nep-mac New Economics Papers
on Macroeconomics
Issue of 2016‒12‒04
ninety-one papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. A Classical View of the Business Cycle By Michael T. Belongia; Peter N. Ireland
  2. Assessing Monetary Policy Effectiveness in Rich Data Environment By Muhammad Nadim Hanif; Javed Iqbal
  3. Macroprudential Policy: Promise and Challenges By Enrique G. Mendoza
  4. Real Wages and the Business Cycle in Turkey By Altan Aldan; Hatice Burcu Gurcihan Yunculer
  5. Time-varying volatility, financial intermediation and monetary policy By Eickmeier, Sandra; Metiu, Norbert; Prieto, Esteban
  6. Words Matter: Assessing the Role of Money versus Interest Rate in Pakistan By Zafar Hayat; Muhammad Nadim Hanif
  7. A Shadow Rate New Keynesian Model By Jing Cynthia Wu; Ji Zhang
  8. Is The Monetarist Arithmetic Unpleasant? By Martín Uribe
  9. How do policies influence GDP tail risks? By Aida Caldera Sánchez; Oliver Röhn
  10. Collateral, Central Bank Repos, and Systemic Arbitrage By Fecht, Falko; Nyborg, Kjell G; Rocholl, Jorg; Woschitz, Jiri
  11. The Effects of Liquidity Regulation on Bank Demand in Monetary Policy Operations By Marcelo Rezende; Mary-Frances Styczynski; Cindy M. Vojtech
  12. Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan By Miyamoto, Wataru; Nguyen, Thuy Lan; Sergeyev, Dmitriy
  13. The Impact of Oil Prices on Macroeconomic Fundamentals, Monetary Policy and Stock Market for eight Middle East and North African Countries By Simohammed, Kamel; Benhabib, Abderrezzak; Maliki, Samir
  14. Ghana; Third Review Under the Extended Credit Facility Arrangement and Request for Waiver for Nonobservance of Performance Criteria, and Modifications of Performance Criteria-Press Release; Staff Report; and Statement by the Excutive Director for Ghana By International Monetary Fund. African Dept.
  15. The evolution of inflation expectations in euro area markets By Ricardo Gimeno; Eva Ortega
  16. Fiscal Consolidation, Fiscal Policy Transmission, and Current Account Dynamics in South Africa By J. Paul Dunne; Christine S. Makanza
  17. Joining the dots: The FOMC and the future path of policy rates By Gerlach, Stefan; Stuart, Rebecca
  18. News Shocks under Financial Frictions By Francesco Zanetti; Christoph Görtz
  19. Granularity of the business cycle fluctuations: The Spanish case By Omar Blanco; Simone Alfarano
  20. The Effect of Monetary Policy Shocks in the United Kingdom: an External Instruments Approach By Francesco Zanetti; Wei Li
  21. Dominican Republic; 2015 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund. Western Hemisphere Dept.
  22. Mending the broken link: heterogeneous bank lending and monetary policy pass-through By Altavilla, Carlo; Canova, Fabio; Ciccarelli, Matteo
  23. Sudan; 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Sudan By International Monetary Fund. Middle East and Central Asia Dept.
  24. Party alignment, political budget cycles and vote within a federal country By Pablo Garofalo; Daniel Lema; Jorge M. Streb
  25. The nonlinear nature of country risk and its implications for DSGE models By Michał Brzoza-Brzezina; Jacek Kotlowski
  26. The Impact of Central Bank’S Verbal Interventions on Stock Exchange Indices in a Resource Based Economy: The Evidence from Russia By Olga S. Kuznetsova; Sofiya R. Ulyanova
  27. Do Leading Indicators Forecast U.S. Recessions? A Nonlinear Re-Evaluation Using Historical Data By Vasilios Plakandaras; Juncal Cunado; Rangan Gupta; Mark E. Wohar
  28. The U-shape of Over-education? Human Capital Dynamics & Occupational Mobility over the Lifecycle. By Ammar Farooq
  29. Post-Keynesian macroeconomics since the mid-1990s: Main developments By Hein, Eckhard
  30. International propagation of financial shocks in a search and matching environment By Isoré, Marlène
  31. The effects of government spending on real exchange rates: evidence from military spending panel data By Miyamoto, Wataru; Nguyen, Thuy Lan; Sheremirov, Viacheslav
  32. Absorbing Shocks: National Rainy-Day Funds and Cross-Country Transfers in a Fiscal Union By Timothy J. Goodspeed
  33. Reformation and Reallocation: Religious and Secular Economic Activity in Early Modern Germany By Cantoni, Davide; Dittmar, Jeremiah; Yuchtman, Noam
  35. The 2014 survey of consumer payment choice: technical appendix By Angrisani, Marco; Foster, Kevin; Hitczenko, Marcin
  36. Should the Interest Rate Really Be the Unique Motive to Save in the Ramsey Model? By KHELIFI, Atef
  37. Is Health Care Infected by Baumol's Cost Disease? Test of a New Model By Akinwande A. Atanda; Andrea K. Menclova; W. Robert Reed
  38. The Tools and Transmission of Federal Reserve Monetary Policy in the 1920s By Mark Carlson; Burcu Duygan-Bump
  39. Short Run Effects of Fiscal Policy on GDP and Employment: Swedish Evidence By Hjelm, Göran; Stockhammar, Pär
  40. Can Reforms Promoting Growth Increase Financial Fragility?: An Empirical Assessment By Aida Caldera Sánchez; Filippo Gori
  41. Modelling South African Art Prices: An analysis of post-2000 price behaviour By Laurie Binge; Willem H Boshoff
  42. Firm Size Distribution and Employment Fluctuations: Theory and Evidence By Görg, Holger; Henze, Philipp; Jienwatcharamongkhol, Viroj; Kopasker, Daniel; Molana, Hassan; Sjöholm, Fredrik; Montagna, Catia
  43. The Signaling Role of Fiscal Austerity By Anna Gibert
  44. The impact of disasters on inflation By Parker, Miles
  45. Aggregate Liquidity Management By Keister, Todd; Sanches, Daniel R.
  46. Self-fulfilling dynamics: the interactions of sovereign spreads, sovereign ratings and bank ratings during the euro financial crisis By Heather D. Gibson; Stephen G. Hall; George S. Tavlas
  47. Betting the house in Denmark By Zuzana Smidova
  48. Central Bank Sentiment and Policy Expectations By Paul Hubert; Fabien Labondance
  49. Reviving Private Investment in India: Determinants and Policy Levers. By Chhibber, Ajay; Kalloor, Akshata
  50. An Early Warning System for Macro-prudential Policy in France. By V. Coudert; J. Idier
  51. Ukraine; Ex Post Evaluation of Exceptional Access Under the 2014 Stand-By Arrangement By International Monetary Fund. Finance Dept.
  52. Panama; 2016 article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Panama By International Monetary Fund. Western Hemisphere Dept.
  53. Risk Premia at the ZLB: a macroeconomic interpretation By Phuong Ngo; Francois Gourio
  54. Government Debt Deleveraging in the EMU By Alexandre Lucas Cole; Chiara Guerello; Guido Traficante
  55. The Federal Democratic Republic of Ethiopia; 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for The Federal Democratic Republic of Ethiopia By International Monetary Fund. African Dept.
  56. Changing dynamics at the zero lower bound By Gregor Bäurle; Daniel Kaufmann; Sylvia Kaufmann; Rodney W. Strachan
  57. Structural VAR analysis of monetary transmission mechanism and central bank’s response to equity volatility shock in Taiwan By Lo, Chi-Sheng
  58. General Methods for Measuring Factor Misallocation By Thomas Schelkle
  59. Cross-Country Evidence on Monetary Policy Autonomy: A Markov Regime Switching Approach By Hang Zhou
  60. What Do We Lose When We Average Expectations? By Constantin Burgi
  61. Inventory growth cycles with debt-financed investment By Matheus Grasselli; Adrien Nguyen-Huu
  62. Adverse Selection and Self-fulfilling Business Cycles By Pengfei Wang; Feng Dong; Jess Benhabib
  63. Morocco: Technical Note-Macroprudential Policy; Institutional Arrangements and Instruments By International Monetary Fund. Independent Evaluation Office
  64. Forecasting Macedonian business cycle turning points using Qual VAR model By Magdalena Petrovska; Aneta Krstevska; Nikola Naumovski
  65. Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession By Aaron Hedlund; Carlos Garriga
  66. Housing and Macroeconomics: Evidence from Property Tax Shocks By Thomas GRJEBINE; Francois Geerolf
  67. Term Structure Dynamics, Macro-Finance Factors and Model Uncertainty By Byrne, Joseph P; Cao, Shuo; Korobilis, Dimitris
  68. Turnover Liquidity and the Transmission of Monetary Policy By Shengxing Zhang; Ricardo Lagos
  69. Republic of Moldova; Request for an Extended Arrangement Under the Extended Fund Facility and an Arrangement Under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova By International Monetary Fund. European Dept.
  70. Ireland: Financial Sector Assessment Program; Technical Note-Macroprudential Policy Framework By International Monetary Fund. Monetary and Capital Markets Department
  71. Gradualism and liquidity traps By Nakata, Taisuke; Schmidt, Sebastian
  72. Information Asymmetry and Financial Dollarization in Sub-Saharan Africa By Simplice Asongu; Ibrahim D. Raheem; Vanessa S. Tchamyou
  73. Asymmetric Impact of Relative Price Shocks in Presence of Trend Inflation By Sartaj Rasool Rather
  74. Expectations and Forecasting during the Great Depression: Real-Time Evidence from the Business Press By Gabriel Mathy; Herman O. Stekler
  75. Forecasting South African Macroeconomic Variables with a Markov-Switching Small Open-Economy Dynamic Stochastic General Equilibrium Model By Mehmet Balcilar; Rangan Gupta; Kevin Kotze
  76. Interpelaciones desde la condición posmoderna a la disciplina histórica By Darío Indalecio Restrepo
  77. Cambodia; 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Cambodia By International Monetary Fund. Asia and Pacific Dept
  78. The Effect of ECB Forward Guidance on Policy Expectations By Paul Hubert; Fabien Labondance
  79. Identifying the Benefits from Home Ownership: A Swedish Experiment By Sodini, Paolo; van Nieuwerburgh, Stijn; Vestman, Roine; von Lilienfeld-Toal, Ulf
  80. Firm-specific Shocks and Aggregate Fluctuations in the Canadian Manufacturing Sector, 2000 to 2012 By Karasik, Leonid; Leung, Danny; Tomlin, Ben
  81. Tuvalu; 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Tuvalu By International Monetary Fund. Asia and Pacific Dept
  82. Vanuatu; 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Vanuatu By International Monetary Fund. Asia and Pacific Dept
  83. Eastern Caribbean Currency Union; 2016 Discussion on Common Policies of Member Countries-Press Release and Staff Report By International Monetary Fund. Western Hemisphere Dept.
  84. Measuring Cross Country Monetary Policy Uncertainty By Lucas F. Husted; John H. Rogers; Bo Sun
  85. A Menu Cost Model with Price Experimentation By Chen Yeh; David Argente
  86. Equilibrium Default and the Unemployment Accelerator By Gaston Navarro; Julio Blanco
  87. Concurrence dans les industries de réseau et renforcement du marché intérieur au Canada By Corinne Luu
  88. Zambian Smallholder Livestock Herd Dynamics: What Are the Policy Implications? By Lubungu, Mary
  89. The Roles of Price Points and Menu Costs in Price Rigidity By Edward Knotek II
  90. Financial inclusion and consumer payment choice By Cole, Allison; Greene, Claire
  91. Qualitätswettbewerb, Produktinnovationen und Schumpetersche Prozesse in internationalen Märkten By Paul J.J. Welfens

  1. By: Michael T. Belongia (University of Mississippi); Peter N. Ireland (Boston College)
    Abstract: In the 1920s, Irving Fisher extended his previous work on the Quantity Theory to describe how, through an early version of the Phillips Curve, changes in the price level could affect both output and unemployment. At the same time, Holbrook Working designed a quantitative rule for achieving price stability through control of the money supply. This paper develops a structural vector autoregressive time series model that allows these "classical" channels of monetary transmission to operate alongside, or perhaps even instead of, the now-more-familiar interest rate channels of the canonical New Keynesian model. Even with Bayesian priors that intentionally favor the New Keynesian view, the United States data produce posterior distributions for the model's key parameters that are more consistent with the ideas of Fisher and Working. Changes in real money balances enter importantly into the model's aggregate demand relationship, while growth in Divisia M2 appears in the estimated monetary policy rule. Contractionary monetary policy shocks reveal themselves through persistent declines in nominal money growth instead of rising nominal interest rates. These results point to the need for new theoretical models that capture a wider range of channels through which monetary policy affects the economy and suggest that, even today, the monetary aggregates could play a useful role in the Federal Reserve's policymaking strategy.
    Keywords: Bayesian vector autoregression, Divisia monetary aggregate, Monetary transmission mechanism, New Keynesian model, Quantity Theory of money
    JEL: B12 E31 E32 E41 E43 E52
    Date: 2016–11–01
  2. By: Muhammad Nadim Hanif (State Bank of Pakistan); Javed Iqbal (State Bank of Pakistan)
    Abstract: We assess impact of monetary policy actions upon inflation in a country while considering changes in global commodity prices in rich data environment. We apply Factor Augmented Bayesian Structural Vector Autoregression (FABSVAR) methodology of Bernanke et al (2005) upon Pakistan’s monthly data for July 1992-June 2015. Unlike Bernanke et al (2005), we combine variables of similar nature in groups to extract factors. We think putting all sorts of variables in one group impairs the factor extraction. Moreover, rather than working only with the response of variable of interest (inflation in this study) to shocks in factors under consideration (which, consist of different interest rates, monetary aggregates, exchange rates in this study) we propose use of eigenvector to obtain Impulse Response Functions (IRFs) of shock to individual variables in a factor. We find significant and desired impact of monetary policy decisions upon inflation in Pakistan. Administered prices, however, are found to have no response to interest rate changes in the country, which is understandable. By analyzing IRFs of inflation in Pakistan to shocks in interest rate we do not observe any price puzzle. It is simply because we consider the relevant variables omitted in previous studies reporting price puzzle in Pakistan.
    Keywords: Monetary policy, inflation, econometric modeling, interest rates
    JEL: E52 E31 C50 E43
    Date: 2016–11
  3. By: Enrique G. Mendoza
    Abstract: Macroprudential policy holds the promise of becoming a powerful tool for preventing financial crises. Financial amplification in response to domestic shocks or global spillovers and pecuniary externalities caused by Fisherian collateral constraints provide a sound theoretical foundation for this policy. Quantitative studies show that models with these constraints replicate key stylized facts of financial crises, and that the optimal financial policy of an ideal constrained-efficient social planner reduces sharply the magnitude and frequency of crises. Research also shows, however, that implementing effective macroprudential policy still faces serious hurdles. This paper highlights three of them: (i) complexity, because the optimal policy responds widely and non-linearly to movements in both domestic factors and global spillovers due to regime shifts in global liquidity, news about global fundamentals, and recurrent innovation and regulatory changes in world markets, (ii) lack of credibility, because of time-inconsistency of the optimal policy under commitment, and (iii) coordination failure, because a careful balance with monetary policy is needed to avoid quantitatively large inefficiencies resulting from violations of Tinbergen’s rule or strategic interaction between monetary and financial authorities.
    JEL: E44 E5 F34 F4 G01 G28
    Date: 2016–11
  4. By: Altan Aldan; Hatice Burcu Gurcihan Yunculer
    Abstract: We analyze the direction and the magnitude of the responsiveness of real wages to the business cycle in Turkey using longitudinal data covering the 2006-2012 period. We find that wages in Turkey are quite procyclical; a 1 percentage point increase in the unemployment rate induces a 0.8 percent decline in real wages. This result can be obtained only if individual heterogeneity is taken into account. We also document wage cyclicality for different groups such as young, low educated, informal workers and job movers. We find a weaker wage response for the low educated and a stronger response for job movers. We also document wage cyclicality along the wage distribution. We find that workers who earn around the minimum wage have acyclical wages. Binding minimum wage suppresses wage cyclicality. For the rest of the distribution wages are highly procyclical.
    Keywords: Turkey, Real wages, Real wage cyclicality
    JEL: J30 E23 E26 E32
    Date: 2016
  5. By: Eickmeier, Sandra; Metiu, Norbert; Prieto, Esteban
    Abstract: We document that expansionary monetary policy shocks are less effective at stimulating output and investment in periods of high volatility compared to periods of low volatility, using a regime-switching vector autoregression. The lower effectiveness of monetary policy can be linked to weaker responses of credit costs, suggesting a financial accelerator mechanism that is weaker in high volatility periods. To rationalize our robust empirical results, we use a macroeconomic model in which banks endogenously choose their capital structure. In the model, the leverage choice of banks depends on the volatility of aggregate shocks. In low volatility periods, banks lever up, which makes their balance sheets more sensitive to aggregate shocks and the financial accelerator more effective. On the contrary, in high volatility periods banks decrease leverage, which renders the financial accelerator less effective; this in turn decreases the ability of monetary policy to improve funding conditions and credit supply, and thereby to stimulate the economy.
    Keywords: monetary policy,credit spread,non-linearity,intermediary leverage,financial accelerator
    JEL: C32 E44 E52
    Date: 2016
  6. By: Zafar Hayat (State Bank of Pakistan); Muhammad Nadim Hanif (State Bank of Pakistan)
    Abstract: We empirically examine the role of monetary aggregate(s) vis-à-vis short term interest rate as monetary policy instruments, and the impact of State Bank of Pakistan’s transformation towards the latter on their relative effectiveness in terms of inflation in Pakistan. Using indicators of ‘persistent changes’ in the underlying behaviors of variables of interest, we found that broad money consistently explains inflation in (i) monetary, (ii) transitory and (iii) interest rate regimes. Though its role has receded whilst moving from the transition to the interest rate regime, the interest rate instrument seems to be positively related to inflation, a phenomenon commonly known as price puzzle. There is need to explore it further. In light of these findings, we recommend that the role of money should not be completely de-emphasized while moving towards flexible inflation targeting regime as planned.
    Keywords: Monetary policy instruments, price puzzle, ARDL, Pakistan
    JEL: E31 E52
    Date: 2016–11
  7. By: Jing Cynthia Wu; Ji Zhang
    Abstract: We propose a New Keynesian model with the shadow rate, which is the federal funds rate during normal times. At the zero lower bound, we establish empirically the negative shadow rate summarizes unconventional monetary policy with its resemblance to private interest rates, the Fed's balance sheet, and Taylor rule. Theoretically, we formalize our shadow rate New Keynesian model with QE and lending facilities. Our model generates data-consistent results: a negative supply shock is always contractionary. It also salvages the New Keynesian model from the zero lower bound induced structural break.
    JEL: E12 E52 E58 E63
    Date: 2016–11
  8. By: Martín Uribe
    Abstract: The unpleasant monetarist arithmetic of Sargent and Wallace (1981) states that in a fiscally dominant regime tighter money now can cause higher inflation in the future. In spite of the qualifier ‘unpleasant,’ this result is positive in nature, and, therefore, void of normative content. I analyze conditions under which it is optimal in a welfare sense for the central bank to delay inflation by issuing debt to finance part of the fiscal deficit. The analysis is conducted in the context of a model in which the aforementioned monetarist arithmetic holds, in the sense that if the government finds it optimal to delay inflation, it does so knowing that it would result in higher inflation in the future. The central result of the paper is that delaying inflation is optimal when the fiscal deficit is expected to decline over time.
    JEL: E51 E52 E58 E63
    Date: 2016–11
  9. By: Aida Caldera Sánchez; Oliver Röhn
    Abstract: This paper explores the relationship between policy settings and extreme positive and negative growth events, what we call GDP tail risks, using quantile regression methods. Conditioning on several country characteristics such as the size, stage of development and openness to trade as well as macroeconomic policies, the following findings for a panel of mostly OECD countries emerge: First, countries with stronger banking supervision and capital market development, better quality of governance, higher foreign reserves and several labour market characteristics such as higher unemployment benefits and greater spending in active labour market policies tend to experience less severe negative growth shocks (negative tail risk). Second, greater use of macro-prudential tools is generally associated with less extreme positive growth shocks (positive tail risk) and lower average growth. Third, larger automatic stabilisers are associated with both less severe negative and positive growth shocks but also lower average growth. Comment les politiques publiques influencent les risques extrêmes du PIB? Cet article explore la relation entre les politiques publiques et les épisodes de croissance extrême positive et négative, ce que nous appelons risques extrêmes du PIB, en utilisant des méthodes de régression quantile. Une fois pris en compte plusieurs caractéristiques des pays tels que la taille, le stade de développement et de l'ouverture au commerce ainsi que les politiques macro-économiques, les résultats suivants pour un panel de la plupart des pays de l'OCDE se dégagent: Premièrement, les pays avec une supervision bancaire plus forte, un plus grand développement du marché des capitaux, une meilleure qualité de gouvernance, des réserves de change plus élevées et plusieurs caractéristiques du marché du travail tels que les prestations de chômage plus élevées et des dépenses plus importantes consacrées aux politiques du marché du travail actives ont tendance à subir des chocs de croissance négatifs moins graves (risque de queue négative). En second lieu, une plus grande utilisation des outils macro-prudentiels est généralement associée à des chocs positifs de croissance moins extrêmes et une croissance moyenne inférieure. Troisièmement, les stabilisateurs automatiques sont associés à des chocs de croissance négative et positive moins importants, mais aussi une croissance moyenne plus faible.
    Keywords: quantile regression, financial stability, growth
    JEL: C22 E32 E44 F3 F43
    Date: 2016–11–25
  10. By: Fecht, Falko; Nyborg, Kjell G; Rocholl, Jorg; Woschitz, Jiri
    Abstract: Central banks are under increased scrutiny because of the rapid growth in, and composition of, their balance sheets. Therefore, understanding the processes that shape these balance sheets and their consequences is crucial. We contribute by studying an extensive dataset of banks' liquidity uptake and pledged collateral in central bank repos. We document systemic arbitrage whereby banks funnel credit risk and low-quality collateral to the central bank. Weaker banks use lower quality collateral to demand disproportionately larger amounts of central bank money (liquidity). This holds both before and after the financial crisis and may contribute to financial fragility and fragmentation.
    Keywords: banks; central bank; Collateral; collateral policy; financial fragmentation; financial stability; interbank market; liquidity; repo; systemic arbitrage
    JEL: E42 E51 E52 E58 G12 G21
    Date: 2016–11
  11. By: Marcelo Rezende; Mary-Frances Styczynski; Cindy M. Vojtech
    Abstract: We estimate the effects of the liquidity coverage ratio (LCR), a liquidity requirement for banks, on the tenders that banks submit in Term Deposit Facility operations, a Federal Reserve tool created to manage the quantity of bank reserves. We identify these effects using variation in LCR requirements across banks and a change over time that allowed term deposits to count toward the LCR. Banks subject to the LCR submit tenders more often and submit larger tenders than exempt banks when term deposits qualify for the LCR. These results suggest that liquidity regulation affects bank demand in monetary policy operations.
    Keywords: Liquidity Coverage Ratio ; Term Deposit Facility ; Monetary Policy ; Excess Reserves ; Basel III
    JEL: E52 E58 G21 G28
    Date: 2016–10–24
  12. By: Miyamoto, Wataru; Nguyen, Thuy Lan; Sergeyev, Dmitriy
    Abstract: Using a rich data set on government spending forecasts in Japan, we provide new evidence on the effects of unexpected changes in government spending when the nominal interest rate is near the zero lower bound (ZLB). The on-impact output multiplier is 1.5 in the ZLB period, and 0.6 outside of it. We argue that these results are not driven by the amount of slack in the economy. A simple New Keynesian model can reproduce some features of our empirical findings if the ZLB period is caused by a deflationary trap and government spending is not too persistent.
    Keywords: fiscal stimulus; government spending; multiplier; zero lower bound
    JEL: E32 E5 E62
    Date: 2016–11
  13. By: Simohammed, Kamel; Benhabib, Abderrezzak; Maliki, Samir
    Abstract: The objective of this study is to investigate the impact of oil prices on macroeconomic fundamentals as well as monetary policy and stock market for eight oil-exporting and non-oil exports countries in the Middle East and North African region,namely Algeria,Egypt,Iran,Kuwait,Morocco, Saudi Arabia,Tunisia and Turkey. Using quarterly data for the period 1994Q4-2015Q2,with a Panel-ARDL, we may conclude that there are short run dynamic cross section relationships between,first,oil prices and macroeconomic variables such as growth rate and consumer price index, second, oil prices and money market rate and, third, market capitalization and oil prices. In the long run, dependent variables such as consumer price index and market stock exhibit a cointegration relationship with oil prices. However, no cointegration relationships could be established between oil price variations, monetary policy and growth rate. In this context, we apply a multivariate VAR model to examine responses of all variables to oil price shocks. Results show a relatively high elastic response of economic growth in oil-exporting countries except for Kuwait and, conversely, in oil-importing economics, GDP response to oil prices appear reasonably stable, close to zero. Similarly, the same results can be captured for each oil-importing and exporting country as far as the negative sign exhibited by market response to oil price during the first period caused by financial crisis contagion. The next macroeconomic variable, CPI, shows a positive response to oil.In addition, oil prices appear to have a negligible response on money market rates in the Middle East and North Africa except for Turkey and Egypt.
    Keywords: Oil shocks; Economic growth; Economy; Monetary policy; Stock market; Panel ARDL
    JEL: E00 E52
    Date: 2015–09
  14. By: International Monetary Fund. African Dept.
    Abstract: Program implementation remains broadly satisfactory, but the economic outlook remains difficult and fiscal challenges are mounting. The growth outlook for 2016 and 2017 has weakened, mainly due to disruptions in oil production, while non-oil economic activity is expected to remain subdued due to continued fiscal consolidation and tight monetary policy. There was broad agreement with the authorities on the need to sustain a tight monetary stance given the still high inflation and to strengthen the fiscal adjustment under the program to cover key state-owned enterprises. Discussions addressed the following issues, in particular
    Keywords: Extended Credit Facility;Fiscal policy;Fiscal consolidation;Debt management;Energy sector;Public enterprises;Fiscal reforms;Monetary policy;Banking sector;Economic indicators;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Ghana;
    Date: 2016–10–03
  15. By: Ricardo Gimeno (Banco de España); Eva Ortega (Banco de España)
    Abstract: This paper explores the behaviour of inflation expectations across countries that share their monetary policy, in particular those of the European Monetary Union. We investigate the possible common features at the various horizons, as well as differentials across euro area countries. A multi-country dynamic factor model based on Diebold et al. (2008), where we also add a liquidity risk component, is proposed and estimated using daily data from inflation swaps for Spain, Italy, France, Germany and the euro area as a whole, and for a wide range of horizons. It allows us to calculate the proportion of common vs country-specific components in the term structure of inflation expectations. We find sizable differences in inflation expectations across the main euro area countries only at short maturities, while in general a common component predominates throughout the years, especially at long horizons. The common long-run level of infl ation expectations is estimated to have fallen since late 2014, while an increased persistence of lower expected inflation and for longer horizons is estimated from 2012. There has been no reversal in either of these characteristics following the announcement and implementation of the ECB’s unconventional monetary policy measures.
    Keywords: inflation expectations; monetary union; inflation-linked swaps; multicountry dynamic factor model; liquidity risk premium.
    JEL: E31 C32 G13
    Date: 2016–11
  16. By: J. Paul Dunne (School of Economics, University of Cape Town); Christine S. Makanza (School of Economics, University of Cape Town)
    Abstract: The debate on global current account imbalances continues to develop, with growing interest in the macroeconomic instability and widening current account deficits faced by emerging markets. Literature establishes that the current account behaves differently depending on macroeconomic circumstances in countries, so approaches to managing external imbalances should be country tailored. Despite this realisation, there is a lack of investigation into drivers of the current account and the impact of macroeconomic policy on current account dynamics in emerging markets. To address this, the study estimates an SVAR model to analyse the effect of fiscal shocks on the current account. This helps to understand how fiscal shocks shape current account developments, and establishes the usefulness of fiscal consolidation in managing current account deficits by determining whether the twin deficits approach to managing the external balance holds in middle income countries. The study goes further to analyse the channels through which fiscal shocks are transmitted to the current account to understand how current account management policies should be formulated. The study contributes to the literature by providing a case study of South Africa, an emerging economy characterised by large current account deficits, macroeconomic volatility, a well developed financial sector, and a dataset which has not been exploited to understand the external balance. A particularly interesting finding is that expansionary fiscal shocks improve the current account through household savings and public investment , which is a departure from the twin deficits hypothesis.
    Date: 2016
  17. By: Gerlach, Stefan; Stuart, Rebecca
    Abstract: The Federal Reserve publishes since 2012 Federal Open Market Committee (FOMC) members' views regarding what federal funds rate will be necessary for the FOMC to achieve its statutory targets. The views or 'projections' pertain to the end of the current and the next two or three years, and the 'longer run'. We use a simple model to interpolate the projections between these discrete points in time, estimate the interest rates one, two and three years ahead, and study how they evolve with macroeconomic conditions. News regarding the labour market, but not inflation, affects the projections in the sample period.
    Keywords: Federal Reserve; interest rate expectations; interpolation; monetary policy
    JEL: E52 E58
    Date: 2016–11
  18. By: Francesco Zanetti; Christoph Görtz
    Abstract: We examine the dynamic effects and empirical role of TFP news shocks in the context of frictions in financial markets. We document two new facts using VAR methods. First, a (positive) shock to future TFP generates a signicant decline in various credit spread indicators considered in the macro-finance literature. The decline in the credit spread indicators is associated with a robust improvement in credit supply indicators, along with a broad based expansion in economic activity. Second, it is striking that VAR methods also establish a tight link between TFP news shocks and shocks that explain the majority of un-forecastable movements in credit spread indicators. These two facts provide robust evidence on the importance of movements in credit spreads for the propagation of news shocks. A DSGE model enriched with a financial sector of the Gertler-Kiyotaki-Karadi type generates very similar quantitative dynamics and shows that strong linkages between leveraged equity and excess premiums, which vary inversely with balance sheet conditions, are critical for the amplication of TFP news shocks. The consistent assessment from both methodologies provides support for the traditional 'news view' of aggregate fluctuations.
    Keywords: News shocks, Business cycles, DSGE, VAR, Bayesian estimation
    JEL: E2 E3
    Date: 2016–11–23
  19. By: Omar Blanco (Department of Economics, Universitat Jaume I, Castellón, Spain); Simone Alfarano (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: Following the approach proposed by Gabaix (2011), this paper aims to verify the existence of granularity in the Spanish business cycle fluctuations. A granular firm is characterized by the fact that its idiosyncratic shocks have a significant impact on GDP growth fluctuations. Despite the fact that granular firms constitute just a marginal fraction of the total number of firms, they account for a significant part of business cycle fluctuations. Our analysis shows that half of the GDP growth fluctuations of the Spanish economy can be linked to the idiosyncratic shocks of the largest 100 Spanish firms. Our work contributes to strengthening the empirical relevance of the granular hypothesis. The results show that the Spanish economy, as happens in the US economy, may be represented by a large number of small and medium enterprises whose individual evolution has no impact at the aggregate level, and a small number of large firms whose fluctuations contribute significantly to the variability of the Spanish business cycle.
    Keywords: granularity, granular economy, idiosyncratic shocks, aggregate fluctuations, power law behaviour
    JEL: E32 C16
    Date: 2016
  20. By: Francesco Zanetti; Wei Li
    Abstract: This paper uses VAR analysis to identify monetary policy shocks on U.K. data using surprise changes in the policy rate as external instruments and imposing block exogeneity restrictions on domestic variables to estimate parameters from the viewpoint of the domestic economy. The results show large and persistent effects of monetary policy shocks on the domestic economy and point to the critical role of exchange rates and term premia. The analysis resolves important empirical puzzles of traditional recursive identification methods.
    Keywords: Monetary Policy Transmission, Structural VAR, Small Open Economy, External Instruments Identification
    JEL: E44 E52 F41
    Date: 2016–11–23
  21. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: The Dominican Republic remains among the most dynamic economies in the region, benefiting from a strengthened macro-policy framework and external tailwinds. It does not face significant internal or external imbalances: inflation is low, fiscal deficits and debt moderate, and the external position is broadly in line with fundamentals. Vulnerabilities remain, however: public debt is set to increase over the medium-term and the tax ratio is one of the lowest in the world, reserves are below the Fund’s suggested metric, legacy bottlenecks in the electricity sector remain unresolved, and social challenges persist. The consultations focused on policies to address these vulnerabilities and strengthen the economy’s resilience to external shocks.
    Date: 2016–11–10
  22. By: Altavilla, Carlo; Canova, Fabio; Ciccarelli, Matteo
    Abstract: We analyse the pass-through of monetary policy measures to lending rates to firms and households in the euro area using a unique bank-level dataset. Bank balance sheet characteristics such as the capital ratio and the exposure to sovereign debt are responsible for the heterogeneity of pass-through of conventional monetary policy changes. The location of a bank is instead irrelevant. Non-standard measures normalized the capacity of banks to grant loans resulting in a significant compression in lending rates. Banks with a high level of non-performing loans and a low capital ratio were the most responsive to the measures. Finally, we quantify the effects of non-standard policies on the real economic activity using a standard macroeconomic model and find that in absence of these measures both inflation and output would have been significantly lower. JEL Classification: C3, E4, E5, G2
    Keywords: bank balance sheet characteristics, monetary policy pass-through
    Date: 2016–11
  23. By: International Monetary Fund. Middle East and Central Asia Dept.
    Abstract: Sudan is a low-income fragile country facing significant domestic and international constraints and large macroeconomic imbalances despite notable progress toward macroeconomic stability and growth. Following the shock of the secession of South Sudan five years ago, policy adjustments helped to contain the fiscal deficit, slow money growth, reduce inflation, and support economic recovery. Institutional reforms strengthened tax collections and public financial management, and social spending increased. Despite these efforts, however, large macroeconomic imbalances—triggered by the loss of three-quarters of oil exports—continue to constrain growth prospects, along with weak policies, internal conflicts, and U.S. sanctions. Domestic and international efforts to end internal conflicts have yet to bear fruit, and the humanitarian situation remains difficult. Sanctions and the withdrawal of correspondent bank relations weigh on trade, investment, and growth. Absence of progress toward debt relief limits access to official external financing.
    Keywords: Article IV consultation reports;Economic conditions;Economic growth;Commodity prices;Fiscal consolidation;Revenue mobilization;Debt relief;Monetary policy;Exchange restrictions;Multiple currency practices;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Sudan;
    Date: 2016–10–04
  24. By: Pablo Garofalo; Daniel Lema; Jorge M. Streb
    Abstract: To understand how intergovernmental relations affect political budget cycles (PBCs) within federal countries, we model the credibility problems of discretionary fiscal policy in combination with a national incumbent that favors aligned districts. Analyzing Argentina’s provinces during the 1985–2001 period, unsurprisingly, provincial budget balances worsen in electoral years, and aligned provinces (where the governor belongs to the president’s party) receive larger federal transfers and have larger public expenditures during the governor’s entire term. The main interaction effect in electoral years is that provincial budget balances only deteriorate in unaligned provinces, which receive less federal transfers. Furthermore, average federal transfers boost the vote for aligned governors. Two broad implications are that studies of subnational PBCs are biased by an omitted factor (discretional federal transfers), and that governors unaffiliated with the president suffer a “Cinderella” effect at the polls which helps the president dominate national politics.
    Keywords: federal countries, discretional transfers, party alignment, distributive politics, subnational political budget cycles
    JEL: D72 E62
    Date: 2016–10
  25. By: Michał Brzoza-Brzezina; Jacek Kotlowski
    Abstract: Country risk premia can substantially affect macroeconomic dynamics. We concentrate on one of their most important determinants - a country’s net foreign asset position and - in contrast to the existing research - investigate its nonlinear link to risk premia. The importance of this particular nonlinearity is twofold. First, it allows to identify the NFA level above which the elasticity becomes much (possibly dangerously) higher. Second, such a nonlinear relationship is a standard ingredient of DSGE models, but its proper calibration/ estimation is missing. Our estimation shows that indeed the link is highly nonlinear and helps to identify the NFA position where the nonlinearity kicks in at -70% to -80% of GDP. We also provide a proper calibration of the risk premium - NFA relationship used in DSGE models and demonstrate that its slope matters significantly for economic dynamics in such a model.
    Keywords: Risk premium, PSTR model, open economy DSGE model
    JEL: C23 E43 E44
  26. By: Olga S. Kuznetsova (National Research University Higher School of Economics); Sofiya R. Ulyanova (National Research University Higher School of Economics)
    Abstract: This paper analyzes the intra-day impact of the Bank of Russia’s verbal interventions on the Russian stock exchange indices in 2014-2015. With this aim, we construct the communication index, which summarizes the verbal interventions of the Bank of Russia during this period. After that, we estimate GARCH model using intraday data on the returns of RTS and MICEX indices. We also take into account the price of futures contracts on BRENT as the Russian economy has a strong dependence on oil prices. We show that the verbal interventions of the Bank of Russia have a positive short-term impact on the RTS returns, but do not affect their volatility. This results contradict previous studies, which show that usually central bank’s communication has a strong effect on the volatility of indices, but does not affect their returns. We suggest that this contradiction arises from the fact that we consider an export orientation of the economy, which has not been examined in previous studies
    Keywords: the Bank of Russia, verbal interventions, GARCH-modeling, stock exchange indices, RTS index, MICEX index
    JEL: E32
    Date: 2016
  27. By: Vasilios Plakandaras (Department of Economics, Democritus University of Thrace, Greece); Juncal Cunado (Department of Economics, University of Navarra, Spain); Rangan Gupta (Department of Economics, University of Pretoria, South Africa); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha USA, and School of Business and Economics, Loughborough University, UK)
    Abstract: This paper analyzes to what extent a selection of leading indicators are able to forecast U.S. recessions by means of both dynamic probit models and Support Vector Machines (SVM) models, using monthly data from January 1871 to June 2016. The results suggest that the probit models foresee U.S. recession periods more closely than SVM models for up to 6 months ahead, while the SVM models are more accurate at longer horizons. Furthermore, SVM models appear to discriminate between recessions and tranquil periods better than probit models do. Finally, the most accurate forecasting models include oil, stock returns and the term spread as leading indicators.
    Keywords: Dynamic Probit Models, Support Vector Machines, U.S. Recessions
    JEL: C53 E32 E37
    Date: 2016–11
  28. By: Ammar Farooq
    Abstract: This paper analyzes the relationship between age and the skill requirements of jobs performed by workers. I document that the proportion of college degree holders working in occupations that do not require a college degree is U-shaped over the life cycle and that there is a rise in transitions to non-college jobs among prime age college workers. The downward trend at initial stages of the life cycle is consistent with workhorse models of labor mobility, however, the rising trend at middle stages of the career is not. Such movements down the occupation ladder are also accompanied by average wage losses of 10% from the previous year. I develop an equilibrium model of frictional occupation matching featuring skill accumulation and depreciation along with worker and firm heterogeneity that can match the life cycle profile of downward occupational mobility. The model shows that skill depreciation is the key driver of transitions to low skill jobs with age. Using the model, I simulate the impact of different types of structural change in the labor market and find that the welfare consequences of long term changes depend on the interaction of the life cycle and human capital investment dimension.
    JEL: E24 J24 J31 J62
    Date: 2016–11–23
  29. By: Hein, Eckhard
    Abstract: In this paper the main developments in post-Keynesian macroeconomics since the mid- 1990s will be reviewed. For this purpose the main differences between heterodox economics in general, including post-Keynesian economics, and orthodox economics will be reiterated and an overview over the strands of post-Keynesian economics, their commonalities and developments since the 1930s will be outlined. This will provide the grounds for touching upon three important areas of development and progress of post- Keynesian macroeconomics since the mid-1990s: first, the integration of distribution issues and distributional conflict into short- and long-run macroeconomics, both in theoretical and in empirical/applied works; second, the integrated analysis of money, finance and macroeconomics and its application to changing institutional and historical circumstances, like the process of financialisation; and third, the development of full-blown macroeconomic models, providing alternatives to the mainstream 'New Consensus Model' (NCM), and allowing to derive a full macroeconomic policy mix as a more convincing alternative to the one implied and proposed by the mainstream NCM, which has desperately failed in the face of the recent crises.
    Keywords: post-Keynesian macroeconomics,heterodox vs. orthodox economics,pluralism in economics,distribution,money,finance,macroeconomics,macroeconomic policies
    JEL: B22 E12
    Date: 2016
  30. By: Isoré, Marlène
    Abstract: This paper develops a two-country model in which transmission of financial shocks arises despite a flexible exchange rate regime and substitutable financial assets, contrary to the open-economy literature results under these two conditions. The search and matching approach first accounts for the time needed to restore normal functioning of financial markets following a disruption. It also allows dissociating two types of financial shocks: (i) pure liquidity contractions imply negative co-movements of home and foreign outputs, so that the model nests the standard open macroeconomy results as a particular case; (ii) shocks to banks’ capitalization costs in one country do generate international financial contagion.
    Keywords: international contagion, financial multiplier, financial crises, credit rationing, open economy macroeconomics, search and matching theory
    JEL: C78 E44 E51 F41 F42 G01 G15
    Date: 2016–11–25
  31. By: Miyamoto, Wataru (Bank of Canada); Nguyen, Thuy Lan (Santa Clara University); Sheremirov, Viacheslav (Federal Reserve Bank of Boston)
    Abstract: Using panel data on military spending for 125 countries, we document new facts about the effects of changes in government purchases on the real exchange rate, consumption, and current accounts in both advanced and developing countries. While an increase in government purchases causes real exchange rates to appreciate and increases consumption significantly in developing countries, it causes real exchange rates to depreciate and decreases consumption in advanced countries. The current account deteriorates in both groups of countries. These findings are not consistent with standard international business-cycle models. We investigate whether the difference between advanced economies and developing countries in the responses of real exchange rates to spending shocks can be explained by alternative hypotheses.
    Keywords: military spending; fiscal policy; real exchange rates; twin deficit; risk sharing
    JEL: E3 F3 F4
    Date: 2016–10–01
  32. By: Timothy J. Goodspeed (Hunter College; Graduate Center, CUNY; CES-Info; GEN)
    Abstract: In this paper we investigate the interplay between national rainy-day funds and supra-national transfers in a fiscal union. Given that the EU has established rules limiting deficits, national rainy-day funds could in theory provide a way for countries to obey the rules and use fiscal policy, yet avoid using austerity measures during a recession. The rainy-day fund is self-insurance and we examine the funding of a national rainy-day fund for a country in isolation. We then introduce a fiscal union while allowing member countries to retain some fiscal policy control. We find that moral hazard leads to lower contributions to a rainy day fund with a fiscal union present, and further that the higher the fiscal transfer, the lower will be the contributions to the rainy-day fund. The optimal size of the fiscal union trades-off the ex-post insurance provided by the union and the moral hazard which reduces national ex-ante preparation for stabilization policies. Optimally, the insurance provided by the fiscal union should be lower (1) the more effective is own-fiscal policy; (2) the more the presence of the fiscal union reduces rainy-day fund savings; (3) the lower is the relative probability of recession; and (4) the lower is the utility gain of redistribution in the union. We also find that commitment to a transfer policy is essential. A fiscal union that is prone to break the rules on transfers negatively impacts the ex-ante contributions to individual members’ rainy day funds.
    Keywords: fiscal union, fiscal transfers, federation, rainy-day funds, fiscal stabilization
    JEL: E6 H1 H6 H7
    Date: 2016–11–07
  33. By: Cantoni, Davide; Dittmar, Jeremiah; Yuchtman, Noam
    Abstract: The Protestant Reformation, beginning in 1517, was a first-order economic shock. We document its effects on the sectoral allocation of economic activity in Germany using highly disaggregated data. During the Reformation, particularly in Protestant regions, large numbers of monasteries were expropriated. University graduates shifted toward secular, rather than religious, occupations. Forward-looking university students shifted away from the study of religious sector-specific theology, toward secular fields. Construction activity in the religious sector declined, particularly in Protestant regions, while secular construction increased. These findings highlight the unintended consequences of the Reformation---a religious movement that contributed to Europe's secularization.
    Keywords: Human Capital; Protestant Reformation; Sectoral Allocation
    JEL: E02 J24 N13 N33
    Date: 2016–11
  34. By: Nadav Ben-Zeev (BGU); Evi Pappa (UAB, BGSE, and CEPR); Alejandro Vicondoa (European University Institute, Florence, Italy)
    Keywords: Terms-of-Trade Shocks, Small Open Economy DSGE Models
    JEL: E32
    Date: 2016
  35. By: Angrisani, Marco (University of Southern California); Foster, Kevin (Federal Reserve Bank of Boston); Hitczenko, Marcin (Federal Reserve Bank of Boston)
    Abstract: This document serves as the technical appendix to the 2014 Survey of Consumer Payment Choice administered by the RAND Corporation. The Survey of Consumer Payment Choice (SCPC) is an annual study designed primarily to collect data on attitudes to and use of various payment instruments by consumers over the age of 18 in the United States. The main report, which introduces the survey and discusses the principal economic results, can be found at In this data report, we detail the technical aspects of the survey design, implementation, and analysis.
    JEL: D12 D14 E4
    Date: 2016–07–01
  36. By: KHELIFI, Atef
    Abstract: By assuming that the individual derives utility from consumption only, the resulting optimal decision to save in the Ramsey model depends on the rate of return, given a certain time preference. If therefore the production function is such that this rate of return remains relatively low, the individual reacts unconsciously by refusing to save despite the capital depreciates and the household grows. We argue that it is conceptually necessary in that framework to assume a direct preference for saving (or for thriftiness) in the utility function, not only to make the individual behave as a real human being who cares about the survival of the household, but also to account reasonably for any other motives to save or accumulate than the rate of return. We show it generalizes the model in a way to recover static properties of the exogenous Solow version and to extend results of capitalist spirit models following Zou (1994).
    Keywords: bequest; status; thriftiness; capitalist spirit; ramsey model
    JEL: D9 E0 O4 O40 O41
    Date: 2016–12–01
  37. By: Akinwande A. Atanda; Andrea K. Menclova (University of Canterbury); W. Robert Reed (University of Canterbury)
    Abstract: Rising health care costs are a policy concern across the OECD and relatively little consensus exists concerning their causes. One explanation that has received revived attention is Baumol’s Cost Disease (BCD). However, developing a theoretically-appropriate test of BCD has been a challenge. In this paper, we construct a two-sector model firmly based on Baumol’s axioms. We then theoretically derive two propositions that can be tested using observable variables. In particular, we predict that: 1) the relative price index of the health care sector, and 2) the share of total labor employed in the health care sector should both be positively related to economy-wide productivity. Using annual data from 27 OECD countries over the years 1995-2013 and from 14 U.S. industry groups over the years 1947-2015, we show that empirical evidence for the existence of BCD in health care is sensitive to model specification and disappears once we address spurious correlation due to contemporaneous trending and other econometric issues.
    Keywords: Baumol’s Cost Disease, health care industry, panel data
    JEL: I11 J30 E24
    Date: 2016–11–30
  38. By: Mark Carlson; Burcu Duygan-Bump
    Abstract: This note describes the tools used by the Federal Reserve (Fed) to implement monetary policy in the 1920s and the degree to which changes in these tools were transmitted to private money markets. In doing so, we hope to provide some historical perspective to the renewed debate around monetary policy frameworks and toolkits.
    Date: 2016–11–22
  39. By: Hjelm, Göran (National Institute of Economic Research); Stockhammar, Pär (National Institute of Economic Research)
    Abstract: Since the financial crisis, there has been a surge in theoretical and empirical studies on the macroeconomic effects of fiscal policy. Moreover, the protracted state of low demand since 2008 together with constrained monetary policy have put emphasis on non-linear effects of fiscal policy. In this paper, we use a newly published quarterly Swedish data set on fiscal variables and estimate the effects on GDP and employment for the period 1980q1–2015q3. We examine the linear and non-linear short run effects of shocks to government consumption, investments, transfers to households, indirect taxes on consumption goods and direct taxes on household income. We find that fiscal policy generally has Keynesian effects although often insignificant. The multipliers are on average greater when estimated during the period of flexible exchange rate, 1993q1–2015q3. Shocks to government investments were found to have the greatest effect on both GDP and employment. Looking at non-linear effects it was interestingly found that all three fiscal spending variables have rather substantial positive effects on employment in slumps while the employment effects of shocks to taxes are small indeed. However, the non-linear results are sensitive both to the instrument used and the definition of “slump”.
    Date: 2016–11–23
  40. By: Aida Caldera Sánchez; Filippo Gori
    Abstract: Certain growth-promoting policies can have negative side-effects by increasing the vulnerability of economies to financial crises. Typical examples are greater openness to financial flows or more liberalised financial markets. This paper investigates whether the growth benefits of policy reforms in these growth-enhancing areas, and others such as trade openness, exceed the possible costs of occasional, albeit potentially severe, crises for a sample of 100 developed and emerging economies from 1970 to 2010. The results suggest that the pro-growth effects of greater capital account openness outweigh the negative effects of a higher propensity to twin crises. Greater domestic financial liberalisation is associated with faster growth, but also with a higher propensity to systemic banking and twin crises. A free floating exchange rate and greater openness to trade, by reducing the likelihood of currency crises, are associated with higher growth. While pro-competitive product market regulations and lower corporate taxes are associated with higher growth, they do not seem to influence financial fragility via higher probability of crises. Les réformes visant à promouvoir la croissance augmentent-elles la fragilité financière? : Un bilan empirique Certaines politiques visant à favoriser la croissance peuvent avoir un impact négatif en augmentant la vulnérabilité des économies aux crises financières. Une plus grande ouverture aux flux financiers ou des marchés financiers plus libéralisés en sont des exemples types. Cet article examine si les avantages des réformes des politiques de croissance dans ces domaines, et d'autres tels que l'ouverture au commerce international, dépassent les coûts éventuels et potentiellement séveres des crises financières pour un échantillon de 100 pays développés et économies émergentes sur la période allant de 1970 à 2010. Les résultats suggèrent que les effets positifs sur la croissance d'une plus grande ouverture du compte de capital l'emportent sur les effets négatifs d'une plus forte propension des crises jumelles. La libéralisation financière est associée à une croissance plus rapide, mais aussi à une plus forte propension à des crises bancaires systémiques et aux crises jumelles. Un taux de change flottant et une plus grande ouverture au commerce stimulent la croissance en réduisant la probabilité des crises de change. Alors que la réglementation du marché des produits favorables à la concurrence et des impôts des sociétés plus faibles sont associés à une plus forte croissance, ils ne semblent pas influer sur la fragilité financière par l'intermédiaire d'une probabilité plus élevée aux crises.
    Keywords: financial liberalisation, financial crisis, financial stability, growth
    JEL: E32 E44 F3 F32 F33 F36 F43
    Date: 2016–11–25
  41. By: Laurie Binge (Department of Economics, University of Stellenbosch); Willem H Boshoff (Department of Economics, University of Stellenbosch)
    Abstract: The South African art market has grown markedly over the last two decades, and yet there is currently very little research on this market. This paper aims to make three contributions to the literature. The first is to estimate new quality-adjusted price indices for South African art since the turn of the millennium. The paper estimates central tendency indices, as a baseline for comparisons, as well as various hedonic indices that control for quality-mix or compositional changes over time. The second contribution is to estimate alternative art price indices by applying a simple hybrid repeat sales method to art prices. This approach addresses the problem of lack of repeat sales observations in the data and to some extent the potential omitted variable bias inherent in the hedonic method. This has not been attempted for art prices in any country. The hedonic and hybrid repeat sales indices seem to point to the same general trend in South African art prices. According to these measures, the South African art market experienced a huge price increase in the run-up to the Great Recession. The third contribution of the paper is to study the art price indices for evidence of a bubble in the South African art market over the period. The hedonic and hybrid repeat sales indices seem to point to consistent evidence of mildly explosive price behaviour in the run-up to the Great Recession.
    Keywords: South African Art, Hedonic Price Index, Pseudo Repeat Sales, Explosive Prices
    JEL: C43 E31 G12 Z11
    Date: 2016
  42. By: Görg, Holger (University of Kiel and Kiel Institute for the World Economy); Henze, Philipp (University of Kiel and Kiel Institute for the World Economy); Jienwatcharamongkhol, Viroj (Nottingham University (Ningbo)); Kopasker, Daniel (University of Aberdeen and the Scottish Institute for Research in Economics); Molana, Hassan (University of Dundee and the Scottish Institute for Research in Economics); Sjöholm, Fredrik (Lund University); Montagna, Catia (University of Aberdeen and the Scottish Institute for Research in Economics)
    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: 2016–11–23
  43. By: Anna Gibert
    Abstract: I build a model where creditworthy countries may use fiscal austerity to communicate their ability to repay sovereign debt and show that the signaling channel is active only for high levels of asymmetric information. The model generates a negative association between the amount of public information, provided by the rating agencies, and fiscal tightness. Informed by the model predictions, I build a model where creditworthy countries may use fiscal austerity to communicate their ability to repay sovereign debt and show that the signaling channel is active only for high levels of asymmetric information. The model generates a negative association between the amount of public information, provided by the rating agencies, and fiscal tightness. Informed by the model predictions, I perform an empirical investigation based on a panel of 58 OECD and emerging market economies since 1980 and find evidence of this signaling channel.
    Keywords: Signaling, fiscal austerity, sovereign debt, credit ratings
    JEL: D82 E62 F34 G24
    Date: 2016
  44. By: Parker, Miles
    Abstract: This paper studies how disasters aff ect consumer price inflation, one of the main remaining gaps in our understanding of the impact of disasters. There is a marked heterogeneity in the impact between advanced economies, where the impact is negligible, and developing economies, where the impact can last for several years. There are also di fferences in the impact by type of disasters, particularly when considering inflation sub-indices. Storms in- crease food price inflation in the near term, although the eff ect dissipates within a year. Floods also typically have a short-run impact on inflation. Earthquakes reduce CPI inflation excluding food, housing and energy. JEL Classification: E31, Q54
    Keywords: disasters, inflation
    Date: 2016–11
  45. By: Keister, Todd (Rutgers University); Sanches, Daniel R. (Federal Reserve Bank of Philadelphia)
    Abstract: It has been largely acknowledged that monetary policy can affect borrowers and lenders differently. This paper investigates whether the distributional effects of monetary policy are an inherent feature of monetary economies with private credit instruments. In our framework, both money and credit instruments can potentially be used as media of exchange to overcome trading frictions in decentralized markets. Entrepreneurs have access to productive projects but face credit constraints due to limited pledgeability of their returns. Monetary policy affects the liquidity premium on private credit and thereby influences the cost of borrowing and the level of investment, but any attempt to ease borrowing constraints results in suboptimal decentralized-market trading activity. We show that this policy trade-off is not an inherent feature of monetary economies with private credit instruments. If we consider a richer set of aggregate liquidity management instruments, such as the payment of interest on inside money and capital requirements, it is possible to implement an efficient allocation.
    Keywords: monetary theory and policy; liquidity premium; Friedman rule; investment; bank lending channel
    Date: 2016–11–25
  46. By: Heather D. Gibson (Bank of Greece); Stephen G. Hall (University of Leicester and Bank of Greece); George S. Tavlas (Bank of Greece and University of Leicester)
    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
    Date: 2016–11
  47. By: Zuzana Smidova
    Abstract: The Danish financial sector is big and there is a high degree of inter-connectedness between banks, mortgage institutions and pension funds. Danish households have large balance sheets and high levels of gross debt. Even though the high debt levels are matched by large assets, notably in form of pension savings, there are feedback loops with the housing market and households’ balance sheets contributing to macroeconomic volatility. Currently, the very low interest rate environment may contribute to the building up of risks, notably in the housing market. Given the on-going recovery of the housing market, it is an opportune time to eliminate the debt-bias in taxation, which would strengthen the automatic stabilisers of the fiscal system. In addition, further liberalising the private rental market would help create a more dynamic housing market overall and reduce the need to meet housing needs primarily with the owner occupancy segment. Parier la maison au Danemark De taille importante, le secteur financier danois présente un haut degré d’interdépendances entre les banques, les établissements de crédit hypothécaire et les organismes de retraite. Parallèlement, la taille du bilan des ménages est importante également, de même que leur dette brute. Même si à ces hauts niveaux d’endettement correspondent d’importants actifs, notamment sous forme d’épargne-retraite, on observe des boucles de rétroaction avec le marché de l’immobilier et le bilan des ménages, qui concourent à la volatilité macroéconomique. Dans le même temps, le très bas niveau des taux d’intérêt risque de contribuer à l’accumulation de risques, notamment sur le marché du logement. Étant donné la reprise en cours sur ce marché, il est temps de supprimer les effets de distorsion d’une fiscalité favorisant l’emprunt, ce qui permettrait de renforcer les stabilisateurs automatiques du cadre budgétaire. Enfin, de nouvelles mesures de libéralisation du marché locatif privé aideraient à dynamiser le marché immobilier dans son ensemble et à réduire la nécessité de couvrir les besoins de logements en priorité par le segment des propriétaires-occupants
    Keywords: housing, monetary policy, household debt, financial risk, rental market, mortgages
    JEL: D1 E21 G21 G28 R21
    Date: 2016–11–25
  48. By: Paul Hubert (OFCE - OFCE - Sciences Po); Fabien Labondance (CRESE - Centre de REcherches sur les Stratégies Economiques - UFC - UFC - Université de Franche-Comté, UBFC - Université Bourgogne Franche-Comté, OFCE - OFCE - Sciences Po)
    Abstract: We explore empirically the theoretical prediction that waves of optimism or pessimism may have aggregate effects, in the context of monetary policy. We investigate whether the sentiment conveyed by ECB and FOMC policymakers in their statements affect the term structure of private short-term interest rate expectations. First, we quantify central bank tone using a computational linguistics approach. Second, we identify sentiment as exogenous shocks to these quantitative measures using an augmented narrative approach following the information friction literature. Third, we estimate the impact of sentiment on private agents’ expectations about future short-term interest rates using a high-frequency methodology and an ARCH model. We find that sentiment shocks increase private interest rate expectations around maturities of one and two years. We also find that this effect is non-linear and depends on the state of the economy and on the characteristics (precision, sign and size) of the sentiment signal.
    Keywords: Animal spirits, Optimism, Confidence, Central bank communication, Interest rate expectations, ECB, FOMC
    Date: 2016–07–01
  49. By: Chhibber, Ajay (National Institute of Public Finance and Policy); Kalloor, Akshata (National Institute of Public Finance and Policy)
    Abstract: Private investment has slumped in India and its revival is vital for accelerating India's growth rate on a sustained basis. This paper analyzes the determinants of aggregate private investment and its components corporate and non-corporate private investment for the period 1980-81 to 2013-14. This paper finds that the key determinants of private investment are the size of the public sector capital stock, the real effective exchange rate, the output gap and the availability of credit to the private sector. So, higher public investment would crowd-in more private investment. When we break it down further private corporate investment is significantly explained by the real exchange rate and the availability of credit to the private sector whereas for non-corporate investment public capital stock is the most significant variable- as it crowds in private investment. Real interest rate has no significant effects on investment. Simulations show that if India increases public investment by 5% of GDP, depreciates the real exchange rate by 10-15% and fixes the bad loan problems in the banking sector so that credit growth to the private sector is restored, India can increase its GDP growth rate by at least 2% points on a long run sustained basis and achieve 8% plus GDP growth.
    Keywords: Private Investment ; GDP growth ; Public investment ; Real Exchange rate ; Credit to Private Sector ; Non-performing loans (NPL's) ; Fiscal Deficit ; Public Sector Borrowing Requirement
    JEL: C32 E22 E27 H54
    Date: 2016–11
  50. By: V. Coudert; J. Idier
    Abstract: We construct an early warning system for detecting banking crises that could be used for the macroprudential policy conduct in France. First, we select macro-financial risk indicators among a large number of candidates by considering their performances both over a panel of ten euro area countries and at the French level, for the 1985:Q1 to 2009:Q4. Second, we run all the logit models including four of these indicators, one being necessarily a measure of credit gap to fit the Basel Committee recommendations. We then retain two sets of models: one including those with all coefficients significant and expected signs, another one, obtained by relaxing these criteria. Third, we aggregate the probabilities estimated by the models, by giving each a weight proportional to its usefulness at predicting crises either at the panel or the country-level. The simulations performed both over and out of the sample show that aggregating more models yields better results than relying on one single model or only a few. Performance is also enhanced by aggregating models’ results with country-specific weights relatively to common panel-weightings.
    Keywords: Macroprudential policy, Banking Crises, Early Warning Indicators
    JEL: E52 G12 C58
    Date: 2016
  51. By: International Monetary Fund. Finance Dept.
    Abstract: Ukraine requested a 24-month SDR 10.976 billion exceptional access Stand-By Arrangement (SBA) in April 2014 against the backdrop of large internal and external imbalances, considerable domestic political upheaval, and an emerging conflict in the East. Inconsistent macroeconomic policies in the preceding years had led to a potent combination of an overvalued pegged exchange rate, large and growing twin deficits, and a weak banking system by end-2013. Domestic political turmoil and conflict in Crimea and Eastern Ukraine added to these problems, creating an urgent need for financial assistance from the international community. The 2014 SBA (of about $17 billion) was Ukraine’s third since 2008.
    Keywords: Stand-by arrangements;Monetary policy;Banking sector;Fiscal policy;Energy sector;Fiscal reforms;Ex post assessments;Exceptional use of Fund resources;Economic indicators;Fund policies;Press releases;Ukraine;
    Date: 2016–10–03
  52. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: GDP grew by 5.8 percent in 2015. Inflation has declined to close to zero owing to lower oil prices and the strong dollar. Unemployment remains low. The external current account deficit has been moderating and is being financed by FDI inflows. Fiscal consolidation since mid-2014 helped to achieve a lower-than-budgeted deficit of 2.8 percent of GDP in 2015.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Anti-money laundering;Combating the financing of terrorism;Price controls;Fiscal reforms;Banking sector;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Panama;
    Date: 2016–11–02
  53. By: Phuong Ngo (Cleveland State University); Francois Gourio (Federal Reserve Bank of Chicago)
    Abstract: Long-term interest rates have fallen to historically low levels since the Great Recession started. One potential contributor are low premia for infl‡ation and interest rate risk. We show how a fairly standard New Keynesian macroeconomic model generates lower infl‡ation and interest rate risk premia when the economy becomes close to the zero lower bound (ZLB). In particular, the in‡flation risk premia switches from positive to negative. We provide evidence consistent with this mechanism: since 2009, investors seem to view infl‡ation as more positively correlated with the price of risky assets.
    Date: 2016
  54. By: Alexandre Lucas Cole (LUISS "Guido Carli" University); Chiara Guerello (LUISS "Guido Carli" University); Guido Traficante (European University of Rome)
    Abstract: We build a Two-Country Open-Economy New-Keynesian DSGE model of a Currency Union, with a debt-elastic government bond spread and incomplete international financial markets, to study the e ects of government debt deleveraging. We evaluate the stabilization properties and welfare implications of di erent deleveraging schemes and instruments, under a range of alternative shocks and under alternative scenarios for fiscal policy coordination, bringing to policy conclusions for the proper government debt management in a Currency Union. We find that: a) coordinating on the net exports gap and consolidating budget constraints across countries when deleveraging provides more stabilization, b) taxes are a better instrument for deleveraging compared to government consumption or transfers, c) by backloading the deleveraging process one can achieve greater stabilization over time, d) deleveraging government debt increases the volatility and persistence of the economy after other shocks. Our policy prescriptions for the Eurozone are to reduce government debt more gradually over time and less during recessions, to do so using distortionary taxes, while concentrating on reducing international demand imbalances and maybe creating some form of fiscal union.
    Keywords: Sovereign Debt, International Policy Coordination, Monetary Union, New Keynesian.
    JEL: H63 E63 F42 F45 E12
    Date: 2016
  55. By: International Monetary Fund. African Dept.
    Abstract: The newly issued five-year second Growth and Transformation Plan (GTP II) envisages continued high growth and public infrastructure investment, while placing a greater emphasis on private sector development and foreign direct investment (FDI), competitiveness, and export-oriented industrialization. A major drought and deterioration of the external environment resulted in a 2015/16 growth slowdown to an estimated 6.5 percent. Stability-oriented macroeconomic policies and effective policy responses, including food imports, to mitigate the drought’s social costs kept inflation low and the budget deficit on target. The current account, however, posted for a second year a deficit above 10 percent of GDP.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Current account deficits;Resource mobilization;Exports;Manufacturing sector;Fiscal reforms;Monetary policy;Exchange rate assessments;Economic indicators;Debt sustainability analysis;Staff Reports;Press releases;Ethiopia;
    Date: 2016–10–04
  56. By: Gregor Bäurle; Daniel Kaufmann; Sylvia Kaufmann; Rodney W. Strachan
    Abstract: The interaction of macroeconomic variables may change as the nominal short-term interest rates approach zero. In this paper, we propose an empirical model that captures these changing dynamics with a time-varying parameter vector autoregressive process. State-dependent parameters are determined by a latent state indicator. This state indicator follows a distribution with time-varying probabilities affected by the lagged interest rate. As the interest rate enters the critical zero lower bound (ZLB) region, the dynamics between the variables and the effect of shocks change. We estimate the model with Bayesian methods and explicitly consider that the interest rate may be constrained in the ZLB region. We provide an estimate of the latent rate, i.e., a lower interest rate than the observed level, which is state- and model-consistent. The endogenous specification of the state indicator permits dynamic forecasts of the state and system variables. In the application of the model to the Swiss data, we evaluate state-dependent impulse responses to a risk premium shock that is identified with sign restrictions. Additionally, we discuss scenario-based forecasts and evaluate the probability of the system exiting the ZLB region that is only based on the inherent dynamics.
    Keywords: Regime switching, time-varying probability, constrained variables
    JEL: C3 E3
    Date: 2016
  57. By: Lo, Chi-Sheng
    Abstract: This research applies recursive Structural Vector Auto Regression (SVAR) model with short-run restriction into two kinds of shocks: monetary and volatility. The first SVAR estimates the shock of contractionary monetary policy on Taiwan’s key monthly macroeconomic variables including exports, CPI, exchange rate, money supply, and Taiwan Weighted Stock Exchange (TWSE) Index. The second SVAR estimates the shock of Generalized Autoregressive Conditional Heteroskedasticity (GARCH) volatility of TWSE on Taiwan’s daily exchange rate, overnight interbank loan rate, and Taiwan Government Bond Index (TGBI). The first SVAR model shows prize puzzle has been evident in Taiwan. The second SVAR model found flight to safety into bond market after the volatility shock in equity market. Combining the results of both models and based on other literature reviews, we can also conclude that effectiveness of monetary policy exhibits quite significant non-linearity in Taiwan.
    Keywords: Vector Auto Regression, Monetary Policy Shock, Volatility Shock, Flight to Safety, Taiwan
    JEL: C58 E50 G1
    Date: 2016–08–28
  58. By: Thomas Schelkle
    Abstract: The paper develops novel methods to measure the extend of factor misallocation. These rely on production functions being homogeneous, but not on specific parameterizations and partly not even on specific functional forms. This reduces the risk to incorrectly reject an efficient allocation. In an empirical application these general methods strongly reject an efficient capital and labor allocation across 473 six-digit U.S. manufacturing industries. Potential output gains of efficiently reallocating factors are between 22 and 64% of observed output. There is also evidence that misallocation increased substantially during the Great Recession with a sizeable contribution to the observed fall in manufacturing output.
    Keywords: Misallocation, factor allocation, test, bounds
    JEL: E23 D61 O11
    Date: 2016–11–28
  59. By: Hang Zhou
    Abstract: This paper revisits the definition of monetary policy autonomy and develops a new method to identify autonomy regimes of a set of countries. Compared to the traditional identification approach, which only focuses on the base country interest rate, monetary policy autonomy discussed in this paper is jointly determined by how the interest rate responds to foreign monetary policy as well as its domestic inflation and real GDP. Using a Bayesian Markov Switching model for the monetary policy function, I estimate policy responses in two regimes, and obtain measures of monetary policy autonomy in the estimation process. Testing the method with case studies and simulated data demonstrates the robustness of the approach under different scenarios. Applying the method to the data of a set of advanced countries, I find monetary policy autonomy decreases when exchange rate is fixed or capital control is loosened, which is consistent with the open economy trilemma.
    JEL: C22 E52 F33 F41
    Date: 2016–11–24
  60. By: Constantin Burgi (The George Washington University)
    Abstract: In this paper, I use the Bloomberg Survey of forecasts to assess if evaluating the distribution of expectations will lead to important additional insights over the evaluation of the simple average. I first introduce new approaches that allow me to assess the forecast accuracy and the information rigidity at the individual level despite a large share of missing data. Applying these new approaches, I find that taking into account the distribution can significantly improve the predictive power of the survey. For example, I find that the part of uncertainty measured by disagreement can improve the prediction of recessions in a dynamic probit model relative to the simple average. On information rigidity, I find that some of the rigidity found at the aggregate level likely stems from the aggregation process. Together, my findings suggest that we should look at individual expectations whenever possible as important insights are lost by just looking at aggregate expectations.
    Keywords: Expectations, Bloomberg Survey, Forecast Evaluation, Uncertainty, Dynamic Probit
    JEL: C22 C52 C53 E17 E37
    Date: 2016
  61. By: Matheus Grasselli (Department of Mathematics and Statistics, McMaster University, Hamilton, Canada, Fields Institute for Research In Mathematical Sciences - Fields Institute for Research In Mathematical Sciences); Adrien Nguyen-Huu (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM3 - Université Paul-Valéry - Montpellier 3 - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - INRA Montpellier - Institut national de la recherche agronomique [Montpellier] - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)
    Abstract: We propose a continuous-time stock-flow consistent model for inventory dynamics in an economy with firms, banks, and households. On the supply side, firms decide on production based on adaptive expectations for sales demand and a desired level of inventories. On the demand side, investment is determined as a function of utilization and profitability and can be financed by debt, whereas consumption is independently determined as a function of income and wealth. Prices adjust sluggishly to both changes in labour costs and inventory. Disequilibrium between expected sales and demand is absorbed by unplanned changes in inventory. This results in a five-dimensional dynamical system for wage share, employment rate, private debt ratio, expected sales, and capacity utilization. We analyze two limiting cases: the long-run dynamics provides a version of the Keen model with effective demand and varying inventories, whereas the short-run dynamics gives rise to behaviour that we interpret as Kitchin cycles.
    Keywords: macroeconomic dynamics,business cycles,inventories,disequilibrium analysis
    Date: 2016–10–03
  62. By: Pengfei Wang (Hong Kong University of Science and Tech); Feng Dong (Shanghai Jiao Tong University); Jess Benhabib (NYU)
    Abstract: We develop a macroeconomic model with adverse selection in credit markets. A continuum of final-goods producers borrow from financial intermediary to purchase intermediate goods as input. The type of producers as borrower is private information. Adverse selection arises here. Higher aggregate supply of credit induces more high-quality borrowers, lowers default risks face by each financial intermediary, and stimulate more individual credit supply. We show that this lending externality can generate multiple equilibria or indeterminacy even when the steady state equilibrium is unique, making self-fulfilling expectation driven business cycles possible.
    Date: 2016
  63. By: International Monetary Fund. Independent Evaluation Office
    Abstract: Macroprudential policies (MaPP) can play an important role in mitigating financial stability risks in Morocco. MaPP aims to increase the overall resilience of the financial system, contain the buildup of systemic risks over time, and address vulnerabilities stemming from structural relationships between financial intermediaries (IMF 2013). For Morocco, limited fiscal and external policy buffers, high vulnerability to external shocks due to dependencies on oil imports and trade with Europe, and the expanding size and complexity of a bank-dominated financial sector underscore the importance of an effective MaPP framework.
    Keywords: Financial Sector Assessment Program;Macroprudential Policy;Monetary policy;Banking sector;Liquidity;Nonbank financial sector;Morocco;
    Date: 2016–11–07
  64. By: Magdalena Petrovska (National Bank of the Republic of Macedonia); Aneta Krstevska (National Bank of the Republic of Macedonia); Nikola Naumovski (National Bank of the Republic of Macedonia)
    Abstract: This paper aims to assess the usefulness of leading indicators in business cycle research and forecast. Initially we test the predictive power of the ESI within a static probit model as a leading indicator, commonly perceived to be able to provide a reliable summary of the current economic conditions. We further proceed by analyzing how well an extended set of indicators performs in forecasting turning points of the Macedonian business cycle by employing the Qual VAR approach of Dueker (2005). In continuation, we evaluate the quality of the selected indicators in pseudo-out-of-sample context. The results show that the use of survey-based indicators as a complement to macroeconomic data work satisfactory well in capturing the business cycle developments in Macedonia.
    Keywords: Forecasting, Business cycle turning points, Qual VAR, MCMC, Latent variable
    JEL: F42 C25 C22
    Date: 2016–11
  65. By: Aaron Hedlund (University of Missouri); Carlos Garriga (Federal Reserve Bank of St. Louis)
    Abstract: This paper explores the contribution of housing and mortgage debt to the macroeconomic performance of the United States economy during the Great Recession, with a particular eye toward consumption. The importance of housing is evaluated using a quantitative, heterogeneous agent model with search frictions in the housing market and equilibrium mortgage default. The model successfully replicates key features of the U.S.\ economy prior to the Great Recession and can rationalize the dynamics of housing, debt, and consumption during the crisis. The increase in labor market risk and deterioration in housing finance both play pivotal but different roles in explaining the steep recession and slow recovery. Endogenous housing illiquidity is necessary to explain the magnitude of the house price drop, the spike in foreclosures, the fall in consumption, and the evolution of homeownership. The model also substantiates and explains findings from the literature on the sensitivity of consumption to house price movements and how the degree of household indebtedness affects this relationship. Lastly, the Federal Reserve's policy of Quantitative Easing is evaluated and found to have substantial effects on house price and consumption dynamics.
    Date: 2016
  66. By: Thomas GRJEBINE (Cepii); Francois Geerolf (University of California, Los Angeles)
    Abstract: We use variations in property taxes in a panel of more than 20 countries, and over 40 years, to investigate one source of joint determination between house prices and output, employment, consumer spending, investment and the trade balance. We use a narrative approach to identify changes in property taxes that are automatic or politically motivated, and thus exogenous to the business cycle. We also use the easiness with which property tax increases can be passed on to renters depending on landlord-tenants regulations across countries as a source of overidentification. In preliminary results, we find large non-ricardian effects. Property tax increases are highly contractionary and the economic effect is large, with a multiplier strictly higher than one. Regressions of housing on macroeconomic aggregates, plagued by the omission of the joint effect of property taxes, would suggest a marginal propensity to consume out of housing wealth of about 9 cents, and a marginal propensity to invest out of housing collateral of 6 cents. These results are in line with various micro or macroeconomic studies. We try to discuss these results through the lens of macroeconomic theory.
    Date: 2016
  67. By: Byrne, Joseph P; Cao, Shuo; Korobilis, Dimitris
    Abstract: This paper models and predicts the term structure of US interest rates in a data rich environment. We allow the model dimension and parameters to change over time, accounting for model uncertainty and sudden structural changes. The proposed time-varying parameter Nelson-Siegel Dynamic Model Averaging (DMA) predicts yields better than standard benchmarks. DMA performs better since it incorporates more macro-finance information during recessions. The proposed method allows us to estimate plausible real-time term premia, whose countercyclicality weakened during the financial crisis.
    Keywords: Term Structure of Interest Rates; Nelson-Siegel; Dynamic Model Averaging; Bayesian Methods; Term Premia
    Date: 2016–08
  68. By: Shengxing Zhang (London School of Economics); Ricardo Lagos
    Abstract: In this paper we document a novel liquidity-based transmission mechanism through which monetary policy influences asset markets, we develop a model of this mechanism, and use a quantitative version to assess the ability of the theory to match the evidence.
    Date: 2016
  69. By: International Monetary Fund. European Dept.
    Abstract: Since late 2014, Moldova’s economy has been hit by a number of domestic and external shocks. Chief among them is the exposure of extensive and wellorchestrated fraud in the banking system, resulting in the closure of three banks at a public cost of 10 percent of GDP. During the following period, confidence collapsed, external concessional financing largely froze, and international reserves fell by onethird, prompting significant tightening of monetary conditions. Domestic political turmoil, marked by three changes in government, constrained solutions and delayed collaboration with the international community on possible financial support.
    Date: 2016–11–09
  70. By: International Monetary Fund. Monetary and Capital Markets Department
    Abstract: This Technical Note discusses the findings and recommendations made in the Financial Sector Assessment Program for Ireland in the area of the macroprudential policy framework. The current institutional arrangement in Ireland is appropriate for effective macroprudential policy and in line with IMF guidance. The Central Bank of Ireland’s analysis of systemic vulnerabilities is sophisticated and timely. The central bank has been introducing a range of macroprudential instruments to contain a buildup of systemic risk in the financial system. Ireland’s boom-bust experience amply demonstrates the need for forward-looking action to head off incipient financial problems.
    Keywords: Financial Sector Assessment Program;Macroprudential Policy;Monetary policy;Banking sector;Nonbank financial sector;Risk management;Ireland;
    Date: 2016–09–29
  71. By: Nakata, Taisuke; Schmidt, Sebastian
    Abstract: Modifying the objective function of a discretionary central bank to include an interest-rate smoothing objective increases the welfare of an economy where 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 does. Through expectations, the temporary overheating of the economy associated with such 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 half. JEL Classification: E52, E61
    Keywords: gradualism, inflation targeting, interest-rate smoothing, liquidity traps, zero lower bound
    Date: 2016–11
  72. By: Simplice Asongu (Yaoundé/Cameroun); Ibrahim D. Raheem (Canterbury/UK); Vanessa S. Tchamyou (Yaoundé/Cameroon)
    Abstract: Financial dollarization in Sub-Saharan Africa is the most persistent compared to other regions of the world. This study complements the existing scant literature on dollarization in Africa by assessing the role of information sharing offices (public credit registries and private credit bureaus) on financial dollarization in 26 countries of SSA for the period 2001-2012. The empirical evidence is based on Ordinary Least Squares (OLS) and Generalised Method of Moments (GMM). The findings show that information sharing offices (which are designed to reduce information asymmetry) in the banking industry are a deterrent to dollarization. Policy implications are discussed.
    Keywords: Dollarization; Openness; Information Asymmetry; Africa
    JEL: E31 E41 G20 O16 O55
    Date: 2016–11
  73. By: Sartaj Rasool Rather (Assistant Professor, Madras School of Economics)
    Abstract: This study examines whether skewness of cross sectional distribution of relative price shocks has asymmetric impact on aggregate inflation. The empirical evidence from various countries suggests that the positively skewed shocks have different impact from that of negatively skewed shocks on aggregate inflation. Consistent with the predictions of menu cost models, the empirical results indicate that this asymmetry in the impact of relative price shocks mainly depends on the nature of trend that inflation exhibits for a given period. The crucial inference that emerges from the empirical findings is that the traditional approach of using a linear regression model, to examine the relationship between inflation and skewness during the period with trend inflation, is not appropriate as it may result in misspecification and misleading conclusions.
    Keywords: Inflation; distribution of relative price shocks; menu costs; asymmetry Classification- E30; E31; E52
  74. By: Gabriel Mathy (American University); Herman O. Stekler (The George Washington University)
    Abstract: How was the Great Depression viewed in real time? This paper yields a new perspective on this question by quantifying the qualitative statements of economic analysts in the business press and at the Federal Reserve Board. We compare the statements of economic analysts about current and future conditions to what actually happened to the American economy in the Great Depression. While Depression-era economic forecasters were able to accurately assess what was happening contemporaneously in the economy, forecasters were persistently optimistic that “the corner had been turned” and that a strong recovery was imminent even as the economy continued to decline. This optimism was based on the use of analogies and rules of thumb which were no longer applicable.
    Keywords: Great Depression, Qualitative Forecasts, Business Expectations
    Date: 2016–11
  75. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Rangan Gupta (Department of Economics, University of Pretoria); Kevin Kotze (School of Economics, University of Cape Town)
    Abstract: This paper seeks to identify evidence of regime-switching behaviour in the monetary policy response function and the variance of the shocks. It makes use of various specifications of a small open-economy Markov-switching dynamic stochastic general equilibrium (DSGE) model that is applied to South African data from 1989 to 2014. While the in-sample statistics suggest that some of the regime-switching models may provide superior results, the out-of-sample statistics suggest that the inclusion of various forms of regime-switching does not significantly improve upon the forecasting performance of the model. The results also suggest that the central bank response function has been consistently applied over the sample period.
    Date: 2016
  76. By: Darío Indalecio Restrepo
    Abstract: Nadie escapa a su tiempo y el tiempo todo lo transforma, las condiciones de existencia, los valores y las posturas subjetivas, así como las teóricas a partir de las cuales se vive y se interpreta la realidad. Los cambios de apreciación son desechados por algunos, por disolutos, confusos y faltos de referentes certeros; mientras que otros acogen la novedad por su apertura a otros mundos, vivencias y posibilidades. El debate sobre la posmodernidad no escapa a tal polémica, así como no es posible estar por fuera de la condición posmoderna. A partir de dos pares de conceptos se revisan grandes cambios paradigmáticos en las maneras de vivir, concebir y valorar la historia. De lo estructural a las particularidades y de lo singular a las pluralidades.
    Keywords: Posmodernidad, historia, epistemología.
    JEL: N01 B40 E10 O11 P10
    Date: 2016–11–25
  77. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: Cambodia is a fast-growing, highly open economy, and attained lower-middle income status this year. Over the last two decades, Cambodia grew rapidly (average real GDP growth of around 8 percent) and its integration with the global economy increased sharply, accompanied by an impressive decline in poverty. Going forward, Cambodia’s strategic location, China’s changing trade patterns, and ongoing regional integration provide further opportunities.1 Important steps have been taken by the government that will help Cambodia capitalize on these opportunities, including energy-related investments to help reduce the cost of doing business and measures to facilitate trade, payments and business registration. Nonetheless, further measures are needed to support sustained growth, including reforms to improve the business climate and policies to mitigate rising financial sector vulnerabilities.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Government expenditures;Wage increases;Public-private sector cooperation;Fiscal reforms;Monetary policy;Bank supervision;Economic indicators;Millennium Development Goals;Debt sustainability analysis;Staff Reports;Press releases;Cambodia;
    Date: 2016–11–03
  78. By: Paul Hubert (OFCE - OFCE - Sciences Po); Fabien Labondance (CRESE - Centre de REcherches sur les Stratégies Economiques - UFC - UFC - Université de Franche-Comté, UBFC - Université Bourgogne Franche-Comté, OFCE - OFCE - Sciences Po)
    Abstract: This paper investigates the instantaneous and dynamic effects of ECB forward guidance announcements on the term structure of private short-term interest rate expectations. We estimate the static and dynamic impact of forward guidance on private agents’ expectations about future short-term interest rates using a high-frequency methodology and an ARCH model, complemented with local projections. We find that ECB forward guidance announcements decrease most of the term structure of private short-term interest rate expectations, this being robust to several specifications. The effect is stronger on longer maturities and persistent.
    Date: 2016–10–01
  79. By: Sodini, Paolo; van Nieuwerburgh, Stijn; Vestman, Roine; von Lilienfeld-Toal, Ulf
    Abstract: This paper studies the economic benefits of home ownership. Exploiting a quasi-experiment surrounding privatization decisions of municipally-owned apartment buildings, we obtain random variation in home ownership for otherwise similar buildings with similar tenants. We link the tenants to their tax records to obtain information on demographics, income, mobility patterns, housing wealth, financial wealth, and debt. These data allow us to construct high-quality measures of consumption expenditures. Home ownership causes households to move up the housing ladder, work harder, and save more. Consumption increases out of housing wealth are concentrated among the home owners who sell subsequent to privatization and among those who receive negative income shocks, evidencing a collateral effect.
    Keywords: collateral effect; home ownership; housing wealth; mobility; MPC
    JEL: D12 D31 E21 G11 H31 J22 R21 R23 R51
    Date: 2016–11
  80. By: Karasik, Leonid; Leung, Danny; Tomlin, Ben
    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 shocks to large firms. Using data on Canadian firms from the T2-LEAP database, which links financial statements from firms? Corporate Income Tax Return with employment data from the Longitudinal Employment Analysis Program, this paper examines the contribution of large firms to industry-level fluctuations in gross output, investment and employment in the manufacturing sector.
    Keywords: Business performance and ownership, Economic accounts, Manufacturing
    Date: 2016–11–21
  81. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: Tuvalu is a fragile micro-state facing tremendous challenges from its remoteness, lack of scale economies, weak institutional capacity, and above all, climate change, which threatens the country’s very existence. Thanks to buoyant fishing licensing fees and grants, Tuvalu has accumulated fiscal buffers in recent years, but it is now incurring significant costs rebuilding after the devastating Cyclone Pam in March 2015. Looking ahead, Tuvalu faces substantial long-run costs in improving its infrastructure to mitigate the effects of climate change.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Fisheries;Climatic changes;Fiscal reforms;Public enterprises;Bank supervision;Economic indicators;Balance of payments statistics;Debt sustainability analysis;Staff Reports;Press releases;Tuvalu;
    Date: 2016–10–04
  82. By: International Monetary Fund. Asia and Pacific Dept
    Abstract: Eighteen months after Cyclone Pam struck Vanuatu, the economy continues to recover from the cyclone’s extensive damages. Reconstruction efforts are beginning to yield positive results, allowing increasing use of Port Vila’s international airport, the reopening of damaged hotels, and the return of tourists to the islands. These encouraging developments augur well for a full recovery in the near future.
    Keywords: Article IV consultation reports;Economic growth;External shocks;Fiscal policy;Infrastructure;Public investment;Monetary policy;Currency pegs;Bank supervision;Economic indicators;Balance of payments statistics;Staff Reports;Press releases;Vanuatu;
    Date: 2016–10–31
  83. By: International Monetary Fund. Western Hemisphere Dept.
    Abstract: The regional recovery is gaining ground, supported by continued low oil prices, the return to pre-2007 levels of tourism arrivals, and buoyant citizenship-by-investment receipts. Three failed banks have been resolved with no spillovers to the rest of the region and authorities have demonstrated improved fiscal management. Risks in the short run appear to be balanced but the region still faces many vulnerabilities that jeopardize the medium-term outlook. This year’s discussions took stock of the progress made and the policies needed to address key vulnerabilities related to the weak banking system, high debt, susceptibility to natural disasters, and competitiveness.
    Keywords: Economic growth;Caribbean;Tourism;Banking sector;Offshore financial centers;Monetary policy;Bank resolution;Fiscal policy;Unemployment;Economic indicators;Balance of payments statistics;Staff Reports;Press releases;Eastern Caribbean Currency Union;
    Date: 2016–10–25
  84. By: Lucas F. Husted; John H. Rogers; Bo Sun
    Abstract: In previous work, we constructed a news-based index of U.S. monetary policy uncertainty (MPU) that captures the degree of uncertainty the public perceives about Federal Reserve policy actions and their consequences. In this note, we extend that work to Canada, the Euro Area, Japan, and United Kingdom.
    Date: 2016–11–23
  85. By: Chen Yeh (University of Chicago); David Argente (University of Chicago)
    Abstract: We document a new set of salient facts on pricing moments over the life-cycle of products. First, entering products change prices twice as often as the average product. Second, the average size of these adjustments is 50 percent larger than the average price change. We argue that a menu cost model with price experimentation can rationalize these findings. The firm is uncertain about its demand elasticity under this setting, but can experiment with its price to endogenously affect its posterior beliefs. Firms face the trade-off between increasing the speed of learning through price experimentation and maximizing their static profits. This mechanism can endogenously generate large price changes, without the use of fat-tailed shocks, and can replicate the life-cycle patterns we document. We show that the cumulative output effect of an unanticipated monetary shock is 40 percent larger than in Golosov and Lucas (2007). On impact, selection is weakened as the experimentation motive alters the distribution of desired price changes and decreases the fraction of firms near the margin of adjustment. Furthermore, the notion of a product’s life-cycle generates an additional form of cross- sectional heterogeneity in the frequency of price adjustment. This causes the monetary shock to be further propagated.
    Date: 2016
  86. By: Gaston Navarro (Federal Reserve Board); Julio Blanco (University of Michigan)
    Abstract: We provide evidence of a significant and persistent negative relation between a firm's workers and her probability to default. In contrast with most "macro-finance" models, this relation is robust to controlling for the several firm's variables, such as the firm's leverage and profitability. In particular, for a panel of most US publicly traded firms, we find that a 10% increase in a firm's workers is associated with a 3% decline in her probability to default. To account for this fact, we extend a standard search-friction labor-market model to incorporate firms default risk. This environment provides a micro-foundation where workers determine the firm's value, and consequently affecting her incentives to default. We argue that fluctuations in the value of a worker generate and significantly amplify business cycle fluctuations. In the context of our model, we find that fluctuations in the value of a worker explain more than 68% of credit spreads volatility, and almost 80% of default rate volatility.
    Date: 2016
  87. By: Corinne Luu (OCDE)
    Abstract: La productivité canadienne est inférieure à celle de nombreux pays de l’OCDE malgré quelques progrès ces dernières années. Il serait possible d’accroître l’efficience globale en renforçant la concurrence sur le marché intérieur afin de favoriser les futurs gains de productivité globale. Ces gains sont importants, de l’ordre d’un demi pour cent par an sur une période plutôt longue. Ce document porte principalement sur l’intensification de la concurrence dans les industries de réseau, comme l’énergie, les télécommunications, la diffusion audiovisuelle et les transports, qui jouent un rôle essentiel dans le processus de production de l’ensemble de l’économie. L’amélioration de la réglementation, l’augmentation de l’efficience et/ou le renforcement de la compétitivité-coût pourraient accroître la productivité dans ces secteurs, ainsi que dans les secteurs d’aval. La concurrence pourrait également être intensifiée par la réduction des obstacles aux échanges entre provinces et à la mobilité de la main-d’oeuvre, qui fragmentent un marché intérieur déjà petit. Ce document examine donc également les réformes possibles de l’Accord sur le commerce intérieur et les mesures visant à réduire les obstacles sectoriels aux échanges. Ce Document de travail se rapporte à l’Étude économique de l’OCDE du Canada 2016 ( ique-canada.htm).
    Keywords: concurrence, industrie de réseau, intégration, productivité, réglementation
    JEL: J44 L1 L3 L5 L66 L9 O43 Q18
    Date: 2016–08–03
  88. By: Lubungu, Mary
    Abstract: Livestock production and marketing has the potential of improving the smallholder farmer’s livelihood, but small herd size limits smallholder livestock commercialization. Thus understanding the herd dynamics is a pragmatic initial step in addressing this problem and providing solutions to building and maintaining the herd size. Births are the primary source of building the herd size while deaths as reflected by high mortality rates are the major outflow channel. It is encouraging that cattle mortality rates have reduced and the population growth rates increased between 2012 and 2015 though more still needs to be done.
    Keywords: Agricultural and Food Policy, Livestock Production/Industries,
    Date: 2016–10
  89. By: Edward Knotek II (Federal Reserve Bank of Cleveland)
    Abstract: Macroeconomic models often generate nominal price rigidity via menu costs. This paper provides empirical evidence that treating menu costs as a structural explanation for sticky prices may be spurious. Using scanner data, I note two empirical facts: (1) price points, embodied in nine-ending prices, account for approximately two-thirds of prices; (2) at the conclusion of sales, post-sale prices return to their pre-sale levels more than three-fourths of the time. I construct a model that nests roles for menu costs and price points and estimate model variants via simulated method of moments. Excluding the two facts yields a statistically and economically significant role for menu costs in generating price rigidity. Incorporating the two facts yields an incentive to set nine-ending prices two orders of magnitude larger than the menu costs in this model. In this setting, the price point model can match the two stylized facts, but menu costs are effectively irrelevant as a source of price rigidity. The choice of a mechanism for price rigidity matters for aggregate dynamics.
    Date: 2016
  90. By: Cole, Allison (Federal Reserve Bank of Boston); Greene, Claire (Federal Reserve Bank of Boston)
    Abstract: This report examines similarities and differences among three groups of consumers: those without a checking or savings account (unbanked), bank account adopters who have used alternative financial services (AFS) in the past 12 months (underbanked), and bank account adopters who did not use AFS in the past 12 months (fully banked). Consumers in the three groups have different demographic characteristics, income, and payment behaviors: •The payment behavior of the underbanked is similar to that of the fully banked. •Unbanked consumers make fewer payments per month than the fully banked and the underbanked. •Fewer than half of the unbanked know their credit scores, while about 85 percent of the underbanked and the fully banked know theirs. •Both unbanked and underbanked consumers are significantly more likely than fully banked consumers to own a general purpose reloadable (GPR) prepaid card. We find no evidence that consumers are prevented from opening a bank account; many cite personal preferences and cost as reasons for choosing to be unbanked. These preferences are likely related to income constraints.
    Keywords: Unbanked; underbanked; financial inclusion; consumer payment choice; consumer behavior; consumer preferences; Survey of Consumer Payment Choice
    JEL: D12 G21
    Date: 2016–10–17
  91. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: An analysis of the international trade structures of OECD countries shows that between these countries primarily high-tech products are traded; moreover, since 2006 the share of imports in the GDP of China has reduced, which in turn indicates the new capabilities of China, i.e. that Chinese firms are capable of producing high quality products with a growing share of national value-added inputs. The result of this, with a broad international focus, is the finding that competition in terms of quality, product innovations and Schumpeterian dynamics play an increasingly important role in the context of international markets. This gives rise to the particular interest in an analysis of the role of lead markets and quality-competition, respectively, on the one hand, on the other hand macroeconomic perspectives should be demonstrated, which indicate product innovations in a new way and appear to be relevant for an assessment of stability policy. Furthermore, the economic policy implications will be discussed.
    Keywords: Macroeconomic Policy, Export, Trade, Innovation, Research, Development
    JEL: E6 F10 O3 O32
    Date: 2016–10

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