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on Macroeconomics |
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Issue of 2017‒01‒01
116 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Firmin Doko Tchatoka (School of Economics, University of Adelaide); Nicolas Groshenny (School of Economics, University of Adelaide); Qazi Haque (School of Economics, University of Adelaide); Mark Weder (School of Economics, University of Adelaide) |
| Abstract: | This paper estimates a New Keynesian model of the U.S. economy over the period following the 2001 slump, a period for which the adequacy of monetary policy is intensely debated. We find that only when measuring inflation with core PCE does monetary policy appear to have been reasonable and sufficiently active to rule out indeterminacy. We then relax the assumption that inflation in the model is measured by a single indicator and re-formulate the artificial economy as a factor model where the theoryÂ’s concept of inflation is the common factor to the empirical inflation series. CPI and PCE provide better indicators of the latent concept while core PCE is less informative. Finally, we estimate an economy that distinguishes between core and headline inflation rates. This model comfortably rules out indeterminacy. |
| Keywords: | Indeterminacy, Taylor Rules, Great Deviation |
| JEL: | E32 E52 E58 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2016-18&r=mac |
| By: | Jan Zacek (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic) |
| Abstract: | After the recent financial crisis of 2007, a connection between monetary policy and financial stability has started to be thoroughly investigated. One of the particular areas of this research field deals with the role of various financial variables in the monetary policy rules. The main purpose of this research is to find whether direct incorporation of the financial variables in the monetary policy rule can bring macroeconomic benefits in terms of lower volatility of inflation and output. So far, the main emphasis of the research has been placed on the investigation of the augmented Taylor rules in the context of a closed economy. This paper sheds light on the performance of the augmented Taylor rules in a small open economy. For this purpose, a New Keynesian DSGE model with two types of financial frictions is constructed. The model is calibrated for the Czech Republic. This work provides four conclusions. First, incorporation of the financial variables (asset prices and the volume of credit) in the monetary policy rule is beneficial for macroeconomic stabilization in terms of lower implied volatilities of inflation and output. Second, the usefulness of the augmented monetary policy rule is the most apparent in case of the shock originating abroad. Third, there is a strong link between the financial and the real side of an economy. Fourth, if the banking sector experiences a sharp drop in bank capital that brings this sector into decline, activity in the whole economy deteriorates and monetary policy is not able to achieve macroeconomic stability using its conventional tools. |
| Keywords: | DSGE models, financial imperfections, inflation targeting, monetary policy |
| JEL: | E31 E43 E52 E58 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2016_25&r=mac |
| By: | László Békési (Magyar Nemzeti Bank, Central Bank of Hungary); Csaba Köber (OG Research); Henrik Kucsera; Tímea Várnai (Magyar Nemzeti Bank, Central Bank of Hungary); Balázs Világi (Magyar Nemzeti Bank, Central Bank of Hungary) |
| Abstract: | The lessons of the financial and macroeconomic crisis of 2007-2008 made the development of a new macroeconomic forecas ting model necessary in the MNB. The model represents a small open economy. It is based on the DSGE philosophy but it deviates from it at several points. The new features of the model, compared to previous forecasting models of the MNB, are that the debt constraint and the heterogeneity of households and financial accelerator mechanism through the financing constraints of the firms appear. From methodological point of view, it is important that the model deviates from ra??onal expectation hypothesis at several points and treats expectations pragmatically and flexibly. The model parameters are calibrated according to experts’ experience and SVAR estimations. The properties of the calibrated model are studied by impulse responses analysis, and the model fits into the MNB’s forecasting framework successfully. |
| Keywords: | DSGE models, forecasting, precautionary motive, buffer stock model, heterogeneous households, financial accelerator, non-rational expectations. |
| JEL: | E21 E27 E31 E37 E44 E52 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2016/4&r=mac |
| By: | Breach , Tomas (Federal Reserve Bank of Chicago); D'Amico, Stefania (Federal Reserve Bank of Chicago); Orphanides, Athanasios (MIT Sloan School of Management) |
| Abstract: | This paper develops and estimates a Quadratic-Gaussian model of the U.S. term structure that can accommodate the rich dynamics of inflation risk premia over the 1983-2013 period by allowing for time-varying market prices of inflation risk and incorporating survey information on inflation uncertainty in the estimation. The model captures changes in premia over very diverse periods, from the inflation scare episodes of the 1980s, when perceived inflation uncertainty was high, to the more recent episodes of negative premia, when perceived inflation uncertainty has been considerably smaller. A decomposition of the nominal ten-year yield suggests a decline in the estimated inflation risk premium of 1.7 percentage points from the early 1980s to mid 1990s. Subsequently, its predicted value has fluctuated around zero and turned negative at times, reaching its lowest values (about -0.6 percentage points) before the latest financial crisis, in 2005-2007, and during the subsequent weak recovery, in 2010-2012. The model's ability to generate sensible estimates of the inflation risk premium has important implications for the other components of the nominal yield: expected real rates, expected inflation, and real risk premia. |
| Keywords: | Quadratic-Gaussian Term Structure Models; Inflation Risk Premium; Survey Forecasts; Hidden Factors |
| JEL: | C58 E43 E44 G12 |
| Date: | 2016–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2016-22&r=mac |
| By: | Tamas Csabafi (Office No. C58, Cardiff Business School, Colum Drive, Cardiff, CF10 3EU, UK); Max Gillman (Office N. 408 SSB, 1 University Boulevard, St. Louis, Missouri 63121, USA); Ruthira Naraidoo (Faculty of Economics and Management Sciences, Department of Economics, University of Pretoria, South Africa) |
| Abstract: | The world-wide financial crisis of 2007 to 2009 caused bankruptcy and bank failures in the US and many other parts such as Europe. Recent empirical evidence suggests that this simultaneous drop in output was strongest in countries with greater financial ties to the US economy with important cross border deposit and lending. This paper develops a two-country framework to allow for banking structures within an international real business cycle model. The banking structure across countries is modelled using the production approach to financial intermediation. We allow both countries. banks to be able to take deposits both locally and internationally. We analyze the transmission mechanism of both goods and banking sector productivity shocks. We show that goods total factor productivity (TFP) and bank TFP have different effects on the finance premium. Most countries have shown procyclic equity premium over their histories but with evidence that these are countercyclic during the Great Recession especially. The model has the ability to explain the countercyclical movements of credit spreads during major recession and financial crisis when goods TFP also affects banking productivity. This we model as a cross correlation of shocks to replicate the recent events during the crisis period. Importantly, the model can also explain business cycles facts and the countercyclical behaviour of the trade balance. |
| Keywords: | : International Business Cycles, Financial Intermediation, Credit Spread |
| JEL: | E13 E32 E44 F41 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201687&r=mac |
| By: | Cooper, Daniel H. (Federal Reserve Bank of Boston); Luengo-Prado, Maria Jose (Federal Reserve Bank of Boston); Olivei, Giovanni P. (Federal Reserve Bank of Boston) |
| Abstract: | This paper examines the link between monetary policy and house-price appreciation by exploiting the fact that monetary policy is set at the national level, but has different effects on state-level activity in the United States. This differential impact of monetary policy provides an exogenous source of variation that can be used to assess the effect of monetary policy on state-level housing prices. Policy accommodation equivalent to 100 basis points on an equilibrium real federal funds rate basis raises housing prices by about 2.5 percent over the next two years. However, the estimated effect increases to 6.6 percent during the early 2000s housing boom. |
| JEL: | E43 E44 E52 E58 |
| Date: | 2016–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:16-18&r=mac |
| By: | Stylianos Asimakopoulos (Stirling Management School, Economics Division, University of Stirling); Marco Lorusso (Centre for Energy Economics Research and Policy, Heriot-Watt University); Luca Pieroni (Department of Political Science, University of Perugia) |
| Abstract: | This paper analyses the effects on private consumption from an increase in productive and unproductive public spending. A new Keynesian model incorporating price and wage rigidities, monetary policy and various fiscal rules is developed and estimated, using Bayesian techniques, to capture the key cyclical characteristics of the US economy. We find that price and wage rigidities along with a positive shock to the part of public spending that is productive are sufficient to boost private consumption. Moreover, we show that this initial positive reaction of private consumption is adequate to create a positive present value consumption multiplier for more than five years. Finally, we show that our main results remain robust to changes in the monetary rule and the various methods of deficit financing. |
| Keywords: | fiscal rules, price rigidities, taylor rule, bayesian estimation |
| JEL: | C11 E27 E52 E62 H30 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:hwc:wpaper:005&r=mac |
| By: | Christian Bauer; Sebastian Weber |
| Abstract: | We assess the efficiency of monetary policy to guide inflation expectations in high and low regimes. Using quantile regression we analyze the persistence of inflation expectations from the Consensus Economics Survey at different quantiles. We find a) empirical evidence that expectations are not anchored in the tails of their distribution and b) robust evidence for structural breaks for the USA and Italy. After the outbreak of the Global Financial crisis expectations become unanchored. The Fed's unconventional monetary policy at the ZLB in thus ineffective in guiding inflation expectations. |
| Keywords: | Inflation expectations, persistence, monetary policy, quantile regressions, structural breaks, quantile unit root test, zero lower bound |
| JEL: | C22 C32 D84 E31 E52 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:trr:wpaper:201614&r=mac |
| By: | Alan L. Gustman; Thomas L. Steinmeier; Nahid Tabatabai |
| Abstract: | This paper uses data from the Health and Retirement Study to estimate a structural model of household retirement and saving. It applies that model to analyze the effects of the Great Recession on the work and retirement of older couples who were both employed full-time at the beginning of the recession. We analyze the effects of job loss, changes in wealth and changes in expectations. The largest overall effects of the Great Recession are observed for 2009 and 2010. In 2009, an additional 2.5 percent of all 55 to 59 year old husbands were not working full-time as result of the Great Recession, amounting to a reduction of 3.2 percent in full-time work. In 2010, 2.8 percent of 55 to 59 year old husbands were not working full-time as a result of the Great Recession, amounting to a 3.8 percent reduction in full-time work. For wives the reductions in full-time work due to the Great Recession were 1.7 percent and 2.2 percent of those who initially held a job, or reductions of full-time work of 2.3 and 3.0 percent respectively. For those 60 to 64, the reductions were 1.2 percent of men and 0.9 percent of women. Having been laid off in the last three years reduces full-time work by 30 percent. There also are lingering effects of layoff on the probability of working longer. Having been laid off three or more years in the past reduces full-time employment in the current year by about 12 percent. This reflects the reduced work incentives for full-time work arising from lower earnings due to the loss of job tenure with a layoff as well as the additional earnings penalty from a layoff. The effect on own work of a spouse having been laid off is much smaller. The reason is that, as found in the estimation of our structural model, having one spouse not working increases the value of leisure for the other. In contrast, when one member of the household loses their job, the value of consumption increases relative to leisure. For recent layoffs, these effects are roughly offsetting. All told, the effects of the Great Recession on retirement seem relatively modest. These findings are consistent with our earlier descriptive analyses. |
| JEL: | C61 D31 D91 E21 E24 E32 H55 I3 J11 J14 J16 J32 J63 J64 J82 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22984&r=mac |
| By: | Youjin Hahn; Stephen Matteo Miller; Hee-Seung Yang |
| Abstract: | We document the cross-sectional stylized facts of inequality for Australian households between 2001 and 2012 using the Household, Income and Labour Dynamics in Australia (HILDA) survey. Inequality of individual wages, hours worked and earnings remain flat. Household pre-government income and non-durable consumption inequality decline slightly. Household income inequality exceeds non-durable consumption inequality during the global financial crisis, and over the life-cycle, suggesting households partially insure income shocks. The degree of progressivity and private intermediation of risk are high. Both equivalized net financial wealth and net total wealth inequality remain relatively flat. Taxes and transfers reduce the variance of permanent shocks. |
| Keywords: | Consumption inequality, income inequality, and wealth inequality; Inequality over the life cycle; Risk-Sharing; Vulnerability |
| JEL: | D31 D33 D91 E01 E21 E24 H31 J31 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2016-15&r=mac |
| By: | Jakob de Haan; Sylvester Eijffinger |
| Abstract: | This paper reviews recent research on the political economy of monetary policy-making, both by economists and political scientists. The traditional argument for central bank independence (CBI) is based on the desire to counter inflationary biases. However, studies in political science on the determinants of central bank independence suggest that governments may choose to delegate monetary policy in order to detach it from political debates and power struggles. This argument would be especially valid in countries with coalition governments, federal structures and strongly polarized political systems. The recent financial crisis has changed the role of central banks as evidenced by the large set of new unconventional monetary and macro-prudential policy measures. But financial stability and unconventional monetary policies have much stronger distributional consequences than conventional monetary policies and this has potential implications for the central bank's independence. It may also have changed the regime from monetary dominance to fiscal dominance. However, our results do not suggest that CBI has been reduced since the Great Financial Crisis. This holds both for legal measures of CBI and the turnover rate of central bank governors. |
| Keywords: | central bank independence; fiscal dominance; determinants of CBI |
| JEL: | E42 E52 E58 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:539&r=mac |
| By: | Vasilev, Aleksandar |
| Abstract: | In this paper we investigate the quantitative importance of efficiency wages in explaining fluctuations in Bulgarian labor markets. This is done by augmenting an otherwise standard real business cycle model a la Long and Plosser (1983) with unobservable workers effort by employers and wage contracts as in Shapiro and Stiglitz (1984). This imperfection in labor markets introduces a strong propagation mechanism that allows the model to capture the business cycles in Bulgaria better than earlier models. The model performs well vis-a-vis data, especially along the labor market dimension, and in addition dominates the market-clearing labor market framework featured in the standard RBC model, e.g Vasilev (2009). |
| Keywords: | general equilibrium,shirking,efficiciency wages,unemployment |
| JEL: | E24 E32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:148413&r=mac |
| By: | Philippe Andrade (Banque de France); Filippo Ferroni (Banque de France and University of Surrey) |
| Abstract: | In this paper, we study the impact of the ECB announcements on the market-based expectations of interest rates and of in ation rates. We nd that the impact of the ECB announcements on in ation expectations has changed over the last fteen years. In particular, while in the central part of our sample the ECB announcements were read as a signal about the economic conditions (i.e. Delphic component), in latest episodes they have been interpreted as a commitment device on future monetary policy accommodation (i.e. Odyssean component). We propose an approach to separately identify the Delphic and Odyssean component of the ECB monetary policy announcements and we measure their dynamic impact on the economy. |
| JEL: | C10 E52 E32 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:sur:surrec:1216&r=mac |
| By: | de Haan, J.; Eijffinger, Sylvester (Tilburg University, Center For Economic Research) |
| Abstract: | This paper reviews recent research on the political economy of monetary policy-making, both by economists and political scientists. The traditional argument for central bank independence (CBI) is based on the desire to counter inflationary biases. However, studies in political science on the determinants of central bank independence suggest that governments may choose to delegate monetary policy in order to detach it from political debates and power struggles. This argument would be especially valid in countries with coalition governments, federal structures and strongly polarized political systems. The recent financial crisis has changed the role of central banks as evidenced by the large set of new unconventional monetary and macro-prudential policy measures. But financial stability and unconventional monetary policies have much stronger distributional consequences than conventional monetary policies and this has potential implications for the central bank’s independence. It may also have changed the regime from monetary dominance to fiscal dominance. However, our results do not suggest that CBI has been reduced since the Great Financial Crisis. This holds both for legal measures of CBI and the turnover rate of central bank governors. |
| Keywords: | central bank independence; fiscal dominance; determinantsof CBI |
| JEL: | E42 E52 E58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:54f2c3e3-46f2-4763-b1ac-b865f90cb42b&r=mac |
| By: | David Florian Hoyle (Central Reserve Bank of Peru); Johanna L. Francis (Fordham University) |
| Abstract: | The Great Recession of 2008-09 was characterized by high and prolonged unemployment and a lack of bank lending. In this paper, we account for the depth and persistence of unemployment during and after the crisis by considering the relationship between credit and firm hiring explicitly. We develop a New Keynesian model with nominal rigidities in wages and prices augmented by a banking sector characterized by search and matching frictions with endogenous credit destruction. In response to a financial shock, the model economy produces large and persistent increases in credit destruction, declines in credit creation, and an overall decline in reallocation of credit among banks and firms; total factor productivity declines and unemployment increases. Credit frictions not only amplify the effect of a financial shock by creating variation in the number of firms able to produce but they also increase the persistence of the shocks effects. These findings suggest that credit frictions combined with nominal rigidities are a plausible amplification mechanism for the impact of financial shocks and provide a mechanism for such shocks to have strong and persistent effects on the labor market. |
| Keywords: | Unemployment, financial crises, gross credit flows, productivity |
| JEL: | J64 E32 E44 E52 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:2016-087&r=mac |
| By: | Lopes, Luís; Antunes, Margarida |
| Abstract: | In the contemporary capitalism model and in relation to the functioning of the economy there is a counterproductive view of the state as an institution. This has led to a reversal of the hierarchy between the state and the private sector, since it subordinates states to markets. Fiscal policy has been seen as a channel through which to implement this idea and is no longer associated with the functions that were traditionally assigned to it. Consequently, the state budget as a policy instrument was transformed into the subject of policy objectives, particularly in the Euro Zone with the framing of national fiscal policies. Supiot calls this "governance by numbers" , a form of governance that adopts an "indicators-objective". Portugal has followed the contemporary capitalism model of governance since the 1980s, although Portuguese fiscal policy in the beginning also reflected the development of the welfare state. In the 1990s, the Portuguese government assumed "governance by numbers" and since joining the Euro Zone practically the only objective of Portugal's fiscal policy has been compliance with their "indicators-objective". This article aims to analyse the reconfiguration of Portuguese fiscal policy as a result of the "governance by numbers" of the Euro Zone. In the final section, we will also present some considerations regarding points that must be taken into account in debates on the European budgetary rules. |
| Keywords: | Portuguese fiscal policy,Policy-making,Contemporary capitalism model,Euro Zone,Budgetary rules |
| JEL: | E62 E65 H5 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:792016&r=mac |
| By: | Jonas Meuli; Thomas Nellen; Thomas Nitschka |
| Abstract: | This paper empirically analyses securitisation in Switzerland from a macroeconomic and bank balance sheet perspective based on a novel and near-comprehensive data set on a specific form of securitisation over the sample period from 1932 to 2014. The Swiss Pfandbrief is a distinct covered bond with a similar institutional framework as the U.S. Federal Home Loan Bank System. |
| Keywords: | Securitisation, covered bonds, mortgage loans, bank balance sheet management, business cycles, financial cycle, financial stability |
| JEL: | E43 E44 E51 G12 G21 G23 N24 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2016-18&r=mac |
| By: | Saiki, Ayako (Asian Development Bank Institute); Chantapacdepong, Pornpinun (Asian Development Bank Institute); Volz, Ulrich (Asian Development Bank Institute) |
| Abstract: | This paper explores the impact of advanced countries’ quantitative easing on emerging market economies (EMEs) and how macroprudential policy and good governance play a role in preventing potential financial vulnerabilities. We used confidential locational bank statistics data from the Bank for International Settlements to examine whether quantitative easing has caused an appreciation of EMEs’ currencies and how it has done so, and whether this has in turn boosted foreign-currency borrowing, thus making EMEs vulnerable to balance sheet and maturity mismatch problems. While focusing our analysis on East Asian economies, we compare them with Latin American economies, which were also major recipients of quantitative easing capital inflows. We found that government effectiveness plays an important role in curbing excessive borrowing when the exchange rate is overvalued. |
| Keywords: | Quantitative easing; spillover effects; macroprudential policy; good governance; capital inflows; emerging market economies (EMEs); East Asia; Latin America |
| JEL: | E44 E58 F31 F32 F34 |
| Date: | 2016–12–27 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0604&r=mac |
| By: | Guido Ascari; Louis Phaneuf |
| Abstract: | Recent empirical evidence identfi es investment shocks as key driving forces behind business cycle fluctuations. However, existing New Keynesian models emphasizing these shocks counterfactually imply a negative unconditional correlation between consumption growth and investment growth, a weak positive unconditional correlation between consumption growth and output growth and anomalous profi les of cross-correlations involving consumption growth. These anomalies arise because of a short-run contractionary eff ect a positive investment shock on consumption. Such counterfactual co-movements are typical of the "Barro-King curse" (Barro and King 1984), wherein models with a real business cycle core must rely on technology shocks to account for the observed co-movement among output, consumption, investment, and hours. We show that two realistic additions to an otherwise standard medium scale New Keynesian model - namely, roundabout production and real per capita output growth stemming from trend growth in neutral and investment-specifi c technologies - can break the Barro-King curse and provide a more accurate account of unconditional business cycle comovements more generally. These two features substantially magnify the eff ects of neutral technology and investment shocks on aggregate fluctuations and generate a rise of consumption on impact of a positive investment shock. |
| Keywords: | Investment shocks, Business cycle comovements, Standard household preferences, Monopolistic competition, Wage and price contracting, Intermediate inputs, Trend output growth, Trend inflation |
| JEL: | E31 E32 |
| Date: | 2016–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:815&r=mac |
| By: | Michel De Vroey (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)) |
| Abstract: | In this review, I argue that Forder makes a fine job in debunking the story told by Friedman in his Nobel prize lecture about the Phillips curve yet fails to assess the validity of Phelps’s and Friedman’s contributions to the Phillips curve theory. |
| Keywords: | Phillips curve, A.W. Phillips, M. Friedman, E. Phelps |
| JEL: | B22 B30 E24 E31 |
| Date: | 2016–12–15 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2016032&r=mac |
| By: | Gregory Bauer; Eleonora Granziera |
| Abstract: | Can monetary policy be used to promote financial stability? We answer this question by estimating the impact of a monetary policy shock on private-sector leverage and the likelihood of a financial crisis. Impulse responses obtained from a panel VAR model of 18 advanced countries suggest that the debt-to-GDP ratio rises in the short run following an unexpected tightening in monetary policy. As a consequence, the likelihood of a financial crisis increases, as estimated from a panel logit regression. However, in the long run, output recovers and higher borrowing costs discourage new lending, leading to a deleveraging of the private sector. A lower debt-to-GDP ratio in turn reduces the likelihood of a financial crisis. These results suggest that monetary policy can achieve a less risky financial system in the long run but could fuel financial instability in the short run. We also find that the ultimate effects of a monetary policy tightening on the probability of a financial crisis depend on the leverage of the private sector: the higher the initial value of the debt-to-GDP ratio, the more beneficial the monetary policy intervention in the long run, but the more destabilizing in the short run. |
| Keywords: | Credit and credit aggregates, Financial stability, Monetary Policy, Transmission of monetary policy |
| JEL: | E E52 E58 C21 C23 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:16-59&r=mac |
| By: | Jens H. E. Christensen; Signe Krogstrup |
| Abstract: | This paper presents a portfolio model of asset price effects arising from central bank large-scale asset purchases, commonly known as quantitative easing (QE). Two financial frictions—segmentation of the market for central bank reserves and imperfect asset substitutability—give rise to two distinct portfolio effects. One derives from the reduced supply of the purchased assets. The other runs through banks’ portfolio responses to the created reserves and is independent of the assets purchased. The results imply that central bank reserve expansions can affect long-term bond prices even in the absence of long-term bond purchases. |
| Keywords: | unconventional monetary policy, transmission, reserve-induced portfolio balance channel |
| JEL: | G11 E43 E50 E52 E58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2016-19&r=mac |
| By: | Muhammad Omer (State Bank of Pakistan) |
| Abstract: | We have investigated the effectiveness of monetary policy tools, the discount rate and the reserve requirement ratio, in Pakistan by studying their pass through to the retail interest rates and the exchange rate. We find that the pass-through of the required reserve ratio to the retail rates and exchange rate is significant but incomplete. The pass through of discount rate; to the lending rate is complete; to the deposit rate is incomplete and; to the exchange rate is insignificant. Our results suggest that the required reserve is a more powerful tool for stabilizing the exchange rate shocks than discount rate. We, therefore, recommend State Bank of Pakistan to not to ignore the reserve requirement ratio as an active policy tool, specifically when exchange rate is under speculative attack. |
| Keywords: | Interest rates, monetary policy, exchange rate |
| JEL: | E43 E52 F31 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:sbp:wpaper:81&r=mac |
| By: | Belke, Ansgar; Domnick, Clemens; Gros, Daniel |
| Abstract: | This paper examines business cycle synchronization in the European Monetary Union with a special focus on the core-periphery pattern in the aftermath of the crisis. Using a quarterly index for business cycle synchronization by Cerqueira (2013), our panel data estimates suggest that it is countries belonging to the core that are faced with increased synchronization among themselves after 2007Q4, whereas peripheral countries decreased synchronization with regards to the core, non-EMU countries and among themselves. Correlation coefficients and nonparametric local polynomial regressions corroborate these findings. The usual focus on co-movements and correlations might be misleading, however, since we also find large differences in the amplitude of national cycles. A strong common cycle can thus lead to large differences in cyclical positions even if national cycles are strongly correlated. |
| Keywords: | business cycles,core-periphery,EMU,local polynomial regressions,synchronicity,common monetary policy |
| JEL: | E32 F15 R23 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:659&r=mac |
| By: | Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli; Maarten van Rooij |
| Abstract: | Using micro data from the 2015 Dutch CentERpanel, we examine whether trust in the European Central Bank (ECB) influences individuals' expectations and uncertainty about future inflation, and also whether it anchors inflation expectations. We find that higher trust in the ECB lowers inflation expectations on average, and significantly reduces uncertainty about future inflation. Moreover, results from quantile regressions suggest that trusting the ECB increases (lowers) inflation expectations when the latter are below (above) the ECB's inflation target. These findings hold after controlling for people's knowledge about the objectives of the ECB. In addition, higher trust in the ECB raises expectations about GDP growth. The findings suggest that a central bank can influence the economy through people's expectations, even in times when conventional monetary policy tools likely have weak effects. |
| Keywords: | inflation expectations; inflation uncertainty; Anchorin; Trust in the ECB; Subjective Expectations |
| JEL: | D12 D81 E03 E40 E58 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:537&r=mac |
| By: | Tano Santos; Pietro Veronesi |
| Abstract: | Many stylized facts of leverage, trading, and asset prices follow from a frictionless general equilibrium model that features agents’ heterogeneity in endowments and habit preferences. Our model predicts that aggregate debt increases in good times when stock prices are high, return volatility is low, and levered agents enjoy a “consumption boom.” Our model is consistent with poorer agents borrowing more and with recent evidence on intermediaries’ leverage being a priced factor of asset returns. In crisis times, levered agents strongly deleverage by “fire selling” their risky assets as asset prices drop. Yet, consistently with the data, their debt-to-wealth ratios increase because their wealth decline faster due to higher discount rates. |
| JEL: | E21 E44 G12 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22905&r=mac |
| By: | Adrian, Tobias (Federal Reserve Bank of New York); Duarte, Fernando M. (Federal Reserve Bank of New York) |
| Abstract: | We present a parsimonious New Keynesian model that features financial vulnerabilities. The vulnerabilities generate time varying downside risk of GDP growth by driving the dynamics of risk premia. Monetary policy impacts the output gap directly via the IS curve, and indirectly via its impact on financial vulnerabilities. The optimal monetary policy rule always depends on financial vulnerabilities in addition to output, inflation, and the real rate. We show that a classic Taylor rule exacerbates downside risk of GDP growth relative to an optimal Taylor rule, thus generating welfare losses associated with negative skewness of GDP growth. |
| Keywords: | monetary policy; macro-finance; financial stability |
| JEL: | E52 G10 G12 |
| Date: | 2016–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:804&r=mac |
| By: | Rita Fleer; Barbara Rudolf; Mathias Zurlinden |
| Abstract: | This paper examines the relationship between the dispersion of changes in prices and the medium-run exchange rate pass-through in Swiss data. The prices considered are the elementary indices that form the basic building blocks for the construction of the CPI. The results indicate that uctuations in the crosssectional dispersion of changes in these price indices inform about variation in aggregate pass-through at business cycle frequencies. Because these data are readily available at monthly frequencies, they can be used in real time to help gauge the pass-through of exchange rate changes to retail prices. |
| Keywords: | Exchange rate pass-through, heterogeneity, aggregate implications of price change dispersion |
| JEL: | E30 E31 F31 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2016-17&r=mac |
| By: | Roger Alejandro Banegas-Rivero (Instituto de Investigaciones Económicas y Sociales 'José Ortiz Mercado' (IIES-JOM), Universidad Autónoma Gabriel René Moreno.) |
| Abstract: | This paper deals with the problem of measuring business cycles: short, medium or long-term, with both theoretical and empirical discussions on the regularity of fluctuations versus asymmetries in their measurement phases. For this, the employed approach is based on the combination of deviations on the level of trends (alternative filters) with the algorithm of Harding & Pagan (2002). At the same time, there are considered the effective rates of economic growth by Markovian chains in order to identify non-linear regimes of expansion and economic contraction. Finally, quantifications on the natural rate of growth for Bolivia are offered under a sustained expansion regime from 1950 to 2015. The results suggest that the way of measuring the business cycle denotes alternative inferences in average duration and due to asymmetries. |
| Keywords: | Non-linear regimes, Business cycle, Asymmetries, Markovine chains. |
| JEL: | C34 E32 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:grm:wpaper:201609&r=mac |
| By: | Philipp Engler; Juha Tervala |
| Abstract: | Empirical studies support the hysteresis hypothesis that recessions have a permanent effect on the level of output. We analyze the implications of hysteresis for fiscal policy in a DSGE model. We assume a simple learning-by-doing mechanism where demand-driven changes in employment can affect the level of productivity permanently, leading to hysteresis in output. We show that the fiscal output multiplier is much larger in the presence of hysteresis and that the welfare multiplier of fiscal policy - the consumption equivalent change in welfare for one dollar change in public spending - is positive (negative) in the presence (absence) of hysteresis. The main bene.t of accommodative fiscal policy in the presence of hysteresis is to diminish the damage of a recession to the long-term level of productivity and, thus, output. |
| Keywords: | Fiscal policy, hysteresis, learning by doing, welfare |
| JEL: | E62 F41 F44 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1631&r=mac |
| By: | Meinen, Philipp; Röhe, Oke |
| Abstract: | Investment fell sharply in the euro area after the financial crisis and has not yet returned to pre-crisis levels in many core economies. Focusing on the four largest euro-area countries, this paper investigates the role of uncertainty for investment dynamics. By doing so, we compare five prominent uncertainty proxies put forward in the recent literature: the (implied) stock market volatility, a survey-derived measure of expectations dispersion, a newspaper-based indicator of policy uncertainty, and two indicators taking up the concept of (econometric) unpredictability. Although all uncertainty measures show countercyclical behavior, we find uncertainty as measured by the conditional volatility of the unforecastable components of a broad set of time series to exhibit noticeable robust effects across different model specifications and countries. Based on this type of uncertainty proxy, we document pronounced negative investment responses to uncertainty shocks. We further show that these effects can explain a relevant portion of the decrease in investment in the course of the Great Recession. |
| Keywords: | Uncertainty,Investment,Euro Area |
| JEL: | C53 D81 E22 E32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:482016&r=mac |
| By: | Leif Anders Thorsrud (Norges Bank (Central Bank of Norway)) |
| Abstract: | I construct a daily business cycle index based on quarterly GDP and textual information contained in a daily business newspaper. The newspaper data are decomposed into time series representing newspaper topics using a Latent Dirichlet Allocation model. The business cycle index is estimated using the newspaper topics and a time-varying Dynamic Factor Model where dynamic sparsity is enforced upon the factor loadings using a latent threshold mechanism. The resulting index is shown to be not only more timely but also more accurate than commonly used alternative business cycle indicators. Moreover, the derived index provides the index user with broad based high frequent information about the type of news that drive or reflect economic fluctuations. |
| Keywords: | Business cycles, Dynamic Factor Model, Latent Dirichlet Allocation (LDA) |
| JEL: | C11 C32 E32 |
| Date: | 2016–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2016_21&r=mac |
| By: | Takashi Kano |
| Abstract: | The paper studies exchange rate implications of trend inflation within a two-country New Keynesian (NK) model under incomplete international financial markets. A NK Phillips curve generalized by trend inflation with a positive long-run mean implies an expectational difference equation of inflation with higher-order leads of expected inflation. The resulting two-country inflation differential is smoother, more persistent, and more insensitive to a real exchange rate. General equilibrium then yields (i) a persistent real exchange rate with an autoregressive root close to one, (ii) a hump-shaped impulse response of a real exchange rate with a half-life longer than four years, (iii) a volatile real exchange rate relative to cross-country inflation differential, (iv) an almost perfect co-movement between real and nominal exchange rates and (v) a sharp rise in the volatility of a real exchange rate from a managed nominal exchange rate regime to a flexible one within an otherwise standard two-country NK model. Trend inflation, therefore, approaches empirical puzzles of exchange rates dynamics. |
| Keywords: | Real and Nominal Exchange Rates, Trend Inflation, New Keynesian Models |
| JEL: | E31 E52 F31 F41 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2016-74&r=mac |
| By: | Jan Pablo Burgard; Matthias Neuenkirch; Matthias Nöckel |
| Abstract: | In this paper, we estimate a logit mixture vector autoregressive (Logit-MVAR) model describing monetary policy transmission in the euro area over the period 1999–2015. MVARs allow us to differentiate between different states of the economy. In our model, the state weights are determined by an underlying logit model. In contrast to other classes of non-linear VARs, the regime affiliation is neither strictly binary nor binary with a (short) transition period. We show that monetary policy transmission in the euro area can indeed be described as a mixture of two states. The first (second) state with an overall share of 80% (20%) can be interpreted as a “normal state” (“crisis state”). In both states, output and prices are found to decrease after monetary policy shocks. During “crisis times,” the contraction is much stronger, as the peak effect is more than twice as large when compared to “normal times.” In contrast, the effect of monetary policy shocks is less enduring in crisis times. Both findings provide a strong indication that the transmission mechanism is indeed different for the euro area during times of economic and financial distress. |
| Keywords: | Economic and financial crisis, euro area, mixture VAR, monetary policy transmission, state-dependency |
| JEL: | C32 E52 E58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:trr:wpaper:201615&r=mac |
| By: | Garcia-Perez, J. Ignacio (Universidad Pablo de Olavide and FEDEA); Rendon, Sílvio (Federal Reserve Bank of Philadelphia) |
| Abstract: | We develop and estimate a model of family job search and wealth accumulation. Individuals' job finding and job separations depend on their partners' job turnover and wages as well as common wealth. We fit this model to data from the Survey of Income and Program Participation (SIPP). This dataset reveals a very asymmetric labor market for household members, who share that their job finding is stimulated by their partners' job separation, particularly during economic downturns. We uncover a job search-theoretic basis for this added worker effect and find that this effect is stronger with more children in the household. We also show that excluding wealth and savings from the analysis and estimation leads to underestimating the interdependency between household members. Our analysis shows that the policy goal of supporting job search by increasing unemployment transfers is partially offset by a partner's lower unemployment and wages. |
| Keywords: | job search; asset accumulation; household economics; consumption; unemployment; estimation of dynamic structural models |
| JEL: | C33 E21 E24 J64 |
| Date: | 2016–12–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:16-34&r=mac |
| By: | Pablo Burriel (Banco de España); Alessandro Galesi (Banco de España) |
| Abstract: | We assess the effects of the ECB’s recent unconventional monetary policy measures by estimating a global VAR that exploits panel variation among all euro area economies and explicitly takes into account cross-country interdependencies. Unconventional monetary policy measures have benefi cial effects on activity, credit, infl ation and equity prices, and lead to a depreciation of the exchange rate. Most euro area members benefi t from these measures, but with a substantial degree of heterogeneity. Cross-country spillovers account for a sizable fraction of such dispersion, and substantially amplify effects. Countries with less fragile banking systems benefi t the most from unconventional monetary policy measures. Compared to expansionary conventional monetary policies, unconventional measures are particularly effective in reducing fi rms’ fi nancing costs and boosting credit. |
| Keywords: | unconventional monetary policy, euro area, GVAR, heterogeneity, spillovers |
| JEL: | C32 E52 E58 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1631&r=mac |
| By: | Pilar Poncela (European Commission - JRC); Filippo Pericoli (European Commission - JRC); Anna Manca (European Commission - JRC); Filippo Michela Nardo (European Commission - JRC) |
| Abstract: | We analyse if consumption can be internationally detached from GDP domestic shocks due to cross border risk sharing mechanisms. We update the measurement of risk sharing for industrialized OECD countries and for several subsets of European ones. We use panel VAR models to capture the dynamic behaviour of cross border consumption smoothing through the capital markets, government and credit market channels. We also check for the substitutability among channels. Finally, we track the evolution of risk sharing over time for each channel. |
| Keywords: | consumption smoothing, GDP shocks, panel VAR, risk sharing |
| JEL: | C3 E21 F00 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc104621&r=mac |
| By: | Claudio Morana (Università di Milano - Bicocca and CeRP-Collegio Carlo Alberto) |
| Abstract: | The paper investigates the macroeconomic and financial effects of oil prices shocks in the euro area since its creation in 1999, with a special focus on the recent slump. The analysis is carried out episode by episode, within a time-varying parameter framework, consistent with the view that “not all the oil price shocks are alike”, yet without imposing any a priori identification assumption. We find evidence of recessionary effects triggered not only by oil price hikes, but also by oil price slumps in some cases, likewise for the most recent episode, which is also rising deflation risk and financial distress. In addition through uncertainty effects, the current slump might then be depressing aggregate demand by increasing the real interest rate, as ECB monetary policy is already conducted at the zero lower bound. The increase in real money balances following the slump points to the accommodation of the shock by the ECB, concurrent with the implementation of the Quantitative Easing policy (Q.E.). Ye,in so far as Q.E failed to generate inflationary expectations within the current and expected environment of soft oil prices, the case for a more expansionary use of fiscal policy than in the past would become compelling, in order to counteract the deflationary and recessionary threats to the euro area. |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:crp:wpaper:158&r=mac |
| By: | Arias, Jonas E. (Federal Reserve Bank of Philadelphia); Caldara, Dario (Federal Reserve Board of Governors); Rubio-Ramirez, Juan F. (Emory University & Federal Reserve Bank of Atlanta) |
| Abstract: | This paper studies the effects of monetary policy shocks using structural vector autoregressions (SVARs). We achieve identification by imposing sign and zero restrictions on the systematic component of monetary policy. We consistently find that an increase in the fed funds rate induces a contraction in output. We also show that the identification strategy in Uhlig (2005), which imposes sign restrictions on the impulse responses to a monetary shock, does not satisfy our restrictions on the systematic component of monetary policy with high posterior probability. This finding accounts for the difference in results with Uhlig (2005), who found that contractionary monetary policy shocks have no clear effect on output. When we reconcile the two approaches by combining both sets of restrictions, monetary policy shocks remain contractionary. |
| Keywords: | SVARs; monetary policy shocks; systematic component of monetary policy |
| JEL: | C51 E52 |
| Date: | 2016–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2016-15&r=mac |
| By: | Wildmer Daniel Gregori (Prometeia Associazione (Italy)); Wildmer Agnese Sacchi (Sapienza University of Rome (Italy) and Governance and Economics research Network (Spain)) |
| Abstract: | This paper investigates whether speculation about Greece.s exit from the euro has spilled over into other euro area countries. sovereign bond yields. Our empirical analysis is based on more than 64,000 news items on Grexit between December 2014 and October 2015, collected daily via the Factiva database. We can take account of Grexit news generally and, also, distinguish news items according to individual country press, domestic political leaders, supranational executives and institutions. Our results suggest that more news about Grexit drives up bond yields in European peripheral countries, but that there are no effects on European core countries. Thus, speculations about Grexit seem to be confined to more vulnerable economies. In addition, financial markets in peripheral countries react more to Grexit news associated to supranational executives and related institutions compared to news related to domestic politicians and European political bodies, due possibly to higher perceived credibility of the former with respect to the latter. |
| Keywords: | Grexit, Financial markets, Government bond, News, Spillovers, Euro area, GARCH. |
| JEL: | E43 E62 G12 G14 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:134&r=mac |
| By: | Jouchi Nakajima (Bank of Japan); Kosuke Takatomi (Bank of Japan); Tomoko Mori (Bank of Japan); Shinsuke Ohyama (Bank of Japan) |
| Abstract: | Global trade growth has slowed down since the global financial crisis in 2008 and has been below the global GDP growth rate. This sluggish growth of global trade, the so-called "Slow Trade," has been remarkable in emerging economies and for capital, intermediate, and consumer durable goods. There are three main backgrounds of this global trade slowdown: (1) a decline in the global real GDP growth, (2) a structural decline in the long-run income elasticity of trade due to changes in the global demand structure, expanding in-house production in China, and deceleration in the expansion of global value chains, and (3) short-term negative shocks. Our quantitative analysis indicates that structural factors such as declines in global potential output growth and in the long-run income elasticity of trade explain about 70 percent of the global trade slowdown, and cyclical factors such as remaining negative output gap and temporary negative shocks explain the rest, about 30 percent. It is unlikely that the part of the slowdown caused by structural factors will be immediately restored, while the negative impact of cyclical factors is expected to gradually become smaller. Our empirical result indicates that the current estimate of the long-run income elasticity of trade is about 1.0, which implies that the growth rate of global trade is expected to recover up to the growth rate of global real GDP. However, there still remain large uncertainties in terms of global trade, such as the economic relationship between the United Kingdom and the European Union and the development of rebalancing in emerging countries, and thus the effects of those uncertainties on global trade should be noted. |
| Date: | 2016–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojron:ron161222a&r=mac |
| By: | Petr Korab (Department of Finance, Faculty of Business and Economics, Mendel University in Brno) |
| Abstract: | This paper investigates the availability of bank credit to enterprises in the Eurozone after the recent financial crisis. The analysis draws from a rich firm-level dataset on perceived credit availability of micro, small and medium-sized, and large enterprises in 11 countries in the Euro Area during the time horizon 2010 – 2014. Employing probit and logit estimators, the empirical results suggest that GDP growth is a significant factor improving availability to small and medium-sized and large firms in the post-crisis period. On the contrary, the asset-purchase programmes of the European Central Bank did not show a significant impact on credit availability to micro and small and medium-sized enterprises. The findings support the decision of the ECB to further intensify asset purchasing and officially introduce the program of quantitative easing in 2015. |
| Keywords: | credit availability, credit rationing, credit constraints, credit supply, financial crisis recovery |
| JEL: | E51 E52 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:men:wpaper:68_2016&r=mac |
| By: | Syed Zulqernain Hussain (State Bank of Pakistan); Mahmood ul Hasan Khan (State Bank of Pakistan) |
| Abstract: | This study measures the degree and the speed of the pass-through of the policy rate to individual banks’ retail rates in Pakistan, and investigates variation in interest rate pass through across banks in the context of banks’ market power and ownership structure. Monthly data of lending and deposit rates of 31 banks along with 6-month KIBOR (proxy for policy rate in this study) from June 2005 to October 2015 is used to estimate an unrestricted autoregressive distributed lag (ARDL) model. In aggregate, the results indicate the presence of co-integration between the 6-month KIBOR and banks’ retail rates. There is a complete pass-through from 6-month KIBOR to lending rate on fresh loans, and it takes only two months to realize the full impact. However, the pass-through is incomplete (0.58 bps in the long run and 0.37 bps in short run) in case of deposits. Large five banks have considerably different level of pass-through as compared to the small banks. Public sector commercial banks have relatively low level of pass-through as compared to the private banks. Furthermore, specialized banks have relatively low level of pass-through as compared to commercial banks. |
| Keywords: | Pass-through, retail rates, bank-size |
| JEL: | D40 E43 G21 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:sbp:wpaper:82&r=mac |
| By: | George Kudrna; Chung Tran |
| Abstract: | In this study, we quantify the macroeconomic and welfare effects of alternative fiscal consolidation plans in the context of a small open economy. Using a computable overlapping generations model tailored to the Australian economy, we examine immediate and gradual eliminations of the existing fiscal deficit with (i) temporary income tax hikes, (ii) temporary consumption tax hikes and (iii) temporary transfer payment cuts. The simulation results indicate that all three examined fiscal measures result in favourable long-run macroeconomic and welfare outcomes, but have adverse consequences in the short run that are particularly severe under the immediate fiscal consolidation plan. Moreover, our results show that cutting transfer payments leads to the worst welfare outcome for all generations currently alive, and especially the poor. Increasing the consumption tax rate results in smaller welfare losses, but compared to raising income taxes, the current poor households pay much larger welfare costs. Overall, the welfare trade-offs between current and future generations, as well as between the rich and poor, highlight key political constraints and point to challenging policy choices for the wellbeing of future generations. |
| Keywords: | Fiscal Deficit, Public Debt, Fiscal Consolidation, Welfare, Dynamic General Equilibrium, Small Open Economy |
| JEL: | C68 E21 E63 H31 H60 J26 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2016-73&r=mac |
| By: | Alyssa G. Anderson; John Kandrac |
| Abstract: | In recent years, the scale and scope of major central banks' intervention in financial markets has expanded in unprecedented ways. In this paper, we demonstrate how monetary policy implementation that relies on such intervention in financial markets can displace private transactions. Specifically, we examine the experience with the Federal Reserve's newest policy tool, known as the overnight reverse repurchase (ONRRP) facility, to understand its effects on the repo market. Using exogenous variation in the parameters of the ONRRP facility, we show that participation in the ONRRP comes from substitution out of private repo. However, we also demonstrate that cash lenders, when investing in the ONRRP, do not cease trading with any of their dealer counterparties, highlighting the importance of lending relationships in the repo market. Lastly, using a confidential data set of repo transactions, we find that the presence of the Fed as a borrower in the repo market increases the bargaining power of cash lenders, who are able to command higher rates in their remaining private repo transactions. |
| Keywords: | Repo ; Money market mutual funds ; Monetary policy ; Federal Reserve |
| JEL: | G23 E52 G11 E58 |
| Date: | 2016–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2016-96&r=mac |
| By: | Köhler, Karsten |
| Abstract: | The paper employs a post-Kaleckian model to address the question of how currency devaluations affect aggregate demand, capital accumulation, and debt in an economy with foreign currency liabilities. In benchmark post-Kaleckian open economy models currency devaluations have two key effects. First, they change international price competitiveness and thus affect net exports. Second, devaluations change income distribution and thereby affect consumption and investment demand. The overall effect on aggregate demand and investment is ambiguous and depends on parameter values. Existing models, however, disregard balance sheet effects that arise from foreign currency-denominated external debt. The paper develops a novel post-Kaleckian open economy model that introduces foreign currency-denominated external debt and balance sheet effects. The model is then used to analyse the effects of a currency devaluation on aggregate demand, growth, and debt dynamics in small open economies with a fixed exchange rate in the short- to medium-run. The main findings are that the existence of foreign currency-denominated debt means that devaluations are more likely to take a contractionary form, and that foreign interest rate hikes, and high illiquidity and risk premia compromise debt sustainability. Devaluations only stabilise debt ratios if they succeed in boosting domestic capital accumulation. |
| Keywords: | currency devaluation,external debt,balance sheet effects,original sin,currency mismatch,Kaleckian model |
| JEL: | E11 E12 F36 F41 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:782016&r=mac |
| By: | Hilde C. Bjørnland (Norges Bank (Central Bank of Norway)); Leif Anders Thorsrud (Norges Bank (Central Bank of Norway)) |
| Abstract: | Our analysis suggests; they do not! To arrive at this conclusion we construct a real-time data set of interest rate projections from central banks in three small open economies; New Zealand, Norway, and Sweden, and analyze if revisions to these projections (i.e., forward guidance) can be predicted by timely information. Doing so, we find a systematic role for forward looking international indicators in predicting the revisions to the interest rate projections in all countries. In contrast, using similar indexes for the domestic economy yields largely insignificant results. Furthermore, we find that revisions to forward guidance matter. Using a VAR identified with external instruments based on forecast errors from the predictive regressions, we show that the responses to output, in flation, the exchange rate and asset returns resemble those one typically associates with a conventional monetary policy shock. |
| Keywords: | Monetary policy, interest rate path, forecast revisions and global indicators |
| JEL: | C11 C53 C55 E58 F17 |
| Date: | 2016–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2016_19&r=mac |
| By: | Gattini, Luca; Zagorisiou, Angeliki |
| Abstract: | This study contributes to the analysis of cross border banking behavior in CESEE (Central Eastern and South Eastern Europe). It detects potential transmission channels from parent to subsidiary banks based on a newly constructed database (323 banks operating in the region and 84 parent banks over the period 2000-2014), which allows for the identification of ultimate ownership over time. On the whole, we find that subsidiary banks provide an extra boost to credit growth at the domestic level. However we detect that domestic and subsidiary banks contracted credit similarly after the financial crisis. Moreover, subsidiaries' ability to extend credit is dependent on home country macroeconomic and financial conditions as well as parent banks' characteristics such as asset quality. Finally, an excessive credit expansions coupled with reductions of capital ratios at the parent bank level jeopardizes subsidiaries' lending capacity. Our findings call for home and host actors to continue to foster cross-border coordination and dialogue. |
| Keywords: | Cross border banking,Parent and subsidiary banks,Central and Eastern Europe,Asset quality |
| JEL: | C23 E44 F23 G21 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:201607&r=mac |
| By: | Nelson R. Ramírez-Rondán (Central Bank of Peru) |
| Abstract: | In the Peruvian economy, as in other emerging economies, a significant portion of the debt held by firms is denominated in US dollars. While an exchange rate depreciation likely increases firm debt and influences plans of investment and production, literature finds weak or no evidence of this balance sheet effect. In this paper I argue that this effect is observed in firms with a significant currency mismatch. I estimate the currency mismatch (defined as assets minus liabilities in USD and expressed as a percentage of total assets in domestic currency) from which the exchange rate has negative effects on firms' investment. Using financial information from 74 non-financial Peruvian firms from 2002 to 2014, I find significant balance sheet effects for firms with a currency mismatch below -10.4 percent. |
| Keywords: | Balance Sheet, Dollar Debt, Peru |
| JEL: | C33 E22 F31 F34 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:2016-085&r=mac |
| By: | Gulnihal Aksoy (University College Dublin, IRELAND); Don Bredin (University College Dublin, IRELAND); Deirdre Corcoran (Galway Mayo Institute of Technology, IRELAND); Stilianos Fountas (University of Macedonia, GREECE) |
| Abstract: | One potential real effect of infl ation is its infl uence on the dispersion of relative prices in the economy which affects economic efficiency and aggregate output. Using a novel data set for the US and UK and a VARMA asymmetric bivariate GARCH-M model of in flation and relative price dispersion, we test for the effects of infl ation and infl ation uncertainty on relative price dispersion. We obtain two main results: First, infl ation affects relative price dispersion positively in the US supporting the menu costs model and negatively in the UK supporting the monetary search model. Second, there is no evidence for the role of infl ation uncertainty in explaining relative price dispersion, either for the US or the UK. |
| Keywords: | GARCH-M, Relative Price Dispersion, Infl ation. |
| JEL: | C32 E31 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2016_05&r=mac |
| By: | King, Thomas B. (Federal Reserve Bank of Chicago) |
| Abstract: | I study unconventional monetary policy in a structural model of risk-averse arbitrage, augmented with an effective lower bound (ELB) on nominal rates. The model exposes nonlinear interactions among short-rate expectations, bond supply, and term premia that are absent from models that ignore the ELB, and these features help it replicate the recent behavior of long-term yields, including event-study evidence on the responses to unconventional policy. When the model is calibrated to long-run moments of the yield curve and subjected to shocks approximating the size of the Federal Reserve’s forward guidance and asset purchases, it implies that those policies worked primarily by changing the anticipated path of short-term interest rates, not by lowering investors’ exposures to interest-rate risk. However, the effects of short-rate expectations were more attenuated than the effects of bond-supply shocks during the ELB period. |
| Keywords: | Disinflation; Inflation Targeting; Interest rates; Monetary Policy; Tail Risk; Zero Lower Bound |
| JEL: | E32 E52 |
| Date: | 2016–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2016-21&r=mac |
| By: | Jan Przystupa,; Ewa Wróbel |
| Abstract: | Our paper is a case study devoted to a country which belongs to a group of less developed EMEs (LDEMEs), not depending on natural resources. In spite of many features which distinguish such countries from developed market economies, they are frequently modelled basing on assumptions which are better-suited for mature economies, e.g. New Keynesian DSGE models. From the point of view of monetary transmission analysis, the most important distortions which make LDEMEs special are: underdeveloped shallow financial markets, uncompetitive labour market, informal economy, weak institutions, problematic central bank independence, state ownership and controls, especially of prices and in the financial sector. In the paper we propose a complex way of proceeding in modelling the LDMEs, starting from the stylized facts and assessment of a distance of the modelled economy from theoretical assumptions and pointing at the most problematic sectors, through structural VARs providing reactions to shocks with a relatively small number of assumptions, to a suite of structural models, estimated with classical and Bayesian methods, to have a range of possible reactions. We show that to be applicable, the standard NK models need to be adjusted with specific features of LDEMEs. |
| Keywords: | (LDEMEs), monetary transmission, VAR, structural models. |
| JEL: | E51 E52 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:211&r=mac |
| By: | Martha López (Banco de la República) |
| Abstract: | Fiscal multipliers are different across countries and under different economic circumstances. The studies of the effect of government spending shock on output have focus their attention on the behavior of consumption. However, the crowding out of investment is also an important matter of study. In this respect, balance sheet effects play an important role in all countries and in all circumstances. The aim of this paper is to study this important issue in a small open economy that is also characterized by an important proportion of non-Ricardian agents and commodity revenues. The results show that balance sheet effects might reduce the fiscal multiplier by half. Also, that this result might be mitigated if a subsidy, financed with the income taxes revenues from a higher fiscal multiplier, is put into action. Finally, the paper also shows that a structural fiscal rule delivers less welfare losses due to financial frictions than other rules. Classification JEL: D91, E21, E62. |
| Keywords: | Fiscal multipliers, fiscal policy rules, non-Ricardian households, DSGE model, Financial Frictions. |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:976&r=mac |
| By: | Niels Gilbert; Sebastiaan Pool |
| Abstract: | In the decade following the introduction of the euro, many Southern EMU members experienced sizeable capital inflows. We document how, instead of contributing to convergence, these flows mainly fueled growth of the nontradable sectors. We rationalize these developments using a tractable two-sector, two-region ('North' and 'South') model of a monetary union. We show how the sharp fall in Southern interest rates that occurred in the run-up to EMU, leads to a consumption boom, wage growth, growth of the nontradable sector, and a deteriorating external position. In the North, an opposite process occurs. As such, both real exchange rates and external positions of the two regions diverge. Including a third country with a flexible exchange rate vis-à-vis the euro amplifies the effects of monetary integration in the South, while dampening them in the North. Using a panel-BVAR, we confirm empirically that the euro area countries experiencing a fall in interest rates relative to the euro area average, experienced faster growth of the nontradable sector and a deteriorating current account balance. We investigate various policy reforms to speed up the necessary rebalancing process. A deepening of the European market shows most promise, boosting GDP growth while facilitating a rebalancing towards tradables. |
| Keywords: | EMU; monetary integration; current account imbalances; sectoral allocation |
| JEL: | F32 F34 F36 F45 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:536&r=mac |
| By: | Nicola Amendola (DEF & CEIS,University of Rome Tor Vergata); Leo Ferraris (DEF & CEIS,University of Rome Tor Vergata); Fabrizio Mattesini (DEF & CEIS,University of Rome Tor Vergata) |
| Abstract: | This paper shows that, in a pure currency economy with heterogeneous agents and multiple commodities, a pecuniary externality plays a key role in making the equilibrium allocation constrained inefficient. Monetary policy intervention can help improve matters. |
| Keywords: | Money,Heterogeneity,Pecuniary Externality,Monetary Policy |
| JEL: | E40 |
| Date: | 2016–12–17 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:394&r=mac |
| By: | Ursel Baumann (European Central Bank); Melina Vasardani (Bank of Greece) |
| Abstract: | The US recovery following the Great Recession has been marked by persistent low growth. At the same time, productivity growth has consistently disappointed in the aftermath of the last recession. This has raised doubts about the long-term growth prospects of the US economy and led to worries about secular stagnation. This paper contributes to the debate by empirically revising the main determinants of labour productivity growth over the period 1999-2013 for a panel of US states, focusing on capital deepening, R&D spending, the sectoral composition, financial factors and business dynamism. We find that more than half of the slowdown in productivity growth in the period 2011-13 relative to its sample average is due to a decline in the rate of capital deepening. The other major factor explaining the recent weakness in productivity growth - more closely related to TFP - is the slowdown in business dynamism experienced by the US economy. By contrast, financial factors appear to have become supportive of productivity growth in that period. |
| Keywords: | Labour productivity; Total factor productivity; Potential output; Business dynamism. |
| JEL: | D24 E24 J24 O47 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:215&r=mac |
| By: | Teresa Ghilarducci; Siavash Radpour; Bridget Fisher; Anthony Webb (Schwartz Center for Economic Policy Analysis (SCEPA)) |
| Abstract: | Financial necessity is an important reason low-wage households are more likely to make pre-retirement withdrawals from their 401(k) plans. However, an increase in the tax penalty on early withdrawals may increase rather than discourage withdrawals, and a prohibition on withdrawals may decrease contributions. To ensure that all households both contribute to retirement plans and remain invested, retirement policy should both mandate contributions and prohibit pre-retirement withdrawals. Finally, if households are prohibited from using retirement savings to buffer pre-retirement shocks, policy interventions will be required to increase the financial resilience of working-age households. |
| Keywords: | Retirement, 401(k), GRA, Social Security |
| JEL: | H55 J26 J32 D63 E21 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:epa:cepapn:2016-03&r=mac |
| By: | Paolo Pasimeri; Stéphanie Riso |
| Abstract: | This paper measures the net redistributive impact of the EU budget. It finds that for every €1,000 difference in income per capita across countries, €9 is offset by lower contributions to the budget and € 3 is offset by higher expenditures by the budget. The overall equalising effect is small (1.1%) and depends on the revenue side, in particular on the national contribution based on GNI and VAT, which is also the main source of stabilisation. The analysis shows how the various corrections mechanisms applied to the revenue side of the budget reduce its redistributive and stabilisation capacity. The policy conclusions are that on the revenue side, since the national contribution based on GNI is the main source of redistribution and stabilisation), its reduction could reduce the already minimal capacity of the budget to perform these functions. On the expenditure side, the shift from pre-allocated types of expenditures towards non-pre-allocated ones may determine a reduction of the overall redistributive capacity of the budget. |
| JEL: | E61 E62 H11 H61 H77 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:imk:wpaper:174-2016&r=mac |
| By: | Benjamín García |
| Abstract: | Using a Time Varying Parameters Vector Auto Regression framework, I construct an index, the Zero Probability Index (ZPI), based on the probability of the nominal interest rate hitting the zero lower bound (ZLB) within 10 quarters. I show how the probability of reaching the ZLB evolves over time and measure how a rise in the inflation target can reduce this probability. High ZPI episodes tend to occur during recessions and are c by a combination of the initial state of the variables and the estimated volatility of the shocks. However, not all episodes of a high ZPI share the same causes. In the US recessions of the 1980s, the probability was influenced significantly by an exceptionally volatile environment that overcame the dampening influence of the period’s high nominal interest rates. On the other hand, the high ZPI for the 2001 and 2007 recessions were mainly defined by an initial state of low interest rates. Because of this difference, an increase in the inflation target was much more effective in reducing the estimated probability of the interest rate reaching the ZLB in the latter episodes. |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:796&r=mac |
| By: | Belke, Ansgar; Dubova, Irina; Osowski, Thomas |
| Abstract: | This study assesses the impact of the uncertainty caused by Brexit, on both the UK and international financial markets, for the first and second statistical moments (i.e. on changes and the standard deviations of the respective variables.) As financial markets are by nature highly interlinked, one might expect that the uncertainty engendered by Brexit also has an impact on financial markets in several other countries. By analysing the impact of Brexit on financial markets, we might also gain some insights into market expectations about the magnitude of the economic impact beyond the UK and which other country might be most affected. For this purpose, we first use both the Diebold and Yilmaz (2012) and the Hafner and Herwartz (2008) method to estimate the time-varying interactions between UK policy uncertainty, which to a large extent is attributed to uncertainty about Brexit, and UK financial market volatilities (second statistical moment) and try to identify the direction of causality among them. Second, we use two other measures of the perceived probability of Brexit before the referendum, namely daily data released by Betfair and results of polls published by Bloomberg. Based on these datasets, and using both panel and single-country SUR (seemingly unrelated regressions) estimation methods, we analyse the Brexit effect on levels of stock returns, sovereign credit default swaps (CDS), 10-year interest rates in 19 predominantly European countries, and those of the British pound and the euro (first statistical moment). We show that Brexit-induced policy uncertainty will continue to cause instability in key financial markets and has the potential to damage the real economy in both the UK and other European countries, even in the medium run. The main losers outside the UK are the 'GIIPS' economies: Greece, Ireland, Italy, Portugal and Spain. |
| Keywords: | Brexit,causality tests,financial instability,Pound sterling,uncertainty,spillovers |
| JEL: | C58 D81 E44 F36 G15 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:657&r=mac |
| By: | Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School); Wickens, Michael (Cardiff Business School); Xu, Yongdeng (Cardiff Business School) |
| Abstract: | This paper addresses the growing gulf between traditional macroeconometrics and the increasingly dominant preference among macroeconomists to use DSGE models and to estimate them using Bayesian estimation with strong priors but not to test them as they are likely to fail conventional statistical tests. This is in con‡ict with the high scienti…c ideals with which DSGE models were fi…rst invested in their aim of …nding true models of the macroeconomy. As macro models are in reality only approximate representations of the economy, we argue that a pseudo-true inferential framework should be used to provide a measure of the robustness of DSGE models. |
| Keywords: | Pseudo-true inference, DSGE models, Indirect Inference; Wald tests, Likelihood Ratio tests; robustness |
| JEL: | C12 C32 C52 E1 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2016/14&r=mac |
| By: | Liu, Zheng (Federal Reserve Bank of San Francisco); Spiegel, Mark M. (Federal Reserve Bank of San Francisco); Tai, Andrew (Federal Reserve Bank of San Francisco) |
| Abstract: | Exchange rate shocks have mixed effects on economic activity in both theory and empirical VAR models. In this paper, we extend the empirical literature by considering the implications of a positive shock to the U.S. dollar in a factor-augmented vector autoregression (FAVAR) model for the U.S. and three large Asian economies: Korea, Japan and China. The FAVAR framework allows us to represent a country’s aggregate economic activity by a latent factor, generated from a broad set of underlying observable economic indicators. To control for global conditions, we also include in the FAVAR a “global conditions index,” which is another latent factor generated from the economic indicators of major trading partners. We find that a dollar appreciation shock reduces economic activity and inflation not only for the U.S. economy, but also for all three Asian economies. This result, which is robust to a number of alternative specifications, suggests that in spite of their disparate economic structures and policy regimes, the dollar appreciation shock affects the Asian economies primarily through its impact on U.S. aggregate demand; and this demand channel dominates the expenditure-switching channel that affects a country’s export competitiveness. |
| JEL: | C30 E40 E50 F33 F37 F42 |
| Date: | 2016–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2016-30&r=mac |
| By: | Barsky, Robert (Federal Reserve Bank of Chicago); Bogusz, Theodore (University of Michigan); Easton, Matthew (Federal Reserve Bank of Chicago) |
| Abstract: | Markets for risky loans clear on two dimensions - an interest rate (or equivalently a spread above the riskless rate) and a specification of the amount of collateral per dollar of lending. The latter is summarized by the margin or "haircut" associated with the loan. Some key models of endogenous collateral constraints imply that the primary equilibrating force will be in the form of haircuts rather than movements in interest rate spreads. Indeed, an important benchmark model, derived in a two-state world, implies that haircuts will adjust to render all lending riskless, and that a loss of risk capital on the part of borrowers has profound effects on asset prices. Quantitative analysis of a model of collateral equilibrium with a continuum of states turns these results on their heads. The bulk of the response to lenders' perception of increased default risk is in the form of higher default premia. Further, with high initial leverage, reductions in risk capital decrease equilibrium margins almost proportionately, while asset prices barely move. To the extent that one believes that it is a stylized fact that haircuts move more than spreads - as seen, for example, in bilateral repo data from 2007-2008 - this reversal is disturbing. |
| Keywords: | leverage cycle; margins; financial crises; repo; risk; collateral; belief disagreements |
| JEL: | D53 E44 G00 G01 |
| Date: | 2016–11–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2016-19&r=mac |
| By: | David Cuberes (Clark University); Marc Teignier (Universitat de Barcelona) |
| Abstract: | This paper examines the quantitative effects of gender gaps in entrepreneurship and workforce participation in an occupational choice model with a household sector. Gender gaps in entrepreneurship affect negatively both income and aggregate productivity, since they reduce the entrepreneurs’ average talent and female labor force participation. We estimate the gender gaps for 37 European countries and we find that gender gaps cause an average market output loss of 11.5% when they are considered constant across talent levels. The loss in total output, which also includes household production, varies between 6.4% and 8.7%, depending on the household productivity parameter. |
| Keywords: | Gender-specific occupational choice frictions, Entrepreneurhsip talent misallocation, Total output. |
| JEL: | E2 J21 O40 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ewp:wpaper:356web&r=mac |
| By: | Brixy, Udo (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]); Murmann, Martin (Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany]) |
| Abstract: | "Recent research suggests that employment in young firms is more negatively impacted during economic downturns than employment in incumbent firms. This questions the effectiveness of policies that promote entrepreneurship to fight crises. We complement prior research that is mostly based on aggregate data by analyzing cyclical effects at the firm level. Using new linked employer-employee data on German start-ups we show that under constant human capital of the firms' founders, employment growth in less than 11/2-yearold start-ups reacts countercyclically and employment growth in older start-ups reacts procyclically. The young start-ups realize their countercyclical growth by hiring qualified labor market entrants who might be unable to find employment in incumbent firms during crises. This mechanism is highly important in economic and management terms and has not been revealed by prior research." (Author's abstract, IAB-Doku) ((en)) |
| JEL: | E32 J23 L26 M13 L25 L11 D22 |
| Date: | 2016–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:iab:iabdpa:201642&r=mac |
| By: | Maarten van Rooij; Jakob de Haan |
| Abstract: | According to some economists, central banks should use 'helicopter money' (monetary financing of government expenditure or transfers to households) to boost inflation (expectations). Based on a survey among Dutch households, we examine whether respondents intend to spend the money received via such a transfer. Our findings suggest that only a small part of transfers will be spent and that such a transfer will hardly affect inflation expectations. Furthermore, whether transfers come from the central bank or the government hardly makes any difference. Finally, our results suggest that using helicopter money would have mixed consequences for public trust in the ECB. |
| Keywords: | Helicopter money; central banking; ECB; trust; unconventional monetary policy |
| JEL: | E52 E58 D14 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:538&r=mac |
| By: | Jakob Brochner Madsen |
| Abstract: | This paper constructs annual data for the aggregate wealth-income ratio, W-Y, saving, s, and growth, g, for Britain over the period 1210-2013 and tests Piketty’s central hypothesis that the W-Y ratio is governed by the s-g ratio in the long run. Furthermore, Piketty’s model is extended by the share of non-reproducibles in total wealth to explain the W-Y ratio during different eras of capitalism – pre-industrialization, industrialization and the knowledge economy. It is shown that savings, growth and the share of non-reproducibles in total wealth have been the fundamental drivers of the W-Y ratio over the past eight centuries |
| Keywords: | W-Y ratio, inequality, non-reproducibles versus reproducibles factors of production |
| JEL: | E1 E2 O4 P1 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2016-20&r=mac |
| By: | Metzger, Christoph |
| Abstract: | We present a framework for accounting of the German statutory pension scheme and estimate a balance sheet for the years 2005 until 2012. Extending and applying the methodology proposed by Settergren and Mikula (2005), we estimate the cross-sectional internal rates of return of the German pension scheme over this period. We are able to show that the cross-sectional internal rate of return is mainly financed by increasing contributions and by changing the liabilities not backed by assets. Additionally, our results reveal that from an expenditure perspective, the major part of the internal rate of return is resulting from changing longevity rather than indexation of pension entitlements. Finally, we prove that from a cross-sectional perspective the implicit tax of a pension scheme can mainly be interpreted as an “implicit wealth tax” on pension wealth and subsequently present empirical estimates for these cross-sectional implicit tax rates. |
| Keywords: | accounting of pension schemes,balance sheet,internal rate of return,implicit tax,fiscal sustainability |
| JEL: | E01 H55 H83 H87 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fzgdps:63&r=mac |
| By: | Annarita Colasante (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Simone Alfarano (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Eva Camacho-Cuena (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Mauro Gallegati (Department of Economics, Università Politecnica delle Marche, Ancona, Italy) |
| Abstract: | We conduct a Learning to Forecast Experiment (LtFE) using a novel setting in which we elicit subjects' short and long-run expectations on the future price of an asset. We find that: (i) the rational expectations equilibrium (REE) is not a meaningful description for subjects' expectations, (ii) which are, instead, better described by an adaptive learning scheme. (iii) Subjects exhibit a higher degree of inertia when revising long-run expectations vis-à-vis short-run expectations. |
| Keywords: | Experiment, Expectations, Coordination |
| JEL: | D84 E37 G12 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2016/26&r=mac |
| By: | Marta B. M. Areosa; Waldyr D. Areosa; Pierre Monnin |
| Abstract: | Using a textbook New Keynesian model extended with an inequality channel, we examine optimal monetary policy departing from the traditional utilitarian social welfare function, to consider alternative functions, including the Rawlsian approach of putting only weight to the agent with the lowest welfare level. Our main results show the optimal responses from a Rawlsian monetary authority are: (i) a less aggressive monetary tightening, but inducing a more pronounced drop in inflation after a monetary shock; (ii) a monetary policy easing after an increase in government spending and (iii) a more pronounced drop in the interest rate after a positive total factor productivity shock. |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:bcb:wpaper:447&r=mac |
| By: | Bönke, Timm; von Werder, Marten; Westermeier, Christian |
| Abstract: | We use data from the European Household Finance and Consumption Survey in order to examine the distributional effect of intergenerational wealth transfers on the net worth distribution in 8 European countries and compare it to recent findings for the US. To do so, we resort to the decomposition of the coefficient of variation as suggested and applied by Wolff (1987, 2002, 2015) and Wolff and Gittleman (2014). The results hint that inheritances and gifts have a vastly equalizing effect on inequality in household wealth in all 8 countries. |
| Keywords: | Inheritance,Household wealth,Inequality |
| JEL: | D31 E21 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:201626&r=mac |
| By: | Leif Anders Thorsrud (Norges Bank (Central Bank of Norway)) |
| Abstract: | The agents in the economy use a plethora of high frequency information, including news media, to guide their actions and thereby shape aggregate economic fluctuations. Traditional nowcasting approches have to a relatively little degree made use of such information. In this paper, I show how unstructured textual information in a business newspaper can be decomposed into daily news topics and used to nowcast quarterly GDP growth. Compared with a big bank of experts, here represented by official central bank nowcasts and a state-of-the-art forecast combination system, the proposed methodology performs at times up to 15 percent better, and is especially competitive around important business cycle turning points. Moreover, if the statistical agency producing the GDP statistics itself had used the news-based methodology, it would have resulted in a less noisy revision process. Thus, news reduces noise. |
| Keywords: | Nowcasting, Dynamic Factor Model (DFM), Latent Dirichlet Allocation (LDA) |
| JEL: | C11 C32 E37 |
| Date: | 2016–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2016_20&r=mac |
| By: | Widgrén, Joona |
| Abstract: | This report examines whether Google search queries can be used to predict the present and the near future house prices in Finland. Compared to a simple benchmark model, Google searches improve the prediction of the present house price index by 7.5 % measured by mean absolute error. In addition, search queries improve the forecast of near future house prices. Predicting the present and near future house prices is relevant information to many agents, such as realtors and political decision makers. |
| Keywords: | Google Trends, Internet, nowcasting, forecasting, housing market, time series |
| JEL: | C1 C22 C43 C53 C82 E27 |
| Date: | 2016–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:rif:report:63&r=mac |
| By: | José Luis Nolazco (Ministerio de Economía y Finanzas); Patricia Lengua-Lafosse (Ministerio de Economía y Finanzas); Nikita Céspedes (Ministerio de Economía y Finanzas) |
| Abstract: | En este documento se estudia la contribución del sector externo en el crecimiento de la economía peruana en el periodo 1996-2015. Se usa un modelo semi-estructural similar a los desarrollos disponibles (Berg y otros, 2006; Salas, 2011; Adler y Sosa, 2012; Han, 2014),) de modo que los choques externos se propagan endógenamente hacia el crecimiento de una economía pequeña, abierta y parcialmente dolarizada mediante los canales reales (comercio y términos de intercambio) y financiero (volatilidad y tipo de cambio). Se encuentra que los efectos conjuntos de los choques externos que enfrentó la economía peruana son heterogéneos en el tiempo y según el tipo de choque: en los periodos 2005-2008 y 2010-2013 los choques externos representan hasta el 36% y 28% del crecimiento observado, respectivamente. Asimismo, durante el 2009 se hubiera crecido 4,2 puntos porcentuales mayor al observado en dicho año (1,1%) si es que no hubiera ocurrido la crisis económica mundial. |
| Keywords: | choques externos, crecimiento económico, canal comercial y financiero |
| JEL: | C54 E13 F41 F43 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:2016-080&r=mac |
| By: | Kaplan, Robert Steven (Federal Reserve Bank of Dallas) |
| Abstract: | Remarks before the Economic Club of New York, New York City, November 30, 2016. |
| Date: | 2016–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddsp:167&r=mac |
| By: | Armenter, Roc (Federal Reserve Bank of Philadelphia) |
| Abstract: | We propose a tractable model of the demand for reserves under nonlinear remuneration schemes that can encompass quota systems and voluntary reserve target frameworks, among other possibilities. We show how such remuneration schemes have several favorable properties regarding interest-rate control by the central bank. In particular, wider tolerance bands can reduce rate volatility due to variations in the supply of reserves, both large and small, although they may curtail trading in the interbank market. |
| Keywords: | Bank reserves; monetary policy implementation. |
| JEL: | E41 E42 |
| Date: | 2016–12–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:16-35&r=mac |
| By: | Jose-Maria Da-Rocha; Marina Mendes Tavares; Diego Restuccia |
| Abstract: | We assess the quantitative impact of firing costs on aggregate total factor productivity (TFP) in a dynamic general-equilibrium framework where the distribution of establishment-level productivity is not invariant to the policy. Firing costs not only generate static factor misallocation, but also a worsening of the productivity distribution contributing to large aggregate TFP losses. Firing costs equivalent to 5 year's wages imply a drop in TFP of more than 20 percent. Factor misallocation accounts for 20 percent of the productivity loss, a relatively small drop in TFP, whereas the remaining 80 percent arises from the endogenous change in the productivity distribution. |
| Keywords: | firing costs, inaction, misallocation, establishments, productivity. |
| JEL: | O1 O4 E1 E6 |
| Date: | 2016–12–23 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-572&r=mac |
| By: | Teresa Ghilarducci; Siavash Radpour; Bridget Fisher; Anthony Webb (Schwartz Center for Economic Policy Analysis (SCEPA)) |
| Abstract: | Economic shocks, such as job-loss, have a particularly adverse effect on the retirement savings of workers in low-income households, exacerbating retirement savings inequality. Low income households are more likely than moderate- and upper-income households to experience economic shocks. Workers in low-income households are also more likely to withdraw from their retirement account after a shock. This study shows that these shocks have significant effects on the finances of low-income households, causing up to a third of all withdrawals, and possibly more. |
| Keywords: | Retirement, 401(k), GRA, Social Security |
| JEL: | H55 J26 J32 D63 E21 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:epa:cepapn:2016-01&r=mac |
| By: | Jakob Brochner Madsen; MD. Rabiul Islam; Hristos Doucouliagos |
| Abstract: | Inequality's effect on growth remains elusive, largely due to endogeneity, complex interactions, and lead-lag relationships. We revisit this issue by examining the four main channels through which inequality transmits to growth: savings, investment, education, and knowledge production. We construct new panel data for 21 OECD countries spanning 142 years. External communist influence is used as a new time-varying instrument for inequality and the effects of inequality on the outcome variables are made conditional on the stage of financial development. Our results show that inequality hampers growth at low to moderate levels of financial development but promotes growth at advanced levels. |
| Keywords: | inequality, financial development, transmission channels |
| JEL: | E20 O15 O40 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2016-18&r=mac |
| By: | Guido Matias Cortes; Nir Jaimovich; Henry E. Siu |
| Abstract: | We study the deterioration of employment in middle-wage, routine occupations in the United States in the last 35 years. The decline is primarily driven by changes in the propensity to work in routine jobs for individuals from a small set of demographic groups. These same groups account for a substantial fraction of both the increase in non-employment and employment in low-wage, non-routine manual occupations observed during the same time period. We analyze a general neoclassical model of the labor market featuring endogenous participation and occupation choice. We show that in response to an increase in automation technology, the model embodies an important tradeoff between reallocating employment across occupations and reallocation of workers towards non-employment. Quantitatively, we find that advances in automation technology on their own account for a relatively small portion of the joint decline in routine employment and associated rise in non-routine manual employment and non-employment. |
| JEL: | E0 J0 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22918&r=mac |
| By: | Benoît Julien; Sephorah Mangin |
| Abstract: | This paper generalizes the well-known Hosios (1990) efficiency condition to dynamic search and matching environments where the expected match output depends on the market tightness. Such environments give rise to a novel externality – the output externality – which may be either positive or negative. The generalized Hosios condition is simple: entry is constrained efficient when buyers’ surplus share equals the matching elasticity plus the surplus elasticity (i.e. the elasticity of the expected joint match surplus with respect to buyers). This intuitive condition captures both the standard externalities generated by the frictional matching process and the output externality. |
| Keywords: | constrained efficiency, search and matching, directed search, competitive search, Nash bargaining, Hosios condition |
| JEL: | C78 D83 E24 J64 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2016-28&r=mac |
| By: | Peter Skott (University of Massachusetts - Amherst) |
| Abstract: | A recent literature introduces autonomous demand as the driver of long-run economic growth and as a stabilizing force that tames Harrodian instability. The argument is unconvincing. The stabilizing effect is modest for plausible parameter values and, more importantly, it is questionable whether any components of aggregate demand can be viewed as autonomous in the long run. By contrast, models that include the supply side (the labor market) and/or economic policy can address Harrodian instability and produce level and growth effects that resemble those derived in the literature on autonomous demand. |
| Keywords: | supermultiplier, Harrodian instability, Kaleckian models |
| JEL: | E11 E12 O41 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ums:papers:2016-16&r=mac |
| By: | Teresa Ghilarducci; Siavash Radpour; Bridget Fisher; Anthony Webb (Schwartz Center for Economic Policy Analysis (SCEPA)) |
| Abstract: | The first birth cohort exposed to the 401(k) system for most of their working lives is now approaching retirement. 401(k) participants in this cohort have accumulated only about a third of the savings they need to maintain their standard of living in retirement. The 401(k) system fails even those who use it as instructed. High earners are as ill-prepared for retirement as low-and moderate earners. Inadequate wealth accumulations reflect well-known design flaws in the 401(k) system – patchy coverage, high fees, opportunities to take pre-retirement withdrawals, and the lack of a default pathway for converting accumulated wealth into retirement income. |
| Keywords: | Retirement, 401(k), GRA, Social Security |
| JEL: | H55 J26 J32 D63 E21 |
| Date: | 2016–04 |
| URL: | http://d.repec.org/n?u=RePEc:epa:cepapn:2016-02&r=mac |
| By: | Mariana García-Schmidt; Michael Woodford |
| Abstract: | A prolonged period of extremely low nominal interest rates has not resulted in high inflation. This has led to increased interest in the “Neo-Fisherian" proposition according to which low nominal interest rates may themselves cause inflation to be lower. The fact that standard models have the property that perfect foresight equilibria with a low fixed interest rate forever involve low inflation might seem to support such a view. Here, however, we argue that such a conclusion depends on a misunderstanding of the circumstances under which it makes sense to predict the effects of a monetary policy commitment by calculating the perfect foresight equilibrium (PFE). We propose an explicit cognitive process by which agents form their expectations of future endogenous variables. Under some circumstances, such as a commitment to follow a Taylor rule, a PFE can arise as a limiting case of our more general concept of reflective equilibrium. But we show that a policy of fixing the interest rate for a long period of time creates a situation in which reflective equilibrium need not resemble any PFE. In our view, this makes PFE predictions not plausible outcomes in the case of policies of the latter sort. According to our alternative approach, a commitment to maintain a low nominal interest rate for longer should always be expansionary and inflationary; but likely less so than the usual PFE analysis would imply, and much less in the case of a long-horizon commitment. |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:797&r=mac |
| By: | Przemyslaw Wlodarczyk (Faculty of Economics and Sociology, University of Lodz) |
| Keywords: | fiscal policy, fiscal sustainability, Visegrad Group, economic crisis, Markov switching cointegration. |
| JEL: | E62 H63 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:ann:wpaper:2/2017&r=mac |
| By: | Michael Hurd (RAND); Susann Rohwedder (RAND) |
| Abstract: | Because of data limitations, the quantification of consumption smoothing in response to economic shocks has been challenging to investigate empirically. We used monthly data on total household spending, income, and labor force participation to estimate the effects of unemployment on household spending. The data come from the RAND American Life Panel, a standing survey sample that is representative of the United States adult population. We compare monthly spending and income of households prior to unemployment with spending and income following unemployment for up to 40 months. We compare spending and income following re-employment with spending and income while unemployed. We find that by month two of unemployment total household spending per month declined to about 83 percent of pre-unemployment spending. At about 14 months of unemployment, spending began to decline further, reaching 70 percent of pre-unemployment spending by month 30. Income declined much more sharply to 37 percent of its pre-unemployment level by month two of unemployment, with little change after that as the duration of unemployment increased. Thus, consumption does not decline as much as income, so that it is somewhat smoothed relative to income; yet, particularly over long-duration unemployment the decline is substantial. On re-employment, income increased rapidly, spending much less rapidly. As of the third month, high-frequency spending was about 9 percent above its value in the last month of unemployment. It continued to increase until it was about 20 percent higher. Just as with an income drop, spending is somewhat smoothed when income increases. |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:mrr:papers:wp353&r=mac |
| By: | Pantelis Promponas; David Alan Peel |
| Abstract: | Exchange rate forecasting has become an arena for many researchers the last decades while predictability depends heavily on several factors such as the choice of the fundamentals, the econometric model and the data form. The aim of this paper is to assess whether modelling time-variation and other forms of instabilities may improve the forecasting performance of the models. Paper begins with a brief critical review of the recently developed exchange rate forecasting models and continues with a real-time forecasting race between our fundamentals-based models, a DSGE model, estimated with Bayesian techniques and the benchmark random walk model without drift. Results suggest that models accounting for non-linearities may generate poor forecasts relative to more parsimonious and linear models. |
| Keywords: | Forecasting exchange rate, Exchange rate literature, Instability, Taylor rule, PPP, UIP, Money supply, Real-time estimation, Time-Varying models, DSGE model, Bayesian methods |
| JEL: | C53 E51 E52 F31 F37 G17 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:144439514&r=mac |
| By: | Adam P. Balcerzak (Nicolaus Copernicus University, Poland) |
| Abstract: | The main aim of the article is to assess an influence of the last global financial crisis on the level of fiscal burden in Central European countries compared to old member states of the EU. In the research the fiscal burden was treated as multidimensional phenomenon, which should be analyzed with application of multiple criteria analysis tools. In the research zero unitatization method was applied, which allowed to create synthetic measure of the fiscal burden in the EU countries in the years 2004-2015. The measure allowed to propose rankings of the countries and assess the changes of the level of the fiscal burden during and after the crisis. The research was based on the Eurostat data. |
| Keywords: | fiscal burden, multiple criteria analysis, zero unitarization method, synthetic measure |
| JEL: | E61 C38 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2016:no39&r=mac |
| By: | Benjamín García |
| Abstract: | In this paper, I quantitatively measure the welfare costs of inflation. I build into standard moneysearch models, such as Rocheteau and Wright(2005) and Lagos and Wright(2005), by introducing endogenous imperfect competition based on free entry decisions that allow for the share of the transaction surplus going to firms to be determined endogenously. Under this framework, the welfare cost of inflation is amplified through a feedback loop, in which restricted money demand reduces the number of firms that the market can support. In turn, this reduction increases market concentration, reduces the consumer surplus, and further decreases the incentives to hold money. I find that, depending on the calibration, between 63 to 90 percent of the estimated welfare costs of inflation can be attributed to the interaction between money holdings and market concentration. |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:794&r=mac |
| By: | David Berger; Nicholas Turner; Eric Zwick |
| Abstract: | This paper studies temporary policy incentives designed to address capital overhang by inducing asset demand from buyers in the private market. Using variation across local geographies in ex ante program exposure and a difference-in-differences design, we find that the First-Time Homebuyer Credit induced a cumulative increase in home sales of 397 to 546 thousand, or 7.8 to 10.7 percent, nationally. We find little evidence of a sharp reversal of the policy response; instead, demand comes from several years in the future. The program likely sped the process of reallocating homes from distressed sellers to high value buyers, which stabilized house prices. The response is concentrated in the existing home sales market, implying the stimulative effects of the program were less important than its role in accelerating reallocation. |
| JEL: | E62 E65 G18 H31 R38 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22903&r=mac |
| By: | Mark C. Freeman; Ben Groom; Ekaterini Panopoulou; Theologos Pantelidis |
| Abstract: | Uncertain and persistent real interest rates underpin one argument for using a declining term structure of social discount rates in the Expected Net Present Value (ENPV) framework. Despite being controversial, this approach has influenced both the Inter-Agency Working Group on Cost–Benefit Analysis and the UK government׳s guidelines on discounting. We first clarify the theoretical basis of the ENPV approach. Then, rather than following previous work which used a single series of U.S. Treasury bond returns, we treat nominal interest rates and inflation as co-integrated series and estimate the empirical term structure of discount rates via the ‘Fisher Effect’. This nests previous empirical models and is more flexible. It also addresses an irregularity in previous work which used data on nominal interest rates until 1950, and real interest rates thereafter. As we show, the real and nominal data have very different time series properties. This paper therefore provides a robustness check on previous discounting advice and updated methodological guidance at a time when governments around the world are reviewing their guidelines on social discounting. The policy implications are discussed in the context of the Social Cost of Carbon, nuclear decommissioning and public health. |
| Keywords: | Social discounting; declining discount rates; fisher Effect; real and nominal interest rates; social cost of carbon. |
| JEL: | C13 C53 E43 Q48 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:64143&r=mac |
| By: | Fernández-Amador, Octavio |
| Abstract: | Journal article by Octavio Fernandez-Amador, Martin Gächter, and Friedrich Sindermann in Economics Bulletin, Volume 36, Issue 1: 132–144 |
| Abstract: | Recent literature has highlighted the importance of considering the financial cycle for the estimation of business cycles. The applied estimation approaches, however, differ widely and cyclical estimates are therefore difficult to compare. In this paper, we assess the robustness of finance-augmented business cycle estimates to different trend specifications for Japan, the UK, and the US. In line with earlier studies, we confirm that the inclusion of financial variables strongly affects the estimates of the business cycle, resulting in larger amplitudes and more persistent dynamics than traditional cycle estimates. While the dynamics of the cyclical component does not depend much on the model used, its amplitude shows strong sensitivity to the underlying assumptions of the trend model. |
| Date: | 2016–02–26 |
| URL: | http://d.repec.org/n?u=RePEc:wti:papers:1038&r=mac |
| By: | Belke, Ansgar; Osowski, Thomas |
| Abstract: | This paper identifies and measures fiscal spillovers in the EU countries empirically using a global vector autoregression (GVAR) model. Our aim is to look at the sign and the absolute values of fiscal spillovers in a country-wise perspective and at the time profile (impulse response) of the impacts of fiscal shocks. We find moderate spillover effects of fiscal policy shocks originating in Germany and France. However, there is significant variation regarding magnitude of the spillovers among destination countries and country clusters. Furthermore, we find some evidence that spillovers generated by German or French fiscal spillovers are stronger for EMU than non-EMU countries in Europe. |
| Keywords: | EMU versus "Rest of Europe",fiscal policy coordination,fiscal spillovers,GVAR analysis,regional shocks,impulse response analysis,trade weights |
| JEL: | C50 E61 F15 F42 H60 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:661&r=mac |
| By: | Antolin-Diaz, Juan (Fulcrum Asset Management); Rubio-Ramirez, Juan F. (Emory University & Federal Reserve Bank of Atlanta) |
| Abstract: | We identify structural vector autoregressions (SVARs) using narrative sign restrictions. Narrative sign restrictions constrain the structural shocks and the historical decomposition around key historical events, ensuring that they agree with the established narrative account of these episodes. Using models of the oil market and monetary policy, we show that narrative sign restrictions are highly informative. We highlight that adding a single narrative sign restriction dramatically sharpens and even changes the inference of SVARs originally identified via traditional sign restrictions. Our approach combines the appeal of narrative methods with the popularized usage of traditional sign restrictions. |
| Keywords: | narrative information; SVARs; Bayesian approach; sign restrictions; oil market; monetary policy |
| JEL: | C32 E52 Q35 |
| Date: | 2016–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2016-16&r=mac |
| By: | Paul Glasserman; H. Peyton Young |
| Abstract: | The recent financial crisis has prompted much new research on the interconnectedness of the modern financial system and the extent to which it contributes to systemic fragility. Network connections diversify firms' risk exposures, but they also create channels through which shocks can spread by contagion. We review the extensive literature on this issue, with the focus on how network structure interacts with other key variables such as leverage, size, common exposures, and short-term funding. We discuss various metrics that have been proposed for evaluating the susceptibility of the system to contagion and suggest directions for future research. |
| JEL: | D85 E44 G21 G22 G23 G28 |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:68681&r=mac |
| By: | Harald Schmidbauer (BRU-IUL, ISCTE Business Research Unit, ISCTE-IUL, Lisboa, Portugal); Angi Rosch (FOM University of Applied Sciences, Munich, Germany); Erhan Uluceviz (Kemerburgaz University, Istanbul, Turkey) |
| Abstract: | Cycles in the behavior of stock markets have been widely documented. There is an increasing body of literature on whether stock markets anticipate business cycles or its turning points. Several recent studies assert that financial integration impacts positively on business cycle comovements of economies. We consider three Western equity markets, represented by their respective stock indices: DJIA (USA), FTSE 100 (UK), and Euro Stoxx 50 (euro area). Connecting these three markets together via vector autoregressive processes in index returns, we construct \propagation values" to measure and trace, on a daily basis, the relative importance of a market as a volatility creator within the network, where volatility is due to a return shock in a market. A cross-wavelet analysis reveals the joint frequency structure of pairs of the propagation value series, in particular whether or not two series tend to move in the same direction at a given frequency. Our main findings are: (i) From 2001 onwards, the daily propagation values of markets have been fluctuating much less than before, and high frequencies have become less pronounced; (ii) the European markets are in phase at business cycle frequency, while the US market is not in phase with either European market; (iii) in 2008, the euro area has taken over the leading role. This approach not only provides new insight into the time-dependent interplay of equity markets, but it can also replicate certain findings of traditional business cycle research, and it has the advantage of using only readily available stock market data. |
| Keywords: | Equity market network; propagation value; cycle; synchronization; wavelet analysis; phase difference. |
| JEL: | C32 C58 E32 F44 G15 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1616&r=mac |
| By: | Michael Gelman; Yuriy Gorodnichenko; Shachar Kariv; Dmitri Koustas; Matthew D. Shapiro; Dan Silverman; Steven Tadelis |
| Abstract: | This paper estimates how overall consumer spending responds to changes in gasoline prices. It uses the differential impact across consumers of the sudden, large drop in gasoline prices in 2014 for identification. This estimation strategy is implemented using comprehensive, daily transaction-level data for a large panel of individuals. The estimated marginal propensity to consume (MPC) is approximately one, a higher estimate than estimates found in less comprehensive or well-measured data. This estimate takes into account the elasticity of demand for gasoline and potential slow adjustment to changes in prices. The high MPC implies that changes in gasoline prices have large aggregate effects. |
| JEL: | E21 Q41 Q43 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22969&r=mac |
| By: | Yuzo Honda (Department of Informatics, Kansai University) |
| Abstract: | This paper reports what effects the negative interest rate policy (NIRP), introduced by the Bank of Japan in February 2016, brought about on the Japanese economy. First, NIRP was very effective in stimulating Private Residential Investment. Second, it lowered the long-term interest rate and was likely to have supported Private Non-Residential Investment. Third, there is a reason to believe that it probably stopped around August 2016 the yen appreciation trend in the foreign exchange rates. Fourth, it was also likely to have stopped the downward trend of stock prices around August 2016. Overall, NIRP was empirically found to have expansionary effects. It is a legitimate policy tool to alleviate the zero interest rate lower bound, though due considerations should be given to its side effects at the same time. |
| Keywords: | Negative Interest Rate, Residential Investment, Non-Residential Investment, Foreign Exchange Rate |
| JEL: | E52 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1632&r=mac |
| By: | Rodrigo Alfaro; Carlos Medel; Carola Moreno |
| Abstract: | This article presents a quantification of the response of the sovereign risk premium (EMBI) of a group of Latin American countries, to unexpected changes (shocks) in external financial variables. A vector autoregressions is estimated for each country (Colombia, Chile, Mexico, and Peru) in monthly frequency that includes China's and Brazil's EMBI, the global volatility index (VIX), plus the value of the dollar against a basket of currencies (Broad Index) and a proxy of the slope of the US Treasury yield curve (Spread US). The VIX and Broad Index shocks turn out to have a relatively homogenous effect on each country's EMBI, while shocks to the China and Brazil EMBI are more heterogeneous. For the case of Chile, we further study three alternative risk scenarios, incorporating the copper price as an additional variable. The most disruptive scenario at the time when the shock hits is the Volatility driven one. Nevertheless, it is the Emerging market's scenario (namely one with simultaneous shocks to China’ and Brazil’s EMBI) the one with the most harmful dynamics, as it dyes out slower. Finally, a Copper price bust scenario, in which the price of copper drops significantly in addition to a shock to the EMBI China, is the one with the least effect as the price of copper is relatively less affected by shocks to other variables, displaying lower spillovers. |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:chb:bcchwp:795&r=mac |
| By: | Jason Nassios; James A. Giesecke; Peter B. Dixon; Maureen T. Rimmer |
| Abstract: | The economic consequences of an expanded Australian superannuation sector were recently quantified by Giesecke et al. using a financial computable general equilibrium (FCGE) model of Australia. Using this model, Nassios et al. studied the short- and long-run structural implications of expansion in the size of Australia's superannuation sector. Several structural shifts were identified: (1) A rise in the use of debt relative to equity to finance the residential housing stock; (2) A rise in the ratio of gross private debt to household income; (3) A fall in Australia's net foreign financing requirement, measured via a reduction in the current account deficit relative to GDP; (4) An expansion in non-bank financial intermediaries and life insurer's; and (5) A change in the capital structure of commercial banks, particularly a greater reliance on bond financing. In this paper, we consider the implications of these structural shifts for macroeconomic stability and growth. To this end, we survey literature addressing how economic structure and policy can influence macroeconomic stability and growth. We also summarise how several counter-cyclical macroeconomic policies we identify are modelled in the VU-Nat FCGE model applied herein. As we shall discuss, the literature on financial and macroeconomic stability suggests that a rise in the level of private-debt-to-income does not generally aid macroeconomic stability. Nevertheless, stability and future growth prospects are in all likelihood improved by the noted reduction in Australia's net foreign financing requirement, via a reduction in Australia's exposure to foreign credit supply shocks such as those the Australian commercial banks experienced during the GFC. A key structural shift driving this result is the increase in demand for corporate debt liabilities by domestic financial asset agents, such as the superannuation funds, which drives a deepening of Australia's corporate bond market. |
| Keywords: | Financial CGE model, Superannuation, Macroeconomic stability |
| JEL: | C68 E63 G17 G21 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:cop:wpaper:g-267&r=mac |
| By: | Ashraf, Ayesha; Herzer, Dierk; Nunnenkamp, Peter |
| Abstract: | This study examines the effects of greenfield FDI and cross-border mergers and acquisitions (M&As) on government size in host countries of FDI. Using panel data for up to 130 countries for the period from 2003-2011, the study specifically tests the compensation hypothesis, suggesting that by increasing economic insecurity, economic openness leads to larger government size. It is found that greenfield FDI increases labour market volatility and thereby economic insecurity while M&As are not significantly associated with labour market volatility. The main results of this study are that greenfield FDI has a robust positive effect on government size, while M&As have no statistically significant effect on government size in the total sample of developed and developing countries, as well as in the sub-samples of developed and developing countries. |
| Keywords: | greenfield FDI,mergers & acquisitions,economic insecurity,government size |
| JEL: | F21 F23 E62 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2068&r=mac |
| By: | David Rappoport |
| Abstract: | This paper presents empirical evidence on the effect of banks' financial position on credit growth using a sample of 29 OECD countries. The failure of the exogeneity assumption of explanatory variables is addressed using dynamic panel type instruments. The empirical results show that among capital, profits and liquidity at the end of the previous year, capital is the most important predictor of credit growth in the current year. The relationship between capital and credit growth is non-linear. Point estimates from the preferred econometric specification imply that at the sample mean a one standard deviation increase (decrease) in capital is associated with an increase (decrease) of 0.8 (0.3) percentage points in credit growth upon impact and 1.6 (0.6) percentage points in the long-run. |
| Keywords: | Bank lending ; Banking ; Bank financial position ; Credit supply ; OECD |
| JEL: | G21 E44 G28 |
| Date: | 2016–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2016-101&r=mac |
| By: | Gerhard Illing; Yoshiyasu Ono; Matthias Schlegl |
| Abstract: | Why do advanced economies fall into prolonged periods of economic stagnation? What is the role of asset prices and private sector indebtedness for the transition to and the severity of stagnation? This paper presents a stylized money-in-the-utility model with a housing sector and financial imperfections to study the interactions between household debts, liquidity and asset prices in an economy with persistent deflation and stagnation. Stagnation occurs in equilibrium when a subset of households has insatiable liquidity preferences and hence prefers to hoard cash over consuming. We show that financially more advanced economies are more likely to enter into persistent stagnation. In addition, stagnation is more severe the higher private sector indebtedness. Moreover, credit or asset price booms can mask the underlying structural transition of an economy into stagnation in the short run though at the costs of severing the stagnation in the long run. These findings are in line with the macroeconomic developments in Japan during its lost decades and other major advanced economies during the Great Recession. |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0988&r=mac |
| By: | Isabel Rodríguez (El Colegio de México) |
| Abstract: | Dentro de la literatura económica ortodoxa el concepto de desequilibrio no ha jugado un papel central. En los 70’s Barro y Grossman (1971) retoman el planteamiento del desequilibrio. Una década después, los modelos de ciclo económico real y Neo-Keynesianos acapararon nuevamente las agendas de investigación. Por lo tanto, la Crisis Financiera (2008) se desata dentro de un escenario teórico en el que el desequilibrio no forma parte de la discusión teórica. Por lo tanto, son los efectos y las discusiones que se han derivado de la crisis financiera lo que nos permite re-abrir discusiones con el fin de incorporar conceptos para analizar problemas desde un lente teórico más consistente con el funcionamiento de un sistema económico. |
| Keywords: | desequilibrio, Wicksell, proceso acumulativo, equilibrio general e intertemporal, crisis financiera |
| JEL: | E41 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:emx:ceedoc:2016-10&r=mac |
| By: | Powell, Jerome H. (Board of Governors of the Federal Reserve System (U.S.)) |
| Date: | 2016–11–30 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:927&r=mac |
| By: | Haskamp, Ulrich |
| Abstract: | During the financial crisis numerous European governments decided to rescue domestic banks with public funds to prevent a collapse of the banking system. To internalize the public costs, bank levies have been introduced in many countries. This paper analyzes the German bank levy which was implemented from 2011 till 2014 and its effect on lending rates of regional banks. We examine not only if banks shift the cost of the levy to their customers' lending rates, but also whether there are spillovers to their local competitors. The German savings and cooperative banks are a perfect setting to study such effects as they only operate within well-defined regions, allowing us to identify their local competitors. Additionally, only some of them are subject to the levy due to a tax allowance. Further, with a market share of 42.8% in total, they are relevant. Firstly, we find that a bank that has to pay the bank levy raises its lending rate by about 0.14 percentage points. Secondly, we examine whether the increased lending rates of paying banks spill over to their local competitors. We find this indirect effect to be about one third of the size. Given an average lending rate of 4.96%, these effects are economically significant. Lastly, adverse effects of the levy on paying banks' loan supply growth are absorbed by their competitors to a certain extent. |
| Keywords: | bank regulation,bank levy,regional spillover,lending rates |
| JEL: | E43 G21 G28 R10 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:664&r=mac |
| By: | Michalis Nikiforos |
| Abstract: | This paper presents a methodological discussion of two recent "endogeneity" critiques of the Kaleckian model and the concept of distribution-led growth. From a neo-Keynesian perspective, and following Kaldor (1955) and Robinson (1956), the model is criticized because it treats distribution as quasi-exogenous, while in Skott (2016) distribution is viewed as endogenously determined by a series of (exogenous) institutional factors and social norms, and therefore one should focus on these instead of the functional distribution of income per se. The paper discusses how abstraction is used in science and economics, and employs the criteria proposed by Lawson (1989) for what constitutes an appropriate abstraction. Based on this discussion, it concludes that the criticisms are not valid, although the issues raised by Skott provide some interesting directions for future work within the Kaleckian framework. |
| Keywords: | Kaleckian Model; Distribution-led Growth; Abstraction |
| JEL: | B22 B41 B50 E11 E12 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_879&r=mac |
| By: | Hendrik Beiler |
| Abstract: | I estimate the effect of business cycle conditions on the decision to enter entrepreneurship after college graduation. I proxy for economic conditions at the field of study level, constructed from industry growth rates which I weight to fields of study using employees' industry - college major distribution. This enables to control for unobserved differences between graduation cohorts such as technological change or shifts in cohort composition. Using administrative survey data for Germany, I find that a one percentage point increase in employment growth in the year of graduation raises entry into entrepreneurship by about 30% in the first year after graduation. The effect halves in the second year and is close to zero in the third and fourth year after graduation. Interestingly, exit from entrepreneurship decreases slightly, which suggests that the additional entrepreneurs are fairly stable in the first years after entry. Taken together, my results imply that "lucky" graduation cohorts are persistently more likely to enter and persist in entrepreneurship than "recessionary" cohorts, at least during the first four years after graduation that I examine. My results have relevant implications for policy measures such as startup subsidies, since entrepreneurship is commonly acknowledged as a central source of job creation and economic dynamism. |
| Keywords: | Entrepreneurship, Business Cycles, Higher Education, Occupational Choice, Firm Entry |
| JEL: | L26 E32 I23 J23 J24 M13 |
| Date: | 2016–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:kls:series:0088&r=mac |
| By: | Md. Rabiul Islam; Jakob Brochner Madsen; Hristos Doucouliagos |
| Abstract: | We investigate the consequences of income inequality on the income tax-to-GDP ratio for 21 OECD countries over a long time period spanning 1870 to 2011. We use several identification strategies, including using unionization as a new IV for inequality. In contrast to predictions from median voter models, we find that rising inequality significantly depresses the income tax ratio. This finding is robust to alternative measures of inequality, treatment for endogeneity, and model specification. The tax ratio increases with the degree of democracy and openness and decreases with urbanization. Inequality also reduces the indirect tax ratio and alters the tax structure. |
| Keywords: | Tax ratio; inequality; fiscal policy; OECD |
| JEL: | H2 E25 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:mos:moswps:2016-29&r=mac |
| By: | Zuijderduijn, Jaco (Department of Economic History, Lund University) |
| Abstract: | Recent literature has suggested how late-medieval families may have used financial markets to navigate the life cycle. Precious little is known about the precise connections between the life cycle and family on the one hand and investments in financial instruments on the other, though. We analyse late-medieval investment behaviour using a new dataset of hundreds of life annuities. Our data give ages at purchase of annuitants as well as the pairings of investors in joint and survivor annuities and thus they allow us to link life-cycle events and family relationships to participation in financial markets. We demonstrate that the late-medieval public did not purchase single life annuities for children and argue this points to contemporaries having preferences other than for maximizing profits. We find that women were prominent investors in life annuities, but they also showed a preference for joint and survivor annuities, which were less profitable but provided insurance for (junior) family members. Finally, although the majority of joint and survivor annuities were purchased by family members, a substantial number were for people who appear not to have been related: we suggest godparenthood may help explain pairings of apparently unrelated adults and children. |
| Keywords: | life annuities; investment behaviour; financial history |
| JEL: | D10 D12 E21 G11 N13 |
| Date: | 2016–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:luekhi:0150&r=mac |
| By: | Ivo Maes (Senior Advisor at the Economics and Research Department of the National Bank of Belgium and a Professor, Robert Triffin Chair, at the Université Catholique de Louvain, as well as at ICHEC Brussels Management School); Sabine Péters (Professor at ICHEC Brussels Management School) |
| Abstract: | Jacques van Ypersele de Strihou is a discrete person but well-known in Belgian and international political and economic circles. After an outstanding academic career at the Universities of Namur, Leuven and Louvain and then at Yale in the United States where he gained a PhD, he started out his professional life as an official at the International Monetary Fund. He then returned to Belgium where he held important posts in various Finance Ministers’ cabinets. He played a major role in European and international monetary negotiations, notably in his capacity as President of the European Monetary Committee when the European Monetary System was being set up. Later, as head of Prime Minister Wilfried Martens’ cabinet, he was one of the architects of the 1982 devaluation of the Belgian franc. Discretion and modesty prevented Jacques van Ypersele from talking about himself much. He took some convincing before agreeing to be interviewed. The end result was these three interviews which took place at his home between June and October 2015 which he re-read the following summer. We were also given access to his private archives, the source of the documents published in the Annex. |
| Keywords: | Jacques van Ypersele, economic crisis of the 1970s, European Monetary System, Belgian devaluation of 1982 |
| JEL: | A11 B22 E60 F50 N74 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbb:reswpp:201612-314&r=mac |
| By: | Valentina V. Tarasova; Vasily E. Tarasov |
| Abstract: | Accelerators with power-law memory are proposed in the framework of the discrete time approach. To describe discrete accelerators we use the capital stock adjustment principle, which has been suggested by Matthews.The suggested discrete accelerators with memory describe the economic processes with the power-law memory and the periodic sharp splashes (kicks). In continuous time approach the memory is described by fractional-order differential equations. In discrete time approach the accelerators with memory are described by discrete maps with memory, which are derived from the fractional-order differential equation without approximations. In order to derive these maps we use the equivalence of fractional-order differential equations and the Volterra integral equations. |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1612.07913&r=mac |
| By: | Korobilis, Dimitris; Pettenuzzo, Davide |
| Abstract: | We develop a novel, highly scalable estimation method for large Bayesian Vector Autoregressive models (BVARs) and employ it to introduce an "adaptive" version of the Minnesota prior. This flexible prior structure allows each coeffcient of the VAR to have its own shrinkage intensity, which is treated as an additional parameter and estimated from the data. Most importantly, our estimation procedure does not rely on computationally intensive Markov Chain Monte Carlo (MCMC) methods, making it suitable for high-dimensional VARs with more predictors that observations. We use a Monte Carlo study to demonstrate the accuracy and computational gains of our approach. We further illustrate the forecasting performance of our new approach by applying it to a quarterly macroeconomic dataset, and find that it forecasts better than both factor models and other existing BVAR methods. |
| Keywords: | Bayesian VARs, Minnesota prior, Large datasets, Macroeconomic forecasting |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:esy:uefcwp:18626&r=mac |
| By: | Pesaran, Hashem.; Fan Yang, Cynthia. |
| Abstract: | This paper builds on the work of Acemoglu et al. (2012) and considers a production network with unobserved common technological factor and establishes general conditions under which the network structure contributes to aggregate fluctuations. It introduces the notions of strongly and weakly dominant units, and shows that at most a finite number of units in the network can be strongly dominant, while the number of weakly dominant units can rise with N (the cross section dimension). This paper further establishes the equivalence between the highest degree of dominance in a network and the inverse of the shape parameter of the power law. A new extremum estimator for the degree of pervasiveness of individual units in the network is proposed, and is shown to be robust to the choice of the underlying distribution. Using Monte Carlo techniques, the proposed estimator is shown to have satisfactory small sample properties. Empirical applications to US input-output tables suggest the presence of production sectors with a high degree of pervasiveness, but their effects are not sufficiently pervasive to be considered as strongly dominant. |
| Keywords: | aggregate ?uctuations, strongly and weakly dominant units, spatial models, outdegrees, degree of pervasiveness, power law, input-output tables, US economy |
| JEL: | C12 C13 C23 C67 E32 |
| Date: | 2016–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1678&r=mac |
| By: | Christopher L. Foote; Lara Loewenstein; Paul S. Willen |
| Abstract: | The reallocation of mortgage debt to low-income or marginally qualified borrowers plays a central role in many explanations of the early 2000s housing boom. We show that such a reallocation never occurred, as the distribution of mortgage debt with respect to income changed little even as the aggregate stock of debt grew rapidly. Moreover, because mortgage debt varies positively with income in the cross section, equal percentage increases in debt among high- and low-income borrowers meant that wealthy borrowers accounted for most new debt in dollar terms. Previous research stressing the importance of low-income borrowing was based on the inflow of new mortgage originations alone, so it could not detect offsetting outflows in mortgage terminations that left the allocation of debt stable over time. And while defaults on subprime mortgages played an important part in the financial crisis, the data show that subprime lending did not cause a reallocation of debt toward the poor. Rather, subprime lending prevented a reallocation of debt toward the wealthy. |
| JEL: | D12 D14 E03 G21 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22985&r=mac |
| By: | Michal Polena (School of Economics and Business Administration, Friedrich-Schiller-University Jena); Tobias Regner (School of Economics and Business Administration, Friedrich-Schiller-University Jena) |
| Abstract: | We study the determinants of borrowers' default in P2P lending with a new data set consisting of 70,673 loan observations from Lending Club. Previous research identified a number of default determining variables but did not distinguish between different loan risk levels. We define four loan risk classes and test the significance of the default determining variables within each loan risk class. Our findings suggest that the significance of most variables depends on the loan risk class. Only few variables are consistently significant across all risk classes. The debt-to-income ratio, inquiries in the past 6 months and a loan intended for a small business are positively correlated with the default rate. Annual income and credit card as loan purpose are negatively correlated. |
| Keywords: | crowdfunding, peer-to-peer lending, P2P, credit grade, FICO score, default risk |
| JEL: | D14 E41 G23 |
| Date: | 2016–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2016-023&r=mac |