide the empirical analysis, I set up a monetary search model in which bonds provide liquidity services in addition to money. The theory predicts that money supply and the nominal interest rate are positively correlated with the liquidity premium, but the latter is negatively correlated with the bond supply. The empirical analysis over the period from 1946 and 2008 confirms the theoretical findings. This indicates that liquid bonds are substantive substitutes for money and the opportunity cost of holding money plays a key role in asset price determination. The model can rationalize the existence of negative nominal yields, when the nominal interest rate is low and liquid bond supply decreases.
    Keywords: asset price, money search model, liquidity, liquidity premium, money supply
    JEL: E31 E41 E51 E52 G12
    Date: 2016–08
  12. By: Carlos Garriga; Finn E. Kydland; Roman Šustek
    Abstract: Standard models used for monetary policy analysis rely on sticky prices. Recently, the literature started to explore also nominal debt contracts. Focusing on mortgages, this paper compares the two channels of transmission within a common framework. The sticky price channel is dominant when shocks to the policy interest rate are temporary, the mortgage channel is important when the shocks are persistent. The first channel has significant aggregate effects but small redistributive effects. The opposite holds for the second channel. Using yield curve data decomposed into temporary and persistent components, the redistributive and aggregate consequences are found to be quantitatively comparable.
    JEL: E32 E52 G21 R21
    Date: 2016–09
  13. By: Gregor Bäurle; Rolf Scheufele
    Abstract: The global Great Recession has sparked renewed interest in the relationships between financial conditions and real activity. This paper considers the Swiss experience, studying the impact of credit market conditions and housing prices on real activity over the last three decades through the lens of a medium-scale structural Bayesian vector autoregressive model (BVAR). From a methodological point of view, the analysis is challenging for two reasons. First, we must cope with a large number of variables which leads to a high-dimensional parameter space in our model. Second, the identification of economically interpretable shocks is complicated by the interaction among many different relevant factors. As to the first challenge, we use Bayesian shrinkage techniques to make the estimation of a large number of parameters tractable. Specifically, we combine a Minnesota prior with information from training observations to form an informative prior for our parameter space. The second challenge, the identification of shocks, is overcome by combining zero and sign restrictions to narrow the plausible range of responses of observed variables to the shocks. Our empirical analysis indicates that while credit demand and, in particular, credit supply shocks explain a large fraction of housing price and credit fluctuation, they have a limited impact on real activity.
    Keywords: Credit supply and demand, housing prices, SVARs, Bayesian shrinkage
    JEL: C11 C32 E30 E44 E51 E52
    Date: 2016
  14. By: Jean Barthélemy (Département d'économie); Eric Mengus (HEC Paris - Recherche - Hors Laboratoire)
    Abstract: This paper argues that central bankers should raise inflation when anticipating liquidity traps to signal their credibility to forward guidance policies. As stable inflation in normal times either stems from central banker's credibility, e.g. through reputation, or from his aversion to inflation, the private sector is unable to infer the central banker's type from observing stable inflation, jeopardizing the efficiency of forward guidance policy. We show that this signaling motive can justify level of inflation well above 2% but also that the low inflation volatility during the Great Moderation was insufficient to ensure fully efficient forward guidance when needed.
    Keywords: Forward guidance; Inflation; Signaling
    JEL: E31 E52 E65
    Date: 2016–08
  15. By: Patrick Kehoe; Elena Pastorino; Virgiliu Midrigan
    Abstract: During the Great Recession, regions of the United States that experienced the largest declines in household debt also experienced the largest drops in consumption, employment, and wages. Employment declines were larger in the nontradable sector and for firms that were facing the worst credit conditions. Motivated by these findings, we develop a search and matching model with credit frictions that affect both consumers and firms. In the model, tighter debt constraints raise the cost of investing in new job vacancies and thus reduce worker job finding rates and employment. Two key features of our model, on-the-job human capital accumulation and consumer-side credit frictions, are critical to generating sizable drops in employment. On-the-job human capital accumulation makes the flows of benefits from posting vacancies long-lived and so greatly amplifies the sensitivity of such investments to credit frictions. Consumer-side credit frictions further magnify these effects by leading wages to fall only modestly. We show that the model reproduces well the salient cross-regional features of the U.S. data during the Great Recession.
    JEL: E21 E24 E32 J21 J64
    Date: 2016–09
  16. By: Margaux MacDonald (Queen's University); Michal Popiel (Queen's University)
    Abstract: This paper investigates the effects of unconventional monetary policy in Canada. We use recently proposed methods to construct a shadow interest rate that captures monetary policy at the zero lower bound (ZLB) and estimate a small open economy Bayesian structural vector autoregressive (B-SVAR) model. Controlling for the US macroeconomic and monetary policy variables, we find that Canadian unconventional monetary policy increased Canadian output by 0.23% per month on average between April 2009 and June 2010. Our empirical framework also allows us to quantify the effects of US unconventional monetary policy, which raised US and Canadian output by 1.21% and 1.94% per month, respectively, on average over the 2008--2015 period.
    Keywords: small open economy, unconventional monetary policy, Bayesian structural VAR, zero lower bound, international monetary policy transmission
    JEL: E52 E58 F42
    Date: 2016–09
  17. By: Gründler, Klaus; Sauerhammer, Sarah
    Abstract: This paper investigates the effects of government spending on key macroeconomic variables in Germany. It contributes to the ongoing debate on how to properly identify exogenous fiscal shocks in the data and on whether or not the government should intervene in the business cycle. Following Ramey (2011b), we include expectations held by consumers and firms into the standard VAR framework based on information from historical issues of the German political magazine Der Spiegel. The results suggest that government spending lowers gross domestic product, as it crowds out private consumption and investment. The findings also underscore the need to account for expectations, as failing to do so leads to significant misinterpretation of the effects of government spending. In fact, when neglecting anticipation effects, our results support the recent findings for Germany by pointing to a rather positive effect of government spending on GDP.
    Keywords: Fiscal Policy,Government Spending,Vector Autoregression Model,Expectations
    JEL: C32 D84 E32 E62 H31 H32
    Date: 2016
  18. By: Marco Di Maggio; Amir Kermani
    Abstract: We assess the extent to which unemployment insurance (UI) serves as an automatic stabilizer to mitigate the economy's sensitivity to shocks. Using a local labor market design based on heterogeneity in local benefit generosity, we estimate that a one standard deviation increase in generosity attenuates the effect of adverse shocks on employment growth by 7% and on earnings growth by 6%. Consistent with a local demand channel, we find that consumption is less responsive to local labor demand shocks in counties with more generous benefits. Our analysis finds that the local fiscal multiplier of unemployment insurance expenditure is approximately 1.9.
    JEL: E24 E62 H53 J65
    Date: 2016–09
  19. By: Inês Pereira (Erasmus School of Economics)
    Abstract: After the financial crisis in 2008, many central banks began to use unconventional monetary policy in order to boost the effective transmission of monetary policy and to provide additional direct monetary stimulus to the economy. This study will make use of an event study to analyse the impact of those unconventional monetary policies implemented by the European Central Bank on nominal and real long-term interest rates. The long-term interest rates being considered are the 10-year government bond yield, the 5 and 10-year corporate bond yield (AAA and BBB) and the 5y5y swap forward rate for the Eurozone. The results show that unconventional monetary policy conducted by the ECB had a significant effect on real and nominal and long-term interest rates. This effect can be more persistent for a specific group of countries during some announcements, namely the 4th of September of 2014 announcement significantly lowered the 10-year government bond yield and BBB 5-year bond yield for Portugal and the remaining PIIGS.
    Keywords: Inflation expectations, Unconventional monetary policy, European Central Bank, Long-term interest rates, Event study
    JEL: G14 E42 E44
    Date: 2016–09
  20. By: Prayudhi Azwar; Rod Tyers
    Abstract: The post-GFC era sees slower global growth and a substantial Chinese slowdown, unusually combined with lower investment financing costs, and with the eventual prospect of a US-led re-tightening of global financial markets. For Indonesia in the medium term, these developments imply a slowing of export growth and a temporary surge in net inward investment incentives. These changes are examined here using a numerical macro model. The results suggest that recent fiscal reform is long-run beneficial and that it will moderate the negative effects of expectations linked to these global events, the formation of which is shown to be an important determinant of performance. Finally, a sensitivity analysis is conducted, mainly on parameters indicating Indonesian openness to trade and finance. Liberal product markets and home investment are shown to offer unambiguous gains in the face of negative external shocks, while openness to external financial flows does not.
    Keywords: Indonesia, External shocks, Exchange rates, Macroeconomic policy
    JEL: E37 E44 E47 E65 F47 N15
    Date: 2016–09
  21. By: Wenxin Du; Carolin E. Pflueger; Jesse Schreger
    Abstract: Nominal debt provides consumption-smoothing benefits if it can be inflated away during recessions. However, we document empirically that countries with more countercyclical inflation, where nominal debt provides better consumption-smoothing, issue more foreign-currency debt. We propose that monetary policy credibility explains the currency composition of sovereign debt and nominal bond risks in the presence of risk-averse investors. In our model, low credibility governments inflate during recessions, generating excessively countercyclical inflation in addition to the standard inflationary bias. With countercyclical inflation, investors require risk premia on nominal debt, making nominal debt issuance costly for low credibility governments. We provide empirical support for this mechanism, showing that countries with higher nominal bond-stock betas have significantly larger nominal bond risk premia and borrow less in local currency.
    JEL: E4 F3 G12 G15
    Date: 2016–09
  22. By: Alessandro Notarpietro (Banca d'Italia); Lisa Rodano (Banca d'Italia)
    Abstract: This paper presents the results of a counterfactual exercise that aims at quantifying the contribution to the evolution of bad debts made by the two recessions that have hit the Italian economy since 2008. The counterfactual simulations are performed using the Bank of Italy’s Quarterly Model (BIQM). A ‘no-crises scenario’ is built for the period 2008-2015. The counterfactual dynamics of the main macroeconomic and financial variables are used to feed a simple model, in which the new bad debt rate depends on macroeconomic conditions and borrowing costs. The analysis suggests that, in the absence of the two recessions – and of the economic policy decisions that were taken to combat their effects – non-financial corporations’ bad debts at the end of 2015 would have reached €52 billion, instead of €143 billion. The ratio of bad debts to the total amount of loans to non-financial corporations would have reached 5%, a value in line with the pre-crisis period.
    Keywords: business cycle, global financial crisis, sovereign debt crisis, banking, Italian economy
    JEL: E27 E37 E65 G21
    Date: 2016–09
  23. By: Daniel Baksa (Central European University); Zsuzsa Munkacsi (Bank of Lithuania)
    Abstract: Southern Europe is currently experiencing a double-whammy: high levels of government debt coupled with a rapidly aging population. Thus, the consolidation of (pension) budgets seems inevitable. In this paper we examine the short- and long-run macroeconomic e ects of public old-age pension reforms and other scal policies under conditions of population aging. To do so, we calibrate OGRE, a New Keynesian model with overlapping generations, unemployment and an underground sector to match annual data on Portugal and Spain. Our main nding is that a retirement-age increase is the least harmful policy with respect to long-run output. However, we raise some doubts about the feasibility of implementing this policy.
    Keywords: population aging, public old-age pension reforms, pay-as-you-go, fully funded, shadow economy, informal employment, government debt, New Keynesian model, overlapping generations, demography, unemployment, retirement ageLength: 71 pages
    JEL: E24 E26 H55 J11 J46
    Date: 2016–08–23
  24. By: George C. Bitros (Athens University of Economics and Business)
    Abstract: This paper investigates whether the monetary policy and the market structure have anything to do with the declining share of labor in the U.S in recent decades. For this purpose: (a)a dynamic general equilibrium model is constructed and used in conjunction with data over the 2000-2014 period to compute the income shares; (b) the latter are compared to those reported from various sources for significant differences , and (c) the influence of monetary policy is subjected to several statistical tests. With comfortable margins of confidence it is found that the interest rate the Federal Open Market Committee charges for providing liquidity to the economy is related positively with the shares of labor and profits and negatively with the share of interest. What these findings imply is that, by moving opposite to the equilibrium real interest rate, the relentless reduction of the federal funds rate since the 1980s may have contributed to the decline in the equilibrium share of labor, whereas the division of the equilibrium non-labor income between interest and profits has been evolving in favor of the former, because according to all indications the stock of producers’ goods in the U.S has been aging. As for the market structure,it is found that even if firms had and attempted to exercise monopoly power, it would be exceedingly difficult to exploit it because the demand of consumers’ goods is significantly price elastic. Should these results be confirmed by further research, they would go a long way towards explaining the deceleration of investment and economic growth.
    Keywords: Useful life of capital, Equilibrium real interest, Eederal funds rate, Income shares
    JEL: E19 E25 E40 E50
    Date: 2016–03
  25. By: Jörn-Steffen Pischke
    Abstract: Many economists suspect that downward nominal wage rigidities in ongoing labor contracts are an important source of employment fluctuations over the business cycle but there is little direct empirical evidence on this conjecture. This paper compares three occupations in the housing sector with very different wage setting institutions, real estate agents, architects, and construction workers. I study the wage and employment responses of these occupations to the housing cycle, a proxy for labor demand shocks to the industry. The employment of real estate agents, whose pay is far more flexible than the other occupations, indeed reacts less to the cycle than employment in the other occupations. However, unless labor demand elasticities are large, the estimates do not suggest that the level of wage flexibility enjoyed by real estate agents would buffer employment fluctuations in response to demand shocks by more than 10 to 20 percent compared to completely rigid wages.
    Keywords: Wage setting; wage rigidity; commissions; real estate agents; architects; construction workers
    JEL: E24 J20 J44
    Date: 2016–07
  26. By: Liang Wang (Assistant Professor at the University of Hawaii Manoa; University of Hawaii at Manoa, Department of Economics, University of Hawaii Economic Research Organization)
    Abstract: This paper studies the welfare cost of ináation in a frictional monetary economy with endogenous consumer search. Equilibrium entails price dispersion, where sellers compete for buyers by posting prices. We identify three channels through which inflation affects welfare. The real balance channel is the source of welfare loss. Its interaction with the price posting channel generates a welfare cost larger than Lucas (2000). The search channel reduces the welfare cost by more than one half through general equilibrium effect. The aggregate effect of these three channels on welfare is non-monotonic. Additionally, the welfare cost of ináation áuctuations is negligible.
    Keywords: Consumer Search, Inflation, Price Dispersion, Welfare
    JEL: E31 E40 E50 D83
  27. By: Kumawat, Lokendra (Ramjas College, Delhi University); Bhanumurthy, N. R. (National Institute of Public Finance and Policy)
    Abstract: The objectives of monetary policy have always been a topic of intensive debate. This debate has resurfaced during the past few years. In India too monetary policy-making appears to have undergone significant change during the last two decades and has also been responding to changing macroeconomic environment. Against this backdrop an attempt has been made in this paper to model the monetary policy response function for India, for the period April 1996 to July 2015. Using 91-day Treasury bill rate as the policy rate, we find that the monetary policy has been responsive to inflation rate, output gap and exchange rate changes during this period. We find substantial time-varying behavior in the reaction function. The regime shift tests show that the transition is driven by inflation gap as well as exchange rate changes. Highly complex nature of dynamics of interest rate does not allow us to estimate many models, but the models estimated show that the monetary policy responds to inflation gap as well as exchange rate changes. Another important finding is that there is a high degree of inertia in the policy rates.
    Keywords: Monetary policy ; reaction function ; smooth transition regression ; India.
    JEL: E52 C22
    Date: 2016–09
  28. By: Alberto Caruso
    Abstract: This paper studies the effect of macroeconomic "news" (market now-cast errors related to the flow of data releases on macroeconomic fundamentals) on the daily USD/EUR exchange rate. I consider a large number of real-time macroeconomic announcements from both the US and the euro-zone, and the related market expectations as reported by Bloomberg. For the euro-zone I also study country level announcements for the four biggest economies (Germany, France, Italy, Spain). The results for the whole sample (1999-2012) show that both the "news" associated with euro-zone releases and those associated with US ones have a significant impact on the USD/EUR exchange rate. However, the effect of the euro-zone "news" has become larger since the 2008 crisis and it is now more sizeable than that of the US "news".
    Keywords: macroeconomic news; exchange rate; event studies; real-time data
    JEL: E44 E47 F31 G14
    Date: 2016–09
  29. By: Daniel Baksa (Central European University); Zsuzsa Munkacsi (Bank of Lithuania)
    Abstract: In this paper we present the structure of OGRE, a dynamic general equilib-rium model with overlapping generations, unemployment and a shadow economy. Based on a parametrized version of the model, we examine the impacts of aging and calculate multipliers of public pension and other fiscal policies. Also, we contrast macroeconomic reactions with pay-as-you-go and fully funded pension plans. Lastly, we highlight the role of unemployment and that of the underground sector in the framework.
    Keywords: population aging, public old-age pension reforms, pay-as-you-go, fully funded, shadow economy, informal employment, government debt, New Keynesian model, overlapping generations, demography, unemployment, retirement age
    JEL: E24 E26 H55 J11 J46
    Date: 2016–08–23
  30. By: Leduc, Sylvain; Moran, Kevin; Vigfusson, Robert J.
    Abstract: We show that a model where investors learn about the persistence of oil-price movements accounts well for the fluctuations in oil-price futures since the late 1990s. Using a DSGE model, we then show that this learning process alters the impact of oil shocks, making it time-dependent and consistent with the muted impact oil-price changes had on macroeconomic outcomes during the early 2000s and again over the past two years. The Spring 2008 increase in oil prices had a larger impact because market participants considered that it was likely driven by permanent shocks.
    Keywords: Kalman filter ; Time-variation ; Inventories ; Conditional response
    JEL: E32 E37 Q43
    Date: 2016–09
  31. By: International Monetary Fund.
    Abstract: The program is delivering good results, particularly in achieving key macroeconomic objectives. Significant fiscal tightening and efforts to address structural weaknesses have helped boost confidence and restore growth. This has been supported by a healthy credit recovery on the back of substantial monetary policy easing as inflation has been persistently low. Notwithstanding this progress, public debt remains elevated and delays continue in some structural reforms, in part due to recent elections.
    Keywords: Stand-by arrangement reviews;Fiscal policy;Fiscal reforms;Monetary policy;Banking sector;Economic indicators;Balance of payments statistics;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Phasing of purchases;Serbia;
    Date: 2016–09–02
  32. By: Vellekoop, Nathanaël
    Abstract: Using two datasets containing demographically representative samples of the Dutch population, I study how lifetime experiences of aggregate labor market conditions affect personality. Three sets of findings are reported. First, experienced aggregate unemployment is negatively correlated with the levels of all Big Five personality traits, except for conscientiousness (no significant correlation). Second, in panel data models with individual fixed effects I find that changes in experienced aggregate unemployment cause changes in emotional stability and agreeableness for men, and conscientiousness for women. The correlation is positive, and effects are economically large. Thirdly, I report suggestive evidence that the main driver is experienced aggregate unemployment, instead of other macroeconomic variables as experienced GDP, stock market returns or inflation. Taken together, these findings suggest that changes in Big Five personality traits are systematically related to experienced aggregate labor market conditions.
    Keywords: personality traits,Big Five,locus of control,labor market,unemployment
    JEL: D01 D12 E23 E32
    Date: 2016
  33. By: Mawuli Segnon (Department of Economics, University of Münster, Germany); Rangan Gupta (Department of Economics, University of Pretoria, South Africa); Stelios Bekiros (Department of Economics, European University Institute, Florence, Italy); Mark E. Wohar (Department of Economics, University of Nebraska, Omaha, USA and School of Business and Economics, Loughborough University, UK)
    Abstract: There are a large number of models developed in the literature to analyse and forecast the changes in output dynamics. The objective of this paper is to compare the forecasting ability of uni- and bivariate models in terms of forecasting U.S. GNP growth at different forecasting horizons, with the bivariate models containing information on a measure of economic uncertainty. Based on point and density forecast accuracy measures, as well as the superior predictive ability (SPA) and equal accuracy tests, we evaluate the forecasting performance of our models over the quarterly period of 1919:2-2014:4, given an in-sample of 1900:1 1919:1. We find that the economic policy uncertainty index should be improving the accuracy of U.S. GNP growth forecasts in the bivariate models. While we find that the Markov switching time varying parameter VAR (MS-TVP-VAR) models in most cases cannot be outperformed its competitive models according to the root mean squared error (RMSE), the density forecast measure reveals that the Bayesian VAR (BVAR) model with stochastic volatility in most cases is the model that produces more accurate forecasts. More importantly, our results highlight the importance of uncertainty in forecasting US GNP growth rate.
    Keywords: Forecast comparison, vector autoregressive models, US GNP, Economic Policy Uncertainty
    JEL: C22 C32 E32 E37
    Date: 2016–09
  34. By: Farmer, Roger (UCLA, Department of Economics); Zabczyk, Pawel (Bank of England)
    Abstract: This paper is about the effectiveness of qualitative easing, a form of unconventional monetary policy that changes the risk composition of the central bank balance sheet with the goal of stabilizing economic activity. We construct a general equilibrium model where agents have rational expectations and there is a complete set of financial securities, but where some agents are unable to participate in financial markets. We show that a change in the risk composition of the central bank’s balance sheet will change equilibrium asset prices and we prove that, in our model, a policy in which the central bank stabilizes non-fundamental fluctuations in the stock market is Pareto improving and self-financing.
    Keywords: Unconventional monetary policy; qualitative easing; central bank balance sheet; portfolio balance effects
    JEL: E02 G11 G21
    Date: 2016–09–02
  35. By: Stephen J. Redding; David E. Weinstein
    Abstract: The measurement of price changes, economic welfare, and demand parameters is currently based on three disjoint approaches: macroeconomic models derived from time-invariant utility functions, microeconomic estimation based on time-varying utility (demand) systems, and actual price and real output data constructed using formulas that differ from either approach. The inconsistencies are so deep that the same assumptions that form the foundation of demand-system estimation can be used to prove that standard price indexes are incorrect, and the assumptions underlying standard exact and superlative price indexes invalidate demand-system estimation. In other words, we show that extant micro and macro welfare estimates are biased and inconsistent with each other as well as the data. We develop a unified approach to demand and price measurement that exactly rationalizes observed micro data on prices and expenditure shares while permitting exact aggregation and meaningful macro comparisons of welfare over time. We show that all standard price indexes are special cases of our approach for particular values of the elasticity of substitution, constant preferences for each good, and a constant set of goods. In contrast to these standard index numbers, our approach allows us to compute changes in the cost of living that take into account both changes in the preferences for individual goods and the entry and exit of goods over time. Using barcode data for the U.S. consumer goods industry, we show that allowing for the entry and exit of products, changing preferences for individual goods, and a value for the elasticity of substitution estimated from the data yields substantially different conclusions for changes in the cost of living from standard index numbers.
    Keywords: elasticity of substitution; price index; consumer valuation bias; new goods; welfare
    JEL: D11 D12 E01 E31
    Date: 2016–08
  36. By: Pandey, Radhika (National Institute of Public Finance and Policy); Patnaik, Ila (National Institute of Public Finance and Policy); Shah, Ajay (National Institute of Public Finance and Policy)
    Abstract: This paper presents a chronology of Indian business cycle in the post-reform period. The period before reforms primarily saw monsoon cycles. We find three episodes of recession in the post-reform period: 1999Q4 to 2003Q1, 2007Q2 to 2009Q3, and 2011Q2 to 2012Q4. We find that the average duration of expansion is 12 quarters and the average duration of recession is 9 quarters. The diversity in duration of expansion is seen to be 0.34 while the diversity in duration of recession is 0.31. We find that the amplitude of recession is relatively more diverse at 0.45 while the diversity in amplitude of expansion is 0.38.
    Keywords: Business Cycle ; Growth Cycle ; Detrending ; Stabilisation
    JEL: E32 E66
    Date: 2016–09
  37. By: Holston, Kathryn; Laubach, Thomas; Williams, John C.
    Abstract: U.S. estimates of the natural rate of interest – the real short-term interest rate that would prevail absent transitory disturbances – have declined dramatically since the start of the global financial crisis. For example, estimates using the Laubach-Williams (2003) model indicate the natural rate in the United States fell to close to zero during the crisis and has remained there through the end of 2015. Explanations for this decline include shifts in demographics, a slowdown in trend productivity growth, and global factors affecting real interest rates. This paper applies the Laubach-Williams methodology to the United States and three other advanced economies – Canada, the Euro Area, and the United Kingdom. We find that large declines in trend GDP growth and natural rates of interest have occurred over the past 25 years in all four economies. These country-by-country estimates are found to display a substantial amount of comovement over time, suggesting an important role for global factors in shaping trend growth and natural rates of interest.
    Keywords: Kalman filter; Monetary policy rules; Natural rate of output; Trend growth
    JEL: C32 E43 E52 O40
    Date: 2016–08–19
  38. By: Andrew B. Bernard; Toshihiro Okubo
    Abstract: This paper explores role of product adding and dropping within manufacturing firms over the business cycle. While a substantial body of work has explored the importance of the extensive margins of firm entry and exit in employment and output flows, only recently has research begun to examine the adjustment across products within firms and its importance for firm and aggregate output and employment flows. Using a novel, annual firm-product data set covering all Japanese manufacturing firms with more than 4 employees from 1992 to 2006, we provide the first evidence on annual changes in product adding and dropping by continuing firms over the business cycle. We find very high rates of product adding and dropping by continuing firms between the last year of the recession and the first year of the subsequent expansion and offer an explanation and supporting evidence based on a “trapped factors” model of firm behavior.
    Keywords: product adding; product dropping; multi-product firms; trapped factors
    JEL: E32 L11 L21 L25 L60
    Date: 2016–05
  39. By: Alessio Ciarlone (Banca d'Italia); Andrea Colabella (Banca d'Italia)
    Abstract: In this paper we provide evidence that the effects of the ECB’s asset purchase programmes spill over into CESEE countries, contributing to easing their financial conditions both in the short and in the long term through different transmission channels. In the short term, a number of variables in CESEE financial markets appear to respond to news related to the ECB’s non-standard policies by moving in the expected direction. Over a longer-term horizon, we found that cross-border portfolio and banking capital flows towards CESEE economies have been ffected by both the announcement and the actual implementation of the ECB’s asset purchase programmes, pointing to the existence of a portfolio rebalancing and a banking liquidity channel.
    Keywords: unconventional monetary policy, ECB, Central and Eastern Europe, international spillovers, event study
    JEL: C32 C33 E52 E58 F32 F36
    Date: 2016–09
  40. By: Benhabib, Jess (New York University); Spiegel, Mark M. (Federal Reserve Bank of San Francisco)
    Abstract: Using data from the Michigan Survey, we find a strong relationship between expectations concerning national output growth and future state economic activity. This linkage suggests that sentiment influences aggregate demand. This relationship is robust to a battery of sensitivity tests. However, national sentiment is also positively related to past state economic activity. We therefore turn to instrumental variables, positing that agents in states with a higher share of congressmen from the political party of the sitting President will be more optimistic. This instrument is strong in the first stage, and confirms the relationship between sentiment and future state economic activity.
    JEL: E20 E32
    Date: 2016–05–03
  41. By: Silvio Schumacher
    Abstract: This paper provides an empirical analysis of the network characteristics of two interrelated interbank money markets and their impact on overall market conditions. Based on transaction data from the unsecured and secured Swiss franc money markets, the trading network structures are assessed before, during and after the financial market crisis. It can be shown that banks in the unsecured market are connected to a lower number of counterparties but rely heavily on reciprocal and clustered trading relationships. The corresponding network structure likely favored the exchange of liquidity prior to the financial market crisis but also might have led to a lower resilience of the unsecured market. There is empirical evidence that conditions in both sub-markets were significantly driven by the individual network position of banks. The network topology likely affected the shift observed from unsecured to secured lending and the increase in risk premia for unsecured lending during the financial market crisis. This paper therefore provides further evidence on the functioning of interbank money markets and, especially, on the impact of market participants interconnectedness.
    Keywords: Repo transaction, unsecured interbank money market, financial market turmoil, financial stability, Switzerland
    JEL: E42 E43 E58 G01 G12 G21 L14
    Date: 2016
  42. By: Antonio Mele (University of Surrey); Radoslaw Stefanski (University of St. Andrews and University of Oxford)
    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.
    JEL: O1 O4 E4 E5 N1
    Date: 2016–07
  43. By: J. Sebastián Amador-Torres (Banco de la República de Colombia)
    Abstract: In this paper output gaps that include financial cycle information are evaluated against models used in policy analysis by the Colombian central bank. Employing this dataset is no trivial matter, since policy related models are the only relevant yardstick, and emerging economies (such as Colombia) have been historically more vulnerable to financial imbalances. Unlike previous works, finance neutral gaps were evaluated in a monetary policy context exactly as it is routinely performed by a central bank. The distribution of output gap revisions is analyzed, and a metric to compare real time robustness across models is developed. This metric constitutes a novel way to summarize the distribution of real time uncertainty around output gaps, and policy makers should employ it to compare different methods. Also the real time policy performance of finance neutral gaps is studied, separating suggested ex-post from operational ex-ante usefulness. Results suggest finance neutral gaps are neither more robust in real time nor more operationally useful than the benchmark estimates. This implies that policy makers should consider uncertainty to the extent that it affects the estimations real time forecasting capabilities. Classification JEL: E44, E47, E52, E37, C53
    Keywords: Potential output, financial cycle, real-time data, monetary policy, emerging economy
    Date: 2016–09
  44. By: Ncube, Prince; Cheteni, Priviledge
    Abstract: This paper examines the impact of the BRICS alliance on South Africa’s economy and the impact that trade openness in the alliance has on South Africa’s economy. The study uses series data from 1980 to 2012 and employs up to date econometric methodologies- unit root and vector error correction model estimates to achieve its aims. The empirical result reveals that international trade has contributed a lot to the high economic growth rates experienced by the BRICS economies during the recent decades. However, it is also found that international trade is not the only contributing factor. Human Capital formation, Gross Domestic Capital Formation and Real Effective Exchange Rate appreciation are equally important contributors. Results of the study however reveal that South Africa’s trade openness in the alliance has detrimental long run effects for the economy. The study also reveals that despite the growth experienced overall in the alliance, South Africa’s economic participation is limited due to unfair trade practices amongst the members of the alliance. The findings provide an insight of the policies to be adopted to achieve higher growth rates in South Africa within BRICS alliance.
    Keywords: Keywords: Trade openness, Growth, BRICS, Unit Root, Vector Error Correction Model.
    JEL: E2 E22 E6 G2
    Date: 2015
  45. By: Koffi Elitcha; Raquel Fonseca Benito
    Abstract: Financial constraints affect in important ways the decision of individuals to become entrepreneur (self-employed). This implicitly suggests a positive relation between the propensity of individuals to become entrepreneur and their personal wealth. Recent theoretical work and empirical evidence confirm this hypothesis. More interestingly, it has been shown that the slope of the entrepreneurship-wealth relationship increases with the extent of liquidity constraints and flattens with the magnitude of start-up costs. Using individual level data from 3 surveys (SHARE, ELSA and HRS) in Europe and the United States, as well as the World Bank’s Doing Business data, this paper empirically zeroes in on the impact of start-up costs on the self-employment-wealth relationship. The dynamic nature of the data enables us to investigate potential effects of the last global financial crisis. Results confirm the strong positive relationship between the entrepreneurial choice and wealth, as well as the negative effect stemming from the increase in start-up costs. Interestingly, although there is no strong evidence that wealth in itself played a bigger role during the crisis, we find that the negative impact of start-up costs on wealth proved to be significantly pronounced during the last crisis.
    Keywords: Self-Employment, Occupational Choice, Wealth, Liquidity Constraints, Start-up Costs, Financial Crisis,
    JEL: E02 E21 J21 J24
    Date: 2016–09–09
  46. By: Arlene Wong (Northwestern University)
    Abstract: Previous work has documented that housing and refinancing decisions play an important role in shaping the aggregate and cross-sectional consumption elasticities to interest rate shocks. New home purchases and refinances can then affect durable and non-durable consumption through the associated fluctuations in disposable income and the complementarity between housing and consumption. In this paper, we examine the transmission of monetary policy through housing debt. Specifically, we use detailed micro data to study the mortgage channel that links monetary policy with household borrowing and consumption expenditure. Specifically, we quantify the heterogeneity across borrowers and state-dependency in the pass-through of interest rate shocks to consumption over the Federal Reserve Bank’s interest rate cycle.
    Date: 2016
  47. By: Adolfo Meisel-Roca.
    Abstract: A comienzos del siglo XX la economía colombiana se encontraba afectada negativamente por las consecuencias de la Guerra de los Mil Días (1899-1902), la cual dejó la moneda completamente depreciada por una inflación que había llegado a más del 300% anual. A pesar de este panorama desolador, entre 1904 y 1922, Colombia logró estabilizar su economía y tener un sólido crecimiento exportador sobre la base del café. Esto le permitió al país, a comienzos de la década de 1920, llevar a cabo reformas económicas para atraer prestamos del exterior, mejorar la infraestructura de transporte y así ubicarse en los primeros lugares en crecimiento económico en América Latina. En este contexto se generaron las bases para la creación del Banco de la República en 1923. Este documento tiene como propósito describir los antecedentes políticos y económicos que forjaron la creación del banco central colombiano. Classification JEL: E31, E42, E58.
    Keywords: Banco de la República, inflación, tasa de cambio.
    Date: 2015–12
  48. By: Liping Gao; Hyeongwoo Kim
    Abstract: Using time series macroeconomic data, Chow (1985, 2010, 2011) reported indirect empirical evidence that implies the validity of the permanent income hypothesis in China. We revisit this issue by evaluating direct measures of the predictability of consumption growth in China during the post-economic reform regime (1978-2009). We also implement and report similar analysis for the postwar US data for comparison. Our in-sample analysis provides strong evidence against the PIH for both countries. Out-of-sample forecast exercises show that consumption changes are highly predictable, which sharply contrasts the implications of empirical findings by Chow (1985, 2010, 2011).
    Keywords: Permanent Income Hypothesis; Consumption; Out-of-Sample Forecast; Diebold-Mariano-West Statistic
    JEL: E21 E27
    Date: 2016–09
  49. By: Martin M. Andreasen (Aarhus University and CREATES); Tom Engsted (Aarhus University and CREATES); Stig V. Møller (Aarhus University and CREATES); Magnus Sander (Aarhus University and CREATES)
    Abstract: This paper provides new evidence on bond risk premia by conditioning the classic Campbell-Shiller regressions on the business cycle. In expansions, we find mostly positive intercepts and negative regression slopes, but the results are completely reversed in recessions with negative intercepts and positive regression slopes. We reproduce these coefficients in a term structure model with business cycle dependent loadings in the market price of risk. This model also predicts excess returns in the right direction during expansions and recessions, whereas the Gaussian affine term structure model predicts excess returns for medium- and long-term bonds with the wrong sign during recessions.
    Keywords: Bond return predictability, Business cycle variation in excess returns, Market price of risk, Zero-lower bound, Unspanned macroeconomic risk.
    JEL: E43 E44 G12
    Date: 2016–08–30
  50. By: Povilas Lastauskas (Bank of Lithuania); Julius Stakenas (Bank of Lithuania)
    Abstract: This paper builds a theoretical model that introduces frictional unemployment in a multisectoral heterogeneous firms model. We allow for multi-worker firms and dynamic matching process. In doing so, we have a rich environment that combines product, labour, and international markets. The focus is on unemployment benefits and employment contingent subsidies. We establish a mechanism, which is different from the standard search and matching model. A change in labour market policies due to the feedback from labour market tightness to wages transforms the share of exporters and affects average productivity. Partial equilibrium effects are overturned for subsidies in general equilibrium due to sectoral arbitrage condition. We address the following questions in the quantitative exercise: How does trade along intensive and extensive margins evolve with changes in labour market policies? How do firms’ profitabilities and thus reallocations across exporters/non-exporters react to labour market institu-tions? What are the differences between a domestic and a trade-bloc wide shock? In addition to the theory contribution, we find that unemployment benefits bear differ-ent policy implications with regards to international coordination than employment subsidies.
    Keywords: labour market institutions, heterogeneous multi-worker firms, dynamic matching, openness
    JEL: E24 F12 F16
    Date: 2016–09–09
  51. By: Clemens Jobst (OeNB - The Oesterreichische Nationalbank - The Oesterreichische Nationalbank); Stefano Ugolini (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT1 - Université Toulouse 1 Capitole - UT2 - Université Toulouse 2 - Institut d'Études Politiques [IEP] - Toulouse - École Nationale de Formation Agronomique - ENFA)
    Abstract: Money market structures shape monetary policy design, but the way central banks perform their operations also has an impact on the evolution of money markets. This is important, because microeconomic differences in the way the same macroeconomic policy is implemented may be non-neutral. In this paper, we take a panel approach in order to investigate both directions of causality. Thanks to three newly-collected datasets covering ten countries over two centuries, we ask (1) where, (2) how, and (3) with what results interaction between money markets and central banks has taken place. Our findings allow establishing a periodization singling out phases of convergence and divergence. They also suggest that exogenous factors – by changing both money market structures and monetary policy targets – may impact coevolution from both directions. This makes sensible theoretical treatment of the interaction between central bank policy and market structures a particularly complex endeavor.
    Keywords: Central banking,Money markets,Monetary policy implementation
    Date: 2016–06
  52. By: Moradi, Alireza
    Abstract: IN this paper, the Iranian Business Cycle characteristics were investigated via uni-variate and multivariate Markov-switching specifications. By using Hamilton (1989) and Krolzig (1997) (MS-VAR) models, we examined the stochastic properties of the cyclical pattern of the quarterly Iranian real GDP between 1988:Q2 - 2008:Q3. The empirical analysis consists of mainly three parts. First, two kinds of alternative specifications were tried and we were adopted best specification with respect to various diagnostic statistics. Then, selected models were tested against their linear benchmarks. LR test results imply strong evidence in favor of the nonlinear regime switching behavior. Furthermore, the multivariate specification with various macro aggregates and changing variance parameter outperformed the other MS models with reference to one-step ahead forecasting performance. With this specification, we can detect the three recessionary periods experienced by the Iranian economy between 1988:Q2 and 2008:Q3. Finally, based on inference from this model a chronology of business cycle turning points was determined.
    Keywords: Markov Switching Models, Business Cycles, MSVAR, Iran.
    JEL: C32 E32
    Date: 2016–09–09
  53. By: David Laidler (University of Western Ontario)
    Abstract: The problems posed by monetary policy cannot be dealt with by legislating enduring policy rules. With the passage of time, economic understanding does not systematically converge ever more closely on a “true” model of the economy, a process which is now sufficiently far along that our current ideas can form the basis for designing such measures. Rather, economic ideas evolve unsteadily and unpredictably and disagreement about them is routine. They influence the behaviour of the economy and they are influenced by it as they develop, requiring policy principles to adapt as well. Monetary policy thus poses problems that cannot be solved once and for all, but must be coped with continuously.
    Keywords: Monetary Policy; Rules versus Discretion; Gold Standard; Revolutions in Macroeconomics
    JEL: E5 B1 B2
    Date: 2016
  54. By: Eleonora Cavallaro; Bernardo Maggi
    Abstract: We model macroeconomic instability as the outcome of the dynamic interaction between debt accumulation and the “state of confidence†in a small open economy with a super-fixed exchange-rate arrangement. We use a system dynamic approach and show that instability is a likely feature when macroeconomic behaviour is characterized by out-of-equilibrium dynamics with balance-sheet effects and deviation amplifying expectation formation rules that interact endogenously. We address the issue of the macroeconomic stabilization puzzle and carry out a quantitative evaluation based on sensitivity analysis with reference to Argentina, during the currency-board arrangement. We find that a tight fiscal policy is likely to be destabilizing inasmuch as it adds to the fall in expenditure, output and the “state of confidence†. On the other side, a traditional monetary policy can fail in switching off macroeconomic instability if the reduction in interest rates does not compensate for the fall in the “state of confidence†, whilst a direct stimulus to aggregate expenditure is required to avoid an economic collapse.
    Keywords: macrodynamic financial fragility, (in-)stability, stabilization policies, sensitivity and continuous-time quantitative analysis
    JEL: F34 F31 E63 C61
    Date: 2016–07
  55. By: Julien Bengui; Javier Bianchi; Louphou Coulibaly
    Abstract: In this paper, we study the optimal design of financial safety nets under limited private credit. We ask when it is optimal to restrict ex ante the set of investors that can receive public liquidity support ex post. When the government can commit, the optimal safety net covers all investors. Introducing a wedge between identical investors is inefficient. Without commitment, an optimally designed financial safety net covers only a subset of investors. Compared to an economy where all investors are protected, this results in more liquid portfolios, better social insurance, and higher ex ante welfare. Our result can rationalize the prevalent limited coverage of safety nets, such as the lender of last resort facilities.
    JEL: E58 E61 G28
    Date: 2016–09
  56. By: Lucas Herrenbrueck (Simon Fraser University)
    Abstract: How do central bank purchases of illiquid assets affect interest rates and the real economy? In order to answer this question, I construct a parsimonious and very flexible general equilibrium model of asset liquidity. In the model, households are heterogeneous in their asset portfolios and demand for liquidity, and asset trade is subject to frictions. I find that open market purchases of illiquid assets are fundamentally different from helicopter drops: asset purchases stimulate private demand for consumption goods at the expense of demand for assets and investment goods, while helicopter drops do the reverse. A temporary program of quantitative easing can therefore cause a "hangover" of elevated yields and depressed investment after it has ended. When assets are already scarce, further purchases can crowd out the private flow of funds and cause high real yields and disinflation, resembling a liquidity trap. In the long term, lowering the stock of government debt reduces the supply of liquidity but increases the capital-output ratio, with ambiguous consequences for output itself.
    Date: 2016
  57. By: Miles Kimball (University of Michigan); Christopher House (University of Michigan); Christoph Boehm (University of Michigan); Robert Barsky (Department of Economics)
    Abstract: We analyze monetary policy in a New Keynesian model with durable and non-durable goods, each with a separate degree of price rigidity. Durability has profound implications for the business cycle properties of the model and its response to interest rate interventions. Since utility depends on the service flow from the stock of durables, the flow demand for new durables is inherently sensitive to temporary changes in the relevant real interest rate. For a sufficiently long-lived “ideal†durable, we obtain an intriguing variant of the well-known “divine coincidence —in this case, the output gap depends only on inflation in the durable goods sector. We use numerical methods to verify the robustness of this analytical result for a broader class of model parameterizations. We then analyze the optimal Taylor rule for this economy. If the monetary authority places a high weight on stabilizing aggregate inflation then it is optimal to respond to sectoral inflation in direct proportion to the sectoral shares of economic activity. However, if the monetary authority wants to stabilize the aggregate output gap, it puts disproportionate weight on inflation in durable goods prices.
    Date: 2016
  58. By: Jorge Armando Rodríguez; Javier Ávila Mahecha
    Abstract: En este artículo se estima el tamaño y la incidencia de la carga tributaria sobre los trabajadores y los propietarios de capital en Colombia durante el periodo 2000-2014. La carga tributaria se determina mediante tarifas efectivas agregadas, que relacionan el recaudo, en este caso del impuesto sobre la renta y el IVA, con la capacidad de pago de trabajadores y propietarios. Los resultados indican que durante casi todo el periodo de análisis los ingresos laborales soportaron una tarifa efectiva superior a la que recayó sobre los ingresos de capital, aunque la brecha ha tendido a cerrarse. Por lo general, el efecto redistributivo habría sido contraproducente para propósitos de equidad (en una ocasión, nimio). El ejercicio sugiere que para mejorar la distribución de la carga tributaria es más importante prestar atención a la capacidad gravable de los contribuyentes, antes que dar trato desigual a las fuentes factoriales de ingreso.
    Keywords: Tributación nacional, Ingresos factoriales, Impuesto sobre la renta, IVA, Incidencia impositiva, Tarifas efectivas, Cuentas nacionales
    JEL: D33 E62 H2 H22 K34 M41
    Date: 2016–09–06
  59. By: Georgescu, George
    Abstract: Despite theoretical and methodological improvements by national accounts framework revisions, not without disputes and confrontations of views, the growing complexity of economic and social phenomena under globalization circumstances has led to increasing difficulties in the design, monitoring and implementation of specific policies depending on GDP indicator. The paper focuses on the analysis of the GDP relevance and limitations in its interpretation, including a retrospective view. Some inconsistencies as regards the metrics of GDP (illegal activities, unobserved economy, self-consumption in rural households, owner’s imputed rents) are highlighted. Because the GDP does not take into account the impact of important factors of progress (depletion of natural resources, environmental factors, urban concentration and rural depopulation etc.) and does not reflects neither the citizens wellbeing (starting from Easterlin Paradox), efforts to develop new statistical standards in order to complement/substitute GDP with other indicators and/or building composite indicators that integrates various aspects of quality of life have been made, but without meeting a general consensus at the global level. In the end of the paper other derived indicators (GNP, GNI, AIC) are discussed and some considerations regarding the time horizon of Romania’s real convergence with the EU, including the accession to Eurozone are added.
    Keywords: System of National Accounts; GDP limitations; International Comparison Program; wellbeing; Romania EU convergence
    JEL: B15 B41 C82 E01 N10 O11
    Date: 2016–09–10
  60. By: R. S.J. Koijen; F. Koulischer; B. Nguyen; M. Yogo
    Abstract: We use new data on security-level portfolio holdings of institutional investors and households in the euro area to understand the impact of the ongoing asset purchase programme of the European Central Bank (ECB) on the dynamics of risk exposures and on asset prices. We develop a tractable measurement framework to quantify the dynamics of euro-area duration, sovereign and corporate credit, and equity risk exposures as the programme evolves. We propose an instrumental-variables estimator to identify the impact of central bank purchases on sovereign bonds on sovereign bond yields. Our results suggest that the foreign sector sells most in response to the programme, followed by banks and mutual funds, while the purchases of insurance companies and pension funds are positively related to purchases by the ECB.
    Keywords: Quantitative Easing, Flow of Risk, Portfolio Rebalancing, Risk Concentration.
    JEL: E52 E58 G2 G15
    Date: 2016
  61. By: Atsumasa Kondo (Faculty of Economics, Shiga University)
    Abstract: This paper investigates the interconnection between certain fiscal policies in achieving a sustainable level of public debt. The fiscal policies that are investigated relate to the consumption tax rate, the income tax rate, and to public spending. The paper focuses on the critical level of public debt-to-GDP ratio, for which if the ratio exceeds this level at time 0, then it diverges to + ‡ as time passes. The paper theoretically examines how the critical level depends on the fiscal policies, and reveals some merits of consumption taxation. As the consumption tax rate increases, so income taxation and cutting public spending become more effective in sustaining public debt.
    Keywords: sustainability of public debt, fiscal policies, consumption tax, income tax, public spending, balanced growth path
    JEL: E62 H6
    Date: 2016–09
  62. By: Ziesemer, Thomas (UNU-MERIT, and Maastricht University, SBE)
    Abstract: We provide Gini coefficients of education based on data from Barro and Lee (2010) for 146 countries for the years 1950-2010. We compare them to an earlier data set and run some related LOESS fit regressions on average years of schooling and GDP per capita, both showing negative slopes, and among the latter two variables. Tertiary education is shown to reduce education inequality. A growth regression shows that tertiary education increases growth, Gini coefficients of education have a u-shaped impact on growth and labour force growth has an inverted u-shape effect on growth.
    Keywords: Human capital, Human capital distribution, education, inequality, growth, new data
    JEL: E24 I24 I25 O15 Y10
    Date: 2016–08–29
  63. By: Kronick, Jeremy
    Abstract: ABSTRACT: This paper investigates the relationship in the Canadian housing market between loan-to-value (“LTV”) ratios and residential mortgage credit over the 1981-2012 time period. More specifically, I look to determine whether LTV ratio regulation provides a mechanism with which to slow down the potentially overheated Canadian housing market. Due to the endogeneity of many macroeconomic variables, I use a structural vector autoregression (“SVAR”) to investigate this question. Results indicate that three of the four major LTV regulation changes that occurred during this timeframe either had insignificant effects on mortgage credit, or caused it to move contrary to expectations. Only the 2008 tightening of LTV was weakly significant. Therefore, regulation changes to LTV ratios are unlikely to be successful in slowing down the overheated housing market in Canada, which may force central bankers to use broader monetary policy or other forms of macroprudential regulation.
    Keywords: Mortgage credit, macroprudential regulation, loan-to-value, monetary policy, Canada
    JEL: E52 G21 G28
    Date: 2015–04–30
  64. By: Thomas Carver (Motu Economic and Public Policy Research); Arthur Grimes (Motu Economic and Public Policy Research)
    Abstract: The positive relationship between income and subjective wellbeing has been well documented. However, work assessing the relationship of alternative material wellbeing metrics to subjective wellbeing is limited. Consistent with the permanent income hypothesis, we find that a consumption measure out-performs income in predicting subjective wellbeing. When objective measures of consumption are combined with self-assessments of a household’s standard of living, income becomes insignificant altogether. We obtain our result utilising household-level data from Statistics New Zealand’s ‘New Zealand General Social Survey’ which contains a measure of material wellbeing called the ‘Economic Living Standard Index’ that combines measures of consumption flows and self-assessments of material wellbeing.
    Keywords: Life satisfaction, Subjective Wellbeing, Consumption, Permanent Income Hypothesis, Material Wellbeing
    JEL: D12 D63 E21 I31
    Date: 2016–09
  65. By: Frank N. Caliendo; Maria Casanova; Aspen Gorry; Sita Slavov
    Abstract: Uncertainty about the timing of retirement is a major financial risk with implications for decision making and welfare over the life cycle. Our conservative estimates of the standard deviation of the difference between retirement expectations and actual retirement dates range from 4.28 to 6.92 years. This uncertainty implies large fluctuations in total wage income. We find that individuals would give up 2.6%-5.7% of total lifetime consumption to fully insure this risk and 1.9%-4.0% of lifetime consumption simply to know their actual retirement date at age 23. Uncertainty about the date of retirement helps to explain consumption spending near retirement and precautionary saving behavior. While social insurance programs could be designed to hedge this risk, current programs in the U.S. (OASI and SSDI) provide very little timing insurance.
    JEL: C61 E21 H55 J26
    Date: 2016–09
  66. By: Eric Dubois (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The aim of this article is to survey the huge literature that has emerged in the last four decades following Nordhaus's (1975) publication on political business cycles (PBCs). I first propose some developments in history of thought to examine the context in which this groundbreaking contribution saw the light of the day. I also present a simplified version of Nordhaus's model to highlight his key results. I detail some early critiques of this model and the fields of investigations to which they gave birth. I then focus on the institutional context and examine its influence on political business cycles, the actual research agenda. Finally, I derive some paths for future research.
    Keywords: political business cycles,politico-economic cycles,electoral cycles,opportunistic cycles,conditional political business cycles
    Date: 2016–02–01
  67. By: Philipp Adämmer; T. Philipp Dybowski
    Abstract: This paper examines whether the U.S. president's fiscal commitment raises confidence and ultimately output. We analyze 80,545 U.S. presidential speeches by using a probabilistic topic model to construct a continuous measure on the president's commitment to fiscal policy. Impulse responses from a SVAR model confirm that a stronger commitment temporarily boosts consumer confidence which then stimulates output.
    Keywords: topic model, fiscal policy, SVAR, confidence
    JEL: C32 C82 D72 D83 E62
    Date: 2016–08
  68. By: Gilbert Cette; Jimmy Lopez; Jacques Mairesse
    Abstract: On the basis of a country*industry unbalanced panel data sample for 14 OECD countries and 18 industries covering the years 1988 to 2007, this study proposes an econometric investigation of the effects of the OECD Employment Protection Legislation (EPL) indicator on capital intensity for four capital components, and on the share of employment for two skill components. Our results relying on a difference-in-difference approach are the following: i) positive and significant effects for non-ICT physical capital intensity and the share of high-skilled employment; ii) non-significant effects for ICT capital intensity; and (iii) negative and significant effects for R&D capital intensity and the share of low-skilled employment. These results suggest that firms consider that the strengthening of Employment Protection Legislation is equivalent to a rise in the cost of labor, resulting in capital-to-labor substitution in favor of non-ICT capital and working at the disadvantage of low-skill relatively to high-skill workers. They indicate to the contrary that structural reforms for more labor flexibility weakening this legislation could have a favorable impact on firms’ R&D investment and their hiring of low-skill workers.
    JEL: C23 E22 E24 L50 O30 O43 O47
    Date: 2016–09
  69. By: Diana Lima (Central Bank of Portugal); Ioannis Lazopoulos (University of Surrey); Vasco Gabriel (University of Surrey)
    Abstract: Central banks in charge of banking regulation are less aggressive in their inflation mandate since tight monetary policy conditions could have an adverse effect on the stability of the banking system. Due to the conflict between the two mandates, it has been argued that banking supervisory powers should be assigned to an independent authority to avoid ination bias and enhance social welfare. The rst part of the paper develops a theoretical model that assesses the interaction between different policy transmission channels, namely the credit channel and the banks' balance sheet channel. Focusing on a mandate where central banks are also responsible for banking supervision, cases where the price and financial stabilisation objectives are complementary or conflicting are identfied, highlighting the role of policy instruments and types of macroeconomic shocks on welfare. The second part of the paper empirically assesses whether central banks' combined mandates lead to an inflation bias problem using panel data for 25 industrialised countries from 1975 to 2012. The estimation results show that, once we control for relevant policy and institutional factors (such as the presence of inflation targeting and deposit insurance schemes), the separation of banking supervision and monetary policy does not have a significant effect on inflation outcomes.
    Date: 2016–05
  70. By: Francis X. Diebold; Frank Schorfheide; Minchul Shin
    Abstract: Recent work has analyzed the forecasting performance of standard dynamic stochastic general equilibrium (DSGE) models, but little attention has been given to DSGE models that incorporate nonlinearities in exogenous driving processes. Against that background, we explore whether incorporating stochastic volatility improves DSGE forecasts (point, interval, and density). We examine real-time forecast accuracy for key macroeconomic variables including output growth, inflation, and the policy rate. We find that incorporating stochastic volatility in DSGE models of macroeconomic fundamentals markedly improves their density forecasts, just as incorporating stochastic volatility in models of financial asset returns improves their density forecasts.
    JEL: E17
    Date: 2016–09
  71. By: Charles Nolan; Plutarchos Sakellaris; John D. Tsoukalas
    Abstract: Following the recent global nancial crisis, there have been many sig- ni cant changes to nancial regulatory policies. These may have re- duced the likelihood and future cost of the next crisis. However, they have not addressed the central dilemma in nancial regulation which is that governments cannot commit not to bail out banks and other - nancial rms. We develop a simple model to re ect this dilemma, and argue that some form of penalty structure imposed on key decision- makers post-bailout is necessary to address it.
    Keywords: Financial Crisis, Bank bail-outs, Systemic risk, Macropru- dential policy
    JEL: E2 E3
    Date: 2016–06
  72. By: SEKINE Atsushi; TSURUGA Takayuki
    Abstract: Since the 2000s, large fluctuations in commodity prices have become a concern among policymakers regarding price stability. This paper investigates the effects of commodity price shocks on headline inflation with a monthly panel consisting of 144 countries. We show that the effects of commodity price shocks on inflation are transitory. While the effect on the level of consumer prices varies across countries, the transitory effects are fairly robust, suggesting a low risk of the so-called second-round effect on inflation. Employing the smooth transition autoregressive models that use past inflation as the transition variable, we also explore the possibility that the effect of commodity price shocks could be persistent, depending on inflation regimes. In this specification, commodity price shocks may not have transitory effects when a country's currency is pegged to the U.S. dollar. However, the effect remains transitory in countries with exchange rate flexibility. JEL Classification: E31, E37, Q43
    Keywords: Commodity prices, inflation, pass-through, local projections, smooth transition
    Date: 2016–07
  73. By: Pierlauro Lopez (Banque de France)
    Abstract: The welfare cost of economic uncertainty has a term structure that is a simple transformation of the term structures of the equity premium and interest rates. Twenty years of financial market data suggest a term structure of welfare costs that is downward-sloping on average and during downturns. This evidence offers guidance in selecting a model to study the benefits of greater consumption stability from a structural perspective. A model with nominal rigidities and nonlinear external habits can rationalize the evidence and motivates the competitive level and volatility of consumption as inefficient. The model is observationally equivalent to a standard New Keynesian model with CRRA utility but the optimal policy prescription is overturned; in the model the central bank should focus on removing consumption volatility rather than on filling the gap between consumption and its flexible-price counterpart.
    Date: 2016
  74. By: Tatiana Damjanovic (Durham Business School); Dudley Cooke (University of Exeter)
    Abstract: This paper develops a general equilibrium model of firm entry and financial frictions.Movements in the volatility of firm-level shocks and aggregate productivity generate procyclical entry and a countercyclical firm default rate. We derive analytical results for optimal fiscal policy and show that the government faces two trade-offs. The first arises from a profit destruction and a consumer surplus effect when firm entry is endogenous. The second arises because financial frictions reduce firm entry and default is costly. We also study the optimal mix of taxes on labor-income and firm profits in a quantitative version of the model. We find that a countercyclical labor-income tax is always part of the optimal fiscal policy, whereas the cyclicality of the profit tax is sensitive to the source of aggregate fluctuations.
    Keywords: Firm Entry, Financial Frictions, Optimal Fiscal Policy
    Date: 2016–06
  75. By: Gary Gorton; Tyler Muir
    Abstract: In the face of the Lucas Critique, economic history can be used to evaluate policy. We use the experience of the U.S. National Banking Era to evaluate the most important bank regulation to emerge from the financial crisis, the Bank for International Settlement's liquidity coverage ratio (LCR) which requires that (net) short-term (uninsured) bank debt (e.g. repo) be backed one-for-one with U.S. Treasuries (or other high quality bonds). The rule is narrow banking. The experience of the U.S. National Banking Era, which also required that bank short-term debt be backed by Treasury debt one-for-one, suggests that the LCR is unlikely to reduce financial fragility and may increase it.
    JEL: E02 E51 G01 N1
    Date: 2016–09
  76. By: Fernald, John G. (Federal Reserve Bank of San Francisco)
    Abstract: What is the sustainable pace of GDP growth in the United States? A plausible point forecast is that GDP per capita will rise well under 1 percent per year in the longer run, with overall GDP growth of a little over 1-1/2 percent. The main drivers of slow growth are educational attainment and demographics. First, rising educational attainment will add less to productivity growth than it did historically. Second, because of the aging (and retirements) of baby boomers, employment will rise more slowly than population (which, in turn, is projected to rise slowly relative to history). This modest growth forecast assumes that productivity growth is relatively “normal,” if modest—in line with its pace for most of the period since 1973. An upside risk is that we see another burst of information-technology-induced productivity growth similar to what we saw from 1995 to 2004.
    Date: 2016–08–24
  77. By: Hans Gersbach (ETH Zurich, Switzerland); Volker Britz (ETH Zurich, Switzerland); Hans Haller (Virginia Polytechnic Institute)
    Abstract: We study the consequences and optimal design of bank deposit insurance in a general equilibrium model. The model involves two production sectors. One sector is financed by issuing bonds to risk-averse households. Firms in the other sector are monitored and financed by banks. Households fund banks through deposits and equity. Deposits are explicitly insured by a de- posit insurance fund. Any remaining shortfall is implicitly guaranteed by the government. The deposit insurance fund charges banks a premium per unit of deposits whereas the government finances any necessary bail-outs by lump-sum taxation of households. When the deposit insurance premium is actuarially fair or higher than actuarially fair, two types of equilibria emerge: One type of equilibria supports the socially optimal (Arrow-Debreu) allo- cation, and the other type does not. In the latter case, bank lending is too large relative to equity and the probability that the banking system collapses is positive. Next, we show that a judicious combination of deposit insurance and reinsurance eliminates all non-optimal equilibrium allocations.
    Keywords: Financial intermediation, deposit insurance, capital structure, general equilibrium, reinsurance
    JEL: D53 E44 G2
    Date: 2016–09
  78. By: Stohr, Christian
    Abstract: This paper revises Swiss GDP emphasizing the difference between single and double deflation, which depends on trading gains: i.e. gains from terms of trade and from the real exchange rate. These gains contributed significantly to Swiss economic growth between 1930 and 1990. Earlier series of Swiss GDP have neglected trading gains. In backward projections, this leads to overestimation of GDP (per capita) levels. The Maddison database (Bolt & Zanden 2014), for example, suggests that Swiss GDP per capita was 38 percent above that of the USA in 1875. My series shows that Swiss GDP per capita was still below the Western European average.
    Keywords: Historical National Accounts, Gross Domestic Income, Double Deflation, Real Exchange Rate, Terms of Trade, Switzerland
    JEL: C82 E01 N13 N14 O47
    Date: 2016
  79. By: International Monetary Fund.
    Abstract: Kiribati is a small and fragile state vulnerable to climate change. Record high fishing revenue in recent years has boosted growth, improved the current account, and strengthened the balance of the sovereign wealth fund, the primary vehicle for intergenerational saving. However, fishing revenue has declined in the early months of 2016 and is projected to remain at more modest levels over the medium term. Building fiscal buffers to enhance resilience and continued support from development partners are essential to mitigate downside risks to growth.
    Date: 2016–09–09
  80. By: M. Mogliani; T. Ferrière
    Abstract: We analyze French GDP revisions and we investigate the rationality of preliminary announcements of GDP. We consider nonlinearities, taking the form of business cycle asymmetry and time changes, and their effect on both unconditional moments of revisions and the rationality of announcements. We find that nonlinearity represents an interesting feature of French GDP announcements and revisions. Our results suggest that revisions are unbiased, but announcements are overall inefficient, conditionally on a set of macro-financial indicators. Finally, we investigate the forecastability of GDP revisions in real-time and we find out that total revisions are predictable.
    Keywords: GDP Revisions, Real-time dataset, Efficiency, Unbiasedness, Forecasting.
    JEL: C22 C52 E37
    Date: 2016
  81. By: Serguei Maliar (Santa Clara University); John Taylor (Stanford University); Lilia Maliar (Stanford University)
    Abstract: We investigate the effects of a regime shift in monetary policy on macroeconomic variables and welfare in the context of a model with staggered price setting and a Taylor rule. The studied economy is nonstationary because the parameters in the Taylor rule may change over time. We analyze how such time-dependent monetary policy can affect economy. In particular, the EFP allows us to study questions like "Should the Fed normalize policy now or later?"; "Should the Fed normalize policy gradually or all at once?"; and , "Should the Fed announce the regime shift publicly in advance?". We also assess the effects of anchoring inflation expectations of economic agents. Finally, we consider the effects of the zero lower bound (ZLB) on nominal interest rates, and we analyze and compare different transitions out of the ZLB
    Date: 2016
  82. By: Michael Bordo; Arunima Sinha
    Abstract: We examine the first QE program through the lens of an open-market operation under taken by the Federal Reserve in 1932, at the height of the Great Depression. This program entailed large purchases of medium- and long-term securities over a four-month period. There were no prior announcements about the size or composition of the operation, how long it would be put in place, and the program ended abruptly. We use the narrative record to conduct an event study analysis of the operation using the weekly-level Treasury holdings of the Federal Reserve in 1932, and the daily term structure of yields obtained from newspaper quotes. The event study indicates that the 1932 program dramatically lowered medium- and long-term Treasury yields; the declines in Treasury Notes and Bonds around the start of the operation were as large as 114 and 42 basis points respectively. We then use a segmented markets model to analyze the channel through which the open-market purchases affected the economy, namely the portfolio composition and signaling effects. Quarterly data from 1920-32 is used to estimate the model with Bayesian methods. We find that the significant degree of financial market segmentation in this period made the historical open market purchase operation more effective than QE in stimulating output growth. Had the Federal Reserve continued its operations and used the announcement strategy of the QE operation, the Great Contraction could have been attenuated earlier.
    JEL: E5 N1
    Date: 2016–08
  83. By: Jean-Christophe Poutineau (CREM - Centre de Recherche en Economie et Management - UR1 - Université de Rennes 1 - Université de Caen Basse-Normandie - CNRS - Centre National de la Recherche Scientifique); Gauthier Vermandel (PSL - PSL Research University, LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    Abstract: In an estimated DSGE model of the European Monetary Union that accounts for financial differences between core and peripheral countries, we find that country-adjusted macroprudential measures lead to significant welfare gains with respect to a uniform macroprudential policy rule that reacts to union wide financial developments. However, peripheral countries are the winners from the implementation of macroprudential measures while core countries incur welfare losses, thus questioning the interest of adopting coordinated macroprudential measures with peripheral countries.
    Keywords: Bayesian Estimation,DSGE Two-Country Model,Macroprudential policy,Euro Area,Financial Accelerator
    Date: 2016–05–12
  84. By: Guido Menzio (University of Pennsylvania); Mikhail Golosov (Princeton University)
    Abstract: We propose a new business cycle theory. Firms need to randomize over firing or keeping workers who have performed poorly in the past, in order to give them an ex-ante incentive to exert effort. Firms have an incentive to coordinate the outcome of their randomizations, as coordination allows them to load the firing probability on states of the world in which it is costlier for workers to become unemployed and, hence, allows them to reduce overall agency costs. In the unique robust equilibrium, firms use a sunspot to coordinate the randomization outcomes and the economy experiences endogenous, stochastic aggregate fluctuations.
    Date: 2016
  85. By: International Monetary Fund.
    Abstract: The economy of Bosnia and Herzegovina (BiH) continues to recover. Growth was 3.2 percent in 2015, despite fiscal consolidation forced by financing constraints, and is expected to be at about the same level this year. External and internal imbalances have eased substantially in the past year. However, since the global financial crisis, economic convergence with advanced European economies has lagged. Unemployment, especially among the youth, is high and persistent, and creates incentives for emigration. There are important challenges in the areas of improving the business environment, reorienting fiscal policy to support growth while ensuring sustainability, promoting credit while safeguarding financial stability, and ensuring the fragmented governance structure does not affect the single economic space.
    Date: 2016–09–09
  86. By: J. Stephen Ferris (Department of Economics, Carleton University); Bharatee B. Dash (National Institute of Public Finance and Policy)
    Abstract: In this paper we argue that the search for opportunism in government budgets is weakened by the absence of a strong reason for why such expenditures should be restricted solely to the period leading into the next election. Here we argue that the need to fulfill a set of election platform promises in combination with the characteristic that some budget items better attract the attention of voters (with deteriorating memories) will lead to a predictable reallocation of budgetary spending across the life of a government. Our test for a predictable pattern rather than a specific period of election motivated spending uses capital expenditures as our example of more politically visible budgetary items and a data set of 14 Indian states over 54 years (1959/60 – 2012/13). The results of the hypotheses that capital expenditures as a ratio of both total government expenditure and government consumption alone should rise across the entire governing interval are found to be consistent with this hypothesis and provide a fit with the data that is marginally better than more traditional models that use either all pre-election periods or only the pre-election year of scheduled elections to test for opportunism. The absence of a similar interval effect on aggregate state expenditures and on the net budgetary position suggests that evidence of political interaction with the budget is more likely to be found in its composition rather than in its overall level or in the size of its surplus or deficit.
    Keywords: Political business or budget cycle, the spending composition of Indian States, visibility of capital expenditures, panel data, ARDL modeling
    JEL: H5 H72 O53 C23
    Date: 2016–09–07
  87. By: Aloisio Araujo (IMPA); Juan Pablo Gama-Torres (IMPA); Rodrigo Novinski (Faculdades Ibmec); Mario Pascoa (University of Surrey)
    Abstract: Wary agents tend to neglect gains at distant dates but not the losses that occur at those far away dates. For these agents, Ponzi schemes are not the only improving schemes compatible with non-arbitrage pricing. However, ecient allocations can be sequentially implemented by allocating money and then, at subsequent dates, taxing savings plans whose open end bene ts to wary agents outweigh the cost of carrying on cash. The allocative role of money does not disappear over time and the transversality condition allows for consumers to have limiting long positions. Money supply does not have to go to zero and, actually, there are equilibria where it does not. We address also why at money does not lose its value when Lucas trees are available.
    Date: 2016–03
  88. By: Yi Huang (IHEID, The Graduate Institute of International and Development Studies, Geneva); Marco Pagano (University of Naples Federico II); Ugo Panizza (IHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: In China, local public debt issuance between 2006 and 2013 crowded out investment by private manufacturing firms by tightening their funding constraints, while it did not affect state-owned and foreign firms. Using novel data for local public debt issuance, we establish this result in three ways. First, local public debt is inversely correlated with the city-level investment ratio of domestic private manufacturing firms. Instrumental variable regressions indicate that this link is causal. Second, local public debt has a larger negative effect on investment by private firms in industries more dependent on external funding. Finally, in cities with high government debt, firm-level investment is more sensitive to internal funding, also when this sensitivity is estimated jointly with the firm?s likelihood of being credit-constrained. Altogether, these results suggest that, by curtailing private investment, the massive public debt issuance associated with the post-2008 fiscal stimulus sapped long-term growth prospects in China.
    Keywords: Investment, Local public debt, Crowding out, Credit constraints, China.
    JEL: E22 H63 H74 L60 O16
    Date: 2016–07
  89. By: Georg Erber (formerly DIW); Ulrich Fritsche (Universität Hamburg (University of Hamburg)); Patrick Harms (Universität Hamburg (University of Hamburg))
    Abstract: The paper addresses the topic of an overall long-term productivity slowdown in labor productivity for a panel of 25 developed countries. Besides studying individual long-term trends of single countries using filtering techniques we also test for multiple structural breakpoints in the long-term trends. Furthermore after determining the country specific long-term productivity trends using state-space approaches, we extract a common factor from these long-term trend series using factor analysis. The country specific differences are only of second order importance. Dominant is an overall long-term productivity slowdown. The beginning of this slowdown already started in the 1970s and has persisted without any significant structural breakpoint afterwards until now. The same analysis for GDP growth and hours worked data were performed. We found similar results for the GDP growth data compared to the productivity data but not for the hours worked data. Furthermore Granger causality tests reveal that the trend productivity slowdown is driven by the downward trending GDP growth and not vice versa. For the hours worked data no significant relation to productivity growth could be confirmed.
    Keywords: Productivity slowdown, labor productivity, GDP measurement, Granger causality, factor analysis, Kalman filter, structural break
    JEL: E01 O47 C22 C38
    Date: 2016–09
  90. By: Pierre-Olivier Gourinchas; Hélène Rey
    Abstract: The current environment is characterized by low real rates and by policy rates close to or at their lower bound in all major financial areas. We analyze these unusual economic conditions from a historical perspective and draw some implications for external imbalances, safe asset demand and the process of external adjustment. First, we decompose the fluctuations in the world consumption wealth ratio over long period of times and show that they anticipate movements of the real rate of interest. Second, our estimates suggest that the world real rate of interest is likely to remain low or negative for an extended period of time. In this context, we argue that there is a renewed Triffin dilemma where safe asset providers face a trade-off in terms of external exposure and real appreciation of their currency. This tradeoff is particularly acute for smaller economies. This is the ‘curse of the regional safe asset provider.’ We discuss how this ‘curse’ is playing out for two prominent regional safe asset providers: core EMU and Switzerland.
    JEL: E2 E4 F4
    Date: 2016–09
  91. By: Guido BUlligan (Banca d'Italia); Eliana Viviano (Banca d'Italia)
    Abstract: Increasing evidence shows that after a flattening occurred in the immediate aftermath of the global financial crisis, the relationship between price inflation and economic slack became stronger in the euro area. By contrast, there is no clear evidence of a strong(er) relationship between wage inflation and unemployment. In this paper we estimate a standard Phillips curve with time-varying coefficients separately for Italy, Spain, Germany and France. We find that, with the exception of Germany, after the global financial crisis the sensitivity of hourly wage changes to labour market slack increased. Second, using administrative microdata available only for Italy, we relate daily wage changes to the local unemployment rate. The results confirm the steepening of the Phillips curve after 2008, also when controlling for composition effects.
    Keywords: wage growth, Phillips curve, parameter instability JEL Classification: E24, E31, E58
    Date: 2016–09
  92. By: Parantap Basu (Durham Business School); Shesadri Banerjee (National Council of Applied Economic Research (NCAER))
    Abstract: A striking stylized fact of the Indian economy is the increasing predominance of the investment speciÖc technology shocks (IST) as opposed to total factor productivity (TFP) shocks in determining the GDP áuctuations during the post liberalization era. A concurrent phenomenon is the stark increase in the relative import content in the consumption basket vis-a-vis investment. We develop an open economy dynamic stochastic general equilibrium (DSGE) model to understand the determinants of the relative importance of IST and TFP shocks. The model has standard frictions which include price stickiness, external habit formation, investment adjustment cost, and transaction cost of foreign bond holding. We Önd that the relative share of import content in consumption over investment and nominal friction are crucial determinants of the relative importance of these two technology shocks.
    Keywords: Business cycles, IST and TFP Shocks, DSGE Modeling.
    Date: 2015–04
  93. By: Lucas Marc Fuhrer; Benjamin Müller; Luzian Steiner
    Abstract: What is the added value of a security which qualifies as a "high-quality liquid asset" (HQLA) under the Basel III "Liquidity Coverage Ratio" (LCR)? In this paper, we quantify the added value in terms of yield changes and, as suggested by Stein (2013), call it HQLA premium. To do so, we exploit the introduction of the LCR in Switzerland as a unique quasi-natural experiment and we find evidence for the existence of an HQLA premium in the order of 4 basis points. Guided by theoretical considerations, we claim that the HQLA premium is state dependent and argue that our estimate is a lower bound measure. Furthermore, we discuss the implications of an economically significant HQLA premium. Thereby, we contribute to a better understanding of the LCR and its implications for financial markets.
    Keywords: Basel III, Liquidity Coverage Ratio, high-quality liquid assets, HQLA premium
    JEL: E50 G10 G18 G21 G28
    Date: 2016
  94. By: Maurizio MOTOLESE; NAKATA Hiroyuki
    Abstract: This paper examines the relationship between the aggregate output level and social welfare in an overlapping generations (OLG) model of a financial economy with heterogeneous beliefs by focusing on the case of rational beliefs in the sense of Kurz (1994). The aggregate output level is affected by the endogenously determined net supply of the riskless asset, which in turn is affected by the distribution of beliefs; thus, there is a coordination issue. To measure the social welfare, we adopt a measure that is based on the ex post social welfare concept in the sense of Hammond (1981), instead of the standard ex ante criterion to reflect the heterogeneous beliefs. Simulation results indicate that there may be an inverse relationship between the aggregate output and the social welfare. The results suggest that commonly used macroeconomic variables such as gross domestic product (GDP) may not be a very appropriate measure when making policy recommendations.
    Date: 2016–08
  95. By: Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Presentation to the Hayek Group, Reno, Nevada, by John C. Williams, President and CEO, Federal Reserve Bank of San Francisco , for delivery on September 6, 2016
    Date: 2016–09–09
  96. By: Ma, Zhixia
    Date: 2016–01–01
  97. By: Vitor Castro (Faculty of Economics - University of Coimbra and NIPE)
    Abstract: This paper analyses how the functional components and sub-components of government expenditures are affected by fiscal consolidations. A fixed-effects estimator is employed over a panel of 15 European Union countries during the period 1990-2012. The results show that spending on public services increases during fiscal consolidations, while spending on defence, public order, health, education and social protection is significantly cut. A more disaggregated analysis proves that fiscal consolidations are harmful for important social public expenditures, undermining citizens' safety, health assistance, investment in human capital and social protection. Public services are likely to be increased due to a rise in public debt transactions observed during periods of fiscal consolidation. All this evidence has proved to be stronger in a particular group of countries, known in the literature as PIIGS.
    Keywords: Government expenditures; Functional components; Fiscal consolidations; European Union.
    JEL: E62 H50
    Date: 2016
  98. By: Chu, Angus C.; Cozzi, Guido; Pan, Shiyuan; Zhang, Mengbo
    Abstract: This study explores the effects of patent protection in a distance-to-frontier R&D-based growth model with financial frictions. We find that whether stronger patent protection stimulates or stifles innovation depends on credit constraints faced by R&D entrepreneurs. When credit constraints are non-binding (binding), strengthening patent protection stimulates (stifles) R&D. The overall effect of patent protection on innovation follows an inverted-U pattern. An excessively high level of patent protection prevents a country from converging to the world technology frontier. A higher level of financial development influences credit constraints through two channels: decreasing the interest-rate spread and increasing the default cost. Via the interest-spread (default-cost) channel, patent protection is more likely to have a negative (positive) effect on innovation under a higher level of financial development. We test these results using cross-country regressions and find supportive evidence for the interest-spread channel.
    Keywords: Patent protection, credit constraints, economic growth, convergence
    JEL: E44 O31 O34
    Date: 2016–09
  99. By: Tatiana Damjanovic (Durham Business School); Vladislav Damjanovic (Durham Business School); Charles Nolan (Adam Smith Business School, University of Glasgow)
    Abstract: The conventional model of bank liquidity risk management predicts a negative relation between the risk free rate and the money multiplier. We extend that model to reflect credit, or loan book, risk. We find that credit risk model predicts a positive correlation between the risk free rate and the money multiplier, other things constant. In the pre-financial crisis period the liquidity risk view fits the data better whilst in the post-crisis period, the credit risk management model is more appropriate in explaining the relationship between the money multiplier and the risk free rate. In addition, the model implies that the money multiplier should increase with stock market return and decline with its volatility. We provide evidence that this is indeed the case
    Keywords: Credit risk management, Excess reserves, Money multiplier.
    Date: 2016–06
  100. By: Huixia Wang (Hunan University, School of Economy and Trade); Chenggang Wang (University of Hawaii at Manoa, Department of Economics); Timothy Halliday (University of Hawaii at Manoa, Department of Economics, University of Hawaii Economic Research Organization)
    Abstract: We employ granular information on local macro-economic conditions from the Panel Study of Income Dynamics to estimate the impact of the Great Recession on health and health-related behaviors. Among working-aged adults, a one percentage point increase in the county-level unemployment rate resulted in a 2.4-3.2 percent increase in chronic drinking, a 1.8-1.9 percent decrease in mental health status, and a 7.8-8.9 percent increase in reports of poor health. Notably, there was heterogeneity in the impact of the recession across socioeconomic groups. Particularly, obesity and overweight rates increased for blacks and high school educated people, while there is weak evidence that they decreased for whites and the college educated. Along some dimensions, the Great Recession may have widened some socioeconomic health disparities in the United States.
    Keywords: Great Recession, Health Behaviors, Health Outcomes, Obesity, Inequality
  101. By: Raheem, Aremu Idowu; Ayodeji, Musa Adebiyi
    Abstract: The objective of this paper is to analyze the dynamic effects of oil price shock and exchange rate on the Nigeria stock market using monthly data from June 1999 to December 2014, applying Vector Autoregression (VAR) Model. Granger Causality Test, Impulse Response Functions (IRFs) and Variance Decomposition (VDC) were also used to aid in the analysis of the results. The findings showed that oil price, exchange rate and stock market are not co-integrated. Granger Causality Test result indicate that there is bidirectional causality between stock price and exchange rate, also there is bidirectional causality between oil price and exchange rate but unidirectional causality from oil proceed to exchange rate.
    Keywords: Causality,Exchange Rate, Oil Price and Stock market
    JEL: C32 E60
    Date: 2016–09–06
  102. By: Schwärzler, Marion Cornelia; Kronenberg, Tobias
    Abstract: The National Health Account for Germany is a standard reporting tool for the sector’s contribution to economic growth, employment and international trade. Its compilation is based on the supply and use tables of national accounts. Consequently, it refers to a satellite system of the health economy within the overall German economy. It further contains a health input-output table (HIOT) enabling the calculation of multiplier effects. The HIOT is fully consistent with the official input-output table, but it facilitates a more thorough analysis of this heterogeneous inter-sectoral industry, dividing the economy into a number of ‘core’ health sectors, ‘extended’ health sectors, and ‘non-health’ sectors. Concepts and methodology have been developed within projects on behalf of the Federal Ministry of Economic Affairs and Energy of Germany over several years. This paper describes underlying approaches for the compilation of the National Health Account with special emphasis on recent developments due to revisions of statistical standards in the con-text of supply and use tables, NACE 2008 and ESA 2010. Consequently, its contribution to existing scientific research is the methodological point of view the paper addresses, which has not been discussed in detail before. The sector’s relevance for export activities is evaluated as an exemplary field of application of the National Health Account by conducting input-output analysis.
    Keywords: Input-Output analysis, economic footprint, health economy, Germany
    JEL: C67 E01 I11 I18
    Date: 2016–09–08
  103. By: Daniele Tavani (Department of Economics, Colorado State University.); Luca Zamparelli (Department of Social Sciences and Economics, Sapienza University of Rome)
    Abstract: In this paper, we introduce a twofold role for the public sector in the Goodwin (1967) growth cycle model. The government collects income taxes in order to: (a) invest in infrastructure capital, which directly affects the production possibilities of the economy; (b) finance publicly funded research, which augments the growth rate of labor productivity. We first focus on a special case in which labor productivity growth depends entirely on public research, and show that: (i) provided that the output-elasticity of infrastructure is greater than the elasticity of labor productivity growth to public R&D, there exists a tax rate tau* that maximizes the long-run labor share, but not a growth-maximizing tax rate; (ii) the long-run labor share is always increasing in the share of public spending in infrastructure, and (iii) the presence of public R&D is not enough to stabilize the distributive conflict. We then study a more general model with induced technical change where, as is well known in the literature, the distributive conflict is resolved in the long run. With induced technical change: (iv) the labor share-maximizing tax rate is the same as in the special case; (v) the long-run share of labor is always increasing in the share of public spending in infrastructure, and (vi) maximizing growth requires to levy a tax rate in excess of tau*.
    Keywords: Public R&D, Goodwin growth cycle, optimal fiscal policy.
    JEL: D33 E11 O38
    Date: 2016–09

This nep-mac issue is ©2016 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.