nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒09‒25
87 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary Policy for a Bubbly World By Vladimir Asriyan; Luca Fornaro; Alberto Martin; Jaume Ventura
  2. Credit market heterogeneity, balance sheet (in)dependence, financial shocks By Chris Garbers; Guangling Liu
  3. How Quantitative Easing Works: Evidence on the Refinancing Channel By Marco Di Maggio; Amir Kermani; Christopher Palmer
  4. The Case for a Weak Labor Market By Nick Buffie
  5. Foreign Official Holdings of U.S Treasuries, Stock Effect and the Economy: A DSGE Approach By John Nana Francois
  6. Microeconometric evidence on demand-side real rigidity and implications for monetary non-neutrality By Beck, Günter W.; Lein-Rupprecht, Sarah M.
  7. Reassessing price adjustment costs in DSGE models By Sienknecht, Sebastian
  8. China Pro-Growth Monetary Policy and Its Asymmetric Transmission By Kaiji Chen; Patrick Higgins; Daniel F. Waggoner; Tao Zha
  9. Oil and macroeconomic (in)stability By Hilde C. Bjørnland; Vegard H. Larsen; Junior Maih
  10. Unemployment and Gross Credit Flows in a New Keynesian Framework By Florian, David; Francis, Johanna L.
  11. Funding Quantitative Easing to Target Inflation By Reis, Ricardo
  12. Optimal unemployment insurance and international risk sharing By Moyen, Stéphane; Stähler, Nikolai; Winkler, Fabian
  13. Forecasting Financial Stress Indices in Korea: A Factor Model Approach By Hyeongwoo Kim; Wen Shi; Hyun Hak Kim
  14. Debt Constraints and Employment By Kehoe, Patrick J.; Midrigan, Virgiliu; Pastorino, Elena
  15. The global Crisis and Unconventional Monetary Policy: ECB versus Fed By Carolina Tuckwell; António Mendonça
  16. Anatomie du désordre européen By Jean-Luc Gaffard; Francesco Saraceno
  17. Fixed wage contracts and monetary non-neutrality By Björklund, Maria; Carlsson, Mikael; Nordström Skans, Oskar
  18. Foreign exchange intervention and monetary policy design: a market microstructure analysis By Montoro, Carlos; Ortiz, Marco
  19. Modeling changes in U.S. monetary policy By Anh Nguyen; Efthymios Pavlidis; David Alan Peel
  20. Potential Output, Output Gap and Fiscal Stance: is the EC estimation of the NAWRU too sensitive to be reliable? By Fioramanti, Marco
  21. Lack of Commitment, Retroactive Tax Chagnes, and Macroeconomic Instability By Salvador Ortigueira; Joana Pereira
  22. An Analytical Characterization of Noisy Fiscal Policy By Fève, Patrick; Kass-Hanna, Tannous; Pietrunti, Mario
  23. A DGSE Model to Assess the Post-Crisis Regulation of Universal Banks. By O. de Bandt; M. Chahad
  24. Applications of sudden stops of international capital to the Mexican economy By Paula Lourdes Hernández Verme; Mónica Karina Rosales Pérez
  25. Product Switching and the Business Cycle By Andrew B. Bernard; Toshihiro Okubo
  26. Product Switching and the Business Cycle By Bernard, Andrew B.; Okubo, Toshihiro
  27. The Elephant in the Room: The Impact of Labor Obligations on Credit Risk By Favilukis, Jack; Lin, Xiaoji; Zhao, Xiaofei
  28. Inflation Persistence and Structural Breaks: The Experience of Inflation Targeting Countries and the US By Giorgio Canarella; Stephen M. Miller
  29. The effects of Labour Market Reforms upon Unemployment and Income Inequalities : an agent based model By G. Dosi; M.C. Pereira; A. Roventini; M.E. Virgillito Author-Workplace-Name Scuola Superiore Sant'Anna
  30. Market Phenomena Catallactics Misapplication: It’s Crucial Role in Africa’s Underdeveloped Economy By Senzu, Emmanuel Tweneboah
  31. Economic development and Islam revisited By Hasan, Zubair
  32. Below the zero lower bound: A shadow-rate term structure model for the euro area By Lemke, Wolfgang; Vladu, Andreea L.
  33. Taxation, bubbles and endogenous growth By Stefano Bosi; Ngoc-Sang Pham
  34. Country Portfolios, Collateral Constraints and Optimal Monetary Policy By Senay, Ozge; Sutherland, Alan
  35. The diffusion and dynamics of producer prices, deflationary pressure across Asian countries, and the role of China By Chen, Hongyi; Funke, Michael; Tsang, Andrew
  36. Nonlinear Trend and Purchasing Power Parity By luo, yinghao
  37. Inflation Targeting: New Evidence from Fractional Integration and Cointegration By Giorgio Canarella; Stephen M. Miller
  38. Where are natural gas prices heading, and what are the environmental consequences for Latin America? By Arturo L. Vásquez Cordano; Abdel M. Zellou
  40. Macroeconomía de las concesiones de cuarta generación By Juan Mauricio Ramírez; Leonardo Villar
  41. The Federal Reserve's New Approach to Raising Interest Rates By Jane E. Ihrig; Ellen E. Meade; Gretchen C. Weinbach
  42. Time-Frequency Relationship between Inflation and Inflation Uncertainty for the U.S.: Evidence from Historical Data By Claudiu Tiberiu Albulescu; Aviral Kumar Tiwari; Stephen M. Miller; Rangan Gupta
  43. Agent-based Macroeconomics and Dynamic Stochastic General Equilibrium Models: Where do we go from here? By Özge Dilaver; Robert Jump; Paul Levine
  44. Preference for Liquidity of Agents: An Analyse of Brasilian Case By LAGES, ANDRÉ MAIA GOMES; SANTOS, FABRÍCIO RIOS NASCIMENTO; FERREIRA, HUMBERTO BARBOSA
  45. A panel data analysis of temporary and permanent effects of fixed broadband penetration over economic growth By Candelaria, José Alberto
  46. Extending the Determinants of Dollarization in Sub-Saharan Africa: The Role of Easy Access to Foreign Exchange Earnings By Ibrahim D. Raheem; Simplice Asongu
  47. Credit Aggregates, Countercyclical Buffer: stylised facts By Didier Faivre
  48. Macroeconometric modeling as a "photographic description of reality" or as an "engine for the discovery of concrete truth" ? Friedman and Klein on statistical illusions By Erich Pinzón-Fuchs
  49. Predicting U.S. Business Cycle Turning Points Using Real-Time Diffusion Indexes Based on a Large Data Set By Herman Stekler; Yongchen Zhao
  50. International Spillovers of Monetary Policy By John Ammer; Michiel De Pooter; Christopher J. Erceg; Steven B. Kamin
  51. Macroeconomic Modeling of Financial Frictions for Macroprudential Policymaking : A Review of Pressing Challenges By Michael T. Kiley
  52. "Whatever it takes" is all you need: monetary policy and debt fragility By Russell Cooper; Antoine Camous
  53. Contribución de los choques externos en el Crecimiento Económico del Perú: un modelo semi-estructural By Nolazco, José Luis; Lengua-Lafosse, Patricia; Céspedes, Nikita
  54. Macroeconomic and Financial Management in an Uncertain World: What Can We Learn from Complexity Science? By Sitthiyot, Thitithep
  55. 货币供给数量、结构与经济增长—来自ADL门限协整检验与时变格兰杰因果关系检验的证据 By Cai, Yifei
  56. Nonlinear Tax Incidence and Optimal Taxation in General Equilibrium By Dominik Sachs; Aleh Tsyvinski; Nicolas Werquin
  57. Gone with the Wind: Demographic Transition and Domestic Saving By Cavallo, Eduardo; Sanchez, Gabriel; Valenzuela, Patricio
  58. Criticizing the Lucas Critique: Macroeconometricians’ Response to Robert Lucas By Aurélien Goutsmedt; Erich Pinzon-Fuchs; Matthieu Renault; Francesco Sergi
  59. Did Okun's Law Die after the Great Recession? By Giorgio Canarella; Stephen M. Miller
  60. Jamaica; Thirteenth Review under the Arrangement Under the Extended Fund Facility-Press Release and Staff Report By International Monetary Fund.
  61. Jordan; Request for an Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for Jordan By International Monetary Fund.
  62. Time-Varying Persistence of Inflation: Evidence from a Wavelet-based Approach By Heni Boubaker; Giorgio Canarella; Rangan Gupta; Stephen M. Miller
  63. Pricing Characteristics: An Application of Shepard's Dual Lemma By Fare, Rolf; Grosskopf, Shawna; Shang, Chenjun; Sickles, Robin
  64. Systemic Default and Return Predictability in the Stock and Bond Markets By Bao, Jack; Hou, Kewei; Zhang, Shaojun A.
  65. "'Engendering' Intergovernmental Transfers: Is There a Case for Gender-sensitive Horizontal Fiscal Equalization?" By Abhishek Anand; Lekha S. Chakraborty
  66. Interest rates, Eurobonds and intra-European exchange rate misalignments By Vincent Duwicquet; Jacques Mazier; Jamel Saadaoui
  67. The political economy of twin deficits and wage setting centralization By Hamzeh Arabzadeh
  68. Government Debt and the Returns to Innovation By Massimiliano Croce, Mariano; Nguyen, Thien Tung; McGregor Raymond, Steve; Schmid, Lukas
  69. 'What is the Globalisation of Inflation? ' By Gantungalag Altansukha; Ralf Becker; George Bratsiotis; Denise R. Osborn
  70. A Simple Model of Credit Expansion By Alexander Smirnov
  71. Banks Interconnectivity and Leverage By Barattieri, Alessandro; Moretti, Laura; Quadrini, Vincenzo
  72. Consumption and Expenditure in Sub-Saharan Africa By Leandro De Magalhães; Dongya Koh; Raül Santaeulàlia-Llopis
  73. Asset bubbles and efficiency in a generalized two-sector model By Stefano BOSI; Cuong LE VAN; Ngoc-Sang PHAM
  74. Funding Quantitative Easing to Target Inflation By Ricardo Reis
  75. Nonlinear impact of inflation on economic growth in South Africa: A smooth transition regression (STR) analysis By Khoza, Keorapetse; Thebe, Relebogile; Phiri, Andrew
  76. Evidence on financing and budgeting mechanisms to support intersectoral actions between health, education, social welfare and labour sectors By David McDaid; A-La Park
  77. Inflation Expectations in the Recovery from the Great Depression By Andrew Jalil; Gisela Rua
  78. Public and private investment and economic growth in Zambia: A dynamic approach By Makuyana, Garikai; Odhiambo, Nicholas Mbaya
  79. Republic of Azerbaijan; 2016 Article IV Consultation-Press Release; Staff Report; and Informational Annex By International Monetary Fund.
  80. The Ins and Outs of Self-Employment: An Estimate of Business Cycle and Trend Effects By Schweitzer, Mark E.; Shane, Scott
  81. National Income Accounting When Firms Insure Managers: Understanding Firm Size and Compensation Inequality. By Barney Hartman-Glaser; Hanno Lustig; Mindy X. Zhang
  82. Debt-growth linkages in EMU across countries and time horizons By Marta Gómez-Puig; Simón Javier Sosvilla-Rivero
  83. U.S. Net Wealth in the Financial Accounts of the United States By Elizabeth Ball Holmquist; Susan Hume McIntosh
  84. The Common Origin of Uncertainty Shocks By Kozeniauskas, Nicholas; Orlik, Anna; Veldkamp, Laura
  85. Missing Consumption Inequality: Direct Evidence from Individual Food Data By Santaeulàlia-Llopis, Raül ; Zheng, Yu
  86. A Spatial Autoregressive Stochastic Frontier Model for Panel Data with Asymmetric Efficiency Spillovers By Glass, Anthony J.; Kenjegalieva, Karligash; Sickles, Robin C.
  87. GeoPopulation-Institution Hypothesis: Reconciling American Development Process and Reversal of Fortune within a Unified Growth Framework By Ho, Chi Pui

  1. By: Vladimir Asriyan; Luca Fornaro; Alberto Martin; Jaume Ventura
    Abstract: We propose a model of money, credit and bubbles, and use it to study the role of monetary policy in managing asset bubbles. In this model, bubbles pop up and burst, generating fluctuations in credit, investment and output. Two key insights emerge from the analysis. First, the growth rate of bubbles, which is driven by agents’ expectations, can be set in real or in nominal terms. This gives rise to a novel channel of monetary policy, as changes in the inflation rate affect the real growth rate of bubbles and their effect on economic activity. Crucially, this channel does not rely on contract incompleteness or price rigidities. Second, there is a natural limit on monetary policy’s ability to control bubbles: the zero-lower bound. When a bubble crashes, the economy may enter into a liquidity trap, a regime in which agents shift their portfolios away from bubbles - and the credit that they sustain - to money, reducing intermediation, investment and growth. We explore the implications of the model for the conduct of “conventional” and “unconventional” monetary policy, and we use the model to provide a broad interpretation of salient macroeconomic facts of the last two decades.
    JEL: E32 E44 O40
    Date: 2016–09
  2. By: Chris Garbers (Department of Economics, University of Stellenbosch); Guangling Liu (Department of Economics, University of Stellenbosch)
    Abstract: This paper presents a real business cycle model with financial frictions and two credit markets to investigate the qualitative and quantitative relevance of credit market heterogeneity. To address this line of inquiry we contrast the transmission of financial shocks in an economy where loans are the only form of credit to one in which both loans and bonds exist. We estimate the model using Bayesian methods over the sample period 1985Q1 - 2015Q1 for the U.S. economy. We find that credit market heterogeneity plays an important role in attenuating the impact of financial shocks by allowing borrowers to substitute away from the affected credit market. The shock attenuation property of credit market heterogeneity works through asset prices and substitution toward alternative credit types. Bank balance sheet linkages reduce the shock attenuation effect associated with heterogeneous credit markets. The origination of financial shocks can influence both the size and the persistence of their impact.
    Keywords: Credit Market, Business Cycle, Financial Intermediation, Operational Diversification, Heterogeneity, DSGE
    JEL: E32 E43 E44 E51 E52 E20
    Date: 2016
  3. By: Marco Di Maggio; Amir Kermani; Christopher Palmer
    Abstract: Despite massive large-scale asset purchases (LSAPs) by central banks around the world since the global financial crisis, there is a lack of empirical evidence on whether and how these programs affect the real economy. Using rich borrower-linked mortgage-market data, we document that there is a “flypaper effect” of LSAPs, where the transmission of unconventional monetary policy to interest rates and (more importantly) origination volumes depends crucially on the assets purchased and degree of segmentation in the market. For example, QE1, which involved significant purchases of GSE-guaranteed mortgages, increased GSE-eligible mortgage originations significantly more than the origination of GSE-ineligible mortgages. In contrast, QE2's focus on purchasing Treasuries did not have such differential effects. We find that the Fed's purchase of MBS (rather than exclusively Treasuries) during QE1 resulted in an additional $600 billion of refinancing, substantially reduced interest payments for refinancing households, led to a boom in equity extraction, and increased refinancing mortgagors’ consumption by an additional $76 billion. This de facto allocation of credit across mortgage market segments, combined with sharp bunching around GSE eligibility cutoffs, establishes an important complementarity between monetary policy and macroprudential housing policy. Our counterfactual simulations estimate that relaxing GSE eligibility requirements would have significantly increased refinancing activity in response to QE1, including a 20% increase in equity extraction by households. Overall, our results imply that central banks could most effectively provide unconventional monetary stimulus by supporting the origination of debt that would not be originated otherwise.
    JEL: E21 E58 E65 G01 G18 G21 R28
    Date: 2016–09
  4. By: Nick Buffie
    Abstract: In October 2009, the unemployment rate broke double digits for the first time in over two decades. That month, nearly 15.4 million Americans found themselves out of a job. This represented a stark shift from just two years earlier, when the unemployment rate was 4.6 percent and seven million Americans were looking for work. While unemployment remained elevated for a time, it has been falling quickly in recent years. This past January, the unemployment rate dropped below five percent for the first time in eight years. While there have been some monthly fluctuations since then, the unemployment rate has averaged 4.9 percent through the first six months of 2016. Along with the relatively strong rate of job growth — the economy has added 2.4 million private- sector jobs over the past 12 months — the low unemployment rate has engendered discussions of whether the labor market is fully recovered. This debate is extremely relevant to both monetary and fiscal policy: if the job market is still weak, the Federal Reserve (“Fed”) should keep interest rates low and the government should run larger budget deficits; if the job market is nearly recovered, the Fed should begin increasing rates and the government should avoid fiscal stimulus. This paper argues that the labor market is still weak despite the low unemployment rate. Many media outlets and policymaking institutions have argued the opposite — as one Fortune headline recently put it, “The U.S. Economy Is Finally at Full Employment.” [1] Similarly, the Congressional Budget Office (CBO), which is tasked with advising members of Congress on economic policy, estimates that unemployment fell to its natural long-term rate in the first quarter of 2016. [2] Perhaps most importantly, the Fed seems to accept this view as well. Earlier this month, Kansas City Federal Reserve President Esther George said that “the economy is at or near full employment”; in May, San Francisco President John Williams said it was “basically at full employment.” [3] Fed Chair Janet Yellen has expressed a similar position, stating that the labor market is close to full employment. [4] Finally, in their June “Summary of Economic Projections,” voting members of the Federal Open Market Committee (FOMC) — the group tasked with setting interest rate policy — estimated that the long-run unemployment rate lies between 4.6 and 5.0 percent, with the median forecaster projecting a rate of 4.8 percent. [5] In line with this view, Fed officials predicted five rate hikes through the end of 2017. If the labor market is weaker than the Fed believes, raising rates in the near future will needlessly throw many Americans out of work. This paper presents evidence that the job market remains weak; in general, the estimates indicate that the economy is about two-thirds recovered from the Great Recession.
    JEL: J E E2 E24
    Date: 2016–09
  5. By: John Nana Francois
    Abstract: Previous studies focus on quantifying the effect of foreign official holdings of long-term U.S Treasuries (FOHL) on the long-term interest rate. The consensus is that FOHL has a large and negative effect on the long-term interest rate. The long-term interest rate matters in determining aggregate demand, (Andres et al., 2004). However, these studies discount the macroeconomic implications of FOHL on the U.S economy. This paper extends the literature and studies the macroeconomic implications of FOHL shocks through their impact on the long-term interest rate in a dynamic stochastic general equilibrium (DSGE) model. The model treats short and long-term government bonds as imperfect substitutes through endogenous portfolio adjustment frictions(costs). Three main findings emerge from the baseline model: (1) A positive shock to FOHL impacts the long-term interest rate negatively through a stock effect channel-defined as persistent changes in interest rate as a result of movement along the Treasury demand curve. This result is consistent with the empirical literature; (2) The decline in the long-term interest rate creates favorable economic conditions that feed back into the economy and increases consumption, output and inflation through an endogenous term structure implied by the model and; (3) Monetary authority responds to the increase in inflation and output by raising the short-term interest rate. The simultaneous increase in the short-term interest rate and fall in the long-term interest rate causes the term spread to fall. This last result sheds light on the decoupling of interest rates observed between 2004-2006, a phenomenon known as the ``Greenspan Conundrum". The findings from the DSGE model are supported by impulse response functions obtained from a structural near-Vector Auto-regression(near-VAR) model.
    JEL: E43 E52 E58 F21
    Date: 2016–09–21
  6. By: Beck, Günter W.; Lein-Rupprecht, Sarah M.
    Abstract: To model the observed slow response of aggregate real variables to nominal shocks, most macroeconomic models incorporate real rigidities in addition to nominal rigidities. One popular way of modelling such a real rigidity is to assume a non-constant demand elasticity. By using a homescan data set for three European countries, including prices and quantities bought for a large number of goods, in addition to consumer characteristics, we provide estimates of price elasticities of demand and on the degree of demand-side real rigidities. We find that price elasticites of demand are about 4 in the median. Furthermore, we find evidence for demand-side real rigidities. These are, however, much smaller than what is often assumed in macroeconomic models. The median estimate for demand-side real rigidity, the super-elasticity, is in a range between 1 and 2. To quantitatively assess the implications of our empirical estimates, we calibrate a menu-cost model with the estimated super-elasticity. We find that the degree of monetary non-neutrality doubles in the model including demand-side real rigidity, compared to the model with only nominal rigidity, suggesting a multiplier effect of around two. However, the model can explain only up to 6% of the monetary non-neutrality observed in the data, implying that additional multipliers are necessary to match the behavior of aggregate variables.
    Keywords: demand curve,price elasticity,super-elasticity,price-setting,monetary non-neutrality
    JEL: E30 E31 E50 D12 C3
    Date: 2016
  7. By: Sienknecht, Sebastian
    Abstract: Indexation theories have become standard for inflation persistence in DSGE models (Smets and Wouters (2003, 2007)). However, these theories overlook an important stylized fact of U.S. business cycles: high fluctuations in the first difference of inflation. I find that this pattern can be captured by adjustment costs precisely from the first difference of inflation (Pesaran (1991) labels this difference as a "speed change"). I estimate four DSGE models differing in their rigidity assumption and find that a framework with inflation-based adjustment costs has the highest probability to fit U.S. data.
    Keywords: Phillips curve; Economic fluctuations; Estimation.
    JEL: C51 E31 E32
    Date: 2016–03–25
  8. By: Kaiji Chen; Patrick Higgins; Daniel F. Waggoner; Tao Zha
    Abstract: China monetary policy, as well as its transmission, is yet to be understood by researchers and policymakers. In the spirit of Taylor (1993, 2000), we develop a tractable framework that approximates practical monetary policy of China. The framework, grounded in relevant institutional elements, allows us to quantify the policy effects on output and prices. We find strong evidence that monetary policy is designed to support real GDP growth mandated by the central government while resisting inflation pressures and that contributions of monetary policy shocks to the GDP fluctuation are asymmetric across different states of the economy. These findings highlight the role of M2 growth as a primary instrument and the bank lending channel to investment as a key transmission mechanism for monetary policy. Our analysis sheds light on institutional constraints on a gradual transition from M2 growth to the nominal policy interest rate as a primary instrument for monetary policy.
    JEL: C13 C3 E02 E5
    Date: 2016–09
  9. By: Hilde C. Bjørnland (BI Norwegian Business School and Norges Bank (Central Bank of Norway)); Vegard H. Larsen (Norges Bank (Central Bank of Norway) and BI Norwegian Business School); Junior Maih (Norges Bank (Central Bank of Norway) and BI Norwegian Business School)
    Abstract: We analyze the role of oil price volatility in reducing U.S. macroeconomic instability. Using a Markov Switching Rational Expectation New-Keynesian model we revisit the timing of the Great Moderation and the sources of changes in the volatility of macroeconomic variables. We find that smaller or fewer oil price shocks did not play a major role in explaining the Great Moderation. Instead oil price shocks are recurrent sources of economic fluctuations. The most important factor reducing overall variability is a decline in the volatility of structural macroeconomic shocks. A change to a more responsive(hawkish) monetary policy regime also played a role.
    JEL: C11 E32 E42 Q43
    Date: 2016–09–06
  10. By: Florian, David (Banco Central de Reserva del Perú); Francis, Johanna L. (Fordham University)
    Abstract: The Great Recession of 2008-09 was characterized by high and prolonged unemployment and lack of bank lending. The recession was preceded by a housing crisis that quickly spread to the banking and broader financial sectors. In this paper, we attempt to account for the depth and persistence of unemployment during and after the crisis by considering the relationship between credit and firm hiring explicitly. We develop a New Keynesian model with nominal rigidities in wages and prices augmented by a banking sector characterized by search and matching frictions with endogenous credit destruction. In the model, financial shocks are propagated and amplified through significant variation over the business cycle in the endogenous component of the total factor productivity, the credit inefficiency gap, arising from the existence of search and matching frictions in the credit market. In response to a financial shock, the model economy produces large and persistent increases in credit destruction, declines in credit creation, and overall declines in excess reallocation among banks and firms. The tightening of the credit market results in a sharp rise in the average interest rate spread and the average loan rate. Due to the increase in credit inefficiency that arises from the reduction in firm-bank matches, total factor productivity declines and unemployment increases. Total factor productivity and unemployment take at least 12 quarters to return to baseline. This result is due to a combination of nominal and real frictions. Credit frictions not only amplify the effect of financial shocks by creating variation in the number of firms able to produce due to credit restrictions following a shock - an extensive margin effect - as well as in labor demand by each firm, but they also increase the persistence of the shock's effects. Nominal rigidities play an important role primarily increasing the amplitude of the responses of credit and output variables. These findings suggest that credit frictions are a plausible amplification mechanism for the impact of financial shocks and also provide a means for such shocks to impact the labor market in a number of important ways.
    Keywords: Unemployment, nancial crises, gross credit ows, productivity
    JEL: J64 E32 E44 E52
    Date: 2016–09
  11. By: Reis, Ricardo
    Abstract: The study of quantitative easing (QE) policies has so far focussed on which assets the central bank should buy, and on how it can pursue its targets for real and financial stability. This paper emphasizes instead the funding of QE by central bank liabilities, with an eye on achieving the inflation target. Looking backwards, it shows evidence that post-QE1, the U.S. banking sector became saturated with reserves, so the central bank can control the size of the balance sheet independently of its interest-rate policy. Using options data for U.S. inflation, it shows that while QE1 had an effect on expected inflation, further rounds of QE did not. Looking forward, it estimates the feasibility of keeping the liabilities of the central bank at a high level in terms of a solvency upper bound. Finally, it argues that the central bank's interest-rate policy is not out of ammunition when it comes to targeting inflation, since there are radical proposals on the composition of its liabilities, their maturity and the way to remunerate them that could be employed.
    Keywords: Event studies; Large scale asset purchases; Monetarism; Monetary policy
    JEL: E44 E52 E58
    Date: 2016–09
  12. By: Moyen, Stéphane; Stähler, Nikolai; Winkler, Fabian
    Abstract: We discuss how cross-country unemployment insurance can be used to improve international risk sharing. We use a two-country business cycle model with incomplete financial markets and frictional labor markets where the unemployment insurance scheme operates across both countries. Cross-country insurance through the unemployment insurance system can be achieved without affecting unemployment outcomes. The Ramsey-optimal policy however prescribes a more countercyclical replacement rate when international risk sharing concerns enter the unemployment insurance trade-off. We calibrate our model to Eurozone data and find that optimal stabilizing transfers through the unemployment insurance system are sizable and mainly stabilize consumption in the periphery countries, while optimal replacement rates are countercylical overall. Moreover, we find that debt-financed national policies are a poor substitute for fiscal transfers.
    Keywords: Unemployment Insurance,International Business Cycles,Fiscal Union,International Risk Sharing
    JEL: E32 E62 H21 J64
    Date: 2016
  13. By: Hyeongwoo Kim; Wen Shi; Hyun Hak Kim
    Abstract: We propose factor-based out-of-sample forecast models for Korea's financial stress index and its 4 sub-indices that are developed by the Bank of Korea. We extract latent common factors by employing the method of the principal components for a panel of 198 monthly frequency macroeconomic data after differencing them. We augment an autoregressive-type model of the financial stress index with estimated common factors to formulate out-of-sample forecasts of the index. Our models overall outperform both the stationary and the nonstationary benchmark models in forecasting the financial stress indices for up to 12-month forecast horizons. The first common factor that represents not only financial market but also real activity variables seems to play a dominantly important role in predicting the vulnerability in the financial markets in Korea.
    Keywords: Financial Stress Index; Principal Component Analysis; PANIC; In-Sample Fit; Out-of-Sample Forecast; Diebold-Mariano-West Statistic
    JEL: E44 E47 G01 G17
    Date: 2016–09
  14. By: Kehoe, Patrick J. (Federal Reserve Bank of Minneapolis); Midrigan, Virgiliu (New York University); Pastorino, Elena (Federal Reserve Bank of Minneapolis)
    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.
    Keywords: Search and matching; Employment; Debt constraints; Human capital
    JEL: E21 E24 E32 J21 J64
    Date: 2016–09–19
  15. By: Carolina Tuckwell; António Mendonça
    Abstract: In the aftermath of the global economic and financial crisis, which broke-out in 2007, the major central banks started implementing so-called unconventional monetary policy measures. Following a fundamentally qualitative methodology, the aim of this paper is to compare the unconventional measures adopted by the ECB and the Fed, assessing their characteristics and also their impacts on the economy.
    JEL: E52 E58
    Date: 2016–04
  16. By: Jean-Luc Gaffard (OFCE-Sciences Po, Université Côte d'Azur (Université de Nice Sophia Antipolis et SKEMA Business School)); Francesco Saraceno (OFCE-Sciences PO, LUISS SEP Roma)
    Abstract: Ni les raisons structurelles du déclenchement de la crise, ni les moyens requis pour éviter qu’elle ne s’amplifie à très court terme ne sont, aujourd’hui, le principal objet de l’attention des gouvernements ni même de la plupart des économistes. La préoccupation lancinante, en Europe comme d’ailleurs aux Etats-Unis, tient à la lenteur de la reprise et à l’incapacité de trouver les moyens d’y remédier au point de faire resurgir l’hypothèse d’une stagnation séculaire. Le débat se poursuit, notamment en Europe, entre ceux qui entendent mettre en oeuvre des réformes structurelles tout en assurant la consolidation des budgets publics et ceux qui persistent dans l’idée qu’il faut accepter sinon amplifier les déficits publics pour soutenir la demande. Certes, des failles se font jour au sein de l’orthodoxie néo-libérale, conduisant certains à juger la récession en cours inutilement longue et douloureuse. Le bien fondé de la libération des mouvements de capitaux et de la consolidation budgétaire est questionné. Mais les réformes structurelles semblent épargnées, sauf à s’interroger sur le calendrier de leur mise en oeuvre.
    Keywords: Europe, crise, politiques budgétaires, politiques monétaires, changement structurel, Keynes, dichotomie
    JEL: E20 E50 E61 E62
    Date: 2016–09
  17. By: Björklund, Maria (Uppsala university); Carlsson, Mikael (Uppsala universitet and Sveriges Riksbank); Nordström Skans, Oskar (Uppsala universitet)
    Abstract: We study the importance of wage rigidities for the monetary policy transmission mechanism. Using uniquely rich micro data on Swedish wage negotiations, we isolate periods when the labor market is covered by fixed wage contracts. Importantly, negotiations are coordinated in time but their seasonal patterns are far from deterministic. Using a VAR model, we document that monetary policy shocks have a substantially larger impact on production during fixed wage episodes as compared to the average response. The results are not driven by the periodic structure, nor the seasonality, of the renegotiation episodes.
    Keywords: monetary policy; wages; nominal rigidities; micro data
    JEL: E23 E24 E58 J41
    Date: 2016–09–08
  18. By: Montoro, Carlos (Banco Central de Reserva del Perú; Concejo Fiscal (CF)); Ortiz, Marco (Banco Central de Reserva del Perú)
    Abstract: In this paper we extend a new Keynesian open economy model to include risk-averse FX dealers and FX intervention by the monetary authority. These ingredients generate deviations from the uncovered interest parity (UIP) condition. More precisely, in this setup portfolio decisions of the dealers add endogenously a time variant risk-premium element to the traditional UIP that depends on FX intervention by the central bank and FX orders by foreign investors. We analyse the effectiveness of different strategies of FX intervention (e.g.,unanticipated operations or via a preannounced rule) to affect the volatility of the exchange rate and the transmission mechanism of the interest rate. Our findings are as follows: (i) FX intervention has a strong interaction with monetary policy in general equilibrium; (ii) FX intervention rules can have stronger stabilisation power than discretion in response to shocks because they exploit the expectations channel; and (iii) there are some trade-offs in the use of FX intervention, since it can help to isolate the economy from external financial shocks, but it prevents some necessary adjustments on the exchange rate as a response to nominal and real external shocks.
    Keywords: Foreign exchange Microestructure, Exchange rate dynamics, Exchange Rate Intervention, Monetary policy, Information Heterogeneity
    JEL: E4 E5 F3 G15
    Date: 2016–09
  19. By: Anh Nguyen; Efthymios Pavlidis; David Alan Peel
    Abstract: The monetary economics literature has highlighted four issues that are important in evaluating U.S. monetary policy since the late 1960s: (i) time variation in policy parameters, (ii) asymmetric preferences, (iii) revisions to economic data, and (iv) heteroskedasticity. This paper, for the first time, estimates a Taylor rule model that addresses these four issues simultaneously. Our findings suggest that U.S. monetary policy has experienced substantial changes in terms of both the response to inflation and to real economic activity, as well as changes in preferences. These changes cannot be captured adequately by a single structural break at the late 1970s, as has been commonly assumed in the literature, and play a non-trivial role in economic performance.
    Keywords: Real-time data, Asymmetric objective, Stochastic volatility, Time-varying parameter model, Taylor rule, Monetary policy rules, Particle filter
    JEL: C32 E52 E58
    Date: 2016
  20. By: Fioramanti, Marco
    Abstract: EU fiscal governance builds on the concept of Potential Output, the highest level of production an economy can sustain without incurring in inflationary pressure. Unfortunately, Potential Output is not observable and must be estimated. There are many techniques to obtain a guess value of the potential of an economy, each of which with pros and cons. The methodology adopted by the European Commission and EU Member States, while consistent with most of the recent economic and econometric theory, is still not robust enough to give a unique and irrefutable measure on which to base EU’s fiscal framework. Should the fiscal governance continue to be based on this concept, further extension of the methodology must be implemented in order to obtain more robust estimates.
    Keywords: Potential Output, Fiscal Policy, NAWRU.
    JEL: C1 E37 E62
    Date: 2016–04
  21. By: Salvador Ortigueira (Department of Economics, University of Miami); Joana Pereira (Economics Department, New York University)
    Abstract: It is not uncommon that tax reform laws contain retroactive provisions. In this paper we are concerned with the fiscal and macroeconomic consequences of the constitutional ability of the government to retroactively revoke pre-announced income taxes. To this end, we study time-consistent optimal fiscal policy in a neoclassical economy where the government chooses the level of expenditure in a public good, debt issues and income taxation. When the government lacks commitment to these three fiscal variables, a complementarity between the decisions of the households and the government emerges, generating a multiplicity of expectations-driven equilibria. That is, fiscal policy is not uniquely pinned down by economic fundamentals, but it is determined by households' expectations about current and future policies. Accordingly, economies with identical fundamentals may display significantly different fiscal policies, consumption and investment.
    Keywords: Retroactive Taxation; Expectation traps; Equilibrium Multiplicity Publication Status: Under Review
    JEL: E21 H24 H31 J12
    Date: 2016–09–13
  22. By: Fève, Patrick; Kass-Hanna, Tannous; Pietrunti, Mario
    Abstract: This paper provides an analytical characterization of the effects of noisy news shocks on fiscal policy. We consider a small-scale Dynamic Stochastic General Equilibrium (DSGE) model with capital accumulation and endogenous labor supply and show that noise dampens the propagation of anticipated fiscal policy over the business cycle, thus reducing the fiscal multiplier.
    Keywords: Government spending shocks, Expected shocks, Noisy Information, DSGE Models.
    JEL: C32 E62
    Date: 2016–09
  23. By: O. de Bandt; M. Chahad
    Abstract: The paper assesses the overall consistency and impact on both the financial sector and the real economy, of the numerous banking regulations that have been introduced in the aftermath of the Great Financial Crisis. For this purpose, we develop, within a multi-period asset framework, a large scale DSGE model with a real and a financial sector. Universal banks grant credit but invest also in corporate and sovereign bonds. Small companies are financed through bank loans only, while large corporate can also issue bonds. The main findings of the paper are that: (i) the implementation of liquidity regulation which affects private consumption dynamics has a less persistent effect than solvency regulation that affects loan distribution as well as investment; (ii) the model assesses to what extent the Liquidity Coverage Ratio may induce banks to substitute sovereign bonds to business loans; (iii) liquidity and solvency regulations appear to be complementary; (iv) while the implementation of the LCR has qualitatively similar results as the NSFR, even if, quantitatively, the latter has a more mMarrakech_14oderate effect.
    Keywords: Basel III, Solvency ratio, Liquidity ratios, Multi-period assets, Firms' heterogeneity.
    JEL: D58 E3 E44 G21
    Date: 2016
  24. By: Paula Lourdes Hernández Verme (Universidad de Guanajuato); Mónica Karina Rosales Pérez (Universidad de Guanajuato)
    Abstract: There was nothing in the fundamentals of the Mexican economy that would suggest at the moment the beginning of a crisis of such magnitude. The 1994 crisis was extremely unexpected for households and domestic and foreign firms, because there were good economic indicators so far, together with the financial stability of the previous years. The Mexico of 1994 had a de jure fixed exchange rate regime, but in practice, it was an intermediate peg, not a serious hard peg. Our goal is to try to find out whether things would have been different if there would have been instead either a floating exchange rate regime or a hard peg in Mexico at the time of the crisis of 1994. In our aim at trying to answer this question, we set up a Dynamic Stochastic General Equilibrium Model (DSGE) that shared the main stylized characteristics of the Mexican economy of that time. We considered a pure exchange, monetary, small open economy with a DSGE framework in discrete time that obtains from micro-foundations.
    Keywords: exchange rate regimes, sudden stops of international capital, bank panics, dynamic stochastic general equilibrium, monetary policy, small open economy
    JEL: E13 E52 E58 F33 G21
    Date: 2016–09
  25. 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.
    JEL: E32 L11 L21 L25 L60
    Date: 2016–09
  26. By: Bernard, Andrew B.; Okubo, Toshihiro
    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: multi-product firms; product adding; product dropping; trapped factors
    JEL: E32 L11 L21 L25 L60
    Date: 2016–09
  27. By: Favilukis, Jack (University of British Columbia); Lin, Xiaoji (OH State University); Zhao, Xiaofei (University of TX, Dallas)
    Abstract: We study the impact of labor market frictions on credit risk. Our central finding is that labor market variables are the first-order effect in driving both of the aggregate time series and the cross sectional variations of credit risk. Recent studies have highlighted a link between credit risk and macroeconomic/firm-level variables such as investment growth, financial leverage, volatility, etc. We show that labor market variables (wage growth or labor share) can forecast the aggregate credit spread as well as or better than alternative predictors. Furthermore, firm-level labor expense growth rates and labor share can predict Moody-KMV expected default frequency (EDF) in the cross-section across a wide range of countries. A model with wage rigidity and endogenous long-term defaultable debt can explain these links as well as produce large credit spreads despite realistically low default probabilities (credit spread puzzle). This is because pre-committed payments to labor make other committed payments (such as debt) riskier; for this reason variables related to pre-committed labor payments have explanatory power for credit risk.
    JEL: E23 E44 G12
    Date: 2014–12
  28. By: Giorgio Canarella (University of Nevada, Las Vegas); Stephen M. Miller (University of Nevada, Las Vegas and University of Connecticut)
    Abstract: This paper reports on a sequential three-stage analysis of inflation persistence using monthly data from 11 inflation targeting (IT) countries and, for comparison, the US, a non IT country with a history of credible monetary policy. First, we estimate inflation persistence in a rolling-window fractional integration setting using the semiparametric estimator suggested by Phillips (2007). Second, we use tests for unknown structural breaks as a means to identify effects of the regime switch and the global financial crisis on inflation persistence. We use the sequences of estimated persistence measures from the first stage as dependent variables in the Bai and Perron (2003) structural break tests. These results suggest that four countries (Canada, Iceland, Mexico, and South Korea) experience a structural break in inflation persistence that coincide with the implementation of the IT regime, and three IT countries (Sweden, Switzerland, and the UK), as well as the US experience a structural break in inflation persistence that coincides with the global financial crisis. Finally, we reapply the Phillips (2007) estimator to the subsamples defined by the breaks. We find that in most cases the estimates of inflation persistence switch from mean-reversion nonstationarity to mean-reversion stationarity.
    Keywords: inflation persistence; inflation targeting; fractional integration; rolling window estimation; structural breaks
    JEL: C14 E31 C22
    Date: 2016–09
  29. By: G. Dosi (Scuola Superiore Sant'Anna); M.C. Pereira (University of Campinas); A. Roventini (Scuola Superiore Sant'Anna OFCE Sciences PO); M.E. Virgillito Author-Workplace-Name Scuola Superiore Sant'Anna
    Abstract: This paper is meant to analyse the e ects of labour market structural reforms by means of an agent-based model. Building on Dosi et al. (2016b) we introduce a policy regime change characterized by a set of structural reforms on the labour market, keeping constant the structure of the capital- and consumption-good markets. Con rming a recent IMF report (Jaumotte and Buitron, 2015), the model shows how labour market structural reforms reducing workers' bargaining power and compressing wages tend to increase (i) unemployment, (ii) functional income inequality, and (iii) personal income inequality. We further undertake a global sensitivity analysis on key variables and parameters which confirms the robustness of our findings.
    Keywords: Labor market structural reforms, Income distribution, Inequality, Unemployment, Long Run Growth
    JEL: C63 E02 E12 E24 O11
    Date: 2016–07
  30. By: Senzu, Emmanuel Tweneboah
    Abstract: The study and purpose of this paper is to correct the error which emerged from the careless use of imaginary construction on the direct and indirect exchange of the market, by the Central Banks of Africa to dispense their monetary policy. This results in fallacious economic predictions to the future of the market. The latter result is the frustration of the employment of capital and labour for the development of the economy of Africa.
    Keywords: Economic Calculation, Economic Value, Catallactics, Monetary Policy
    JEL: E2 E24
    Date: 2016–05
  31. By: Hasan, Zubair
    Abstract: This paper is a thoroughly revised, enlarged and updated version of a 1992 publication. It deals with the concept objectives and priorities of economic development from an Islamic perspective. The paper attempts to integrate the Islamic positions with mainstream definitions and approaches to development to put issues in an operable mode. It discusses problems Muslim countries currently face on the economic front and suggest ways to come out of their predicament... The paper constitutes one of the chapters for a book on Islamic economics and finance.
    Keywords: Economic development, Human development, Islamic priorities; Basic needs fulfillment.
    JEL: E0 E2 E25 O1
    Date: 2016–09–19
  32. By: Lemke, Wolfgang; Vladu, Andreea L.
    Abstract: We propose an arbitrage-free shadow-rate term structure model to analyze the euro-area yield curve from 1999 to mid-2015, when bond yields turned negative at various maturities. In the model the 'shadow rate' can reach any positive or negative level, while the actual one-month rate cannot fall below some lower bound perceived by market participants. This bound is estimated to have first ranged marginally above zero, before falling to -11 bps in September 2014. We show analytically that the lower bound itself can be interpreted as a 'policy parameter' and interpret the September 2014 ECB rate cut from this perspective. Our model improves upon a standard Gaussian affine model by providing a better match with survey forecasts of short-term rates during the low-rate period and by capturing the decline in yield volatility. The model implies that since mid-2012, the median horizon after which future short rates are expected to return to 25 bps has ranged between 18 and 62 months. However, the liftoff timing, as well as the quantification of forward premia, is highly sensitive to the level of the lower bound.
    Keywords: term structure of interest rates,lower bound,nonlinear state-space model,monetary policy expectations
    JEL: C32 E43 E52
    Date: 2016
  33. By: Stefano Bosi (EPEE (University of Evry)); Ngoc-Sang Pham (LEM (University of Lille 3) and EPEE (University of Evry))
    Abstract: We study the interplay between taxation, bubble formation and eco- nomic growth. A rational bubble may be beneficial when growth is fu- elled by public investment (or R&D externalities) and the government levies taxes on bubble returns to finance this investment. Our main result challenges the conventional view about the negative effect of bubbles in endogenous growth (Grossman and Yanagawa, 1993).
    Keywords: taxation on financial revenue, public R&D, endogenous growth
    JEL: E44 H23 O30
    Date: 2016
  34. By: Senay, Ozge; Sutherland, Alan
    Abstract: Recent literature shows that, when international financial trade is absent, optimal policy deviates significantly from strict inflation targeting, but when there is trade in equities and bonds, optimal policy is close to strict inflation targeting. A separate line of literature shows that collateral constraints can imply that cross-border portfolio holdings act as a shock transmission mechanism which significantly undermines risk sharing. This raises an important question: does asset trade in the presence of collateral constraints imply a greater role for monetary policy as a risk sharing device? This paper finds that the combination of asset trade with collateral constraints does imply a potentially large welfare gain from optimal policy (relative to inflation targeting). However, the welfare gain of optimal policy is even larger when there is no international asset trade (but collateral constraints bind within each country). In other words, the risk sharing role of asset trade tends to reduce the welfare gains from policy optimisation even when collateral constraints act as a shock transmission mechanism. This is true even when there are large and persistent collateral constraint shocks.
    Keywords: Collateral constraints; Country portfolios; Financial market structure; Optimal monetary policy
    JEL: E52 E58 F41
    Date: 2016–09
  35. By: Chen, Hongyi; Funke, Michael; Tsang, Andrew
    Abstract: ​Persistent producer price deflation in China and other Asian economies has become a genuine concern for policymakers. In June 2016, China’s producer prices were down 12.7 percent from their peak in 2011, following a 52-month stretch of consecutive negative producer price readings (March 2012 to June 2016). Given problems with overcapacity and heavy corporate debt burdens, the incessant decline in producer prices has eroded corporate profitability, dampened fixed in-vestment and depressed growth overall. This paper analyzes the determinants of producer price declines across eleven Asian economies, finding that the recent synchronous and protracted pro-ducer price deflation has been driven by weak production growth, low commodity prices, spill-over effects from China, and, to a lesser extent, exchange rate pass-through. With China at the heart of the region’s producer price deflation challenge, we consider the structural adjustments needed in China to cope with the decline and head off deflationary threats.
    Keywords: producer prices, international spillovers, deflation, Asia
    JEL: C23 C32 E31
    Date: 2016–09–12
  36. By: luo, yinghao
    Abstract: After the collapse of the Bretton Woods system, the evidence on the purchasing power parity (PPP) in the long run is still a matter of debate. The difficulties of the problem are the possible nonstationarity of relative price indices and nominal exchange rates. The traditional ways to deal with nonstationarity such as unit root model and cointegration have some problems. In this paper, to deal with nonstationarity, we apply the Hodrick-Prescott(HP) trend-cycle filter in real business cycle literature (Hodrick and Prescott,1981) which can give a nonlinear smooth-trend, and we find that after the 1970s float, the monthly HP trends of US dollar/UK sterling and Deutsche marks/US dollar have certain relevance with their corresponding HP trends of relative consumer price indices. This result indicates that there is no strong evidence to directly deny that the PPP is valid in the long run. In this sense, it is not reliable to directly deny the belief of monetary neutrality!
    Keywords: HP filter, purchasing power parity, monetary neutrality
    JEL: E5 F3 F31 F37
    Date: 2016–09–19
  37. By: Giorgio Canarella (University of Nevada, Las Vegas); Stephen M. Miller (University of Nevada, Las Vegas and University of Connecticut)
    Abstract: We investigate inflation persistence in six inflation targeting (IT) countries from the globaleconomy perspective. This view maintains that inflation persistence in IT countries has declined mainly because of the decline of inflation persistence in the global economy. We provide empirical evidence on two yet unanswered questions. First, we investigate whether each IT country in the sample share a common persistence with Germany and the US, two non-IT countries with a relatively good inflation record, which we use as proxies for the global economy. This tests the weak-form global hypothesis. Second, for the countries that share common inflation persistence with Germany and the US, we examine whether the same long memory component drives their inflationary processes to converge in the long-run to a common stochastic equilibrium with Germany and the US. This tests the strong-form global hypothesis. Our findings cast doubt on the relevance of IT in the industrial, but not developing, countries in the sample, suggesting that the global economy probably played an important role in the decline of inflation persistence in industrial, but not developing, countries.
    Keywords: inflation targeting, inflation persistence, fractional integration, cointegration
    JEL: C14 E31 C22
    Date: 2016–09
  38. By: Arturo L. Vásquez Cordano (GERENS Graduate School of Business and Osinergmin); Abdel M. Zellou (Clear Future Consulting)
    Abstract: There was an upward trend in energy commodity prices since 2000, but with the surge in supply coming from unconventional oil and gas resources in North and South America, the trend in natural gas prices has become downward in recent years. However, the exploitation of these resources is generating public concerns due to the possible adverse environmental impacts of using hydraulic fracturing and other techniques on underground water. The purpose of this paper is to address the following questions: are there super cycles in natural gas prices? What are the environmental consequences in Latin America of the exploitation of unconventional gas given the cyclical behavior of gas prices and how can governments implement environmental policies to regulate unconventional gas extraction? Three super cycles in natural gas prices are identified with the last peak occurring in 2006. Our analysis indicates that the instable political situation and institutional weakness, the governmental intervention through asset nationalization and state-owned oil companies, the lack of transparent investment rules, high capital expenditures to develop LNG export projects and the exploration of shale resources, as well as the pre-salt discoveries in Brazil make uncertain that the shale gas boom achieve a large impact in Latin America during the current gas price super cycle.
    Keywords: Super Cycles, Long Cycles, Exhaustible Resources, Natural Gas Prices, Environment, Shale Gas, Trend-Cycle Decomposition, Christiano-Fitzgerald Band-Pass Filter
    JEL: E32 L71 Q41 E37 L51 Q48 Q58
    Date: 2016–09
  39. By: Benjamin Eden (Vanderbilt University); Maya Eden (World Bank); Jonah Yuen (Vanderbilt University)
    Abstract: To characterize the cross sectional price distribution of supermarket prices, we divide the stores in each good-week combination (UPC-week cell) into bins according to their price. For example, in the 3 bins division case we have a high price bin, a medium price bin and a low price bin. Our main findings are: (a) The variations over weeks in the (cross sectional) average price and quantity sold is lower for higher price bins; (b) Temporary sales contribute substantially to variations over weeks in the average price of the typical good; (c) The elasticity of the quantity sold by stores in the high price bin with respect to the quantity sold by stores in a low price bin (the quantity elasticity) is less than unity; (d) The elasticity of the quantity sold by stores in the high price bin with respect to the price in a low price bin (the cross price elasticity) is positive but less than the absolute value of the own price elasticity. More generally, we provide results about elasticities within UPC-week cells, variations over weeks within UPC and the role of temporary sales.
    Keywords: Price Dispersion, Sequential Trade, Temporary Sales
    JEL: D4 E3
    Date: 2016–09–21
  40. By: Juan Mauricio Ramírez; Leonardo Villar
    Abstract: "Este estudio se concentra en las consecuencias fiscales y macroeconómicas de las Concesiones 4G, y de las respuestas desde la política fiscal, tanto en la fase de construcción de las obras, es decir, cuando se materializa el gasto en infraestructura, como en los ajustes tributarios requeridos para generar los recursos adicionales para financiar las inversiones estratégicas de los próximos diez años, y lograr al mismo tiempo mejorar la equidad social y aumentar la productividad. El estudio comprende cuatro secciones además de esta introducción: En la Sección I se presentan algunas cifras comparativas entre Colombia y el resto de países, en particular América Latina, con respecto a los indicadores de disponibilidad y calidad de la infraestructura de transporte que resaltan el rezago que presenta Colombia en esta variable crítica para la competitividad y la productividad. La Sección II presenta una revisión de literatura sobre la relación entre Infraestructura y productividad y presenta algunas evidencias para Colombia así como una cuantificación del posible impacto de las Concesiones de 4G. La Sección III estudia el impacto macroeconómico y fiscal de las Concesiones de 4G. En primera instancia, se cuantifica el impacto del choque macroeconómico durante la fase de construcción con base en el Modelo de Equilibrio General Computable de Fedesarrollo. En segundo lugar, desde el punto de vista de su impacto fiscal y su relación con la Regla Fiscal que establece una senda decreciente del déficit estructural del Gobierno Nacional y de la deuda pública. La última sección presenta las conclusiones."
    Keywords: Concesiones 4G, Infraestructura del Transporte, Política Fiscal, Impacto Macroeconómico, Modelo de Equilibrio General Computable de Fedesarrollo, Productividad, Concesiones Viales, Infraestructura, Colombia
    JEL: R42 R48 E62 H54 O18 O47 C68 D58
    Date: 2015–03–11
  41. By: Jane E. Ihrig; Ellen E. Meade; Gretchen C. Weinbach
    Abstract: At its December 2015 meeting, the Federal Open Market Committee (FOMC)--the Federal Reserve's monetary policy committee--raised its target range for the federal funds rate by 25 basis points, marking the end of an extraordinary seven-year period during which the federal funds target range was held near zero to support the recovery of the U.S. economy from the worst financial crisis and recession since the Great Depression.
    Date: 2016–02–12
  42. By: Claudiu Tiberiu Albulescu (Politehnica University of Timisoara); Aviral Kumar Tiwari (IBS Hyderabad, IFHE University); Stephen M. Miller (University of Nevada, Las Vegas and University of Connecticut); Rangan Gupta (University of Pretoria)
    Abstract: We provide new evidence on the relationship between inflation and its uncertainty in the U.S. on an historical basis, covering the period 1775-2014. First, we use a bounded approach for measuring inflation uncertainty, as proposed by Chan et al. (2013), and we compare the results with the Stock and Watson (2007) method. Second, we employ the wavelet methodology to analyze the co-movements and causal effects between the two series. Our results provide evidence of a relationship between inflation and its uncertainty that varies across time and frequency. First, we show that in the medium- and long-runs, the Freidman–Ball hypothesis holds when the measure of uncertainty is unbounded, while if the opposite applies, the Cukierman–Meltzer reasoning prevails. Second, we discover mixed evidence about the inflation–uncertainty nexus in the short-run, findings which explain the mixed results reported to date in the empirical literature.
    Keywords: historical inflation rate, uncertainty, continuous wavelet transform, bounded series, U.S.
    JEL: C22 E31 N11 N12
    Date: 2016–09
  43. By: Özge Dilaver (University of Surrey); Robert Jump (Kingston University London); Paul Levine (University of Surrey)
    Abstract: Agent-based computational economics (ACE) has been used for tackling major research questions in macroeconomics for at least two decades. This growing field positions itself as an alternative to dynamic stochastic general equilibrium (DSGE) models. In this paper we first review the arguments raised against DSGE in the ACE literature. We then review existing ACE models, and their empirical performance. We then turn to a literature on behavioural New Keynesian models that attempts to synthesise these two approaches to macroeconomic modelling by incorporating some of the insights of ACE into DSGE modelling. We highlight the individually rational New Keynesian model following Deak et al. (2015) and discuss how this line of research can progress.
    JEL: E03 E12 E32
    Date: 2016–01
    Abstract: This work is meant to show the relevance of the role of money in explaining regional disparities. Points out that before the currency and the banks are incorporated theories of regional development, had two views on regional development, founded on a convergence of unequal growth and divergence in another, where the rates would become increasingly unequal. The literature on the regional economy have given little attention to financial variables and their role in regional development. In this context, the currency has received secondary treatment in the analysis of the regional economy, perhaps in the belief of some theorists in the neutrality of money in the long run, or others who have relied on the assumption of perfect interregional mobility of capital. However, this perspective has been changing in recent years, particularly in post-Keynesian agenda. Thus, we intend to examine the behavior of the public regarding the preference for liquidity in the face of regional characteristics and the financial instability and therefore demonstrate their relevance to explain the differences in regional economic development. To analyze the decision to demand money was used educational and behavioral aspects. The hypothesis that there is a financial concentration in regions with a lower liquidity preference was ratified. For this, the study was developed based on the analysis of units of the Brazilian federation. The database of the Central Bank, and Datasus allowed the use of the formula suggested by the literature pertinent to the theme
    Keywords: uncertainty, regional development, banks, Brazilian economy, interest rates
    JEL: E43 E58 P25 R11 R12
    Date: 2016–07
  45. By: Candelaria, José Alberto
    Abstract: This article presents an econometric analysis for the effects of fixed broadband penetration on the growth rate of GDP per capita for a panel of 35 developed and developing countries over an annual period of 33 years (1981 - 2013). The article contributes to the telecommunications literature by distinguishing between temporary and permanent impacts of fixed broadband penetration on economic growth. Our methodology consists of two models, the first one is a fixed effects panel data model which is used as a benchmark, and it controls for contemporaneous and one-period lagged effects of the penetration variable on economic growth. The possibility of an endogeneity issue due to reverse causality is addressed by considering a two-stage instrumental variables (IV) fixed effects model. In a first stage we instrument the fixed broadband penetration variable with fixed telephony subscribers and the internet users for every 100 inhabitants. Then, in a second stage we use the generated fitted values in a panel regression to determine the impact over the growth rate of GDP per capita. Our approach includes as an explanatory variable the Standard and Poor's 500 real index to control for the business cycle of the global economy. Finally, we verify the existence of positive and statistically significant temporal and permanent effects of fixed broadband penetration variable over economic growth.
    Keywords: Fixed Broadband Penetration,Economic Growth,Panel Data Fixed Effects,Instrumental Variables,Temporal and Permanent Effects
    JEL: C23 C26 O47
    Date: 2015
  46. By: Ibrahim D. Raheem (University of Kent, UK); Simplice Asongu (Yaoundé/Cameroun)
    Abstract: This study argues that the ease at which economic agents have access to foreign earnings would influence/increase the level of dollarization in the economy. The three sources of foreign currency earnings are financial integration, trade openness and natural resource rent. As such, we extend the determinants of dollarization to capture these variables. A dataset of 26 countries in sub-Saharan Africa (SSA) for the period 2001 – 2012 was built. Based on Tobit regression, we found that all the proxies of foreign currency earning, with the exception of natural resource rent, are significant contributors to the increasing rate of dollarization. Specifically, it was found that trade openness and financial liberalization are positive determinants of dollarization, while natural resource rent serves as drag to the dollarization process. These results remain valid to three robustness tests. Policy implications and suggestions for future research were proposed.
    Keywords: Dollarization; Openness; Resources; Tobit regression; SSA
    JEL: E31 E41 C21
    Date: 2016–09
  47. By: Didier Faivre (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The relationship between Credit to private sector, Growth and investment is in a first step evaluated empirically through Error Correction model (ECM), using Credit Level for various national economies. The more important results are the following: the quality of estimation results for the relationship between Investment (with a separate analysis for Business and Households) and Credit is much better than for the relationship between GDP and Credit and in most cases it's the Investment cycle that explains the Credit cycle. In addition, specific results for United States are given, replacing Credit Level data by Credit Flow data. In this case, both cycles drive each other for Business, whereas for Households, it's the investment cycle that drives the Credit cycle.
    Abstract: La relation entre stock de crédit au secteur privé, croissance et investissement est évaluée pour divers pays grâce à des modèles à correction d'erreur. Les plus importants résultats sont les suivants : la qualité des estimations pour la relation entre investissement (analyse séparée pour entreprises et ménages) et crédit est bien meilleure que pour la relation entre PIB et crédit. Le cycle d'investissement explique le plus souvent celui du crédit. Spécifiquement pour les Etats-Unis, en remplaçant données de stock par données de flux pour le crédit, une relation statistique très significative est trouvée pour les entreprises et les ménages entre flux de crédit et investissement. Pour les entreprises, les deux cycles se guident mutuellement. A l'inverse, pour les ménages, le cycle d'investissement pilote le cycle de crédit. Toujours pour les Etats-Unis et sur deux sous-périodes, 1959-1986 et 1986-2014, le cycle du crédit suit ceux du GDP et de l'investissement avec un retard d'environ trois trimestres. Pour la première sous-période les cycles des masses monétaires M0, M2-M1 et M2 précèdent les cycles du PIB et du crédit de trois trimestres, tandis que dans la deuxième sous-période, on observe uniquement que le cycle du PIB précède celui de M2-M1 de trois trimestres.
    Keywords: Private Credit,Credit Cycle,Error Correction Model,Modèle à correction d'erreur,Cycle du crédit,Cointégration,Crédit au secteur privé
    Date: 2016–02
  48. By: Erich Pinzón-Fuchs (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper discusses a longstanding debate between two empirical approaches to macroeconomics: the econometrics program represented by Lawrence R. Klein, and the statistical economics program represented by Milton Friedman. I argue that the differences between these two approaches do not consist in the use of different statistical methods, economic theories or political ideas. Rather, these differences are deeply rooted in methodological principles and modeling strategies inspired by the works of Léon Walras and Alfred Marshall, which go further than the standard opposition of general vs. partial equilibrium. While Klein’s Walrasian approach necessarily considers the economy as a whole, despite the economist’s inability to observe or understand the system in all its complexity, Friedman’s Marshallian approach takes into account this inability and considers that economic models should be perceived as a way to construct systems of thought based on the observation of specific and smaller parts of the economy.
    Keywords: Lawrence R. Klein, Milton Friedman, macroeconometric modeling, Cowles Commission, National Bureau of Economic Research, empirical approaches to macroeconomics, controversy on statistical illusions, Walras-Marshall methodological divide.
    Date: 2016–09–12
  49. By: Herman Stekler (Department of Economics, George Washington University); Yongchen Zhao (Department of Economics, Towson University)
    Abstract: This paper considers the issue of predicting cyclical turning points using real-time diffusion indexes constructed using a large data set from March 2005 to September 2014. We construct diffusion indexes at the monthly frequency, compare several smoothing and signal extraction methods, and evaluate predictions based on the indexes. Our finding suggest that diffusion indexes are still effective tools in predicting turning points. Using diffusion indexes, along with good judgement, one would have successfully predicted or at least identified the 2008 recession in real time.
    Keywords: Forecasting recession, real-time data, probability forecast.
    JEL: C43 C53 C55 E37
    Date: 2016–09
  50. By: John Ammer; Michiel De Pooter; Christopher J. Erceg; Steven B. Kamin
    Abstract: This note presents a broad-brush overview of some of the salient issues on this topic and provides our sense of the answers to some key questions. We start by sketching out a simple framework for understanding how monetary policy actions spill over to other economies. The note then describes some back-of-the-envelope estimates of how U.S. monetary policy actions are transmitted overseas that we corroborate using a large-scale policy model (SIGMA). Finally, we discuss the implications of monetary policy spillovers for global economic stability, including the challenges posed by those spillovers for some countries with multiple policy objectives.
    Date: 2016–02–08
  51. By: Michael T. Kiley
    Abstract: Structural macroeconomic modeling plays a central role economic policy discussions.
    Date: 2016–05–26
  52. By: Russell Cooper (Pennsylvania State University); Antoine Camous (University of Mannheim)
    Abstract: The valuation of government debt is subject to strategic uncertainty. Pessimistic lenders, fearing default, bid down the price of debt, leaving a government with a higher debt burden. This increases the likelihood of default and thus confirming the pessimism of lenders. Can monetary interventions mitigate debt fragility? With one-period commitment to a state contingent policy, the monetary authority can indeed overcome strategic uncertainty. Under discretion, debt fragility remains unless reputation effects are sufficiently strong. Simpler forms of interventions, such as an inflation target, cannot eliminate debt fragility
    Date: 2016
  53. By: Nolazco, José Luis (Ministerio de Economía y Finanzas); Lengua-Lafosse, Patricia (Ministerio de Economía y Finanzas); Céspedes, Nikita (Ministerio de Economía y Finanzas)
    Abstract: En este documento se estudia la contribución del sector externo en el crecimiento de la economía peruana en el periodo 1996-2015. Se usa un modelo semi-estructural similar a los desarrollos disponibles (Berg y otros, 2006; Salas, 2011; Adler y Sosa, 2012; Han, 2014),) de modo que los choques externos se propagan endógenamente hacia el crecimiento de una economía pequeña, abierta y parcialmente dolarizada mediante los canales reales (comercio y términos de intercambio) y financiero (volatilidad y tipo de cambio). Se encuentra que los efectos conjuntos de los choques externos que enfrentó la economía peruana son heterogéneos en el tiempo y según el tipo de choque: en los periodos 2005-2008 y 2010-2013 los choques externos representan hasta el 36% y 28% del crecimiento observado, respectivamente. Asimismo, durante el 2009 se hubiera crecido 4,2 puntos porcentuales mayor al observado en dicho año (1,1 %) si es que no hubiera ocurrido la crisis económica mundial.
    Keywords: choques externos, crecimiento económico, canal comercial y financiero
    JEL: C54 E13 F41 F43
    Date: 2016–09
  54. By: Sitthiyot, Thitithep
    Abstract: This paper discusses serious drawbacks of existing knowledge in macroeconomics and finance in explaining and predicting economic and financial phenomena. Complexity science is proposed as an alternative approach to be used in order to better understand how economy and financial market work. This paper argues that understanding characteristics of complex system could greatly benefit financial analysts, financial regulators, as well as macroeconomic policy makers.
    Keywords: Macroeconomics; Finance; Complexity Science
    JEL: A10 E00 G00
    Date: 2015–07–20
  55. By: Cai, Yifei
    Abstract: 本文在粘性价格理论的基础上建立了具有前瞻性的货币数量理论模型,应用ADL门限协整 检验与时变因果关系检验实证分析了货币供给数量M1与M2、货币供给结构M1、M2增 速差对经济增长的影响,对我国的“货币中性”进行再检验。结果证实了货币供给数量与结 构是经济增长的时变格兰杰原因,但持续的时间较短;在绝大多数的时间段内,表现出“货 币中性”。此外,自2015年10月以来,M1、M2增速差持续扩大,但实证结果表明 尽管货币增速差与经济增长呈现负相关关系,但时变因果关系表明M1、M2增速差并不是 驱动GDP的格兰杰原因。
    Keywords: 货币供给数量与结构;经济增长;ADL门限协整检验;时变格兰杰因果关系检验
    JEL: C12 C51 E23
    Date: 2016–09–17
  56. By: Dominik Sachs; Aleh Tsyvinski; Nicolas Werquin
    Abstract: We study the incidence and the optimal design of nonlinear income taxes in a Mirrleesian economy with a continuum of endogenous wages. We characterize analytically the incidence of any tax reform by showing that one can mathematically formalize this problem as an integral equation. For a CES production function, we show theoretically and numerically that the general equilibrium forces raise the revenue gains from increasing the progressivity of the U.S. tax schedule. This result is reinforced in the case of a Translog technology where closer skill types are stronger substitutes. We then characterize the optimum tax schedule, and derive a simple closed-form expression for the top tax rate. The U-shape of optimal marginal tax rates is more pronounced than in partial equilibrium. The joint analysis of tax incidence and optimal taxation reveals that the economic insights obtained for the optimum may be reversed when considering reforms of a suboptimal tax code.
    JEL: E62 H21 H22
    Date: 2016–09
  57. By: Cavallo, Eduardo (Inter-American Development Bank); Sanchez, Gabriel (Inter-American Development Bank); Valenzuela, Patricio (University of Chile)
    Abstract: This study explores the relationship between demographic factors and saving rates using a panel dataset covering 110 countries between 1963 and 2012. In line with predictions from theory, this paper finds that lower dependency rates and greater longevity increase domestic saving rates. However, these effects are statistically robust only in Asia. In particular, Latin America, which is a region that has undergone a remarkably similar demographic transition, did not experience the same boost in saving rates as Asia. The paper highlights that the potential dividends arising from a favorable demographic transition are not automatically accrued. This is a sobering message at a time when the demographic tide is shifting in the world.
    JEL: E21 J10 O16
    Date: 2016–04
  58. By: Aurélien Goutsmedt (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Erich Pinzon-Fuchs (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Matthieu Renault (IRIF - Institut de Recherche en Informatique Fondamentale - UP7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique); Francesco Sergi (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The standard history of macroeconomics considers Lucas (1976)– “the Lucas Critique”–as a path-breaking innovation for the discipline. According to this view Lucas’s article dismissed the traditional macroeconometric practice calling for new ways of conceiving the quantitative evaluation of economic policies. The Lucas Critique is considered, nowadays, as a fundamental principle of macroeconomic modeling (Woodford, 2003). The interpretation and the application of the Critique, however, represent still unsolved issues in economics (Chari et al., 2008). Even if the influence of Lucas’s contribution cannot be neglected, something seems to be missing in the narrative: the reactions of the economists that were directly targeted by the Critique. Modeling practices of economic policy evaluation were not overthrown immediately after Lucas (1976), creating a divide between theoretical and applied macroeconomics (Brayton et al., 1997). In the first section we propose a careful account of Lucas’s argument and of some of the previous works anticipating the substantial outline of the Critique (like Frisch’s notion of autonomy). Second, we bring our own interpretation of Lucas (1976). We find two points of view in Lucas's paper: a prescriptive one that tell how to build a good macroeconometric model (it is the standard interpretation of the article); a positive one that relies on the fact that the Lucas critique could be seen as an attempt to explain a real-world phenomenon: stagflation. Third, we classify the reactions of the Keynesian macroeconometricians following this line of interpretation. On the prescriptive side, the Keynesians protested against the New Classical solution to the Lucas critique (the use of the rational expectation hypothesis among other things). Klein, for instance, proposed an alternative microfoundational program to empirically study the formation of expectations. On the positive side, the Keynesians put into question the relevance of the Lucas Critique to explain the rise of both unemployment and inflation in the 1970s. They tried to test the impact of policy regime changes and of shifts in agents' behavior. We argue that the explanation of the stagflation was elsewhere. The purpose of this paper is to study the reactions of the macroeconometricians criticized by Lucas. We focus especially on those macroeconometricians who worked on policy evaluation and who held an expertise position in governmental institutions. We categorize the different reactions to the Critique, in order to enrich the understanding of the evolution of modeling and expertise practices through the analysis of the debates–which have not yet been completely solved.
    Keywords: History of macroeconomics, Keynesian economics, Lu- cas Critique, Macroeconometrics, Rational Expectations.
    Date: 2016–09–12
  59. By: Giorgio Canarella (University of Nevada, Las Vegas); Stephen M. Miller (University of Nevada, Las Vegas and University of Connecticut)
    Abstract: This paper proposes an empirical framework to estimate Okun's law which focuses on structural breaks and threshold nonlinearity. We use sequentially the Bai and Perron’s (1998, 2003) structural break and threshold methodology to enable regime-dependent as well as threshold-dependent changes in the unemployment rate. We employ an autoregressive distributed lag version of Okun's law in first differences, which allows for delayed reactions of the unemployment rate to output changes. Applied to US data (1948Q1-2015Q4), the empirical analysis characterize Okun’s law as a three-regime relationship with the first break coinciding with the 1973 oil shock, and the second break immediately following the end of the Great Recession. In the post-Great Recession regime, we find that Okun’s law breaks down as a linear relationship. This result assumes a linear and symmetric relationship between changes in the unemployment rate and real output. We test this assumption for each of the identified regimes using threshold estimation and recognize a threshold within each regime, which rejects the linearity and symmetry hypotheses and, thus, suggests that Okun’s law follows a more complex nonlinear asymmetric dynamics. Importantly, when we apply threshold estimation to the post- Great Recession regime, we find that the time-honored link between output growth and the unemployment rate still holds.
    Keywords: Okun's law; structural breaks; threshold effects
    JEL: C14 E31 C22
    Date: 2016–09
  60. By: International Monetary Fund.
    Abstract: Stable but slow expansion. Inflation and the current account deficit continue to be contained, thanks to relatively low oil prices and the government’s policy efforts. Growth is projected to be 1.7 percent for FY2016/17 with improving prospects for investment, including in tourism and strong agricultural recovery. Unemployment, however, remains high, hampered by the weak activity in recent years. The poverty rate is also high at about 20 percent of the population. Exemplary performance under the program. All performance criteria and structural benchmarks have been met. Based on the authorities’ continued strong program implementation and their forward-looking policy commitments, staff recommends completion of the thirteenth review.
    Date: 2016–09–19
  61. By: International Monetary Fund.
    Abstract: Jordan has maintained macroeconomic stability and undertook significant policy adjustment against a difficult external environment, rising socio-economic tensions, high vulnerabilities, and the hosting of a large number of Syrian refugees. The economy still faces considerable challenges. Economic growth remains below potential, unemployment is high, particularly for youth and women, the refugee crisis is weighing on the economy and public finances, gross public debt has risen to about 93 percent of GDP, the current account deficit is high, and the regional outlook remains challenging.
    Keywords: Extended Fund Facility;Fiscal policy;Fiscal reforms;Financial management;Monetary policy;Bank supervision;Anti-money laundering;Combating the financing of terrorism;Economic indicators;Balance of payments statistics;Letters of Intent;Staff Reports;Press releases;Jordan;
    Date: 2016–09–14
  62. By: Heni Boubaker (IPAG Lab); Giorgio Canarella (University of Nevada, Las Vegas); Rangan Gupta (University of Pretoria); Stephen M. Miller (University of Nevada, Las Vegas and University of Connecticut)
    Abstract: We propose a new long-memory model with a time-varying fractional integration parameter, evolving non-linearly according to a Logistic Smooth Transition Autoregressive (LSTAR) specification. To estimate the time-varying fractional integration parameter, we implement a method based on the wavelet approach, using the instantaneous least squares estimator (ILSE). The empirical results show the relevance of the modeling approach and provide evidence of regime change in inflation persistence that contributes to a better understanding of the inflationary process in the US. Most importantly, these empirical findings remind us that a "one-size-fits-all" monetary policy is unlikely to work in all circumstances.
    Keywords: Time-varying long-memory, LSTAR model, MODWT algorithm, ILSE estimator
    JEL: C13 C22 C32 C54 E31
    Date: 2016–09
  63. By: Fare, Rolf (Oregon State University); Grosskopf, Shawna (Oregon State University); Shang, Chenjun (Rice University); Sickles, Robin (Rice University)
    Abstract: The recent housing bubble has provided impetus for revisiting indicators of housing price inflation and property characteristics. Diewert (2011, Alternative Approaches to Measuring Housing Price Inflation, paper presented at the Economic Measurement Group Workshop, 2011, UNSW, Australia) for example has provided a comparison of various methods of constructing property price indices using index number and hedonic regression methods, which he illustrates using data from a small Dutch town over a number of quarters. We provide an alternative approach based on Shephard's dual lemma and apply it to the same data used by Diewert. This method avoids the multicollinearity problem associated with traditional hedonic regression, and the resulting prices of property characteristics show smoother trends than Diewert's results. We also revisit the Diewert and Shimizu (2013) study that employed hedonic regressions to decompose the price of residential property in Tokyo into land and structure components and that constructed constant quality indexes for land and structure prices respectively. We use three models from Diewert and Shimizu (2013) to fit our real estate data from town "A" in Netherlands, and also construct the price indices for land and structure, which are compared with our results derived above.
    JEL: C02 C23 C43 D12 E31 R21
    Date: 2015–05
  64. By: Bao, Jack (Federal Reserve Board); Hou, Kewei (OH State University); Zhang, Shaojun A. (University of Hong Kong)
    Abstract: Using a structural model of default, we construct a measure of systemic default defined as the probability that many firms default at the same time. Our estimation accounts for correlations in defaults between firms through common exposures to shocks. The systemic default measure spikes during recession periods and is strongly correlated with traditional credit-related macroeconomic measures such as the default spread and VIX. Furthermore, our measure predicts future equity and corporate bond index returns, particularly at the one-year horizon, and even after controlling for many traditional return predictors such as the dividend yield, default spread, inflation, and tail risk. These predictability results are robust to out-of-sample tests.
    JEL: E32 G12 G13 G17
    Date: 2016–01
  65. By: Abhishek Anand; Lekha S. Chakraborty
    Abstract: This paper seeks to evaluate whether a gender-sensitive formula for the inter se devolution of union taxes to the states makes the process more progressive. We have used the state-specific child sex ratio (the number of females per thousand males in the age group 0-6 years) as one of the criteria for the tax devolution. The composite devolution formula as constructed provides maximum rewards to the state with the most favorable child-sex ratio, and the rewards progressively decline along with the declining sex ratio. In this formulation, the state with the most unfavorable child-sex ratio is penalized the most in terms of its share in the horizontal devolution. It is observed that the inclusion of gender criteria makes the intergovernmental fiscal transfers formula more equitable across states. This is not surprising given the monotonic decline in the sex ratio in some of the most high-income states in India.
    Keywords: Fiscal Devolution; Gender; Equity; Intergovernmental Transfers
    JEL: E62 E63
    Date: 2016–09
  66. By: Vincent Duwicquet (CLERSE - Centre lillois d'études et de recherches sociologiques et économiques - CNRS - Centre National de la Recherche Scientifique - Université de Lille, Sciences et Technologies); Jacques Mazier (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique); Jamel Saadaoui (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique, BETA - Bureau d'Economie Théorique et Appliquée - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The euro crisis sheds light on the nature of alternative adjustment mechanisms in a heterogeneous monetary union. Exchange rate adjustments being impossible, it remains very few efficient alternative mechanisms. At the level of the whole eurozone the euro is close to its equilibrium parity. But the euro remains overvalued for Southern European countries, France included, and largely undervalued for Northern European countries, especially for Germany. This paper gives a new evaluation of these exchange rate misalignments inside the eurozone thanks to a FEER approach. In a second step, we use a two-country SFC model of a monetary union with endogenous interest rates and Eurobonds. Overvaluations amount to negative competitiveness shocks in Southern countries. In this respect, three main results are found. Firstly, an increase of intra-European financing by banks of northern countries or other institutions could contribute to reduce the debt burden and induce a partial recovery but public debt would increase. Secondly, the implementation of Eurobonds as a tool to partially mutualize European sovereign debt would have a rather similar positive impact with a public debt limited to 70 percent of GDP. Thirdly, Eurobonds could also be used to finance large European projects which could impulse a stronger recovery in the entire zone with stabilized current account balances.
    Keywords: Euro crisis,Exchange rate misalignments,Eurobonds,Interest rates
    Date: 2016–09–08
  67. By: Hamzeh Arabzadeh (Paris School of Economics, Université Paris 1 Panthéon-Sorbonne, CES and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper contributes to the literature on current account imbalances. Econometric analysis of the paper finds evidence that wage centralization, in a cross-section of industrialized economies, significantly improve current accounts through reducing budget deficits. To explain this empirical finding, the paper provides a political economy framework in which the government follows preferences of N-sector workers (majority rule). An increase in public and so, current account deficits by issuing external public debt leads to real appreciation of the currency. As between-sector mobility is constrained by friction in the labor market, wages in N-sector rises. The opposite happens if the government improves the two balances by rising its saving. Thus, N-sector workers relatively support (oppose) more a rise (reform) in the two deficits. Centralization of wage bargaining moderates the benefit and costs from such twin-deficit policies by reducing the responsiveness of sectoral wage with respect to sectoral prices. Thus, the more centralized is the wage determination, the less N-sector workers support (oppose) a rise (reform) in the two deficits. Correspondingly, more centralized wage bargaining reduces the government's political incentive (cost) to deteriorate (reform) the external balance through the fiscal balance.
    Keywords: Twin deficits, Current account imbalances, Dutch disease, Search and Match, Wage bargaining Centralization, Real Exchange rate
    JEL: F32 E62 J31 J51 J6 F41
    Date: 2016–08–27
  68. By: Massimiliano Croce, Mariano (University of North Carolina); Nguyen, Thien Tung (Ohio State University); McGregor Raymond, Steve (University of North Carolina); Schmid, Lukas (Duke University)
    Abstract: Elevated levels of government debt raise concerns about their effects on long-term growth prospects. This study shows that (i) high-R&D firms are more exposed to government debt and pay higher expected returns than low-R&D firms; and (ii) higher levels of the debt-to-GDP ratio predict higher risk premia for high-R&D firms. Furthermore, rises in the cost of capital for innovation-intensive firms are associated with declines in subsequent R&D activity and economic growth. We study these findings in a production-based asset pricing model with endogenous innovation. By accounting for fiscal and political risk, our model reproduces several aspects of the empirical evidence.
    JEL: C62 F31 G12
    Date: 2016–05
  69. By: Gantungalag Altansukha; Ralf Becker; George Bratsiotis; Denise R. Osborn
    Abstract: This paper studies the globalisation of CPI in ation by analysing core, energy and food components, testing for structural breaks in the relationships between domestic inflation and a corresponding country-specific foreign inflation series at the monthly frequency for OECD countries. The iterative methodology employed separates coefficient and variance breaks, while also taking account of outliers. We find that the overall pattern of globalisation in aggregate inflation is largely driven by convergence of the mean levels of the core component from the early 1990s, compatible with the introduction of inflation targeting in many countries of our sample. There is less evidence of increased synchronisation of shortrun movements in core than aggregate inflation, but an increased role for shortrun foreign energy inflation often contributes to the globalisation effect.
    Date: 2016
  70. By: Alexander Smirnov
    Abstract: The proposed model is aimed to reveal important patterns in the behavior of a simplified financial system. The patterns could be detected as regular cycles consisting of debt bubbles and crises. Financial cycles have a well defined structure and form periodic sequences along the axis of credit expansion while retaining stochastic nature in terms of time.
    Date: 2016–07
  71. By: Barattieri, Alessandro; Moretti, Laura; Quadrini, Vincenzo
    Abstract: In the period that preceded the 2008 crisis, USfi nancial intermediaries have become more leveraged (measured as the ratio of assets over equity) and interconnected (measured as the share of liabilities held by other financial intermediaries). This upward trend in leverage and interconnectivity sharply reversed after the crisis. To understand the factors that could have caused this dynamic, we develop a model where banks make risky investments in the non-financial sector and sell part of their investments to other banks (diversifi cation). The model predicts a positive correlation between leverage and interconnectivity which we explore empirically using balance sheet data for over 14,000 financial intermediaries in 32 OECD countries. We enrich the theoretical model by allowing for Bayesian learning about the likelihood of a bank crisis (aggregate risk) and show that the model can capture the dynamics of leverage and interconnectivity observed in the data.
    Keywords: Interconnectivity; leverage; risk
    JEL: E21 G11 G21
    Date: 2016–09
  72. By: Leandro De Magalhães; Dongya Koh; Raül Santaeulàlia-Llopis
    Abstract: Using novel micro data we explore the lifecycle profiles of consumption and expenditure in Sub-Saharan Africa. Adult-equivalent expenditure shows a hump over the lifecycle that is twice larger in urban areas than in rural areas. In contrast to expenditure, consumption remains relatively stable across ages in both rural and urban areas, including in old age. This consumption smoothing is achieved by keeping caloric intake constant over the lifecycle while switching to a less varied and less nutritious diet, maintained by home production.
    Keywords: Consumption, Expenditure, Rural-Urban, Sub-Saharan Africa, Lifecycle, Nutrients
    JEL: E21 O11 R20
    Date: 2016–09–13
  73. By: Stefano BOSI (EPEE (University of Evry)); Cuong LE VAN (IPAG, CNRS, and Paris School of Economics); Ngoc-Sang PHAM (LEM (University of Lille 3) and EPEE (University of Evry))
    Abstract: We consider a multi-sector infinite-horizon general equilibrium model. Asset supply is endogenous. The issues of equilibrium existence, efficiency, and bubble emergence are addressed. We show how different assets give rise to very different rational bubbles. We also point out that efficient bubbly equilibria may exist.
    Keywords: infinite-horizon, general equilibrium, aggregate good bubble, capital good bubble, efficiency
    JEL: D31 D91 E22 G10
    Date: 2016
  74. By: Ricardo Reis
    Abstract: The study of quantitative easing (QE) policies has so far focussed on which assets the central bank should buy, and on how it can pursue its targets for real and financial stability. This paper emphasizes instead the funding of QE by central bank liabilities, with an eye on achieving the inflation target. Looking backwards, it shows evidence that post-QE1, the U.S. banking sector became saturated with reserves, so the central bank can control the size of the balance sheet independently of its interest-rate policy. Using options data for U.S. inflation, it shows that while QE1 had an effect on expected inflation, further rounds of QE did not. Looking forward, it estimates the feasibility of keeping the liabilities of the central bank at a high level in terms of a solvency upper bound. Finally, it argues that the central bank’s interest-rate policy is not out of ammunition when it comes to targeting inflation, since there are radical proposals on the composition of its liabilities, their maturity and the way to remunerate them that could be employed.
    Date: 2016–09
  75. By: Khoza, Keorapetse; Thebe, Relebogile; Phiri, Andrew
    Abstract: In this paper, we challenge the notion of a monotonic relationship between inflation and economic growth in South Africa. In particular, we establish threshold effects in the inflation-growth relationship using a smooth transition regression (STR) model which is applied on data collected between 1994:Q1 and 2016:Q2. Our empirical results confirm a threshold of 5.4 percent in which the effects of inflation on economic growth are positive below this threshold whereas inflation exerts adverse effect on economic growth at inflation levels above this level. In a nutshell, our study offers support in favour of the optimal level of inflation lying between the current 3-6 percent inflation target and more specifically suggests that the monetary authorities should slightly lower the upper level of this target to about 5.4 percent as a means creating a more conducive financial environment for promoting higher economic growth.
    Keywords: Inflation; Economic growth; Thresholds; Smooth transition regressions (STR); South Africa Reserve Bank (SARB).
    JEL: C22 C32 C52 E31 E52 O40
    Date: 2016–09–19
  76. By: David McDaid; A-La Park
    Abstract: Intersectoral collaboration between the health and the social welfare, education or labour sectors can help to influence the social determinants of health. Funding such collaboration can be difficult as these sectors may be subject to very different regulatory structures, incentives and goals. This review found 51 documents on the use of various financial mechanisms to facilitate intersectoral collaboration for health promotion, involving at least two of these sectors. A systematic search of the evidence identified the approaches used, including: discretionary earmarked funding, recurring delegated financing allocated to independent bodies and mechanisms for joint budgeting between two or more sectors. Many of these examples are implemented at a regional or local, rather than national, level and factors that influence their success include organizational structures, management, culture and trust. Potential facilitators include regulatory and legislative frameworks providing incentives, clear accountability for actions and the identification of specific benefits to all participating sectors.
    Keywords: budgeting; financing; health promotion; intersectional collaboration
    JEL: E6
    Date: 2016
  77. By: Andrew Jalil; Gisela Rua
    Abstract: In this note, we draw on our recent research on the role of inflation expectations in the recovery from the Great Depression of the 1930s (Jalil and Rua, 2016a and 2016b) to provide insights into the actions that can successfully shift inflation expectations and stimulate economic recovery.
    Date: 2016–08–30
  78. By: Makuyana, Garikai; Odhiambo, Nicholas Mbaya
    Abstract: This paper investigates the dynamic contributions of public and private investment to economic growth in Zambia during the period from 1970 to 2014. In the analysis, the paper also estimated the important indirect contribution of public investment to economic growth through its crowding effect on private investment. The study employs the newly proposed Autoregressive Distributed Lag (ARDL)-bounds testing approach in estimating the economic growth and private investment models. The empirical evidence from the study shows that private investment contributes more to economic growth than public investment in Zambia in the short run and the long run. In addition, gross public investment, infrastructural and non-infrastructural public investment were found to crowd out private investment in the short run; while non-infrastructural public investment also had a crowding out effect on private investment in the long run. The results imply that the long-run contributions of both private and public investment to economic growth in Zambia can be improved by raising the infrastructural public investment to a threshold level that stimulates private investment growth while reducing non-infrastructural public investment to the basic minimum level.
    Keywords: Zambia; Public Investment; Private Investment; Economic Growth; Crowding in effect; Crowding out effect; ARDL-bounds testing approach
    Date: 2016–09
  79. By: International Monetary Fund.
    Abstract: Azerbaijan built large buffers and invested heavily during the oil boom years, but efforts to diversify the economy have lagged. The authorities have taken steps to adjust to slumping oil prices and weaker growth in trading partner countries. In 2015, the Central Bank of Azerbaijan (CBA) undertook two devaluations and switched to a managed float. Inflation rose while the large current account surplus evaporated and the budget moved to a deficit. Financial sector soundness deteriorated. Monetary policy has been tightened to address inflation and support the currency. The non-oil primary balanced improved in 2015, but is being reversed in 2016 with a revised budget that boosts capital and current spending. The largest bank is being restructured via a bad bank-special purpose vehicle (SPV) model, some smaller banks have been closed or intervened, and a new integrated financial supervisory agency has been created.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Fiscal consolidation;Monetary policy;Banking sector;Bank restructuring;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Azerbaijan;
    Date: 2016–09–14
  80. By: Schweitzer, Mark E. (Federal Reserve Bank of Cleveland); Shane, Scott (Case Western Reserve University)
    Abstract: We examine quarterly microlevel data on labor market transitions taken from the Current Population Survey from 1990 to 2014 to estimate how the business cycle affects transitions into and out of self-employment from other labor market states. We control for individual demographics and occupational influences in our analysis to better pinpoint the effect of demand growth on these transitions. We find that changes in demand conditions substantially influence the marginal rate of transition into and out of self-employment from other labor market states, after taking into account demographic and industrial differences. A contraction in demand has a large effect on self-employment because it alters the balance between self-employment entry and exit. Falling demand leads to an increase in exit from entrepreneurship, but has countervailing effects on entry. While a decrease in demand leads to a decrease in the opportunity cost of entry into entrepreneurship by increasing the rate of unemployment, the entry into entrepreneurship is higher from employment than from unemployment or from out of the labor market. Finally, we find that the effect of changes in demand on self-employment differ for incorporated and unincorporated self-employment.
    Keywords: Self Employment; Labor Market; Business Cycle
    Date: 2016–09–14
  81. By: Barney Hartman-Glaser; Hanno Lustig; Mindy X. Zhang
    Abstract: Among U.S. publicly traded firms, the average firm's capital share has declined, even though the aggregate capital share has increased. We attribute the secular increase in the aggregate capital share among these firms to an increase in firm size inequality that is only partially mitigated by an increase in inter-firm labor compensation inequality. We develop a model in which firms optimally provide managers with insurance against firm-specific shocks. Consequently, larger, more productive firms return a larger share of rents to shareholders, while less productive firms endogenously exit. An increase in firm-level risk lowers the threshold at which firms exit and increases the measure of firms in the right tail of the size distribution. As a result, such an increase always increases the aggregate capital share in the economy, but may lower the average firm's capital share.
    JEL: E25 G30
    Date: 2016–09
  82. By: Marta Gómez-Puig (Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.); Simón Javier Sosvilla-Rivero (Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.)
    Abstract: This paper contributes to the literature by empirically examining whether the influence of public debt on economic growth differs between the short and the long run and presents different patterns across euro-area countries. To this end, we use annual data from both central and peripheral countries of the European Economic and Monetary Union (EMU) for the 1960-2012 period and estimate a growth model augmented for public debt using the Autoregressive Distributed Lag (ARDL) bounds testing approach. Our findings tend to support the view that public debt always has a negative impact on the long-run performance of EMU countries, whilst its short-run effect may be positive depending on the country.
    Keywords: Public debt; Economic growth; Bounds testing; Euro area; Peripheral EMU countries; Central EMU countries.
    Date: 2016
  83. By: Elizabeth Ball Holmquist; Susan Hume McIntosh
    Abstract: This note describes the measurement of U.S. net wealth in the Federal Reserve's Financial Accounts of the United States.
    Date: 2015–10–08
  84. By: Kozeniauskas, Nicholas; Orlik, Anna; Veldkamp, Laura
    Abstract: Various types of uncertainty shocks can explain many phenomena in macroeconomics and finance. But does this just amount to inventing new, exogenous, unobserved shocks to explain challenging features of business cycles? This paper argues that three conceptually distinct fluctuations, all called uncertainty shocks, have a common origin. Specifically, we propose a mechanism that generates micro uncertainty (uncertainty about firm-level shocks), macro uncertainty (uncertainty about aggregate shocks) and higher-order uncertainty (disagreement) shocks from a common origin and causes them to covary, just as they do in the data. When agents use standard maximum likelihood techniques and real-time data to re-estimate parameters that govern the probability of disasters, the result is that micro, macro and higher-order uncertainty fluctuate and covary just like their empirical counterparts. Our findings suggest that time-varying disaster risk and the many types of uncertainty shocks are not distinct phenomena. They are outcomes of a quantitatively plausible belief updating process.
    Keywords: asymmetric information; Business Cycles; disagreement; disaster risk; uncertainty
    Date: 2016–09
  85. By: Santaeulàlia-Llopis, Raül ; Zheng, Yu
    Abstract: Without data on individual consumption, inequality across individuals is almost invariably inferred by applying adult equivalence scales to household-level consumption data. To assess whether these household-based measures are effective, we exploit a rare opportunity in which individual food consumption data for each and all household members are available. We use a large sample of eight waves of the China Health and Nutrition Survey 1991-2011 that cover roughly 4,000 households and 11,000 individuals per wave. We find that adult-equivalent consumption misses 40% of the total cross-sectional individual inequality. The missing inequality is largely driven by the “vices" (i.e. alcohol, tobacco, coffee and tea) and by the core food consumption of young children. Our results suggest caution in the use of adult-equivalent scales to measure inequality, whose effectiveness depends on the items in the consumption basket and the presence of young children.
    Keywords: Consumption, Inequality, Adult Equivalence, Scales, Individual Data
    JEL: D12 E21
    Date: 2016
  86. By: Glass, Anthony J. (Loughborough University); Kenjegalieva, Karligash (Loughborough University); Sickles, Robin C. (Rice University and Loughborough University)
    Abstract: By blending seminal literature on non-spatial stochastic frontier models with key contributions to spatial econometrics we develop a spatial autoregressive (SAR) sto- chastic frontier model for panel data. The specification of the SAR frontier allows efficiency to vary over time and across the cross-sections. Efficiency is calculated from a composed error structure by assuming a half-normal distribution for inefficiency. The spatial frontier is estimated using maximum likelihood methods taking into account the endogenous SAR variable. We apply our spatial estimator to an aggregate production frontier for 41 European countries over the period 1990-2011. In the application section, the fitted SAR stochastic frontier specification is used to discuss, among other things, the asymmetry between efficiency spillovers to and from a country.
    JEL: C23 C51 D24 E23
    Date: 2015–04
  87. By: Ho, Chi Pui
    Abstract: We develop a unified growth theory for the Western Hemisphere during the colonization era. We posit a unified growth model with transatlantic migration and slavery trade to reconcile development in the Thirteen Colonies/United States during AD1700-AD1860. Then we apply the model across American regions/countries, and propose the GeoPopulation-Institution hypothesis to explain divergence: whenever its geographic or political environments relatively favored the buildup of Black slaves (or non-White forced labor), through slavery institution that disincentivized the Blacks to make improvements, a region/country was likely to suffer a reversal of fortune. Geography, population and institution are inseparable in understanding American economic history.
    Keywords: GeoPopulation-Institution Hypothesis; American Economic History; Reversal of fortune; Unified Growth Theory; Transatlantic Migration and Slavery Trade
    JEL: E10 N10 O5
    Date: 2016–09–04

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