nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒10‒02
eighty-six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Credit market heterogeneity, balance sheet (in) dependence, financial shocks By Chris Garbers; Guangling Liu
  2. Accounting for Business Cycles By Pedro Brinca; V. V. Chari; Patrick J. Kehoe; Ellen McGrattan
  3. EAGLE-FLI - A macroeconomic model of banking and financial interdependence in the euro area By N. Bokan; A. Gerali; Sandra Gomes; P. Jacquinot; P. Pisani
  4. Money, Asset Prices and the Liquidity Premium By Lee, Seungduck
  5. Aggregate Recruiting Intensity By Alessandro Gavazza; Simon Mongey; Giovanni L. Violante
  6. China Pro-Growth Monetary Policy and Its Asymmetric Transmission By Chen, Kaiji; Waggoner, Daniel F.; Higgins, Patrick C.; Zha, Tao
  7. Does Fed policy reveal a ternary mandate? By Peek, Joe; Rosengren, Eric S.; Tootell, Geoffrey M. B.
  8. Unconventional Monetary Policy in a Currency Union with Segmentation in the Market for Government Debt By Andreas Tischbirek
  9. The Effect of Quantitative Easing on Lending Conditions By Laura Blattner; Luisa Farinha; Gil Nogueira
  10. Housing and macroeconomics By Piazzesi, Monika; Schneider, Martin
  11. Net debt supply shocks in the euro area and the implications for QE By Blattner, Tobias; Joyce, Michael A. S.
  12. Analyzing the impact of monetary policy on financial markets in Chile By Alicia García-Herrero; Eric Girardin; Hermann Esteban González
  13. Macroeconomics implications of female entrepreneurs facing financial frictions to access to credit: A DSGE model approach in Cameroon By Thierry Kame Babilla; Adele Ngo Bilong; Sandra Kendo; Martin Jaures Ndzana Eloundou
  14. Long-term optimal portfolio allocation under dynamic horizon-specific risk aversion By Olmo, José; Gonzalo, Jesús
  15. Growth expectations, undue optimism, and short-run fluctuations By Enders, Zeno; Kleemann, Michael; Müller, Gernot
  16. Boosting investment performance in Germany By Andrés Fuentes Hutfilter; Andreas Kappeler; Dorothee Schneider; Giovanni Maria Semeraro
  17. A crise financeira e a política econômica: poderia ter sido diferente? By Costa Filho, João Ricardo
  18. Labor Share Decline and Intellectual Property Products Capital By Dongya Koh; Raül Santaeulàlia-Llopis
  19. Non-Linear Phillips Curves with Inflation Regime-Switching By Jeremy J. Nalewaik
  20. The Sectoral Employment Intensity of Growth in South Africa By Njabulo Mkhize
  21. An inflation-predicting measure of the output gap in the euro area By Jarociński, Marek; Lenza, Michele
  22. How to Improve Inflation Targeting in Canada By Maurice Obstfeld; Kevin Clinton; Ondra Kamenik; Douglas Laxton; Yulia Ustyugova; Hou Wang
  23. Should I stay or should I go? Bayesian inference in the threshold time varying parameter (TTVP) model By Florian Huber; Gregor Kastner; Martin Feldkircher
  24. Philippines; 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Philippines By International Monetary Fund.
  25. Policy initiatives and Örmsíaccess to external finance: Evidence from a panel of emerging Asian economies By Udichibarna Bose; Ronald McDonald; Serafeim Tsoukas
  26. Advanced economy inflation: the role of global factors By Mikolajun, Irena; Lodge, David
  27. Bank interest rate setting in the euro area during the Great Recession By Camba-Méndez, Gonzalo; Durré, Alain; Mongelli, Francesco Paolo
  28. On the value of virtual currencies By Wilko Bolt; Maarten van Oordt
  29. Austerity and private debt By Klein, Mathias
  30. Intuitive and reliable estimates of the output gap from a Beveridge-Nelson filter By Güneş Kamber; James Morley; Benjamin Wong
  31. Surplus-Debt Regressions By Eric M. Leeper; Bing Li
  32. Saving Alberta's Resource Revenues: Role of Intergenerational and Liquidity Funds By van den Bremer, Ton; van der Ploeg, Frederick
  33. Sustainability of Public Debt in an AK Model with Complex Tax System Abstract:This paper theoretically investigates the role of the tax system in sustaining the public debt. The paper explicitly derives the critical level of the public debt-to-GDP ratio that is compatible with a balanced growth path. If the ratio exceeds this critical level at time 0, then it diverges to + ‡ as time passes. Analyzing a situation where the government marginally increases the consumption tax rate, the paper reveals the extent to which the government can then cut the income tax rate while maintaining the sustainability of public debt. Tax rates that are compatible with the balanced growth are also derived as a function of the initial level of debt-to-GDP ratio. By Atsumasa Kondo
  34. Exploring the economy's progress and outlook: remarks at the South Shore Chamber of Commerce, Quincy, Massachusetts, September 9, 2016 By Rosengren, Eric S.
  35. New perspectives on the Great Depression: a review essay By George S. Tavlas
  36. Hysteresis in a Three-Equation Model By Michl, Thomas
  37. Does labor force participation rates of youth vary within the business cycle? Evidence from Germany and Poland By Dunsch, Sophie
  38. Inflation and Activity - Two Explorations and Their Monetary Policy Implications By Blanchard, Oliver; Cerutti, Eugenio; SUmmers, Lawrence
  39. Long-Term Government Debt and Household Portfolio Composition By Andreas Tischbirek
  40. Republic of Belarus; Staff Report for the 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Belarus By International Monetary Fund.
  41. Russian Federation: Financial Sector Assessment Program; Technical Note-Macroprudential Policy By International Monetary Fund.
  42. Anchoring of inflation expectations in the euro area: recent evidence based on survey data By Łyziak, Tomasz; Paloviita, Maritta
  43. Implementing Cross-Border Interbank Lending in BoC-GEM-FIN By Malik Shukayev; Argyn Toktamyssov
  44. Recovering historical inflation data from postal stamps prices By Franses, Ph.H.B.F.; Janssens, E.
  45. Robert Lucas and the Twist of Modeling Methodology. On some Econometric Methods and Problems in New Classical Macroeconomics By Francesco Sergi
  46. Implementing Cross-Border Interbank Lending in BoC-GEM-FIN By Shukayev, Malik; Toktamyssov, Argyn
  47. Endogenous Labor Share Cycles: Theory and Evidence By Jakub Growiec; Peter McAdam; Jakub Muck
  48. Near-Money Premiums, Monetary Policy, and the Integration of Money Markets : Lessons from Deregulation By Mark Carlson; David C. Wheelock
  49. The unsecured interbank money market: A description of the Portuguese case By Sofia Saldanha
  50. Spain's Historical National Accounts: Expenditure and Output, 1850-2015 By Prados de la Escosura, Leandro
  51. Spain’s Historical National Accounts: Expenditure and Output, 1850-2015 By Leandro Prados de la Escosura
  52. Signals from the government: policy disagreement and the transmission of fiscal shocks By Callegari, Giovanni; Cimadomo, Jacopo; Ricco, Giovanni
  53. Raising well-being in Germany's ageing society By Andreas Kappeler; Andrés Fuentes Hutfilter; Dorothee Schneider; Naomitsu Yashiro; Eun Jung Kim; Giovanni Maria Semeraro
  54. No more cakes and ale: banks and banking regulation in the post-bretton woods macro-regime By Klüh, Ulrich; Hütten, Moritz
  55. Vieillissement démographique et réforme paramétrique des retraites. Les enseignements d’un modèle EGC-GI pour le Maroc. By Loumrhari, Ghizlan
  56. Natural disasters and macroeconomic performance By Strulik, Holger; Trimborn, Timo
  57. Policy spillovers and synergies in a monetary union By Arce, Óscar; Hurtado, Samuel; Thomas, Carlos
  58. Portugal; 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Portugal By International Monetary Fund.
  59. Mismatch Unemployment and the Geography of Job Search By Ioana Marinescu; Roland Rathelot
  60. November 2014 Update of the FRB/US Model By Jean-Philippe Laforte; John M. Roberts
  61. The euro area bank lending survey By Köhler-Ulbrich, Petra; Hempell, Hannah S.; Scopel, Silvia
  62. Republic of Belarus; Financial System Stability Assessment By International Monetary Fund.
  63. Exchange rate pass-through: What has changed since the crisis? By Martina Jašová; Richhild Moessner; Előd Takáts
  64. An Assessment of the Exchange Rate Pass-Through in Angola and Nigeria By Ana Lariau; Moataz El-Said; Misa Takebe
  65. Macro Policy Responses to Natural Resource Windfalls and the Crash in Commodity Prices By van der Ploeg, Frederick
  66. Have FOMC minutes helped markets to predict FED funds rate changes? By Jung, Alexander
  67. Reserve Balances, the Federal Funds Market and Arbitrage in the New Regulatory Framework By Ayelen Banegas; Manjola Tase
  68. Downskilling: Changes in Employer Skill Requirements over the Business Cycle By Sasser Modestino, Alicia; Shoag, Daniel; Ballance, Joshua
  69. Working Paper 226 - Aid Unpredictability and Economic Growth in Kenya By Ojiambo Elphas; Jacob Oduor; Mburu Tom; Wawire Nelson
  70. Did the Fed's Announcement of an Inflation Objective Influence Expectations? By Alan K. Detmeister; Daeus Jorento; Emily Massaro; Ekaterina V. Peneva
  71. Inflation Persistence and Structural Breaks: The Experience of Inflation Targeting Countries and the US By Giorgio Canarella; Stephen M. Miller
  72. Bias in Official Fiscal Forecasts: Can Private Forecasts Help? By Frankel, Jeffrey A.; Schreger, Jesse
  73. The Gender Wealth Gap Across European Countries By Alyssa Schneebaum; Miriam Rehm; Katharina Mader; Katarina Hollan
  74. Animal spirits, fundamental factors and business cycle fluctuations By Dées, Stéphane; Zimic, Srečko
  75. A 2011 Social Accounting Matrix for the West Bank with detailed representation of households and labour accounts By Agbahey, Johanes U. I.; Siddig, Khalid; Grethe, Harald
  76. Selling Failed Banks By Granja, Joao; Matvos, Gregor; Seru, Amit
  77. Asset accounting, fiscal policy and the UK’s oil and gas resources, past and future By Giles Atkinson; Kirk Hamilton
  78. The International Monetary Fund: 70 Years of Reinvention By Reinhart, Carmen; Trebesch, Christoph
  79. Structural Transformation in the OECD: Digitalisation, Deindustrialisation and the Future of Work By Thor Berger; Carl Benedikt Frey
  80. An empirical contribution to Minsky’s financial fragility:Evidence from non-financial sectors in Japan By Hiroshi Nishi
  81. How large is the output gap in the euro area By Jarociński, Marek; Lenza, Michele
  82. The Consequences of Long Term Unemployment: Evidence from Matched Employer-Employee Data By Katharine G. Abraham; John C. Haltiwanger; Kristin Sandusky; James Spletzer
  83. Temporary contracts' transitions: the role of training and institutions By Sara Serra
  84. Global inflation forecasts By Jonathan Kearns
  85. Market integration and the persistence of electricity prices By João Pedro Pereira; Vasco Pesquita; Paulo M.M. Rodrigues; António Rua
  86. CATalytic Insurance: The Case of Natural Disasters By Cordella, Tito; Yeyati, Eduardo Levy

  1. By: Chris Garbers; Guangling Liu
    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 Inter-mediation, Operational Diversification, heterogeneity, DSGE
    JEL: E32 E43 E44 E51 E52 E20
    Date: 2016–09
  2. By: Pedro Brinca; V. V. Chari; Patrick J. Kehoe; Ellen McGrattan
    Abstract: We elaborate on the business cycle accounting method proposed by Chari, Kehoe, and McGrattan (2007), clear up some misconceptions about the method, and then apply it to compare the Great Recession across OECD countries as well as to the recessions of the 1980s in these countries. We have four main findings. First, with the notable exception of the United States, Spain, Ireland, and Iceland, the Great Recession was driven primarily by the efficiency wedge. Second, in the Great Recession, the labor wedge plays a dominant role only in the United States, and the investment wedge plays a dominant role in Spain, Ireland, and Iceland. Third, in the recessions of the 1980s, the labor wedge played a dominant role only in France, the United Kingdom, Belgium, and New Zealand. Finally, overall in the Great Recession the efficiency wedge played a more important role and the investment wedge played a less important role than they did in the recessions of the 1980s.
    JEL: E00 E12 E13 E22 E24 E44
    Date: 2016–09
  3. By: N. Bokan; A. Gerali; Sandra Gomes; P. Jacquinot; P. Pisani
    Abstract: We incorporate financial linkages in EAGLE, a New Keynesian multi-country dynamic general equilibrium model of the euro area (EA) by including financial frictions and country-specific banking sectors. In this new version of the model, termed EAGLE-FLI (Euro Area and GLobal Economy with Financial LInkages), banks collect deposits from domestic households and cross-country interbank market and raise capital to finance loans issued to domestic households and firms. In order to borrow from local (regional) banks, households use domestic real estate as collateral whereas firms use both domestic real estate and physical capital. These features - together with the full characterization of trade balance and real exchange rate dynamics and with a rich array of financial shocks - allow to properly assess domestic and cross-country macroeconomic effects of financial shocks. Our results support the views that (1) the business cycles in the EA can be driven not only by real shocks, but also by financial shocks, (2) the financial sector could amplify the transmission of (real) shocks, and (3) the financial/banking shocks and the banking sectors can be sources of business cycle asymmetries and spillovers across countries in a monetary union.
    JEL: E51 E32 E44 F47
    Date: 2016
  4. By: Lee, Seungduck
    Abstract: This paper examines the effect of monetary policy on the liquidity premium, i.e., the market value of the liquidity services that financial assets provide. To guide the empirical analysis, I set up a monetary search model in which bonds provide liquidity services in addition to money. The theory predicts that money supply and the nominal interest rate are positively correlated with the liquidity premium, but the latter is negatively correlated with the bond supply. The empirical analysis over the period from 1946 and 2008 confirms the theoretical findings. This indicates that liquid bonds are substantive substitutes for money and the opportunity cost of holding money plays a key role in asset price determination. The model can rationalize the existence of negative nominal yields, when the nominal interest rate is low and liquid bond supply decreases.
    Keywords: asset price, money search model, liquidity, liquidity premium, money supply
    JEL: E31 E41 E51 E52 G12
    Date: 2016–08
  5. By: Alessandro Gavazza; Simon Mongey; Giovanni L. Violante
    Abstract: We develop a model of firm dynamics with random search in the labor market where hiring firms exert recruiting effort by spending resources to fill vacancies faster. Consistent with micro evidence, in the model fast-growing firms invest more in recruiting activities and achieve higher job-filling rates. In equilibrium, individual decisions of hiring firms aggregate into an index of economy-wide recruiting intensity. We use the model to study how aggregate shocks transmit to recruiting intensity, andwhether this channel can account for the dynamics of aggregate matching efficiency around the Great Recession. Productivity and financial shocks lead to sizable pro-cyclical fluctuations inmatching efficiency through recruiting effort. Quantitatively, the main mechanism is that firms attain their employment targets by adjusting their recruiting effort as labor market tightness varies. Shifts in sectoral composition can have a sizable impact on aggregate recruiting intensity. Fluctuations in new-firm entry, instead, have a negligible effect despite their contribution to aggregate job and vacancy creations.
    JEL: E24 E32 J21 J23 J63
    Date: 2016–09
  6. By: Chen, Kaiji (Emory University); Waggoner, Daniel F. (Federal Reserve Bank of Atlanta); Higgins, Patrick C. (Federal Reserve Bank of Atlanta); Zha, Tao (Federal Reserve Bank of Atlanta)
    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.
    Keywords: monetary transmission; endogenous switching; central government; institutional rigidities; GDP growth target; lower growth bound; nonlinear VAR; systematic monetary policy; policy shocks; heavy industries; investment; bank loans; lending channel
    JEL: C13 C3 E02 E5
    Date: 2016–09–01
  7. By: Peek, Joe (Federal Reserve Bank of Boston); Rosengren, Eric S. (Federal Reserve Bank of Boston); Tootell, Geoffrey M. B. (Federal Reserve Bank of Boston)
    Abstract: This paper examines the role of financial instability in setting monetary policy. The paper begins with a model that examines the interaction of monetary and regulatory policy. It then empirically tests whether financial instability has affected monetary policy. One important innovation is to construct a measure of financial instability directly related to the FOMC financial instability concerns expressed in FOMC meeting transcripts. We find that, even after controlling for forecasts of inflation and unemployment, the word counts of terms related to financial instability do correlate with monetary policy decisions. Thus, the FOMC not only “talks the talk” about financial stability, but it “walks the walk.”
    JEL: E44 E52 E58
    Date: 2016–09–01
  8. By: Andreas Tischbirek
    Abstract: The literature on large-scale purchases of government debt emphasises the importance of bond market segmentation along the maturity dimension for their transmission. This study investigates how another form of segmentation that we observe, the segmentation of government bond markets across countries, can be exploited by the central bank of a currency union in which fiscal coordination is not attainable. Under general conditions, government bond purchases which lower bond yields have first-order effects through a fiscal channel, even in the absence of the heterogeneity in investment opportunities found in Chen et al. (2012). The total effect on aggregate demand can be broken down into an "income-from-debt-issuance effect" and a "primary-surplus effect". If there is cross-country segmentation in bond markets and home bias in government spending, the central bank is able to use government bond purchases to control the terms of trade and achieve asymmetric degrees of stimulus across the members of the currency union without a transfer of resources. I characterise the welfare-optimising mix of conventional and unconventional monetary policy in this scenario and give an upper bound on the welfare benefi ts from using the unconventional tool.
    Keywords: Unconventional Monetary Policy, Quantitative Easing, Policy Coordination, Monetary Union, Market Segmentation
    JEL: E50 E52 E58 F45
    Date: 2016–09
  9. By: Laura Blattner; Luisa Farinha; Gil Nogueira
    Abstract: We analyze the effect of the ECB's Quantitative Easing program (Expanded Asset Purchase Program - EAPP) on bank lending using security-level bank balance sheet data combined with a comprehensive dataset on new loans in Portugal. Our identification relies on the fact that only a subset of Portuguese banks was exposed to EAPP via prior holdings of EAPP-eligible securities and origination of eligible ABS and covered bonds. Using a difference-in-differences specication with borrower and bank xed effects, we find that lending rates to the same borrower drop by 64 b.p. at banks exposed to QE relative to banks not exposed to QE. Loan volumes to existing corporate clients grow by one percentage point faster at exposed banks relative non-exposed banks. This result is robust to including both bank and borrower*time fixed effects, as well as a wide range of loan and borrower characteristics. At the extensive margin, the probability of credit approval to a new corporate client is about 1 percentage point higher at exposed banks post-QE announcement.
    JEL: E43 E44 E52 G21 G28
    Date: 2016
  10. By: Piazzesi, Monika; Schneider, Martin
    Abstract: This paper surveys the literature on housing in macroeconomics. We ï¬ rst collect facts on house prices and quantities in both the time series and the cross section of households and housing markets. We then present a theoretical model of frictional housing markets with heterogeneous agents that nests or provides background for many studies. Finally, we describe quantitative results obtained during the last 15 years on household behavior, business cycle dynamics and asset pricing, as well as boom bust episodes.
    JEL: E2 E3 E4 G1 R2 R3
    Date: 2016–09
  11. By: Blattner, Tobias; Joyce, Michael A. S.
    Abstract: This paper examines how shocks to the net supply of government bonds affect the euro area term structure of interest rates and the wider macroeconomy. To measure net debt supply we construct a new free-float measure, which adjusts total government debt of the four largest euro area economies for foreign official holdings and the maturity of the outstanding stock of debt. Using a small macro-finance BVAR model, we estimate that the ECB’s government bond purchases, as announced on 22 January 2015, reduced euro area 10-year bond yields, on average, by around 30bps in 2015 through the so-called duration channel. The impact on the output gap and inflation in 2016 is of the order of 0.2ppt and 0.3ppt respectively. Our estimates are likely to underestimate the overall impact of the ECB’s purchases on interest rates and inflation, as they exclude effects on credit risk and monetary policy expectations that may have compressed interest rates even further. JEL Classification: C5, E4, E5, G1
    Keywords: ECB, government debt, macroeconomy, Quantitative Easing, term structure
    Date: 2016–09
  12. By: Alicia García-Herrero; Eric Girardin; Hermann Esteban González
    Abstract: During the past few years, monetary policy communication has become a hot topic in as far as it seems to have become a very relevant way for central banks to guide markets, beyond actual monetary policy decisions.
    Keywords: Banks , Chile , Financial regulation , Latin America , Working Paper
    JEL: E52 E58 E43
    Date: 2016–08
  13. By: Thierry Kame Babilla; Adele Ngo Bilong; Sandra Kendo; Martin Jaures Ndzana Eloundou
    Abstract: This research assesses the effects of financial frictions faced by female entrepreneurs on macroeconomics performances in Cameroon. We address this important issue, using a Dynamic Stochastic General Equilibrium model with financial micro-foundations. The model features two sectors such as, a production sector dominated by female entrepreneurs and a production sector dominated by male entrepreneurs. Financial frictions appear because entrepreneurs face collateral constraints when borrowing from the banking sector. The steady state and the calibration analysis demonstrate that the female sector is labor-intensive whereas the male sector is capital intensive. But, when the female sector is granted loans to the same extent as in the male sector, it performs better in term of value-added in GDP. The benchmark analysis reveals the complementary role of both sectors in sustaining economic activity during a downturn. The Scenarios analysis emphasizes the expansionary effect of the loosening financial constraint, with female entrepreneurs acting as main driver of the economy activity. Thus, institutional frameworks that relax collateral constraints, grant exemptions for enormous requirements, enforce properties right law, and promote transparency and credit-information sharing can make big inroads in alleviating borrowing constraints, increasing financial inclusion and enhancing macroeconomic outcomes.
    Keywords: Female Entrepreneurs, Financial Frictions, Macroeconomics Implications, DSGE Model, Cameroon.
    JEL: C11 C61 D21 E32 E44 O11
    Date: 2016
  14. By: Olmo, José; Gonzalo, Jesús
    Abstract: This paper studies the long-term asset allocation problem of an individual with risk aversion coefficient that i) varies with economic conditions, and ii) exhibits different risk attitudes towards the short and the long term. To do this, we propose a parametric linear portfolio policy that accommodates an arbitrarily large number of assets in the portfolio and a piecewise linear risk aversion coefficient. These specifications of the optimal portfolio policy and individual's risk aversion allow us to apply GMM methods for parameter estimation and testing. Our empirical results provide statistical evidence of the existence of a short-term and a long-term regime in the individual's risk aversion. Long-term risk aversion is always higher than short-term risk aversion, and it is more statistically significant as the investment horizon increases. The analysis of the optimal portfolio weights also suggests that the allocation to stocks and bonds is strongly negatively correlated, with the magnitude of the portfolio weights and risk aversion coefficients increasing as the investment horizon expands.
    Keywords: Parametric portfolio policies; Intertemporal portfolio theory; Threshold nonlinearity tests; Dynamic risk aversion
    JEL: E62 E52 E32
    Date: 2016–09–01
  15. By: Enders, Zeno; Kleemann, Michael; Müller, Gernot
    Abstract: We assess the contribution of "undue optimism" (Pigou) to business-cycle fluctuations. In our analysis, optimism (or pessimism) pertains to total factor productivity which determines economic activity in the long run. We develop a new strategy to estimate the effects of optimism shocks - perceived changes in productivity which do not actually materialize. Specifically, we show that by including survey-based nowcast errors regarding current output growth in a VAR model, it is possible to identify optimism shocks. These shocks, in line with theory, generate negative nowcast errors, but raise economic activity in the short run. They account for up to 15 percent of short-run fluctuations.
    Keywords: animal spirits; Business Cycles; noise shocks; nowcast errors; optimism shocks; Undue optimism; VAR
    JEL: E32
    Date: 2016–09
  16. By: Andrés Fuentes Hutfilter; Andreas Kappeler; Dorothee Schneider; Giovanni Maria Semeraro
    Abstract: Non-residential investment has fallen over the past 20 years as a share of GDP and is now lower than in several other high-income OECD countries. Business investment growth has been weak since the outbreak of the global financial and economic crisis. Government investment has been low, especially at municipal level. Investment in knowledge-based capital (KBC), which is closely related to long-term productivity performance, has been subdued. Weak growth prospects in the Euro Area have weighed on business investment and an increasing share of firms invests in distant, more dynamic markets. Policies that strengthen stability and growth prospects in the Euro Area would raise the attractiveness of Germany as a location to invest, notably steps to strengthen the single market and cross-border infrastructure, and complete the banking union. Steps to liberalise regulation of services, in particular knowledge-intensive professional services, would raise investment and productivity. Policies that encourage the reallocation of resources would also increase investment in KBC. Poor municipalities invest relatively little and there is scope to lower the cost of public investment projects. Better use of e-governance and more performance-oriented budgeting could improve the efficiency and effectiveness of public investment. Renouer avec le dynamisme de l'investissement en Allemagne L’investissement non résidentiel a diminué en proportion du PIB au cours des deux dernières décennies, et son niveau est désormais inférieur à celui de plusieurs autres pays de l’OCDE à revenu élevé. La croissance de l’investissement productif demeure en demi-teinte depuis l’éclatement la crise économique et financière mondiale, cependant que les investissements des administrations publiques sont limités, en particulier à l’échelon municipal. L’investissement en capital intellectuel, important facteur des gains de productivité à long terme, est resté modeste. Les perspectives de croissance faible dans la zone euro ont pesé sur l’investissement productif, et une proportion croissante d’entreprises investit sur des marchés distants plus dynamiques. Des mesures venant affermir les perspectives de croissance et accroître la stabilité au sein de la zone euro, en premier lieu des initiatives visant à consolider le marché unique et les infrastructures transfrontalières, ainsi qu’à parachever l’union bancaire, renforceraient l’attrait de l’Allemagne aux yeux des investisseurs. Un allègement de la réglementation des services, notamment des services professionnels à forte intensité de connaissances, doperait l’investissement et les gains de productivité. Par ailleurs, toutes les mesures facilitant la réaffectation des ressources devraient avoir des retombées positives sur les investissements dans le capital intellectuel. Les communes pauvres investissent relativement peu, or il serait possible de réduire le coût des projets d’investissement public. Enfin, une meilleure utilisation de la gouvernance électronique et l’adoption d’un processus budgétaire plus orienté sur les résultats permettraient d’accroître l’efficience et l’efficacité des investissements publics.
    Keywords: productivity, knowledge-based capital, investment
    JEL: E22 E24
    Date: 2016–09–21
  17. By: Costa Filho, João Ricardo
    Abstract: The aim of this paper is to analyse whether the economic policy response capability was a relevant factor for minimizing the 2008 financial crisis severity within its first year. The research hypothesis is that countries with a larger space for expansionary policies have registered a less severe crisis, holding everything else constant. The results from cross-country regressions corroborate with the hypothesis for the monetary policy. In relation to the fiscal policy, the sign of the parameters was the opposite of what was expected, signaling that, even countries with good fiscal results can experience limitations to Keynesian stimulus due to debt intolerances. However, the interaction between central govern result and gross debt confirms the research hypothesis, whereas a better management of the fiscal flow and debt stock simultaneously seems to be relevant. Adding an investment grade variable to the specifications highlighted that the crisis was more severe within the developed economies.
    Keywords: Financial Crisis. Monetary Policy. Fiscal Policy
    JEL: C21 E52 E62 E63 F30
    Date: 2015
  18. By: Dongya Koh; Raül Santaeulàlia-Llopis
    Abstract: We study the behavior of the US labor share over the past 65 years. We find that intellectual property products (IPP) capital accounts entirely for the observed decline of the US labor share, which is otherwise secularly constant for traditional capital (i.e., structures and equipment). The decline of the labor share reflects the fact that the US is undergoing a transition to a more IPP capital-intensive economy. This result has essential implications for the US macroeconomic model.
    Keywords: labor share, intellectual property products, capital, 1999- and 2013-BEA revisions
    JEL: E01 E22 E25
    Date: 2016–09
  19. By: Jeremy J. Nalewaik
    Abstract: Building on the results in Nalewaik (FEDS 2015-93), this work models wage growth and core PCE price inflation as regime-switching processes, whose characteristics in the 1970s, 1980s and early 1990s differ fundamentally from their characteristics in the 1960s and from the mid-1990s to present. The key innovation here is the addition to the models of fundamental driving variables like labor-market slack, and the evidence strongly suggests a non-linear effect of slack on wage growth and core PCE price inflation that becomes much larger after labor markets tighten beyond a certain point. The results are informative for assessing the likelihood and risks of meeting certain inflation targets on a sustained basis.
    Keywords: Markov-switching ; NAIRU ; Threshold regression ; Wage Inflation ; Core PCE prices
    JEL: E31 E37 E51 E58 C22
    Date: 2016–08
  20. By: Njabulo Mkhize
    Abstract: Concerns have been expressed recently about the inability of the South African economy to provide adequate employment for the increasing number of job seekers. The rate of unemployment remains stubbornly high in spite of vastly improved macroeconomic fundamentals since the 1990s. This paper investigates how the sectoral employment intensity of output growth in the eight non-agricultural sectors of the South African economy has evolved in the period 2000:01-2012:04, with a view to identifying key growth sectors that are employment intensive. Empirical findings of the study suggest that total non-agricultural employment and GDP do not move together in the long run, implying that jobless growth occurred in South Africa during the period under review. This supports the view that South Africa has become less labour-intensive and more capital-intensive, and that this in turn has facilitated a structural adjustment that has led to the weakening employment-growth relationship. Results of a sectoral division confirm a long-run relationship between employment and growth in the finance and business services, manufacturing, transport and utilities sectors. In particular, the results suggest that sectors within the tertiary sector are the best performing sectors in terms of employment intensity of output growth, reflecting the changing structure of the economy and the nature of employment shifting away from the primary towards the tertiary sector. Investment in the tertiary sector is necessary to foster new employment opportunities and can assist in improving the overall employment intensity in South Africa.
    Keywords: sectoral output growth, Employment, employment intensity
    JEL: E24 J21 J23 O17 O55
    Date: 2016–09
  21. By: Jarociński, Marek; Lenza, Michele
    Abstract: Using a small Bayesian dynamic factor model of the euro area we estimate the deviations of output from its trend that are consistent with the behavior of inflation. We label these deviations the output gap. In order to pin-down the features of the model, we evaluate the accuracy of real-time inflation forecasts from different model specifications. The version that forecasts inflation best implies that after the 2011 sovereign debt crisis the output gap in the euro area has been much larger than the official estimates. Versions featuring a secular-stagnation-like slowdown in trend growth, and hence a small output gap after 2011, do not adequately capture the inflation developments. JEL Classification: C32, C53, E31, E32, E37
    Keywords: factor model, inflation forecast, output gap, Phillips curve
    Date: 2016–09
  22. By: Maurice Obstfeld; Kevin Clinton; Ondra Kamenik; Douglas Laxton; Yulia Ustyugova; Hou Wang
    Abstract: Routine publication of the forecast path for the policy interest rate (i.e. “conventional forward guidance†) would improve the transparency of monetary policy. It would also improve policy effectiveness through its influence on expectations, particularly when there is a risk of low inflation, and the policy rate is constrained by the effective lower bound. Model simulations indicate that a potent macroeconomic strategy, for returning the Canadian economy to potential, combines conventional forward guidance with a fiscal stimulus. As a response to the effective lower bound constraint, and the decline in the world equilibrium real interest rate, this strategy is preferable to raising the inflation target.
    Date: 2016–09–26
  23. By: Florian Huber (Department of Economics, Vienna University of Economics and Business); Gregor Kastner (Department of Statistics and Mathematics, Vienna University of Economics and Business); Martin Feldkircher (Oesterreichische Nationalbank (OeNB))
    Abstract: We provide a flexible means of estimating time-varying parameter models in a Bayesian framework. By specifying the state innovations to be characterized trough a threshold process that is driven by the absolute size of parameter changes, our model detects at each point in time whether a given regression coefficient is constant or time-varying. Moreover, our framework accounts for model uncertainty in a data-based fashion through Bayesian shrinkage priors on the initial values of the states. In a simulation, we show that our model reliably identifies regime shifts in cases where the data generating processes display high, moderate, and low num- bers of movements in the regression parameters. Finally, we illustrate the merits of our approach by means of two applications. In the first application we forecast the US equity premium and in the second application we investigate the macroeconomic effects of a US monetary policy shock.
    Keywords: Change point model, Threshold mixture innovations, Structural breaks, Shrinkage, Bayesian statistics, Monetary policy
    JEL: C11 C32 C52 E42
    Date: 2016–09
  24. By: International Monetary Fund.
    Abstract: The Philippine economy has performed well in recent years with rising potential growth and strong macro fundamentals. Economic growth is supported by robust domestic demand and is broadly in line with potential while the outlook for inflation is well within the target band (3±1 percent). The external position is sound and fiscal policy is prudent, with a low and declining debt-to-GDP ratio. The strong economic performance, however, has not yet fully benefited a wide range of the population. Poverty and inequality remain high. Poor infrastructure has constrained private investment and job creation. Public investment has risen but continues to be low due to weak implementation capacity, while progress has been made on fiscal transparency. Investment in infrastructure and human capital, financed through increased government revenues while allowing a small increase in the deficit, is needed alongside structural reforms to reap the Philippines’ demographic dividend, promote inclusive growth and reduce poverty.
    Date: 2016–09–26
  25. By: Udichibarna Bose; Ronald McDonald; Serafeim Tsoukas
    Abstract: This paper analyses the impact of policy initiatives co-ordinated by Asian national govern- ments on firms composition of external finance. Using a unique firm-level database of eight Asian countries- Hong Kong SAR, Indonesia, Korea, Malaysia, Philippines, Singapore, Tai- wan and Thailand over the period of 1996-2012 and a difference-in-differences approach, the results show a significant response of the debt composition to the policy change. We find that firms increased their uptake of long-term debt, while decreased their short-term debt. We also document that less risky and more profitable firms are more significantly affected by the policy change than riskier and less profitable firms. Finally, we show that the improved access to external finance after the policy initiative helped firms to raise their investment spending.
    Keywords: External finance; Emerging Asia; Policy initiatives; Financial constraints
    JEL: C23 E44 G15 G32 O16
    Date: 2016–07
  26. By: Mikolajun, Irena; Lodge, David
    Abstract: A number of studies document the prominent role of global factors in domestic inflation developments (e.g. Borio and Filardo, 2007; Ciccarelli and Mojon, 2010). In this paper we investigate global dimensions of advanced economy inflation. We estimate open-economy Phillips curves for 19 advanced economies. We include backwardand forward-looking survey measures of inflation expectations and augment Phillips curves with global factors including global economic slack, global inflation and commodity prices. Our results provide little support for the existence of direct effects of global economic slack on domestic inflation. Moreover, the results suggest that the importance of global inflation in forecasting domestic inflation has its roots solely in its ability to capture slow-moving trends in inflation rates. In the Phillips curve context much the same role is performed by domestic forward-looking inflation expectations. With the exception of commodity prices therefore our results reveal little reason to include global factors into traditional reduced form Phillips curves. JEL Classification: E31, E32, E37
    Keywords: advanced economies, forecasting, global economic slack, global inflation, inflation, Phillips curve
    Date: 2016–08
  27. By: Camba-Méndez, Gonzalo; Durré, Alain; Mongelli, Francesco Paolo
    Abstract: This paper sheds light on how recent financial tensions in the euro area were ultimately reflected in bank interest rate setting. We make two new contributions. First, we develop a theoretical model capturing banks financing and the rate setting choices. Banks in the model can finance themselves through deposits, on the money market and/or by issuing bonds. Second, we assemble a novel database and put our model to test. Our model extends that of Gambacorta (2004), as we formalise banks' decision to issue debt endogenously. Gambacorta's analysis was conducted for Italian banks and did not include the recent financial crisis. Instead, we focus our analysis on the Great Recession period (July 2007 to October 2014) and euro area banks. From a monetary policy perspective, both our theoretical model and the empirical results provide useful information on the impact of some of the measures introduced by the ECB during the financial crisis. First, the ECB introduced specific measures to alleviate tensions in money markets. To the extent that these measures fostered stability in money markets, and reduced the volatility of money market rates, this paper shows that they were also channelled to bank rates. Second, the ECB also introduced measures to address tensions in bond markets. Our results also show that having access to debt financing has important implications for bank rate setting. JEL Classification: C32, E43,E52, E58, G01
    Keywords: bank financing, bank interest rate setting, non-standard monetary policy and euro area crisis
    Date: 2016–09
  28. By: Wilko Bolt; Maarten van Oordt
    Abstract: This paper develops an economic framework to analyze the exchange rate of virtual currency. Three components are important. First, the current use of virtual currency to make payments. Second, the decision of forward-looking investors to buy virtual currency (thereby effectively regulating its supply). Third, the elements that jointly drive future consumer adoption and merchant acceptance of virtual currency. The model predicts that, as virtual currency becomes more established, the exchange rate will become less sensitive to the impact of shocks to speculators' beliefs. This undermines the notion that excessive exchange rate volatility will prohibit widespread use of virtual currency.
    Keywords: virtual currencies; exchange rates; payment systems; speculation; bitcoin
    JEL: E42 E51 F31 G1
    Date: 2016–09
  29. By: Klein, Mathias
    Abstract: This study provides empirical evidence that the costs of austerity crucially depend on the level of private indebtedness. In particular, fiscal consolidations lead to severe contractions when implemented in high private debt states. Contrary, fiscal consolidations have no significant effect on economic activity when private debt is low. These results are robust for alternative definitions of private debt overhang, the composition of fiscal consolidations and controlling for the state of the business cycle and government debt overhang. I show that deterioration in household balance sheets is important to understand private debt-dependent effects of austerity.
    Abstract: In dieser Studie wird empirisch gezeigt, dass die realwirtschaftlichen Auswirkungen von Austeritätsmaßnahmen maßgeblich von dem Niveau der privaten Verschuldung abhängen. In Zeiten hoher privater Verschuldung, führen fiskalische Konsolidierungen zu einem signifikanten Rückgang der wirtschaftlichen Aktivität. Ist die private Verschuldung dagegen gering, haben Konsolidierungen keinen nennenswerten realwirtschaftlichen Effekt. Diese Ergebnisse sind robust gegenüber alternativen Definitionen von privaten Verschuldungsregimen, der Komposition fiskalischer Konsolidierungen und wenn man zusätzlich für den Konjunkturzyklus und öffentliche Verschuldung kontrolliert. Ich zeige, dass private verschuldungsabhängige Konsolidierungseffekte durch eine Verschlechterung der privaten Haushaltsbilanz erklärt werden können.
    Keywords: fiscal consolidation,private debt,local projection
    JEL: C23 E32 E62
    Date: 2016
  30. By: Güneş Kamber; James Morley; Benjamin Wong
    Abstract: The Beveridge-Nelson (BN) trend-cycle decomposition based on autoregressive forecasting models of U.S. quarterly real GDP growth produces estimates of the output gap that are strongly at odds with widely-held beliefs about the amplitude, persistence, and even sign of transitory movements in economic activity. These antithetical attributes are related to the autoregressive coefficient estimates implying a very high signal-to-noise ratio in terms of the variance of trend shocks as a fraction of the overall quarterly forecast error variance. When we impose a lower signal-to-noise ratio, the resulting BN decomposition, which we label the "BN filter", produces a more intuitive estimate of the output gap that is large in amplitude, highly persistent, and typically positive in expansions and negative in recessions. Real-time estimates from the BN filter are also reliable in the sense that they are subject to smaller revisions and predict future output growth and inflation better than for other methods of trend-cycle decomposition that also impose a low signal-to-noise ratio, including deterministic detrending, the Hodrick-Prescott filter, and the bandpass filter.
    Keywords: Beveridge-Nelson decomposition, output gap, signal-to-noise ratio
    Date: 2016–09
  31. By: Eric M. Leeper; Bing Li
    Abstract: Single-equation estimates of fiscal reaction functions, which relate primary surpluses to past debt-GDP ratios and control variables, are subject to potentially serious simultaneity bias that can produce misleading inferences about fiscal behavior. Biases arise from failure to model the general equilibrium relationships between government debt and surpluses, relationships that bring in the forward-looking nature of nominal debt valuation and the role of monetary policy in that valuation.
    JEL: C13 E62 E63 H62 H63
    Date: 2016–09
  32. By: van den Bremer, Ton; van der Ploeg, Frederick
    Abstract: We use a welfare-based intertemporal stochastic optimization model and historical data to estimate the size of the optimal intergenerational and liquidity funds and the corresponding resource dividend available to the government of the Canadian province Alberta. To first-order of approximation, this dividend should be a constant fraction of total above- and below-ground wealth, complemented by additional precautionary savings at initial times to build up a small liquidity fund to cope with oil price volatility. The ongoing dividend equals approximately 30 per cent of government revenue and requires building assets of approximately 40 per cent of GDP in 2030, 100 per cent of GDP in 2050 and 165 per cent in 2100. Finally, the effect of the recent plunge in oil prices on our estimates is examined. Our recommendations are in stark contrast with historical and current government policy.
    Keywords: Fiscal policy; oil price volatility; precautionary saving; resource wealth
    JEL: D91 E21 E22 Q32
    Date: 2016–09
  33. By: Atsumasa Kondo (Faculty of Economics, Shiga University)
    Keywords: sustainability of public debt, tax system, balanced growth path, dynamic general equilibrium
    JEL: E62 H6
    Date: 2016–09
  34. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: Speaking to a local chamber of commerce, Boston Fed President Eric Rosengren said that to ensure the U.S. economy remains at the full employment level it is now approaching, gradual tightening of monetary policy is likely to be appropriate.
    Date: 2016–09–09
  35. By: George S. Tavlas (Bank of Greece)
    Abstract: The Great Depression was the most devastating and destructive economic event to afflict the global economy since the beginning of the twentieth century. What, then, were the origins of the Great Depression and what have we learned about the appropriate policy responses to economic depressions from that episode? This essay reviews two recently published books on the Great Depression. Eric Rauchway’s The Money Makers: How Roosevelt and Keynes Ended the Depression, Defeated Fascism, and Secured a Prosperous Peace (Basic Books, 2015) tells the story of the ways Franklin D. Roosevelt drew on the ideas of John Maynard Keynes to place monetary policy front-and-center to underpin the recovery from the Great Depression and to underwrite the blueprint of the Bretton-Woods System. Barry Eichengreen’s Hall of Mirrors: The Great Depression, the Great Recession, and the Uses — and Misuses — of History (Oxford University Press, 2015) shows the way the lessons learned from analysis of the Great Depression helped shape policy makers’ response to the 2007-08 financial crisis, thus helping to avoid many of the mistakes made by policy makers in the 1930s
    Keywords: Great Depression; Gold Standard; Bretton Woods System; 2008 Financial Crisis
    JEL: E52 F33
    Date: 2016–09
  36. By: Michl, Thomas (Department of Economics, Colgate University)
    Abstract: This paper introduces two post-Keynesian hysteresis mechanisms into a standard textbook three-equation model. The mechanisms work through wage bargaining and price setting. Workers are assumed to change their wage aspirations when the actual wage differs from their target wage, and firms are assumed to change their mark-up norm when the actual profit share differs from their target share. These mechanisms do not themselves guarantee hysteresis. A pure inflation shock will create hysteresis even if expectations are anchored to the central bank's inflation target. After a demand shock, if inflation expectations are not anchored, these mechanisms generate persistence but not true hysteresis. But if expectations are partially (as they seem to be) or fully anchored, a demand shock will have a permanent effect on output, employment, and the real wage because in this case, the central bank is not obligated to reflate as aggressively in order to manage expectations. Hysteresis effects may explain the absence of disinflation and the fall in the wage share in the aftermath of Global Financial Crisis.
    Keywords: hysteresis, three-equation model, path dependence, inflation-expectations anchoring
    JEL: E11 E12 O42
    Date: 2016–08–01
  37. By: Dunsch, Sophie
    Abstract: Unemployment rates, especially among youth, have increased in various countries of Europe over the last years. As labor force participation rate is one key influence on unemployment, I estimate country specific coefficients for the responsiveness of the labor force participation rates to the business cycle for different age cohorts. The results show that an influence of the business cycle on movements of the participation rates are only statistically significant for the youngest age cohort of the 15-to-24-years old in Germany, suggesting a discouraged worker effect.
    Keywords: Youth Unemployment,Youth Labor Force Participation,Poland,Germany,Business Fluctuations
    JEL: J13 J21 C23 E32
    Date: 2016
  38. By: Blanchard, Oliver (Peterson Institute for International Economics); Cerutti, Eugenio (IMF); SUmmers, Lawrence (Harvard University)
    Abstract: We explore two issues triggered by the crisis. First, in most advanced countries, output remains far below the pre-recession trend, suggesting hysteresis. Second, while inflation has decreased, it has decreased less than anticipated, suggesting a breakdown of the relation between inflation and activity. To examine the first, we look at 122 recessions over the past 50 years in 23 countries. We find that a high proportion of them have been followed by lower output or even lower growth. To examine the second, we estimate a Phillips curve relation over the past 50 years for 20 countries. We find that the effect of unemployment on inflation, for given expected inflation, decreased until the early 1990s, but has remained roughly stable since then. We draw implications of our findings for monetary policy.
    Date: 2015–11
  39. By: Andreas Tischbirek
    Abstract: Formal dynamic analyses of household portfolio choice in the literature focus on holdings of equity and a risk-free asset or bonds of different maturities, neglecting the interdependence of the decisions to invest in equity, short-term and long-term bonds made by households. Data from the Survey of Consumer Finances is used to derive stylised facts about participation in the long-term government-debt market and conditional portfolio shares. These facts are explained with the help of a portfolio-choice model in which investors have access to three assets--equity, long-term debt and a riskless short-term bond--and are exposed to uninsurable idiosyncratic risk through non-financial income, retirement and longevity, as well as aggregate risk through the asset returns. An application shows that the low Treasury returns observed in the US between 2009 and 2013 have quantitatively significant yet transitory effects on the composition of household portfolios. In combination with the observed rise in stock returns, they lead to persistent changes in the participation rate, the conditional portfolio shares and the distribution of wealth.
    Keywords: Dynamic Portfolio Choice, Long-Term Government Debt, Asset-Market Participation, Survey of Consumer Finances
    JEL: E21 D91 G11
    Date: 2016–09
  40. By: International Monetary Fund.
    Abstract: The economy is contracting, hurt by external shocks and domestic structural weaknesses and rigidities. The authorities have taken some positive steps, including policies supporting macroeconomic stabilization and structural and institutional reforms such as a shift to a more flexible exchange rate. However, external sector weaknesses and negative macrofinancial feedback loops centered around the deteriorating performance of state owned enterprises (SOEs) are pushing up public and external debt, weakening the financial sector, and threatening stability.
    Date: 2016–09–21
  41. By: International Monetary Fund.
    Abstract: Financial stability oversight responsibilities are currently shared between the Central Bank of Russia (CBR) and a high-level inter-agency National Council on Ensuring Financial Stability (FSC). Given its role as the single financial regulator and supervisor since September 2013, CBR has naturally become a macroprudential authority. Following the creation of the Financial Stability Department in March 2011, CBR established an internal Financial Stability Committee (FSCom) in November 2014 to play a key coordinating role in macroprudential oversight, crisis management, and other financial stability issues, with policy decisions still being made by CBR’s Board of Directors (CBR Board). The government created the FSC in July 2013 as an advisory body that can make recommendations on measures to restore financial stability based on an assessment of systemic risk. In February 2015, the FSC was strengthened and has served as an effective platform for inter-agency coordination.
    Date: 2016–09–22
  42. By: Łyziak, Tomasz; Paloviita, Maritta
    Abstract: The paper analyses the anchoring of inflation expectations of professional forecasters and consumers in the euro area. We study anchoring, defined as the central bank’s ability to manage expectations, by paying special attention to the impact of the ECB inflation target and ECB inflation projections on inflation expectations. Our analysis indicates that longer-term inflation forecasts have become somewhat more sensitive to shorter-term forecasts and to actual HICP inflation in the post-crisis period. We also find that the ECB inflation projections have recently become more important for short- and medium-term professional forecasts and at the same time the role of the ECB inflation target for those expectations has diminished. Overall, our analysis suggests that in recent years inflation expectations in the euro area have shown some signs of de-anchoring. JEL Classification: D84, E52, E58
    Keywords: anchoring, euro area, financial crisis, inflation expectations, survey data
    Date: 2016–08
  43. By: Malik Shukayev; Argyn Toktamyssov
    Abstract: BIS interbank lending data show that the Great Recession generated large and persistent changes in the international interbank lending positions of various countries. The main objective of this study is to understand the role of changes in international interbank credit flows in transmitting shocks across borders. To accomplish this task, we needed a global structural model with an international interbank market. Our search for a suitable structural model revealed that the Bank of Canada version of the global economy model (BoC-GEM-FIN) comes closest to our needs. BoC-GEM-FIN includes region-specific interbank markets, as well as some international borrowing and lending, but abstracts from the international interbank lending. This paper describes the modifications we made in order to introduce the international interbank market into BoC-GEM-FIN. The modified model is calibrated to match the changes in international interbank lending positions and the decline in the business lending of US banks that took place after the fourth quarter of 2008. Our simulations show that the international interbank market amplifies spillover effects of demand shocks but does not systematically alter the effects of supply shocks, including those for commodities.
    Keywords: Business fluctuations and cycles, Economic models, International topics
    JEL: E27 E37 F47
    Date: 2016
  44. By: Franses, Ph.H.B.F.; Janssens, E.
    Abstract: For many developing countries, historical inflation figures are rarely available. We propose a simple method, which aims to recover such figures thereby using prices of postal stamps, issued in earlier years. We illustrate our method for Suriname where annual inflation rates are available for 1961 until 2015, and where fluctuations in inflation rates are prominent. We estimate the inflation rates for the sample 1873 to 1960. Our main finding is that high inflation periods usually last no longer than 2 or 3 years.
    Keywords: inflation, postage stamps, price recovery, historical time series
    JEL: E31 N10 N16
    Date: 2016–08–24
  45. By: Francesco Sergi (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The purpose of this contribution to the epistemology and history of recent macroeconomics is to construct a clear understanding of econometric methods and problems in New Classical macroeconomics. Most historical work have focused so far on theoretical or policy implication aspects of this research program set in motion by Robert Lucas in the early seventies. On the contrary, the empirical and econometric works of New Classical macroeconomics have received little attention. I focus especially on the contributions gathered in Rational Expectations and Econometric Practice, edited in 1981 by Lucas and Thomas Sargent. The main claim of this article is that the publication of this book must be regarded as a turn in macroeconomics, that would bring macroeconometric modeling methodology closer to Lucas's conception of models. The analysis of the New Classical macroeconometrics through the Lucas methodology allow us to propose an original historical account of the methods presented in Rational Expectations and Econometric Practice, but also of the problems that flawed this approach.
    Abstract: L'objectif de cette contribution à l'épistémologie et à l'histoire de la pensée économique est de proposer une compréhension claire des méthodes et des problèmes économétriques de la nouvelle macroéconomie classique. La plupart des travaux historiques à ce sujet se sont focalisés sur les aspects théoriques ou sur les implications de politique économique de ce programme de recherche, lancé par Robert Lucas au début des années soixante-dix. En revanche, le travail empirique et économétrique de la nouvelle macroéconomie classique a reçu peu d'attention par les historiens. L'article s'intéresse plus particulièrement aux contributions rassemblées dans Rational Expectations and Econometric Practice, ouvrage collectif de 1981 dirigé par Lucas et Thomas Sargent. La principale thèse de l'article est que la publication de ce livre entérine un tournant dans la modélisation macroéconométrique, en étroite résonance avec la conception méthodologique de Lucas sur les modèles. L'analyse de la macroéconométrie des nouveaux classiques par le prisme de la méthodologie lucasienne nous permet de proposer une vision historique originale des méthodes présentées dans Rational Expectations and Econometric Practice, tout comme des problèmes qui ont entravé le développement de cette approche.
    Keywords: history of macroeconomics,macroeconometrics,modeling methodology,histoire de la macroéconomie,Lucas (Robert),Sargent (Thomas),macroéconométrie,méthodologie et modélisation
    Date: 2015–11
  46. By: Shukayev, Malik (University of Alberta, Department of Economics); Toktamyssov, Argyn (Bank of Canada, International Economic Analysis Department)
    Abstract: BIS interbank lending data show that the Great Recession generated large and persistent changes in the international interbank lending positions of various countries. The main objective of this study is to understand the role of changes in international interbank credit flows in transmitting shocks across borders. To accomplish this, we needed a global structural model with an international interbank market. Our search for a suitable structural model revealed that the Bank of Canadas version of the Global Economy Model (BoC-GEM-FIN) comes closest to our needs. BoC-GEM-FIN includes region-specific interbank markets, as well as some international borrowing and lending, but abstracts from international interbank lending. This paper describes the modifications we made in order to introduce the international interbank market into BoC-GEM-FIN. The modified model is calibrated to match the changes in international interbank lending positions and the decline in the US banksbusiness lending that took place after the fourth quarter of 2008. Our simulations show that the international interbank market amplifies the spillover effects of demand shocks but does not systematically alter the effects of supply shocks, including those for commodities.
    Keywords: Business fluctuations and cycles; economic models; international transmission of shocks
    JEL: E27 E37 F47
    Date: 2016–09–26
  47. By: Jakub Growiec; Peter McAdam; Jakub Muck
    Abstract: Based on long US time series we document a range of empirical properties of the labor's share of GDP. We identify its substantial medium-to-long run, pro-cylical swings and show that most of its variance lies beyond business-cycle frequencies. We explore the extent to which these empirical regularities can be explained by a calibrated micro-founded, nonlinear growth model with normalized CES technology and endogenous labor- and capital augmenting technical change driven by purposeful directed R&D investments. We demonstrate that dynamic macroeconomic trade-offs created by arrivals of both types of new technologies can lead to prolonged swings in the labor share (and other model variables) due to oscillatory convergence to the balanced growth path as well as emergence of limit cycles via Hopf bifurcations. Both predictions are consistent with the empirical evidence.
    Keywords: Labor income share, Endogenous cycles, Factor-augmenting endogenous technical change, R&D, CES, Normalization.
    JEL: E25 E32 O33 O41
    Date: 2016–09
  48. By: Mark Carlson; David C. Wheelock
    Abstract: The 1960s and 1970s witnessed rapid growth in the markets for new money market instruments, such as negotiable certificates of deposit (CDs) and Eurodollar deposits, as banks and investors sought ways around various regulations affecting funding markets. In this paper, we investigate the impacts of the deregulation and integration of the money markets. We find that the pricing and volume of negotiable CDs and Eurodollars issued were influenced by the availability of other short-term safe assets, especially Treasury bills. Banks appear to have issued these money market instruments as substitutes for other types of funding. The integration of money markets and ability of banks to raise funds using a greater variety of substitutable instruments has implications for monetary policy. We find that, when deregulation reduced money market segmentation, larger open market operations were required to produce a given change in the federal funds rate, but that the pass through of changes in the funds rate to other market rates was also greater.
    Keywords: Deregulation ; Eurodollars ; Market integration ; Monetary policy implementation ; Money markets ; Regulation Q
    JEL: E50 G18 N22
    Date: 2016–06
  49. By: Sofia Saldanha
    Abstract: Money markets were severely impaired by the financial and subsequent sovereign debt crises. Although the euro money market has been studied substantially, little has been done for the particular case of Portugal. This thesis investigates how the Portuguese part of the euro unsecured interbank money market was affected by the two consecutive crises. I constructed and adapted a Furfine-based algorithm to identify the loans traded and settled in TARGET2, in which a least one of the counterparties is a Portuguese bank. Identified loans have overnight and one-week maturities. Data shows a clear trend towards a closed interbank money market. In addition, there is a visibly significant reduction in the number of times banks trade in the market, accompanied by a parallel drop in volumes transacted. Finally, I find that interest rates rise above the benchmark and those in the domestic market are persistently higher than rates agreed upon through cross-border operations.
    JEL: E58 G21
    Date: 2016
  50. By: Prados de la Escosura, Leandro
    Abstract: This essay offers a new set of historical GDP estimates from the demand and supply sides that revises and expands those in Prados de la Escosura (2003) and provides the basis to investigate Spain's long run economic growth. It presents a reconstruction of production and expenditure series for the century prior to the introduction of modern national accounts. Then, it splices available national accounts sets over the period 1958-2015 through interpolation, as an alternative to conventional retropolation. The resulting national accounts series are linked to the "pre-statistical era" estimates providing yearly series for GDP and its components since 1850. On the basis of new population estimates, GDP per head is derived. Trends in GDP per head are, then, drawn and, using new employment estimates, decomposed into labour productivity and the amount of work per person, and placed into international perspective.
    Keywords: expenditure; GDP; historical national accounts; output; Spain; splicing GDP
    JEL: C82 E01 N13 N14
    Date: 2016–09
  51. By: Leandro Prados de la Escosura (Universidad Carlos III, CEPR, and Groningen)
    Abstract: This essay offers a new set of historical GDP estimates from the demand and supply sides that revises and expands those in Prados de la Escosura (2003) and provides the basis to investigate Spain’s long run economic growth. It presents a reconstruction of production and expenditure series for the century prior to the introduction of modern national accounts. Then, it splices available national accounts sets over the period 1958-2015 through interpolation, as an alternative to conventional retropolation. The resulting national accounts series are linked to the ‘pre-statistical era’ estimates providing yearly series for GDP and its components since 1850. On the basis of new population estimates, GDP per head is derived. Trends in GDP per head are, then, drawn and, using new employment estimates, decomposed into labour productivity and the amount of work per person, and placed into international perspective.
    Keywords: historical national accounts, GDP, output, expenditure, splicing GDP, Spain
    JEL: C82 E01 N13 N14
    Date: 2016–09
  52. By: Callegari, Giovanni; Cimadomo, Jacopo; Ricco, Giovanni
    Abstract: We investigate the effects of fiscal policy communication on the propagation of government spending shocks. To this aim, we propose a new index measuring the coordination effects of policy communication on private agents' expectations. This index is based on the disagreement amongst US professional forecasters about future government spending. The underlying intuition is that a clear fiscal policy communication can coalesce expectations, reducing disagreement. Results indicate that, in times of low disagreement, the output response to fiscal spending innovations is positive and large, mainly due to private investment response. Conversely, periods of elevated disagreement are characterised by muted output response. JEL Classification: E60, D80
    Keywords: disagreement, fiscal transmission mechanism, government spending shock
    Date: 2016–09
  53. By: Andreas Kappeler; Andrés Fuentes Hutfilter; Dorothee Schneider; Naomitsu Yashiro; Eun Jung Kim; Giovanni Maria Semeraro
    Abstract: Population ageing is setting in earlier in Germany than in most other OECD economies and will be marked. It could lead to a substantial decline in employment, weighing on GDP per capita, and will raise demand for health-related public services. Germany has already implemented far-reaching reforms to mitigate the implications of ageing for per capita income, well-being and the sustainability of public finances. Nonetheless, continued efforts are needed to help older workers to improve their work-life balance and adjust their working hours to their ability and desire to work. Moreover, stressful working conditions and unhealthy lifestyles contribute to poor self-reported health and reduce the ability and willingness to work at higher age. There is scope to promote life-long learning. As the generosity of the public pension system will diminish, the contribution of private pensions to ensure pension adequacy needs to be strengthened. Promouvoir le bien-être dans une société vieillissante en Allemagne Le vieillissement démographique sera marqué en Allemagne, où il s’est amorcé plus tôt que dans la plupart des autres économies de l’OCDE. Il pourrait conduire à un recul important de l’emploi, ce qui pèserait sur le PIB par habitant, tout en augmentant la demande de services publics liés à la santé. L’Allemagne a déjà mis en oeuvre de vastes réformes destinées à limiter les incidences du vieillissement de sa population au regard du revenu par habitant, du bien-être et de la viabilité des finances publiques. Cependant, des efforts supplémentaires s’imposent pour aider les travailleurs âgés à améliorer l’équilibre entre vie professionnelle et vie privée et à adapter le nombre d’heures travaillées à leurs capacités et à leurs souhaits. De plus, des conditions de travail difficiles et des modes de vie préjudiciables à la santé contribuent à un mauvais état de santé autodéclaré et réduisent la capacité et la volonté de reporter le départ à la retraite. Il serait possible de développer la formation tout au long de la vie. Par ailleurs, dans la mesure où la générosité du système public de retraite ne pourra être maintenue, il convient d’accroître la contribution des régimes privés afin de garantir des niveaux de pension appropriés.
    Keywords: health, skills, demographic change, pension system
    JEL: E24 I31 J11
    Date: 2016–09–21
  54. By: Klüh, Ulrich; Hütten, Moritz
    Abstract: There is a broad consensus that financialization has brought many disadvantages and few benefits. This raises a simple question: How did it come about? Why did professional observers allow it to happen even though financialization was not a hidden process? Can we identify sources of legitimation for financialization? To limit the scope of our analysis, we focus on the role of banks to answer these questions. We study changing expectations towards banks from a transdisciplinary perspective, using insights from macroeconomics, sociology and political science. We find that the legitimation of financialization has been multi-faceted. However, at many crucial junctures, the perceived but doubtful need to “increase competition” for banks has tipped the scale in favor of the policies underlying it. The disciplining effects of competition though, have not resulted in less cakes and ale for banks.
    Keywords: Banking, Banking Regulation, Macro-Regimes, Financialization, Financial Sociology, Economic Sociology
    JEL: B2 B5 E0 E5 G1 G2 H0 N2 Z1
    Date: 2016–03
  55. By: Loumrhari, Ghizlan
    Abstract: The objective of this article is to estimate the effects of the population aging on the financial viability of the pension system and the macroeconomic evolution in a general way. To do it, we built a computational OLG model. The results show that the current ageing and which will accelerate in the 2030s will have dramatic consequences both on the financial and economic plans. The increase of the rate of contribution and the reduction in retirement pensions if they can assure the financial balance of pension funds seem impossible to be implemented economically and socially. Indeed, to maintain the balance of pension funds, the government should increase the rate of contributions of 20 points or to lower the benefits of practically 30 %. Certainly, it is always possible to combine these two reforms with an increase of two years the retirement age and the introduction of a dose of capitalization but it seems insufficient.
    Keywords: Vieillissement démographiques, systèmes de retraite, modèles à générations imbriquées, Maroc
    JEL: C68 E24 H55 J26
    Date: 2016
  56. By: Strulik, Holger; Trimborn, Timo
    Abstract: Recent empirical research has shown that output and GDP per capita in the aftermath of natural disasters are not necessarily lower than before the event. In many cases, both are not significantly affected and, surprisingly, sometimes they are found to respond positively to natural disasters. Here, we propose a novel economic theory that explains these observations. Specifically, we show that GDP is driven above its pre-shock level when natural disasters destroy predominantly durable consumption goods (cars, furniture, etc.). Disasters destroying mainly productive capital, in contrast, are predicted to reduce GDP. Insignificant responses of GDP can be expected when disasters destroy both, durable goods and productive capital. We extend the model by a residential housing sector and show that disasters may also have an insignificant impact on GDP when they destroy residential houses and durable goods. We show that disasters, irrespective of whether their impact on GDP is positive, negative, or insignificant, entail considerable losses of aggregate welfare.
    Keywords: natural disasters,economic recovery,durable goods,residential housing,economic growth
    JEL: E20 O40 Q54 R31
    Date: 2016
  57. By: Arce, Óscar; Hurtado, Samuel; Thomas, Carlos
    Abstract: We provide a general equilibrium framework for analyzing the effects of supply and demand side policies, and the potential synergies between them, in an asymmetric monetary union that faces a liquidity trap and a slow deleveraging process in its ‘periphery‘. We find that the joint implementation of pro-competition structural reforms in the periphery, a fiscal expansion in the core, and forward guidance about the future path of nominal interest rates produces positive synergies between the three policies: forward guidance re-inforces the expansionary effects of country-specific policies, and the latter in turn improve the effectiveness of forward guidance. Our results provide a case for complementing current unconventional monetary stimuli in the euro area with national efforts on the structural reform and fiscal fronts. JEL Classification: E44, E63, D42
    Keywords: deleveraging, monetary union, structural reforms, synergies, zero lower bound
    Date: 2016–08
  58. By: International Monetary Fund.
    Abstract: Portugal has achieved a major economic turnaround since the onset of the sovereign debt crisis. Access to financing was restored following the large fiscal adjustment, the external current account position has moved from a large deficit into surpluses, while the unemployment rate—though still at high levels—declined sharply. The fiscal targets for 2016 and 2017 are appropriately ambitious, but achieving them will require tackling significant implementation challenges.
    Date: 2016–09–22
  59. By: Ioana Marinescu; Roland Rathelot
    Abstract: Could we significantly reduce U.S. unemployment by helping job seekers move closer to jobs? Using data from the leading employment board, we show that, indeed, workers dislike applying to distant jobs: job seekers are 35% less likely to apply to a job 10 miles away from their ZIP code of residence. However, because job seekers are close enough to vacancies on average, this distaste for distance is fairly inconsequential: our search and matching model predicts that relocating job seekers to minimize unemployment would decrease unemployment by only 5.3%. Geographic mismatch is thus a minor driver of aggregate unemployment.
    JEL: E24 J21 J61 J62 J64
    Date: 2016–09
  60. By: Jean-Philippe Laforte; John M. Roberts
    Abstract: This FEDS Note is a companion to the most recent release of the FRB/US model of the U.S. economy available at a/frbus/us-models-about.htm.
    Date: 2014–11–21
  61. By: Köhler-Ulbrich, Petra; Hempell, Hannah S.; Scopel, Silvia
    Abstract: The euro area bank lending survey (BLS) serves as an important tool in the analysis of bank lending conditions in the euro area and across euro area countries, providing otherwise unobservable qualitative information on bank loan demand and supply from/to euro area enterprises and households. Since its introduction in 2003, the BLS has received growing attention and has become of key importance for the analysis and assessment of bank lending conditions in the euro area and at the national level. In particular in the context of the financial crisis, the BLS was used to gather additional information on the impact of the crisis and of the ECB’s monetary policy measures on banks’ funding situation and bank lending conditions. Following a description of the design and development of the BLS, this paper focuses on the analysis of bank lending supply and demand in the euro area and on their contributing factors. The results of the BLS are put into a wider economic perspective by relating them to other macroeconomic and financial variables. Analyses based on individual bank replies complement the picture further by providing more granular evidence on loan developments. In addition, an overview of the use of the euro area BLS as an analytical tool for investigating bank lending conditions in the euro area is presented. JEL Classification: E44, E5, G21
    Keywords: bank lending conditions, euro area, loan demand, loan supply, monetary policy, monetary policy transmission
    Date: 2016–09
  62. By: International Monetary Fund.
    Abstract: The state-dominated financial sector confronts several critical challenges. Deep and long standing structural problems and negative external spillovers are creating distortions affecting the credit channel and overall financial stability. Financial sector contingent liabilities are on the rise accentuating an already weak fiscal situation. The government is directing a large proportion of loans from state-owned banks to unhedged state-owned corporates. A Development Bank (DB), created in 2011 to centralize such directed lending, has grown rapidly to assume systemic significance. External imbalances, combined with low international reserves and significant negative spillovers from Russia—the main trade and financial partner, have weakened corporates’ ability to service foreign-currency obligations.
    Date: 2016–09–21
  63. By: Martina Jašová; Richhild Moessner; Előd Takáts
    Abstract: We study how exchange rate pass-through to CPI inflation has changed since the global financial crisis. We have three main findings. First, exchange rate pass-through in emerging economies decreased after the financial crisis, while exchange rate pass-through in advanced economies has remained relatively low and stable over time. Second, we show that the declining pass-through in emerging markets is related to declining inflation. Third, we show that it is important to control for non-linearities when estimating exchange rate pass-through. These results hold for both short-run and long-run pass-through and remain robust to extensive changes in the specifications.
    Keywords: Exchange rate pass-through, inflation
    Date: 2016–09
  64. By: Ana Lariau; Moataz El-Said; Misa Takebe
    Abstract: This paper estimates the exchange rate pass-through to consumer price inflation in Angola and Nigeria, with particular emphasis on the changes of the pass-through over time. Even though the two countries share smilar dependence on oil exports, this paper reveals different results. For Angola, the long-run exchange rate pass-through to prices is high, though it has weakened in recent years reflecting the de-dollarization of the economy. In Nigeria, there is no stable long-run relationship between the exchange rate and prices, and changes in the exchange rate do not have a significant pass-through effect on inflation. However, the passthrough effect on core inflation is significant.
    Keywords: Exchange rate pass-through;Angola;Nigeria;Inflation;Oil prices;Consumer price indexes;Nominal effective exchange rate;Import prices;Cross country analysis;Exchage rate path-through, monetary policy, inflation, Sub-Sahara Africa, oil-producing countries.
    Date: 2016–09–20
  65. By: van der Ploeg, Frederick
    Abstract: Policy prescriptions for managing natural resource windfalls are based on the permanent income hypothesis: none of the windfall is invested at home and saving in an intergenerational SWF is dictated by smoothing consumption across different generations. Furthermore, with Dutch disease effects the optimal response is to intertemporally smooth the real exchange rate, smooth public and private consumption, and limit sharp fluctuations in the intersectoral allocation of production factors. We show that these prescriptions need to be modified for the following reasons. First, to cope with volatile commodity prices precautionary buffers should be put in a stabilisation fund. Second, with imperfect access to capital markets the windfall must be used to curb capital scarcity, invest domestically and bring consumption forward. Third, with real wage rigidity consumption must also be brought forward to mitigate transient unemployment. Fourth, the real exchange rate has to temporarily appreciate to signal the need to invest in the domestic economy to gradually improve the ability to absorb the extra spending from the windfall. Fifth, with finite lives the timing of handing back the windfall to the private sector matters and consumption and the real exchange rate will be volatile. Finally, with nominal wage rigidity we show that a Taylor rule is a better short-run response to a crash in commodity prices than a nominal exchange rate peg.
    Keywords: absorption constraints; capital scarcity; Dutch disease; Overlapping Generations; permanent income
    JEL: E60 F34 F35 F43 H21 H63 O11 Q33
    Date: 2016–09
  66. By: Jung, Alexander
    Abstract: This paper examines whether the release of minutes of the Federal Open Market Committee (FOMC) has provided markets with systematic clues about its future policy rates. We explain the future fed funds rate changes using Ordered Probit models (sample 1996 to 2008). We find that timely FOMC meeting minutes have provided assurance to markets about the most likely path of future interest rates. Though, their release did not cause markets to fundamentally revise their expectations on future policy decisions. The paper also discusses lessons from the Fed experience for the ECB and other central banks. JEL Classification: C34, E52, E58
    Keywords: communication, FOMC minutes, monetary policy, ordered Probit, predictability
    Date: 2016–09
  67. By: Ayelen Banegas; Manjola Tase
    Abstract: We study developments in reserve balances and the federal funds market in the context of two banking regulatory changes: the widening of the Federal Deposit Insurance Corporation (FDIC) assessment base and the introduction of the Basel III leverage ratio. Using a novel data set that includes FDIC fees and balance sheet data for depository institutions, we find that, as most foreign banks were not subject to the FDIC fee, they absorbed increasing amounts of reserve balances. Furthermore, foreign banks experienced positive and improving conditions for arbitraging between borrowing reserve balances in the federal funds market and earning interest on excess reserves by holding those reserves at the Federal Reserve Banks, contributing to an increase in federal funds borrowing by foreign banks relative to domestic banks. However, the implementation of the Basel III leverage ratio was associated with temporary declines in foreign bank federal funds borrowing at reporting dates.
    Keywords: Basel III ratios ; FDIC fees ; IOER arbitrage ; Reserve balances ; Federal funds market
    JEL: E49 E52 G28
    Date: 2016–09–01
  68. By: Sasser Modestino, Alicia (Northeastern University); Shoag, Daniel (Harvard University); Ballance, Joshua (Federal Reserve Bank of Boston)
    Abstract: Using a novel database of 82.5 million online job postings, we show that employer skill requirements fell as the labor market improved from 2010-2014. We find that a 1 percentage point reduction in the local unemployment rate is associated with a roughly 0.27 percentage point reduction in the fraction of jobs requiring at least a bachelor's degree and a roughly 0.23 percentage point reduction in the fraction requiring 5 or more years of experience. This pattern is established using multiple measures of labor availability, is bolstered by similar trends along heretofore unmeasured dimensions of skill, and even occurs within firm-job title pairs. We further confirm the causal effect of labor market tightening on skill requirements using a natural experiment based on the fracking boom in the U.S. as an exogenous shock to local labor supply in tradable, non-fracking industries. These industries are not plausibly affected by local demand shocks or natural gas extraction technology, but still show fewer skill requirements in response to tighter labor markets. Our results imply this labor-market induced downskilling reversed much of the cyclical increase in education and experience requirements that occurred during the Great Recession.
    JEL: D22 E24 J23 J63
    Date: 2016–03
  69. By: Ojiambo Elphas (Kenyatta University); Jacob Oduor; Mburu Tom (AERC/East African Educational Publishers,); Wawire Nelson (Kenyatta University)
    Abstract: Studies on the impacts of aid on growth are not limited. Some have found positive effects, others negative effects, others no effect and others have found positive impacts only under certain conditions. A less examined aspect is the role of aid unpredictability on growth. While aid unpredictability may negatively affect growth when it disorientates the recipient country’s consumption and investment planning, it may also boost economic growth if it is triggered by responses to economic shocks. It may also induce strengthening of systems of aid absorption in the recipient country that improves aid effectiveness and economic growth. This paper assesses the heterogeneous impacts of aid on growth in a low income country with different aid unpredictability episodes and finds that increased aid unpredictability weakens economic growth in Kenya. In addition, aid unpredictability is found to improve economic growth in an unstable macroeconomic environment implying that aid unpredictability forces weak governments to be more prudent in managing the limited uncertain resources at their disposal during periods of macro instability. We however find no evidence of different impacts of aid unpredictability during periods of shocks.
    Date: 2015–08–12
  70. By: Alan K. Detmeister; Daeus Jorento; Emily Massaro; Ekaterina V. Peneva
    Abstract: Economic theory suggests that inflation expectations are a key determinant of actual inflation.
    Date: 2015–06–08
  71. By: Giorgio Canarella (University of Nevada, Las Vegas); Stephen M. Miller (University of Nevada, Las Vegas and University of Connecticut)
    Abstract: We investigate the empirics of persistence in the inflation series for 13 OECD countries that explicitly adopted an inflation targeting (IT) regime before 1992. We estimate persistence in the pre- and post-IT periods using the modified log periodogram proposed by Kim and Phillips (2006, 2000) and Phillips (2007) and test for equality across the two periods. Our findings indicate that all inflation series show no evidence of unit-root behavior over the entire sample, and in the respective pre- and post-IT periods. Mean reversion and stationarity as well as mean reversion and nonstationarity exist in the pre-IT period, while mean reversion and stationarity characterize the post-IT period. Inflation exhibits fractional integration behavior over the entire sample period, the pre-IT period, and, in most cases, also in the post-IT period. The adoption of inflation targeting coincides with a structural break in all inflation series and marks a decrease in the point estimates of inflation persistence in most countries. For only about half of the countries, however, we can formally reject the null hypothesis of equality of inflation persistence against the alternative that inflation persistence declines in the post-IT period. Significant variations and asymmetries exist in inflation persistence across the countries in the sample, suggesting that the IT regime does not equalize persistence across the IT countries.
    Keywords: persistence, modified log periodogram, inflation targeting, fractional integration
    JEL: C14 E31 C22
    Date: 2016–09
  72. By: Frankel, Jeffrey A. (Harvard University); Schreger, Jesse (Harvard University and Princeton University)
    Abstract: Government forecasts of GDP growth and budget balances are generally more over-optimistic than private sector forecasts. When official forecasts are especially optimistic relative to private forecasts ex ante, they are more likely also to be over-optimistic relative to realizations ex post. For example, euro area governments during the period 1999-2007 assiduously and inaccurately avoided forecasting deficit levels that would exceed the 3% Stability and Growth Pact threshold; meanwhile private sector forecasters were not subject to this crude bias. As a result, the budget-making process could probably be improved by using private-sector forecasts.
    JEL: E63
    Date: 2016–05
  73. By: Alyssa Schneebaum (Department of Economics, Vienna University of Economics and Business); Miriam Rehm (Department of Economics and Statistics, Federal Chamber of Labour Vienna (AK Wien)); Katharina Mader (Department of Economics, Vienna University of Economics and Business); Katarina Hollan (European Centre for Social Welfare Policy and Research)
    Abstract: This paper studies the gap in wealth between male and female single households using 2010 Household Finance and Consumption Survey data for eight European countries. In the raw data, a large gap emerges at the upper end of the unconditional distribution. While OLS estimates show no difference in average net wealth levels, quantile regressions at the 95th percentile yield mixed evidence for the gender wealth gap in different specifications. Labour market characteristics and participation in asset and debt categories largely explain the differences between male and female single households. We show that the gender gap in net wealth is driven by gender gaps in gross wealth and its components, but is attenuated in four countries by gender gaps in (collateralized) debt. In the full specification, the unexplained gap in gross wealth amounts to 27% in Slovakia, 33% in France, 44% in Austria, 45% in Germany, and 48% in Greece. A robustness check using person-level pension wealth confirms the presence of a gender gap for the full population.
    Keywords: Gender, Wealth, Wealth Gap, Distribution
    JEL: D31 J16 E21
    Date: 2016–09
  74. By: Dées, Stéphane; Zimic, Srečko
    Abstract: This paper explores empirically the role of noisy information in cyclical developments and aims at separating fluctuations that are due to genuine changes in fundamentals from those due to temporary animal spirits or expectational errors (noise shocks). Exploiting the fact that the econometrician has a richer data-set in some dimensions than the consumers, we use a novel identification scheme in a structural vector-autoregressive (SVAR) framework. Our results show that noise shocks are more important for business cycle fluctuations than permanent (or technology) shocks. We also show that technology shocks turn negative a few years before recessions, while noise shocks are very positive at the cycle peaks. By contrast, the recovery from recessions is mostly led by technology shocks, noise shocks remaining negative for some time during this business cycle phase. JEL Classification: C32, E32
    Keywords: animal spirits, business cycles, identification, Kalman Filter, noise shocks, signal-extraction problem, structural vector autoregression, technology shocks
    Date: 2016–08
  75. By: Agbahey, Johanes U. I.; Siddig, Khalid; Grethe, Harald
    Abstract: A detailed Social Accounting Matrix (SAM) for the West Bank is developed for the year 2011. The data used to build the SAM are obtained from various official sources in Palestine, mainly the Palestinian Central Bureau of Statistics. Major data sets include the Palestinian national accounts, the supply and use table, the balance of payments, the labour force survey data, the expenditure and consumption survey data, the economic survey report, the living standards report and the demographics report. The SAM provides data on 49 activities, 83 commodities, 110 households, 59 production factors and 58 tax accounts. Driven by the specificity of the West Bank economy, this SAM has several features including the classification of the households and labour accounts according to the workplace (West Bank, Israel and rest of the world), which in turn considers associating each household and each labour category with their eligibility to work in Israel. In addition to dividing the labour force into eligible and not eligible to work in Israel, the SAM also considers various eligibility levels. Other features of the SAM include the separation of transactions with Israel from those with the rest of the world as well as the separation of taxes collected domestically from those collected by Israel on behalf of the Palestinian National Authority. Furthermore, this SAM takes proper account of the compensation of labour for the self-employed and of household income from unincorporated capital. It also includes an account for non-profit organisations serving households and a Zakat account, which is introduced for the first time in SAM literature.
    Keywords: Social Accounting Matrix, agriculture, labour, trade, Palestine, Demand and Price Analysis, International Development, International Relations/Trade, Labor and Human Capital, Production Economics, E16,
    Date: 2016–08
  76. By: Granja, Joao (MIT); Matvos, Gregor (University of Chicago); Seru, Amit (University of Chicago)
    Abstract: We show that the allocation of failed banks in the Great Recession was likely distorted because potential acquirers of these banks were poorly capitalized. We illustrate this phenomenon within a model of auctions with budget constraints. In our model poor capitalization of some potential acquirers drives a wedge between their willingness to pay and the ability to pay for a failed bank. Using our framework, we infer three characteristics that drive potential acquirers' willingness to pay for a failed bank in the data: geographic proximity, bank specialization, and increased market concentration. Consistent with predictions of our model, we find that low capitalization of potential acquirers decreases their ability to acquire a failed bank. Finally, we show that the wedge between potential acquirers' willingness and ability to pay distorts the allocation of failed banks. The costs of this misallocation are substantial, as measured by the additional resolution costs of the FDIC. These findings have direct implications for the design of the bank resolution process.
    JEL: E65 G18 G21
    Date: 2016–04
  77. By: Giles Atkinson; Kirk Hamilton
    Abstract: The UK has been an exception to the trend of channelling revenues arising from the depletion of subsoil assets into a resource fund. In this paper, we construct an asset account for the UK’s oil and gas resources to evaluate the cost of this exceptionalism and, looking forward, the implications of establishing a fund now. We show that had a decision been made to establish a resource fund in 1975, this fund could now be substantial in size (about GBP 280 billion in 2010). A significant contributor to this result is the historical efficiency of the UK fiscal regime in capturing oil and gas rents, as we demonstrate. A further benefit of the resource fund would have been a reduction in volatility of resource revenues flowing to the Treasury. An ex post cost-benefit analysis of the simulated fund suggests it could have been a sound public investment. However, our simulation of a future resource fund based on (possible) shale gas and oil revenues shows that it could reach a size similar to the 1975-2010 fund only under optimistic assumptions about prices, revenues and economic reserves.
    Date: 2016–09
  78. By: Reinhart, Carmen (Harvard University); Trebesch, Christoph (University of Munich)
    Abstract: A sketch of the International Monetary Fund's 70-year history reveals an institution that has reinvented itself over time along multiple dimensions. This history is primarily consistent with a "demand driven" theory of institutional change, as the needs of its clients and the type of crisis changed substantially over time. Some deceptively "new" IMF activities are not entirely new. Before emerging market economies dominated IMF programs, advanced economies were its earliest (and largest) clients through the 1970s. While currency problems were the dominant trigger of IMF involvement in the earlier decades, banking crises and sovereign defaults became they key focus since the 1980s. Around this time, the IMF shifted from providing relatively brief (and comparatively modest) balance-of-payments support in the era of fixed exchange rates to coping with more chronic debt sustainability problems that emerged with force in the developing nations and now migrated to advanced ones. As a consequence, the IMF has engaged in "serial lending", with programs often spanning decades. Moreover, the institution faces a growing risk of lending into insolvency, most widespread among low income countries in chronic arrears to the official sector, but most evident in the case of Greece since 2010. We conclude that these practices impair the IMF's role as an international lender of last resort.
    Date: 2015–12
  79. By: Thor Berger; Carl Benedikt Frey
    Abstract: In tandem with the diffusion of computer technologies, labour markets across the OECD have undergone rapid structural transformation. In this paper, we examine i) the impact of technological change on labour market outcomes since the computer revolution of the 1980s, and ii) recent developments in digital technology – including machine learning and robotics – and their potential impacts on the future of work. While it is evident that the composition of the workforce has shifted dramatically over recent decades, in part as a result of technological change, the impacts of digitalisation on the future of jobs are far from certain. On the one hand, accumulating anecdotal evidence shows that the potential scope of automation has expanded beyond routine work, making technological change potentially increasingly labour-saving: according to recent estimates 47 percent of US jobs are susceptible to automation over the forthcoming decades. On the other hand, there is evidence suggesting that digital technologies have not created many new jobs to replace old ones: an upper bound estimate is that around 0.5 percent of the US workforce is employed in digital industries that emerged throughout the 2000s. Nevertheless, at first approximation, there is no evidence to suggest that the computer revolution so far has reduced overall demand for jobs as technologically stagnant sectors of the economy – including health care, government and personal services – continue to create vast employment opportunities. Looking forward, however, we argue that as the potential scope of automation is expanding, many sectors that have been technologically stagnant in the past are likely to become technologically progressive in the future. While we should expect a future surge in productivity as a result, the question of whether gains from increases in productivity will be widely shared depends on policy responses. Parallèlement à la diffusion des technologies numériques, les marchés du travail dans la zone OCDE ont subi une rapide transformation structurelle. Dans cet article, nous allons examiner i) l'impact des changements technologiques sur la performance du marché du travail depuis la révolution informatique des années 1980 et ii) les développements récents en matière de technologie numérique, y compris de l'apprentissage machine [machine learning] et de la robotique, ainsi que leurs impacts potentiels sur l'avenir du travail. Bien qu'il soit évident que la composition de la main-d'oeuvre a radicalement changé au cours des dernières décennies, en partie en raison de l'évolution technologique, les impacts de la numérisation sur l'avenir des emplois sont loin d'être certains. D'une part, il semblerait que la portée potentielle de l'automatisation s'est développée au-delà du travail de routine, rendant les changements technologiques potentiellement de plus en plus générateurs d'économies de main-d'oeuvre : au cours des prochaines décennies, selon des estimations récentes, 47 % des emplois américains pourront être automatisés. D'autre part, il existe des preuves suggérant que les technologies numériques n'ont pas créé beaucoup de nouveaux emplois pour remplacer les anciens et une estimation de la limite supérieure montre que la main-d'oeuvre des États-Unis n’est utilisée qu’à hauteur de 0,5 % dans les industries numériques qui ont émergé au cours des années 2000. Néanmoins, à ce jour, sur la base d’une première estimation, il n'y a aucune preuve que la révolution informatique ait réduit la demande globale pour les emplois dans les secteurs de l´économie qui sont technologiquement en stagnation, y compris dans les soins de santé, l’administration et les services aux personnes, qui continuent à engager du personnel et à créer de larges possibilités d'emploi. À l'avenir, cependant, nous estimons que la portée potentielle de l'automatisation est en pleine expansion, de nombreux secteurs qui ont été technologiquement stagnants par le passé sont susceptibles de progresser technologiquement à l'avenir. Par conséquent, nous devons nous attendre à une future hausse de la productivité. En revanche, la question de savoir si les gains provenant des augmentations de productivité seront amplement partagés dépend des réponses politiques.
    Keywords: digitalisation, future of work
    JEL: E24 J24 J62 O33
    Date: 2016–09–30
  80. By: Hiroshi Nishi
    Abstract: This study presents an empirical analysis to detect Minsky’s financial fragility and its determinants in the non- financial sectors in Japan, with particular attention paid to differences between sectors and sizes. While Minsky developed theoretical analyses of financial fragility for use in economic growth models, its empirical application is limited. Based on the financial fragility indices derived from a cash flow accounting framework and Minsky’s margins of safety, I detect the overall configuration and evolution of financial fragility (hedge, speculative, and Ponzi) in Japan. Then, the factors that determine the probability of being Ponzi finance are detected by using panel logistic regression. In doing so, this study reveals that although speculative finance is dominant in many sectors, the evolution of financial fragility is diversified and its determinants differ according to sector and size in Japan.
    Keywords: Minsky, Financial fragility, Margin of safety, Japanese economy
    JEL: E12 C25 N15
    Date: 2016–09
  81. By: Jarociński, Marek; Lenza, Michele
    Abstract: The estimates of the output gap depend on the features of the models used to derive them. We discriminate among different estimates on the basis of their ability to forecast inflation. Our analysis suggests that output in the euro area was 6% lower than potential in 2014 and 2015, which is substantially below institutional estimates.
    Date: 2016–07
  82. By: Katharine G. Abraham; John C. Haltiwanger; Kristin Sandusky; James Spletzer
    Abstract: It is well known that the long-term unemployed fare worse in the labor market than the short-term unemployed, but less clear why this is so. One potential explanation is that the long-term unemployed are “bad apples” who had poorer prospects from the outset of their spells (heterogeneity). Another is that these bad outcomes are a consequence of their extended unemployment (state dependence). We use Current Population Survey data on unemployed individuals linked to wage records for the same people to distinguish between these explanations. The rich information on work histories provided by the wage records allows us to control for individual heterogeneity that could be affecting post-unemployment labor market outcomes. Even with these controls in place, we find that unemployment duration has a strongly negative effect on the likelihood of subsequent employment. This finding is inconsistent with the “bad apple” (heterogeneity) explanation for why the long-term unemployed fare worse than the short-term unemployed. We also find that longer unemployment durations are associated with lower subsequent earnings, though this is mainly attributable to the long-term unemployed having a lower likelihood of subsequent employment rather than to their having lower earnings once a job is found.
    JEL: E24 J64
    Date: 2016–09
  83. By: Sara Serra
    Abstract: Despite recent reforms, labour market segmentation is still a marked feature of several European countries. This work empirically analyses transitions out of temporary contracts, by means of a discrete duration model, with a particular focus on human capital features, labour market protection and their interaction. Transitions to open-ended contracts with the same or with a new employer are considered separately, as well as transitions to joblessness, based on data for ten European countries taken from the European Community Household Panel. Conclusions suggest that firm training policies are more relevant for intra-firm transitions, while worker characteristics are more determinant for inter-firm transitions. Labour market regulation plays a signicant role in what concerns transitions to open-ended contracts, but not to joblessness, particularly in strongly segmented labour markets. In countries characterized by this type of labour market institutions, human capital features assume an increased relevance, and firm provided training may reduce the influence of the strictness of labour market regulations on the conversion of temporary contracts into open-ended.
    JEL: E24 J24 J41
    Date: 2016
  84. By: Jonathan Kearns
    Abstract: Inflation co-moves across countries and several papers have shown that lags of this common inflation can help to forecast country inflation. This paper constructs forecasts of common (or 'global') inflation using survey forecasts of country inflation. These forecasts of global inflation have predictive power for global inflation at a medium horizon (12 months) but not at a longer horizon. Global inflation forecasts, and forecast errors, are correlated with survey forecasts and errors of oil and food prices, and global GDP growth, but not financial variables. For some countries, forecasts of global inflation improve the accuracy of forecasting regressions that include survey forecasts of country inflation. In-sample fit and out-of-sample forecasting exercises suggest that forecasts of global inflation generally contain more information for forecasting country inflation than do lags of global inflation. However, for most countries, lagged or forecast global inflation does not improve the accuracy of survey forecasts of country inflation. Whatever information global inflation may include about country inflation, for most countries it seems that survey forecasts of country inflation have historically already incorporated that information.
    Keywords: Global inflation, inflation forecasts, survey forecasts
    Date: 2016–09
  85. By: João Pedro Pereira; Vasco Pesquita; Paulo M.M. Rodrigues; António Rua
    Abstract: There is an ongoing trend of deregulation and integration of electricity markets in Europe and North America. This change in market structure has naturally affected the interaction between agents and has contributed to an increasing commoditization of electric power. This paper focuses on one specific market, the Iberian Electricity Market (MIBEL). In particular, we assess the persistence of electricity prices in the Iberian market and test whether it has changed over time. We consider each hour of the day separately, that is, we analyze 24 time-series of day-ahead hourly prices for Portugal and another 24 series for Spain. We find results consistent with the hypothesis that market integration leads to a decrease in the persistence of the price process. More precisely, the tests detect a break in the memory parameter of most price series around the year 2009, which coincides with a significant increase in the integration of Portuguese and Spanish markets. The results reinforce the view that market integration has an impact on the dynamics of electricity prices.
    JEL: C50 E31 F36
    Date: 2016
  86. By: Cordella, Tito (The World Bank); Yeyati, Eduardo Levy (Harvard University)
    Abstract: Why should developing countries buy expensive catastrophe (CAT) insurance? Abstracting from risk aversion or hedging motives, we find that insurance may have a catalytic role on external finance. Such effort is particularly strong in those low to middle income countries that face financial constraints when hit by a shock or in its anticipation. Insurance makes defaults less likely, thereby relaxing the country's borrowing constraint, and enhancing its access to capital markets. The presence of multilateral lenders that explicitly or implicitly provide inexpensive reconstruction funds in the aftermath of a natural disaster weakens but does not eliminate the demand for catalytic insurance.
    Date: 2015–09

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