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on Macroeconomics |
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Issue of 2016‒10‒23
85 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Òscar Jordà; Moritz Schularick; Alan M. Taylor |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22743&r=mac |
| By: | Di Pace, Frederico (Bank of England); Hertweck, Matthias (University of Konstanz) |
| Abstract: | This paper provides a quantitative answer to the ‘sectoral comovement puzzle’. We extend the two-sector New Keynesian model with flexible durable good prices and sticky non-durable good prices by (i) labour search and matching frictions and (ii) internal habit formation in non-durable consumption. Search and matching frictions generate comovement and increase the persistence of sectoral outputs, whereas habit formation helps to appropriately distribute the impact of a given shock over the two sectors. As a result, our estimated model closely replicates the amplitude and the curvature of the empirical impulse responses in both sectors. |
| Keywords: | Durable production; labour market frictions; sectoral comovement; monetary policy |
| JEL: | E21 E23 E31 E52 |
| Date: | 2016–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0623&r=mac |
| By: | Battal Dogan |
| Abstract: | The usual mechanism through which government spending can be effective in increasing output in a liquidity trap emphasizes the role of aggregate demand. Higher government spending generates a lower expected real interest rate through a higher real wage, which translates into higher inflation. This lower real rate increases aggregate demand. I present new evidence that casts doubt on the empirical relevance of this mechanism. In particular, liquidity traps occur exclusively in recessions, which appear to be situations where higher government spending generates less inflation than in expansion times. To rationalize this, I build a New Keynesian model with search and matching frictions in the labor market and a downward rigid nominal wage. When solved using global methods, this model generates asymmetric fluctuations of recruiting costs along the business cycle. This permits the model to generate (i) a higher government spending multiplier in recessions vs expansions and (ii) a significantly higher multiplier at the zero lower bound without relying on a counterfactually large reaction of wages and inflation, both of which are in line with empirical evidence. |
| Keywords: | Zero lower bound, New Keynesian, Government spending multiplier, Search and Matching Frictions |
| JEL: | E24 E31 E32 E52 E62 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:16.22&r=mac |
| By: | Morten O. Ravn (University College London (UCL); Centre for Macroeconomics (CFM)); Vincent Sterk (University College London (UCL); Centre for Macroeconomics (CFM)) |
| Abstract: | New Keynesian models with unemployment and incomplete markets are rapidly becoming a new workhorse model in macroeconomics. Such models typically require heavy computational methods which may obscure intuition and overlook equilibria. We present a tractable version which can be characterized analytically. Our results highlight that - due the interaction between incomplete markets, sticky prices and endogenous unemployment risk - productivity shocks may have radically different effects than in traditional NK models, that the Taylor principle may fail, and that pessimistic beliefs may be self-fulfilling and move the economy into temporary episodes of low demand and high unemployment, as well as into a long-lasting "unemployment trap". At the Zero Lower Bound, the presence of endogenous unemployment risk can create inflation and overturn paradoxical properties of the model. We further study financial asset prices and show that non-negligible risk premia emerge. |
| Keywords: | Sticky prices, Incomplete asset markets, Matching frictions, Multiple equilibria, Amplification |
| JEL: | E10 E21 E24 E30 E52 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1633&r=mac |
| By: | Hiroaki Sasaki |
| Abstract: | By using a Kaleckian model with firms’ debt accumulation, we investigate how in- creased shareholder power defined by a decrease in firms’ retention ratio and a mone- tary policy defined by interest controlled by a central bank a?ect macroeconomic vari- ables. The long-run equilibrium can be stable even if the short-run equilibrium exhibits debt-burdened growth. In addition, the long-run equilibrium can be unstable even if the short run equilibrium exhibits debt-led growth. Increased shareholder power can increase both rentiers and workers’ income shares. A monetary easing policy has an expansionary e?ect on the economy. However, it decreases both workers and rentiers’ income shares and thus has a negative e?ect on income distribution. |
| Keywords: | financialization; income distribution; employment; firms’ debt |
| JEL: | E12 E21 E22 E32 E44 |
| URL: | http://d.repec.org/n?u=RePEc:kue:epaper:e-16-008&r=mac |
| By: | Leo Kaas (Department of Economics, University of Konstanz, Germany); Jan Mellert (Department of Economics, University of Konstanz, Germany); Almith Scholl (Department of Economics, University of Konstanz, Germany) |
| Abstract: | Sovereign debt crises are often accompanied by deep recessions with sharp declines in external credit to the private sector. In a sample of emerging economies we find that both, sovereign and private risk premia are countercyclical. This paper presents a model of a small open economy that accounts for these empirical regularities. It includes private firms which finance a fraction of imports by external debt and are subject to idiosyncratic and aggregate productivity risk, and a government which borrows internationally and taxes firms to finance public expenditures. The model gives rise to endogenous private and sovereign credit spreads and a dynamic feedback mechanism between sovereign and private default risks through the endogenous response of fiscal policy to adverse productivity shocks. |
| Keywords: | Sovereign default, Corporate borrowing, Risk premia |
| JEL: | E32 E62 F34 |
| Date: | 2016–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1609&r=mac |
| By: | Kousuke Nishino (Bank of Japan); Hiroki Yamamoto (Bank of Japan); Jun Kitahara (Bank of Japan); Takashi Nagahata (Bank of Japan) |
| Abstract: | More than three years have passed since the Bank of Japan introduced QQE. This article provides analysis on developments in inflation expectations and on factors that have affected those developments during that period. Developments in inflation expectations can be divided into three phases in which inflation expectations rose, were flat, and weakened. While QQE pushed up inflation expectations, exogenous developments, such as the decline in crude oil prices and the volatility in global financial markets stemming from emerging economies, seem to have exerted downward pressure. Inflation expectations in Japan are inclined to develop in tandem with observed inflation; that is, expectations formation is largely adaptive. Thus, since summer 2014, with a fall in observed inflation rates due to exogenous factors, such as the decline in crude oil prices, inflation expectations followed suit, strongly reflecting the fall. |
| Keywords: | Monetary policy; inflation expectations |
| JEL: | E52 E31 E44 |
| Date: | 2016–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojrev:rev16e13&r=mac |
| By: | Lee, Seungduck |
| Abstract: | This paper examines the effect of monetary policy on the liquidity premium, i.e., the market value of the liquidity services that financial assets provide. To guide the empirical analysis, I set up a monetary search model in which bonds provide liquidity services in addition to money. The theory predicts that money supply and the nominal interest rate are positively correlated with the liquidity premium, but the latter is negatively correlated with the bond supply. The empirical analysis over the period from 1946 and 2008 confirms the theoretical findings. This indicates that liquid bonds are substantive substitutes for money and the opportunity cost of holding money plays a key role in asset price determination. The model can rationalize the existence of negative nominal yields, when the nominal interest rate is low and liquid bond supply decreases. |
| Keywords: | asset price, money search model, liquidity, liquidity premium, money supply |
| JEL: | E31 E41 E51 E52 G12 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74615&r=mac |
| By: | James Morley (School of Economics, UNSW Business School, UNSW); Irina B Panovska (Lehigh University) |
| Abstract: | We consider a model-averaged forecast-based estimate of the output gap to measure economic slack for ten industrialized economies. Our measure takes changes in the long-run growth rate into account and, by accounting for model uncertainty using equal weights on different forecast-based estimates, is robust to different assumptions about the underlying structure of the economy. For each country, we find that the estimated output gap is highly asymmetric, with much larger negative movements during recessions than positive movements in expansions, suggesting that this particular form of business cycle asymmetry is an intrinsic characteristic of industrialized economies. Furthermore, the estimated output gap is strongly negatively correlated with future output growth and unemployment and positively correlated with capacity utilization in each case. It also implies a convex Phillips Curve in many cases. |
| Keywords: | output gap; model averaging; business cycle asymmetry; convex Phillips Curve |
| JEL: | E32 E37 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2016-12&r=mac |
| By: | Paul Hubert (Observatoire français des conjonctures économiques); Fabien Labondance (Observatoire français des conjonctures économiques) |
| Abstract: | We explore empirically the theoretical prediction that waves of optimism or pessimism may have aggregate effects, in the context of monetary policy. We investigate whether the sentiment conveyed by ECB and FOMC policymakers in their statements affect the term structure of private short-term interest rate expectations. First, we quantify central bank tone using a computational linguistics approach. Second, we identify sentiment as exogenous shocks to these quantitative measures using an augmented narrative approach following the information friction literature. Third, we estimate the impact of sentiment on private agents’ expectations about future short-term interest rates using a high-frequency methodology and an ARCH model. We find that sentiment shocks increase private interest rate expectations around maturities of one and two years. We also find that this effect is non-linear and depends on the state of the economy and on the characteristics (precision, sign and size) of the sentiment signal. |
| Keywords: | Animal spirits; Optimism; Confidence; Central Bank communication; Interest rate expectations; ECB; FOMC |
| JEL: | E43 E52 E58 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/7mota32nad8aopst8f7d5aebpo&r=mac |
| By: | Paul Hubert (Observatoire français des conjonctures économiques); Fabien Labondance (Observatoire français des conjonctures économiques) |
| Abstract: | We explore empirically the theoretical prediction that waves of optimism or pessimism may have aggregate effects, in the context of monetary policy. We investigate whether the sentiment conveyed by ECB and FOMC policymakers in their statements affect the term structure of private short-term interest rate expectations. First, we quantify central bank tone using a computational linguistics approach. Second, we identify sentiment as exogenous shocks to these quantitative measures using an augmented narrative approach following the information friction literature. Third, we estimate the impact of sentiment on private agents’ expectations about future short-term interest rates using a high-frequency methodology and an ARCH model. We find that sentiment shocks increase private interest rate expectations around maturities of one and two years. We also find that this effect is non-linear and depends on the state of the economy and on the characteristics (precision, sign and size) of the sentiment signal. |
| Keywords: | Animal spirits; Optimism; Confidence; Central bank communication; Interest rate expectations |
| JEL: | E52 E58 E43 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/4evh7bju58uep3gd1frcn5nr9&r=mac |
| By: | Javier Andrés (University of Valencia); Óscar Arce (Banco de España); Carlos Thomas (Banco de España) |
| Abstract: | We analyze the interaction between fiscal consolidation and private-sector deleveraging in an economy within a monetary union. Pre-existing long term collateralized private debt – a core ingredient of the deleveraging process – plays a critical role in shaping fiscal multipliers. By buffering the short-run fall in debtors’ spending capacity, long-run private debt reduces the short-run multipliers of aggressive (large and/or fast) consolidations. However, absent credibility concerns, aggressive consolidations raise the intensity and length of private deleveraging, causing higher output losses over the medium run. In terms of discounted output losses and welfare, this latter effect dominates, so that larger and faster consolidations are relatively costlier than smaller and more gradual ones. Also, in this environment, alternative budgetary instruments generate sizable differences in terms of their incidence on private deleveraging dynamics and, hence, on the overall output costs of fi scal consolidations. |
| Keywords: | fiscal consolidations, long term private debt, financial shock. |
| JEL: | E62 E44 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1622&r=mac |
| By: | Elizabeth C. Klee; Zeynep Senyuz; Emre Yoldas |
| Abstract: | Money markets have been operating under a new monetary policy implementation framework since the Federal Reserve started paying interest on bank reserves in late 2008. The regulatory environment has also evolved substantially over this period. We develop and test hypotheses regarding the effects of changes in the monetary and regulatory policy on dynamics of key overnight funding markets. We find that the federal funds rate continued to provide an anchor, albeit weaker, for unsecured funding rates amid substantial decline in activity and changing composition of trades, while its transmission to the repo market had been hampered. The overnight reverse repurchase (ON RRP) operations that started in late 2013 contributed to stronger co-movement among overnight funding rates and markedly reduced their volatility. The change in the FDIC assessment fees and Basel III leverage ratio regulations have exacerbated financial-reporting-day effects in unsecured markets. In contrast, consistent with lower dealer leverage in the post-crisis period, such effects have weakened in the repo market, especially after the inception of the ON RRP facility. Finally, superabundant bank reserves appear to have significantly diminished the effects of reserve-maintenance on the money market rates. |
| Keywords: | Overnight money markets ; Federal funds ; Repo ; Eurodollar ; Commercial paper ; VAR models ; GARCH models |
| JEL: | C32 E43 E52 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2016-84&r=mac |
| By: | Serrano, Franklin (Federal University of Rio de Janeiro); Summa , Ricardo (Federal University of Rio de Janeiro) |
| Abstract: | In this paper we analyze the evolution of Brazilian inflation under the inflation targeting system from a cost-push perspective. We identify the main features of three quite distinct phases (1999-2003, 2004-2009 and 2010-2014) and explain them in terms of tradable price trends in local currency, changes in the dynamics of monitored prices and behavior of wage inflation. We conclude that the trend towards continuous nominal exchange rate devaluation after mid-2011, together with the strengthening of the bargaining power of workers and the trend of rising real wages since 2006, means that distributive conflicts in Brazil are getting much more intense. We also suggest that the apparently very irrational recent (early 2015) change in the orientation of economic policy towards contractionary fiscal, incomes and monetary policies in a stagnating economy seems to be ultimately based on the desire to weaken the bargaining power of workers that was much strengthened during the brief but intense Brazilian “golden age” of 2004-2010. |
| Keywords: | Cost-Push inflation; Inflation Target System; Functional Income Distribution; Brazilian Economy |
| JEL: | B51 E31 E58 |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sraffa:0014&r=mac |
| By: | Bredemeier, Christian (University of Cologne); Gravert, Jan (University of Wuppertal); Juessen, Falko (University of Wuppertal) |
| Abstract: | Estimates of Frisch labor-supply elasticities are biased in the presence of borrowing constraints. We show that this estimation bias is less pronounced for secondary than for primary earners. The reason is that, in households with two earners and joint borrowing constraints, wage-rate fluctuations of the secondary earner are less important for the couples’ willingness to borrow than wage-rate changes of the primary earner. We illustrate the differential estimation bias in the framework of an incomplete-markets model with two-earner households and provide empirical support using PSID data. We show that Frisch elasticities can be estimated more consistently in samples of secondary earners. Our empirical results show that Frisch elasticities are larger than often reported in microeconometric studies. Further, we show that differences in labor-supply elasticities of men and women are overestimated when borrowing constraints are ignored. |
| Keywords: | labor-supply elasticity, incomplete markets, double-earner households |
| JEL: | E24 J16 J22 E21 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10267&r=mac |
| By: | Ding, Lei (Federal Reserve Bank of Philadelphia) |
| Abstract: | While the preventive effect of loan modifications on mortgage default has been well-documented, evidence on the broad consequences of modifications has been fairly limited. Based on two unique loan-level data sets with borrower credit profiles, this study reports novel empirical evidence on how homeowners manage their credit before and after receiving modifications. The paper has several main findings. First, loan modifications improve borrowers’ overall credit standing and access to credit. Modifications that provide principal reduction, rate reduction, or greater payment relief, as well as those received by borrowers not in financial catastrophe, lead to a larger improvement in borrowers’ credit rating than others. Second, loan modifications lead to a slight increase in borrowers’ debts, primarily on home equity line of credit (HELOC) accounts and auto loans. Third, borrowers’ performance on nonmortgage accounts, however, has not been negatively impacted by modifications. This study demonstrates that interventions designed to improve household balance sheets could have a direct and sizable impact on borrower financial outcomes. |
| Keywords: | loan modification; credit score; credit performance; mortgages |
| JEL: | D12 E20 E51 E65 G21 |
| Date: | 2016–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:16-26&r=mac |
| By: | Roger Alejandro Banegas-Rivero (Instituto de Investigaciones Económicas y Sociales 'José Ortiz Mercado' (IIES-JOM), Universidad Autónoma Gabriel René Moreno.); Reyna Vergara (Facultad de Economía, Universidad Autónoma del Estado de México) |
| Keywords: | Fiscal stance, price shocks, assignment of fiscal revenues, public spending |
| JEL: | E31 E62 E64 H50 H63 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:grm:wpaper:201606&r=mac |
| By: | Andrejs Bessonovs (Bank of Latvia); Olegs Tkacevs (Bank of Latvia) |
| Abstract: | This paper studies the relationship between inflation and economic slack in Latvia with a particular focus on its time variation. The results suggest that the Phillips curve for Latvia had been steepening before the crisis against the backdrop of rising inflation. In the more recent years, there has been tentative evidence of the Phillips curve flattening as Latvia's economy entered a period of very low inflation. If the current trend of an even weaker response of inflation to economic activity in Latvia persists and proves to be statistically significant, unconventional monetary policy instruments may be of limited effectiveness to control inflation in Latvia. This calls for structural reforms aimed at increasing competition and reducing price stickiness. |
| Keywords: | inflation, Phillips curve, business cycles, Bayesian estimation |
| JEL: | C32 C51 E31 E52 |
| Date: | 2016–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:ltv:wpaper:201603&r=mac |
| By: | Chaouech, Olfa |
| Abstract: | This paper estimates the Taylor rule under the statistical version, then the dynamic version of the Central bank of Tunisia (CBT), using monthly data from 1995 M1 to 2015 M12. The empirical results indicate that the CBT follows the Taylor rule in its dynamic version. |
| Keywords: | GMM Monetay Policy Taylor rule Reaction function |
| JEL: | E43 E51 E52 |
| Date: | 2015–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74628&r=mac |
| By: | Alan S. Blinder; 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 that tool positively. Finally, the relationship between central banks and their governments might well have changed, with central banks “crossing the line” more often than in the past. |
| JEL: | E52 E58 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22735&r=mac |
| By: | Andrés Álvarez |
| Abstract: | En este trabajo se analiza la evolución de la Curva de Beveridge (CB) para Colombia entre 1976 y 2014. Aprovechando la disponibilidad reciente de datos trimestrales de tasas de vacantes nacionales recolectados por el Banco de la República se propone una cronología de la evolución de la relación entre vacantes y desempleo de estas cuatro últimas décadas. Mediante un modelo estructural de vectores autorregresivos, basado en la teoría del emparejamiento (matching) se descomponen los choques del ciclo económico, los cambios estructurales en la función de emparejamiento y los de participación laboral. Se concluye que desde mediados de la década de 1980s la CB en Colombia se desplazó estructuralmente debido a una combinación de dos factores: 1) un choque negativo a la actividad económica posterior a la crisis que se presenta en ese período que confluye con 2) un deterioro en las condiciones estructurales del mercado laboral que venían deteriorando la función de emparejamiento debido al descalce entre oferta y demanda con respecto a la calificación de la mano de obra. Desde finales de la primera década del siglo XXI parece haber mejorado la eficiencia del mercado laboral de manera que los efectos negativos del ciclo económico de 2008 no afectaron de la misma forma la tasa de desempleo como en épocas anteriores. Esto sugiere que la tasa de desempleo de largo plazo presenta una tendencia a la disminución, evidenciada en mejoras en la eficiencia del mercado laboral. Classification JEL: E24, E32, J23, J6 |
| Keywords: | Curva Beveridge, fricciones del mercado laboral, desempleo, VAR estructural, función de emparejamiento. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:962&r=mac |
| By: | Ugo Albertazzi (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Stefano Siviero (Bank of Italy) |
| Abstract: | This paper examines the history and the determinants of bank profits in Italy from 2005-15. We first identify a number of key stylized facts by comparing the income statement of Italian lenders with that of banks in other European countries. The comparison suggests that the profitability gap of Italian banks is partly related to a business model characterized by a more conservative positioning along the risk-return frontier. We then use the Bank of Italy’s Quarterly Model of the Italian Economy to provide quantitative estimates of the impact of four factors (the economic activity growth rate, taxation of bank income, dynamics of operating costs and dividend policy) on profits, regulatory capital and bad debt. Our counterfactual simulations suggest that the weak growth of the Italian economy is responsible for a sizeable share of the profitability gap of Italian banks, being by far the main driver of the increase in bad debts in the last decade; nonetheless, the impact of the other factors on their profitability (and capitalization) is far from negligible. |
| Keywords: | bank profits, bank capital, non-performing loans, Italian banks, Italian economy |
| JEL: | E37 E44 E47 G21 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_364_16&r=mac |
| By: | Jean Boivin; Marc P. Giannoni; Dalibor Stevanovic |
| Abstract: | We examine the dynamic effects of credit shocks using a large data set of U.S. economic and financial indicators in a structural factor model. An identified credit shock reflecting an unexpected deterioration in credit market conditions results in an immediate increase in credit spreads, a decrease in yields of Treasury securities, and causes large and persistent downturns in the activity of many economic sectors. Such shocks are found to have important effects on real activity measures, labor market indicators, aggregate prices, and leading indicators. Our identification procedure which imposes restrictions on the impact response of a small number of economic indicators yields interpretable estimated factors. |
| Keywords: | Credit shocks, FAVAR, structural factor analysis, |
| JEL: | C55 C32 E32 E44 |
| Date: | 2016–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2016s-55&r=mac |
| By: | Arvind Krishnamurthy; Jennie Bai; Charles-Henri Weymuller |
| Abstract: | This paper implements a liquidity measure, “Liquidity Mismatch Index (LMI),” to gauge the mismatch between the market liquidity of assets and the funding liquidity of liabilities. We construct the LMIs for 2882 bank holding companies during 2002-2014 and investigate the time-series and cross-sectional patterns of banks' liquidity and liquidity risk. Aggregate banking sector liquidity worsens from +$4 trillion before the crisis to -$6 trillion in 2008, and reverses back to the pre-crisis level in 2009. We also show how a macro-prudential liquidity stress test can be conducted with the LMI metric, and that such a stress test could have revealed the fragility of the banking system in early 2007. In the cross section, we find that banks with more ex-ante liquidity mismatch have a higher stock-market crash probability and are more likely to borrow from the government during the financial crisis. Thus the LMI measure is informative regarding both individual bank liquidity risk as well as the liquidity risk of the entire banking system. We compare the LMI measure of liquidity to other measures such as Basel III's liquidity coverage ratio and net stable funding ratio, and show that LMI performs better in many dimensions. The outperformance of LMI partially results from the contract-specific time-varying liquidity sensitivity weights which are driven by market prices. |
| JEL: | E44 E51 G21 G28 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22729&r=mac |
| By: | Mathias Klein |
| Abstract: | This study provides empirical evidence that the costs of austerity crucially depend on the level of private indebtedness. In particular, fiscal consolidations lead to severe contractions when implemented in high private debt states. Contrary, fiscal consolidations have no significant effect on economic activity when private debt is low. These results are robust to alternative definitions of private debt overhang, the composition of fiscal consolidations and controlling for the state of the business cycle and government debt overhang. I show that deterioration in household balance sheets is important to understand private debt-dependent effects of austerity. |
| Keywords: | Fiscal consolidation, Private debt, Local projection |
| JEL: | C23 E32 E62 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1611&r=mac |
| By: | Mario Alloza (Bank of Spain; Centre for Macroeconomics (CFM)) |
| Abstract: | This paper investigates how taxes affect relative mobility in the income distribution in the US. Household panel data drawn from the PSID between 1967 and 1996 is employed to analyse the relationship between marginal tax rates and the probability of staying in the same income decile. Exogenous variation in marginal tax rates is identified by using counterfactual rates based on legislated changes in the tax schedule. I find that higher marginal tax rates reduce income mobility. An increase in one percentage point in marginal tax rates causes a decline of around 0.8% in the probability of changing to a different income decile. Tax reforms that reduce marginal rates by 7 percentage points are estimated to account for around a tenth of the average movements in the income distribution in a year. Additional results suggest that the effect of taxes on income mobility differs according to the level of human capital and that it is particularly significant when considering mobility at the bottom of the distribution. |
| Keywords: | Income mobility, Inequality, Marginal tax rate |
| JEL: | E24 E62 D31 D63 H24 H31 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1632&r=mac |
| By: | Mumtaz, Kinza; Munir, Kashif |
| Abstract: | The study aimed to analyze twin deficit hypothesis in South Asian countries i.e. Bangladesh, India, Pakistan and Sri Lanka. The study also intended to examine the Ricardian Equivalence Hypothesis and Feldstein Horioka Puzzle. For achieving these objectives the study used annual time series data from 1981 to 2014. Autoregressive distributed lag model (ARDL) bound testing approach for cointegration and Granger causality through VAR test have been employed for estimation. Results found no evidence of twin deficit hypothesis in all countries in the long run. While, findings of causality test exhibits no relationship among current account deficit, budget deficit and private saving investment balance except for Bangladesh where bidirectional relationship exists between budget deficit and current account balance in short run. Results support Ricardian equivalence hypothesis only for India and Pakistan while Feldstein Horioka Puzzle is rejected in both these countries implying high international capital mobility and financial integration. The study suggests that in South Asia fiscal and trade sectors reforms and perfect integration of capital markets are required to stabilize the economy. |
| Keywords: | Twin Deficit, Ricardian Equivalence, Feldstein Horioka Puzzle, ARDL, South Asia |
| JEL: | C32 E21 F32 O53 |
| Date: | 2016–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74592&r=mac |
| By: | Russell Cooper; Huacong Liu |
| Abstract: | This paper studies mismatch in educational attainment. Mismatch arises when high ability individuals do not obtain a college degree and/or low ability individuals do obtain such a degree. Using data from the NLSY97 survey, the paper estimates a structural model of education choice that matches the moments of mismatch, college attainment and labor market outcomes. The analysis conditions on both gender and race. The model with occasionally binding borrowing constraint fits the moments better than a model with perfect capital markets, indicating that capital market frictions may contribute to mismatch. The influence of parents on educational attainment is present though this channel appears to operate through attitudes rather than through the provision of resources. Once this link between parents and children is taken into account, the influence of borrowing constraints disappears. In this case, mismatch reflects differences in tastes rather than borrowing constraints. The paper also presents a decomposition of the college wage premium into the returns to schooling and the selection into higher education. The analysis highlights the power of selection into higher education as an explanation of the college wage premium by gender and race. |
| JEL: | E21 E24 I21 I23 I26 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22734&r=mac |
| By: | André M. Marques; Gilberto Tadeu Lima, Vicotr Troster |
| Abstract: | The 2008 economic downturn in the United States resulted in a wave of contractionary effects across many OECD countries. Because of its severity, the Great Recession may have worsened the pattern of unemployment persistence across these countries, where the unemployment rate has remained higher than its pre-crisis levels. This paper investigates the pattern of the rate of unemployment in the United States and other 28 OECD countries before and after the 2008 Great Recession. To detect possible changes in the pattern of unemployment persistence in OECD countries, we employ a mean bias-corrected estimation of the persistence parameter with a rolling window of five years. In addition, we estimate the most likely date of change in the trend function of unemployment to test whether there was any significant change in the pattern of unemployment persistence after the Great Recession. Finally, we propose and apply a bootstrap permutation test to verify whether the magnitude of the half-lives and impulse response functions across OECD countries have changed after the Great Recession. |
| Keywords: | Unemployment rate; Unit root tests; Structural breaks; Half-lives |
| JEL: | C22 E24 |
| Date: | 2016–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2016wpecon16&r=mac |
| By: | Jung, Philip; Kuhn, Moritz |
| Abstract: | Large and persistent earnings losses following displacement have adverse consequences for the individual worker and the macroeconomy. Leading models cannot explain their size and disagree on the sources. Two mean-reverting forces make earnings losses transitory in these models: search as an upward force allows workers to climb back up the job ladder; and separations as a downward force make non-displaced workers fall down the job ladder. We show that job stability at the top rather than search frictions at the bottom is the main driver of persistent earnings losses. We provide new empirical evidence on job stability and develop a life-cycle search model to explain the facts. Our model offers a quantitative reconciliation of key stylized facts of the U.S. labor market: large worker flows, a large share of stable jobs, and persistent earnings shocks. We explain the size of earnings losses by dampening the downward force. Regarding the sources, we find that over 85 % stem from the loss of a particularly good job at the top of the job ladder. We apply the model to study the effectiveness of two labor market policies, retraining and placement support, from the Dislocated Worker Program. We find that both are ineffective in reducing earnings losses in line with the program evaluation literature. |
| Keywords: | Earnings Losses; Job tenure; Lifecycle labor market mobility; Worker- and match-specific skills |
| JEL: | E24 J63 J64 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11572&r=mac |
| By: | Colin Caines |
| Abstract: | Explaining asset price booms poses a difficult question for researchers in macroeconomics: how can large and persistent price growth be explained in the absence large and persistent variation in fundamentals? This paper argues that boom-bust behavior in asset prices can be explained by a model in which boundedly rational agents learn the process for prices. The key feature of the model is that learning operates in both the demand for assets and the supply of credit. Interactions between agents on either side of the market create complementarities in their respective beliefs, providing an additional source of propagation. In contrast, the paper shows why learning involving only one side on the market, which has been the focus of most of the literature, cannot plausibly explain persistent and large price booms. Quantitatively, the model explains recent experiences in US housing markets. A single unanticipated mortgage rate drop generates 20 quarters of price growth whilst capturing the full appreciation in US house prices in the early 2000s. The model is able to generate endogenous liberalizations in household lending conditions during price booms, consistent with US data, and replicates key volatilities of housing market variables at business cycle frequencies. |
| Keywords: | Learning ; Non-rational expectations ; House prices ; Boom-bust cycles |
| JEL: | E30 E17 D83 G12 R30 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1181&r=mac |
| By: | Elliot Aurissergues (PSE - Paris School of Economics) |
| Abstract: | In this paper, I develop an alternative story to explain the role of financial frictions in business cycles theory. In most papers in the field, external finance costs are justified by a moral hazard problem. An entrepreneur can run away with some firm assets and that possibility prevents her to pledge the whole value of the firm to external lenders. By contrast, corporate finance literature have emphasized adverse selection problems to depart from the Modigliani Miller framework. Technical considerations partly explain these different choices. Moral hazard problems are far less credible for well established firms in financially developed economy but are simpler to study than adverse selection and easier to integrate into a macroeconomic framework. It could be an acceptable compromise if the two friction leads to similar consequences. It is in some extent true for one period project but not in a more dynamic environment. Our main contribution is to show that moral hazard and adverse selection may differ widely in this respect. Whereas the first leads to a leverage constraint on total assets, the second leads to leverage constraint on new investment regardless of the past financial structure of the firm. We also show that adverse selection problem are relevant for both equity and debt contract but requires to explain why capital is not diversified initially. |
| Keywords: | adverse selection,Financial frictions, risk spread, leverage, corporate investment |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01348574&r=mac |
| By: | Clark, Todd E. (Federal Reserve Bank of Cleveland); Carriero, Andrea (Queen Mary, University of London); Massimiliano, Marcellino (Bocconi University, IGIER and CEPR) |
| Abstract: | We propose a new framework for measuring uncertainty and its effects on the economy, based on a large VAR model with errors whose stochastic volatility is driven by two common unobservable factors, representing aggregate macroeconomic and financial uncertainty. The uncertainty measures can also influence the levels of the variables so that, contrary to most existing measures, ours reflect changes in both the conditional mean and volatility of the variables, and their impact on the economy can be assessed within the same framework. Moreover, identification of the uncertainty shocks is simplified with respect to standard VAR-based analysis, in line with the FAVAR approach and with heteroskedasticity-based identification. Finally, the model, which is also applicable in other contexts, is estimated with a new Bayesian algorithm, which is computationally efficient and allows for jointly modeling many variables, while previous VAR models with stochastic volatility could only handle a handful of variables. Empirically, we apply the method to estimate uncertainty and its effects using US data, finding that there is indeed substantial commonality in uncertainty, sizable effects of uncertainty on key macroeconomic and financial variables with responses in line with economic theory. |
| Keywords: | Bayesian VARs; stochastic volatility; large datasets; |
| JEL: | C11 C13 C33 C55 E44 |
| Date: | 2016–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1622&r=mac |
| By: | Camille Cornand (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Cheick Kader M'Baye (Université de Bamako - Université de Bamako) |
| Abstract: | We conduct laboratory experiments with human subjects to test the rationale of adopting a band versus point inflation targeting regime. Within the standard New Keynesian model, we evaluate the macroeconomic performances of both regimes according to the strength of shocks affecting the economy. We find that when the economy faces small shocks, the average level of inflation as well as its volatility are significantly lower in a band targeting regime, while the output gap and interest rate levels and volatility are significantly lower in a point targeting regime with tolerance bands. However, when the economy faces large shocks, choosing the suitable inflation targeting regime is irrelevant because both regimes lead to comparable performances. These findings stand in contrast to those of the literature and question the relevance of clarifying a mid-point target within the bands, especially in emerging market economies more inclined to large and frequent shocks. |
| Keywords: | Band inflation target, point inflation target, inflation expectations, monetary policy, New Keynesian model, macroeconomic shocks, laboratory experiments |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01313095&r=mac |
| By: | John Ameriks; Joseph Briggs; Andrew Caplin; Matthew D. Shapiro; Christopher Tonetti |
| Abstract: | Individuals face significant late-in-life risks, including needing long-term care (LTC). Yet, they hold little long-term care insurance (LTCI). Using both “strategic survey questions,” which identify preferences, and stated demand questions, this paper investigates the degree to which a fundamental lack of interest and poor product features determine low LTCI holdings. It estimates a rich set of individual-level preferences and uses a life-cycle model to predict insurance demand, finding that better insurance would be far more widely held than are products in the market. Comparing stated and model-predicted demand shows that flaws in existing products provide a significant, but partial, explanation for this under-insurance puzzle. |
| JEL: | D14 D91 E21 G22 H31 I13 J14 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22726&r=mac |
| By: | Luisito Bertinelli (CREA, Université du Luxembourg); Olivier Cardi (LEO, Université de Tours, Université de Paris 2, CRED); Romain Restout (BETA, Université de Lorraine - IRES, Université catholique de Louvain) |
| Abstract: | This paper develops a tractable version of a two-sector open economy model with search frictions in order to account for the relative price and relative wage effect of technology shocks biased toward the traded sector. Using a panel of eighteen OECD countries, our estimates show that higher productivity in tradables relative to non trad- ables causes an appreciation in the relative price of non tradables along with a decline in non traded relative to traded wages while both responses display a considerable dis- persion across countries. The fall in the relative wage reveals the presence of mobility costs preventing wage equalization across sectors, while the cross-country dispersion in the relative wage responses suggest differences in labor market regulation. Using a set of indicators capturing the heterogeneity of labor market frictions across economies, we find that the relative wage significantly declines more and the relative price appreciates less in countries where labor market regulation is more pronounced. We show that these empirical findings can be rationalized in a two-sector open economy model with search in the labor market as long as we allow for an endogenous sectoral labor force participation decision. When we calibrate the model to country-specific data, the model performs well in reproducing the cross-country pattern in the relative wage responses and to a lesser extent in the relative price changes. While the responses of the relative wage and the relative price display a wide dispersion across countries, both display a significant negative relationship with labor market regulation. |
| Keywords: | Productivity differential; Sectoral wages; Relative price of non tradables; Search theory; Labor market institutions; Labor mobility. |
| JEL: | E24 F16 F41 F43 J65 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:16-14&r=mac |
| By: | Fornaro, Paolo; Luomaranta, Henri |
| Abstract: | We contribute to the extensive literature on the relationship between firm size and job creation, by examining the effects of dependencies between enterprises. Using Finnish monthly data encompassing the population of Finnish private businesses, we calculate the gross job creation and destruction, together with the net job creation, for different size classes and industries. Importantly, we divide firms into a dependent (i.e. owned, at least partially, by a large company) and independent category. Due to the quality of the data, we are able to isolate the 'organic' growth of firms, disregarding the effects of mergers, split-offs and other legal restructuring. We find that independent companies have shown a considerably higher net job creation, regardless of their size class. However, dependent firms do not show particularly different behaviors with respect to the sensitivity to aggregate conditions, compared to their independent counterparts. Once we control for age, we find that independent firms generate more (net) jobs during the early years of their existence but destroy more jobs once they become older. |
| Keywords: | Dependencies, firm size, firm age, employment creation |
| JEL: | D22 E24 E32 L25 |
| Date: | 2016–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:rif:wpaper:44&r=mac |
| By: | Benford, James (Bank of England); Joy, Mark (Bank of England); Kruger, Mark (Bank of Canada) |
| Abstract: | While the idea of governments issuing financial instruments whose repayments are indexed to gross domestic product (GDP) is not new, the current global backdrop of high sovereign debt coupled with low interest rates and weak and uncertain nominal growth prospects suggests the case for doing so may be especially strong now. This paper discusses the pros and cons of GDP-linked bonds, looks at when it might be most beneficial to issue, how investors might benefit, and possible ways of addressing the first-mover problem. The aim of this paper is to stimulate debate rather than provide answers. |
| Keywords: | Sovereign debt; sovereign default; fiscal policy; debt management; GDP-linked bonds |
| JEL: | E62 F34 G12 G13 G15 |
| Date: | 2016–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:boe:finsta:0039&r=mac |
| By: | Ryo Arawatari (Graduate School of Economics, Nagoya University); Tetsuo Ono (Graduate School of Economics, Osaka University) |
| Abstract: | We consider a cross-country difference of age gap in voter turnout and its im- pact on fiscal policymaking in a multi-country, overlapping-generations model. We present con ict over fiscal policy between successive generations (i.e., the young and elderly). We show that higher turnout of the elderly in voting may have a non- monotone effect on the size of government debt, depending on voters' inter-temporal elasticity of substitution of public expenditure. |
| Keywords: | fiscal policy; voter turnout; public debt; probabilistic voting; small open economies. |
| JEL: | D70 E62 H63 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1624&r=mac |
| By: | Panico, Carlo (Università degli Studi di Napoli "Federico II" (Federico II University of Naples)); Pinto, Antonio (Università degli Studi di Napoli "Federico II" (Federico II University of Naples)) |
| Abstract: | The paper deals with the influence of the size of financial industry on income distribution. In opposition to Piketty’s position, it argues that the wage share is influenced by changes in the size of the sectors of the economy, by the input composition of the productive structure and by the ability of the workers to capture the increases in productivity. The process of financialization experienced in the recent decades has affected these three elements. Among other things, it has enhanced the ability of the banking industry to affect the formation of monetary policy and legislation, which in turn can have had some bearing on the workers’ ability to appropriate the increases in productivity. After describing Piketty’s interpretation of the rise in inequality and discuss his views on the theories of distribution, the paper illustrates different representations of the financial sector proposed by the literature, underlining the relevance of considering this sector as an industry. By following these lines the pa-per describes how an enlarged size of the banking industry can increase inequality. |
| Keywords: | Income distribution; growth; financial industry; financialization; multi-sectorial models |
| JEL: | D30 E10 E44 G20 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sraffa:0015&r=mac |
| By: | Apostolos Serletis (University of Calgary); Libo Xu (University of Calgary) |
| Abstract: | The fiscal theory of the price level represents a significant departure from the quantity theory of money, as it implies that active (non-Ricardian) fiscal policy provides the nominal anchor and determines the price level. In this paper we take a first pass at integrating discussion of financial frictions and the fiscal theory of the price level. We first present empirical evidence in support of non-Ricardian fiscal policy, and then discuss the fiscal theory of the price level in a world with financial frictions. After illustrating how the financial friction influences the price level, we provide a theoretical explanation to our empirical findings. We also argue that the financial friction, which is related to fiscal policy, provides an additional instrument tool to the fiscal authority and an advantage over the monetary authority inchoosing the equilibrium. |
| Date: | 2016–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:clg:wpaper:2016-42&r=mac |
| By: | FAKHRI, ISSAOUI |
| Abstract: | According to my own thought I can assume that Economists often use the concept of long-term, without knowing that the said concept is the moment in which the major crises trigger. When the optimistic replaces the economic pessimism, the short-terms are born and the economic agents reproduce their stupid behavior which consists on the purchase of future transactions by the fictional creation of the money. The time, at the time of crises, increases speed by trying to settle transactions that occurred in previous periods in differentiated time horizons Present / Future. |
| Keywords: | Time, Long run, money neutrality |
| JEL: | E4 E41 E5 |
| Date: | 2016–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74589&r=mac |
| By: | Haq, Tariq.; Zaki, Chahir. |
| Abstract: | This paper by Tariq Haq and Chahir Zaki seeks to shed light on the nexus between macroeconomic policies and employment in Egypt through three approaches. First, it provides a detailed analysis of each macroeconomic policy area in Egypt and reflects on its relationship with employment creation. Second, an empirical approach is used to provide evidence of the impact of each macroeconomic policy on employment. Finally, on the basis of these analyses, the paper offers a range of pertinent policy recommendations in order to improve employment and labour market conditions in Egypt during its transition. |
| Keywords: | employment creation, macroeconomics, economic policy, fiscal policy, Egypt, création d'emploi, macroéconomie, politique économique, politique fiscale, Egypte, creación de empleos, macroeconomía, política económica, política fiscal, Egipto |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ilo:ilowps:994894173402676&r=mac |
| By: | Hollmayr, Josef; Kühl, Michael |
| Abstract: | In this paper, we examine the influence of information rigidities concerning the net worth of banks on the real economy over time. In a first part, we show empirically that expectations about the net earnings of banks (as growth of net worth) are truly biased, particularly during the financial crisis. The forecast error of professional investors cannot be attributed to sticky information but rather to noisy information. Investors display a learning behavior with regard to past forecast errors in forming their expectations about future earnings during the crisis. In a second part, by drawing on a New Keynesian general equilibrium model with a banking sector, we demonstrate that, by quantitatively incorporating this type of information updating and expectations formation about the net worth of banks, noisy information can produce a slow recovery compared to a full information rational expectation case. |
| Keywords: | DSGE Model,Survey Data,Imperfect Information,Learning,Slow Recovery |
| JEL: | E3 E44 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:392016&r=mac |
| By: | Antoine Le Riche (AMSE - Aix-Marseille School of Economics - EHESS - École des hautes études en sciences sociales - Centre national de la recherche scientifique (CNRS) - Ecole Centrale Marseille (ECM) - AMU - Aix Marseille Université, Laboratoire GAINS - Université du Maine - UM - Université du Maine, CAC – IXXI - Complex Systems Institute - CAC – IXXI - Complex Systems Institute); Francesco Magris (LEO - Laboratoire d'économie d'Orleans - CNRS - Centre National de la Recherche Scientifique - UO - Université d'Orléans, CAC – IXXI - Complex Systems Institute - CAC – IXXI - Complex Systems Institute); Antoine Parent (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - École Nationale des Travaux Publics de l'État [ENTPE] - CNRS - Centre National de la Recherche Scientifique, IEP Lyon - Sciences Po Lyon - Institut d'études politiques de Lyon, CAC – IXXI - Complex Systems Institute - CAC – IXXI - Complex Systems Institute) |
| Abstract: | We study a productive economy with safe government bonds and fractional cash-in-advance constraint on consumption expenditures. Government issues bonds and levies taxes to finance public expenditures, while the Central Bank follows a feedback Taylor rules by pegging the nominal interest rate. We show that when the nominal interest rate is bound to be non-negative, under active policy rules a liquidity trap steady state does emerge besides the Leeper (1991) equilibrium. The stability of the two steady states depends, in turns, upon the amplitude of the liquidity constraint. When the share of consumption to be paid cash is set lower than one half, the liquidity trap equilibrium is unstable. The stability of Leeper equilibrium too depends dramatically upon the amplitude of the liquidity constraint. Policy and Taylor rules are thus theoretically rehabilitated since their targets, by contrast with a vast literature, may be now stable. We also show that a relaxation of the liquidity constraint is Pareto-improving and that the liquidity trap equilibrium Pareto-dominates the Leeper one, in view of the zero cost of money. |
| Keywords: | cash-in-advance,liquidity trap,monetary policy,multiple equilibria |
| Date: | 2016–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01313002&r=mac |
| By: | Shigeaki Fujiwara (Bank of Japan); Yuto Iwasaki (Bank of Japan); Ichiro Muto (Bank of Japan); Kenji Nishizaki (Bank of Japan); Nao Sudo (Bank of Japan) |
| Abstract: | The natural rate of interest is the real interest rate at which economic activity and prices neither accelerate nor decelerate. The basic mechanism of monetary easing -- regardless of whether it is conducted through conventional or unconventional policy means -- consists of driving the real interest rate below the natural rate of interest. Theoretically, therefore, in order to assess the effects of monetary easing, it is necessary to estimate the natural rate of interest, which is by nature unobservable, and determine whether the real interest rate is higher or lower, relative to the estimated natural rate of interest. This paper estimates the natural rate of interest using a number of different approaches. While the estimates differ to some extent depending on the approach taken, the estimation results suggest that it is likely that Japan's natural rate of interest is currently at a low level of around 0 percent. |
| Date: | 2016–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojrev:rev16e12&r=mac |
| By: | Marcella Lucchetta (Department of Economics, University Of Venice Cà Foscari); Michele Costola (Research Center SAFE, Goethe University Frankfurt.); Lorenzo Frattarolo (Department of Economics, University Of Venice Cà Foscari); Antonio Paradiso (Department of Economics, University Of Venice Cà Foscari) |
| Abstract: | The paper investigates the importance of modeling in cay estimations from a statistical and economic perspective by observing the stochastic trend, a thus far neglected component. In order to do this, we perform an empirical analysis on US secular annual data from 1900 to 2015 considering the cay with non-durables and services and the cay with total consumption expenditure. Findings show the usefulness of including the stochastic trend in cay estimation. Furthermore, out-of-sample statistical and economic significance tests show the ability of the cay model with trend to outperform the traditional cay measure. |
| JEL: | E21 C32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2016:24&r=mac |
| By: | Palley, Thomas. |
| Abstract: | In this succinct piece, the author makes a compelling case for ‘structural Keynesianism’ as a way of responding to the current mix of unsatisfactory growth and uneven progress in reducing unemployment at the global level. Traditional or ‘cyclical’ Keynesianism is, according to the author, good at dealing with short-run shortfalls in aggregate demand, but less able to cope with the structural dimensions of slow growth and slack labour market conditions. |
| Keywords: | macroeconomics, economic policy, employment creation, structural change, globalization, economic growth, model, macroéconomie, politique économique, création d'emploi, changement structurel, mondialisation, croissance économique, modèle, macroeconomía, política económica, creación de empleos, cambio estructural, globalización, crecimiento económico, modelo |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ilo:ilowps:994874713402676&r=mac |
| By: | Antoine Cazals (CERDI - Centre d'études et de recherches sur le developpement international - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique); Pierre Mandon (CERDI - Centre d'études et de recherches sur le developpement international - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Despite a long history of research on political budget cycles, their existence and magnitude are still in question. By conducting a systematic analysis of the existing literature we intend to clarify the debate. Based on data collected from over 1; 700 regressions and 57 studies, our meta-analysis suggests that leaders do manipulate fiscal tools in order to be re-elected but to an extent that is significantly exaggerated by scholars. However, we show the incumbents' strategy differs depending on which tools they leverage. Finally, we discuss in further details how authors' methodological choices and country institutions affect political budget cycles. |
| Keywords: | Political cycles , Budget manipulation , Meta-analysis |
| Date: | 2016–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01320586&r=mac |
| By: | Floriana, Cerniglia; Enzo, Dia; Andrew, Hughes Hallett; |
| Abstract: | Economists have traditionally used a simple rule that restricts primary deficits to less than a threshold given by the interest rate-growth rate differential and existing debt level to judge fiscal sustainability. This rule derives from a single period application of the government's budget constraint. It does not allow for the predictable dynamic effects of spending liabilities, such as entitlement spending. In this paper, we derive the equivalent dynamic rule for this case. It still depends on the interest-growth rate differential, but now includes a restriction on spending growth in relation to income growth. Several new results emerge. Debt remains stable; but the rate of convergence to stability varies with different parameters. And the growth in spending has to be less than a damping factor that controls convergence. This puts a limit on spending growth. To penalize the use of unpopular taxes further limits debt and the incentive to use debt finance. |
| Keywords: | Sustainable public debt, primary de cit rules, scal space. |
| JEL: | E62 H53 H63 I38 |
| Date: | 2016–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:351&r=mac |
| By: | Muqtada, Muhammed. |
| Abstract: | This study is inspired by the current debate on whether central banks, especially in the developing world, should pursue a single mandate or dual/multiple mandates. It examines the Bangladesh Bank’s (BB) aspiration to adopt a multiple mandates approach. These include, besides the objective of price stability, the promotion of “output, employment and real income”. In recent years, the BB has widened its developmental role to play its part in the national strategy of “inclusive growth”, and is seeking to model itself as a developmental central bank. According to an ILO content-analysis study of objectives and missions of central banks, Bangladesh is cited among the very few countries where the central bank has an explicit development objective. |
| Keywords: | economic reform, bank, monetary policy, price stabilization, employment security, Bangladesh, réforme économique, banque, politique monétaire, stabilisation des prix, sécurité de l'emploi, Bangladesh, reforma económica, banco, política monetaria, estabilización de los precios, seguridad en el empleo, Bangladesh |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ilo:ilowps:994873053402676&r=mac |
| By: | Khou, Vouthy.; Cheng, Oudom.; Leng, Soklong.; Meng, Channarith. |
| Abstract: | This study was undertaken by a team from the National Bank of Cambodia (NBC). It is a prime example of collaboration between a major national institution responsible for the conduct of monetary and financial policy and the ILO. |
| Keywords: | economic growth, bank, employment creation, Cambodia, croissance économique, banque, création d'emploi, Cambodge, crecimiento económico, banco, creación de empleos, Camboya |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ilo:ilowps:994878923402676&r=mac |
| By: | Vuillemey, Guillaume; Wasmer, Etienne |
| Abstract: | Bubbles are recurrent events, which contribute to both macroeconomic and employment volatility. We introduce stochastic bubbles in the standard search-and-matching model of the labor market. The economy alternates between latent and bubbly states, each being associated with a distinct solution for the market value of firms (respectively, stable or explosive). Bubbles in firm value induce distortions in hiring decisions and wages, which we explicitly characterize. Faced with bubbles, the social planner optimally deviates from the standard Hosios efficiency condition. The optimal share of workers in total surplus must be above the elasticity of hiring rates, by a small but increasing amount as the bubble expands. Finally, our specification for bubbles significantly improves the quantitative ability of the model to match U.S. data, along both real and financial dimensions. |
| Keywords: | bubbles; labor frictions; Unemployment volatility |
| JEL: | E32 J60 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11561&r=mac |
| By: | Girardi , Daniele (University of Siena); Pariboni, Riccardo (University of Siena) |
| Abstract: | According to the Sraffian supermultiplier model, economic growth is driven by autonomous demand (exports, public spending and autonomous consumption). This paper tests empirically some major implications of the model. For this purpose, we calculate time-series of the autonomous components of aggregate demand and of the supermultiplier for the US, France, Germany, Italy and Spain and describe their patterns in recent decades. Changes in output and in autonomous demand are tightly correlated, both in the long and in the short-run. The supermultiplier is substantially higher and more stable in the US, while in the European countries it is lower and decreasing. Where the supermultiplier is reasonably stable - i.e., in the US since the 1960s - autonomous demand and output share a common long-run trend (i.e, they are cointegrated). The estimation of a Vector Error-Correction model (VECM) on US data suggests that autonomous demand exerts a long-run effect on GDP, but also that there is simultaneous causality between the two variables. We then estimate the multiplier of autono-mous spending through a panel instrumental-variables approach, finding that a one dollar increase in autonomous demand raises output by 1.6 dollars over four years. A further implication of the model that we test against em-pirical evidence is that increases in autonomous demand growth tend to be followed by increases in the invest-ment share. We find that this is the case in all five countries. An additional 1% increase in autonomous demand raises the investment share by 0.57 percentage points of GDP in the long-run. |
| Keywords: | Growth; Effective Demand; Supermultiplier |
| JEL: | B51 E11 E12 O41 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sraffa:0013&r=mac |
| By: | Roger Alejandro Banegas-Rivero (Instituto de Investigaciones Económicas y Sociales 'José Ortiz Mercado' (IIES-JOM), Universidad Autónoma Gabriel René Moreno.); Reyna Vergara (Facultad de Economía, Universidad Autónoma del Estado de México) |
| Abstract: | In this paper related fiscal rules scenarios to developing countries dependent on natural resources were evaluated; a probabilistic approach was applied for the fiscal stance of Bolivia, a country that dependent on natural gas. The results suggested certain levels of natural resource revenues channeled to capital spending, limiting the current spending and accumulating budget surpluses in order to improve the prospect of public debt for the short and medium term. The introduction of fiscal rule reduced the volatility of public debt by comparing with a baseline scenario (without fiscal rule). |
| Keywords: | Fiscal rule scenarios, assignment of fiscal revenues to public spending, fiscal stance, developing countries, natural resources. |
| JEL: | E62 H62 H63 H68 O11 Q32 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:grm:wpaper:201607&r=mac |
| By: | Gábor Oblath |
| Abstract: | Following a prolonged period of economic decline and stagnation, Hungary’s GDP growth accelerated to 3.7% in 2014 and was close to 3% in 2015. The reasons for the country’s economic performance over the last six years are only partly related to the economic policies pursued since 2010. Deleveraging (the decrease in excessive debt, both at the macroeconomic and the microeconomic level) had a negative impact on Hungary’s growth performance between 2010 and 2013. However, the acceleration of growth observed in 2014 is also mainly due to “exogenous” factors, in particular exceptionally large transfers from EU funds, which have nothing to do with the government’s so-called “unorthodox” economic policy. The deteriorating institutional environment of the economy, in turn, is a direct consequence of this policy. Without fundamental improvements in the institutional environment and stability/predictability of economic policy, the country’s potential growth is expected to be rather low, implying a very slow convergence with the more affluent nations of the European Union and a divergence relative to the other central and eastern European member states of the EU. |
| Keywords: | Economic policy in Hungary, macroeconomic developments, international comparisons, EU transfers, institutional quality |
| JEL: | E65 E66 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:sec:bresem:0143&r=mac |
| By: | Bellino , Enrico (Università Cattolica del Sacro Cuore (Catholic University of the Sacred Heart)); Nerozzi, Sebastiano (Università degli studi di Palermo (University of Palermo)) |
| Abstract: | The formal representation of economic theories normally takes the shape of a model, that is, a system of equations which connect the endogenous variables with the values of the parameters which are taken as given. Sometimes, it is possible to identify one or more equations which are able to determine a subset of endogenous variables priory and independently of the other equations and of the value taken by the remaining variables of the system. The first group of equations and variables are thus said to causally determine the remaining variables. In Pasinetti’s works, this notion of causality has often been emphasized as a formal property having the burden of conveying a profound economic meaning. In this paper, we will go through those works of Pasinetti where the notion of causality plays a central role, with the purpose of contextualizing it within the econometric debate of the Sixties, enucleate its economic meaning, and show its connections with other fields of the modern classical approach. |
| Keywords: | causality; interdependence; modern classical approach; Ricardo distribution theory; Keynes’s analysis; ‘given quantities’; surplus approach; structural dynamics; vertical integration |
| JEL: | B00 B24 B51 C50 E12 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sraffa:0010&r=mac |
| By: | Anna Batyra (Bogazici University, Istanbul); David de la Croix (IRES - CORE, Université catholique de Louvain); Olivier Pierrard (Banque centrale du Luxembourg); Henri Sneessens (CREA, Université du Luxembourg - IRES, Université catholique de Louvain) |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:16-13&r=mac |
| By: | Norman V. Loayza (World Bank) |
| Abstract: | “Informality” is a term used to describe the collection of firms, workers, and activities that operate outside the legal and regulatory systems. It is widespread in the majority of developing countries—in a typical developing economy, the informal sector produces about 35 percent of gross domestic product and employs 70 percent of the labor force. This paper studies informality in the context of economic development by presenting a model and projections that link informality, regulations, migration, and economic growth. This analytical framework highlights the trade-offs between formality and informality, the relationship between the different types of informality, and the connection between them and the forces of labor, capital, and productivity growth. The paper models the behavior of the informal sector based on the following fundamental asymmetry: formal firms confront higher labor costs while informal firms face higher capital costs and lower productivity. Using mandated minimum wages as the policy-induced distortion, the model first studies the static allocation of formal and informal capital and labor in a modern economy. Second, it opens the possibility of labor migration from a rudimentary economy with an ample supply of labor (rural areas or less advanced neighboring countries). Third, the model analyzes the dynamic behavior of the formal and informal sectors, considering how they affect and are affected by economic growth and labor migration. Then, the paper presents projections for the size of labor informality, in the modern and rudimentary economies, in the next two decades for a large group of countries representing all regions of the world. The projections are based on the calibration and simulation of the model and serve to discuss its usefulness and limitations. |
| Keywords: | Shrinkage, Informality, Minimum Wage, Labor Costs, Economic Growth, Migration, Labor Market, Financial Constraints, Productivity |
| JEL: | E26 E24 J46 O17 O11 O15 O40 O47 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:2016-076&r=mac |
| By: | Carol Corrado; Olga Ukhaneva |
| Abstract: | This paper sets out a framework to estimate quality-adjusted price levels and price changes for fixed broadband services in OECD countries. We extend and adapt existing hedonic frameworks for international and interarea comparisons and consider the extended country product dummy approach. Hedonic pricing studies often are context and data dependent, and this study is no exception. We find that the multilevel structure of international broadband price datasets suggests modeling hedonic functions at the company level. This not only mitigates efficiency loss due to lack of subscriber information on individual plans but also allows for company costs and markups to influence estimates of hedonic function coefficients. Incorporating random variation in hedonic slope coefficients at the ISP level produces results that statistically dominate standard models where slope coefficients are the same across countries, and we suggest how price comparisons based on random coefficient hedonic models might be useful in telecommunications policy analysis. |
| Keywords: | comparability, broadband, price |
| JEL: | C23 C43 C82 E01 E31 F40 L16 L96 |
| Date: | 2016–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stiaaa:2016/7-en&r=mac |
| By: | Parrinello, Sergio (Università degli Studi di Roma "La Sapienza" (La Sapienza University of Rome)) |
| Abstract: | This paper is concerned with certain conditions under which an autonomous intended change in demand becomes effective. A simple model describes an economy, which initially is assumed in a steady state characterized by a given conventional wage rate, a uniform rate of profit and the existence of obsolete machines which are still used and receive quasi-rents, although not produced anymore. Small changes in effective demand, allowed by variable capacity utilization of fixed capital at given prices, are distinguished from large changes which affect the relative prices of commodities and the distribution of income. In both cases the steady state and the adjustment process towards a new steady state are compatible with unemployment; but large effective changes in demand require a higher flexibility of capacity utilization, compared with small changes. This occurs through a deviation of prices and income distribution from their normal values and a change in quasi rents, which make profitable a change in the types and the amounts of the obsolete machines in use. The distinction stressed in the paper is preliminary to the further distinction between impulse-wise and persistent changes in the rates of growth of demand, that is left as a research agenda. |
| Keywords: | growth; Keynesian analysis; capacity utilization; obsolete capital goods; long and short period analysis |
| JEL: | B50 E22 O40 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sraffa:0009&r=mac |
| By: | Chakraborty, Bidisha; Chakraborty, Kamalika |
| Abstract: | This paper builds an overlapping generations household economy model and examines the impact of unemployment on child labour and the child's human capital formation and growth through the expectation of adult regarding future employability. The economy consists of two sectors- skilled sector and unskilled sector. If one individual is employed in skilled sector she gets wage proportional to human capital whereas unskilled sector gives a fixed return. Expected future earning of child is included in the parental utility function. Parental choice of schooling vis-a-vis child work is considered. We study the effect of change in unemployment rate, child wage, adult skilled labour wage, adult unskilled labour wage, responsiveness of wage to skill level, change in school quality on schooling and human capital growth rate. We find that in this model the decision regarding full schooling or partial schooling or zero schooling of child is based on parental level of human capital as well as school quality. Increase in child wage will increase schooling and human capital growth rate only if adults earn less than subsistence consumption expenditure. We also find that as the responsiveness of skilled wage to human capital increases, schooling and rate of growth of human capital formation increase but if there is no unemployment then schooling hour and growth rate will be independent of responsiveness of wage to human capital, lower is the employment rate in the skilled sector, lesser is the time devoted to schooling by the child. Increase in unskilled adult wage may or may not decrease child labour. But if there is no unemployment increase in unskilled adult wage will result in decrease in the incidence of child labour and increase in schooling and rise in growth rate. The model dynamics exhibits the possibility of low level equilibrium trap. Suitable policies to escape child labour trap are discussed as well. |
| Keywords: | Low level equilibrium trap, Child labour, Unemployment, Human capital, Schooling |
| JEL: | E24 J21 J22 J24 O15 |
| Date: | 2016–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74621&r=mac |
| By: | Schefold, Bertram (Goethe University, Frankfurt am Main) |
| Abstract: | A stochastic approach has been introduced to explain the empirically observed fact that wage curves calculated from input-output systems tend to be nearly linear and that the paradoxes of capital appear to be rare. The stochastic approach allows to justify the simplifying treatment of normal prices common to 19th and early 20th century authors as diverse as Marx (transformation problem), Wicksell (old neoclassical equilibrium), J.B. Clark (neoclassical production function). It is shown that the likelihood of reverse capital deepening is much lower than that of Wicksell effects. With this, the likely characteristics of the wage frontier obtained from a multiplicity of input-output tables are derived. The conclusion summarises what we know and do not know about the validity of the Cambridge critique of capital. |
| Keywords: | Capital theory; Random matrices; Aggregate Production Function; Transformation problem; Wicksell effects |
| JEL: | B13 B14 E25 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:ris:sraffa:0019&r=mac |
| By: | Steven J. Davis |
| Abstract: | Building on Baker, Bloom and Davis (2016), I construct a monthly index of Global Economic Policy Uncertainty (GEPU) from January 1997. The GEPU Index is a GDP-weighted average of national EPU indices for 16 countries that account for two-thirds of global output. Each national EPU index reflects the relative frequency of own-country newspaper articles that contain a trio of terms pertaining to the economy, uncertainty and policy-related matters. The GEPU Index rises sharply in reaction to the Asian Financial Crisis, the 9/11 terrorist attacks, the U.S.-led invasion of Iraq in 2003, the Global Financial Crisis in 2008-09, the European immigration crisis, concerns about the Chinese economy in late 2015, and the Brexit referendum in June 2016. It fluctuates around consistently high levels from mid 2011 to early 2013, a period characterized by recurring sovereign debt and banking crises in the Eurozone, intense partisan battles over fiscal and healthcare policies in the United States, and a generational leadership transition in China. The average value of the GEPU Index is 60 percent higher from July 2011 to August 2016 than in the previous fourteen and one-half years and 22 percent higher than in 2008-09. |
| JEL: | D80 E66 G18 L50 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22740&r=mac |
| By: | Chronis, Panagiotis; Zombanakis, George A. |
| Abstract: | The scope of this note is to point out that high growth rates must be accompanied by current account surpluses financing the internal debt service as a necessary and sufficient condition for a debt-reduction strategy. The recipe is applied in the case of Greece which, looking back at the pre-crisis period, has been experiencing substantial consumption-led growth following extensive foreign borrowing. |
| Keywords: | Twin Deficits, Debt, Sustainability |
| JEL: | E63 |
| Date: | 2016–01–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74536&r=mac |
| By: | Di Bartolomeo Giovanni; Tirelli Patrizio |
| Abstract: | Recent literature shows that the inclusion of public transfers into New Keynesian models can solve the puzzling result of optimal zero inflation, which odds with both empirical evidence and monetary authorities' targets. The effect is due to the different incentives to finance public expenditures through taxes or seigniorage deriving from transfers and public consumption. By considering a richer framework this paper investigates how commonly-used features of New Keynesian models affect the incentive to use different instruments to finance public transfers, and, therefore, optimal inflation. Specifically, we consider the impact on inflation of different degrees of real distortions in goods and labor markets, sticky monopolistic wages, and price and wage indexation. We also take account of potentially non-unitary elasticity of the demand for money with respect to consumption by introducing consumption scale effects in the monetary transactions technology. |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:ter:wpaper:00128&r=mac |
| By: | Asongu, Simplice; Nwachukwu, Jacinta C. |
| Abstract: | The study assesses the role of mobile phones and mobile banking in decreasing inequality in 52 African countries. The empirical procedure involves first, examining the income-redistributive effect of mobile phone penetration and then investigating the contribution of mobile banking services in this relationship. The findings suggest an equalizing income-redistributive effect of ‘mobile phone penetration’ and ‘mobile banking’, with a higher income-equalizing effect from mobile banking compared to mobile phone penetration. Poverty alleviation channels explaining this difference in inequality mitigating propensity are discussed. |
| Keywords: | Banking; Mobile Phones; Shadow Economy; Financial Development; Africa |
| JEL: | E00 G20 L96 O17 O33 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74650&r=mac |
| 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: | Calvo; Rotemberg; Wage Phillips Curve; Wage stickiness |
| JEL: | E10 E30 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11568&r=mac |
| By: | Aleksandar Vasilev (Department of Economics, American University in Bulgaria) |
| Abstract: | This paper utilizes an otherwise standard micro-founded general-equilibrium setup, which is augmented with a revenue-extraction mechanism to assess the magnitude of VAT evasion. The model is calibrated to Bulgaria after the introduction of the currency board (1999-2014), as one of the very few countries in Europe with a non-di erentiated consumption tax rate, and an economy where VAT revenue makes almost half of total government tax revenue. A computational experiment performed within this setup estimates that on average, the size of evaded VAT is a bit more than one-fourth of output, an estimate which is in line with the gures provided in both Philip (2014) and the European Commission (2014). In addition, model-based simulations suggest that increases in spending on law and order could generate substantial welfare gains by decreasing VAT evasion. |
| Keywords: | VAT evasion, general equilibrium, Bulgaria |
| JEL: | D58 E26 H26 K42 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:sko:wpaper:bep-2016-09&r=mac |
| By: | Ali, Wajid; Munir, Kashif |
| Abstract: | The objective of this study is to examine the relationship between government expenditure (at aggregate as well as disaggregate level) and economic growth for Pakistan. The study further aims to find causal relationship for existence of applicability of Wagner’s or Keynesian hypothesis. Engle and Granger (1987) two step procedure and Granger causality test (1969) are employed for time series data for the period 1976 to 2015. Results suggest that only expenditure on social, economic and education services have proposed long-run association with economic growth in five of basic versions of Wagner’s law for Pakistan. The causality tests are showing mix results regarding existence of applicability of Wagner’s or Keynesian hypothesis. Expenditure on current subsidies, expenditure on defence, current expenditure and developmental expenditure are in favor of Wagner’s law in most of the cases, where causality runs from economic growth to government expenditure. Results of expenditure on social, economic and education services are in line with existence of Keynesian hypothesis, where causality flows from government expenditure to economic growth. On the basis of results, one may conclude that government should invest for expenditure on social, economic and education services to achieve sustainable economic growth by spending more on human resource development. |
| Keywords: | Government Expenditure, Economics Growth, Cointegration, Causality, Pakistan. |
| JEL: | C32 E62 H51 H52 |
| Date: | 2016–09–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74570&r=mac |
| By: | Nick Gebbia |
| Abstract: | In this paper, I study risk-neutral probability densities regarding future Libor rates denominated in British pounds, euros, and US dollars as implied by option prices. I apply Breeden and Litzenberger’s (1978) result regarding the relationship between option prices and implied probabilities for the underlying to estimate full probability density functions for future Libor rates. I use these estimates in case studies, detailing the evolution of probabalistic expectations for future Libor rates over the course of several important market events. Next, I compute distributional moments from density functions estimated for fixed horizons and test for Granger causality across the three Libor rate distributions considering their mean, standard deviation, skewness, and kurtosis. I further break these relationships down by various fixed horizon lengths, as well as the slope and curvature in the term structure of moments over different horizons. The results show a rich interconnectedness among these three Libor rates that extends well beyond levels of future mean expectations. |
| Keywords: | Options ; Futures ; Libor ; Pdf ; Distribution ; Moments ; Granger causality |
| JEL: | C14 E43 G13 |
| Date: | 2016–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1182&r=mac |
| By: | William Bassett (Board of Governors of the Federal Reserve System); Selva Demiralp (Koc University); Nathan Lloyd (Board of Governors of the Federal Reserve System) |
| Abstract: | The extraordinary steps taken by governments during the 2007-2009 financial crisis to prevent the failure of large financial institutions and support credit availability have invited heated debate. This paper comprehensively reviews empirical assessments of the benefits of those programs—such as their effectiveness in reducing bank failures or supporting new lending—introduces a combined dataset of five key programs that provided term debt or equity to banks in the U.S., and assesses the effects of such support on lending by U.S. banks. The results, using an instrumental variable approach, suggest that bank loans did not increase at institutions receiving government support. |
| Keywords: | Bank Loans, TAF, TARP, Capital Purchase Program. |
| JEL: | G11 G21 E58 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1611&r=mac |
| By: | Klaus S. Friesenbichler (WIFO) |
| Abstract: | This note revisits the conjecture that the use of broadband internet lowers transaction costs and thereby inflation. Using a macroeconomic panel of OECD countries, it roughly confirms previous findings reported by Yi and Choi (2005) by addressing conceptual and econometric issues. |
| Keywords: | Inflation, broadband |
| Date: | 2016–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2016:i:527&r=mac |
| By: | Saraceno, Francesco. |
| Abstract: | This paper highlights how European Monetary Union (EMU) governance, as designed by the Maastricht Treaty and subsequent modifications, is unfit to deliver sound and effective macroeconomic management that is conducive to sustained and sustainable economic prosperity for all Europeans. |
| Keywords: | monetary policy, economic recession, deflation, banking, impact evaluation, fiscal policy, EMU, politique monétaire, récession économique, déflation, activité bancaire, évaluation de l'impact, politique fiscale, UEM, política monetaria, recesión económica, deflación, actividad bancaria, evaluación de impacto, política fiscal, UEM |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ilo:ilowps:994881293402676&r=mac |
| By: | Kluve, Jochen (Humboldt University Berlin, RWI); Puerto, Olga Susana (Youth Employment Network (UN, ILO, World Bank)); Robalino, David A. (World Bank); Romero, Jose M. (World Bank); Rother, Friederike (World Bank); Stöterau, Jonathan (RWI); Weidenkaff, Felix (ILO International Labour Organization); Witte, Marc (University of Oxford) |
| Abstract: | This study reviews the evidence on the impact of youth employment programs on labor market outcomes. The analysis looks at the effectiveness of various interventions and the factors that influence program performance including country context, targeted beneficiaries, program design and implementation, and type of evaluation. We identify 113 counterfactual impact evaluations covering a wide range of methodologies, interventions, and countries. Using meta-analysis methods, we synthesize the evidence based on 2,259 effect sizes (Standardized Mean Differences, or SMD) and the statistical significance of 3,105 treatment effect estimates (Positive and Statistically Significant, or PSS). Overall, we find that just more than one-third of evaluation results from youth employment programs implemented worldwide show a significant positive impact on labor market outcomes – either employment rates or earnings. In general, programs have been more successful in middle- and low-income countries; this may be because these programs' investments are especially helpful for the most vulnerable population groups – low-skilled, low-income – that they target. We also conjecture that the more-recent programs might have benefited from innovations in design and implementation. Moreover, in middle and low income countries, skills training and entrepreneurship programs seem to have had a higher impact. This does not imply, however, that those programs should be strictly preferred to others; much depends on the needs of beneficiaries and program design. In high-income countries, the role of intervention type is less decisive – much depends on context and how services are chosen and delivered, a result that holds across country types. We find strong evidence that programs that integrate multiple interventions are more likely to succeed because they are better able to respond to the different needs of beneficiaries. We also find evidence about the importance of profiling and follow-up systems in determining program performance, and some evidence about the importance of incentive systems for services providers. |
| Keywords: | youth employment, active labor market policy, impact evaluations, systematic review, meta-analysis |
| JEL: | J21 J48 E24 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10263&r=mac |
| By: | Ryan Chahrour (Boston College); Kristoffer Nimark (Cornell University) |
| Abstract: | In this paper, we formalize the monitoring and editorial functions of news media within a multi-sector macroeconomic model. Each sector is subject to sector-specific productivity shocks, which are perfectly observed by firms in that sector. In addition to their local information, firms also learn from the news media about the developments in those sectors that the media choose to cover. Which sectors news media report about is a deterministic function of the cross-section of sectoral productivity shocks and the network structure of production. When the most newsworthy sectors are unrepresentative of the rest of the economy, the public nature of media reporting generates prediction errors about economic conditions that are correlated across sectors. Sectoral media focus can thus cause fluctuations in aggregate output that are caused by undue optimism or pessimism shared by all sectors in the economy. Because what news media report and how firms' resulting posteriors differ from the true state of the world are deterministic functions of the cross-section of productivity shocks, the theory makes tight predictions about when and why firms will be unduly optimistic or pessimistic. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:1034&r=mac |
| By: | Claudia R. Sahm; Jason A. Sockin |
| Abstract: | In this note, we use the household-level data in the University of Michigan's Surveys of Consumers, including respondents' own changes in expectations, to document new signs that households pay limited attention to inflation developments. |
| Date: | 2016–10–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfn:2016-10-19&r=mac |
| By: | Janda, Karel; Moreira, David |
| Abstract: | This paper investigates whether the economic adjustment program and post-program surveillance contributed positively to the structural recover of the Portuguese economy. This examination was conducted observing evidences related to several objectives included in the programs and on a sample of data collected from local defaulted and non-defaulted municipalities. Our results confirm that the financial aid provided by EC, ECB, and IMF had a small impact on the internal economic adjustment. There is a residual positive impact from the implemented reforms to promote growth, jobs, public debt, deficit, and stability of the country’s financial sector. The evidence is revealed by the measurement of the key program achievements and by the indicators related to the current high default probabilities of a large number of local municipalities. |
| Keywords: | public finance, municipalities, default, international aid |
| JEL: | E6 G28 O11 |
| Date: | 2016–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74561&r=mac |
| By: | Julia Grübler; Elisabeth Christen |
| Abstract: | FIW publishes biannually FIW Notes. They present an overview of the most important Austrian and international developments regarding International Economics. |
| Keywords: | Austrian Foreign Trade, Economic Outlook Austria, International Trade, FDI, exports |
| JEL: | E66 F01 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:wsr:fiwnot:y:2016:i:021&r=mac |
| By: | Arezki, Rabah; Toscani, Frederik; van der Ploeg, Frederick |
| Abstract: | This paper explores the impact of increased market orientation and improved institutions on global resource wealth using a novel dataset of major hydrocarbon and mineral discoveries. Guided by the predictions of a two-region model, we employ an instrumental variable strategy to test whether increased market orientation boosts discoveries. Our results indicate that if Latin America and sub-Saharan Africa were to adopt the same quality of institutions as the United States, discoveries worldwide would increase by 25 percent. Our results support the primacy of institutions by calling into question the commonly held view that resource endowments are exogenous. |
| Keywords: | discoveries; endogenous reserves; institutions; liberalization; market orientation; Natural resources |
| JEL: | E00 F3 F4 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11553&r=mac |
| By: | Simone Auer (Bank of Italy); Emidio Cocozza (Bank of Italy); Andrea COlabella (Bank of Italy) |
| Abstract: | Following the severe financial crises of the 1990s and early 2000s, substantial efforts have been undertaken in Russia and Turkey to diversify and deepen the financial systems. However, despite unquestionable improvements, financial deepening in Russia and Turkey has taken place at a slower pace than in other major emerging economies. Our paper highlights that this is in part a consequence of a highly volatile economic environment and deep-seated institutional and structural bottlenecks. Though authorities in both countries have committed to sounder economic policies and have implemented important structural reforms to improve the institutional environment and overcome structural weaknesses, over time reform fatigue has gradually taken hold. As a consequence significant gaps and weaknesses in the institutional and business environments still characterize, to a different degree, Russia and Turkey. These factors have not only slowed the development of the financial system as a whole, but have also contributed to the build-up of key vulnerabilities, which have come to the fore more recently in the context of a less supportive external environment. |
| Keywords: | exhaustible resources, financial deepening, institutional quality, international banking, international finance, Central and Eastern Europe, Russia, Turkey |
| JEL: | E65 G21 O43 O57 P17 P27 P34 P52 Q32 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_358_16&r=mac |
| By: | Стукач, Виктор; Аникина, Надежда |
| Abstract: | Abstract. The aim is to study the influence of the culture settings on the mo-dernizatsionnye processes in society. Object: parameters of culture, social capital and modernization processes in society, the composition and structure of the transactional component. The study of organizational behavior of the population based on parametric models of G. Hofstede, adapted to the agricultural sector. Work provides guidance to the business community, municipal and regional governments on the modernization of the management, institutional development, the formation of social capital. Аннотация. Целью является изучение влияния параметров культуры на модернизационные процессы в обществе. Объект: параметры культуры, социальный капитал, модернизационные процессы в обществе, состав и структура трансакционной составляющей. Изучение организационного поведения населения основывалось на параметрических моделях Г. Хофстеде, адаптированных к аграрной сфере. Работа содержит рекомендации предпринимательскому сообществу, муниципальным и региональным органам управления по регулированию процессов модернизации, институционального развития, формированию социального капитала. |
| Keywords: | modernization, culture, social capital, region модернизация, культура, социальный капитал, регион |
| JEL: | A13 B52 D21 D23 E26 O4 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74535&r=mac |
| By: | Escañuela Romana, Ignacio |
| Abstract: | The scientific literature that studies the Business cycles contains a historical debate between random and deterministic models. On the one hand, models built with explanatory variables follow a stochastic trajectory and produce, through transmission mechanisms, the studied cycles. Its rationale: the so-called Slutsky-Yule effect. In addition, models in which the system phase at time T fixes, applying the “ceteris paribus condition”, the phase at time t + 1. The cycle would be the product of variables, making it possible to predict and enabling economic policies to combat recessions. The thesis of this work is as follows. The application of the theorems of Chaitin of undecidability shows that it is not possible to conclude such debate. It is impossible to determine with absolute certainty whether the observed cycles follow a deterministic or stochastic model. To reach this result, I outline the fundamental theories of the business cycle, providing a classification and examples of mathematical models. I review the definition of randomness, and I consider the demonstration of Chaitin about the impossibility of deciding whether a data set is stochastic or not. A consequence, he says, of Gödel incompleteness theorems. I conclude considering a string of economic data, aggregated or not, as random or deterministic, depends on the theory. This applies to all cyclical phenomena of any nature. Specific mathematical models have observable consequences. But probabilism and determinism are only heuristic programs that guide the knowledge progress. |
| Keywords: | Randomness; business cycle theories; undecidability; heuristic. |
| JEL: | B4 E32 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74646&r=mac |
| By: | Penet, Pierre |
| Abstract: | This article builds on ignorance studies to examine what went wrong in IMF expertise during the European debt crisis. A fundamental component of ignorance is concealing what you know. Ignorance is a strategic resource in ‘tournaments of conditionality,’ when the setting of IMF conditionality is a conflicted exchange. This article covers IMF lending programs in Europe in 2008-2013 with a special focus on the first program for Greece. Empirical data is drawn from public sources made available at the start of each programs. I find that IMF ignorance resulted from a joint process of ‘private alteration’ and ‘public obfuscation’: the alteration of normal scenarios of debt sustainability in private expert negotiations worked in tandem with the obfuscation of doubts and risks in public stage. The key contribution of this article is to show that the ‘failure’ of the IMF program for Greece can be reconceptualised as ‘success.’ The immediate goal of the Greek program was to avoid the breakup of European monetary institutions. Another goal was the bailout of Greece’s creditors. In this respect, the Greek program was a great success. But success came at a huge cost for EU authorities. The program was also a disaster for Greece’s economy. This article claims that scholarly and popular interpretations of IMF program failures as epistemic hubris and complacency missed important problems and failed to identify the real culprits. |
| Keywords: | IMF, Policy failure, Austerity, Eurozone debt crisis, Greece, Tournaments of conditionality |
| JEL: | D7 D8 E5 F0 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:gnv:wpaper:unige:88327&r=mac |
| By: | Hayat, Arshad |
| Abstract: | The paper explores the role of institutional quality on economic growth and more specifically the role it plays through foreign direct investment. The paper uses an economic performance relevant indicators of institutional quality (both in aggregate and individual indicators) to evaluate its direct impact on economic growth and an indirect impact on economic growth via foreign direct investment. The paper applied instrumental variable model to a larger dataset of 106 countries and found that besides a strong direct positive effect on economic growth the aggregate institutional quality variable as well as all individual variables except for the rule of law have a small but significant indirect impact on economic that takes place through boosting foreign direct investment. |
| Keywords: | Foreign Direct Investment, Institutional Quality, Economic Growth, Instrumental Variable |
| JEL: | E14 F23 F43 |
| Date: | 2016–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:74563&r=mac |