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on Macroeconomics |
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Issue of 2016‒11‒27
110 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Aliya Algozhina |
| Abstract: | According to Frankel and Catao (2011), a commodity exporting developing economy is advised to target the output price index rather than consumer price index, as the former monetary policy is automatically countercyclical against the volatile terms of trade shock. This paper constructs a dynamic stochastic general equilibrium model of joint monetary and fiscal policies for a developing oil economy, to find an appropriate monetary rule combined with a pro/counter/acyclical fiscal stance based on a loss measure. The foreign exchange interventions distinguish between a managed and flexible exchange rate regime, while fiscal policy cyclicality depends on the oil output response of public consumption and public investment. The study reveals that the best policy combination is a countercyclical fiscal stance and CPI inflation monetary targeting under a flexible exchange rate regime to stabilize equally the domestic price inflation, aggregate output, and real exchange rate in a small open economy. This result is conditional on weights for those three variables used in the loss measure. |
| Keywords: | oil economy; monetary policy; fiscal policy; exchange rate; oil price shock; interventions; SWF; |
| JEL: | E31 E52 E62 E63 F31 F41 H54 H63 Q33 Q38 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp572&r=mac |
| By: | Simon Gilchrist; Raphael Schoenle; Jae Sim; Egon Zakrajšek |
| Abstract: | Using a novel dataset, which merges good-level prices underlying the PPI with the respondents’ balance sheets, we show that liquidity constrained firms increased prices in 2008, while their unconstrained counterparts cut prices. We develop a model in which firms face financial frictions while setting prices in customer markets. Financial distortions create an incentive for firms to raise prices in response to adverse financial or demand shocks. This reaction reflects the firms’ decisions to preserve internal liquidity and avoid accessing external finance, factors that strengthen the countercyclical behavior of markups and attenuate the response of inflation to fluctuations in output. |
| JEL: | E31 E32 E44 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22827&r=mac |
| By: | Andreas Neuhierl; Michael Weber |
| Abstract: | We construct a slope factor from changes in federal funds futures of different horizons. Slope predicts stock returns at the weekly frequency: faster monetary policy easing positively predicts excess returns. Investors can achieve increases in weekly Sharpe ratios of 20% conditioning on the slope factor. The tone of speeches by the FOMC chair correlates with the slope factor. Slope predicts changes in future interest rates and forecast revisions of professional forecasters. Our findings show that the path of future interest rates matters for asset prices, and monetary policy affects asset prices throughout the year and not only at FOMC meetings. |
| JEL: | E31 E43 E44 E52 E58 G12 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22831&r=mac |
| By: | Leonid Karasik; Danny Leung; Ben Tomlin |
| Abstract: | In order to understand what drives aggregate fluctuations, many macroeconomic models point to aggregate shocks and discount the contribution of firm-specific shocks. Recent research from other developed countries, however, has found that aggregate fluctuations are in part driven by idiosyncratic shocks to large firms. Using data on Canadian firms, this paper examines the contribution of large firms to industry-level fluctuations in gross output, investment and employment in the manufacturing sector. The data suggest that shocks to large firms can explain as much as 46% and 37% of the fluctuations in gross output and investment, respectively, but do not contribute to fluctuations in employment. |
| Keywords: | Business fluctuations and cycles, Firm dynamics, Market structure and pricing |
| JEL: | E22 E23 E24 E3 L6 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:16-51&r=mac |
| By: | Giri, Federico; Riccetti, Luca; Russo, Alberto; Gallegati, Mauro |
| Abstract: | An accommodating monetary policy followed by a sudden increase of the short term interest rate often leads to a bubble burst and to an economic slowdown. Two examples are the Great Depression of 1929 and the Great Recession of 2008. Through the implementation of an Agent Based Model with a financial accelerator mechanism we are able to study the relationship between monetary policy and large scale crisis events. The main results can be summarized as follow: a) sudden and sharp increases of the policy rate can generate recessions; b) after a crisis, returning too soon and too quickly to a normal monetary policy regime can generate a \double dip" recession, while c) keeping the short term interest rate anchored to the zero lower bound in the short run can successfully avoid a further slowdown. |
| Keywords: | Monetary Policy,Large Crises,Agent Based Model,Financial Accelerator,Zero Lower Bound |
| JEL: | E32 E44 E58 C63 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmpwps:65&r=mac |
| By: | Geert Bekaert; Eric Engstrom; Andrey Ermolov |
| Abstract: | We extract aggregate supply and aggregate demand shocks for the US economy from macroeconomic data on inflation, real GDP growth, core inflation and the unemployment gap. We first use unconditional non-Gaussian features in the data to achieve identification of these structural shocks while imposing minimal economic assumptions. We find that recessions in the 1970s and 1980s are better characterized as driven by supply shocks while later recessions were driven primarily by demand shocks. The Great Recession exhibited large negative shocks to both demand and supply. We then use conditional (time-varying) non-Gaussian features of the structural shocks to estimate "macro risk factors" for supply and demand shocks that drive "bad" (negatively skewed) and "good" (positively skewed) variation for supply and demand shocks. The Great Moderation, a general decline in the volatility of many macroeconomic time series since the 1980s, is mostly accounted for by a reduction in the good demand variance risk factor. In contrast, the risk factors driving bad variance for both supply and demand shocks, which account for most recessions, show no secular decline. Finally, we find that macro risks significantly contribute to the variation in yields, bond risk premiums and the term premium. While overall bond risk premiums are counter-cyclical, an increase in bad demand variance is associated with lower risk premiums on bonds. |
| JEL: | E31 E32 E43 E44 G12 G13 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22839&r=mac |
| By: | Hirokazu Mizobata (Faculty of Economics, Tezukayama University); Hiroki Toyoda (Institute of Economic Research, Kyoto University) |
| Abstract: | We propose a simple real business cycle model to explain two of the most important aspects of macroeconomics: business cycle facts and the asset pricing mechanism. Based on US and Japanese quarterly data, we estimate the model with capital and labor adjustment costs. Our analysis reveals that this simple model can explain the key business cycle facts, even without other frictions such as sticky prices, sticky wages, and search and matching frictions. Furthermore, this simple model also has explanatory power for whether a stock price will increase or decrease. However, this feature of the model is weaker for the Great Recession in the US economy. |
| Keywords: | Adjustment costs, DSGE model, Bayesian estimation, Stock price forecasting |
| JEL: | C32 E13 E32 E37 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:953&r=mac |
| By: | Faccini, Renato; Yashiv, Eran |
| Abstract: | We study the interactions between hiring frictions and price frictions in business cycle models. We find that these interactions matter in a significant way for business cycle fluctuations and for labor market outcomes. Using a simple DSGE business-cycle model with Diamond-Mortensen-Pisssarides (DMP) elements, we derive two main results. First, introducing hiring frictions into a New Keynesian model offsets the effects of price frictions. As a result, some business cycle outcomes are actually close to the frictionless New Classical-type outcomes; namely, with moderate hiring frictions the response of employment to technology shocks is positive, and the effects of monetary policy shocks are small, if not neutral. Moreover, it generates endogenous wage rigidity. Second, introducing price frictions into a DMP setting generates amplification of employment and unemployment responses to technology shocks, as well as hump-shaped dynamics. Both results arise through the confluence of frictions. We offer an explanation of the mechanisms underlying them. |
| Keywords: | hiring frictions; price frictions; business cycles; New Classical model; Mortensen and Pissarides (DMP) model; technology shocks; monetary policy shocks; endogenous wage rigidity.; New- Keynesian model; Diamond |
| JEL: | E22 E24 E32 E52 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11639&r=mac |
| By: | Joseph E. Stiglitz |
| Abstract: | In the aftermath of the Great Recession, there is a growing consensus, even among central bank officials, concerning the limitations of monetary policy. This paper provides an explanation for the ineffectiveness of monetary policy, and in doing so provides a new framework for thinking about monetary policy and macro-economic activity. What matters is not so much the money supply or the T-bill interest rate, but the availability of credit, and the terms at which credit is made available. The latter variables may not move in tandem with the former. In particular, the spread between the T bill rate and the lending rate may increase, so even as the T bill rate decreases, the lending rate increases. An increase in credit availability may not lead to more spending on produced goods, but increased prices for land or other fixed assets; it can go to increased margins associated with increases in speculative activity; or it may go to spending abroad rather than at home. The paper explains the inadequacy of theories based on the zero low bound, and argues that the ineffectiveness of monetary policy is more related to the multiple alternative uses—beyond the purchase of domestically produced goods—of additional liquidity and to its adverse distributional consequences. The paper shows that while monetary policy is less effective than has been widely presumed, it is also more distortionary, identifying several distinct distortions. |
| JEL: | E42 E44 E51 G01 G20 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22837&r=mac |
| By: | Meyer, Brent (Federal Reserve Bank of Atlanta); Zaman, Saeed (Federal Reserve Bank of Cleveland) |
| Abstract: | In this paper we investigate the forecasting performance of the median Consumer Price Index (CPI) in a variety of Bayesian vector autoregressions (BVARs) that are often used for monetary policy. Until now, the use of trimmed-mean price statistics in forecasting inflation has often been relegated to simple univariate or Phillips curve approaches, thus limiting their usefulness in applications that require consistent forecasts of multiple macro variables. We find that inclusion of an extreme trimmed-mean measure—the median CPI—improves the forecasts of both core and headline inflation (CPI and personal consumption expenditures) across our set of monthly and quarterly BVARs. Although the inflation forecasting improvements are perhaps not surprising given the current literature on core inflation statistics, we also find that inclusion of the median CPI improves the forecasting accuracy of the central bank's primary instrument for monetary policy: the federal funds rate. We conclude with a few illustrative exercises that highlight the usefulness of using the median CPI. |
| Keywords: | inflation forecasting; trimmed-mean estimators; Bayesian vector autoregression; conditional forecasting |
| JEL: | C11 E31 E37 E52 |
| Date: | 2016–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2016-13&r=mac |
| By: | Koji Takahashi (Bank of Japan) |
| Abstract: | In practice, trend inflation is often defined as a common factor extracted from observed inflation rates by removing cyclical effects from business cycles as well as other transitory distortions. Trend inflation can also be interpreted as the infinitely long-term inflation rate expected by private economic agents. If we assume that the central bank's inflation target policy is fully credible, trend inflation will converge to the target inflation rate in the long run. In the short run, however, trend inflation and the target rate can differ due to adaptive, or backward-looking, expectations and changes in the extent to which the inflation target is credible. Based on these considerations, this paper proposes a simple new methodology for projecting trend inflation, labelled the Trend Inflation Projection System (TIPS), where trend inflation is expressed as the weighted average of two components: an adaptive component, where a common trend is extracted from several core inflation measures, and a forward-looking component, namely the target inflation rate. In addition, the weights are allowed to vary over time to capture changes in the degree to which economic agents believe in the inflation target. The estimation results show that trend inflation in Japan increased dramatically in the first quarter of 2013, when the BOJ raised the target inflation rate, and has continued to rise gradually since then. However, since the second half of 2014, medium- to long-term inflation expectations have shifted downward, meaning that inflation expectations may be formed in a more adaptive manner than in the model. Furthermore, decomposition of the consumer price index (CPI, all items less fresh food) based on the estimated model indicates that although CPI inflation rose from the beginning of 2013 due to the increase in trend inflation, it has decreased again since the second half of 2014 due to transitory factors such as the decline in oil prices. |
| Keywords: | Core Inflation; Trend Inflation; Inflation Target |
| JEL: | C53 E31 E37 E58 |
| Date: | 2016–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp16e18&r=mac |
| By: | Bianchi, Francesco (Duke University); Melosi, Leonardo (Federal Reserve Bank of Chicago) |
| Abstract: | We show that policy uncertainty about how the rising public debt will be stabilized accounts for the lack of deflation in the US economy at the zero lower bound. We first estimate a Markov-switching VAR to highlight that a zero-lower-bound regime captures most of the comovements during the Great Recession: a deep recession, no deflation, and large fiscal imbalances. We then show that a micro-founded model that features policy uncertainty accounts for these stylized facts. Finally, we highlight that policy uncertainty arises at the zero lower bound because of a trade-off between mitigating the recession and preserving long-run macroeconomic stability. |
| Keywords: | Monetary and fiscal policies; Policy uncertainty; zero lower bound; Markov-switching models; Bayesian methods |
| JEL: | D83 E31 E52 E62 E63 |
| Date: | 2016–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2016-16&r=mac |
| By: | Pasquale Tridico; Riccardo Pariboni |
| Abstract: | The objective of this paper is to argue that the labour productivity decline experienced in recent years by several advanced countries can be explained, following a Kaldorian-Classical approach, by a weak GDP performance and by a decline in the wage share. Moreover, drawing inspiration from recent Post- Keynesian literature, we identify the ongoing worsening in income equality and the increase in the degree of financialisation as other major explanatory factors of sluggish productivity. The paper will provide a brief literature review concerning non-mainstream attempts to endogenise labour productivity. We will then discuss how labour flexibility and shareholder value orientation, one of the main aspects of financialisation, can negatively affect equality and labour productivity. Finally, we will propose and test an extended version of Sylos Labini’s productivity equation, where productivity is claimed to depend positively on GDP rate of growth and the wage share, and negatively on income inequality and financialisation. |
| Keywords: | Labour productivity, Inequality, Financialisation. |
| JEL: | E02 E12 E24 E44 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:rtr:wpaper:0211&r=mac |
| By: | Emilie Jašová (University of Economics in Prague) |
| Abstract: | The paper focuses on mapping the uncertainties in real economy. It develops a Central European parallel to the VIX fear and uncertainty index in condition of Hungary and Poland. It extends the number of representatives of the demand shock in the standard Gordon’s Triangle model with the index of uncertainty perception among companies. The Kalman filter will be used for estimating the value of the Non-Accelerating Inflation Rate of Unemployment and economic cycle without and with the effect of the psychological factor among companies. We verify results with the corresponding real economy data. Five scenarios will describe the relationship between the uncertainty perception among companies and the unemployment rate. The analysis quantifies the intensity of the effect of the psychological factor on the supply side on the labour market in Hungary and Poland. It will outline the consequences for the economic policymakers too. |
| Keywords: | Index of uncertainty perception among companies, Phillips Curve, NAIRU, Kalman filter, Unemployment gap. |
| JEL: | E24 E32 E37 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:5307026&r=mac |
| By: | Federico Etro (Ca Foscari University of Venice, Department of Economics) |
| Abstract: | The neoclassical macroeconomic framework is extended to general preferences over a variety of goods supplied under monopolistic, Bertrand or Cournot competition to derive implications for business cycle, market inefficiencies and optimal corrective taxation. When markups are endogenously countercyclical the impact of shocks on consumption and labor supply is magnified through new intertemporal substitution mechanisms, and the optimal fiscal policy requires a countercyclical labor income subsidy and a capital income tax that is positive along the growth path and converging to zero in the long run. With an endogenous number of goods and strategic interactions, entry affects markups and the optimal fiscal policy requires also a tax on profits. We characterize the equilibrium dynamics and derive explicit tax rules for a variety of intratemporal preference aggregators including the quadratic, directly additive, indirectly additive and homothetic classes. |
| Keywords: | Monopolistic competition, variable markups, optimal taxation, business cycles |
| JEL: | E1 E2 E3 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2016:32&r=mac |
| By: | Javier Villar Burke (European Commission) |
| Abstract: | The lending channel is conventionally understood to transmit monetary policy through the origination of new loans. In this paper, we postulate that the lending channel may also operate via the stock of existing loans. Monetary shocks generate two types of income effects: 1) monthly mortgage payments are impacted when rates are reset; 2) inflation erodes the real value of mortgage payments and increases the disposable income of borrowers. These income effects translate into variations in output due to the heterogeneous propensity to consume of individual economic agents. Three types of factors determine the importance of these income effects for individual households and at macro level: 1) borrowers’ features, such as income distribution, indebtedness and debt burden, 2) loan features, such as the period of rate fixation and 3) price developments. Significant differences in these factors across euro area Member States can distort a homogeneous transmission of the single monetary policy. |
| Keywords: | Euro area, monetary policy, monetary transmission, income effects, lending channel, mortgages. |
| JEL: | D33 D47 D90 E43 E51 E52 F36 F42 G21 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:inf:wpaper:2016.04&r=mac |
| By: | Melosi, Leonardo (Federal Reserve Bank of Chicago) |
| Abstract: | We develop a dynamic general equilibrium model in which the policy rate signals the central bank’s view about macroeconomic developments to price setters. The model is estimated with likelihood methods on a U.S. data set that includes the Survey of Professional Forecasters as a measure of price setters’ inflation expectations. This model improves upon existing perfect information models in explaining why, in the data, inflation expectations respond with delays to monetary impulses and remain disanchored for years. In the 1970s, U.S. monetary policy is found to signal persistent inflationary shocks, explaining why inflation and inflation expectations were so persistently heightened. The signaling effects of monetary policy also explain why inflation expectations adjusted more sluggishly than inflation after the robust monetary tightening of the 1980s. |
| Keywords: | Disanchoring of inflation expectations; heterogeneous beliefs; endogenous signals; Bayesian VAR; Bayesian counterfactual analysis; Delphic effects of monetary policy |
| JEL: | C11 C52 D83 E52 |
| Date: | 2016–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2016-14&r=mac |
| By: | Beaudry, Paul; Galizia, Dana; Portier, Franck |
| Abstract: | This paper begins by re-examining the spectral properties of several cyclically sensitive variables such as hours worked, unemployment and capacity utilization. For each of these series, we document the presence of an important peak in the spectral density at a periodicity of approximately 36-40 quarters. We take this pattern as suggestive of intriguing but little-studied cyclical phenomena at the long end of the business cycle, and we ask how best to explain it. In particular, we explore whether such patterns may reflect slow-moving limit cycle forces, wherein booms sow the seeds of the subsequent busts. To this end, we present a general class of models, featuring local complementarities, that can give rise to unique-equilibrium behavior characterized by stochastic limit cycles. We then use the framework to extend a New Keynesian-type model in a manner aimed at capturing the notion of an accumulation-liquidation cycle. We estimate the model by indirect inference and find that the cyclical properties identified in the data can be well explained by stochastic limit cycles forces, where the exogenous disturbances to the system are very short lived. This contrasts with results from most other macroeconomic models, which typically require very persistent shocks in order to explain macroeconomic fluctuations. |
| Keywords: | Business Cycles; Limit Cycles |
| JEL: | E24 E3 E32 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11647&r=mac |
| By: | Wu, Cheng |
| Abstract: | During the 2016 U.S. election, many voters from democratic (‘blue wall’) states, which have voted consistently in the past elections for the democrats, suddenly moved back into the Republican fold. During this election, the primary economic issue was supposed to be NAFTA, both Bernie Sanders and Donald Trump claimed it has been responsible for U.S. manufacturing job losses. So, what is the effect of trade on personal income and in particular manufacturing income and employment? Still, manufacturing losses are unlikely to explain democratic losses in rural areas, such as Wisconsin, where farm voters switched parties. What is the relationship between farm income and election result? Finally, are farmers Republican, Democrat or Independent? Or just pragmatic? |
| Keywords: | consumption; martingale; savings; growth; income; election; trade |
| JEL: | E2 E21 E24 E27 F1 Y10 Z0 |
| Date: | 2016–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75107&r=mac |
| By: | Jonathan A. Attey (Erasmus University Rotterdam, The Netherlands) |
| Abstract: | Cost-of-Living-Adjustment (COLA) coverage figures suggest a time variation in the degree of wage indexation. In spite of this observation, most current literature conveniently assume a constant degree of indexation as this variable is not directly observable. This study intends to empirically measure the time variation in the degree of wage indexation. To this end, we derive a reduced form version of the New Keynesian Wage Phillips Curve under the assumption of a time varying degree of wage indexation. A state space methodology is then employed in estimating this model using data of selected OECD countries. The study subsequently investigates variables influencing the time variation in the degree of wage indexation. Our results consistently suggest a substantial time variation in the degree of wage indexation in all countries considered. The wage indexation estimates obtained for the US bear remarkable similarities with the figures suggested by COLA coverage. It is subsequently shown that variations in trend inflation significantly explain variations in the degree of wage indexation. Finally, there is weak evidence in support of the Gray hypothesis that wage indexation is negatively correlated with the variance of productivity shocks. |
| Keywords: | Wage Indexation; Unemployment; Wage Phillips curve |
| JEL: | E12 E24 E31 E40 |
| Date: | 2016–11–22 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20160102&r=mac |
| By: | Punzi, Maria Teresa; Rabitsch, Katrin |
| Abstract: | We propose a model of a risky mortgage-lending market in which we take explicit account of heterogeneity in household borrowing conditions, by introducing two borrower types: one with a low loan-to-value (LTV) ratio, one with a high LTV ratio, calibrated to U.S. data. We use such framework to study a deleveraging shock, modeled as an increase in housing investment risk, that falls more strongly on, and produces a larger contraction in credit for high-LTV type borrowers, as in the data. We find that this deleveraging experience produces significant aggregate effects on output and consumption, and that the contractionary effects are orders of magnitudes higher in a model version that takes account of borrower heterogeneity, compared to a more standard model version with a representative borrower. |
| Keywords: | Borrowing Constraints,Loan-to-Value ratio,Heterogeneity,Financial Amplification |
| JEL: | E23 E32 E44 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmpwps:67&r=mac |
| By: | Martin Guzman; Joseph E. Stiglitz |
| Abstract: | This paper provides an explanation for situations in which the state variables describing the economy do not change, but aggregate consumption experiences significant changes. We present a theory of pseudo-wealth—individuals’ perceived wealth that is derived from heterogeneous beliefs and expectations of gains in a bet. This wealth is divorced from real assets that may exist in society. The creation of a market for bets will imply positive pseudo-wealth. Changes in the differences of prior beliefs will lead to changes in expected wealth and hence to changes in consumption, implying ex-post intertemporal individual and aggregate consumption misallocations and instabilities. Thus, in the environment we describe, completing markets increases macroeconomic volatility, raising unsettling welfare questions. |
| JEL: | D60 D83 D84 E21 E32 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22838&r=mac |
| By: | Dominguez, Begona; Gomis-Porqueras, Pedro |
| Abstract: | We consider an environment with stochastic trading opportunities and incomplete markets and analyze how trading in secondary markets for government debt and access to unsecured credit affect inflation. When secondary markets are not active, {there exists} a unique monetary steady state where public debt does not affect inflation dynamics. In contrast, we find that when agents trade in secondary markets, agents are buying government bonds above their fundamental value. As a result, Ricardian equivalence does not hold and multiple steady states can not be ruled out as government bonds generate a liquidity premium. In particular, we find that the gross interest payment on public debt is non-linear in bond holdings. {Because of this liquidity premium, real government bonds matter for inflation.} To rule out real indeterminacies, we show that active monetary policy is more likely to deliver a unique monetary steady state regardless the stance of fiscal policy. Moreover, trading in secondary markets further amplify the effectiveness of active monetary policies in reducing steady state inflation. Finally, we show that a spread-adjusted Taylor rule delivers a unique steady state, thus ruling out real indeterminacies. |
| Keywords: | taxes; inflation; secondary markets, liquidity premium |
| JEL: | E4 E61 E62 H21 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75096&r=mac |
| By: | Uhrin, Gábor B.; Herwartz, Helmut |
| Abstract: | A central question for monetary policy is how asset prices respond to a monetary policy shock. We provide evidence on this issue by augmenting a monetary SVAR for US data with an asset price index, using set-identifying structural restrictions. The impulse responses show a positive asset price response to a contractionary monetary policy shock. The resulting monetary policy shocks correlate weakly with the Romer and Romer (2004) (RR) shocks, which matters greatly when analyzing impulse responses. Considering only models with shocks highly correlated with the RR series uncovers a negative, but near-zero response of asset prices. |
| Keywords: | monetary policy shocks,asset prices,sign restrictions,zero restrictions,set identification,structural VAR models |
| JEL: | C32 E44 E52 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cegedp:295&r=mac |
| By: | Caglayan, Mustafa; Kandemir Kocaaslan, Ozge; Mouratidis, Kostas |
| Abstract: | This paper investigates the importance of financial depth in evaluating the asymmetric impact of monetary policy on real output over the course of the US business cycle. We show that monetary policy has a significant impact on output growth during recessions. We also show that financial deepening plays an important role by dampening the effects of monetary policy shocks in recessions. The results are robust to the use of alternative financial depth and monetary policy shock measures as well as to two different sample periods. |
| Keywords: | Financial depth; financial frictions; monetary policy; output growth; asymmetric effects; Markov switching; instrumental variable |
| JEL: | E32 E52 |
| Date: | 2016–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75250&r=mac |
| By: | Corrado Di Guilmi (Economics Discipline Group, University of Technology, Sydney); Laura Carvalho (Department of Economics, University of Sao Paulo, Brazil) |
| Abstract: | This paper introduces heterogeneous microeconomic behavior into a demand-driven macroeconomic model in order to study the joint dynamics of leverage and capital accumulation. By identifying the links between firm level variables and aggregate quantities, the paper contributes toward a reformulation of the Minskyan formal analysis that explicitly considers the role of microeconomic factors in generating macroeconomic instability. The aggregation of heterogeneous agents is not only performed numerically, as in traditional agent-based models, but also by means of an innovative analytical methodology, originally developed in statistical mechanics and recently imported into macroeconomics. The distinctive feature is in that the joint analysis of the numerical and analytical solutions of the model sheds light on the effects of financial fragility at the firm level on the dynamics of the macroeconomy. In particular, the analysis of steady-state and stability properties of the system provide additional insights on the role of behavioral and size heterogeneity of firms for the stocks of aggregate debt and capital. |
| Keywords: | financial fragility; aggregate demand; agent-based model; master equation |
| JEL: | E16 E32 G01 |
| Date: | 2015–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:uts:ecowps:28&r=mac |
| By: | Anil Ari |
| Abstract: | In European countries recently hit by a sovereign debt crisis, banks have sharply raised their holdings of domestic sovereign debt, reduced credit to firms, and faced rising financing costs, raising concerns about economic and financial resilience. This paper develops a general equilibrium model with optimizing banks and depositors to account for these facts and provide a framework for policy assessment. Under-capitalized banks in default-risky countries have an incentive to gamble on domestic sovereign bonds. Unless there is perfect transparency of bank balance sheets, the optimal reaction by depositors to bank insolvency risk leaves the economy susceptible to self-fulfilling shifts in sentiments. In a bad equilibrium, sovereign risk shocks lead to a prolonged period of financial fragility and a persistent drop in output. The model is quantified using Portuguese data and generates similar dynamics to those observed in the Portuguese economy during the debt crisis. Policy interventions face a trade-off between alleviating funding constraints and strengthening incentives to gamble. Liquidity provision to banks may eliminate the good equilibrium when not targeted. Targeted interventions have the capacity to eliminate adverse equilibria. |
| JEL: | E44 E58 F34 G21 H63 |
| Date: | 2016–11–21 |
| URL: | http://d.repec.org/n?u=RePEc:jmp:jm2016:par455&r=mac |
| By: | Hamza Bennani |
| Abstract: | Using a novel index measuring media's uncertainty regarding the effectiveness of European Central Bank's (ECB) policy actions, this paper estimates the interest rate policy of the ECB with respect to media coverage of its monetary policy decisions. Our results suggest that the monetary institution implements a restrictive (accommodative) monetary policy, through its repo rate, in response to an increase (decrease) of the uncertainty expressed by the media concerning the effectiveness of its past policy actions, in particular since the global financial crisis. These results are robust when considering an alternative proxy of central bank's perceived effectiveness and ECB's unconventional policy measures in the estimation procedure. Our findings thus shed some light on the decision-making procedure of the ECB when the latter has to deal with the uncertain impact of its policy decisions as expressed by media coverage, and thus, address a critical issue related to the political economy of central banking. |
| Keywords: | Monetary Policy, ECB, Public Media, Taylor Rule. |
| JEL: | E43 E52 E58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2016-38&r=mac |
| By: | Balke, Neele Lisabet; Ravn, Morten O |
| Abstract: | We analyze time-consistent fiscal policy in a sovereign debt model. We consider a production economy that incorporates feedback from policy to output through employment, features inequality though unemployment, and in which the government lacks a commitment technology. The government's optimal policies play off wedges due to the lack of lump-sum taxes and the distortions that taxes and transfers introduce on employment. Lack of commitment matters during a debt crises -- episodes where the price of debt reacts elastically to the issuance of new debt. In normal times, the government sets procyclical taxes, transfers and public goods provision but in crisis times it is optimal to implement austerity policies which minimize the distortions deriving from default premia. Could a third party provide a commitment technology, austerity is no longer optimal. |
| Keywords: | austerity; debt crisis; inequality; Sovereign debt; Time-consistent fiscal policy |
| JEL: | E20 E62 F34 F41 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11646&r=mac |
| By: | Rafael Doménech; Juan Ramón García; Camilo Ulloa |
| Abstract: | In this paper we estimate the macroeconomic effects of the greater wage and firms’ internal flexibility promoted by various changes in Spanish labour regulations approved since 2012. To do so, we propose a structural VAR that allows us to break down the changes in the main macroeconomic variables into different structural shocks. |
| Keywords: | Economic Analysis , Spain , Working Paper |
| JEL: | C32 E24 J08 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:16/17&r=mac |
| By: | Andreas Irmen (CREA, Université du Luxembourg); Amer Tabakovic (CREA, Université du Luxembourg) |
| Abstract: | We scrutinize Thomas Piketty’s (2014) theory concerning the relationship between an economy’s long-run growth rate, its capital-income ratio, and its factor income distribution put forth in his recent book Capital in the Twenty-First Century. We find that a smaller long-run growth rate may be associated with a smaller capital-income ratio. Hence, the key implication of Piketty’s Second Fundamental Law of Capitalism does not hold. In line with Piketty’s theory a smaller long-run growth rate may go together with a greater capital share. However, the mechanics behind this result are the opposite of what Piketty suggests. Our findings obtain in variants of Romer’s (1990) seminal model of endogenous technological change. Here, both the economy’s savings rate and its growth rate are endogenous variables whereas in Piketty’s theory they are both exogenous parameters. Including demographic growth in the spirit of Jones (1995) shows that a smaller growth rate of the economy may imply a lower capital share contradicting a central claim in Piketty’s book. |
| Keywords: | Endogenous Technological Change, Capital Accumulation, Aggregate Factor Income Distribution |
| JEL: | E10 E21 E25 O33 O41 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:16-18&r=mac |
| By: | Boel, Paola (Research Department, Central Bank of Sweden); Camera, Gabriele (Chapman University and University of Basel) |
| Abstract: | We extend the study of banking equilibrium in Berentsen, Camera and Waller (2007) by introducing an explicit production function for banks. Banks employ labor resources, hired on a competitive market, to run their operations. In equilibrium this generates a spread between interest rates on loans and on deposits, which naturally reflects the efficiency of financial intermediation and underlying monetary policy. In this augmented model, equilibrium deposits yield zero return in a deflation or very low inflation. Hence, if monetary policy is sufficiently tight then banks end up reducing aggregate efficiency, soaking up labor resources while offering deposits that do not outperform idle balances. |
| Keywords: | banks; frictions; matching |
| JEL: | C70 D40 E30 J30 |
| Date: | 2016–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0331&r=mac |
| By: | Pedro, Gomis-Porqueras |
| Abstract: | We study the impact of fiscal policies on inflation, unemployment and interest rate spreads dynamics in an environment where firms provide liquidity. Firms link labor and asset markets by hiring workers and issuing claims to their future profits. Matching frictions in the labor market drastically alters the effect of fiscal policy as the tax base increases with the number of jobs filled. As a result, labor market conditions directly affect the return on private assets and inflation dynamics. Moreover, since frictions in decentralized financial markets exist, public and private assets are also used as collateral. These features in the labor and financial markets drastically change the nature of monetary equilibria. In particular, monetary steady states are generically not unique and endogenous fluctuations are observed. Furthermore, characteristics of the labor market affect the demand for private and public assets, making the interaction between monetary and fiscal policies more intricate. Finally, traditional stabilization policies based on frictionless financial and labor markets are not robust to this frictional environment. |
| Keywords: | decentralized financial markets, unemployment, liquidity, fiscal rules |
| JEL: | D8 D80 E4 E40 E50 |
| Date: | 2016–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75113&r=mac |
| By: | Claire Océane Chevallier (CREA, Université du Luxembourg); Sarah El Joueidi (CREA, Université du Luxembourg) |
| Abstract: | This paper develops a dynamic stochastic general equilibrium model in infinite horizon with a regulated banking sector where stochastic banking bubbles may arise endogenously. We analyze the conditions under which stochastic bubbles exist and their impact on macroeconomic key variables. We show that when banks face capital requirements based on Value-at- Risk, two different equilibria emerge and can coexist: the bubbleless and the bubbly equilibria. Alternatively, under a regulatory framework where capital requirements are based on credit risk only, as in Basel I, bubbles are explosive and, as a consequence, cannot exist. The stochastic bubbly equilibrium is characterized by positive or negative bubbles depending on the tightness of capital requirements based on Value-at-Risk. We find a maximum value of capital requirements under which bubbles are positive. Below this threshold, the stochastic bubbly equilibrium provides larger wel- fare than the bubbleless equilibrium. In particular, our results suggest that a change in banking policies might lead to a crisis without external shocks. |
| Keywords: | Banking bubbles; banking regulation; DSGE; infinitely lived agents; multiple equilibria; Value-at-Risk |
| JEL: | E2 E44 G01 G20 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:16-15&r=mac |
| By: | Шевченко, Елена; Стукач, Виктор |
| Abstract: | Abstract. The reader can appreciate the key ideas that contribute to the under-standing of the role and nature of foresight studies. In the aim: to explore the meth-odology of foresight of the future scenario development issue as a basis for the formation of the state development strategy for the country, region, field of activity. The objectives are to: - study the essence of foresight; - The disclosure of methodo-logical bases of foresight; -development of recommendations to improve the quali-ty of foresight projects; - To develop approaches to the use of socio-cultural charac-teristics of the country as a basic information resource for the development of fore-sight. We give a step by step description of the methodology of foresight studies and practice of application of the results of national scientific and technological fore-sight in the formation of public policies of scientific and technological and innova-tion development of the country. We apply modern research methods, including peer reviews, market research, content analysis, production functions, and others. The materials in this publication have been tested under real-world implemen-tation of the state strategy of development projects can be recommended for use as at the country, regional, and sectoral and enterprise levels. |
| Keywords: | Foresight, future scenario, technological foresight, innovation, development strate-gy |
| JEL: | E2 E22 E27 O22 O3 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75177&r=mac |
| By: | Yanovski, Boyan |
| Abstract: | [Key Takeaways] * Monetary policy might be ineffective in its attempt to influence the borrowing conditions over the business cycle because of the existence of adverse endogenous factors (like an endogenous risk premium, for example) counteracting monetary policy. * The evolution of the stock market over the business cycle can be considered an indicator of the extent to which monetary policy is able to affect the current borrowing conditions in the economy. * The pro-cyclical stock market observed in the US during the last 25 years in the presence of a counter-cyclical monetary policy can be considered evidence of monetary policy ineffectiveness and/or weak reactivity. * Monetary policy might be ineffective in reducing endogenous business cycle fluctuations because of the lags involved in its reactions and in the transmission process. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmppls:2&r=mac |
| By: | Schmitt-Grohé, Stephanie; Uribe, Martin |
| Abstract: | This paper contributes to a literature that studies optimal capital control policy in open economy models with pecuniary externalities due to flow collateral constraints. It shows that the optimal policy calls for capital controls to be lowered during booms and to be increased during recessions. Moreover, in the run-up to a financial crisis optimal capital controls rise as the contraction sets in and reach their highest level at the peak of the crisis. These findings are at odds with the conventional view that capital controls should be tightened during expansions to curb capital inflows and relaxed during contractions to discourage capital flight. |
| JEL: | E44 F41 G01 H23 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11619&r=mac |
| By: | Combey, Adama |
| Abstract: | This paper investigates the effect of interest rates on private consumption in the West African Economic and Monetary Union (WAEMU). After checking for unit root and co-integration, Error Correction Model is specified, three estimators are performed: Mean Group, Pooled Mean Group and Dynamic Fixed-Effects. Hausman tests indicate that the Dynamic Fixed-Effects estimator is more efficient and consistent than others. Results suggest that, there is no statistical evidence, both in short-run and long-run, impact of real and nominal saving interest rates on private consumption in the WAEMU region, from 2006 to 2014. These finds imply that, neither substitution effect, nor income effect, operate in this zone. However, the paper finds that, the growth of private consumption is strongly depends positively, in the long-run, on the gross national disposable income and the credit to private sector ratio. The long-run income elasticity and semi-elasticity of liquidity constraints are statistically significant and average to 0.92 and 0.0085, respectively. These finds imply that, there is a need for more proper financial market development and financial education policies implementation to have negative and significant impact of interest rates on private consumption in the WAEMU zone. |
| Keywords: | Private Consumption, Interest Rates, WAEMU, Pooled Mean Group, Mean Group, Dynamic Fixed-Effects Estimator |
| JEL: | C33 E21 F15 |
| Date: | 2016–11–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75144&r=mac |
| By: | Favero, Carlo A.; Ortu, Fulvio; Tamoni, Andrea; Yang, Haoxi |
| Abstract: | We use the evidence on predictability of returns at diff erent horizons to discriminate among competing asset pricing models. Speci cally, we employ predictors-based variance bounds, i.e. bounds on the variance of the Stochastic Discount Factors (SDFs) that price a given set of returns conditional on the information contained in a vector of return predictors. We show that return predictability delivers variance bounds that are much tighter than the classical, unconditional Hansen and Jagannathan (1991) bounds. We use the predictors-based bounds to discriminate among three leading classes of asset pricing models: rare disasters, long-run risks and external habit. We nd that the rare disasters model of Nakamura, Steinsson, Barro, and Ursua (2013) is the best performer since it satis es rather comfortably the predictors-based bounds at all horizons. As for long-run risks, while the classical version of Bansal and Yaron (2004) is the model most challenged by the introduction of conditioning information since it struggles to meet the bounds at all horizons, the more general version of Schorfheide, Song, and Yaron (2016), which accounts for multiple volatility components, satisfi es the 1- and 5-year bounds as long as the set of test assets includes only equities and T-Bills. The Campbell and Cochrane (1999) habit model lies somehow in the middle: it performs quite well at our longest 5-year horizon while it struggles at the 1-year horizon. Finally, when the set of test assets is augmented with Treasury Bonds, the only model that is able to satisfy the predictors-based bounds is the rare disasters model |
| Keywords: | asset pricing models; predictors-based bound; return predictability |
| JEL: | E21 E32 E44 G12 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11645&r=mac |
| By: | García-Santana, Manuel; Pijoan-Mas, Josep; Villacorta, Lucciano |
| Abstract: | The sectoral composition of growing economies is largely affected by the evolution of the investment rate outside the balanced growth path. We present three novel facts consistent with this idea: (a) the value added share of manufacturing within investment goods is larger than within consumption goods, (b) the standard hump-shaped profile of manufacturing with development is much more apparent for the whole economy than for the investment and consumption goods separately, and (c) the investment rate displays a hump with development similar to the one of the value added share of manufacturing. Using a standard multi-sector growth model estimated with a large panel of countries, we find that this mechanism is especially important for the industrialization of several countries since the 1950's and for the deindustrialization of many Western economies since the 1970's. In addition, it explains a substantial part of the standard hump-shaped relationship between manufacturing and development, which has been a challenge for theories of structural transformation under balanced growth. Finally, the different composition of investment and consumption goods can also explain up to half of the decline in the relative price of investment since 1980 |
| Keywords: | Structural Change; Transitional Dynamics; Neo-classical Growth Model |
| JEL: | E21 E23 O41 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11636&r=mac |
| By: | Piotr Krajewski (University of Lodz) |
| Abstract: | The effects of fiscal policy in non-EMU Central and Eastern European counties are analysed in the study. The analysis is based on dynamic stochastic general equilibrium model, which takes into account both optimizing and rule-of-thumb households. Results of the study indicate that the share of rule-of-thumb households has significant impact on government spending multipliers. On one hand, the fiscal multiplier reaches three in Hungary, which is the country with highest share of rule-of-thumb households among non-EMU CEE countries. On the other hand, in the Czech Republic, which is the country with lowest share of rule-of-thumb households, the fiscal multiplier is lower than one. Moreover, the results show that effects of government spending shocks on consumption are very sensitive to the share of rule-of-thumb households. |
| Keywords: | fiscal multiplier, government spending, rule-of-thumb households |
| JEL: | E62 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:5306957&r=mac |
| By: | Adolfo Barajas; Sergio Restrepo; Roberto Steiner; Juan Camilo Medellín; César Pabón |
| Abstract: | After building up foreign currency denominated (FC) liabilities over several years, the balance sheets of Colombian firms might be particularly vulnerable to a shift in external conditions. We undertake four exercises in order to get a better understanding of these vulnerabilities. First, through probit/logit estimations we identify the firm-level and macroeconomic determinants of FC borrowing by non-financial corporations. Second, we investigate the implication of the balance sheet vulnerability for real activity. We find evidence of a FC balance sheet effect that transmits exchange rate fluctuations to firm-level investment, and show that this effect is asymmetric, much greater for depreciations than for appreciations. Third, using logit/probit estimations, we show that not all firms use forward exchange derivatives solely to hedge their FC liabilities. This might be a consequence of exchange rate intervention by the monetary authority, protecting against extreme exchange rate misalignments. Finally, we report results of a survey-based qualitative analysis on the hedging policies and activities of 12 large non-financial firms. |
| JEL: | E22 F31 |
| Date: | 2016–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:col:000123:015228&r=mac |
| By: | Francesco Furlanetto (Norges Bank (Central Bank of Norway)); Ørjan Robstad (Norges Bank (Central Bank of Norway)) |
| Abstract: | We propose a new VAR identification scheme that enables us to disentangle immigration shocks from other macroeconomic shocks. Identification is achieved by imposing sign restrictions on Norwegian data over the period 1990Q1 - 2014Q2. The availability of a quarterly series for net immigration is crucial to achieving identification. Notably, immigration is an endogenous variable in the model and can respond to the state of the economy. We find that domestic labor supply shocks and immigration shocks are well identified and are the dominant drivers of immigration dynamics. An exogenous immigration shock lowers unemployment (even among native workers), has a positive effect on prices and on public finances in the medium run, no impact on house prices and household credit, and a negative effect on productivity. |
| Keywords: | Labor supply shocks, immigration shocks, job-related immigration, identification, VAR |
| JEL: | C11 C32 E32 |
| Date: | 2016–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2016_18&r=mac |
| By: | Andrés Fernández; Stephanie Schmitt-Grohé; Martín Uribe |
| Abstract: | Most existing studies of the macroeconomic effects of global shocks assume that they are mediated by a single intratemporal relative price such as the terms of trade and possibly an intertemporal price such as the world interest rate. This paper presents an empirical framework in which multiple commodity prices and the world interest rate transmit world disturbances. Estimates on a panel of 138 countries over the period 1960-2015 indicate that world shocks explain on average 33 percent of aggregate fluctuations in individual economies. This figure doubles when the model is estimated on post 2000 data. The increase is attributable mainly to a change in the domestic transmission mechanism as opposed to changes in the world commodity price process as argued in the literature on the financialization of world commodity markets. |
| JEL: | F41 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22833&r=mac |
| By: | Fagereng, Andreas; Guiso, Luigi; Malacrino, Davide; Pistaferri, Luigi |
| Abstract: | We provide a systematic analysis of the properties of individual returns to wealth using twenty years of population data from Norway's administrative tax records. We document a number of novel results. First, in a given cross-section, individuals earn markedly different returns on their assets, with a difference of 500 basis points between the 10th and the 90th percentile. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth. Fourth, returns have an individual permanent component that accounts for 60% of the explained variation. Fifth, for wealth below the 95th percentile, the individual permanent component accounts for the bulk of the correlation between returns and wealth; the correlation at the top reflects both compensation for risk and the correlation of wealth with the individual permanent component. Finally, the permanent component of the return to wealth is also (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate. |
| Keywords: | Heterogeneity; intergenerational mobility; returns to wealth; Wealth Inequality |
| JEL: | D31 D91 E21 E24 G11 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11635&r=mac |
| By: | Jochen Späth; Kai Daniel Schmid |
| Abstract: | Savings are, apart from inheritances and transfers, the corner stone for the accumulation of wealth. Against the background of rising economic inequality in industrialized countries and the ongoing assessment of its root causes, analyses of the distribution of savings along the income and wealth distribution are of high interest for the question on whether mutual stimulation between income flows and wealth stocks contributes to rising inequality. We analyze the extent of the concentration of household savings in Germany by estimating saving amounts, saving rates and shares in aggregate savings for different classes of household income and household wealth in Germany. Our calculations are based on the Sample Survey of Household Income and Expenditure (in German: Einkommens- und Verbrauchsstichprobe – EVS), a large sample containing more than 40,000 households in Germany. We show that the concentration of savings in Germany is substantial, as in 2013 the top income decile’s share in aggregate savings amounts to about 60 percent, whereas the lower half of the income distribution actually does not save at all. Conditional on the distribution of wealth the concentration of savings is somewhat less pronounced, but still apparent. Over the years 2003 till 2013 we find an increase of the concentration of household savings across the income and wealth distribution. Finally, based on a set of assumptions, we look beyond the top income threshold underlying the EVS dataset (18,000 euros of monthly net household income) in order to estimate bias-corrected saving rates for the top income groups which are considerably higher than those that can be calculated with our data set alone. Using these corrected saving rates as input parameters for a macro simulation of the distribution of household incomes and savings we find that the aggregate saving rate increases by two to three percentage points compared to the estimate based on EVS data alone. Also, the top decile and percentile groups’ shares in aggregate savings are substantially higher compared to the estimates solely based on EVS data. |
| Keywords: | Household Savings, Saving Rate, EVS, Administrative Data, Inequality, Endogenous Accumulation |
| JEL: | D14 E21 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:iaw:iawdip:128&r=mac |
| By: | Marek Kapicka; Julian Neira |
| Abstract: | We study optimal tax policies in a life-cycle economy with risky human capital and permanent ability differences. The optimal policies balance redistribution across agents, insurance against human capital shocks, and incentives to learn and work. In the optimum, i) if utility is separable in labor and learning effort, the inverse labor wedge follows a random walk, ii) if the utility is not separable then the “no distortion at the top” result does not apply, and iii) quantitatively, high-ability agents face very risky consumption while lowability agents are insured. The welfare gains from switching to an optimal tax system are large. |
| Keywords: | optimal taxation; income taxation; human capital; |
| JEL: | E6 H2 |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp553&r=mac |
| By: | Paweł Baranowski (University of Lodz); Zbigniew Kuchta (University of Lodz) |
| Abstract: | We estimate a dynamic stochastic general equilibrium model that allows for regimes Markov switching (MS-DSGE). Existing MS-DSGE papers for the United States focus on changes in monetary policy or shocks volatility, contributing the debate on the Great Moderation and/or Volcker disinflation. However, Poland which here serves as an example of a transition country, faced a wider range of structural changes, including long disinflation, EU accession or tax changes. The model identifies high and low rigidity regimes,with the timing consistent with menu cost explanation of nominal rigidities. Estimated timing of the regimes captures the European Union accession and indirect tax changes. The Bayesian model comparison results suggest that model with switching in both analyzed rigidities is strongly favored by the data in comparison with switching only in prices or in wages. Moreover, we find significant evidence in support of independent Markov chains. |
| Keywords: | nominal rigidities, Markov switching DSGE models, bayesian model comparison |
| JEL: | C11 E31 J30 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:5306955&r=mac |
| By: | Giorgio Canarella (University of Nevada, Las Vegas,US); Luis A. Gil-Alana (University of Navarra, Faculty of Economics, Pamplona, Spain); Rangan Gupta (Department of Economics, University of Pretoria, South Africa); Stephen M. Miller (University of Nevada, Las Vegas, US) |
| Abstract: | This paper estimates the complete historical US price data by employing a relatively new statistical methodology based on long memory. We consider, in addition to the standard case, the possibility of nonlinearities in the form of nonlinear deterministic trends as well as the possibility that persistence exists at both the zero frequency and a frequencies away from zero. We model the fractional nonlinear case using Chebyshev polynomials and model the fractional cyclical structures as a Gegenbauer process. We find in the latter case that that secular (i.e., long-run) persistence and cyclical persistence matter in the behavior of prices, producing long-memory effects that imply mean reversion at both the long-run and cyclical frequencies. |
| Keywords: | Persistence, Cyclicality, Chebyshev polynomials, Gegenbauer processes |
| JEL: | C22 E3 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201683&r=mac |
| By: | Hye-Jin Cho (Centre d'Economie de la Sorbonne) |
| Abstract: | In examining the global imbalance by the excess liquidity level, the argument is whether commercial banks want to hold excess reserves for the precautionary aim or expect to get better return through risky decision. By pictorial representations, risk preference in the Machina's triangle (1982, 1987) encapsulates motivation to hold excess liquidity. This paper introduces an endogenous liquidity model for the financial sector where the imbalance argument comes from credit rationing extended from outside liquidity (holmstrom and Tirole, 2011). We also conduct a stylistic analysis of excess liquidity in Jordan and Lebanon from 1993 to 2015. As such, the proposed model exemplifies the combination of credit, liquidity and regulation |
| Keywords: | credit rationing; excess liquidity; inside liquidity; risk preference; machina triangle |
| JEL: | D81 E58 L51 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:16075&r=mac |
| By: | Andreas Fagereng; Luigi Guiso; Davide Malacrino; Luigi Pistaferri |
| Abstract: | We provide a systematic analysis of the properties of individual returns to wealth using twenty years of population data from Norway’s administrative tax records. We document a number of novel results. First, in a given cross-section, individuals earn markedly different returns on their assets, with a difference of 500 basis points between the 10th and the 90th percentile. Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth. Fourth, returns have an individual permanent component that accounts for 60% of the explained variation. Fifth, for wealth below the 95th percentile, the individual permanent component accounts for the bulk of the correlation between returns and wealth; the correlation at the top reflects both compensation for risk and the correlation of wealth with the individual permanent component. Finally, the permanent component of the return to wealth is also (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate. |
| JEL: | D14 D31 E21 E24 G11 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22822&r=mac |
| By: | Ardakani, Omid; Kishor, Kundan; Song, Suyong |
| Abstract: | This paper estimates the treatment effect of inflation targeting for all explicit inflation targeting countries by taking into account the problem of model misspecification and inconsistent estimation of parametric propensity scores by using a semiparametric single index method. In addition, our study uses a broader set of preconditions for inflation targeting and macroeconomic outcome variables than the existing literature. Overall our results suggest no significant difference in level of inflation and inflation volatility in targeters versus non-targeters after the adoption of inflation targeting. Unlike parametric and non-parametric method, we find that inflation targeting leads to a significant decline in the sacrifice ratio and interest rate volatility in developed economies. The results suggest that inflation targeting framework enhances fiscal discipline in both industrial and developing countries. |
| Keywords: | Inflation Targeting, Propensity Score, Treatment Effects, Sieve Estimator, Single Index Model. |
| JEL: | C14 C21 E4 E5 |
| Date: | 2015–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75091&r=mac |
| By: | Rosengren, Eric S. (Federal Reserve Bank of Boston) |
| Abstract: | Speaking at the Federal Reserve Bank of Boston's 60th Economic Conference, president Eric Rosengren explored some of the facts that have made this economic recovery unusual, including subdued growth in real GDP, an unemployment rate that despite tepid growth has fallen faster than many expected, and inflation lingering below the Federal Reserve's 2 percent target. |
| Date: | 2016–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbsp:111&r=mac |
| By: | Ryo Arawatari (Graduate School of Economics, Nagoya University); Takeo Hori (Department of Industrial Engineering and Economics, School of Engineering, Tokyo Institute of Technology); Kazuo Mino (Faculty of Economics, Doshisha University) |
| Abstract: | This study introduces cash-in-advance constraints into an R&D-based model of endogenous growth in which agents’abilities to develop new goods are heterogeneous. We demonstrate that the negative effect of inflation on long-term growth is weaker in the heterogeneous ability economy than in the homogeneous ability economy if the inflation rate is relatively low, whereas the opposite outcome holds in the high inflation regime. Our numerical examples show that the threshold level of inflation is about 20% per year, which fits well with the findings of existing empirical studies of the nonlinear relation between inflation and growth. |
| Keywords: | endogenous growth, cash-in-advance constraints, heterogeneous agents, nonlinear relationship |
| JEL: | E41 O41 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:950&r=mac |
| By: | Patrick Blagrave; Marika Santoro |
| Abstract: | Using a multivariate filter, we estimate potential growth rates in Chile’s mining and non-mining sectors. Estimates for the mining sector incorporate information on copper prices, whereas estimates for non-mining reflect information on inflation and unemployment rates. To better understand the drivers of potential growth, we decompose estimates into capital, labor (adjusted for human-capital and hours worked), and total-factor productivity using a production-function. Our estimates of potential output in Chile suggest that an important part of the recent growth slowdown has been structural, with potential-output growth slowing to 2½ percent in recent years, although it plausibly could be higher in the medium-term. |
| Keywords: | Potential output;Chile;Mining sector;Copper;Commodity prices;External shocks;Economic growth;Capital accumulation;Labor markets;Total factor productivity;Production functions;Econometric models;Macroeconomic Modeling, Potential Output, Production Function |
| Date: | 2016–10–14 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/201&r=mac |
| By: | Taisuke Nakata; Sebastian Schmidt |
| Abstract: | Modifying the objective function of a discretionary central bank to include an interest-rate smoothing objective increases the welfare of an economy in which large contractionary shocks occasionally force the central bank to lower the policy rate to its effective lower bound. The central bank with an interest-rate smoothing objective credibly keeps the policy rate low for longer than the central bank with the standard objective function. Through expectations, the temporary overheating of the economy associated with such a low-for-long interest rate policy mitigates the declines in inflation and output when the lower bound constraint is binding. In a calibrated model, we find that the introduction of an interest-rate smoothing objective can reduce the welfare costs associated with the lower bound constraint by more than one-half. |
| Keywords: | Gradualism ; Inflation Targeting ; Interest-Rate Smoothing ; Liquidity Traps ; Zero Lower Bound |
| JEL: | E52 E61 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2016-92&r=mac |
| By: | Bullard, James B. (Federal Reserve Bank of St. Louis) |
| Abstract: | Low interest rates are likely to be the norm over the next two to three years, President James Bullard told those attending Commerce Bank’s annual economic breakfast in St. Louis. He also explained the St. Louis Fed's new regime-based approach to near-term U.S. macroeconomic and monetary policy projections. In doing so, he deconstructed an equation to show that an increase of 25 basis points (one-quarter of a percent) in the federal funds rate target over the forecast horizon would be appropriate monetary policy for the current macroeconomic "regime." |
| Date: | 2016–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:276&r=mac |
| By: | Michael T. Kiley |
| Abstract: | Both imperfect information and sticky prices allow nominal shocks to act as business cycle impulses, but only sticky prices propagate the real effects of nominal shocks. A simple model of imperfect information and sticky prices developed herein indicates that high rates of inflation lead to less price stickiness, and hence less persistent output fluctuations. Estimation of the model, as well as simple autocorrelations of real output, indicate that indeed output fluctuations are less persistent in high inflation economies. These results lend little support to models in which output persistence is explained through persistent real shocks, capital accumulation, or adjustment costs. |
| Keywords: | Output persistence ; sticky prices ; menu costs |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:1996-23&r=mac |
| By: | Steven Yamarik (California State University); Makram El Shagi (Henan UniversityAuthor-Name: Guy Yamashiro; California State University) |
| Abstract: | This paper uses state-level data to test the Rajan hypothesis, from his book Fault Lines, that an increase in inequality can lead to a credit boom. Using dynamic heterogeneous panel estimation methods (i.e. MG, PMG, DFE), we find a significant negative long-run relationship between inequality and real estate lending across U.S. states. In addition, we find evidence indicating that the path of causality runs from inequality to credit. |
| Keywords: | Rajan; inequality; loans; credit; PMG |
| JEL: | E62 H71 R11 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:inf:wpaper:2016.01&r=mac |
| By: | Lars Kuehn (Carnegie Mellon University); David Schreindorfer (Arizona State University); Cedric Ehouarne (Carnegie Mellon University) |
| Abstract: | We estimate a general equilibrium model with firm heterogeneity and a representative household with Epstein-Zin preferences. Firms face investment frictions and permanent shocks, which feature time-variation in common idiosyncratic skewness. Quantitatively, the model replicates well the cyclical dynamics of the cross-sectional output growth and investment rate distributions. Economically, the model generates business cycles through inefficiencies in the allocation of capital across firms. These cycles arise because (i) permanent Gaussian shocks give rise to a power law distribution in firm size and (ii) rare negative Poisson shocks cause time-variation in common idiosyncratic skewness. Despite the absence of firm-level granularity, a power law in the firm size distribution implies that idiosyncratic Poisson shocks have a large effect on the dynamics of aggregate consumption and wealth. In addition, shocks to aggregate wealth spill over to all firms in the economy because of Epstein-Zin preferences. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:1482&r=mac |
| By: | Rabitsch, Katrin; Schoder, Christian |
| Abstract: | We introduce the tractable buffer stock savings setup of Carroll and Toche (2009 NBER Working Paper) into an otherwise conventional New-Keynesian dynamic stochastic general equilibrium model with financial frictions. The introduction of a precautionary saving motive arising from an uninsurable risk of permanent income loss, affects the model's properties in a number of interesting ways: it produces a more hump-shaped reaction of consumption in response to both supply (technology) and demand (monetary) shocks, and more pronounced reactions in response to demand shocks. Adoption of the buffer stock savings setup thus offers a more microfounded way, compared to, e.g., habit preferences in consumption, to introduce Keynesian features into the model, serving as a device to curbing excessive consumption smoothing, and to attributing a higher role to demand driven fluctuations. We also discuss steady state effects, determinacy properties as well as other practical issues. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmpwps:64&r=mac |
| By: | Görg, Holger (Kiel Institute for the World Economy); Henze, Philipp (University of Kiel); Jienwatcharamongkhol, Viroj (University of Nottingham); Kopasker, Daniel (University of Aberdeen); Molana, Hassan (University of Dundee); Montagna, Catia (University of Aberdeen); Sjöholm, Fredrik (Lund University) |
| Abstract: | This paper studies the effect of the firm-size distribution on the relationship between employment and output. We construct a theoretical model, which predicts that changes in demand for industry output have larger effects on employment in industries characterised by a distribution that is more skewed towards smaller firms. Industry-specific shape parameters of the firm size distributions are estimated using firm-level data from Germany, Sweden and the UK, and used to augment a relationship between industry-level employment and output. Our empirical results align with the predictions of the theory and confirm that the size distribution of firms is an important determinant of the relationship between changes in output and employment. |
| Keywords: | firm distribution, firm size, employment, fluctuations |
| JEL: | E20 E23 L20 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10371&r=mac |
| By: | Görg, Holger (University of Kiel); Henze, Philipp (University of Kiel); Jienwatcharamongkhol, Viroj (Nottingham University (Ningbo)); Kopasker, Daniel (University of Aberdeen); Molana, Hassan (University of Dundee); Montagna, Catia (University of Aberdeen); Sjöholm, Fredrik (Department of Economics, Lund University) |
| Abstract: | This paper studies the effect of the firm-size distribution on the relationship between employment and output. We construct a theoretical model, which predicts that changes in demand for industry output have larger effects on employment in industries characterised by a distribution that is more skewed towards smaller firms. Industry-specific shape parameters of the firm size distributions are estimated using firm-level data from Germany, Sweden and the UK, and used to augment a relationship between industry-level employment and output. Our empirical results align with the predictions of the theory and confirm that the size distribution of firms is an important determinant of the relationship between changes in output and employment. |
| Keywords: | Firm distribution; Firm size; Employment; Fluctuations |
| JEL: | E20 E23 L20 |
| Date: | 2016–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2016_032&r=mac |
| By: | Görg, Holger; Henze, Philipp; Jienwatcharamongkhol, Viroj; Kopasker, Daniel; Molana, Hassan; Montagna, Catia; Sjöholm, Fredrik |
| Abstract: | This paper studies the effect of the firm-size distribution on the relationship between employment and output. We construct a theoretical model, which predicts that changes in demand for industry output have larger effects on employment in industries characterised by a distribution that is more skewed towards smaller firms. Industry-specific shape parameters of the firm size distributions are estimated using firm-level data from Germany, Sweden and the UK, and used to augment a relationship between industry-level employment and output. Our empirical results align with the predictions of the theory and confirm that the size distribution of firms is an important determinant of the relationship between changes in output and employment. |
| Keywords: | Firm distribution,Firm size,Employment,Fluctuations |
| JEL: | E20 E23 L20 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2064&r=mac |
| By: | Schmitt-Grohé, Stephanie; Uribe, Martin |
| Abstract: | This paper establishes the existence of multiple equilibria in infinite-horizon open-economy models in which the value of tradable and nontradable endowments serves as collateral. In this environment, the economy displays self-fulfilling financial crises in which pessimistic views about the value of collateral induces agents to deleverage. The paper shows that under plausible calibrations, there exist equilibria with underborrowing. This result stands in contrast to the overborrowing result stressed in the related literature. Underborrowing emerges in the present context because in economies that are prone to self-fulfilling financial crises, individual agents engage in excessive precautionary savings as a way to self-insure. |
| Keywords: | capital controls.; Collateral constraints; Financial crises; overborrowing; Pecuniary externalities; underborrowing |
| JEL: | E44 F41 G01 H23 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11623&r=mac |
| By: | Yan Carriere-Swallow; Luis I. Jacome H.; Nicolas E Magud; Alejandro M. Werner |
| Abstract: | Latin America’s central banks have made substantial progress towards delivering an environment of price stability that is supportive of sustainable economic growth. We review these achievements, and discuss remaining challenges facing central banking in the region. Where inflation remains high and volatile, achieving durable price stability will require making central banks more independent. Where inflation targeting regimes are well-established, remaining challenges surround assessments of economic slack, the communication of monetary policy, and clarifying the role of the exchange rate. Finally, macroprudential policies must be coordinated with existing objectives, and care taken to preserve the primacy of price stability. |
| Keywords: | Central banking;Latin America;Central banks;Central bank autonomy;Monetary policy;Inflation targeting;Exchange markets;Intervention;Price stabilization;Macroprudential Policy;Financial stability;Central Banking, Monetary Policy, Macroprudential Policy, Latin America. |
| Date: | 2016–09–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/197&r=mac |
| By: | Raphael Schoenle (Brandeis University); Michael Weber (University of Chicago); Ernesto Pasten (Central Bank of Chile) |
| Abstract: | We study the aggregate propagation of idiosyncratic, sectoral shocks in a multi-sector new-Keynesian model with intermediate inputs featuring sectoral heterogeneity in price stickiness, sectoral GDP, and input-output linkages. Heterogeneity of price rigidity distorts the "granular" effect of the fat-failed distribution of sectors' size as well as the "network" effect of the centrality of some sectors in the production network. This distortion involves the strength of the aggregate volatility generated by sectoral shocks as well as the identity of the most important sectors. The granular and the network effects may in fact be completely irrelevant while the empirical distribution of price stickiness may generate by itself sizable aggregate volatility from sectoral shocks. We calibrate our model to 350 sectors using US data to quantify the strenght and interaction of "granular", "network" and "frictional" sources of the aggregate propagation of sectoral shocks. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:1473&r=mac |
| By: | Heather D. Gibson; Stephen G. Hall; George S. Tavlas |
| Abstract: | During the euro-area financial crisis, interactions among sovereign spreads, sovereign credit ratings, and bank credit ratings appeared to have been characterized by self-generating feedback loops. To investigate the existence of feedback loops, we consider a panel of five euro-area stressed countries within a three-equation simultaneous system in which sovereign spreads, sovereign ratings and bank ratings are endogenous. We estimate the system using two approaches. First we apply GMM estimation, which allows us to calculate persistence and multiplier effects. Second, we apply a new, system time-varying-parameter technique that provides bias-free estimates. Our results show that sovereign ratings, sovereign spreads, and bank ratings strongly interacted with each other during the euro crisis, confirming strong doom-loop effects. |
| Keywords: | euro area financial crisis, sovereign spreads, rating agencies |
| JEL: | E63 G12 |
| URL: | http://d.repec.org/n?u=RePEc:lec:leecon:16/18&r=mac |
| By: | Stephens, Thomas A.; Tyran, Jean-Robert |
| Abstract: | We elicit money illusion and match it with financial and sociodemographic data from official registers on a quasi-representative sample of the Danish population. We find that people who are more prone to money illusion hold more of their gross wealth in nominal assets, including bank deposits and bonds, and less in real assets, including real estate and stocks. This bias is robust to controls for education, income, cognitive ability and other relevant characteristics. We further find that money illusion is a costly bias: 10-year portfolio returns are about 10 percentage points lower for individuals with high money illusion. |
| Keywords: | household finance; loss aversion; Money illusion |
| JEL: | C91 D03 D14 E21 G11 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11643&r=mac |
| By: | Bianchi, Francesco (Duke University); Melosi, Leonardo (Federal Reserve Bank of Chicago) |
| Abstract: | We develop and estimate a general equilibrium model to quantitatively assess the effects and welfare implications of central bank transparency. Monetary policy can deviate from active inflation stabilization and agents conduct Bayesian learning about the nature of these deviations. Under constrained discretion, only short deviations occur, agents’ uncertainty about the macroeconomy remains contained, and welfare is high. However, if a deviation persists, uncertainty accelerates and welfare declines. Announcing the future policy course raises uncertainty in the short run by revealing that active inflation stabilization will be temporarily abandoned. However, this announcement reduces policy uncertainty and anchors inflationary beliefs at the end of the policy. For the U.S., enhancing transparency is found to increase welfare. The same result is found when we relax the assumption of perfectly credible announcements. |
| Keywords: | Policy announcement; Bayesian learning; reputation; forward guidance; macroeco-nomic risk; uncertainty; inflation expectations; Markov-switching models; likelihood estimation |
| JEL: | C11 D83 E52 |
| Date: | 2016–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2016-15&r=mac |
| By: | Florian Léon (CREA, Université du Luxembourg) |
| Abstract: | This paper attempts to distinguish the effects of household and enterprise credit on Economic growth. To do so, I create a new, hand-collected database covering 143 countries over the period 1995-2014 (126 countries are employed for econometric analysis). Estimation results confirm recent evidence documenting the absence of the effect of total credit to growth. Findings also show that household credit has a negative effect on growth, but I fail to provide robust support for a positive effect of business credit. |
| Keywords: | Financial development, Household credit, Enterprise credit, Economic growth |
| JEL: | E44 G21 O16 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:luc:wpaper:16-17&r=mac |
| By: | Bystrov, Victor; Mackewicz, Michał |
| Abstract: | In this paper the recurrent explosive behaviour of debt-to-GDP ratio is tested in three countries with a long fiscal record: Sweden, the UK and the US. The testing is based on the method developed by Phillips et al. (2015) which is new in this context. The method allows us to avoid the size distortion problem of the traditional tests of fiscal sustainability and makes it possible to examine potential unsustainability as a transitory rather than permanent phenomenon. It has been demonstrated that in the economies analyzed, long periods of fiscal sustainability were interrupted by relatively short periods when the debt-to-GDP ratio had explosive dynamics. |
| Keywords: | Public debt, Sustainability, Unit root tests, Explosiveness |
| JEL: | C12 C22 E62 H63 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75203&r=mac |
| By: | Ichiro Iwasaki; Kazuhiro Kumo (Institute of Economic Research, Hitotsubashi University) |
| Abstract: | Immediately after the collapse of socialism, the countries of Central and Eastern Europe and the former Soviet Union fell into a serious economic crisis, after which they experienced a gradual recovery. Therefore, without exception, these countries followed a J-curved growth path. However, there were marked differences among them in the length and depth of the crisis and the speed of recovery. In this paper, we perform a comparative meta-analysis of the effect size and statistical significance of structural change, transformation policy, the legacy of socialism, inflation, and regional conflict in order to elucidate the mechanism that generated the J-shaped trajectory in transition economies. The meta-synthesis, which employs 3,279 estimates drawn from 123 previous studies, revealed that while the growth-enhancing effects of structural change and transformation policy were small yet significant, inflation and regional conflict had a highly significant and strongly negative effect on output. In addition, the legacy of socialism might exacerbate the decline in production in the early stages of transition. The meta-regression analysis that simultaneously controls for various research conditions and the assessment of publication selection bias provides supporting evidence for the results obtained from the meta-synthesis. |
| Keywords: | decline, growth, transition economies, meta-analysis, publication selection bias, Central and Eastern Europe, former Soviet Union |
| JEL: | E31 O47 O57 P20 P21 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:951&r=mac |
| By: | Kaufmann, Christoph |
| Abstract: | This paper studies Ramsey-optimal monetary and fiscal policy in a New Keynesian 2-country open economy framework, which is used to assess how far fiscal policy can substitute for the role of nominal exchange rates within a monetary union. Giving up exchange rate flexibility leads to welfare costs that depend significantly on whether the law of one price holds internationally or whether firms can engage in pricing-tomarket. Calibrated to the euro area, the welfare costs can be reduced by 86% in the former and by 69% in the latter case by using only one tax instrument per country. Fiscal devaluations can be observed as an optimal policy in a monetary union: if a nominal devaluation of the domestic currency were optimal under flexible exchange rates, optimal fiscal policy in a monetary union is an increase of the domestic relative to the foreign value added tax. |
| Keywords: | Monetary union,Optimal monetary and fiscal policy,Exchange rate |
| JEL: | F41 F45 E63 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:442016&r=mac |
| By: | Li-Hsien Sun |
| Abstract: | We propose a simple model of inter-bank lending and borrowing incorporating a game feature where the evolution of monetary reserve is described by a system of coupled Feller diffusions. The optimization subject to the quadratic cost reflects the desire of each bank to borrow from or lend to a central bank through manipulating its lending preference and the intention of each bank to deposit in the central bank in order to control the volatility for cost minimization. We observe that the adding liquidity creates a flocking effect leading to stability or systemic risk depending on the level of the growth rate. The deposit rate diminishes the growth of the total monetary reserve causing a large number of bank defaults. The central bank acts as a central deposit corporation. In addition, the corresponding Mean Field Game in the case of the number of banks $N$ large and the infinite time horizon stochastic game with the discount factor are also discussed. |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1611.06672&r=mac |
| By: | Peter Diep; Andrea L. Eisfeldt; Scott Richardson |
| Abstract: | We present a simple, linear asset pricing model of the cross section of Mortgage-Backed Security (MBS) returns. We measure prepayment risk and estimate security risk loadings using real data on prepayment forecasts vs. realizations. Estimated loadings are monotonic in securities' coupons relative to the par coupon, as predicted by the model. Prepayment risks appear to be priced by specialized MBS investors. In particular, we find convincing evidence that prepayment risk prices change sign over time with the sign of a representative MBS investor's exposure to prepayment risk. |
| JEL: | E02 G12 G2 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22851&r=mac |
| By: | Josef Schroth |
| Abstract: | Foreign direct investment inflows are positively related to growth across developing countries—but so are savings in excess of investment. I develop an explanation for this well-established puzzle by focusing on the limited availability of consumer credit in developing countries together with general equilibrium effects. In my model, fast-growing developing countries increase their holdings of safe assets, which creates net capital outflows despite inflows of foreign direct investment. The world risk-free interest rate falls as a result, and slow-growing developing countries reduce their holdings of safe assets, which creates net capital inflows despite outflows of foreign direct investment. |
| Keywords: | Foreign reserves management, Interest rates, International financial markets |
| JEL: | E13 E21 F43 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:16-53&r=mac |
| By: | Horvarth, Roman |
| Abstract: | [Introduction] The recent global financial crisis has showed us how extremely costly financial crises are in terms of economic activity and overall welfare of citizens. It affected strongly the stability of selected European financial institutions as well as the debt management of various governments in Europe. The European Union has undertaken a vast series of steps to safeguard financial stability in Europe, both in the way how financial market supervision is institutionally structured and also in the way how financial market supervision is implemented. Macroprudential policies, which focus on promoting stability of financial system as a whole, has become to forefront. The financial crisis also materialized strongly in macroeconomic stability. The European Central Bank needed to implement large-scale non-standard monetary policy measures to support the euro area economic activity, to improve the functioning of monetary policy transmission mechanism and to reduce deflationary risks. Despite all the steps undertaken in safeguarding financial stability coupled with accommodative monetary policy, we still cannot say that the global financial crisis or its effects are over. Having the enormously negative effects of financial crises in mind, several attendant - both general and specific - questions for academia as well as for policy makers arise. [...] |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fmppls:3&r=mac |
| By: | Kyle Herkenhoff; Gordon Phillips; Ethan Cohen-Cole |
| Abstract: | How does consumer credit access impact job flows, earnings, and entrepreneurship? To answer this question, we build a new administrative dataset which links individual employment and entrepreneur tax records to TransUnion credit reports, and we exploit the discrete increase in consumer credit access following bankruptcy flag removal. After flag removal, individuals flow into self-employment. New entrants earn more, borrow significantly using unsecured and secured consumer credit, and are more likely to become an employer business. In addition, after flag removal, non-employed and self-employed individuals are more likely to find unemployment-insured "formal" jobs at larger firms that pay greater wages. These estimates imply that firms believe previously bankrupt workers are 3.8% less productive than non-bankrupt workers, on average. These results suggest that consumer credit access matters for each stage of entrepreneurship and that credit-checks may be limiting formal sector employment opportunities. |
| JEL: | D04 D1 D12 D14 D22 D31 D83 E2 E21 G23 G3 G33 K35 K36 L22 M5 M52 O16 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22846&r=mac |
| By: | Margherita Borella; Mariacristina De Nardi; Fang Yang |
| Abstract: | Wages and life expectancy, as well as labor market outcomes, savings, and consumption, differ by gender and marital status. In this paper we compare the aggregate implications of two dynamic structural models. The first model is a standard, quantitative, life-cycle economy, in which people are only heterogenous by age and realized earnings shocks, and is calibrated using data on men, as typically done. The second model is one in which people are also heterogeneous by gender, marital status, wages, and life expectancy, and is calibrated using data for married and single men and women. We show that the standard life-cycle economy misses important aspects of aggregate savings, labor supply, earnings, and consumption. In contrast, the model with richer heterogeneity by gender, marital status, wage, and life expectancy matches the observed data well. We also show that the effects of changing life expectancy and the gender wage gap depend on marital status and gender, and that it is essential to not only model couples, but also the labor supply response of both men and women in a couple. |
| JEL: | D1 E1 E21 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22817&r=mac |
| By: | Greenwood, Jeremy (University of Pennsylvania); Guner, Nezih (CEMFI); Vandenbroucke, Guillaume (Federal Reserve Bank of St. Louis) |
| Abstract: | Powerful currents have reshaped the structure of families over the last century. There has been (i) a dramatic drop in fertility and greater parental investment in children; (ii) a rise in married female labor-force participation; (iii) a decline in marriage and a rise in divorce; (iv) a higher degree of assortative mating; (v) more children living with a single mother; (vi) shifts in social norms governing premarital sex and married women’s roles in the labor market. Macroeconomic models explaining these aggregate trends are surveyed. The relentless flow of technological progress and its role in shaping family life are stressed. |
| Keywords: | Assortative mating; baby boom; baby bust; family economics; female labor supply; fertility; household income inequality; household production; human capital; macroeconomics; marriage and divorce; quality-quantity tradeoff; premarital sex; quantitative theory; single mothers; social change; survey paper; technological progress; women’s rights |
| JEL: | D1 E2 J1 O1 O4 Z1 |
| Date: | 2016–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2016-026&r=mac |
| By: | Greenwood, Jeremy (University of Pennsylvania); Guner, Nezih (CEMFI, Madrid); Vandenbroucke, Guillaume (Federal Reserve Bank of St. Louis) |
| Abstract: | Powerful currents have reshaped the structure of families over the last century. There has been (i) a dramatic drop in fertility and greater parental investment in children; (ii) a rise in married female labor-force participation; (iii) a decline in marriage and a rise in divorce; (iv) a higher degree of assortative mating; (v) more children living with a single mother; (vi) shifts in social norms governing premarital sex and married women's roles in the labor market. Macroeconomic models explaining these aggregate trends are surveyed. The relentless flow of technological progress and its role in shaping family life are stressed. |
| Keywords: | assortative mating, baby boom, baby bust, family economics, female labor supply, fertility, household income inequality, household production, human capital, macroeconomics, marriage and divorce, quality-quantity trade off, premarital sex, quantitative theory, single mothers, social change, survey paper, technological progress, women's rights |
| JEL: | D1 E2 J1 O1 O4 Z1 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10362&r=mac |
| By: | Aubhik Khan (Ohio State University) |
| Abstract: | We explore business cycles in a quantitative overlapping generations economy where households face both unemployment risk and, conditional on employment, income risk. In this environment, we examine the effect of aggregate shocks on the distribution of consumption, income and wealth across households and how this distribution shapes the aggregate response to these shocks. While TFP fell relatively little, in the recent US recession, there was a large fall in hours worked. Consistency with these observations, in the model, requires a substantial and persistent increase in unemployment risk that disproportionately affects younger working households. Conversely, explaining the reduction in aggregate consumption implies a financial shock to households' net return on assets. This drives a non-monotonic welfare cost of the recession, over generations, varying by the share of income derived from capital and labour. Overall, young workers, and older workers near retirement, suffer the most from the increase in unemployment and the fall in the return on wealth, respectively. Inequality in wealth also shapes the aggregate response of the economy. Aggregate investment falls by more when households face little income risk, holds less precautionary savings, and are more responsive to changes in real interest rates. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:1468&r=mac |
| By: | Axel Demenet (DIAL, UMR 225, IRD, Paris, France, PSL Research University, Université Paris-Dauphine, LEDa, Paris, France) |
| Abstract: | This study uses an original Vietnamese panel data to provide strong evidence that microenterprises are vulnerable to health shocks affecting their operators and/or other household members. Although intra-household labour reallocation mitigates the direct labour supply decrease, large out-of- pocket health expenditures have the potential of crowding out business-related expenditure, and to significantly decrease investment. The costs associated with illness thus affect directly the household businesses that generate income for countless individuals around the developing world. These results have important implications, among which the underestimation of the positive externalities of health insurance schemes. |
| JEL: | I15 E26 O17 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:dia:wpaper:dt201611&r=mac |
| By: | Sampawende J Tapsoba; Robert C York; Neree C.G.M. Noumon |
| Abstract: | Few papers have attempted to assess the role of “capacity,†especially in the area of macroeconomic statistics. Consequently, we make an attempt to advance this literature through the construction of a “statistical capacity building index,†and then test its explanatory power on the cyclicality of government spending. Using panel data from 62 developing countries, we find evidence that improvements in this index are associated with less procyclicality of government spending over the period 1990–2012; with the significance of this relationship dependent upon the quality of administrative and technical capacity of budgetary institutions. |
| Date: | 2016–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/209&r=mac |
| By: | Jeremy Greenwood (University of Pennsylvania); Nezih Guner (Universitat Autònoma de Barcelona); Guillaume Vandenbroucke (Federal Reserve Bank of St. Louis) |
| Abstract: | Powerful currents have reshaped the structure of families over the last century. There has been (i) a dramatic drop in fertility and greater parental investment in children; (ii) a rise in married female labor-force participation; (iii) a decline in marriage and a rise in divorce; (iv) a higher degree of assortative mating; (v) more children living with a single mother; (vi) shifts in social norms governing premarital sex and married women's roles in the labor market. Macroeconomic models explaining these aggregate trends are surveyed. The relentless flow of technological progress and its role in shaping family life are stressed. |
| Keywords: | assortative mating, baby boom, baby bust, family economics, female labor supply, fertility, household income inequality, Household Production, human capital, macroeconomics, marriage and divorce, Quantity-quality tradeoff, premarital sex, quantitative theory, single mothers, social change, survey paper, technological progress, women's rights |
| JEL: | D10 E20 J10 O10 O40 Z10 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2016-021&r=mac |
| By: | Svetlana Cerovic; Jose Saboin |
| Abstract: | This paper examines the financial position of the key sectors of the Dominican Republic. It contributes to macroeconomic surveillance by identifying financial interlinkages and vulnerabilities through the balance sheet approach. The balance sheet of the economy has been weakening, particularly in foreign currency, due to persistent fiscal deficits. Risks arising from weaker foreign currency position, however, seem to be mitigated by long-term maturities on government debt and increasing accumulation of foreign currency assets. Given the strong links of the rest of the economy with the public sector, network analysis suggests that while the financial position of the other sectors of the economy is stronger, they could be adversely affected in an external stress scenario. Exposures to public sector are particularly pronounced in the domestic financial system (directly) and households (indirectly, through pension funds). |
| Keywords: | Economic sectors;Dominican Republic;Balance sheets;Systemic risk assessment;Macro-financial analysis;Time series;balance sheet approach, net financial position, Dominican Republic, financial interlinkages |
| Date: | 2016–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/208&r=mac |
| By: | Amat Adarov (The Vienna Institute for International Economic Studies, wiiw); Kateryna Bornukova; Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Dzmitry Kruk; Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | Twenty-five years after the dissolution of the Soviet Union, Belarus stands out as a special case in transition blending, on the one hand, signs of relative prosperity, socially oriented policies and sprouts of entrepreneurships and, on the other hand, remnants of the communist past. The core of the Belarusian economic model throughout most of this period was a combination of external rents and soft budget constraints on the state-owned part of the economy backed by a strong system of administrative control. In periods of favourable external conditions this mix provided for relatively high rates of economic growth and allowed the authorities to maintain a ‘social contract’ with the population targeting close to full employment. But this model also led to the persistent accumulation of a quasi-fiscal deficit which time and again came to the surface, and its subsequent monetisation provoked macroeconomic and currency turmoil. At present, Belarus’ economic model has run up against its limits and policy changes seem inevitable. |
| Keywords: | Belarus, economic transformation, macroeconomic policy, soft budget constraints, currency crisis |
| JEL: | E65 O52 P30 P52 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:wii:rpaper:rr:413&r=mac |
| By: | Josef Schroth |
| Abstract: | How much discretion should local financial regulators in a banking union have in accommodating local credit demand? I analyze this question in an economy where local regulators privately observe expected output from high lending. They do not fully internalize default costs from high lending since deposit insurance cannot be priced fairly. Still, output net of default costs across the banking union is highest when local regulators are rewarded rather than punished. Regulators with lower current lending receive more discretion to allow higher lending in the future, but regulators with higher current lending may not experience any limit to their discretion. |
| Keywords: | Credit and credit aggregates, Financial stability, Financial system regulation and policies, Regional economic developments |
| JEL: | E44 G28 H7 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:16-52&r=mac |
| By: | Bartels, Bernhard; Eichengreen, Barry; Weder, Beatrice |
| Abstract: | Do central banks with private shareholders differ in their financial behavior from purely public central banks? Private shareholders might bias central banks toward focusing excessively on profits, dividends and risks to their balance sheets, but their influence may also be mitigated by governance rules. We study 35 OECD central banks, including eight with private shareholders, using new data on governance rules. We find that central banks with private shareholders do not differ from their purely public counterparts in their profitability, nor are they more financially cautious in the sense of building more loss-absorbing capacity. Surprisingly, their transfers to governments out of current profits tend to be higher, not lower. We find that broader governance rules matter for financial payouts. |
| Keywords: | central bank governance; private sharehoders |
| JEL: | E58 F30 G38 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11625&r=mac |
| By: | David Albouy; Gabriel Ehrlich; Yingyi Liu |
| Abstract: | Since 1970, housing's relative price, share of expenditure, and ``unaffordability'' have all grown. We estimate housing demand using a novel compensated framework over space and an uncompensated framework over time. Our specifications pass tests imposed by rationality and household mobility. Housing demand is income and price inelastic, and appears to fall with household size. We provide a numerical non-homothetic constant elasticity of substitution utility function for improved quantitative modeling. An ideal cost-of-living index demonstrates that the poor have been disproportionately impacted by rising relative rents, which have greatly amplified increases in real income inequality. |
| JEL: | D12 E31 R21 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22816&r=mac |
| By: | Kamiar Mohaddes; M. Hashem Pesaran |
| Abstract: | The recent plunge in oil prices has brought into question the generally accepted view that lower oil prices are good for the United States and the global economy. In this paper, using a quarterly multi-country econometric model, we first show that a fall in oil prices tends relatively quickly to lower interest rates and inflation in most countries, and increase global real equity prices. The effects on real output are positive, although they take longer to materialize (around four quarters after the shock). We then re-examine the effects of low oil prices on the U.S. economy over different sub-periods using monthly observations on real oil prices, real equity prices and real dividends. We confirm the perverse positive relationship between oil and equity prices over the period since the 2008 financial crisis highlighted in the recent literature, but show that this relationship has been unstable when considered over the longer time period of 1946–2016. In contrast, we find a stable negative relationship between oil prices and real dividends which we argue is a better proxy for economic activity (as compared to equity prices). On the supply side, the effects of lower oil prices differ widely across the different oil producers, and could be perverse initially, as some of the major oil producers try to compensate their loss of revenues by raising production. Taking demand and supply adjustments to oil price changes as a whole, we conclude that oil markets equilibrate but rather slowly, with large episodic swings between low and high oil prices. |
| Date: | 2016–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:16/210&r=mac |
| By: | Bans-Akutey, Mawufemor; Yaw Deh, Isaac; Mohammed, Faisal |
| Abstract: | Using annual time series data for Ghana, the current study investigates the effect of inflation on manufacturing sector productivity for the period 1968-2013. The empirical verification is done by using the Johansen test (JT), the Vector Error Correction Model (VECM), and the Ordinary Least Squares (OLS) regression test. The results indicate significant stable long run relationship between inflation and manufacturing sector productivity. However, there is insignificant short run link between inflation and manufacturing sector productivity in the VECM. The results of the OLS test indicate negative significant link between inflation and manufacturing sector productivity. The findings suggest that inflation has led to a decrease in manufacturing sector productivity. Policy makers should manage inflation very well in order to improve manufacturing sector productivity. Future study should examine the current topic accounting for causality and structural breaks issues since the present study did not consider these issues. |
| Keywords: | Manufacturing sector productivity, Inflation, Long run, Short run |
| JEL: | E31 L60 P24 |
| Date: | 2016–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75145&r=mac |
| By: | Armantier, Olivier (Federal Reserve Bank of New York); Topa, Giorgio (Federal Reserve Bank of New York); Van der Klaauw, Wilbert (Federal Reserve Bank of New York); Zafar, Basit (Federal Reserve Bank of New York) |
| Abstract: | This report presents an overview of the Survey of Consumer Expectations, a new monthly online survey of a rotating panel of household heads. The survey collects timely information on consumers’ expectations and decisions on a broad variety of topics, including but not limited to inflation, household finance, the labor market, and the housing market. There are three main goals of the survey: (1) measuring consumer expectations at a high frequency, (2) understanding how these expectations are formed, and (3) investigating the link between expectations and behavior. This report discusses the origins of the survey, the questionnaire design, the implementation of the survey and the sample, and computation of various statistics that are released every month. We conclude with a discussion of how the results are disseminated, and how the (micro) data may be accessed. |
| Keywords: | survey; expectations; inflation; measurement |
| JEL: | C81 D80 E31 |
| Date: | 2016–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:800&r=mac |
| By: | Chen Lian (MIT); George-Marios Angeletos (M.I.T.) |
| Abstract: | General equilibrium (GE) effects are key to macroeconomics: they turn partial-equilibrium intuitions on their head; they also limit the use- fulness of identifying local responses to local shocks as a method of es- timating the macroeconomic effects of aggregate shocks. In this paper, we argue that GE effects are weak in the short run. In particular, we establish an equivalence between (i) the Tâtonnement process of a stan- dard macroeconomic model and (ii) the equilibrium dynamics of a variant model that removes common knowledge of aggregate economic conditions. This offers a formalization of the notion that GE adjustments take time; it provides a justification for extrapolating from the aforementioned kind of micro elasticities to macro effects; and it upsets conventional policy recommendations. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:1456&r=mac |
| By: | Vitor Gaspar; Maurice Obstfeld; Ratna Sahay; Douglas Laxton |
| Abstract: | The recovery in GDP growth since the global financial crisis has been halting and weak. Concern is widespread that countercyclical policies have run out of space or lack the power to raise growth or deal with the next negative shock. This note argues that room exists for effective policies and that it should be used if appropriate. The most promising route involves a comprehensive, consistent, and coordinated approach to policy making. Comprehensive policy actions within a country exploit synergies, making the whole greater than the sum of parts. Consistent policy frameworks anchor long-term expectations while allowing decisive short- to medium-term accommodation whenever necessary. Coordinated policies across major economies amplify the helpful effects of individual policy actions through positive cross-border spillovers. The findings of this paper indicate that policy coordination adds particular value if the current approach falls short of reviving growth, or in the event of a further downward shock. |
| Keywords: | Economic policy;Fiscal policy;Incomes policy;Fiscal reforms;Monetary policy;Macroprudential Policy;Financial sector;Banks;Canada;Japan;Developed countries;Monetary Policy; Fiscal Policy; Incomes Policy; Structural Reforms; Financial Sector Policies; Canada; Japan |
| Date: | 2016–09–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfsdn:16/09&r=mac |
| By: | Aïssata COULIBALY; Urbain Thierry YOGO |
| Abstract: | This paper investigates the effect of access to financial services on the prevalence of working poor. Using a panel of 63 developing countries over the period 2004-2013, we find that improving financial access (as measured by the number of bank branches per 100,000 adults) reduces the prevalence of working poor (workers living with less than US$ 1.25 a day). This effect is even more relevant in countries affected by strong macroeconomic instability. Our findings are robust to endogeneity bias, the addition of various controls including remittances and mobile phone subscriptions, and to the shifting of the poverty line from US$ 1.25 to US$ 1.90. We also show that barriers to use banking services are correlated positively with working poverty. Moreover, our results confirm the validity of some transmissions channels such as growth (trickle-down effect) and the access of the non-poor workers to financial services, suggesting that improving financial access for the excluded non-poor can have a strong reducing-effect on working poverty. |
| Keywords: | Financial access, Working poverty, Developing countries, Trickle-down effect. |
| JEL: | G20 E44 O11 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cdi:wpaper:1833&r=mac |
| By: | Fran Galetić (Faculty of Economics and Business, University of Zagreb); Tomislav Herceg (Faculty of Economics and Business, University of Zagreb) |
| Abstract: | The retail sector is one of the most important sectors in Croatian economy. This paper analyzes the profitability of Croatian retail sector compared to other countries of the European Union. The aim of this paper is to show the position of Croatia as the youngest member state of the European Union in comparison with other member states of the European Union and especially compared to ten "new" member states of the European Union. The analysis will show in which areas Croatia is similar to the European Union, but it will also show that unlike most new member states, Croatia’s GDP growth was driven essentially by employment growth, with limited productivity gains. |
| Keywords: | Productivity, Profitability, Croatia, European Union, Retail |
| JEL: | E00 O00 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:5306961&r=mac |
| By: | Taro Ikeda (Graduate School of Economics, Kobe University) |
| Abstract: | This paper found that most of US industrial sectors are fractal, and therefore have a long autocorrelated dependence. |
| Keywords: | Fractal geometry, Hurst exponent, random walk |
| JEL: | C18 E39 F31 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:1643&r=mac |
| By: | Kaixing Huang (School of Economics & the Centre for Global Food and Resources, University of Adelaide) |
| Abstract: | This article adopts a modified idea-based growth model with endogenous human capital and population to explain why the theoretically relevant growth effect of population growth on economic growth is empirically unobservable. The model predicts that the economic growth rate is proportional to the growth rates of both population and human capital. The offsetting movement of the growth rates of population and human capital after the demographic transition obscures observation of the growth effect. The model also generates an evolution of the growth rates of population, human capital, and per capita income that is consistent with historical and postwar data. |
| Keywords: | Economic growth, ideas, human capital, population |
| JEL: | E27 O40 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2016-13&r=mac |
| By: | Pieter Laubscher (Bureau for Economic Research, University of Stellenbosch) |
| Abstract: | Business cycle research revived in the run-up to and in the aftermath of the Great Recession. This paper focuses on the concept of regional economic resilience as an applied field of business cycle research. The resilience of the Western Cape regional economy is analysed by assessing the impact of the 2009 recession. Being one of the leading provincial economies of South Africa, the question is asked to what extent the 2009 recession impacted the Western Cape’s longer term economic growth path. The latest research techniques in assessing economic resilience are applied, albeit that the analysis is narrowed down to quantifying the region’s resistance to and recoverability from the 2009 recession. While the national and provincial contexts receive attention, the focus is on the district economies of the Western Cape. The drivers of economic resilience are decomposed into two key forces, namely industry mix and regional competitiveness, using a shift-share analysis. Longer term structural change is also considered. The paper finds that the Eden and Overberg district economies’ growth paths, and the way in which these regions absorbed the recession impact, may provide policy makers with pointers as how to revive the Western Cape’s growth path, which took a knock with the 2009 recession. |
| Keywords: | Business cycles, Size and spatial distributions of regional economic activity |
| JEL: | E32 R12 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:sza:wpaper:wpapers273&r=mac |
| By: | Mariona Segú (RITM, Université Paris Sud, Paris Saclay); Benjamin Vignolles (Paris School of Economics) |
| Abstract: | In this paper, we focus on the empirical evaluation of a supply-sided fiscal policy: taxation of vacancy. We use the quasi-experimental setting of the implementation of a tax on vacancy in France in 1999 to identify the causal direct effect of the tax on the vacancy rate. Exploiting an exhaustive fiscal dataset, which contains information on every dwelling in France from 1995 to 2013, we implement a matching Difference-in-Difference approach. The results we obtain suggest that the tax was responsible of a 13% decrease on vacancy between 1997 and 2001. This impact is twice as big for high populated municipalities. Results are robust to the introduction of controls, sample reduction and choice of control group. Results also suggest that most of the vacant apartments moved to primary residences. In terms of policy implications, these results indicate that a municipal tax on vacancy can play a role in shaping the incentives of the owners in the housing market. |
| JEL: | R31 E62 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:inf:wpaper:2016.02&r=mac |
| By: | Virgiliu Midrigan (New York University); Thomas Philippon (NEW YORK UNIVERSITY); Callum Jones (New York University) |
| Abstract: | We propose an alternative view of the weak recovery of the U.S. economy in the aftermath of the Great Recession. Using a New Keynesian model with capital accumulation and an occasionally binding zero lower bound constraint on nominal interest rates, we find that the slow recovery of the U.S. economy is not driven by weak consumption and depressed asset prices as the standard liquidity trap theory would predict. Instead, the slow recovery is explained by a persistent decline in corporate investment despite favorable economic conditions, as measured by Tobin’s Q, profit rates, and funding costs. Taking into account general equilibrium effects, we show that, if investment had followed its traditional pattern, the economy would have escaped the zero lower bound by the end of 2012. |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed016:1429&r=mac |
| By: | Paul Beaudry; Dana Galizia; Franck Portier |
| Abstract: | This paper begins by re-examining the spectral properties of several cyclically sensitive variables such as hours worked, unemployment and capacity utilization. For each of these series, we document the presence of an important peak in the spectral density at a periodicity of approximately 36-40 quarters. We take this pattern as suggestive of intriguing but little-studied cyclical phenomena at the long end of the business cycle, and we ask how best to explain it. In particular, we explore whether such patterns may reflect slow-moving limit cycle forces, wherein booms sow the seeds of the subsequent busts. To this end, we present a general class of models, featuring local complementarities, that can give rise to unique-equilibrium behavior characterized by stochastic limit cycles. We then use the framework to extend a New Keynesian-type model in a manner aimed at capturing the notion of an accumulation-liquidation cycle. We estimate the model by indirect inference and find that the cyclical properties identified in the data can be well explained by stochastic limit cycles forces, where the exogenous disturbances to the system are very short lived. This contrasts with results from most other macroeconomic models, which typically require very persistent shocks in order to explain macroeconomic fluctuations. |
| JEL: | E10 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22825&r=mac |
| By: | Mark Aguiar; Manuel Amador; Hugo Hopenhayn; Iván Werning |
| Abstract: | We study the interactions between sovereign debt default and maturity choice in a setting with limited commitment for repayment as well as future debt issuances. Our main finding is that under a wide range of conditions the sovereign should, as long as default is not preferable, remain passive in long-term bond markets, making payments and retiring long-term bonds as they mature but never actively issuing or buying back such bonds. The only active debt-management margin is the short-term bond market. We show that any attempt to manipulate the existing maturity profile of outstanding long-term bonds generates losses, as bond prices move against the sovereign. Our results hold regardless of the shape of the yield curve. The yield curve captures the average costs of financing at different maturities but is misleading regarding the marginal costs. |
| JEL: | E62 F34 F41 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22847&r=mac |
| By: | Amjad, Rashid; Awais, Namra |
| Abstract: | This paper reviews Pakistan’s productivity performance over the last 35 years (1980–2015) and identifies factors that help explain the declining trend in labor productivity and total factor productivity (TFP),both of which could have served as major drivers of productivity growth – as happened in East Asia and more recently in India. A key finding is that the maximum TFP gains and their contribution to economic growth are realized during periods of high-output growth. The lack of sustained growth and low and declining levels of investment appear to be the most important causes of the low contribution of TFP to productivity growth, which has now reached levels that should be of major concern to policymakers vis-à-vis Pakistan’s growth prospects. Using the endogenous growth model, we examine the contribution of physical capital, human capital and TFP to labor productivity. The results suggest that, over these35 years, the contribution of physical capital and education remains modest and there has been a declining trend in TFP growth. This shows that Pakistan’s economy has not taken full advantage of the favorable technological developments and rapid globalization of the period. We also question the view expressed in recent studies that Pakistan’s growth has been driven primarily by factor inputs, namely labor and capital, and not by TFP growth. The paper argues to the contrary that it is the lack of investment in and growth of the stock of capital embodying the most recent knowledge and technology that has inhibited TFP growth post-1990. Finally, there is an urgent need for further research to understand the dynamics of growth in services and to raise TFP in this sector as India has done post-1990. |
| Keywords: | Growth, labour, capital, labour productivity, total factor productivity, Pakistan. |
| JEL: | D24 E01 O47 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75017&r=mac |
| By: | BESSO, CHRISTOPHE RAOUL; chameni, celestin |
| Abstract: | This study evaluates the macroeconomic vulnerability of the Franc zone on three main aspects: frequency, exposure and resilience to shocks, starting from 1980 to 2010. It is therefore clear that the franc zone is exposed to external trade shocks is undiversified and highly heterogeneous. These factors make the Franc Zone a very vulnerable currency area. It is therefore important that this group of countries reduce their dependency on export earnings and accelerate the diversification process. They increase intra-trade zones to reduce the heterogeneities and accelerate the process of regional integration. |
| Keywords: | Franc zone, vulnerability, shocks |
| JEL: | C22 E30 O11 |
| Date: | 2016–11–18 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75143&r=mac |
| By: | Hahn, Youjin; Hassani Mahmooei, Behrooz; Islam, Asadul; Patacchini, Eleonora; Zenou, Yves |
| Abstract: | We randomly assign more than 6,000 students to work on math tests in one of three settings: individually, in groups with random mates, or in groups with friends. The groups consist of four people and are balanced by average cognitive ability and ability distribution. While the achievement of male students is not affected by the group assignment, low-ability females assigned to groups outperform low-ability females working individually. The treatment is particularly effective when low-ability females study with friends. To rule out sorting effects, we show that random groups with identical composition to that of friendship groups do not produce similar effects. Our study thus documents that there are teaching practices where mixing students by ability may improve learning, especially for low-ability female students. |
| Keywords: | ability; education; Gender; learning; Social interactions |
| JEL: | E21 I25 J16 O12 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11615&r=mac |
| By: | Alan L. Gustman; Thomas L. Steinmeier; Nahid Tabatabai |
| Abstract: | Using data from the Health and Retirement Study, we examine the effects of the Affordable Care Act (ACA) on retirement. We first calculate retirements (and in related analyses changes in expected ages of retirement and/or Social Security claiming) between 2010, before ACA, and 2014, after ACA, for those with health insurance at work but not in retirement. This group experienced the sharpest change in retirement incentives from ACA. We then compare retirement measures for those with health insurance at work but not in retirement with retirement measures for two other groups, those who, before ACA, had employer provided health insurance both at work and in retirement, and those who had no health insurance either at work or in retirement. To complete a difference-in-difference analysis, we make the same calculations for members of an older cohort over the same age span. We find no evidence that ACA increases the propensity to retire or changes the retirement expectations of those who, before ACA, had coverage when working but not when retired. An analysis based on a structural retirement model suggests that eventually ACA will increase the probability of retirement by those who initially had health insurance on the job but did not have employer provided retiree health insurance. But the retirement increase is quite small, only about half a percentage point at each year of age. The model also suggests that much of the effect of ACA on retirement will be realized within a few years of the change in the law. |
| JEL: | D91 E21 H55 I13 J14 J18 J26 J32 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22815&r=mac |
| By: | Masahiro Tokunaga (Faculty of Business and Commerce, Kansai University); Ichiro Iwasaki (Institute of Economic Research, Hitotsubashi University) |
| Abstract: | In this paper, we conduct a meta-analysis of studies that empirically examine the relationship between economic transformation and foreign direct investment (FDI) performance in Central and Eastern Europe and the former Soviet Union over the past quarter century. More specifically, we synthesize the empirical evidence reported in previous studies that deal with the determinants of FDI in transition economies, focusing on the impacts of transition factors. We also perform meta-regression analysis to specify determinant factors of the heterogeneity among the relevant studies and the presence of publication selection bias. We find that the existing literature reports a statistically significant nonzero effect as a whole, and a genuine effect is confirmed for some FDI determinants beyond the publication selection bias. |
| Keywords: | foreign direct investment (FDI), FDI determinants, transition economies, meta-analysis, publication selection bias |
| JEL: | E22 F21 P33 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:952&r=mac |