nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒10‒16
ninety-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Evolution of U.S. Monetary Policy: 2000 - 2007 By Michael T. Belongia; Peter N. Ireland
  2. Macrofinancial History and the New Business Cycle Facts By Jorda, Oscar; Schularick, Moritz; Taylor, Alan M.
  3. Monetary policy for a bubbly world By Vladimir Asriyan; Luca Fornaro; Alberto Martin; Jaume Ventura
  4. Do Fed Forecast Errors Matter? By Pao-Lin Tien; Tara M. Sinclair; Edward N. Gamber
  5. Disinflation and the Phillips Curve: Israel 1986-2015 By Rafi Melnick; Till Strohsal;
  6. International Debt Deleveraging By Luca Fornaro
  7. Monetary Policy and Macroprudential Policy: Rivals or Teammates? By Simona Malovana; Jan Frait
  8. The Fiscal Consequences of Deflation: Evidence from the Golden Age of Globalization By António Afonso; João Tovar Jalles
  9. Effects of Gold Reserve Policy of Major Central Banks on Gold Prices Changes By Oguzhan Ozcelebi; Metin Duyar
  10. Revisiting Gertler-Gilchrist Evidence on the Behavior of Small and Large Firms By Kudlyak, Marianna; Sanchez, Juan M.
  11. The effects of government bond purchases on leverage constraints of banks and non-financial firms By Kühl, Michael
  12. Advance Warning Indicators of Past Severe GDP per Capita Recessions in Turkey By Oliver Röhn
  13. Modest Macroeconomic Effects of Monetary Policy Shocks during the Great Moderation: An Alternative Interpretation By Efrem Castelnuovo
  14. Necessity as the mother of invention monetary policy after the crisis By Alan Blindera; Michael Ehrmann; Jakob de Haan; David-Jan Jansen
  15. Forecasting Goods and Services Inflation in Sweden By Mossfeldt, Marcus; Stockhammar, Pär
  16. Secular Stagnation, Rational Bubbles, and Fiscal Policy By Coen N. Teulings
  17. Conventional monetary policy and the degree of interest rate pass through in the long run: a non-normal approach By Dong-Yop Oh; Hyejin Lee; Karl David Boulware
  18. Interpreting Volatility Shocks as Preference Shocks By Shaofeng Xu
  19. Short term Bayesian inflation forecasting for Tunisia By Dahem, Ahlem
  20. Investment in Productivity and the Long-Run Effect of Financial Crises on Output By Maarten de Ridder
  21. Exchange rate pass-through and cross-country spillovers: Some evidence from Ukraine and Russia By Faryna, Oleksandr
  22. The response of asset prices to monetary policy shocks: stronger than thought By Alessi, Lucia; Kerssenfischer, Mark
  23. The fiscal and macroeconomic effects of government wages and employment reform By Javier J. Pérez; Marie Aouriri; Maria M. Campos; Dmitrij Celov; Domenico Depalo; Evangelia Papapetrou; Jurga Pesliakaite; Roberto Ramos Magdaleno; Marta Rodríguez-Vives
  24. Differential Mortality and the Progressivity of Social Security By Shantanu Bagchi
  25. Investment in Productivity and the Long-Run Effect of Financial Crises on Output By de Ridder, M.
  26. Monetary transmission mechanism with firm turnover By Lenno Uusküla
  27. Time-series measures of core inflation By Edward N. Gamber; Julie K. Smith
  28. Gimme a Break! Identification and Estimation of the Macroeconomic Effects of Monetary Policy Shocks in the U.S. By Emanuele Bacchiocchi; Efrem Castelnuovo; Luca Fanelli
  29. Renovatio Monetae: Gesell Taxes in Practice By Svensson, Roger; Westermark, Andreas
  30. Macroeconomic Effects of Productivity Shocks – A VAR Model of a Small Open Economy By Vladimir Arčabić; Tomislav Globan; Ozana Nadoveza; Lucija Rogić Dumančić; Josip Tica
  31. The Consumption Activity Index: Improvements of Release Contents and Revisions of Compilation Methodology By Koji Nakamura; Ko Miura; Toshitaka Maruyama
  32. Labour market regulations and capital labour substitution. By G. Cette; J. Lopez; J. Mairesse
  33. Fiscal consequences of structural reform under constrained monetary policy By Sajedi, Rana
  34. Bank exposures and sovereign stress transmission By Altavilla, Carlo; Pagano, Marco; Simonelli, Saverio
  35. Banking and Financial Regulation in Emerging Markets By SK, Shanthi; Nangia, Vinay Kumar; Sircar, Sanjoy; Reddy, Kotapati Srinivasa
  36. A Demand Theory of the Price Level By Marcus Hagedorn
  37. Effects of Government Consumption shocks in China, Japan, and Korea By Minju Jeong
  38. The 2014 survey of consumer payment choice: summary results By Greene, Claire; Schuh, Scott; Stavins, Joanna
  39. Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data By Coibion, Olivier; Gorodnichenko, Yuriy; Kudlyak, Marianna; Mondragon, John
  40. Spanish public finances through the financial crisis By Francisco Martí; Javier J. Pérez
  41. Estimating Matching Efficiency with Variable Search Effort By Hornstein, Andreas; Kudlyak, Marianna
  42. El emisor en Provincia: Presencia del Banco de la Republica en Barranquilla, Cartagena y Santa Marta entre las décadas de 1920 y 1950 By Joaquín Viloria De La Hoz
  43. Self-Fulfilling Debt Crises: A Quantitative Analysis By Luigi Bocola; Alessandro Dovis
  44. Macroprudential policy in an agent-based model of the UK housing market By Baptista, Rafa; Farmer, J. Doyne; Hinterschweiger, Marc; Low, Katie; Tang, Daniel; Uluc, Arzu
  45. Macroprudential and Monetary Policies Interactions in a DSGE Model for Sweden By Francesco Columba; Jaqian Chen
  46. Does the Foreign Income Shock in a Small Open Economy DSGE Model Fit Croatian Data? By Vladimir Arčabić; Tomislav Globan; Ozana Nadoveza; Lucija Rogić Dumančić; Josip Tica
  47. Optimal Policy with General Signal Extraction By Esther Hauk; Andrea Lanteri; Albert Marcet
  48. Wealth-Income Ratios in a Small, Developing Economy: Sweden, 1810–2014 By Waldenström, Daniel
  49. What are production, work and consumption? Trans-historical re-conceptualisations By Edvinsson, Rodney
  50. On the optimal provision of social insurance By Krueger, Dirk; Ludwig, Alexander
  51. Absorbing Shocks: National Rainy-Day Funds and Cross-Country Transfers in Fiscal Union By Timothy J. Goodspeed
  52. Intensive Mothering and Well-being: The Role of Education and Child Care Activity By Pedro S. Martins
  53. Interpreting the latent dynamic factors by threshold FAVAR model By Hacioglu, Sinem; Tuzcuoglu, Kerem
  54. Commodities, financialization, and heterogeneous agents By Branger, Nicole; Grüning, Patrick; Schlag, Christian
  55. Macroeconomic effects of consumer debt: three theoretical essays By Olivier Allain
  57. Macroeconometric modeling as a "photographic description of reality" or as an "engine for the discovery of concrete truth" ? Friedman and Klein on statistical illusions By Erich Pinzón-Fuchs
  58. Sovereign risk, bank funding and investors' pessimism By Faia, Ester
  59. A quasi real-time leading indicator for the EU industrial production By Donadelli, Michael; Paradiso, Antonio; Riedel, Max
  60. International spill-overs of uncertainty shocks: Evidence from a FAVAR By Gunes Kamber; Ozer Karagedikli; Michael Ryan; Tugrul Vehbi
  61. Reputation Cycles By Boyan Jovanovic; Julien Prat
  62. Changes in the optimal tax rate in South Africa prior and subsequent to the global recession period By Motloja, Lehlohonolo; Makhoana, Tsholofelo; Kassoma, Rooyen; Houdman, Rozadian; Phiri, Andrew
  63. Regional GDP in OECD countries: How has inequality developed over time? By Felix Arnold; Hansjörg Blöchliger
  64. Criticizing the Lucas Critique: Macroeconometricians’ Response to Robert Lucas By Aurélien Goutsmedt; Erich Pinzon-Fuchs; Matthieu Renault; Francesco Sergi
  65. Structural changes in the labor market and the rise of early retirement in Europe By Anna Batyra; David de la Croix; Olivier Pierrard; Henri Sneessens
  66. Selection, Trade, and Employment: The Strategic Use of Subsidies By Hassan Molana; Catia Montagna
  67. The links between crude oil prices and GCC stock markets: Evidence from time-varying Granger causality tests By Mehmet Balcilar; Rangan Gupta; Ýsmail H. Gençb
  68. The Impact of Intergenerational Transfers on Household Wealth Inequality in Japan and the United States By Yoko Niimi; Charles Yuji Horioka
  69. Updating the Recession Risk and the Excess Bond Premium By Giovanni Favara; Simon Gilchrist; Kurt F. Lewis; Egon Zakrajsek
  70. The Politics of FDI Expropriation By Marina Azzimonti
  71. Resilience, coal and the macroeconomy By Molyneaux, Lynette; Brown, Colin; Foster, John; Wagner, Liam
  72. Drivers of Growth in Russia By Markus Brueckner; Birgit Hansl
  73. Revisiting the transitional dynamics of business-cycle phases with mixed frequency data By Marie Bessec
  74. The determinants of long-term debt issuance by European banks: evidence of two crises. By Adrian van Rixtel; Luna Romo González; Jing Yang
  75. Fiscal capacity to support large banks By Pia Hüttl; Dirk Schoenmaker
  76. Liquidity Traps and Large-Scale Financial Crises By Giovanni Caggiano; Efrem Castelnuovo; Olivier Damette
  77. The validity of bank lending channel in Zimbabwe By Munyanyi, Musharavati Ephraim
  78. The New Keynesian Wage Phillips Curve: Calvo vs. Rotemberg By Born, Benjamin; Pfeifer, Johannes
  79. Central banks: From overburdening to decline? By Issing, Otmar
  80. Adjusting for Information Content when Comparing Forecast Performance By Andersson, Michael K.; Aranki, Ted; Reslow, André
  81. Credit cycles: Experimental evidence By Baghestanian, Sascha; Massenot, Baptiste
  82. The effects of a central bank's inflation forecasts on private sector forecasts: Recent evidence from Japan By Masazumi Hattori; Steven Kong; Frank Packer; Toshitaka Sekine
  83. Endogenous Market Formation and Monetary Trade: an Experiment By Avi Weiss; Gabriele Camera; Dror Goldberg
  84. The IMF and the social dimensions of growth : a content analysis of recent Article IV surveillance reports 2014-2015 By Ray, Nikhil.; Schmitz, Laura.
  85. Credit Expansion and Neglected Crash Risk By Matthew Baron; Wei Xiong
  87. Predicting U.S. Business Cycle Turning Points Using Real-Time Diffusion Indexes Based on a Large Data Set By Herman O. Stekler; Yongchen Zhao
  88. Informe sociolaboral del Partido de General Pueyrredon By GrET
  89. Stochastic representatitve agent By Jose Apesteguia; Miguel A. Ballester
  91. The Effects of Oil Price Shocks in a New-Keynesian Framework with Capital Accumulation By Verónica Acurio Vásconez; Gaël Giraud; Florent Mc Isaac; Ngoc-Sang Pham
  92. El emisor en Provincia: Presencia del Banco de la Republica en Barranquilla, Cartagena y Santa Marta entre las décadas de 1920 y 1950Abstract:En este documento se analiza la incidencia del Banco de la República en las actividades económicas y empresariales del Caribe colombiano entre las décadas de 1920 y 1950. En específico, se estudian los ciclos de la economía local, las crisis bancarias, así como la dinámica demográfica de Barranquilla, Cartagena y Santa Marta. También se tiene como objetivo conocer el sistema financiero local y, dentro de éste, los cupos de crédito y redescuento otorgados a los empresarios por el banco emisor. Además, se analiza la administración fiduciaria ejercida por el Banco de la República sobre los bienes de alemanes, italianos y japoneses radicados en la Costa Caribe durante la Segunda Guerra Mundial. En síntesis, este documento hace un aporte al estudio comparativo de las actividades económicas y empresariales de las tres ciudades más importantes del caribe colombiano, durante el período de estudio. By Joaquín Viloria De la Hoz

  1. By: Michael T. Belongia; Peter N. Ireland
    Abstract: A vector autoregression with time-varying parameters is used to characterize changes in Federal Reserve policy that occurred from 2000 through 2007 and describe how they affected the performance of the U.S. economy. Declining coefficients in the model’s estimated policy rule point to a shift in the Fed’s emphasis away from stabilizing inflation over this period. More importantly, however, the Fed held the federal funds rate persistently below the values prescribed by this rule. Under this more discretionary policy, inflation overshot its target and the funds rate followed a path reminiscent of the "stop-go" pattern that characterized Fed behavior prior to 1979.
    JEL: C32 E31 E32 E37 E52 E58
    Date: 2016–09
  2. By: Jorda, Oscar (Federal Reserve Bank of San Francisco); Schularick, Moritz (University of Bonn); Taylor, Alan M. (University of California, Davis)
    Abstract: In advanced economies, a century-long near-stable ratio of credit to GDP gave way to rapid financialization and surging leverage in the last forty years. This “financial hockey stick” coincides with shifts in foundational macroeconomic relationships beyond the widely-noted return of macroeconomic fragility and crisis risk. Leverage is correlated with central business cycle moments, which we can document thanks to a decade-long international and historical data collection effort. More financialized economies exhibit somewhat less real volatility, but also lower growth, more tail risk, as well as tighter real-real and real-financial correlations. International real and financial cycles also cohere more strongly. The new stylized facts that we discover should prove fertile ground for the development of a new generation of macroeconomic models with a prominent role for financial factors.
    JEL: E01 E13 E30 E32 E44 E51 F42 F44 G12
    Date: 2016–10–12
  3. By: Vladimir Asriyan; Luca Fornaro; Alberto Martin; Jaume Ventura
    Abstract: We propose a model of money, credit and bubbles, and use it to study the role of monetary policy in managing asset bubbles. In this model, bubbles pop up and burst, generating fluctuations in credit, investment and output. Two key insights emerge from the analysis. First, the growth rate of bubbles, which is driven by agents' expectations, can be set in real or in nominal terms. This gives rise to a novel channel of monetary policy, as changes in the in ation rate affect the real growth rate of bubbles and their effect on economic activity. Crucially, this channel does not rely on contract incompleteness or price rigidities. Second, there is a natural limit on monetary policy's ability to control bubbles: the zero-lower bound. When a bubble crashes, the economy may enter into a liquidity trap, a regime in which agents shift their portfolios away from bubbles - and the credit that they sustain - to money, reducing intermediation, investment and growth. We explore the implications of the model for the conduct of "conventional" and "unconventional" monetary policy, and we use the model to provide a broad interpretation of salient macroeconomic facts of the last two decades.
    Keywords: bubbles, monetary policy, liquidity traps, financial frictions.
    JEL: E32 E44 O40
    Date: 2016–07
  4. By: Pao-Lin Tien (Bureau of Economic Analysis); Tara M. Sinclair (The George Washington University); Edward N. Gamber (Congressional Budget Office)
    Abstract: There is a large literature evaluating the forecasts of the Federal Reserve by testing their rationality and measuring the size of their forecast errors. There is also a substantial literature and debate on the impact of the Fed’s monetary policy on the economy. We know little, however about the impact of the Fed’s forecast errors on economic outcomes. This paper constructs a measure of a forecast error shock for the Federal Reserve based on the assumption that the Fed follows a forward-looking Taylor rule. Given the effort the Fed puts towards producing forecasts that do not have an endogenous error component, we treat the Fed’s forecast errors as a shock, analogous to a monetary policy shock. Our shock, however, is different in that it is completely unintended by the monetary authority rather than simply unanticipated by the public. We follow Romer and Romer (2004) and investigate the effect of the forecast error shock on output and price movements. Our results suggest that although the absolute magnitude of the forecast error shock is large, the impact of the shock on the macroeconomy is quite small. This finding is robust across a range of different specifications. The maximum impact suggests a decline of less than 0.3 percent of real GDP and less than 0.4 percent of GDP deflator in response to a 100 basis point contractionary forecast error shock.
    Keywords: Federal Reserve, Taylor rule, forecast evaluation, monetary policy shocks
    JEL: E32 E31 E52 E58
    Date: 2016–09
  5. By: Rafi Melnick; Till Strohsal;
    Abstract: A Phillips Curve (PC) framework is utilized to study the challenging post-1985 disinflation process in Israel. The estimated PC is stable and has forecasting power. Based on endogenous structural break tests we find that actual and expected inflation are co-breaking. We argue that the step-like development of inflation is in line with shocks and monetary policy that changed inflationary expectations. The disinflation process was long, and a long-term commitment by both the Central Bank and the government was required. Credibility was achieved gradually and the transition from the last step of 10% to 2% inflation was accomplished by introducing an inflation targeting regime.
    Keywords: Phillips Curve, Expected Inflation, Opportunistic Disinflation, Multiple Breakpoint Tests, Inflation Targeting
    JEL: E31 E52 E58 C22
    Date: 2016–10
  6. By: Luca Fornaro
    Abstract: This paper provides a framework to understand debt deleveraging in a group of financially integrated countries. During an episode of international deleveraging, world consumption demand is depressed and the world interest rate is low, reflecting a high propensity to save. If exchange rates are allowed to oat, deleveraging countries can rely on depreciations to increase production and mitigate the fall in consumption associated with debt reduction. The key insight of the paper is that in a monetary union this channel of adjustment is shut o , because deleveraging countries cannot depreciate against the other countries in the monetary union, and therefore the fall in the demand for consumption and the downward pressure on the interest rate are amplified. As a result, deleveraging in a monetary union can generate a liquidity trap and an aggregate recession.
    Keywords: global debt deleveraging, Sudden Stops, liquidity trap, Monetary Union, precautionay savings, debt deflation
    JEL: E31 E44 E52 F32 F34 F41 G01 G15
    Date: 2016–10
  7. By: Simona Malovana (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic); Jan Frait (University of Finance and Administration, Prague, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic)
    Abstract: This paper sheds some light on situations in which monetary and macroprudential policies may interact (and potentially get into conflict) and contributes to the discussion about the coordination of those policies. Using data for the Czech Republic and five euro area countries we show that monetary tightening has a negative impact on the credit-to-GDP ratio and the non-risk-weighted bank capital ratio (i.e. a positive impact on bank leverage), while these effects have strengthened considerably since mid-2011. This supports the view that accommodative monetary policy contributes to a build-up of financial vulnerabilities, i.e. it boosts the credit cycle. On the other hand, the effect of the higher bank capital ratio is associated with some degree of uncertainty. For these and other reasons, coordination of the two policies is necessary to avoid an undesirable policy mix preventing effective achievement of the main objectives in the two policy areas.
    Keywords: Bayesian estimation, financial stability, macroprudential policy, monetary policy, time-varying panel VAR model
    JEL: E52 E58 E61 G12 G18
    Date: 2016–09
  8. By: António Afonso; João Tovar Jalles
    Abstract: We study the fiscal consequences of deflation on a panel of 17 economies in the first wave of globalization, between 1870 and 1914. By means of impulse response analyses and panel regressions, we find that a 1 percent fall in the price level leads to an increase in the public debt ratio of about 0.23- 0.32 pp. and accounting for trade openness, monetary policy and the exchange rate raises the absolute value of the coefficient on deflation. Moreover, the public debt ratio increases when deflation is also associated with a period of economic recession. For government revenue, lagged deflation comes out with a statistically significant negative coefficient, while government primary expenditure seems relatively invariant to changes in prices. Key Words : debt, deflation, local projection, impulse response functions, GMM, recessions, expansions
    JEL: C33 E31 E50 E62
    Date: 2016–10
  9. By: Oguzhan Ozcelebi (Istanbul University); Metin Duyar (Nevsehir Hacı Bektas Veli University)
    Abstract: Central banks which are responsible for minting and monetary policy implementations are the institutions carry out sensitive policies for the healthy functioning of the economy. Policies implemented by central banks and its existing institutional structures cannot be dissociated from the political and social development of the country they live in, and the whole of economic policy. In recent years, with increasing pace of globalization, the mobility of international financial markets increased and this effect has extended the decisions of the central bank from national markets to international markets. In this study, we studied the possible impacts of changes in the share of gold in central banks’ reserves on gold prices proving empirical evidence from the USA, the Euro area, China and Russia. According to Causality and Forecast Error Variance Decomposition analysis deriving from VEC model, reserve polices of central banks of these countries has considerable effects on variations in gold price in the long-term. Empirical findings reveal the importance of the size of balance sheet of central banks, while it is also stressed that growth potential of economies and investment opportunities are crucial issues in terms storing reserves in terms of gold.
    Keywords: Dynamics of Gold Prices, Central Banks, the USA, the Euro area, China and Russia
    JEL: E44 E58 F30
  10. By: Kudlyak, Marianna (Federal Reserve Bank of San Francisco); Sanchez, Juan M. (Federal Reserve Bank of St. Louis)
    Abstract: Gertler and Gilchrist (1994) provide evidence for the prevailing view that adverse shocks are propagated via credit constraints of small firms. We revisit the behavior of small versus large firms during the episodes of credit disruption and recessions in the sample extended to cover the 2007-09 economic crisis. We find that large firms’ short-term debt and sales contracted relatively more than those of small firms during the 2007-09 episode. Furthermore, the short-term debt of large firms also contracted relatively more in the previous tight money episodes if one takes into account the longer period that it takes for large firms’ debt to reach its post-shock trough. Our findings challenge the view that propagation of shocks in the economy takes place via credit constraints of small firms.
    JEL: E32 E51 E52
    Date: 2016–10–12
  11. By: Kühl, Michael
    Abstract: This paper investigates how government bond purchases affect leverage-constrained banks and non-financial firms by utilising a stochastic general equilibrium model. My results indicate that government bond purchases not only reduce non-financial firms' borrowing costs, amplified through a reduction in expected defaults, but also lower banks' profit margins. In an economy in which loans priced at par dominate in banks' balance sheets - as a reflection of the euro area's structure - the leverage constraint of non-financial firms is relaxed while that of banks tightens. I show that the leverage constraint in the non-financial sector plays an essential role in transmitting the impulses of government bond purchases to the real economy.
    Keywords: DSGE Model,Financial Frictions,Banking Sector,Portfolio Rebalancing Channel,Government Bond Purchases
    JEL: E44 E58 E61
    Date: 2016
  12. By: Oliver Röhn
    Abstract: The global financial crisis and its high economic and social costs have revived academic and policy interest in “early warning indicators” of crises. This paper aims to investigate the performance of vulnerability indicators as advance warning indicators of past severe GDP per capita recessions in Turkey. It draws on the recently established database of vulnerability indicators (Röhn et al., 2015) and employs the signalling approach as in Hermansen and Röhn (2015) complemented by visual inspections to detect vulnerability indicators that performed particularly well in the Turkish context. The evidence suggests that an index of the global stock market performs extremely well in the Turkish context. This index, which could be interpreted as a proxy for the risk appetite of global investors, exceeded its critical threshold before almost all past severe GDP per capita recessions in Turkey while sending only very few false alarms. Among domestic indicators, large positive deviations of household credit and the domestic stock market from trend also perform relatively well in signalling subsequent past severe GDP per capita recessions. The evidence is broadly robust to considering a more homogenous set of lower income OECD countries when defining the critical thresholds. Indicateurs d'alerte des récessions sévères passées en Turquie La crise financière mondiale et ses coûts économiques et sociaux élevés ont ravivé l'intérêt académique et politique pour les « indicateurs d'alerte rapide » des crises. Ce document vise à étudier la performance des indicateurs de vulnérabilité comme indicateurs d'alerte des récessions sévères passées en Turquie. Il se fonde sur un nouvel ensemble d'indicateurs de vulnérabilité récemment établi (Röhn et al., 2015), et emploie la méthode de signalisation utilisée dans Hermansen et Röhn (2015), complétée par des inspections visuelles pour détecter des indicateurs de vulnérabilité ayant particulièrement bien fonctionné dans le contexte turc. Les résultats indiquent que l'indice du marché boursier mondial performe extrêmement bien dans le cas turc. Cet indice, qui pourrait être interprété comme un proxy de l'appétit pour le risque des investisseurs mondiaux, a dépassé son seuil critique avant presque toutes les récessions sévères passées en Turquie. Il a envoyé très peu de fausses alarmes. Parmi les indicateurs intérieurs, de grands écarts positifs des crédits aux ménages, et du marché boursier par rapport aux tendances fonctionnent aussi relativement bien. Les résultats sont dans l’ensemble robustes à la considération d’un ensemble plus homogène de pays à faible revenu de l'OCDE dans la définition des seuils critiques.
    Keywords: resilience, imbalances, recession, crisis
    JEL: E32 E44 E51 F47 O5
    Date: 2016–10–11
  13. By: Efrem Castelnuovo (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; Department of Economics, The University of Melbourne; and Department of Economics and Management, University of Padova)
    Abstract: Cholesky-VAR impulse responses estimated with post-1984 U.S. data predict modest macroeconomic reactions to monetary policy shocks. We interpret this evidence by employing an estimated medium-scale DSGE model of the business cycle as a DataGenerating Process in a Monte Carlo exercise in which a Cholesky-VAR econometrician is asked to estimate the effects of an unexpected, temporary increase in the policy rate. Our structural DSGE model predicts conventional macroeconomic reactions to a policy shock. In contrast, our Monte Carlo VAR results replicate our evidence obtained with actual U.S. data. Hence, modest macroeconomic effects may very well be an artifact of Cholesky-VARs. A combination of supply and demand shocks may be behind the inability of Cholesky-VARs to replicate the actual macroeconomic responses. The difference in the VAR responses obtained with Great Inflation vs. Great Moderation data may be due to instabilities in the parameters related to households’ and firms’ programs, more than to a more aggressive systematic monetary policy. A Monte Carlo assessment of sign restrictions as an alternative identification strategy is also proposed.
    Keywords: Monetary policy shocks, Cholesky identification, VARs, Dynamic Stochastic General Equilibrium models, Monte Carlo simulations
    JEL: C3 E3
    Date: 2016–10
  14. By: Alan Blindera; Michael Ehrmann; Jakob de Haan; David-Jan Jansen
    Abstract: We ask whether recent changes in monetary policy due to the financial crisis will be temporary or permanent. We present evidence from two surveys-one of central bank governors, the other of academic specialists. We find that central banks in crisis countries are more likely to have resorted to new policies, to have had discussions about mandates, and to have communicated more. But the thinking has changed more broadly-for instance, central banks in non-crisis countries also report having implemented macro-prudential measures. Overall, we expect central banks in the future to have broader mandates, use macro-prudential tools more widely, and communicate more actively than before the crisis. While there is no consensus yet about the usefulness of unconventional monetary policies, we expect most of them will remain in central banks' toolkits, as governors who gain experience with a particular tool are more likely to assess thattool positively. Finally, the relationship between central banks and their governments might well have changed, with central banks "crossing the line" nmore often than in the past.
    Keywords: monetary policy; central banks; surveys
    JEL: E52 E58
    Date: 2016–10
  15. By: Mossfeldt, Marcus (National Institute of Economic Research); Stockhammar, Pär (National Institute of Economic Research)
    Abstract: In this paper, we make use of a Bayesian VAR (BVAR) model to con-duct an out-of-sample forecast exercise for goods and services inflation in Sweden. Our interest in goods and services prices stems from the fact that they make up over 70 per cent of the CPI index and that they are more directly affected by the macroeconomic development than other parts of the CPI. We find that the BVAR models generally outperform both univariate models for goods and services inflation, as well as forecasts made by the National Institute of Economic Research in Sweden. This might indicate that Faust and Wright’s (2013) rather negative conclusion that inflation models cannot beat judgmental forecasts and inflation expectations might be wrong, at least in the case of Sweden.
    Keywords: Bayesian VAR; Inflation; Out-of-sample forecasting precision
    JEL: C53 E31
    Date: 2016–10–12
  16. By: Coen N. Teulings (Centre for Macroeconomics (CFM); University of Cambridge)
    Abstract: It is well known that rational bubbles can be sustained in balanced growth path of a deterministic economy when the return to capital r is equal to the growth rate g. When there is a lack of stores of value, bubles can implement an efficient allocation. This paper considers a world where r fluctuates over time due to shocks to the marginal productivity of capitol. Then, bubbles further efficiency, though they cannot implement first best. While bubbles can only be sustained when r = g in a deterministic economy, r > g "on average" in a schotastic economy. Fiscal policy improves welfare by adding an extra asset. Where only the elderly contribute to shifting resources between investment and consumption in a bubble economy, fiscal policy allows part of that burden to be shifted to the young. Contrary to common wisdom, trade in bubbly assets implements intergenerational transfers, while fiscal policy implements intragenerational transfers. Hence, while bubbles and fiscal policy are perfect substitutes in the deterministic economy, fiscal policy dominates bubbles in a stochastic economy. For plausible parameter values, a higher degree of dynamic inefficiency should lead to a higher soverign debt.
    Keywords: Rational bubbles, Fiscal policy, Secular stagnation
    JEL: E44 E62
    Date: 2016–07
  17. By: Dong-Yop Oh (Department of Information Systems, University of Texas Rio Grande Valley); Hyejin Lee (Department of Information Systems, University of Texas Rio Grande Valley); Karl David Boulware (Department of Economics, Wesleyan University)
    Abstract: We investigate the long-run pass through of the federal funds rate to the prime rate from February 1987 to February 2015. Unlike previous studies that rely on conventional cointegration tests, this study employs cointegration tests based on the “residual augmented least squares” (RALS). The RALS cointegration tests have been shown to gain power when using a linear model in the presence of non-normal errors. The results indicate a significant cointegrating relation between the federal funds rate and the prime rate with incomplete interest rate pass through.
    Keywords: ATT/WTO, Monetary policy, interest rate pass through, cointegration analysis, non-normal errors, RALS
    JEL: E52 E43 E58 C12 C22
    Date: 2016–09
  18. By: Shaofeng Xu
    Abstract: This paper examines the relationship between volatility shocks and preference shocks in an analytically tractable endogenous growth model with recursive preferences and stochastic volatility. I show that there exists an explicit mapping between volatility shocks and preference shocks, and a rise in volatility generates the same impulse responses of macroeconomic aggregates as a negative preference shock.
    Keywords: Business fluctuations and cycles, Economic models
    JEL: E2 E3
    Date: 2016
  19. By: Dahem, Ahlem
    Abstract: In order to explain clearly inflation forecasting and the dynamic of Tunisian prices, this paper uses two econometric approaches, the Standard VAR and Bayesian VAR (BVAR), to assess three models for predicting inflation, the mark-up model, the monetary model and Phillips curve over the period 1990 Q1 – 2013 Q4. In order to compare predictions, an out-of-sample estimation was conducted. We used the structural break test of Bai & Perron (1998, 2003) and the RMSE criterion for both inflation indices: CPI and PPI. We found that the Bayesian VECM mark-up model is best suited to forecast inflation for Tunisia. Our conclusions corroborate the literature of Bayesian VAR forecasting. Our findings indicate that the models which incorporate more economic information outperform the benchmark autoregressive models (AR (1) and AR (2)). The results reveal that forecasting with the BVECM markup model leads to a reduction in forecasting error compared to the other models. The results of the study are relevant to decision-makers to predict inflation in the short- and long-terms in Tunisia and may help them adopt the appropriate strategies to contain inflation.
    Keywords: Bayesian VAR - Bayesian VECM - Inflation forecasting - Mark-up Model - Monetary Model - Phillips Curve
    JEL: C11 C51 C53 E31 E37
    Date: 2015–09–01
  20. By: Maarten de Ridder (Centre for Macroeconomics (CFM); University of Cambridge)
    Abstract: This paper analyzes the channels through which financial crises exert long-term negative effects on output. Recent models suggest that a shortfall in productivity-enhancing investments temporarily slows technological progress, creating a gap between pre-crisis trend and actual GDP. This hypothesis is tested using a linked lender-borrower dataset on 519 U.S. corporations responsible for 54% of industrial research and development. Exploiting quasi-experimental variation in firm-level exposure to the 2008-9 financial crisis, I show that tight credit reduced investments in productivity-enhancement, and has significantly slowed down output growth between 2010 and 2015. A partial-equilibrium aggregation excercise suggests output would be 12% higher today if productivity-enhancing investments had grown at pre-crisis rates.
    Keywords: Financial crises, Endogenous growth, Innovation, Business cycles
    JEL: E32 E44 O30 O47
    Date: 2016–09
  21. By: Faryna, Oleksandr
    Abstract: ​This paper studies exchange rate pass-through to consumer prices in Ukraine and Russia considering cross-country linkage and spillover effects. We relax the assumption of “isolated islands” and employ a bilateral panel VAR (BPVAR) approach to estimate a pass-through effect from the ruble to hryvnia exchange rate (UAH/RUB) movements, taking into account cross-unit hetero-geneities as well as dynamic and static interdependencies. We then compare BPVAR estimates with those from individual VAR models and find that, while results for Russia do not change significantly, spillover effects are identified for Ukraine. In particular, ruble depreciation (e.g. hryvnia appreciation) results in increasing Ukrainian prices instead of declining as suggested by individual VAR analysis. We also estimate alternative BPVAR including hryvnia and ruble ex-change rates with respect to the US dollar and find that prices in Ukraine respond to changes in USD/RUB to a larger extent than to UAH/USD.
    Keywords: exchange rate pass-through, Ukraine, Russia, spillovers, bilateral panel VAR
    JEL: E31 E52 E58
    Date: 2016–10–06
  22. By: Alessi, Lucia; Kerssenfischer, Mark
    Abstract: Mainstream macroeconomic theory predicts a rapid response of asset prices to monetary policy shocks, which conventional empirical models are unable to reproduce. We argue that this is due to a deficient information set: Forward-looking economic agents observe vastly more information than the handful of variables included in standard VAR models. Thus, small-scale VARs are likely to suffer from nonfundamentalness and yield biased results. We tackle this problem by estimating a Structural Factor Model for a large euro area dataset. We find quicker and larger effects of monetary policy shocks, consistent with mainstream theory and the observed large swings in asset prices. Our results point to stronger financial stability consequences of an exogenous monetary policy tightening, also in the form of a quicker than expected unwinding of QE, than commonly thought. JEL Classification: C32, E43, E44, E52
    Keywords: Asset Prices, Monetary Policy, Nonfundamentalness., Structural Factor Models
    Date: 2016–09
  23. By: Javier J. Pérez (Banco de España); Marie Aouriri (Banque de France); Maria M. Campos (Banco de Portugal); Dmitrij Celov (Bank of Lithuania); Domenico Depalo (Banca d’Italia); Evangelia Papapetrou (Bank of Greece); Jurga Pesliakaite (Bank of Lithuania); Roberto Ramos Magdaleno (Banco de España); Marta Rodríguez-Vives (European Central Bank)
    Abstract: This paper examines the overall macroeconomic impact arising from reform in government wages and employment, at times of fiscal consolidation. Reform of these two components of the government wage bill appeared necessary for containing the deterioration of the public finances in several EU countries, as a consequence of the financial crisis. Such reforms entailed in some instances, but not always, the implementation of cost cutting measures affecting the government wage bill, as part of broader consolidation packages that typically hinged more heavily on other fiscal instruments, like public investment. While such measures have adverse short-term macroeconomic effects, public wage bill restraining policy changes present the idiosyncrasy that they can yield medium- to longer-term benefits due to possible competitiveness and efficiency gains through their impact on labour market dynamics. This paper provides some evidence of such medium- to long-run effects, based on a wealth of micro and macro data in the euro area and the EU. It concludes that appropriately designed government wage bill moderation could indeed produce positive dividends to the economy, which depend on certain country-specific conditions. These gains can be reinforced by relevant fiscal-structural reforms.
    Keywords: public employment, public wages, labour market, fiscal policies, fiscal consolidation
    JEL: H50 E62 J45
    Date: 2016–10
  24. By: Shantanu Bagchi (Towson University)
    Abstract: I examine if the positive correlation between wealth and survivorship has any implications for the progressivity of Social Security’s current benefit-earnings rule. Using a general-equilibrium macroeconomic model calibrated to the U.S. economy, I show that the optimal benefit-earnings link for Social Security is largely insensitive to wealth-dependent mortality risk. This is because while a more progressive benefit-earnings rule provides increased insurance for households with relatively unfavorable earnings histories, and therefore lower savings and survivorship, their relatively high mortality risk heavily discounts the utility from old-age consumption. I find that these two effects roughly offset each other, yielding nearly identical optimal benefit-earnings rules both with and without differential mortality.
    Keywords: differential mortality, Social Security, mortality risk, labor income risk, incomplete markets, social insurance; general equilibrium
    JEL: E21 E62 H55
    Date: 2016–09
  25. By: de Ridder, M.
    Abstract: This paper analyzes the channels through which financial crises exert long-term negative effects on output. Recent models suggest that a shortfall in productivity-enhancing investments temporarily slows technological progress, creating a gap between pre-crisis trend and actual GDP. This hypothesis is tested using a linked lender-borrower dataset on 519 U.S. corporations responsible for 54% of industrial research and development. Exploiting quasi-experimental variation in firm-level exposure to the 2008-9 financial crisis, I show that tight credit reduced investments in productivity-enhancement, and has significantly slowed down output growth between 2010 and 2015. A partial-equilibrium aggregation exercise suggests output would be 12% higher today if productivity-enhancing investments had grown at pre-crisis rates.
    Keywords: Financial Crises, Endogenous Growth, Innovation, Business Cycles
    JEL: E32 E44 O30 O47
    Date: 2016–10–05
  26. By: Lenno Uusküla
    Abstract: An expansionary monetary policy shock increases the entry rate and the number of firms in the US. A pure sticky price model predicts that the number of firms in the economy should go down after a monetary expansion, but this prediction is at odds with the empirical findings. In marked contrast, the cost channel mechanism generates an increase in the number of firms that is consistent with the data. A key insight is that the greater price stickiness is, the stronger the cost channel needs to be to generate firm dynamics that are consistent with the data.
    Keywords: monetary transmission, cost channel, sticky prices, firm turnover
    JEL: E32 C32
    Date: 2016–10–10
  27. By: Edward N. Gamber (Congressional Budget Office); Julie K. Smith (Lafayette College)
    Abstract: Most papers examining the measurement of core inflation, such as the weighted median, have focused on cross-section information in the disaggregated inflation data. This paper improves on the literature by introducing new measures, based on a definition of core inflation as the best predictor of future inflation that exploits the time-series information in the disaggregated inflation data. Exploiting the time-series information in disaggregated or component inflation data produces better forecasts. Additionally, the best new measure comes from jointly estimating the optimal weights instead of imposing weights based on the persistence of the components or the underlying factors estimated by principal components.
    Keywords: Core inflation, inflation, forecasting, disaggregated components, principal components
    JEL: E31 E37
    Date: 2016–09
  28. By: Emanuele Bacchiocchi (Department of Economics, Business and Quantitative Methods (DEMM), University of Milan); Efrem Castelnuovo (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; Department of Economics, The University of Melbourne; and Department of Economics and Management, University of Padova); Luca Fanelli (Department of Statistical Sciences, School of Economics, Management and Statistics, University of Bologna)
    Abstract: We employ a non-recursive identification scheme to identify the effects of a monetary policy shock in a Structural Vector Autoregressive (SVARs) model for the U.S. post-WWII quarterly data. The identification of the shock is achieved via heteroskedasticity, and different on-impact macroeconomic responses are allowed for (but not imposed) in each volatility regime. We show that the impulse responses obtained with the suggested non-recursive identification scheme are quite similar to those conditional on a recursive VAR estimated with pre-1984 data. In contrast, recursive vs. non-recursive identification schemes return different short-run responses of output and investment during the Great Moderation. Robustness checks dealing with a different definition of investment, an alternative breakpoint, and federal funds futures rates as an indicator of the monetary policy stance are documented and discussed.
    Keywords: Structural break, recursive and non-recursive VARs, identification, monetary policy shocks, impulse responses
    JEL: C32 C50 E52
    Date: 2016–10
  29. By: Svensson, Roger (The Research Institute of Industrial Economics); Westermark, Andreas (Research Department, Central Bank of Sweden)
    Abstract: Gesell taxes on money holdings have received attention in recent decades as a way of alleviating the zero lower bound on interest rates. Less known is that such a tax was the predominant method used to generate seigniorage in large parts of medieval Europe for around two centuries. When the Gesell tax was levied, current coins ceased to be legal tender and had to be exchanged into new coins for a fee - an institution known as renovatio monetae or periodic re-coinage. This could occur as often as twice a year. Using a cash-in-advance model, we analyze under which conditions agents prefer to re-mint their coins and the system generates tax revenues. We also analyze how prices fluctuate over an issue period.
    Keywords: Seigniorage; Gesell tax; periodic re-coinage; cash-in-advance model
    JEL: E31 E42 E52 N13
    Date: 2016–07–01
  30. By: Vladimir Arčabić (Faculty of Economics and Business, University of Zagreb); Tomislav Globan (Faculty of Economics and Business, University of Zagreb); Ozana Nadoveza (Faculty of Economics and Business, University of Zagreb); Lucija Rogić Dumančić (Faculty of Economics and Business, University of Zagreb); Josip Tica (Faculty of Economics and Business, University of Zagreb)
    Abstract: The paper compares theoretical impulse response functions from a DSGE model for a small open economy with an empirical five variable VAR model estimated for the Croatian economy. In the paper we analyse the impact of productivity shock on the selected macroeconomic variables: domestic output gap, nominal interest rate, CPI inflation and terms of trade. The impulse responses from the empirical VAR model do not resemble those from the theoretical one for all the variables in any proposed monetary regimes. Results of modelling simultaneous interrelationships between variables also support the results that the productivity shocks do not play a significant role in determining the variation of selected macroeconomic variables in the case of the Croatian economy.
    Keywords: DSGE, productivity shocks, small open economy, exchange rate, Croatia
    JEL: D24 E32 F41
    Date: 2016–09–21
  31. By: Koji Nakamura (Bank of Japan); Ko Miura (Bank of Japan); Toshitaka Maruyama (Bank of Japan)
    Abstract: In this paper, we explain improvements of the release contents and revisions of the compilation methodology of the Consumption Activity Index (CAI). Regarding improvements of the release contents, first, we will provide the CAI (adjusting travel balance) one month earlier than the current release schedule by using the immigration statistics. Second, the levels and contributions of the real CAI components (durable goods, non-durable goods, and services) will be released on a monthly basis. Regarding the revisions of the compilation methodology, first, we will change the weight of life insurance expenditure. Second, we will use a new data source for electricity consumption as existing data source is no longer available. These revisions have enabled us to improve the overall performance of the CAI by further increasing its correlation with consumption trends in the Annual Report on National Accounts (ARNA), while maintaining its small short-term fluctuations and high correlations with various confidence indicators.
    Keywords: private consumption; business cycles
    JEL: E21 E32
    Date: 2016–10–07
  32. By: G. Cette; J. Lopez; J. Mairesse
    Abstract: On the basis of a country*industry unbalanced panel data sample for 14 OECD countries and 18 industries covering the years 1988 to 2007, this study proposes an econometric investigation of the effects of the OECD Employment Protection Legislation (EPL) indicator on four components of total capital and for two skill components of total labor. Relying on a difference-in-difference econometric approach, we find that an increase in EPL has (i) positive and significant effects on the non-ICT capital - labor ratio and the share of high-skill labor; (ii) non-significant effects on the ICT capital – labor ratio; (iii) negative and significant effects for R&D capital – labor ratio and the share of low-skilled labor. These results suggest that firms consider that the strengthening of Employment Protection Legislation is equivalent to a rise in the cost of labour, resulting in capital-to-labour substitution in favour of non-ICT capital and working at the disadvantage of low-skill relatively to high-skill workers. They indicate to the contrary that structural reforms for more labour flexibility weakening this legislation could have a favourable impact on firms’ R&D investment and their hiring of low-skill workers.
    Keywords: Capital intensity, labour market regulations, factor substitution, R&D capital.
    JEL: E22 E24 O30 L50 O43 O47 C23
    Date: 2016
  33. By: Sajedi, Rana (Bank of England)
    Abstract: Given the weak economic performance of many countries since the recent crisis, there is an increasing need for structural reforms aimed at promoting long-run economic growth. Structural reforms can entail short-run output costs unless offset by a demand expansion. When monetary policy is constrained and cannot carry out this short-run expansion, there is a potential role for fiscal policy. In this case, reforms can go against fiscal consolidation in the short run, although they are expected to improve public finances in the long run. The aim of this paper is to quantify the short-run fiscal costs and long-run fiscal benefits of reforms, and investigate how the design of reforms can affect this trade-off. The focus is on the euro area, which has been particularly affected by high unemployment. In the model, both the costs and benefits of reforms are generally small, although increasingly large reforms entail larger rises in deficit-to-GDP in the short run. Results suggest that reforms in labour markets have little effect on public finances in the long run, but their short-run costs can be ameliorated by combining them with product market reforms.
    Keywords: Structural reform; fiscal policy; effective lower bound
    JEL: E65 H20 H63
    Date: 2016–10–07
  34. By: Altavilla, Carlo; Pagano, Marco; Simonelli, Saverio
    Abstract: Using novel monthly data for 226 euro-area banks from 2007 to 2015, we investigate the determinants of changes in banks' sovereign exposures and their effects during and after the crisis. First, public, bailed out and poorly capitalized banks responded to sovereign stress by purchasing domestic public debt more than other banks, with public banks' purchases growing especially in coincidence with the largest ECB liquidity injections. Second, bank exposures significantly amplified the transmission of risk from the sovereign and its impact on lending. This amplification of the impact on lending does not appear to arise from spurious correlation or reverse causality.
    Keywords: sovereign exposures,sovereign risk,bank lending,credit risk,euro,crisis
    JEL: E44 F3 G01 G21 H63
    Date: 2016
  35. By: SK, Shanthi; Nangia, Vinay Kumar; Sircar, Sanjoy; Reddy, Kotapati Srinivasa
    Abstract: Purpose: The purpose of this special issue is to gain a deeper understanding of banking regulatory practices in emerging markets in the light of the financial crisis of 2007-08. The crisis necessitated countries to adopt macro-prudential policies in the current environment of globalized capital flows. The interconnectedness of financial institutions occurs not only across the world but also across a plethora of financial markets. Design/Methodology/Approach: The papers in this volume have a focused approach that addresses issues relating to the banking sector. The papers explore diverse issues such as the link between increased competition and the performance efficiency, application of macro prudential norms in credit growth and its relation thereof with the ownership pattern of banks, co-ordination between regulations and compensation in the event of bank failure and risk based regulation. All the papers are country specific and they take in India, Hong Kong and Nigeria.They will contribute to a better understanding of the various issues and will be of great use to academics for further research and for practitioners in new policy initiatives in the area of banking reform and regulation.
    Keywords: Emerging markets; Banking regulations; Financial markets laws; Global financial crisis; Policy development
    JEL: E5 E58 E6 G1
    Date: 2015
  36. By: Marcus Hagedorn (Universitetet i Oslo)
    Abstract: In this paper I propose a theory of a globally unique price level based on the simple idea that the price equates demand with supply in the goods market. Monetary policy through setting nominal interest rates, e.g. an interest rate peg, and fiscal policy, which satisfies the present value budget constraint at all times, jointly determine the price level. In contrast to the conventional view the long run inflation rate is, in the absence of output growth, equal to the growth rate of nominal government spending which is controlled by fiscal policy. This new theory where nominal government spending anchors aggregate demand and therefore current and future prices suggests a different perspective on the fiscal and monetary transmission mechanism, on policy coordination, on policies at the zero-lower bound and on U.S. inflation history.
    Date: 2016
  37. By: Minju Jeong (Seoul National University)
    Abstract: This paper investigates the effects of government consumption shocks on various key macro variables for China, Korea and Japan, by using a structural VAR model. The main empirical findings are as follows. First, government spending multipliers of all three countries are far larger than 1 in recent years. The government spending multiplier is larger in China than in Korea and Japan. The effectiveness of fiscal expansion has not been changed in China, but substantially changed in Korea (after Asian financial crisis) and Japan. Second, the effects on exchange rate and trade balance are different across countries. Interestingly, real exchange rate depreciates and trade balance improve more under more flexible exchange rate regime. Some empirical findings are consistent with the standard theory but others are not.
    Keywords: Structural VAR, government consumption shocks, Fiscal Multiplier, Real Exchange Rate, Current Account, China, Japan, Korea
    JEL: C32 E62 F41
  38. By: Greene, Claire (Federal Reserve Bank of Boston); Schuh, Scott (Federal Reserve Bank of Boston); Stavins, Joanna (Federal Reserve Bank of Boston)
    Abstract: In 2014, the average number of U.S. consumer payments per consumer per month decreased to 66.1, in a statistically insignificant decline from 67.9 in 2013. The number of payments made by paper check continued to decline, falling by 0.7 to 5.0 checks per month, while the number of electronic payments (online banking bill payments, bank account number payments, and deductions from income) increased by 0.6 to 6.9 of these payments per month. The monthly shares of debit cards (31.1 percent), cash (25.6 percent), and credit cards (23.3 percent) continued to be largest; while the share of electronic payments rose a significant 1.2 percentage points to 10.5 percent. Consumers’ average cash holdings dropped by about 10 percent to $207 in 2014. The number of cash withdrawals made by consumers per month also declined by about one withdrawal per month to 5.6. There was no significant change in cash use, however. About half of 1 percent of U.S. consumers held bitcoin or other virtual currencies. The 2014 SCPC includes a formal measure of “underbanked” consumers for the first time.
    Keywords: cash; checks; checking accounts; debit cards; credit cards; prepaid cards; electronic payments; payment preferences; unbanked; Survey of Consumer Payment Choice
    JEL: D12 D14 E42
    Date: 2016–08–15
  39. By: Coibion, Olivier (University of Texas at Austin); Gorodnichenko, Yuriy (UC Berkeley); Kudlyak, Marianna (Federal Reserve Bank of San Francisco); Mondragon, John (Federal Reserve Bank of San Francisco)
    Abstract: Using household-level debt data over 2000-2012 and local variation in inequality, we show that low-income households in high-inequality regions (zip-codes, counties, states) accumulated less debt (relative to their income) than low-income households in lower-inequality regions, contrary to the prevailing view. Furthermore, the price of credit is higher and access to credit is harder for low-income households in high-inequality versus low-inequality regions. Lower quantities combined with higher prices suggest that the debt accumulation pattern by household income across areas with different inequality is a result of credit supply rather than credit demand. We propose a lending model to illustrate the mechanism.
    JEL: D14 E21 E51 G21
    Date: 2016–10–11
  40. By: Francisco Martí (Banco de España); Javier J. Pérez (Banco de España)
    Abstract: Spain’s public finances have been under significant stress during the crisis, despite pre-crisis fiscal surpluses and low levels of public debt. The impact of the crisis and an initial phase of counter-cyclical activism exacerbated the existing (structural) fiscal vulnerabilities. To correct the fiscal imbalances, a significant number of bold policy actions were taken, affecting taxation, public spending, national fiscal rules and the structure of the public sector. In this paper we discuss the evolution of public finances in Spain during the financial crisis, framing crisis-related fiscal policy measures within medium-term economic trends and focusing on policy responses to the financial crisis. We also touch upon the main policy challenges ahead.
    Keywords: fiscal policy, Great Recession, public deficit, public debt, Spanish economy
    JEL: E60 H12 H50 H60
    Date: 2016–10
  41. By: Hornstein, Andreas (Federal Reserve Bank of Richmond); Kudlyak, Marianna (Federal Reserve Bank of San Francisco)
    Abstract: We introduce a simple representation of endogenous search effort into the standard matching function with job-seeker heterogeneity. Using the estimated augmented matching function, we study the sources of changes in the average employment transition rate. In the standard matching function the contribution of market tightness (matching efficiency) is increasing (decreasing) in the matching function elasticity. For our augmented matching function search effort is pro-cyclical for small matching elasticity and accounts for most of the transition rate volatility, with small contributions from market tightness and matching efficiency. For a large matching elasticity search effort is strongly counter-cyclical and large movements in matching efficiency compensate for that. Regardless of the matching elasticity, we find a substantial decline of the matching efficiency after 2007.
    JEL: E24 J63 J64
    Date: 2016–10–12
  42. By: Joaquín Viloria De La Hoz
    Abstract: En este documento se analiza la incidencia del Banco de la República en las actividades económicas y empresariales del Caribe colombiano entre las décadas de 1920 y 1950. En específico, se estudian los ciclos de la economía local, las crisis bancarias, así como la dinámica demográfica de Barranquilla, Cartagena y Santa Marta. También se tiene como objetivo conocer el sistema financiero local y, dentro de éste, los cupos de crédito y redescuento otorgados a los empresarios por el banco emisor. Además, se analiza la administración fiduciaria ejercida por el Banco de la República sobre los bienes de alemanes, italianos y japoneses radicados en la Costa Caribe durante la Segunda Guerra Mundial. En síntesis, este documento hace un aporte al estudio comparativo de las actividades económicas y empresariales de las tres ciudades más importantes del caribe colombiano, durante el período de estudio. ******ABSTRACT: This paper analyzes the incidence of the Banco de la República (Central Bank) in economic and business activities in the Colombian Caribbean between the 1920s and 1950s. Specifically, the cicles of the local economy, the banking crisis and the demographic dynamics of Barranquilla, Cartagena and Santa Marta are studied. It also has the purpose to understand the local financial system and the credit and rediscount quotas granted to entrepreneurs by the issuing bank. Additionally, it analyzes the trusteeship exercised by the Banco de la República over the possessions of the germans, italians and japanese residing in the Colombian Caribbean during the second world war. To sum up, this document contribute to the comparative study of economic and business activities of the three most important cities of the Colombian Caribbean, during this period.
    Keywords: Banco de la República, banco emisor, economía local, Barranquilla, Cartagena, Santa Marta, administración fiduciaria, Fondo de Estabilización, redescuento
    JEL: N26 E50 E30
    Date: 2016–10–05
  43. By: Luigi Bocola; Alessandro Dovis
    Abstract: This paper uses the information contained in the joint dynamics of government’s debt maturity choices and interest rate spreads to quantify the importance of self-fulfilling expectations in sovereign bond markets. We consider a model of sovereign borrowing featuring endogenous debt maturity, risk averse lenders and self-fulfilling rollover crises á la Cole and Kehoe (2000). In this environment, interest rate spreads are driven by economic fundamentals and by expectations of future self-fulfilling defaults. These two sources of default risk have contrasting implications for the debt maturity choices of the government. Therefore, they can be indirectly inferred by tracking the evolution of the maturity structure of debt during a crisis. We fit the model to the Italian debt crisis of 2008-2012, finding that 12% of the spreads over this episode were due to rollover risk. Our results have implications for the effects of the liquidity provisions established by the European Central Bank during the summer of 2012.
    JEL: E44 F34 G12 G15
    Date: 2016–09
  44. By: Baptista, Rafa (Oxford Martin School, University of Oxford); Farmer, J. Doyne (Oxford Martin School, University of Oxford); Hinterschweiger, Marc (Bank of England); Low, Katie (Bank of England); Tang, Daniel (Oxford Martin School, University of Oxford); Uluc, Arzu (Bank of England)
    Abstract: This paper develops an agent-based model of the UK housing market to study the impact of macroprudential policies on key housing market indicators. This approach enables us to tackle the heterogeneity in this market by modelling the individual behaviour and interactions of first-time buyers, home owners, buy-to-let investors, and renters from the bottom up, and observe the resulting aggregate dynamics in the property and credit markets. The model is calibrated using a large selection of micro-data, mostly from household surveys and housing market data sources. We perform a series of comparative statics exercises to investigate the impact of the size of the rental/buy-to-let sector and different types of buy-to-let investors on housing booms and busts. The results suggest that an increase in the size of the buy-to-let sector may amplify house price cycles and increase house price volatility. Furthermore, in order to illustrate the effects of macroprudential policies on several housing market indicators, we implement a loan-to-income portfolio limit. We find that this policy attenuates the house price cycle.
    Keywords: Agent-based mode; housing market; macroprudential policy; buy-to-let sector
    JEL: D31 E58 R21 R31
    Date: 2016–10–07
  45. By: Francesco Columba (Bank of Italy); Jaqian Chen (IMF)
    Abstract: We analyse the effects and the interactions of macroprudential and monetary policies with an estimated dynamic stochastic general equilibrium (DSGE) model tailored to Sweden. Households are constrained by a loan-to-value ratio and mortgages are amortized. Government grants mortgage interest payment deductions. Lending rates are affected by mortgage risk weights. We find that to curb the household debt-to-income ratio demand-side macroprudential measures are more effective and less costly in terms of foregone consumption than monetary policy. A tighter macroprudential stance is also welfare improving, by promoting lower consumption volatility in response to shock, especially when combining different instruments, whose sequence of implementation is key.
    Date: 2016
  46. By: Vladimir Arčabić (Faculty of Economics and Business, University of Zagreb); Tomislav Globan (Faculty of Economics and Business, University of Zagreb); Ozana Nadoveza (Faculty of Economics and Business, University of Zagreb); Lucija Rogić Dumančić (Faculty of Economics and Business, University of Zagreb); Josip Tica (Faculty of Economics and Business, University of Zagreb)
    Abstract: The paper compares theoretical impulse response functions from a DSGE model for a small open economy with an empirical VAR model estimated for the Croatian economy. The theoretical model fits the data well as long as monetary policy is modelled as a fixed exchange rate regime. The paper considers only a foreign output gap shock. A positive foreign shock increases domestic GDP and prices and decreases terms of trade, which is in compliance with theoretical assumptions. Interest rates behave differently than suggested by the estimated DSGE model, which could be explained with an unconventional interest rate transmission channel in Croatia.
    Keywords: DSGE, foreign income shocks, exchange rate, Croatia, gross domestic product, Eurozone
    JEL: E32 F41
    Date: 2016–09–21
  47. By: Esther Hauk; Andrea Lanteri; Albert Marcet
    Abstract: This paper studies optimal policy with partial information in a general setup where observed signals are endogenous to policy. In this case, signal extraction about the state of the economy cannot be separated from the determination of the optimal policy. We derive a non-standard first order condition of optimality from first principles and we use it to find numerical solutions. We show how previous results based on linear methods, where separation or certainty equivalence obtains, arise as special cases. We use as an example a model of fiscal policy and show that optimal taxes are often a very non-linear function of observed hours, calling for tax smoothing in normal times, but for a strong fiscal reaction to output when a recession is quite certain and the economy is near the top of the Laffer curve or near a debt limit.
    Keywords: optimal policy; partial information; separation; calculus of variations; fiscal policy
    JEL: C63 D82 E60 H60
    Date: 2016–10
  48. By: Waldenström, Daniel (Research Institute of Industrial Economics (IFN))
    Abstract: This study uses new data on Swedish national wealth over the last two hundred years to examine whether the patterns in wealth-income ratios found by Piketty and Zucman (2014) extend to small and less developed economies. The findings reveal both similarities and differences. During the industrialization era, Sweden's domestic wealth was relatively low because of low saving rates and instead foreign capital imports became important. Twentieth century trends and levels are more similar, but in Sweden government wealth grew more important, not least through its relatively large public pension system. Overall, the findings suggest that initial conditions and economic and political institutions matter for the structure and evolution of national wealth.
    Keywords: National wealth; Household portfolios; Pension wealth; Welfare state; Institutions; Economic history
    JEL: D30 E01 E02 N30
    Date: 2016–09–23
  49. By: Edvinsson, Rodney (Dept. of Economic History, Stockholm University)
    Abstract: This paper argues for trans-historical reformulations of the basic economic concepts of production, work and consumption. The definition of the production boundary by System of National Accounts (SNA) is inconsistent from a scientific point of view. For example, while some non-market and illegal services are viewed as productive, others are not, and services and goods are treated differently. The definition proposed by feminist economics, the so-called third person criterion, is consistent, but in need for further development; furthermore, it is a definition of work and not of production. The purpose of this study is to investigate whether it is possible to formulate a non-eclectic set of logically consistent definitions that could be considered variations of a common underlying understanding across various theoretical traditions – mainly Classical, Neoclassical, Institutional, Marxist, Feminist and Keynesian Economics – of how humans consciously change external nature in order satisfy human needs. Important issues concern how to deal with violence, double counting of transaction costs, human capital formation, non-market activities and causation of final consumption. Production, work and consumption are defined as relations between events, the subject matter and the agent, and in the main definitions reduced to non-economic sentences. Even the utility concept is avoided. First-order logic is used, complemented with modal operators for some of the sentences. In this study, it is shown that production, work and consumption all share the common feature of intentional physical transformation of the intrinsic properties of the subject matter. The object transformed during the productive activity and work must at some point in time be external to the agent. For work, the purpose of transforming an external object must not lie in the transformation of the agent. A productive activity must potentially be able to cause the satisfaction of human needs, or final consumption, which is not a condition for work or required by the third-person criterion. Final consumption involves the transformation of the subject matter that is a final purpose for the consumer or serves as a purpose for transforming the consumer. Using a criterion applied by the institutional economist Cheung to identify transaction costs, this study defines social reproduction as an activity that would not occur in a Robinson Crusoe economy. Social reproduction occurs under an institutional setting. We can further differentiate between coercive and non-coercive social reproduction. In this study, eight different definitions of production are presented. The definition of agent external production is close to the third person criterion, but the possible causation of future final consumption is included as a condition for a productive activity. It is also related to the basic neoclassical model with its assumptions of no transaction costs. The definition of agent external non-coercive production entails that transformations of persons against their own will, whether legally or illegally performed, are unproductive activities. The definition of agent external non-social production entails that all socially reproductive activities are unproductive, and comes close to the distinction made by Classical and Marxist economists of productive and unproductive work. Humanity external production only includes the transformation of non-persons. The three definitions of time scale invariant production entails that human capital formation could be considered productive activities. Market production comes close to Keynesian theory and the present definition of SNA, with the difference that it excludes non-market goods production. The present study also opens for the possibility of unproductive work, for example failed production or professional murder, and productive final consumption that does not involve any work, for example hobby-hunting, play with children or research activity for own pleasure. Which definition of production is applied greatly affects the modelling and empirical application of growth theory and the analysis of the driving forces in economic history. For example, assume trade causes labour productivity outside of trade to increase four-fold due to specialisation, while the share of GDP in total working time increases from nil to half. With the same value added per productive hour and with total hours worked kept constant, the value added of agent external production then records a four-fold increase, while that of non-social production only a doubling. Similarly, during wars the SNA GDP often increases substantially, while the concept of agent external non-coercive production entails that all war expenses are treated as unproductive. Time frame invariant production grows faster than agent external production during expansions of the education system. Market production could serve important analytical purposes, for example to investigate the relation between money supply and inflation, but should be rid of inconsistencies such as the inclusion of non-market goods production.
    Keywords: GDP; production; work; consumption; economic philosophy; SNA
    JEL: A10 B13 B14 B40 B50 B51 B52 B54 D10 E00 E21 E23 J00 J24 N00 N01 O00
    Date: 2016–10–09
  50. By: Krueger, Dirk; Ludwig, Alexander
    Abstract: In this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers: subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits. We also argue that a full characterization of the transition path is crucial for policy evaluation. We find that optimal education policies are always characterized by generous tuition subsidies, but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium.
    Keywords: Progressive Taxation,Education Subsidy,Transitional Dynamics
    JEL: E62 H21 H24
    Date: 2015
  51. By: Timothy J. Goodspeed
    Abstract: In this paper we investigate the interplay between national rainy-day funds and supra-national transfers in a fiscal union. Given that the EU has established rules limiting deficits, national rainy-day funds could in theory provide a way for countries to obey the rules and use fiscal policy, yet avoid using austerity measures during a recession. The rainy-day fund is self-insurance and we examine the funding of a national rainy-day fund for a country in isolation. We then introduce a fiscal union while allowing member countries to retain some fiscal policy control. We find that moral hazard leads to lower contributions to a rainy day fund with a fiscal union present, and further that the higher the fiscal transfer, the lower will be the contributions to the rainy-day fund. The optimal size of the fiscal union trades-off the ex-post insurance provided by the union and the moral hazard which reduces national ex-ante preparation for stabilization policies. Optimally, the insurance provided by the fiscal union should be lower (1) the more effective is own-fiscal policy; (2) the more the presence of the fiscal union reduces rainy-day fund savings; (3) the lower is the relative probability of recession; and (4) the lower is the utility gain of redistribution in the union. We also find that commitment to a transfer policy is essential. A fiscal union that is prone to break the rules on transfers negatively impacts the ex-ante contributions to individual members’ rainy day funds.
    Keywords: fiscal union, fiscal transfers, federation, rainy-day funds, fiscal stabilization
    JEL: E6 H1 H6 H7
    Date: 2016–09
  52. By: Pedro S. Martins
    Abstract: According to theory, wage rigidity may increase the scope for employment protection legislation (EPL) to have negative effects on employment. In this paper, we study this issue by analysing the extent to which entry wages respond to EPL. We exploit a recent reform in Portugal, in the midst of a recession, that reduced severance pay for new hires alone. Our main analysis is based on a regression-discontinuity approach using long monthly data on entry wages. We find no evidence of wage adjustments following the change in EPL, even when considering many different specifications and samples. This result highlights the potential of greater flexibility in EPL over the business cycle to reduce employment fluctuations.
    Keywords: Employment law, Seasonality, Wage rigidity, Severance
    JEL: J65 J31 E24
    Date: 2016–10
  53. By: Hacioglu, Sinem (Bank of England); Tuzcuoglu, Kerem (Columbia University, Department of Economics)
    Abstract: This paper proposes a method to interpret factors which are otherwise difficult to assign economic meaning to by utilizing a threshold factor-augmented vector autoregression (FAVAR) model. We observe the frequency of the factor loadings being induced to zero when they fall below the estimated threshold to infer the economic relevance that the factors carry. The results indicate that we can link the factors to particular economic activities, such as real activity, unemployment, without any prior specification on the data set. By exploiting the flexibility of FAVAR models in structural analysis, we examine impulse response functions of the factors and individual variables to a monetary policy shock. The results suggest that the proposed method provides a useful framework for the interpretation of factors and associated shock transmission.
    Keywords: Factor models; FAVAR; latent threshold; MCMC; interpretation of latent factors; shrinkage estimation
    JEL: C11 C31 C51 C55 E50
    Date: 2016–10–07
  54. By: Branger, Nicole; Grüning, Patrick; Schlag, Christian
    Abstract: The term 'financialization' describes the phenomenon that commodity contracts are traded for purely financial reasons and not for motives rooted in the real economy. Recently, financialization has been made responsible for causing adverse welfare effects especially for low-income and low-wealth agents, who have to spend a large share of their income for commodity consumption and cannot participate in financial markets. In this paper we study the effect of financial speculation on commodity prices in a heterogeneous agent production economy with an agricultural and an industrial producer, a financial speculator, and a commodity consumer. While access to financial markets is always beneficial for the participating agents, since it allows them to reduce their consumption volatility, it has a decisive effect with respect to overall welfare effects who can trade with whom (but not so much what types of instruments can be traded).
    Keywords: Commodities,General Equilibrium,Heterogeneous Preferences,Financial Markets
    JEL: E23 G12 G13 Q11 I30
    Date: 2016
  55. By: Olivier Allain (UPD5 Droit - Université Paris Descartes - Faculté de droit - UPD5 - Université Paris Descartes - Paris 5, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Post-Keynesian economists have quite recently begun to draw attention to the consumer debt. However, as they omit the principal payment, they implicitly assimilate this debt as perpetual loans. The goal of this article is mainly methodological. We first develop a ‘Keynesian’ overlapping generations framework assuming that people borrow when they are young and service their debt (interests and principal) in the following periods. Defaults on the principal are also taken into account. We then analyze the theoretical properties of the equilibriums (multiplier effect, stability conditions) resulting from the introduction of this framework in three types of models that differ in regard of who are the debtors and who are the creditors: workers can borrow from capitalists (essay 1) or from their peer (essay 2); capitalists can borrow from their peer (essay 3).
    Keywords: consumer debt,Keynesian models,equilibrium instability,overlapping generations models
    Date: 2014–12
  56. By: Mustafa Göktuğ Kaya (The Ministry of Finance, Tax Inspector Association); Perihan Hazel Kaya (Selcuk University)
    Abstract: With the globalization process, economic, commercial and technological boundaries have become uncertain and in this way capital transfer has been possible between different countries. Capital transfers which is realized through short term portfolio investment and foreign direct investment are very important for the countries. In this study on existence of a potential relationship between economic growth (GDP) and foreign direct investment (FDI) was examined fort he period of 2008-2015 quarterly for Turkish economy after the global financial crisis. the mentioned relationship was investigated using stationary, test, Johansen-Juselius co-entegration test, Granger causality test and variance decomposition. As a result, Granger causality test, variance decomposition showed that there exit a uni-directional causality relation running from GDP to FDI.
    Keywords: Foreign Direct Investment, Economic Growth, Turkish Economy, Co-Entegration Test
    JEL: A10 C01 E00
  57. By: Erich Pinzón-Fuchs (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper discusses a longstanding debate between two empirical approaches to macroeconomics: the econometrics program represented by Lawrence R. Klein, and the statistical economics program represented by Milton Friedman. I argue that the differences between these two approaches do not consist in the use of different statistical methods, economic theories or political ideas. Rather, these differences are deeply rooted in methodological principles and modeling strategies inspired by the works of Léon Walras and Alfred Marshall, which go further than the standard opposition of general vs. partial equilibrium. While Klein’s Walrasian approach necessarily considers the economy as a whole, despite the economist’s inability to observe or understand the system in all its complexity, Friedman’s Marshallian approach takes into account this inability and considers that economic models should be perceived as a way to construct systems of thought based on the observation of specific and smaller parts of the economy.
    Keywords: Lawrence R. Klein, Milton Friedman, macroeconometric modeling, Cowles Commission, National Bureau of Economic Research, empirical approaches to macroeconomics, controversy on statistical illusions, Walras-Marshall methodological divide.
    Date: 2016–09–12
  58. By: Faia, Ester
    Abstract: Data show that sovereign risk reduces liquidity, increases funding cost and risk of banks highly exposed to it. I build a model that rationalizes this fact. Banks act as delegated monitors and invest in risky projects and in risky sovereign bonds. As investors hear rumors of increased sovereign risk, they run the bank (via global games). Banks could rollover liquidity in repo market using government bonds as collateral, but as sovereign risk raises collateral values shrink. Overall banks' liquidity falls (its cost increases) and so does banks' credit. In this context noisy news (announcements with signal extraction) of consolidation policies are recessionary in the short run, as they contribute to investors and banks pessimism, and mildly expansionary in the medium run. The banks liquidity channel plays a major role in the fiscal transmission.
    Keywords: liquidity risk,sovereign risk,banks' funding costs
    JEL: E5 G3 E6
    Date: 2016
  59. By: Donadelli, Michael; Paradiso, Antonio; Riedel, Max
    Abstract: We build a quasi real-time leading indicator (LI) for the EU industrial production (IP). Differently from previous studies, the technique developed in this paper gives rise to an ex-ante LI that is immune to "overlapping information drawbacks". In addition, the set of variables composing the LI relies on a two-steps dynamic and systematic procedure. This ensures that the choice of the variables is not driven by subjective views. Our LI anticipates swings (including the 2007-2008 crisis) in the EU industrial production - on average - by 2 to 3 months. If revised, its predictive power largely improves. Via a couple of standard empirical exercises we show that the proposed LI (i) forecasts crises' phases better than the ex-post LIs proposed by the OECD and the Conference Board and (ii) captures the interest rate policy pattern rather well.
    Keywords: Leading indicator,EU industrial production,Granger causality,Turning points,Forward-looking Taylor rule
    JEL: E32 C22 C52
    Date: 2016
  60. By: Gunes Kamber; Ozer Karagedikli; Michael Ryan; Tugrul Vehbi
    Abstract: This paper analyses the international spill-overs of uncertainty shocks originating in the US. We estimate an open economy, structural factor-augmented vector autoregression (FAVAR) model that identifies US uncertainty shocks and estimates the impact of these uncertainty shocks on the US economy, major world economies and a small open economy, namely New Zealand. The data-rich nature of our model allows us to investigate different transmission channels from the US to the rest of the world. We find the confidence channels, measured by the expectations surveys, are particularly important in the transmission of the uncertainty shock to a small open economy.
    Keywords: FAVAR, uncertainty shocks, small open economy
    JEL: C15 C32 E32
    Date: 2016–10
  61. By: Boyan Jovanovic; Julien Prat
    Abstract: This paper shows that endogenous cycles can arise when contracts between firms and their customers are incomplete and when products are experience goods. Then firms invest in the quality of their output in order to establish a good reputation. Cycles arise because investment in reputation causes self-fulfilling changes in the discount factor. Cycles are more likely to occur when information diffuses slowly and consumers exhibit high risk aversion. A rise in idiosyncratic uncertainty is of two kinds that work in opposite ways: Noise in observing effort is contractionary as it generally is in agency models. But a rise in the variance of the distribution of abilities is expansionary. A calibrated version produces realistic fluctuations in terms of peak-to-trough movements in consumption and the spacing of time between recessions.
    JEL: E32
    Date: 2016–09
  62. By: Motloja, Lehlohonolo; Makhoana, Tsholofelo; Kassoma, Rooyen; Houdman, Rozadian; Phiri, Andrew
    Abstract: Following the global recession period of 2009, much debate has been cast on the role of tax policy in improving economic growth in the South African economy. In our paper, we estimate optimal tax rates for South Africa using the optimization model of Scully (1996, 2003) applied to quarterly data collected for periods before the crisis (i.e. 1994:Q1 – 2009:Q2) and for periods after the crisis (2009:Q2 – 2016:Q2). We estimate our optimization model using the autoregressive distributive lag (ARDL) bounds test approach. Our empirical estimates reveal an insignificant relationship between taxation and economic growth for periods prior to the global recession period whereas we find a significant relationship for periods subsequent to the recession, with an optimal rate of tax being found to be 22 percent of GDP. These empirical results highlight that whilst tax policy had an insignificance effect on economic growth in South Africa before the recession of 2009, tax policy appears to play an important role in promoting short-run and long-run economic growth in the post-recession era. Furthermore, our results suggest that fiscal authorities should ensure that tax revenue as a share of GDP should do not exceed the optimal rate of 22 percent in the interest of attaining higher rates of economic growth.
    Keywords: Tax; Economic growth; Fiscal Policy; Optimal tax rate; Optimal government size; South Africa; Sub-prime crisis; Global recession
    JEL: C13 C32 C52 E62 H21 O40
    Date: 2016–10–07
  63. By: Felix Arnold; Hansjörg Blöchliger
    Abstract: This paper surveys the state and evolution of GDP per capita in 281 regions of OECD countries for the time period 1995 – 2013. It puts a special focus on the disparities between the regions. These can be substantial: In 2013, GDP per capita of the least and most developed region varied by a factor of roughly ten. Using standard inequality measures like the coefficient of variation or the Gini coefficient, it is found that inequality has been decreasing between countries, while within-country disparities have often widened. Furthermore, transition matrices reveal that mobility within the distribution over time is higher in countries with larger degrees of fiscal decentralisation. This suggests that decentralisation allows regions to “take matters into their own hands”. Implications of other factors that correlate with the level of economic development are also discussed. Le PIB régional dans les pays de l'OCDE : comment les inégalités ont-elles évolué au fil du temps ? Nous étudions dans ce document l'état et l'évolution du produit intérieur brut (PIB) par habitant dans 281 régions de pays de l'OCDE au cours de la période 1995-2013. Nous mettons l'accent sur les disparités entre régions, qui peuvent être substantielles. En 2013, le PIB par habitant variait d'un facteur de 1 à 10 environ entre les régions les moins développées et les plus développées. À partir de mesures classiques des inégalités telles que le coefficient de variation ou le coefficient de Gini, nous parvenons à la conclusion que les inégalités ont diminué entre les pays, tandis que les disparités se sont souvent accentuée à l'intérieur de chaque pays. En outre, des matrices de transition montrent que la mobilité à l'intérieur de la distribution au fil du temps est plus forte dans les pays caractérisés par un degré relativement élevé de décentralisation budgétaire. Cela laisse à penser que la décentralisation permet aux régions de « prendre les choses en mains ». Nous examinons également les implications d'autres facteurs corrélés au niveau de développement économique.
    Keywords: regions, inequality, GDP-per-capita
    JEL: D30 E01 H70 I31 O10 O57 R11 R12
    Date: 2016–10–11
  64. By: Aurélien Goutsmedt (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Erich Pinzon-Fuchs (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Matthieu Renault (IRIF - Institut de Recherche en Informatique Fondamentale - UP7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique); Francesco Sergi (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The standard history of macroeconomics considers Lucas (1976)– “the Lucas Critique”–as a path-breaking innovation for the discipline. According to this view Lucas’s article dismissed the traditional macroeconometric practice calling for new ways of conceiving the quantitative evaluation of economic policies. The Lucas Critique is considered, nowadays, as a fundamental principle of macroeconomic modeling (Woodford, 2003). The interpretation and the application of the Critique, however, represent still unsolved issues in economics (Chari et al., 2008). Even if the influence of Lucas’s contribution cannot be neglected, something seems to be missing in the narrative: the reactions of the economists that were directly targeted by the Critique. Modeling practices of economic policy evaluation were not overthrown immediately after Lucas (1976), creating a divide between theoretical and applied macroeconomics (Brayton et al., 1997). In the first section we propose a careful account of Lucas’s argument and of some of the previous works anticipating the substantial outline of the Critique (like Frisch’s notion of autonomy). Second, we bring our own interpretation of Lucas (1976). We find two points of view in Lucas's paper: a prescriptive one that tell how to build a good macroeconometric model (it is the standard interpretation of the article); a positive one that relies on the fact that the Lucas critique could be seen as an attempt to explain a real-world phenomenon: stagflation. Third, we classify the reactions of the Keynesian macroeconometricians following this line of interpretation. On the prescriptive side, the Keynesians protested against the New Classical solution to the Lucas critique (the use of the rational expectation hypothesis among other things). Klein, for instance, proposed an alternative microfoundational program to empirically study the formation of expectations. On the positive side, the Keynesians put into question the relevance of the Lucas Critique to explain the rise of both unemployment and inflation in the 1970s. They tried to test the impact of policy regime changes and of shifts in agents' behavior. We argue that the explanation of the stagflation was elsewhere. The purpose of this paper is to study the reactions of the macroeconometricians criticized by Lucas. We focus especially on those macroeconometricians who worked on policy evaluation and who held an expertise position in governmental institutions. We categorize the different reactions to the Critique, in order to enrich the understanding of the evolution of modeling and expertise practices through the analysis of the debates–which have not yet been completely solved.
    Keywords: History of macroeconomics, Keynesian economics, Lu- cas Critique, Macroeconometrics, Rational Expectations.
    Date: 2016–09–12
  65. By: Anna Batyra (Bogazici University); David de la Croix (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Olivier Pierrard (Banque centrale du Luxembourg); Henri Sneessens (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) and Université du Luxembourg, CREA)
    Abstract: The rise of early retirement in Europe is typically attributed to the European system of taxes and transfers. Contrary to a purely neoclassical framework, a model with imperfectly competitive labor market also allows to consider the effect of the bargaining power of labor and matching efficiency on preretirement. We find that lower bargaining power of workers and less efficient labor markets characterized by the declining matching efficiency have been an important determinant of early retirement in France and Germany. These structural changes, combined with early-retirement transfers and population ageing, are also consistent with the joint evolution of employment and unemployment rates, the labor share and the seniority premium.
    Keywords: Overlapping Generations, Search Unemployment, Labor Force Participation, Aging, Labor Market Policy and Institutions
    JEL: E24 H55 J26 J64
    Date: 2016–03–31
  66. By: Hassan Molana; Catia Montagna
    Abstract: We study how the interaction between economic openness and competitive selection affects the effectiveness of employment and entry subsidisation. Within a heterogeneous-firms model with endogenous labour supply, optimal employment subsidies are shown to have pro- or anti-competitive effects on industry selection depending on whether the economy is open or not. Selection effects resulting from international competition and fiscal externalities imply that non-cooperative policies may entail under-subsidisation of employment. Entry subsidies always have pro-competitive selection effects on the industry, but are shown to be less effective in raising employment and welfare than employment subsidies.
    Keywords: optimal policy, employment subsidies, competitive selection, international trade
    JEL: E61 F12 F42
    Date: 2016–10
  67. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Rangan Gupta (Department of Economics, University of Pretoria); Ýsmail H. Gençb (Department of Economics School of Business Management American University of Sharjah)
    Abstract: This paper investigates the impact of crude oil price movements on the stock markets of Gulf Corporation Council (GCC) countries using weekly data for the period of February 2, 1994-February 26, 2010.
    Keywords: Oil Price; Stock Market; Gulf Corporation Council (GCC) countries;Markov Switching Model; Time-Varying Granger-causality
    JEL: E44 Q43 C32
    Date: 2016–06
  68. By: Yoko Niimi; Charles Yuji Horioka
    Abstract: To help shed light on the implications of intergenerational transfers for wealth inequality, this paper examines whether or not individuals who receive intergenerational transfers from their parents are more likely to leave bequests to their children than those who do not using data for Japan and the United States. The estimation results show that the receipt of intergenerational transfers from parents and/or parents-in-law increases the likelihood of individuals’ leaving bequests to their own children in both Japan and the United States, which in turn is likely to contribute to the persistence or widening of wealth disparities. However, such a tendency is found to be stronger among less better-off households in both countries, and this may help alleviate the disequalizing effect of intergenerational transfers on the distribution of wealth, at least to some extent.
    JEL: D10 D31 D64 E21 I24
    Date: 2016–09
  69. By: Giovanni Favara; Simon Gilchrist; Kurt F. Lewis; Egon Zakrajsek
    Abstract: Beginning with the publication of this Note, we will provide updated estimates of the EBP and the associated model-implied probability of a U.S. recession every month.
    Date: 2016–10–06
  70. By: Marina Azzimonti
    Abstract: I examine the role of political instability as a potential explanation for the lack of capital flows from rich countries to poor countries (i.e. the `Lucas Paradox'). Using panel data from 1984 to 2014, I document the following: (i) developed countries exhibit larger inflows of foreign direct investment (FDI), (ii) countries subject to high investment risk are those that typically receive low FDI inflows, and (iii) investment risk is generally higher in fractionalized and politically unstable economies. These findings suggest a negative relationship between political instability and FDI through the investment risk channel. I then inspect the theoretical mechanism using a dynamic political-economy model of redistribution, wherein policymakers have access to an expropriation technology that can be used to extract resources from foreign investors. The proceeds are used to finance group-specific transfers to domestic workers, but hinder economic growth by discouraging FDI. Different social groups compete to gain control of this instrument, but face a probability of losing power at each point in time. The greater the degree of political turnover is, the stronger the incentives to expropriate when in power. A key force driving this result is redistributive uncertainty, since there is a possibility that no transfers will be received in the future. The mechanism is supported by the finding that investment risk (a measure that captures the degree to which the extraction technology is used) is negatively related to FDI and government stability. Finally, I show that the political equilibrium exhibits over-expropriation and under-investment even when there is no political uncertainty because fractionalized societies suffer from static inefficiencies due to the presence of a common pool problem.
    JEL: E6 F38 F43 H2 H21
    Date: 2016–09
  71. By: Molyneaux, Lynette; Brown, Colin; Foster, John; Wagner, Liam
    Abstract: There remains a debate about ‘oil and the macroeconomy’ despite James Hamilton’s claims. Manufacturing in 1970s US was, however, reliant on natural gas and electricity generated from coal, not oil. Whilst coal and electricity prices also rose in the 1970s their descent to pre-1974 levels was slower than the decline in oil prices. This research considers energy resilience during the 1970s. Spare capacity, natural gas and renewable energy are key resilience characteristics that predict improved manufacturing employment. The conclusion reached is that the rise in coal prices played a role, separate to oil price, in the macro-economies of US states.
    Keywords: Energy resilience; Energy security; Macroeconomics; Oil
    JEL: E30 Q43
    Date: 2016–10–12
  72. By: Markus Brueckner; Birgit Hansl
    Abstract: Between the end of the 1990s and the first decade of the 2000s Russia experienced significant growth in GDP per capita that was driven by transitional convergence, structural reforms, and improvements in the terms of trade. Reforms to the structure of the economy boosted growth by over 2 percentage points per annum with improvements in telecommunication infrastructure, financial development, and a reduction in the GDP share of government consumption being the most important structural reforms. The paper discusses Russia's growth performance relative to comparator countries: countries in the European and Central Asia regions, advanced natural resource exporting countries and the BRICS countries. Economic growth was significantly lifted in advanced natural resource exporting countries due to the international commodity price boom, for example, in Russia improvements in the terms of trade lifted growth by over 1 percentage point per annum. In the group of advanced natural resource exporting countries and BRICS countries, Russia is at the forefront in terms of growth benefits arising from structural reforms.
    Date: 2016–07
  73. By: Marie Bessec (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    Abstract: This paper introduces a Markov-switching model in which transition probabilities depend on higher frequency indicators and their lags through polynomial weight-ing schemes. The MSV-MIDAS model is estimated via maximum likelihood (ML) methods. The estimation relies on a slightly modified version of Hamilton's recursive filter. We use Monte Carlo simulations to assess the robustness of the estimation procedure and related test statistics. The results show that ML provides accurate estimates, but they suggest some caution in interpreting the tests of the parameters involved in the transition probabilities. We apply this new model to the detection and forecasting of business cycle turning points in the United States. We properly detect recessions by exploiting the link between GDP growth and higher frequency variables from financial and energy markets. The spread term is a particularly useful indicator to predict recessions in the United States. The empirical evidence also supports the use of functional polynomial weights in the MIDAS specification of the transition probabilities.
    Keywords: Markov-switching,mixed frequency data,business cycles
    Date: 2016–09–01
  74. By: Adrian van Rixtel (Banco de España); Luna Romo González (Banco de España); Jing Yang (Bank of Canada)
    Abstract: This paper is one of the first to investigate the determinants of bond issuance by European banks. We use a unique database of around 50,000 bonds issued by 63 banks from 14 European countries to test explicitly a broad set of hypotheses on the drivers of bond issuance. The sample covers the two major financial crises that caused severe dislocations in bank funding structures, i.e. the global financial crisis of 2008-2009 and the euro area financial crisis of 2010-2012. Our findings suggest that “market timing” (low interest rates) drove issuance before but not during the crisis, when access to funding became more important than its cost. Moreover, during the crisis years, country-risk characteristics became drivers of bond issuance, while for banks from the euro area periphery central bank liquidity substituted for unsecured long-term debt. We also show that heightened financial market tensions were detrimental to bond issuance, and more strongly so during crisis episodes. We find evidence of “leverage targeting” by means of the issuance of long-term debt during the crisis years. The positive and significant coefficient for the capital ratio supports the “risk absorption” hypothesis, suggesting that larger capital buffers enhanced the risk-bearing capacity of banks and allowed them to issue more debt. Moreover, banks with deposit supply constraints and relatively large loan portfolios issued more bonds, both before and after the crisis years. We find, too, that higher rated banks were more likely to issue bonds, also during the crisis period. Stronger banks issued unsecured debt in particular, while weaker banks resorted more to issuance of covered bonds. Overall, our results suggest that stronger banks – including those from peripheral countries – maintained better access to longer-term funding markets, even during crisis periods.
    Keywords: bank funding, bond issuance, banking crisis, Europe
    JEL: G21 G32 E44 E58 F3
    Date: 2016–10
  75. By: Pia Hüttl; Dirk Schoenmaker
    Abstract: During the global financial crisis and subsequent euro-debt crisis, the fiscal resources of some countries appeared to be insufficient to support their banking systems. These countries needed outside support to stabilise their banking systems and thereby their wider economies. This Policy Contribution assesses the potential fiscal costs of recapitalising large banks. Based on past financial crises, we estimate that the cost to recapitalise an individual bank amounts to 4.5 percent of its total assets. During a severe crisis, a country might have to recapitalise up to three of its large systemic banks. We assume that bail-in of private investors is not fully possible during a systemic crisis. Our empirical findings suggest that large countries, such as the United States, China and Japan, can still provide credible fiscal backstops to their large systemic banks. In the euro area, the potential fiscal costs are unevenly distributed and range from 4 to 12 percent of GDP. Differences in the strengths of the fiscal backstops in euro-area countries contribute to divergences in financing conditions across the banking union. To counter this fragmentation, we propose that the European Stability Mechanism (ESM) could be used as a fiscal backstop to recapitalise systemically important banks directly within the banking union, in the case of a severe systemic crisis. But this would be only a last resort, after other tools such as bail-in have been used to the maximum extent possible. The governance of the ESM should be reconsidered, to ensure swift and clear application in times of crisis.
    Date: 2016–10
  76. By: Giovanni Caggiano (Department of Economics and Management, University of Padova; and Department of Economics, Monash University); Efrem Castelnuovo (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; Department of Economics, The University of Melbourne; and Department of Economics and Management, University of Padova); Olivier Damette (UFR DEA Metz and BETA-CNRS, Université de Lorraine)
    Abstract: This paper estimates a nonlinear Threshold-VAR to investigate if a Keynesian liquidity trap due to a speculative motive was in place in the U.S. Great Depression and the recent Great Recession. We find clear evidence in favor of a breakdown of the liquidity effect after an unexpected increase in M2 in the 1921-1940 period. This evidence, which is consistent with the Keynesian view on a liquidity trap, is shown to be state contingent. In particular, it emerges only when a speculative regime identified by high realizations of the Dow Jones index is considered. A standard linear framework is shown to be ill-suited to test the hypothesis of a Keynesian liquidity trap. An investigation performed with the same data for the period 1991-2010 confirms the presence of a liquidity trap just in the speculative regime. This last result emerges significantly only when we consider the federal funds rate as the policy instrument and we model the Divisia M2 measure of liquidity.
    Keywords: Keynesian liquidity trap, threshold VAR, monetary and financial cliometrics, Great Depression, Great Recession
    JEL: B22 C52 E52 N12 N22
    Date: 2016–10
  77. By: Munyanyi, Musharavati Ephraim
    Abstract: This paper seeks examine the validity of the bank lending channel in Zimbabwe. It estimates the relative impact of this channel on key economic variables such as, economic growth and inflation by covering the period from 1970 to 2014. For this purpose, Vector Autoregression (VAR) approach is employed. Impulse Response Functions are also generated to confirm the response of a shock in bank lending upon itself and other variables (economic growth and inflation). The result findings indicate that bank lending channel does not have a significant role in monetary transmission mechanism of Zimbabwe. The results imply that the bank lending channel should be improved through for example, tightening creditworthiness standards, revamping accounting standards and bank credit assessment capabilities, as well as setting up an effective judicial system to improve banks’ ability to enforce on collateral.
    Keywords: Economic Growth, Bank lending channel, VAR
    JEL: E52
    Date: 2016–10–06
  78. By: Born, Benjamin; Pfeifer, Johannes
    Abstract: We systematically evaluate how to translate a Calvo wage duration into an implied Rotemberg wage adjustment cost parameter in medium-scale New Keynesian DSGE models by making use of the well-known equivalence of the two setups at first order. We consider a wide range of felicity functions and show that the assumed household insurance scheme and the presence of labor taxation greatly matter for this mapping, giving rise to differences of up to one order of magnitude. Our results account for the inclusion of wage indexing, habit formation in consumption, and the presence of fixed costs in production.
    Keywords: Wage Phillips Curve, Wage stickiness, Rotemberg, Calvo
    JEL: E10 E30
    Date: 2016–10
  79. By: Issing, Otmar
    Abstract: "Institutional Overburdening" to a large extent was a consequence of the "Great Moderation". This term indicates that it was a period in which inflation had come down from rather high levels. Growth and employment were at least satisfying and variability of output had substantially declined. It was almost unavoidable that as a consequence expectations on future actions of central banks and their ability to control the economy reached an unprecedented peak which was hardly sustainable. Institutional overburdening has two dimensions. One is coming from exaggerated expectations on what central banks can achieve ("expectational overburdening"). The other dimension is "operational overburdening" i.e. overloading the central bank with more and more responsibilities and competences.
    Keywords: Central Banking,ECB,Monetary Policy
    Date: 2016
  80. By: Andersson, Michael K. (Finansinspektionen); Aranki, Ted (Monetary Policy Department, Central Bank of Sweden); Reslow, André (Monetary Policy Department, Central Bank of Sweden)
    Abstract: Cross institutional forecast evaluations may be severely distorted by the fact that forecasts are made at different points in time, and thus with different amount of information. This paper proposes a method to account for these differences. The method computes the timing effect and the forecaster's ability simultaneously. Monte Carlo simulation demonstrate that evaluations that do not adjust for the differences in information content may be misleading. In addition, the method is applied on a real-world data set of 10 Swedish forecasters for the period 1999-2015. The results show that the ranking of the forecasters is affected by the proposed adjustment.
    Keywords: Forecast error; Forecast comparison; Publication time; Evaluation; Error component model; Panel data
    JEL: C23 C53 E37
    Date: 2016–08–01
  81. By: Baghestanian, Sascha; Massenot, Baptiste
    Abstract: This paper reports that credit cycles emerged in laboratory economies that were not hit by aggregate shocks and in which information about fundamentals was perfect. This main result is in our view puzzling because standard theories predict that no cycles should have occurred in such a basic environment. Subjects could borrow funds in the credit market to invest in the risky project. The equilibrium interest rate equalized credit demand and supply. Among other behavioral biases, we observe that subjects increased their credit demand when they made larger losses in the previous period, consistent with a break-even motive. We find that a simple model of investment enriched with this motive can predict a credit cycle. We also show that the market environment plays a crucial role for the emergence of the cycle, which suggests that markets amplify rather than eliminate irrationality. Overall, our work implies that not only fundamental but also psychological factors can play a role in the emergence of fluctuations in financial markets.
    Date: 2016
  82. By: Masazumi Hattori; Steven Kong; Frank Packer; Toshitaka Sekine
    Abstract: How central banks can best communicate to the market is an increasingly important topic in the central banking literature. With ever greater frequency, central banks communicate to the market through the forecasts of prices and output with the purposes of reducing uncertainty; at the same time, central banks generally rely on a publicly stated medium-term inflation target to help anchor expectations. This paper aims to document how much the release of the forecasts of one major central bank, the Bank of Japan (BOJ), has influenced private sector expectations of inflation, and whether the degree of influence depends to any degree on the adoption of an inflation target (IT). Consistent with earlier studies, we find the central bank's forecasts to be quite influential on private sector forecasts. In the case of next year forecasts, their impact continues into the IT regime. Thus, the difficulties of aiming at an inflation target from below do not necessarily diminish the influence of the central bank's inflation forecasts.
    Keywords: central bank communication, Bank of Japan, inflation forecast, inflation targeting
    Date: 2016–09
  83. By: Avi Weiss (Bar-Ilan University); Gabriele Camera; Dror Goldberg
    Abstract: The theory of money typically ignores the fact that the mode of market interaction arises endogenously, and simply assumes a decentralized, bilateral exchange process. However, endogenizing the organization of trade is critical for understanding the conditions that lend themselves to the development of money as a mode of exchange. To study this, we develop a “travelling game” to study the spontaneous emergence of different systems of exchange theoretically and experimentally. Players located on separate “islands” can either stay and trade on their island, or pay a cost to trade elsewhere. Earnings rise with the frequency of trade but fall with the frequency of travel. Decentralized and centralized markets can both emerge in equilibrium. The latter maximize consumption frequencies and are socially efficient; the former minimize travel cost and require the use of a medium of exchange. In the laboratory, a centralized market more frequently emerges when subjects perform diversified economic tasks, and when they interact in large groups and cannot be sure whether they will meet the same counterpart in later periods. The experiment shows that to understand the emergence of monetary systems it is important to amend the theory of money such that the market structure is endogenized.
    Keywords: endogenous institutions, macroeconomic experiments, matching, coordination, markets, money.
    JEL: E4 E5 C9 C92
    Date: 2016–08
  84. By: Ray, Nikhil.; Schmitz, Laura.
    Abstract: On the basis of a recent content analysis of the International Monetary Fund’s (IMF) Article IV surveillance consultations, this paper argues that the Fund has improved its coverage of labour market and inclusive growth considerations it its policy analysis and recommendations. It updates the work of Islam et al. (2013) and analyses the Article IV consultations in light of the IMF’s commitment to address these concerns in its (2013) Jobs and Growth report.
    Keywords: macroeconomics, economic policy, labour market analysis, promotion of employment, economic growth, employment, role of IMF, macroéconomie, politique économique, analyse du marché du travail, promotion de l'emploi, croissance économique, emploi, rôle du FMI, macroeconomía, política económica, análisis del mercado de mano de obra, fomento del empleo, crecimiento económico, empleo, papel del FMI
    Date: 2016
  85. By: Matthew Baron; Wei Xiong
    Abstract: By analyzing 20 developed countries over 1920–2012, we find the following evidence of overoptimism and neglect of crash risk by bank equity investors during credit expansions: 1) bank credit expansion predicts increased bank equity crash risk, but despite the elevated crash risk, also predicts lower mean bank equity returns in subsequent one to three years; 2) conditional on bank credit expansion of a country exceeding a 95th percentile threshold, the predicted excess return for the bank equity index in subsequent three years is -37.3%; and 3) bank credit expansion is distinct from equity market sentiment captured by dividend yield and yet dividend yield and credit expansion interact with each other to make credit expansion a particularly strong predictor of lower bank equity returns when dividend yield is low.
    JEL: E02 E03 G01 G02
    Date: 2016–09
  86. By: Philippe Adair (University Paris-Est Créteil (UPEC)); Oksana Nezhyvenko (National University of Kyiv-Mohyla Academy (NaUKMA).)
    Abstract: Prostitution regimes in the EU-28 include prohibition, regulation and abolition; economics literature tackles this typology from the perspective of both free sex work and forced labour trafficking. We review the data sources on the demand-side and the supply-side in order to gauge how large is the sex market and informal employment for sex workers. We calculate Estimates 1A and 1B from miscellaneous sources, whereas HIV prevalence among sex workers from World Health Organisation provides Estimates 2A and 2B. We calculate Estimate 3 from victims of sexual exploitation trafficking according to data collected by the UNODC and Eurostat. We design an OLS model to test the five Estimates of prostitution in EU-28 according to GDP per capita, legislation, supply-side and demand-side variables. Last, we assess which might be the most likely Estimates as regards GDP enhancement in 2010, with respect to National Accounts adjustment for illegal production and consumption expenditure. Hence, we come up with a lower bound Estimate that may be used as a benchmark for macroeconomic policy.
    Keywords: EU-28; informal employment; National Accounts; Non Observed Economy; prostitution; sex work; sexual exploitation trafficking.
    JEL: E26 J46 O17
  87. By: Herman O. Stekler (The George Washington University); Yongchen Zhao (Towson University)
    Abstract: This paper considers the issue of predicting cyclical turning points using real-time diffusion indexes constructed using a large data set from March 2005 to September 2014. We construct diffusion indexes at the monthly frequency, compare several smoothing and signal extraction methods, and evaluate predictions based on the indexes. Our finding suggest that diffusion indexes are still effective tools in predicting turning points. Using diffusion indexes, along with good judgement, one would have successfully predicted or at least identified the 2008 recession in real time.
    Date: 2016–09
  88. By: GrET
    Abstract: En esta nueva edición del Informe Sociolaboral del Partido de General Pueyrredon se analizan las principales tendencias del mercado laboral local y nacional, a la luz del contexto macroeconómico actual. En tal sentido, durante el primer semestre de 2016 la economía argentina presentó una fuerte contracción en relación al año pasado, en parte condicionada por el entorno regional, pero principalmente profundizada por las políticas macroeconómicas de ajuste llevadas a cabo por la actual gestión. Como consecuencia de ello, el impacto en el mercado de trabajo no se hizo esperar, dado que se generaron aumentos en la desocupación y subocupación junto con un estancamiento de la tasa de empleo. La caída del empleo registrado y la pérdida del poder adquisitivo de los salarios podrían ser explicadas por dos fenómenos concurrentes: un aumento de la precarización laboral y la presencia de un mayor número de personas buscando trabajo como estrategia de supervivencia de los hogares. En el ámbito local las tasas de desocupación y subocupación registraron un aumento significativo, ubicándose entre los valores más altos a nivel nacional. Por último, el análisis de la conflictividad laboral, tanto a nivel nacional como local, durante 2015 y primer trimestre de 2016 da cuenta de un incremento en las medidas de fuerza y en la pérdida de jornadas de trabajo.
    Keywords: Macroeconomía; Mercado de Trabajo; Empleo; Desempleo; Conflictividad Laboral; Mar del Plata; Batán;
    Date: 2016–09
  89. By: Jose Apesteguia; Miguel A. Ballester
    Abstract: Consider the aggregation of a collection of individual stochastic behaviors that fit a given stochastic choice model. We say that such a model has a representative agent if their aggregate stochastic behaviour also fits the model. We show that the Luce model and several prominent extensions thereof do not have a representative agent. On the positive side, we show that the random utility model and several domain-specific restrictions thereof do have a representative agent.
    Keywords: Representative agent; Stochastic choice.
    JEL: D0 D7 E1
    Date: 2016–09
  90. By: Hyejin Cho (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In examining the global imbalance by the excess liquidity level, the argument is whether commercial banks want to hold excess reserves for the precautionary aim or expect to get better return through risky decision. By pictorial representations, risk preference in the Machina's triangle (1982, 1987) encapsulates motivation to hold excess liquidity. This paper introduces an endogenous liquidity model for the financial sector where the imbalance argument comes from credit rationing extended from outside liquidity (Holmstrom and Tirole, 2011). We also conduct a stylistic analysis of excess liquidity in Jordan and Lebanon from 1993 to 2015. As such, the proposed model exemplifies the combination of credit, liquidity and regulation.
    Keywords: credit rationing, excess liquidity, inside liquidity, risk preference, machina triangle JEL: D81,E58,L51
    Date: 2016–07–15
  91. By: Verónica Acurio Vásconez (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Gaël Giraud (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Florent Mc Isaac (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Ngoc-Sang Pham (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The economic implications of oil price shocks have been extensively studied since the 1970s'. Despite this huge literature, no dynamic stochastic general equilibrium model was available that captures two well-known stylized facts: 1) the stagflationary impact of an oil price shock, together with 2) the influence of the energy productivity of capital on the depth and length of this impact. We build, estimate and simulate a New-Keynesian model with capital accumulation, which takes the case of an economy where oil is imported from abroad, and where these stylized facts can be accounted for. Moreover, the Bayesian estimation of the model on the US economy (1984-2007) suggests that the output elasticity of oil might have been above 10%, stressing the role of oil use in US growth at this time. Finally, our simulations confirm that an increase in energy efficiency significantly attenuates the effects of an oil shock —a possible explanation of why the third oil shock (1999-2008) did not have the same macro-economic impact as the first two ones.
    Abstract: Les conséquences économiques des chocs pétroliers ont été très étudiés depuis les années 1970. En dépit d'une abondante littérature, aucun modèle d'équilibre général dynamique stochastique n'était à ce jour disponible, qui captura les deux faits stylisés bien connus suivants : 1) l'impact stagflationniste d'un choc sur le prix du pétrole et 2) l'influence de la productivité énergétique du capital sur la profondeur et la longueur du dit impact. Nous construisons, estimons et simulons un modèle Néo-keynésien avec accumulation du capital, adapté à une économie importatrice de pétrole, où ces faits stylisés peuvent être retrouvés. De plus, l'estimation bayésienne du modèle sur les données des Etats-Unis (1984-2007) suggère que l'élasticité d'output du pétrole pourrait être supérieure à 10%, soulignant le rôle du pétrole dans la croissance des Etats-Unis sur cette période. Enfin, nos simulations confirment qu'une augmentation de l'efficacité énergétique atténue de manière significative les effets du choc —ce qui livre une explication possible au fait que le troisième choc pétrolier (1999-2008) n'a pas eu le même impact macro-économique que les deux premiers.
    Keywords: New-Keynesian model,DSGE,oil,capital accumulation,stagflation,energy productivity,productivité énergétique,modèle néo-keynesien,équilibre général dynamique stochastique,pétrole,accumulation du capital
    Date: 2014–12
  92. By: Joaquín Viloria De la Hoz (Banco de la República)
    Keywords: Banco de la República, banco emisor, economía local, Barranquilla, Cartagena, Santa Marta, administración fiduciaria, Fondo de Estabilización, redescuento Classification JEL:N26, E50, E30
    Date: 2016–10

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