nep-mac New Economics Papers
on Macroeconomics
Issue of 2017‒01‒15
103 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Estabilidad de Precios en América Latina:¿Ya LLegamos Allí? By Olivo, Victor
  2. Economic Crises and the Eligibility for the Lender of Last Resort: Evidence from Nineteenth Century France By Bignon, Vincent; Jobst, Clemens
  3. Ups and Downs. Central Bank Independence from the Great Inflation to the Great Recession: Theory, Institutions and Empirics By Donato Masciandaro; Davide Romelli
  4. Financialization and Distribution in a Kaleckian Model with Firms’ Debt Accumulation By Hiroaki Sasaki
  5. A Behavioral New Keynesian Model By Gabaix, Xavier
  6. Real Rigidities and Optimal Stabilization at the Zero Lower Bound in New Keynesian Economies By Adiya Belgibayeva; Michal Horvath
  7. Uncertainty-driven business cycles: assessing the markup channel By Born, Benjamin; Pfeifer, Johannes
  8. The effect of conventional and unconventional euro area monetary policy on macroeconomic variables By Halberstadt, Arne; Krippner, Leo
  9. Un Indicador de Condiciones Financieras para la República Dominicana By Jiménez Polanco, Miguel A.; Ramírez de León, Francisco A.
  10. The Term Structure and Inflation Uncertainty By Breach, Tomas; D'Amico, Stefania; Orphanides, Athanasios
  11. When Keynes goes to Brussels : a New Fiscal Rule for the EMU ? By Francesco Saraceno
  12. A Real-Business-Cycle Model with Efficiency Wages and Fiscal Policy: The Case of Bulgaria By Aleksandar Vasilev
  13. Impacts of Universal Health Coverage: Financing, Income Inequality, and Social Welfare By Huang, Xianguo; Yoshino, Naoyuki
  14. To Augment Or Not To Augment? A Conjecture On Asymmetric Technical Change By Clemens Struck; Adnan Velic
  15. Money, Asset Prices and the Liquidity Premium By Lee, Seungduck
  16. Why are policy real interest rates so high in Brazil? An analysis of the determinants of the Central Bank of Brazil's real interest rate By Balliester Reis, Thereza
  17. Spillover Effects of Unconventional Monetary Policy in Asia and the Pacific By Punzi, Maria Teresa; Chantapacdepong, Pornpinun
  18. Cost-Benefit Analysis of Leaning Against the Wind: Are Costs Larger Also with Less Effective Macroprudential Policy? By Svensson, Lars E O
  19. Unconventional US Monetary Policy: New Tools, Same Channels? By Feldkircher, Martin; Huber, Florian
  20. Monetary Policy and Macroeconomic Stability Revisited By Hirose, Yasuo; Kurozumi, Takushi; Van Zandweghe, Willem
  21. Housing Prices and Business Cycle in China: A DSGE Analysis By He, Qing; Liu, Fangge; Qian, Zhongxin; Chong, Terence Tai Leung
  22. Determinants and implications of low global inflation rates By Juan Carlos Berganza; Pedro del Río; Fructuoso Borrallo
  23. Alternative User Costs, Rates of Return and TFP Growth Rates for the US Nonfinancial Corporate and Noncorporate Business Sectors: 1960-2014 By Diewert, W. Erwin; Fox, Kevin J.
  24. The Currency Dimension of the Bank Lending Channel in International Monetary Transmission By Elod Takats; Judit Temesvary
  25. Break-Even-Inflation's Decomposition in Mexico By Aguilar-Argaez Ana María; Elizondo Rocío; Roldán-Peña Jessica
  26. Threshold-based forward guidance: hedging the zero bound By Boneva, Lena; Harrison, Richard; Waldron, Matt
  27. Near-Rational Expectations: How Far are Surveys from Rationality? By Sergey Ivashchenko; Rangan Gupta
  28. How Robust Is the Result That the Cost of "Leaning Against the Wind" Exceeds the Benefit? Response to Adrian and Liang By Svensson, Lars E O
  29. Predicción de la Actividad Económica a Partir de Indicadores de las Encuestas de Opinión Empresarial: Evidencia para República Dominicana By Jimenez Polanco, Miguel A.; Ramírez Escoboza, Merlym
  31. Policy effectiveness is limited by a flat Phillips curve, stabilization as practiced in Europe and the US information By David Kiefer
  32. Indicadores Compuestos de Actividad Económica por sectores para la República Dominicana By Jiménez Polanco, Miguel Alejandro; López Hawa, Nabil; Ramírez Escoboza, Merlym
  33. Indian Variant of MTEF: The Scope and Opportunities to Develop an Effective Budget Planning Process. By Jena, Pratap Ranjan
  34. Can the Central Bank Alleviate Fiscal Burdens? By Ricardo Reis
  35. A Markov switching factor-augmented VAR model for analyzing US business cycles and monetary policy By Huber, Florian; Fischer, Manfred M.
  36. Currency Wars? Unconventional Monetary Policy Does Not Stimulate Exports By Rose, Andrew K
  37. Can the Central Bank Alleviate Fiscal Burdens? By Ricardo Reis
  38. Can the Central Bank Alleviate Fiscal Burdens? By Reis, Ricardo
  39. A Decomposition of U.S. Business Sector TFP Growth into Technical Progress and Cost Efficiency Components By Diewert, W. Erwin; Fox, Kevin J.
  40. Causes and timing of the European debt crisis: An econometric evaluation By Valerio Filoso, Valerio; Panico, Carlo; Papagni, Erasmo; Francesco, Purificato; Vázquez Suarez, Marta
  41. Exploring Differences in Household Debt Across the United States and Euro Area Countries By Dimitris Christelis; Michael Ehrmann; Dimitris Georgarakos
  42. Consumer spending and fiscal consolidation: evidence from a housing tax experiment By Surico, Paolo; Trezzi, Riccardo
  43. Distinguishing Constraints on Financial Inclusion and Their Impact on GDP and Inequality By Dabla-Norris, Era; Ji, Yan; Townsend, Robert M; Unsal, Derya Filiz
  44. Key Issues of Central and Local Government Finance in the People’s Republic of China By Qichun, Zhang; Shufang, Li
  45. Spillovers of the United States’ Unconventional Monetary Policy to Emerging Asia: The Bank Lending Channel By Xu, Ying; La, Hai Anh
  46. Three Essays on the Theory of Money and Financial Institutions Essay 3: The Economy with Innovation, Externalities and Context By Martin Shubik
  47. US Monetary Policy in a Globalized World By Crespo Cuaresma, Jesus; Doppelhofer, Gernot; Feldkircher, Martin; Huber, Florian
  48. Trend Fundamentals and Exchange Rate Dynamics By Huber, Florian; Kaufmann, Daniel
  49. The multiscale relationship between exchange rates and fundamentals differentials: Empirical evidence from Scandinavia By Habimana, Olivier
  50. Inequality, Demographics and the Housing Wealth Effect: Panel Quantile Regression Evidence for the US States By Georgios Bampinas; Panagiotis Konstantinou; Theodore Panagiotidis
  51. Monetary Policy Credibility and Exchange Rate Pass-Through By Yan Carriere-Swallow; Bertrand Gruss; Nicolas E Magud; Fabian Valencia
  52. Output and Inflation Co-movement; An Update on Business-Cycle Stylized Facts By Michal Andrle; Jan Bruha; Serhat Solmaz
  53. The Impact of Sovereign Bond Yields on Fiscal Discipline By Karlis Vilerts; Olegs Tkacevs
  54. Two Stages of Economic Development By Gong, Gang
  55. Bank Profitability and Capital Regulation: Evidence from Listed and non-Listed Banks in Africa By Ozili, Peterson, K
  56. Long Memory, Breaks, and Trends: On the Sources of Persistence in Inflation Rates By Rinke, Saskia; Busch, Marie; Leschinski, Christian
  57. Buffer stock savings in a New-Keynesian business cycle model By Rabitsch, Katrin; Schoder, Christian
  58. Analysis and Forecast of Romania’s Population Ageing by Non-Linear Methods By Mariana BĂLAN; Brînduşa-Mihaela RADU
  59. Intergenerational Linkages in Household Credit By Ghent, Andra C.; Kudlyak, Marianna
  60. The Case for Fiscal Rules By Badinger, Harald; Reuter, Wolf Heinrich
  61. Intraday volatility, trading volume and trading intensity in the interbank market e-MID By Markus Engler; Vahidin Jeleskovic
  62. New Evidence on the Canada-U.S. ICT Investment Gap, 1976-2014 Selected OECD Countries, 1986-2013 By Jasmin Thomas
  63. Firing Costs, Misallocation, and Aggregate Productivity By José-María Da-Rocha; Marina Mendes Tavares; Diego Restuccia
  64. Spillovers of United States and People’s Republic of China Shocks on Small Open Economies: The Case of Indonesia By Harahap, Berry; Bary, Pakasa; Panjaitan, Linda; Satyanugroho, Redianto
  65. Ambiguous Policy Announcements By Michelacci, Claudio; Paciello, Luigi
  66. Do oil endowment and productivity matter for accumulation of international reserves? By Fatum, Rasmus; Zhu, Guozhong; Hui, Wenjie
  67. Potential Output Growth Estimates for Central America and the Dominican Republic By Roberto Garcia-Saltos; Fan Zhang; Iulia Ruxandra Teodoru
  68. Social Justice in an Ever More Diverse Union By Christian Joerges
  69. Pereat Iustitia, Fiat Mundus: What is Left of the European Economic Constitution after the OMT-Litigation? By Christian Joerges
  70. Estimating the Natural Interest Rate for Iceland: An Exploratory Study By Ásgeir Daníelsson; Ólafur Sindri Helgason; Stefán Thórarinsson
  71. Perturbaciones macroeconómicas, tasa de cambio y pass-through sobre precios By Hernán Rincón-Castro; Norberto Rodríguez-Niño; John Castro-Pantoja
  72. European Fiscal Compact in Action: Can Independent Fiscal Institutions Deliver Effective Oversight? By Michal Horvath
  73. Automatic Signal Extraction for Stationary and Non-Stationary Time Series by Circulant SSA By Bógalo, Juan; Poncela, Pilar; Senra, Eva
  74. Trends Cycles And Seasons: Econometric Methods Of Signal Extraction By D.S.G. Pollock
  75. The Aggregate Implications of Gender and Marriage By Borella, Margherita; De Nardi, Mariacristina; Yang, Fang
  76. The Continuing Relevance of Keynes's Philosophical Thinking: Reflexivity, Complexity, and Uncertainty By Davis, John B.
  77. Threshold convergence between the federal fund rate and South African equity returns around the colocation period By Phiri, Andrew
  78. The Output-Inflation Trade-Off in Switzerland, 1916 -2015 By Gerlach, Stefan
  79. Should I stay or should I go? Bayesian inference in the threshold time varying parameter (TTVP) model By Huber, Florian; Kastner, Gregor; Feldkircher, Martin
  80. Spillover Effects of Japan’s Quantitative and Qualitative Easing on East Asian Economies By Fukuda, Shin-ichi
  81. Testing for Ricardian Equivalence in Indonesia By Artidiatun Adji; James Alm
  82. The Effects of Monetary Policy Shocks on Inequality By Davide Furceri; Prakash Loungani; Aleksandra Zdzienicka
  83. International Housing Markets, Unconventional Monetary Policy and the Zero Lower Bound By Huber, Florian; Punzi, Maria Teresa
  84. Growth and Childbearing in the Short- and Long-Run By Shoumitro Chatterjee; Tom Vogl
  85. Drivers of Inflation Compensation : Evidence from Inflation Swaps in Advanced Economies By Marius del Giudice Rodriguez; Emre Yoldas
  86. Macroeconomic Imbalances and Business Cycle Synchronization. Why Common Economic Governance is Imperative for the Eurozone By Lukmanova, Elizaveta; Tondl, Gabriele
  87. Developing Land and Structure Price Indexes for Ottawa Condominium Apartments By Diewert, W. Erwin; Huang, Ning; Kate Burnett-Isaacs, Kate
  88. Who is this, who enters there? - Migration in Italy and its effect on fiscal sustainability and pensions By Bendetta Frassi; Christian Hagist; Fabio Pammolli
  89. Macro-Financial Linkages and Heterogeneous Non-Performing Loans Projections; An Application to Ecuador By Francesco Grigoli; Mario Mansilla; Martín Saldías
  90. Developing an Inclusive Innovation Agenda for Canada By Alexander Murray
  91. Climate Change and Growth Risks By Ravi Bansal; Marcelo Ochoa; Dana Kiku
  92. Market Power and Welfare in Asymmetric Divisible Good Auctions By Manzano, Carolina; Vives, Xavier
  93. Harmonic distances and systemic stability in heterogeneous interbank networks By Gabor Fukker
  94. The globalisation of inflation: the growing importance of global value chains By Raphael Auer; Claudio Borio; Andrew Filardo
  95. Fiscal Rules and Twin Deficits: The Link between Fiscal and External Balances By Badinger, Harald; Fichet de Clairfontaine, Aurélien; Reuter, Wolf Heinrich
  96. Institutional Change and Macroeconomic Performance in OECD Countries: Evidence from Subjective Well-Being Data By Heinz Welsch; Jan Kühling
  97. Impulse Response Estimation By Smooth Local Projections By Barnichon, Régis; Brownlees, Christian
  98. Housing booms and busts and local fiscal policy By Solé-Ollé, Albert; Viladecans-Marsal, Elisabet
  99. Bibliometric versus Inside-Knowledge History? An Assessment of Claveau and Gingras’s “Macrodynamics of Economics: A Bibliometric History” By Michel De Vroey
  100. Stochastic processes of limited frequency and the effects of oversampling By D.S.G. Pollock
  101. Doenças Transmissíveis e Situação Socioeconômica no Brasil: Análise Espacial By Leila Posenato Garcia; Gabriela Drummond Marques da Silva
  102. Econometric Filters By D.S.G. Pollock
  103. Financial Information and Macroeconomic Forecasts By Sophia Chen; Romain Ranciere

  1. By: Olivo, Victor
    Abstract: This paper main purpose is to analyze whether Latin America economies as a whole and on an individual basis have achieved price stability, or are moving towards this objective. After a revision of the literature on the quantitative definition of price stability, I adopt the one that has prevailed in most central banks worldwide: an inflation rate of 2% within a range between 1-3%. Comparing observed inflation and a three-year moving average of the inflation rate of Latin American countries with this benchmark, I conclude that the region has attained a low inflation but not price stability. The paper goes on to examine several factors that decrease the benefits and increase the cost of lowering inflation once this has been reduced below 10%. It also evaluates how the monetary policy strategies adopted throughout the region have influenced the achievement of price stability. I conclude that the region should avoid complacency. In a globalized world in which nations compete intensively in international trade and to attract capital flows, the achievement of the price stability objective added to others institutional reforms, could be fundamental.
    Keywords: Keywords: price stability, inflation rate, central banks, monetary policy, interest rate, monetary base.
    JEL: E3 E31 E5 E52 E58
    Date: 2016–11–30
  2. By: Bignon, Vincent; Jobst, Clemens
    Abstract: This paper shows that a central bank can more efficiently mitigate economic crises when it broadens eligibility for its discount facility to any safe asset or solvent agent. We use difference-in-differences panel regressions and emulate crises by studying how defaults of banks and non-agricultural firms were affected by the arrival of an agricultural disease. We exploit the specificities of the implementation of the discount window to deal with the endogeneity of the access to the central bank to the arrival of the crisis and local default rates. We find that broad eligibility reduced significantly the increase in the default rate when the shock hit the local economy. A counterfactual exercise shows that defaults would have been 10% to 15% higher if the central bank would have implemented the strictest eligibility rule. This effect is identified independently of changes in policy interest rates and the fiscal deficit.
    Keywords: Bagehot rule; Collateral; default rate; discount window
    JEL: E32 E44 E51 E58 N14
    Date: 2017–01
  3. By: Donato Masciandaro; Davide Romelli
    Abstract: This paper analyzes the pillar of modern central bank governance, i.e. central bank independence, highlighting three contributions. First, we provide a systematic review of the economics of central bank independence. Second, using a principal agent model we design a political economy framework, which explains how politicians can shape central bank governance in addressing macroeconomic shocks, taking into account both the wishes of the citizens and their own personal interests. This framework is then used to interpret the evolution of central bank independence from the Great Inflation throughout the Great Moderation – i.e. from the seventies to the first decade of the twenty-first century – and to the Great Recession during which recent reforms have shaken the design of the central banks by increasing their involvement in banking and financial supervision. Finally, we provide empirical evidence supporting this evolution of central bank independence using recently developed indices of dynamic central bank independence.
    Keywords: Monetary Policy, Central Bank Independence, Banking Supervision, Global Financial Crisis
    JEL: E31 E52 E58 E62
    Date: 2015
  4. By: Hiroaki Sasaki
    Abstract: This study investigates the degree to which increased shareholder power, which is important in the context of financialization, affects macroeconomic variables, exclusively income distribution, by building a Kaleckian model with firms’ debt accumulation. We find that the extent to which a decrease in firms’ retention ratio affects rentiers’ and workers’ income distribution differs according to whether the steady-state equilibrium exhibits debt-led or debt-burdened demand.
    Keywords: financialization; income distribution; firm debt
    JEL: E12 E21 E22 E32 E44
    Date: 2017–01
  5. By: Gabaix, Xavier
    Abstract: This paper presents a framework for analyzing how bounded rationality affects monetary and fiscal policy. The model is a tractable and parsimonious enrichment of the widely-used New Keynesian model - with one main new parameter, which quantifies how poorly agents understand future policy and its impact. That myopia parameter, in turn, affects the power of monetary and fiscal policy in a microfounded general equilibrium. A number of consequences emerge. (i) Fiscal stimulus or "helicopter drops of money" are powerful and, indeed, pull the economy out of the zero lower bound. More generally, the model allows for the joint analysis of optimal monetary and fiscal policy. (ii) The Taylor principle is strongly modified: even with passive monetary policy, equilibrium is determinate, whereas the traditional rational model yields multiple equilibria, which reduce its predictive power, and generates indeterminate economies at the zero lower bound (ZLB). (iii) The ZLB is much less costly than in the traditional model. (iv) The model helps solve the "forward guidance puzzle" : the fact that in the rational model, shocks to very distant rates have a very powerful impact on today's consumption and inflation: because agents are partially myopic, this effect is muted. (v) Optimal policy changes qualitatively: the optimal commitment policy with rational agents demands "nominal GDP targeting" ; this is not the case with behavioral firms, as the benefits of commitment are less strong with myopic firms. (vi) The model is "neo-Fisherian" in the long run, but Keynesian in the short run: a permanent rise in the interest rate decreases inflation in the short run but increases it in the long run. The non-standard behavioral features of the model seem warranted by the extant empirical evidence.
    Keywords: behavioral macroeconomics; bounded rationality; forward guidance; price level targetting; zero lower bound
    JEL: D03 E03 E12 E52 E6 E62 E63 G02
    Date: 2016–12
  6. By: Adiya Belgibayeva; Michal Horvath
    Abstract: The paper re-visits the literature on real rigidities in New Keynesian models in the context of an economy at the zero lower bound. It identifes strategic interaction among price- and wage-setting agents in the economy as an important determinant of both optimal policy and economic dynamics in deep recessions. In particular, labour market segmentation is shown to have a signifcant infleuence on the length of the forward commitment to keep interest rates at zero, the magnitude of the fiscal policy responses as well as inflation volatility in the economy under optimal policy.
    Keywords: Zero Lower Bound, Strategic Complementarity, Labour Market, Inflation, Income Tax, Government Spending.
    JEL: E31 E32 E52 E61 E62
    Date: 2017–01
  7. By: Born, Benjamin; Pfeifer, Johannes
    Abstract: A growing recent literature relies on a precautionary pricing motive embedded in representative agent DSGE models with sticky prices and wages to generate negative output effects of uncertainty shocks. We assess whether this theoretical model channel is consistent with the data. Building a New Keynesian model, we show that indeed with sufficient nominal rigidities markups increase and output falls after uncertainty shocks. The model is also used as a business cycle accounting device to construct aggregate markups from the data. Time-series techniques are employed to study the conditional comovement between markups and output in the data. Consistent with the model's precautionary wage setting, we find that wage markups increase after uncertainty shocks. Price markups in contrast fall. This finding - inconsistent with the model - is corroborated by industry-level data. Overall, these results point to a prominent role for sticky wages in the transmission of uncertainty shocks.
    Keywords: price markup; Uncertainty shocks; wage markup
    JEL: E01 E24 E32
    Date: 2017–01
  8. By: Halberstadt, Arne; Krippner, Leo
    Abstract: We investigate the e ect of monetary policy on European macroeconomic variables using a small-scale vector autoregression (VAR) and the "Effective Monetary Stimulus" (EMS). The EMS is a monetary policy metric obtained from yield curve data that is designed to consistently reflect the overall stance of monetary policy across conventional and uncoventional monetary policy environments. Empirically, using the EMS in our VAR obtains plausible and stable structural relationships with prices and output developments across and within conventional and unconventional environments, and more so than short-maturity rates or alternative metrics, suggesting that it provides a useful practical monetary policy metric for policy makers. The VAR results show that European monetary policy shocks have been accommodative since 2007, although their e ect has become more uncertain compared to the conventional policy period.
    Keywords: Monetary Policy,Zero Lower Bound,Dynamic Term Structure Model
    JEL: E43 E44 E52
    Date: 2016
  9. By: Jiménez Polanco, Miguel A.; Ramírez de León, Francisco A.
    Abstract: We estimate a Financial Conditions Index (FCI) for the Dominican Republic (DR) for the sample 2003 – January 2016 using the principal component analysis methodology and the Hatzius et al. (2010) approach. The estimated FCI captures the periods of financial stress of the Dominican economy in the analyzed sample, i.e. the banking crisis of 2003-2004 and the great financial crisis of 2007-2009. Additionally, to prove our FCI could be used as a tool of analysis and detections of financial conditions for policy makers, we make a special effort in discussing the indicator’s robustness.
    Keywords: Financial Condition Indexes, Principal Components Analysis, Dominican Republic.
    JEL: E32 E4 E44 E47 E51 G01 G10
    Date: 2016–12–27
  10. By: Breach, Tomas; D'Amico, Stefania; Orphanides, Athanasios
    Abstract: This paper develops and estimates a Quadratic-Gaussian model of the US 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 IRP has important implications for the other components of the nominal yield: expected real rates, expected inflation, and real risk premia.
    Keywords: Hidden Factors; Inflation Risk Premium; Quadratic-Gaussian Term Structure Models; Survey Forecasts
    JEL: C58 E43 E44 G12
    Date: 2016–12
  11. By: Francesco Saraceno (OFCE Sciences PO)
    Abstract: The Economic and Monetary Union (EMU) institutions are consistent with a New Consensus that emerged in the 1980s, limiting the role for macroeconomic (particularly fiscal) policy to short term stabilizations by means of rules. I will argue that the policy inertia induced by the Consensus may have played a role in the disappointing performance of EMU economies even before the crisis. The crisis of the Consensus, and the debate on secular stagnation, proved that Keynesian (and possibly) persistent excesses of savings over investment may hamper growth. This has put fiscal policy back to the center of the scene, and given the General Theory, at eighty, a second youth. I will argue therefore that the EMU fiscal rule should be amended to allow semi-permanent negative government savings. I will finally argue that a modified Golden Rule may serve this objective, and allow EU-wide policy coordination. This seems the only reasonable reform with some chances of being adopted by the EU divided policy makers.
    Keywords: Fiscal rules, fiscal policy, EMU, golden rule, secular stagnation, Keynes, policy mix, public investment
    JEL: B22 E02 E62 E65
    Date: 2016–12
  12. By: Aleksandar Vasilev (Department of Economics, American University in Bulgaria)
    Abstract: In this paper we investigate the quantitative importance of efficiency wages in explaining uctuations 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 efort 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, eciency wages, unemployment, Bulgaria
    JEL: E24 E32 J41
    Date: 2017–01
  13. By: Huang, Xianguo (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute)
    Abstract: This paper studies the impact of tax-financed universal health coverage schemes on macroeconomic aspects of labor supply, asset holding, inequality, and welfare, while taking into account features common to developing economies, such as informal employment and tax avoidance, by constructing a dynamic stochastic general equilibrium model with heterogeneous agents. Agents have different education levels, employment statuses, and idiosyncratic shocks. Given three tax financing options, calibration results based on the Thai economy suggest that the financing options matter for outcomes both at the aggregate and disaggregate levels. Universal health coverage, financed by labor income tax revenue, could reduce inequality due to its large redistributive role. Social welfare cannot be improved when labor decisions are endogenous and distortions are higher than the redistributive gains for all tax financing options. In the absence of labor supply choice, mild welfare gains are found. In a broader sense, the paper aims to provide a frame for policy evaluation of socioeconomic policies from both macro and micro perspectives, taking different social groups into consideration.
    Keywords: universal health insurance; dynamic stochastic general equilibrium model; tax finance; social welfare; labor supply
    JEL: E24 E26 E62 H23 H51 J11
    Date: 2016–12–31
  14. By: Clemens Struck (University College Dublin); Adnan Velic (Dublin Institute of Technology)
    Abstract: Following standard macroeconomic theory, a non-increasing long-run share of labor in income combined with a capital-labor substitution elasticity of less than unity implies that productivity growth should be labor-augmenting. Employing an industry decomposition for the U.S., we find that technical progress is factor neutral. However, we stress potential inflation measurement errors manifested in the form of non-positive long-term productivity growth in a number of industries. We illustrate that estimates of the bias of technical change are quite sensitive to these measurement issues. If aggregate inflation is annually overstated by as little as a third of a percentage point, technical progress is already over 50 percent higher in the labor-intensive sector than in the capital-intensive sector. Thus, even the presence of small positive inflation biases could very well mean that technical change is notably labor augmenting.
    Keywords: technical change, labor-augmenting, measurement error, inflation bias
    JEL: E1 E13 E31 O31
    Date: 2017–01
  15. By: Lee, Seungduck
    Abstract: This paper examines the effect of monetary policy on the liquidity premium, i.e., the market value of the liquidity services that financial assets provide. To guide the empirical analysis, I set up a monetary search model in which bonds provide liquidity services in addition to money. The theory predicts that money supply and nominal interest rates are positively correlated with the liquidity premium, but the premium is negatively correlated with the bond supply. The empirical analysis over the period from 1946 and 2008 confirms the theoretical predictions. This indicates that liquid bonds are substantive substitutes for money and the opportunity cost of holding money plays a key role in asset price determination. Lastly, the theory rationalizes the existence of negative nominal yields in equilibrium, when the cost of holding money is low whereas liquid bonds are scarce, and I present empirical findings to support it.
    Keywords: asset price, monetary search model, liquidity, liquidity premium, money supply, negative nominal yield
    JEL: E31 E41 E51 E52 G12
    Date: 2016–10–31
  16. By: Balliester Reis, Thereza
    Abstract: This paper discusses the reasons for Brazil.s high policy real interest rates by considering two opposing views, the orthodox and heterodox approaches. While orthodox authors defend the position that bad domestic policies are the cause of the high interest rate, heterodox economists claim that the international financial system and orthodox policies influence the level of the policy rate in Brazil. The aim of this study is to assess whether the proposed arguments can be supported when comparing Brazilian real interest rates with other developing countries under the same monetary regime. The conclusion is that, although the orthodox and heterodox arguments are both intuitively plausible, when comparing stylized facts and testing the hypotheses econometrically neither is sufficient to elucidate the Brazilian case. The paper concludes by suggesting that there might be political causes of the high real interest rates in Brazil such as a politically influential rentier class.
    Keywords: Brazil,Central Bank,interest rate,monetary policy,developing countries
    JEL: E43 E58
    Date: 2016
  17. By: Punzi, Maria Teresa (Asian Development Bank Institute); Chantapacdepong, Pornpinun (Asian Development Bank Institute)
    Abstract: We assess the evolution of spillover effects of unconventional monetary policies on Asia and the Pacific region, and evaluate the impact on and implications for the macroeconomy. We develop a Panel Vector Auto Regression model for the Asia and Pacific region for a period covering data from first quarter 2000 until first quarter 2015. We split the overall sample into two subsets: the Pre-Crisis (2000q1–2006q4) and Post-Crisis (2009q1–2015q1) samples. We identify unconventional monetary policy shocks with a shadow interest rate estimated by Krippner (2013). We find that Asia and the Pacific region has responded to the advanced economies’ actions with accommodative monetary policy. Such lower interest rates were coupled with currency appreciation, asset price inflation, and strong movements in capital flows. Foreign investors have shifted their preferences for bonds in Asia and the Pacific. If prior to the Global Financial Crisis, the “global saving glut” hypothesis (i.e., Asian savings flight to the US) was one of the major effects resulting in booming US house prices, it is clear that a reversal effect has dominated the economy after the Global Financial Crisis: funds flight to Asia and the Pacific region putting pressure on asset prices, leading to financial vulnerability.
    Keywords: spillover effects; unconventional monetary policy (UMP); Global Financial Crisis (GFC); funds flight; global savings glut
    JEL: E44 E52 F41
    Date: 2017–01–05
  18. By: Svensson, Lars E O
    Abstract: "Leaning against the wind" (of asset prices and credit booms) (LAW), that is, a somewhat tighter monetary policy and a higher policy interest rate, has costs in terms of a weaker economy with higher unemployment and lower inflation. It has been justified by possible benefits in terms of a lower probability or magnitude of a future financial crisis. A worse macro outcome in the near future is then considered to be an acceptable cost to be traded off against a better expected macro outcome further into the future. But a crisis can come any time, and the cost of a crisis is higher if initially the economy is weaker due to previous LAW. LAW thus has an additional cost in the form of a higher cost of a crisis when a crisis occurs. With this additional cost, for existing empirical estimates, the costs of LAW exceed by a substantial margin the possible benefits from a lower probability of a crisis. Furthermore, empirically a lower probability of a crisis is associated with lower real debt growth. But if monetary policy is neutral in the long run, it cannot affect real debt in the long run. Then, if a higher policy rate would result in lower debt growth and a lower probability of a crisis for a few years, this is followed by higher debt growth and a higher probability of a crisis in the future. This implies that the cumulated benefits over time of LAW are close to zero. But even if monetary policy is assumed to be non-neutral and permanently affect real debt, empirically the benefits are still less than the costs. Finally, somewhat surprisingly, less effective macroprudential policy, and generally a credit boom, with resulting higher probability, magnitude, or duration of a crisis, increase costs of LAW more than benefits, thus making costs exceed benefits by an even larger margin.
    Keywords: financial stability; macroprudential policy; monetary policy
    JEL: E52 E58 G01
    Date: 2017–01
  19. By: Feldkircher, Martin; Huber, Florian
    Abstract: In this paper we compare the transmission of a conventional monetary policy shock with that of an unexpected decrease in the term spread, which mirrors quantitative easing. Employing a time-varying vector autoregression with stochastic volatility, our results are two-fold: First, the spread shock works mainly through a boost to consumer wealth growth, while a conventional monetary policy shock affects real output growth via a broad credit / bank lending channel. Second, both shocks exhibit a distinct pattern over our sample period. More specifically, we find small output effects of a conventional monetary policy shock during the period of the global financial crisis and stronger effects in its aftermath. This might imply that when the central bank has left the policy rate unaltered for an extended period of time, a policy surprise might boost output particularly strongly. By contrast, the spread shock has affected output growth most strongly during the period of the global financial crisis and less so thereafter. This might point to diminishing effects of large scale asset purchase programs. (authors' abstrct)
    Keywords: Unconventional monetary policy; transmission channel; Bayesian TVP-SV-VAR
    Date: 2016–03
  20. By: Hirose, Yasuo; Kurozumi, Takushi; Van Zandweghe, Willem (Federal Reserve Bank of Kansas City)
    Abstract: This paper revisits the question of how the Federal Reserve achieved macroeconomic stability after the Great Inflation of the 1970s.
    Keywords: Monetary policy; Great inflation; Equilibrium indeterminacy; Generalized New Keynesian Phillips curve; Sequential Monte Carlo algorithm
    JEL: C11 C52 C62 E31 E52
    Date: 2017–01–04
  21. By: He, Qing; Liu, Fangge; Qian, Zhongxin; Chong, Terence Tai Leung
    Abstract: We investigate the interaction between the real estate market and the business cycle volatility in China over the past two decades. A Bayesian dynamic stochastic general equilibrium (DSGE) model with nominal stickiness and collateral constraints is estimated. It is found that shocks from the housing market (e.g., loan-to-value ratio and housing preference shocks) affect the macroeconomy of China. The interactive feedback between credit constraints and housing prices amplifies the impact of various economic shocks, which plays an important role in explaining the business cycle volatility in China.
    Keywords: housing prices; business cycle; DSGE; China
    JEL: E32 E42 R31
    Date: 2016–07–21
  22. By: Juan Carlos Berganza (Banco de España); Pedro del Río (Banco de España); Fructuoso Borrallo (European Central Bank)
    Abstract: In this paper we look at global inflation trends over the last decade and try to disentangle factors that could explain the ultra-low levels of inflation during the recovery from the Great Recession. We review the literature on the subject, which points at possible structural shifts in price and wage setting processes in recent decades, such as inflation’s reduced cyclical sensitivity to domestic economic slack, a bigger role being played by forward-looking inflation expectations, and the increased importance of global factors. We then test empirically whether changes in the coefficients of the Phillips curve in the wake of the global financial crisis can explain the behaviour of inflation over this period for a large group of advanced economies. Our results show a wide range of variation between countries, and in some cases the findings are insufficiently robust to offer a satisfactory explanation of the recent course of inflation. Nevertheless, the persistence of inflation and the increased importance of backward-looking inflation expectations in some countries may pose risks for inflation-expectation anchoring and central bank credibility. Finally, we review the adverse effects on the real economy of ultra-low inflation over an extended period and analyse the policy options for addressing this problem.
    Keywords: inflation, inflation expectations, Phillips curve, monetary policy.
    JEL: E31 E32 E50
    Date: 2016–12
  23. By: Diewert, W. Erwin; Fox, Kevin J.
    Abstract: Using the new Bureau of Economic Analysis (BEA) Integrated Macroeconomic Accounts as well as other BEA data, we construct a set of productivity accounts for two key sectors of the US economy: the Corporate Nonfinancial Sector (Sector 1) and the Noncorporate Nonfinancial Sector (Sector 2). Calculating user costs of capital based on, alternatively, ex post and predicted asset price inflation rates, we provide alternative estimates for capital services and Total Factor Productivity growth for the two sectors. Rates of return on assets employed are also reported for both sectors. Finally, the paper compares rates of return on assets employed and TFP growth rates when the land and inventory components are withdrawn from the asset base.
    Keywords: User cost of capital, Total Factor Productivity, rate of return on assets, Integrated Macroeconomic Accounts, Bureau of Economic Analysis, ex post and
    JEL: B25 C43 C82 D24 E22 E43
    Date: 2016–06–30
  24. By: Elod Takats; Judit Temesvary
    Abstract: We investigate how the use of a currency transmits monetary policy shocks in the global banking system. We use newly available unique data on the bilateral cross-border lending flows of 27 BIS-reporting lending banking systems to over 50 borrowing countries, broken down by currency denomination (USD, EUR and JPY). We have three main findings. First, monetary shocks in a currency significantly affect cross-border lending flows in that currency, even when neither the lending banking system nor the borrowing country uses that currency as their own. Second, this transmission works mainly through lending to non-banks. Third, this currency dimension of the bank lending channel works similarly across the three currencies suggesting that the cross-border bank lending channel of liquidity shock transmission may not be unique to lending in USD.
    Keywords: Bank lending channel ; Cross-border bank lending ; Currency denomination ; Monetary transmission
    JEL: E5 F42 G21
    Date: 2016–12
  25. By: Aguilar-Argaez Ana María; Elizondo Rocío; Roldán-Peña Jessica
    Abstract: This document studies the recent evolution of the break-even-inflation implicit in the yields of long-term financial instruments in Mexico. In particular, it analyzes the dynamics of its main components: the long-run inflation expectation and the inflationary risk premium, which are estimated by means of an affine term structure model of interest rates. The results show that the gradual reduction registered in such compensation in the last years is the result of the decrease showed by both components. This reflects, on the one hand, the progressive convergence of the estimated inflation expectation to Banco de México's inflation target as well as its anchoring and, on the other hand, that nominal-bond holders have required a lower hedging against future inflation, possibly, as a reflection of a lower risk perception associated to it.
    Keywords: Inflation;Break-even-inflation;Inflation expectation;Inflationary risk premium
    JEL: E31 E43 E52 G12
    Date: 2016–12
  26. By: Boneva, Lena; Harrison, Richard; Waldron, Matt
    Abstract: "Threshold-based forward guidance" (TBFG) is a state-contingent commitment to hold the policy rate at the zero lower bound until macroeconomic variables breach particular "thresholds". Though such guidance has been implemented in practice, little is known about how this policy works in theory. This paper fills that gap by studying threshold-based guidance as a tool to improve outcomes at the zero bound within a general equilibrium framework. Policymakers have rarely advocated using TBFG to provide stimulus, in part reflecting skepticism about their ability to commit credibly to time inconsistent behavior. We show that TBFG can be used to provide temporary stimulus, while also limiting the time inconsistency of policy promises. We also show that existence of a unique equilibrium requires the policymaker to specify how the thresholds should be interpreted, as well as their values. The optimal design of the threshold conditions depends on the relative importance of those shocks that induce a trade-off between stabilizing output and inflation and those that do not. With an appropriate choice of thresholds, TBFG outperforms forward guidance based purely on calendar time and comes close to mimicking outcomes under optimal commitment policy.
    Keywords: forward guidance; monetary policy; thresholds; zero lower bound
    JEL: E17 E31 E52
    Date: 2017–01
  27. By: Sergey Ivashchenko; Rangan Gupta
    Abstract: New simple forms of deviation from rational expectations (RE) are suggested: temporary near-rational expectations (TNRE) and persistent near-rational expectations (PNRE). The medium-scale DSGE model was estimated with the RE, the TNRE and the PNRE. It was estimated with and without observations from the survey's expectations. The quality of the out-of-sample forecasts was estimated. It is shown that near-rational concepts produce the same advantages as learning, without its disadvantages (including the absence of ‘learning expectations’ reactions on policy change). The influence of the observed expectations on forecasting quality was analysed.
    Keywords: DSGE; out-of-sample forecasts; survey expectations; near-rational expectations.
    JEL: E32 E37 E47
    Date: 2017–01–04
  28. By: Svensson, Lars E O
    Abstract: The main result in Svensson (2017) and its previous versions is that, given current knowledge and empirical estimates, the cost of using monetary policy to lean against the wind' for financial-stability purposes exceeds the benefit by a substantial margin. Adrian and Liang conduct a sensitivity analysis of this result, state that 'the result that costs exceed benefits rely critically on assumptions about the change in unemployment in a recession or crisis, the crisis probability, and the elasticity of crisis probability with respect to the interest rate,' and provide alternative assumptions that they assert would overturn the result. This paper shows that Adrian and Liang's alternative assumptions are hardly realistic: they exceed existing empirical estimates by more than 11, 13, and 40 standard errors. Adrian and Liang furthermore do not comment on the extensive sensitivity analysis already done in previous versions of Svensson (2017), which supports the robustness of my result.
    Keywords: Financial crises; financial stability; monetary policy
    JEL: E52 E58 G01
    Date: 2017–01
  29. By: Jimenez Polanco, Miguel A.; Ramírez Escoboza, Merlym
    Abstract: Manufacturing Surveys conducted by central banks, serve as a support to monetary policy decisions. This research analyzes the predictive power of indicators from EOE manufacturing survey of the Central Bank of the Dominican Republic to predict the economic cycle and to the development of macroeconomic forecasts. Additionally, we made an analysis of the indicators built from the qualitative responses of the survey and how they are related to official data. This analysis is performed by extracting the cyclical component using the Bry-Boschan (1971) approach used by the NBER for the analysis of business cycles. By doing this, the turning points of the series are identified. We estimate bivariate Vector Autoregressive to test for Granger causality in order to see if there is predictive causality in the indicators from EOE. Finally, we develop some forecasting exercises that show evidence of substantial improvements in short-term forecasts of the Monthly Economic Activity Index (IMAE), when indicators from the manufacturing survey are included. We conclude that the indicators obtained from the surveys have predictive information that can be used to model economic activity and that can serve as a support for the monetary policy decisions.
    Keywords: Surveys, Diffusion Index, Cyclical Component.
    JEL: E32
    Date: 2015–12–01
  30. By: Malgorzata Olszak (Department of Banking and Money Markets, Faculty of Management, University of Warsaw, Poland); Iwona Kowalska (Department of Mathematics and Statistical Methods, Faculty of Management, University of Warsaw, Poland); Sylwia Roszkowska (Faculty of Economic and Social Sciences, University of £ódŸ, National Bank of Poland, Poland)
    Abstract: In this paper we ask about the capacity of macroprudential policies to reduce the positive association between loans growth and the capital ratio. We focus on aggregated macroprudential policy measures and on individual instruments and test whether their effect on the association between lending and capital depends on bank size, the economic development of a country as well as on the extent of capital account openness. Applying the GMM 2-step Blundell and Bond approach to a sample covering over 60 countries, we find that macroprudential policy instruments reduce the impact of capital on bank lending during both crisis and non-crisis times. This result is stronger in large banks than in other banks. Of individual macroprudential instruments, only borrower-targeted LTV caps and DTI ratio weaken the association between lending and capital. Our results also show that the effect of macroprudential policies on the association between lending and the capital ratio in non-crisis periods is stronger in advanced countries than in emerging countries. Additionally, differentiating by the level of capital account openness, we find that macroprudential policies are more effective in increasing the resilience of banks and thus weakening the association between loan supply and capital ratio for relatively closed economies but less effective for relatively open economies. Generally, with our study we are able to support the view that macroprudential policy has the potential to curb the procyclical impact of bank capital on lending and therefore, the introduction of more restrictive international capital standards included in Basel III and of macroprudential policies are fully justified.
    Keywords: loan supply, capital ratio, procyclicality, macroprudential policy
    JEL: E32 G21 G28 G32
    Date: 2016–08
  31. By: David Kiefer
    Abstract: A standard model of activist macroeconomic policy derives a monetary reaction rule by assuming that governments have performance objectives, but are constrained by an augmented Phillips curve. In addition to monetary policy, governments apply a variety of instruments to influence inflation and output, including fiscal policy, bailouts and foreign exchange policy, but effectiveness is limited by Phillips curve flatness. Solving the Phillips curve and reaction rule for a reduced form, we study this theory with a panel of countries. A textbook version of the activist model leads to disappointing results; the activist model fits the data only slightly better than a flat-Phillipscurve benchmark. The econometric results are enhanced by accounting for autocorrelated shocks. Although results are mixed, our interpretation favors inertial inflation expectations over rational ones. An extension of this approach suggests that US policy is more effective than that of European governments, finding that the US Phillips curve is more than twice as steep.
    Keywords: stabilization policy, inflation targets, expectations JEL Classification: E61, E63
    Date: 2016
  32. By: Jiménez Polanco, Miguel Alejandro; López Hawa, Nabil; Ramírez Escoboza, Merlym
    Abstract: In this paper we construct real activity composite indicators for service, industry and agricultural sectors, using of principal components analysis. The proposed indicators are the result of the first principal component that summarizes the common movements shared by the series of each sector. The results indicate that each of the composite indicators constructed show a high correlation with real economic activity of the sector that they represent. Additionally, these indicators are capable of capturing the secular movements of business cycle. These indicators may help in the analysis of real activity and provide signals of where the economy is going.
    Keywords: Principal Components, Common Factor, Business Cycle Analysis.
    JEL: E30 E32 E52
    Date: 2016–12–01
  33. By: Jena, Pratap Ranjan (National Institute of Public Finance and Policy)
    Abstract: The paper examines the medium-term fiscal policy (MTFP) and a more conventional medium-term expenditure framework (MTEF) adopted in India under the provisions of the fiscal rules. The MTFP and the MTEF, professed to improve fiscal discipline in the context of fiscal rules, did not promote a multi-year budget planning process. The abolition of the five-year development planning process and the subsequent decision to remove plan and non-plan classification from budget classification created a void with regard to the budget planning. This has necessitated developing a revamped fiscal architecture in the form of a medium-term framework to widen the short horizon of the annual budgeting exercise. The paper makes a case for developing structured medium-term budgeting framework (MTBF) building on the existing institutional framework both at the Central and at the subnationallevel and subsequently incorporating performance indicators in sector strategies.
    Keywords: Budgeting system : Multi-year Expenditure Framework : Fiscal Rules ; Performance Budgeting and Strategic Planning
    JEL: E61 E62 H61
    Date: 2017–01
  34. By: Ricardo Reis (Economics Department London School of Economics (LSE); Centre for Macroeconomics (CFM))
    Abstract: Central banks affect the resources available to fiscal authorities through the impact of their policies on the public debt, as well as through their income, their mix of assets, their liabilities, and their own solvency. This paper inspects the ability of the central bank to alleviate the fiscal burden by in uencing different terms in the government resource constraint. It discusses five channels: (i) how in ation can (and cannot) lower the real burden of the public debt, (ii) how seignorage is generated and subject to what constraints, (iii) whether central bank liabilities should count as public debt, (iv) how central bank assets create income risk, and whether or not this threatens its solvency, and (v) how the central bank balance sheet can be used for fiscal redistributions. Overall, it concludes that the scope for the central bank to lower the fiscal burden is limited.
    Keywords: Monetary Policy, Reserves, Interest Rates, Quantitative Easing
    JEL: E58 E63 E52
    Date: 2016–12
  35. By: Huber, Florian; Fischer, Manfred M.
    Abstract: This paper develops a multivariate regime switching monetary policy model for the US economy. To exploit a large dataset we use a factor-augmented VAR with discrete regime shifts, capturing distinct business cycle phases. The transition probabilities are modelled as time-varying, depending on a broad set of indicators that influence business cycle movements. The model is used to investigate the relationship between business cycle phases and monetary policy. Our results indicate that the effects of monetary policy are stronger in recessions, whereas the responses are more muted in expansionary phases. Moreover, lagged prices serve as good predictors for business cycle transitions. (authors' abstract)
    Keywords: Non-linear FAVAR; business cycles; monetary policy; structural model
    Date: 2015–08
  36. By: Rose, Andrew K
    Abstract: I investigate whether countries that use unconventional monetary policy (UMP) experience export booms. I use a popular gravity model of trade which requires neither the exogeneity of UMP, nor instrumental variables for UMP. In practice, countries that engage in UMP experience a drop in exports vis-à -vis countries that are not engaged in such policies, holding other things constant. Quantitative easing is associated with exports that are about 10% lower to countries not engaged in UMP; this amount is significantly different from zero and similar to the effect of negative nominal interest rates. Thus there is no evidence that countries have gained export markets through unconventional monetary policy; any currency wars launched have been lost.
    Keywords: bilateral; data; easing; empirical; Gravity; interest; negative; nominal; quantitative; Trade
    JEL: E58 F14
    Date: 2017–01
  37. By: Ricardo Reis
    Abstract: Central banks affect the resources available to fiscal authorities through the impact of their policies on the public debt, as well as through their income, their mix of assets, their liabilities, and their own solvency. This paper inspects the ability of the central bank to alleviate the fiscal burden by influencing different terms in the government resource constraint. It discusses five channels: (i) how inflation can (and cannot) lower the real burden of the public debt, (ii) how seignorage is generated and subject to what constraints, (iii) whether central bank liabilities should count as public debt, (iv) how central bank assets create income risk, and whether or not this threatens its solvency, and (v) how the central bank balance sheet can be used for fiscal redistributions. Overall, it concludes that the scope for the central bank to lower the fiscal burden is limited.
    JEL: E52 E58 E63
    Date: 2016–12
  38. By: Reis, Ricardo
    Abstract: Central banks affect the resources available to fiscal authorities through the impact of their policies on the public debt, as well as through their income, their mix of assets, their liabilities, and their own solvency. This paper inspects the ability of the central bank to alleviate the fiscal burden by influencing different terms in the government resource constraint. It discusses five channels: (i) how inflation can (and cannot) lower the real burden of the public debt, (ii) how seignorage is generated and subject to what constraints, (iii) whether central bank liabilities should count as public debt, (iv) how central bank assets create income risk, and whether or not this threatens its solvency, and (v) how the central bank balance sheet can be used for fiscal redistributions. Overall, it concludes that the scope for the central bank to lower the fiscal burden is limited.
    Keywords: interest rates; monetary policy; Quantitative easing; Reserves
    JEL: E52 E58 E63
    Date: 2017–01
  39. By: Diewert, W. Erwin; Fox, Kevin J.
    Abstract: One of the problems with index number methods for computing TFP growth is that during recessions, these methods show declines in TFP and this seems to imply that technical progress is negative during these periods. This is rather implausible since it implies technological regress; i.e., that that the production frontier has contracted. The paper works out a nonparametric method where one can decompose TFP growth into two components: a technical progress component (i.e., a shift in the production frontier over time) and an inefficiency component that is due to the fixity of capital and labour in the short run. The new decomposition is illustrated using the new Bureau of Economic Analysis (BEA) Integrated Macroeconomic Accounts which facilitated the construction of a set of productivity accounts for two key sectors of the US private business sector: the Corporate Nonfinancial Sector and the Noncorporate Nonfinancial Sector. The analysis sheds light on productivity growth slowdowns over the period 1960 to 2014.
    Keywords: Total Factor Productivity, user costs, measures of technical progress, measures of technical and allocative inefficiency, nonparametric cost functions
    JEL: C43 C61 C67 C82 D24 E22
    Date: 2016–06–30
  40. By: Valerio Filoso, Valerio; Panico, Carlo; Papagni, Erasmo; Francesco, Purificato; Vázquez Suarez, Marta
    Abstract: According to the literature, two main factors sparked the European debt crisis: (1) macroeconomic imbalances originated by national governments and (2) institutional design flaws leading to feeble response by European authorities; still, economists disagree on the factors' strength. Using Bai and Perron's technique, we contribute to the debate by identifying break dates in Greece, Italy and Spain daily values of 10-year public bonds’ interest rates and link them to key political and institutional events. Also, employing GARCH and EGARCH models, we investigate how interest rates spreads' volatility reacted to crucial and long-lasting events. Our results uncover the following facts about the crisis: a) it began in May 2010, while the first aid programme for Greece was approved; b) worsened after summer 2011, as the European authorities hastened restructuring the Greek sovereign debt; c) improved only during summer 2012, when the ECB Governing Council approved a programme for the purchase of sovereign bonds. On the whole, our results point at institutional failures as the main cause of the European debt crisis.
    Keywords: European debt crisis, Interest rates, Public debt, Event study
    JEL: E42 E44 G12 G14 H63
    Date: 2016–12–28
  41. By: Dimitris Christelis (University of Naples Federico II, CSEF, CFS and CEPAR); Michael Ehrmann (European Central Bank); Dimitris Georgarakos (European Central Bank, CFS and University of Leicester)
    Abstract: Household debt has played a central role in the global financial crisis, yet our understanding of it remains limited. We put U.S. household leverage in an international perspective, using household-level data for the United States and ten euro area economies. U.S. households have the highest prevalence of collateralized and non-collateralized debt, hold comparatively large amounts, and face higher debt-service burdens despite having higher income. We find that the U.S. economic environment is more conducive to holding debt, primarily because a given level of collateral is associated with higher prevalence and larger amounts of collateralized debt in the United States.
    Keywords: household debt, debt burden, household finance, counterfactual decompositions.
    JEL: D12 E21 G11
    Date: 2017–01–09
  42. By: Surico, Paolo; Trezzi, Riccardo
    Abstract: The introduction of a temporary housing tax as prominent part of the 2011 fiscal consolidation plan generated a sizable quasi-experiment across Italian municipalities and households, which we exploit to study the effects of this policy on consumer spending. The tax hike on the main dwelling led to large expenditure cuts (especially on vehicle purchases) among mortgagors, who hold low liquid wealth relative to income despite owning sizable illiquid assets. In contrast, higher tax rates on other residential properties mostly affected affluent home-owners, thereby having only a negligible impact on consumer spending.
    Keywords: fiscal consolidation; housing taxes; marginal propensity to consume; mortgage debt.; tax hike
    JEL: E21 E62
    Date: 2016–12
  43. By: Dabla-Norris, Era; Ji, Yan; Townsend, Robert M; Unsal, Derya Filiz
    Abstract: We develop a micro-founded general equilibrium model with heterogeneous agents and three dimensions of financial inclusion: access (determined by a participation cost), depth (determined by a borrowing constraint), and intermediation efficiency (determined by a monitoring cost). We find that the economic implications of financial inclusion policies vary with the source of frictions. In partial equilibrium, we show analytically that relaxing each of these constraints separately increases GDP. However, when constraints are relaxed jointly, the impacts on the intensive margin (increasing output per entrepreneur with access to credit) are amplified, while the impacts on the extensive margin (promoting credit access) are dampened. In general equilibrium, we discipline the model with firm-level data from six countries and quantitatively evaluate the policy impacts. Multiple frictions are necessary to match the country-specific variables, e.g., credit access ratio, interest rate spread, and non-performing loans. A TFP decomposition finds that most of the productivity gains are captured by a between-regime shifting effect, whereby talented entrepreneurs obtain credit and expand their businesses. In terms of inequality and welfare, reducing the participation cost benefits talented-but-poor agents the most, while relaxing the borrowing constraint or intermediation cost is more beneficial for talented-and-wealthy agents.
    JEL: C54 E23 E44 E69 O11 O16 O57
    Date: 2017–01
  44. By: Qichun, Zhang (Asian Development Bank Institute); Shufang, Li (Asian Development Bank Institute)
    Abstract: Fiscal decentralization has been established in the People’s Republic of China (PRC), but crises emerge at the local government level due to remaining problems of the fiscal administration system of tax allocation and the impact of replacing the business tax with a value added tax. The PRC taxation system requires readjustment and local governments have begun to focus on innovative financing models. The main path to stable and sustainable government finances is to maintain the general public budget and the government fund budget. We show that the use of innovative fundraising and financing channels will lead to the upgrading of local government infrastructure and public service. Suggestions for enhancing local government fiscal stability and sustainability include: reducing the fiscal burden at the local level by standardizing and legalizing outlay responsibilities at all government levels; forming a long-term fiscal growth mechanism by establishing a modern taxation system; establishing a standardized and predictable transfer payment system by introducing block transfer payments and prioritized transfer payments as a basis for a stable growth mechanism for general transfer payments; promoting public-private partnership legislation to encourage participation of social capital and maximize the multiplier effect of public expenditure; improving the mid-term budget and debt-annexed budget; and establishing a government planning mechanism for investment and debt financing of major infrastructure construction projects.
    Keywords: Local government; fiscal stability; fiscal sustainability; fiscal administration; China’s “new normal”
    JEL: E62
    Date: 2016–12–31
  45. By: Xu, Ying (Asian Development Bank Institute); La, Hai Anh (Asian Development Bank Institute)
    Abstract: This paper assesses the spillover effects of the United States’ unconventional monetary policy (i.e., quantitative easing programs adopted during 2008–2014) on the Asian credit market. With a focus on cross-border bank lending, we employed firm-level loan data with regard to the syndicated loan market and measured the international bank lending channel through changes in United States dollar-denominated loans extended to Asian borrowers. We found that the growth of dollar credit in Asia increased substantially in response to quantitative easing in the United States financial market. The results of this study confirm the existence of the bank lending channel in Asia and emphasize the role of credit flows in transmitting financial conditions. The paper also provides new evidence of cross-border liquidity spillover in the syndicated loan market. We found that the overall spillover effect was large but differed significantly in Asia by types of borrowing firms, financing purposes, and loan terms at different stages of the quantitative easing programs. The paper concludes with a discussion of relevant policy implications for the region.
    Keywords: Spillovers; unconventional monetary policy; UMP; United States; Asian credit market; credit flows; spillover effects; cross-border liquidity; bank lending channel
    JEL: F21 F36 G01 G21 G28
    Date: 2016–12–31
  46. By: Martin Shubik (Cowles Foundation, Yale University)
    Abstract: This essay is the third of three. The first is nontechnical and in part autobiograhpical describing the evolution of my approach to developing a microeconomic theory of money institutions. The second essay was devoted to a more formal sketch of a closed economic exchange system with no other externalities beyond money and markets. This essay builds on the existence of monetary exchange but also context, and active government with nonsymmetric information and many externaties indicate that the views of Keynes, Hayek and Schumpeter are all consistent with the next stages of complexity as the logic requires many different arrays of institutions to provide the necessary economic functions and adjust to the variety of socio-economic contexts.
    Keywords: Schumpeter, Keynes, aggregation, information, disequilibrium, minimal institutions, innovation, playable games
    JEL: C7 D50 E4
    Date: 2016–12
  47. By: Crespo Cuaresma, Jesus; Doppelhofer, Gernot; Feldkircher, Martin; Huber, Florian
    Abstract: We analyze the interaction between monetary policy in the US and the global economy proposing a new class of Bayesian global vector autoregressive models that accounts for time-varying parameters and stochastic volatility (TVP-SV-GVAR). Our results suggest that US monetary policy responds to shocks to the global economy, in particular to global aggregate demand and monetary policy shocks. On the other hand, US-based contractionary monetary policy shocks lead to persistent international output contractions and a drop in global inflation rates, coupled with rising interest rates in advanced economies and a real depreciation of currencies with respect to the US dollar. We find considerable evidence for heterogeneity in the spillovers across countries, as well for changes in the transmission of monetary policy shocks over time. (authors' abstract)
    Keywords: Global vector autoregression; time-varying parameters; stochastic volatility; monetary policy; international spillovers
    Date: 2015–11
  48. By: Huber, Florian; Kaufmann, Daniel
    Abstract: We estimate a multivariate unobserved components stochastic volatility model to explain the dynamics of a panel of six exchange rates against the US Dollar. The empirical model is based on the assumption that both countries' monetary policy strategies may be well described by Taylor rules with a time-varying inflation target, a time-varying natural rate of unemployment, and interest rate smoothing. The estimates closely track major movements along with important time series properties of real and nominal exchange rates across all currencies considered. The model generally outperforms a benchmark model that does not account for changes in trend inflation and trend unemployment. (authors' abstract)
    Keywords: Exchange rate models; trend inflation; natural rate of unemployment; Taylor rule; unobserved components stochastic volatility model
    Date: 2016–01
  49. By: Habimana, Olivier
    Abstract: This paper investigates the extent to which macroeconomic fundamentals explain movements in the Swedish Krona against the Danish Krone and the Norwegian Krone exchange rates; three currencies of neighboring countries that are main trade partners and with long-term economic similarities. Exchange rates and fundamentals are decomposed into wavelet scales to gauge the explanatory power of the monetary model at different frequencies. There is a significant relationship between interest rate, inflation, and to a lesser extent the stock of money and output differentials and in-sample exchange rates movements at horizons of eight months and above. Wavelet decomposition uncovers the time scale aspect of exchange rate determination, and suggests that the monetary model is still a useful framework at medium and long horizons.
    Keywords: Exchange rate disconnect puzzle, monetary model, Scandinavia, wavelets.
    JEL: E44 F3 F31
    Date: 2017–01–03
  50. By: Georgios Bampinas (Hellenic Ministry of Finance, Greece; Department of Economics, University of Macedonia, Greece); Panagiotis Konstantinou (Department of International and European Economic Studies, Athens University of Economics and Business, Greece); Theodore Panagiotidis (Department of Economics, University of Macedonia, Greece; The Rimini Centre for Economic Analysis, Italy)
    Abstract: We extend the long-run Case, Quigley and Shiller (2013) type of specification on wealth effects by considering the role of inequality and demographics. Using a panel quantile framework for 48 US states, we find that higher levels of consumption lead to a larger (smaller) marginal effect of housing (financial) wealth. Both inequality and demographics affect consumption in a negative and significant way. Demographics are significant only for relative high levels of consumption.
    Keywords: housing wealth, wealth effect, consumption, panel quantile, demographics, inequality
    JEL: E21 G1 R31
    Date: 2017–01
  51. By: Yan Carriere-Swallow; Bertrand Gruss; Nicolas E Magud; Fabian Valencia
    Abstract: A long-standing conjecture in macroeconomics is that recent declines in exchange rate pass-through are in part due to improved monetary policy performance. In a large sample of emerging and advanced economies, we find evidence of a strong link between exchange rate pass-through to consumer prices and the monetary policy regime’s performance in delivering price stability. Using input-output tables, we decompose exchange rate pass-through to consumer prices into a component that reflects the adjustment of imported goods at the border, and another that captures the response of all other prices. We find that price stability and central bank credibility have reduced the second component.
    Keywords: Monetary policy;Exchange rate pass-through;Consumer prices;Price stabilization;Developed countries;Emerging markets;Cross country analysis;Exchange rate pass-through, monetary policy credibility.
    Date: 2016–12–13
  52. By: Michal Andrle; Jan Bruha; Serhat Solmaz
    Abstract: What are the drivers of business cycle fluctuations? And how many are there? By documenting strong and predictable co-movement of real variables during the business cycle in a sample of advanced economies, we argue that most business cycle fluctuations are driven by one major factor. The positive co-movement of real output and inflation convincingly argues for a demand story. We propose a simple statistic that can compare data and models. Based on this statistic, we show that the recent vintage of structural economic models has difficulties replicating the stylized facts we document.
    Keywords: Business cycles;Production;Demand;Inflation;Developed countries;General equilibrium models;Business cycle, demand shocks, DSGE models, dynamic principal components
    Date: 2016–12–13
  53. By: Karlis Vilerts (Bank of Latvia); Olegs Tkacevs (Bank of Latvia)
    Abstract: This paper studies the impact of sovereign bond yields on fiscal discipline against the background of unprecedentedly low interest rates in advanced economies brought about by ultra-expansionary monetary policies of recent years. By employing the panel data econometric approach for a sample of OECD, EU and euro area countries over the period 1980–2014, the study suggests a positive and statistically significant impact of long-term sovereign bond yields on primary balances (PBs), indicating that a decrease in borrowing costs leads to a statistically significant deterioration of fiscal balances. The findings herein also suggest that falling bond yields pass on to fiscal balances through increases in government expenditure rather than revenue reduction. From the economic policy perspective, these findings imply that monetary policy measures resulting in ultra-low interest rates may cause negative side effects for fiscal discipline.
    Keywords: fiscal policy, fiscal reaction function, sovereign bond yields, panel data
    JEL: E62 H62
    Date: 2016–12–23
  54. By: Gong, Gang (Asian Development Bank Institute)
    Abstract: We suggest that the development process of a less-developed country can be divided into two stages, which demonstrate significantly different properties in areas such as structural endowments, production modes, income distribution, and the forces that drive economic growth. The two stages of economic development have been indicated in the growth theory of macroeconomics and in the various “turning point” theories in development economics, including Lewis’s dual economy theory, Kuznets curve, and the middle-income trap. A dynamic macroeconomic model is constructed to simulate the development process that reveals these two stages. Using the two-stage theory of economic development, we find that the People’s Republic of China’s economy is currently at the intersection between the first and second stages. This is the definition of “new normal” in the current Chinese economy.
    Keywords: two stages of economic development; dual economy theory; Kuznets curve; economic growth; new normal
    JEL: C61 C62 E10 O11
    Date: 2016–12–31
  55. By: Ozili, Peterson, K
    Abstract: This study investigates the determinants of African bank profitability while controlling for bank capital regulation. Using static and dynamic panel estimation techniques, the findings indicate that bank size, total regulatory capital, and loan loss provisions are significant determinants of the return on assets of listed banks compared to non-listed banks. Also, regulatory capital has a more significant (and positive) impact on the return on assets of listed banks than non-listed banks particularly when listed banks have sufficient regulatory capital ratio. We also find that higher regulatory thresholds have a negative impact on the return on asset of non-listed banks.
    Keywords: Bank profitability, Africa, listed banks, panel regression, capital regulation, GMM dynamic panel
    JEL: D2 D22 E3 E6
    Date: 2016–12–21
  56. By: Rinke, Saskia; Busch, Marie; Leschinski, Christian
    Abstract: The persistence of inflation rates is of major importance to central banks due to the fact that it determines the costs of monetary policy according to the Phillips curve. This article is motivated by newly available econometric methods which allow for a consistent estimation of the persistence parameter under low frequency contaminations and consistent break point estimation under long memory without a priori assumptions on the presence of breaks. In contrast to previous studies, we allow for smooth trends in addition to breaks as a source of spurious long memory. We support the fi nding of reduced memory parameters in monthly inflation rates of the G7 countries as well as spurious long memory, except for the US. Nevertheless, only a few breaks can be located. Instead, all countries exhibit signi cant trends at the 5 percent level with the exception of the US.
    Keywords: Spurious Long Memory; Breaks; Trends; Inflation; G7 countries
    JEL: C13 E58
    Date: 2017–01
  57. By: Rabitsch, Katrin; Schoder, Christian
    Abstract: We introduce the tractable buffer stock savings setup of Carroll (2009 NBER Working Paper) into an otherwise conventional New-Keynesian dynamic stochastic general equilibrium model with financial frictions. The introduction of a precautionary saving motive arising from an uninsurable risk of permanent income loss, affects the model's properties in a number of interesting ways: it produces a more hump-shaped reaction of consumption in response to both supply (technology) and demand (monetary) shocks, and more pronounced reactions in response to demand shocks. Adoption of the buffer stock savings setup thus offers a more microfounded way, compared to, e.g., habit preferences in consumption, to introduce Keynesian features into the model, serving as a device to curbing excessive consumption smoothing, and to attributing a higher role to demand driven fluctuations. We also discuss steady state effects, determinacy properties as well as other practical issues. (authors' abstract)
    Keywords: precautionary saving; buffer stock saving; dynamic stochastic general equilibrium model
    Date: 2016–08
  58. By: Mariana BĂLAN (Institute for Economic Forecasting, Romanian Academy); Brînduşa-Mihaela RADU (Institute for Economic Forecasting, Romanian Academy)
    Abstract: Demographic ageing of population turned lately into an extremely sensible issue, even thorny at times, and with deep impact on all generations and on most fields of economic activity. Romania, like all other European countries, is faced currently with demographic decrease. Demographic changes in the next decades are susceptible of having significant impact on the development of the Romanian economy. Population ageing, as a whole, affects negatively the GDP increase, by diminishing factor entries. At the same time, this phenomenon has negative impact also on GDP per capita, in particular for the future, mainly because of the decline in the employed population segment. In this context, knowing about the future evolution of the population plays a determinant role in adopting the measures and policies of economic growth. The paper intends in this stage of research to analyse and forecast Romania’s population ageing by using non-linear models.
    Keywords: population ageing; indicators of natural population movement; non-linear models; forecasts
    JEL: C53 E20 E27 J10 J11
    Date: 2015–08
  59. By: Ghent, Andra C. (University of Wisconsin-Madison); Kudlyak, Marianna (Federal Reserve Bank of San Francisco)
    Abstract: We document novel, economically important correlations between children’s future credit risk scores, default, and homeownership status and their parents’ credit characteristics measured when the children are in their late teens. A one standard deviation higher parental credit risk score when the child is 19 is associated with a 24 percent reduction in the likelihood that the child goes bankrupt by age 29, a 36 percent lower likelihood of other serious default, a 35 point higher child credit score, and a 23 percent higher chance of the child becoming a homeowner. The linkages persist after controlling for parental income. The linkages are stronger in cities with lower intergenerational income mobility, implying that common factors might drive both. Existing measures of state-level educational policy have limited effects on the strength of the linkages. Evidence from a sample of siblings suggests that the linkages might be largely due to family fixed effects.
    JEL: D14 E21 G10
    Date: 2017–01–05
  60. By: Badinger, Harald; Reuter, Wolf Heinrich
    Abstract: This paper estimates the effects of fiscal institutions on fiscal policy outcomes, addressing issues related to measurement and endogeneity in a novel way. Recently developed indices, based on partially ordered set theory, are used to quantify the stringency of fiscal rules. Identification of their effects is achieved by exploiting the exogeneity of institutional variables (checks and balances, government fragmentation, inflation targeting), which are found to be relevant determinants of fiscal rules. Our two-stage least squares estimates for (up to) 79 countries over the period 1985-2012 provide strong evidence that countries with more stringent fiscal rules have higher fiscal balances (lower deficits), lower interest rate spreads on government bonds, and lower output volatility. (authors' abstract)
    Keywords: Fiscal rules; fiscal balances; interest rates; volatility
    Date: 2015–08
  61. By: Markus Engler (University of Kassel); Vahidin Jeleskovic (University of Kassel)
    Abstract: We apply a multivariate multiplicative error model (MMEM) and investigate effects in the simultaneous processes of high-frequency return volatilities, trading volume, and trading intensities on the Italien Electronic Interbank Credit Market (e-MID). Analysing five minutes data from the Italian interbank market (e-MID), we found that volatilities, volumes and trading intensities on electronic Interbank Credit Market share strong causal relationship resulting in highly significant estimates of MMEM. In addition, we run several estimations to observe a change in the market behaviour of the e-MID during the last financial crisis. The main results of our study are the usability of high-frequency data models for the analysis of interbank credit market data. Moreover, we find out that changes in the market behaviour occur during the crisis. Before the financial crises, liquidity variables have a negative influence on the volatility, in contrast to the time period after the outbrake of the financial turmoil. To our best knowledge, our paper presents the first empirical application of MMEM to an interbank credit market.
    Keywords: Multiplicative error models, interbank markets, e-MID, interstate volatility, trading intensity, intraday trading process, high-frequency financial data
    JEL: C15 C32 C52 C55 C58 E43 G01 G12
    Date: 2016
  62. By: Jasmin Thomas
    Abstract: Productivity growth results in part from investment in information and communications technologies (ICT). To better understand Canada’s poor productivity growth relative to the United States since 2000, this report provides a detailed examination of ICT investment trends in the two countries. The report finds that real ICT investment in the total economy in Canada has yet to recover from the 2008-2009 recession, while it has not suffered the same fate south of the border. Between 2008 and 2014 real ICT investment in Canada fell 1.0 per cent per year, compared to a 2.9 per cent per year increase in the United States. The gap was even greater for real ICT investment per job, down 1.8 per cent per year in Canada versus a 2.8 per cent annual increase in the United States. The weaker ICT investment growth in Canada resulted in a large increase in the Canada-US ICT investment gap from 31.6 percentage points to 43.7 points, as nominal ICT investment per job fell from 68.4 per cent of the US level in 2008, the highest value ever achieved, to 56.3 per cent in 2014.
    Keywords: Investment, Information and Communication Technology, Information Technology, ICT, IT, Productivity, Industries, Professional Services, Cultural Industries, Canada, U.S.
    JEL: E22 O16 D24 L60 L70 L80 L90 N72 N32 N12 O51
    Date: 2016–12
  63. By: José-María 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.
    JEL: E1 E6 O1 O4
    Date: 2016–12
  64. By: Harahap, Berry (Asian Development Bank Institute); Bary, Pakasa (Asian Development Bank Institute); Panjaitan, Linda (Asian Development Bank Institute); Satyanugroho, Redianto (Asian Development Bank Institute)
    Abstract: This paper examines the impact of certain external shocks originating from the US and the PRC on Indonesia as a small open economy. The spillover effects of tapering off, an interest rate hike, exchange rate devaluation, and real gross domestic product (GDP) are analyzed. Two versions of the global vector autoregression model are employed, which covers 33 countries and considers both financial and trade relations among countries. Spillover assessments are conducted through impulse responses with 1,000 bootstrap replications, and compared to the responses of peer countries. The results suggest that the main risk for Indonesia’s real GDP is a shock to the PRC's real GDP, while a US interest rate hike is the greatest risk to Indonesia’s exchange rate depreciation in the short term, especially compared to the US tapering off. Moreover, the dominant transmission channel of US monetary tightening is through finance, dampening economic growth in small open economies.
    Keywords: Spillovers; small open economies; tapering off; interest rate hike; exchange rate devaluation; real GDP; US; PRC; Indonesia;
    JEL: C32 E17 F47
    Date: 2016–12–31
  65. By: Michelacci, Claudio; Paciello, Luigi
    Abstract: We study the effects of monetary policy announcements in a New Keynesian model, where ambiguity-averse households with heterogenous net financial wealth use a worst-case criterion to assess the credibility of announcements. The announcement of a future loosening of monetary policy leads to the rebalancing of financial asset positions, it can cause credit crunches, and it may prove to be contractionary in the interim before implementation. This is because the households with positive net financial wealth (creditors) are those that are most likely to believe the announcement, due to the potential loss of wealth from the prospective policy easing. And when creditors believe the announcement more than debtors, their expected wealth losses are larger than the wealth gains that debtors expect. So aggregate net wealth is perceived to fall, and the economy can contract owing to lack of aggregate demand, which is more likely when the inequality in wealth is more pronounced. We evaluate the importance of this mechanism, focusing on the start of the ECB's practice of offering forward guidance in July 2013. The inflation expectations of households have responded in accordance with the theory. After matching the entire distribution of European households' net financial wealth, we find that the ECB's announcement is contractionary in our model. In general, redistributing expected wealth may have perverse effects when agents are ambiguity-averse.
    Date: 2017–01
  66. By: Fatum, Rasmus (University of Alberta); Zhu, Guozhong (University of Alberta); Hui, Wenjie (Peking University)
    Abstract: We develop a dynamic stochastic optimization model with oil price shocks to show that countries with certain combinations of oil endowment and productivity have strong precautionary incentives to accumulate foreign reserves in response to oil price shocks. Using the Simulated Method of Moments to estimate the model we demonstrate how oil price shocks are absorbed by changes in foreign reserves which, in turn, leads to less variation in aggregate consumption. Along with productivity and oil endowment, we also consider as determinants of reserves holding conventional variables such as trade- to-GDP ratio and capital openness. Overall, our results suggest that productivity and oil endowment are potentially important determinants of foreign reserves that for some countries should be considered as complements to conventional determinants.
    Keywords: foreign reserves; oil price shocks; precautionary demand
    JEL: E21 F40 Q43
    Date: 2016–12–01
  67. By: Roberto Garcia-Saltos; Fan Zhang; Iulia Ruxandra Teodoru
    Abstract: This paper presents estimates of potential output for all Central American economies. Our findings are that potential output growth has declined in recent years in most economies of Central America. Lower capital accumulation and TFP growth are accounting for most of this decline. Apart from Costa Rica, there are no indications of significant economic slack in 2015 in Central America. Looking forward, potential growth in most Central American economies is expected to continue at an average of 4 percent in the medium-term due to structural constraints to capital and employment growth, and low TFP growth. Increasing potential growth, thus, should be a policy priority and structural reforms must be directed at improving business conditions, product and labor markets, and enhancing the capacity for innovation.
    Date: 2016–12–23
  68. By: Christian Joerges (University of Bremen - Faculty of Law; Hertie School of Governance)
    Abstract: The ‘European Social Model’, ill-defined and under-theorised as it may be, is widely perceived as the great looser in the political and institutional re-configuration of the European integration project which we have witnessed under the impact of the financial crisis. The state of social Europe is indeed deplorable. The turn to austerity politics has not only led to the imposition of rigid ‘structural reforms’ on countries of the European South, but reflects a general retreat from the welfare state commitments which were until recently understood as a common European legacy. The search for a preservation and renewal of that legacy must not focus exclusively on topical claims and urgencies. It will have to include an exploration of potential failures in the design of the European project and the conceptual frameworks which have guided its praxis. The critical reconstruction in this paper reveals continuities, discontinuities and missed opportunities. EMU as established by the Maastricht Treaty and complemented by the Stability and Growth Pact is identified as a turning point: a break with the integration through law tradition which nevertheless failed to open avenues for legitimate political and economic governance. Under economic emergency of the financial crisis the commitment to the financial stability of the Eurozone as a whole necessitated the imposition of austerity measures. After the legalisation of Europe’s crisis politics by the Pringle and Gauweiler judgments with their recognition of wide discretionary powers of the ECB in its understanding and implementation of Europe’s monetary policy, it has become more difficult than ever to overcome the barriers against renewed efforts to strengthen the social dimension of the integration project.
    Keywords: Social Market Economy, embedded liberalism, social regulation, EMU as diagonal conflict constellation, economic emergency, crisis law, post-democratic rule; the trilemma thesis and the state of the EU
    JEL: A14 E58 G28 I31
    Date: 2015–12
  69. By: Christian Joerges (University of Bremen - Faculty of Law; Hertie School of Governance)
    Abstract: What kind of law are Germany’s Constitutional Court and the CJEU concerned with when they decide upon European and national powers in the realms of monetary, economic and fiscal policy? Is it still possible to identify some meta-legal conceptual basis for the ordering functions attributed to law in these fields? It seems that Europe’s responses to the financial crisis have no theoretical foundation, neither in some variety of economic liberalism, nor in some Keynesian counter-vision. Do we really have to leave it to ECB to define the notion of monetary policy and to then develop and use instruments to implement its decisions? With these queries, we do not insinuate that this lack of conceptual orientation can be attributed to some wilful disregard of well-founded legal commands. Instead, we submit that Europe is exposed to a state of emergency which has led to the restless search for new modes of crisis management which damage the integrity of law. Were the two dissenting judges of the 2nd Senate of the German Constitutional Court right with their suggestion that the Bundesverfassungsgericht (BVerfG) should dismiss the complaints of Peter Gauweiler and Others? Did their non possumus respect the law’s limits and therefore the law’s integrity? Or did instead the CJEU act as a good guardian of European constitutionalism through its de facto unconditioned legalisation of executive federalism?
    Keywords: OMT Reference of the German Constitutional Court; Gauweiler judgment of the CJEU; European Monetary Policy; national fiscal policy; Economic and Monetary Union; Economic Emergency; Europe, contestation and normalisation
    JEL: A14 B25 E58
    Date: 2015–11
  70. By: Ásgeir Daníelsson; Ólafur Sindri Helgason; Stefán Thórarinsson
    Abstract: We estimate the natural rate of interest for Iceland using several different methods. First we explore estimates based on the marginal productivity condition for capital, continue with various estimates based on the Euler equation for optimizing households, and end with estimates using state-space models where the natural rate is an un-observable variable, including the celebrated model by Laubach and Williams. Some of these methods give unreasonable estimates while others provide estimates that should be helpful for policy makers. The state-space models give estimates of the natural rate with negative trend before and immediately after the financial crises, but recovering during last four years of fairly rapid economic growth. The paper also provides estimates of the monetary policy stance in Iceland during the last 20 years and estimates of the implicit inflation target.
    Date: 2016–12
  71. By: Hernán Rincón-Castro (Banco de la República de Colombia); Norberto Rodríguez-Niño (Banco de la República de Colombia); John Castro-Pantoja
    Abstract: La literatura local e internacional que ha estudiado la transmisión de la tasa de cambio sobre los precios -exchange rate pass-through- asume que los movimientos cambiarios son exógenos a las perturbaciones que impactan la economía y la tasa de cambio en sí misma. Este supuesto ha sido revaluado recientemente a partir de las predicciones de modelos macroeconómicos modernos, que indican que aquellos son endógenos. Basado en esta conjetura, el presente documento muestra que efectivamente el grado de transmisión depende de la perturbación que origine el movimiento de la tasa de cambio, es decir, que la transmisión es shock-dependent. Para sustentar esta conclusión el estudio utiliza datos mensuales de una economía pequeña y abierta para el período 2001-2016 y un modelo VAR estructural lineal. Classification JEL: E32, F31, E31, E52, C51
    Keywords: Perturbaciones macroeconómicas, tasa de cambio, pass-through sobre precios, identificación, restricciones de signo, SVAR, descomposición histórica de perturbaciones.
    Date: 2017–01
  72. By: Michal Horvath (Department of Economics and Related Studies, University of York)
    Abstract: The paper explores if EU independent fiscal institutions (IFIs) are in a position to exercise effective scrutiny over national fiscal policies. It identifies substantial heterogeneity across IFIs in resources which is not matched by a similar diversity in mandates, and highlights the role of local ownership as a potentially important factor in explaining this. In addition to financial and human resources, better access to information, effective comply-or-explain mechanisms and closer links with legislatures could enhance fiscal scrutiny and accountability in the EU. The paper provides rankings of individual IFIs constructed based on measures that quantitatively aggregate these pre-conditions for effective fiscal scrutiny.
    Keywords: Fiscal Compact, European Union, fiscal councils, fiscal policy, democracy
    JEL: E62 F45 H61 H77
    Date: 2017–01
  73. By: Bógalo, Juan; Poncela, Pilar; Senra, Eva
    Abstract: Singular Spectrum Analysis (SSA) is a nonparametric tecnique for signal extraction in time series based on principal components. However, it requires the intervention of the analyst to identify the frequencies associated to the extracted principal components. We propose a new variant of SSA, Circulant SSA (CSSA) that automatically makes this association. We also prove the validity of CSSA for the nonstationary case. Through several sets of simulations, we show the good properties of our approach: it is reliable, fast, automatic and produces strongly separable elementary components by frequency. Finally, we apply Circulant SSA to the Industrial Production Index of six countries. We use it to deseasonalize the series and to illustrate that it also reproduces a cycle in accordance to the dated recessions from the OECD.
    Keywords: circulant matrices, signal extraction, singular spectrum analysis, non-parametric, time series, Toeplitz matrices.
    JEL: C22 E32
    Date: 2017–01–05
  74. By: D.S.G. Pollock
    Abstract: Alternative methods of trend extraction and of seasonal adjustment are described that operate in the time domain and in the frequency domain. The time-domain methods that are implemented in the TRAMO–SEATS and the STAMP programs are compared. An abbreviated time-domain method of seasonal adjustment that is implemented in the IDEOLOG program is also presented. Finite-sample versions of the Wiener–Kolmogorov filter are described that can be used to implement the methods in a common way. The frequency-domain method, which is also implemented in the IDEOLOG program, employs an ideal frequency selective filter that depends on identifying the ordinates of the Fourier transform of a detrended data sequence that should lie in the pass band of the filter and those that should lie in its stop band. Filters of this nature can be used both for extracting a low-frequency cyclical component of the data and for extracting the seasonal component.
    Keywords: Time series, Spectral analysis, Business cycles, Turning points, Seasonality.
    JEL: C22 C32 E32
    Date: 2017–01
  75. By: Borella, Margherita; De Nardi, Mariacristina; Yang, Fang
    Abstract: Wages, labor market participation, hours worked, and savings differ by gender and marital status. In addition, women and married people make up for a large fraction of the population and of labor market participants, total hours worked, and total earnings. For the most part, macroeconomists have been ignoring women and marriage in setting up structural models and by calibrating them using data on males only. In this paper we ask whether ignoring gender and marriage in both models and data implies that the resulting calibration matches well the key economic aggregates. We find that it does not and we ask whether there are other calibration strategies or relatively simple models of marriage that can improve the fit of the model to aggregate data.
    Keywords: Aggregates; Gender; Macroeconomy; Marriage
    JEL: D1 E21
    Date: 2016–12
  76. By: Davis, John B. (Department of Economics Marquette University)
    Abstract: This paper explains the continuing relevance of Keynes’s philosophical thinking in terms of his anticipation of complexity thinking in economics. It argues that that reflexivity is a central feature of the philosophical foundations of complexity theory, and shows that Keynes employed an understanding of reflexivity in both his philosophical and economic thinking. This argument is first developed in terms of his moral science conception of economics and General Theory beauty contest analysis. The paper advances a causal model that distinguishes direct causal relationships and reflexive feedback channels, uses this to distinguish Say’s Law economics and Keynes’s economics, and explains the economy as non-ergodic in these terms. Keynes’s policy activism is explained as a complexity view of economic policy that works like self-fulfilling and self-defeating prophecies. The paper closes with a discussion of the ontological foundations of uncertainty in Keynes’s thinking, and comments briefly on what a complexity-reflexivity framework implies regarding his thinking about time.
    Keywords: Keynes, complexity, reflexivity, non-ergodic, policy activism, uncertainty, time
    JEL: E12 B41
    Date: 2017–01
  77. By: Phiri, Andrew
    Abstract: Using weekly data collected from 20.09.2008 to 09.12.2016, this paper uses dynamic threshold adjustment models to demonstrate how the introduction of high-frequency and algorithmic trading on the Johannesburg Stock Exchange (JSE) has altered convergence relations between the federal fund rate and equity returns for aggregate and disaggregate South African market indices. We particularly find that for the post-crisis period, the JSE appears to operate more efficiently, in the weak-form sense, under high frequency trading platforms.
    Keywords: Colocation; High frequency trading; Global financial crisis; Federal fund rates; Equity returns; Threshold cointegration; Johannesburg Stock Exchange (JSE).
    JEL: C32 C51 C52 E44 E52
    Date: 2017–01–06
  78. By: Gerlach, Stefan
    Abstract: This paper follows Baltensperger and Jordan (1998) and studies the output-inflation trade-off in Switzerland, over the period 1915-2015. We estimate a standard Phillips curve model and provide estimates using a moving window. These show that the parameter on lagged inflation has risen gradually over time and that on import prices has declined. The impact of the output gap rose over time until the 1990s, when it lost all importance. Finally, we test for shifts of the parameters at unknown points in time. We identify four separate sample periods: 1916-1936; 1937-1971; 1971-1993 and 1994-2015.
    Keywords: output-inflation trade off; Phillips curve; structural break; Switzerland
    JEL: E5 F31 N1
    Date: 2016–12
  79. By: Huber, Florian; Kastner, Gregor; Feldkircher, Martin
    Abstract: We provide a flexible means of estimating time-varying parameter models in a Bayesian framework. By specifying the state innovations to be characterized trough a threshold process that is driven by the absolute size of parameter changes, our model detects at each point in time whether a given regression coefficient is constant or time-varying. Moreover, our framework accounts for model uncertainty in a data-based fashion through Bayesian shrinkage priors on the initial values of the states. In a simulation, we show that our model reliably identifies regime shifts in cases where the data generating processes display high, moderate, and low numbers of movements in the regression parameters. Finally, we illustrate the merits of our approach by means of two applications. In the first application we forecast the US equity premium and in the second application we investigate the macroeconomic effects of a US monetary policy shock. (authors' abstract)
    Keywords: Change point model; Threshold mixture innovations; Structural breaks; Shrinkage; Bayesian statistics; Monetary policy
    Date: 2016–09
  80. By: Fukuda, Shin-ichi (Asian Development Bank Institute)
    Abstract: This paper explores the spillover effects of Japan’s quantitative and qualitative easing (QQE) on East Asian economies. Under the new monetary policy regime, the Japanese yen depreciated substantially, raising concerns that it would have a regional beggar-thy-neighbor effect. It is thus important to see what effects the QQE had on neighboring economies. Our empirical investigation of East Asian stock markets finds that they first reacted to the yen’s depreciation negatively, yet came to respond positively as the QQE progressed, implying that the QQE had a much smaller beggar-thy-neighbor effect than was originally feared. We show that the QQE benefited East Asian economies because the positive spillover effect of Japan’s stock market recovery dominated the beggar-thy-neighbor effect in the region.
    Keywords: spillovers; quantitative and qualitative easing; qqe; beggar-thy-neighbor effect; East Asia; yen depreciation; stock market
    JEL: E52 F10 F32
    Date: 2017–01–11
  81. By: Artidiatun Adji (Faculty of Economics and Business, Universitas Gadjah Mada); James Alm (Department of Economics, Tulane University)
    Abstract: There are competing "views" on the economic effects of debt finance. One view argues that tax and debt finance have identical effects on various economic measures, a view sometimes termed "Ricardian Equivalence". However, this "Ricardian view" remains controversial, with other views (the "Keynesian view" and the "Neoclassical view") concluding that debt finance is likely to have significant impacts on consumption, interest rates, and the current account. Empirical tests of these competing views, conducted mainly for developed countries, have failed to generate much consensus, and there are few studies for developing countries, especially a developing country that is heavily dependent on natural resources (e.g., oil). This paper provides a battery of empirical tests on the effects of government debt finance in one developing country, Indonesia. We focus on three empirical tests: effects on consumption, on interest rates, and on the current account balance. We find, across virtually all of our time series tests, that Ricardian Equivalence does not hold; that is, the predictions of the Ricardian paradigm are consistently and strongly rejected by most of our estimation results. The only results that tend to give some support to Ricardian Equivalence are those that recognize the importance of oil in the Indonesian economy. Even so, our results generally indicate that debt finance will increase the interest rate, will increase current consumption at the expense of future consumption, and will retard exports and stimulate imports through currency appreciation.
    Keywords: Ricardian equivalence, cointegration, error-correction estimations.
    JEL: C91 E21 H31 H61
    Date: 2016–12
  82. By: Davide Furceri; Prakash Loungani; Aleksandra Zdzienicka
    Abstract: This paper provides new evidence of the effect of monetary policy shocks on income inequality. Using a measure of unanticipated changes in policy rates for a panel of 32 advanced and emerging market countries over the period 1990-2013, the paper finds that contractionary (expansionary) monetary actions increase (reduce) income inequality. The effect, however, varies over time, depending on the type of the shocks (tightening versus expansionary monetary policy) and the state of the business cycle, and across countries depending on the share of labor income and redistribution policies. In particular, we find that the effect is larger for positive monetary policy shocks, especially during expansions. Looking across countries, we find that the effect is larger in countries with higher labor share of income and smaller redistribution policies. Finally, while an unexpected increase in policy rates increases inequality, changes in policy rates driven by an increase in growth are associated with lower inequality.
    Keywords: Monetary policy;Income inequality;Developed countries;Emerging markets;Panel analysis;Time series;monetary policy; monetary policy shocks; income inequality.
    Date: 2016–12–22
  83. By: Huber, Florian; Punzi, Maria Teresa
    Abstract: In this paper we propose a time-varying parameter VAR model for the housing market in the United States, the United Kingdom, Japan and the Euro Area. For these four economies, we answer the following research questions: (i) How can we evaluate the stance of monetary policy when the policy rate hits the zero lower bound? (ii) Can developments in the housing market still be explained by policy measures adopted by central banks? (iii) Did central banks succeed in mitigating the detrimental impact of the financial crisis on selected housing variables? We analyze the relationship between unconventional monetary policy and the housing markets by using the shadow interest rate estimated by Krippner (2013b). Our findings suggest that the monetary policy transmission mechanism to the housing market has not changed with the implementation of quantitative easing or forward guidance, and central banks can affect the composition of an investors portfolio through investment in housing. A counterfactual exercise provides some evidence that unconventional monetary policy has been particularly successful in dampening the consequences of the financial crisis on housing markets in the United States, while the effects are more muted in the other countries considered in this study. (authors' abstract)
    Keywords: Zero Lower Bound; Shadow interest rate; Housing Market; Time-varying parameter VAR
    Date: 2016–01–25
  84. By: Shoumitro Chatterjee; Tom Vogl
    Abstract: Despite being key to theories of economic growth and the demographic transition, evidence on how fertility responds to aggregate income change is mixed. We analyze economic growth and fertility change in the developing world over six decades, using data on 2.3 million women from 255 surveys in 81 countries. We find that fertility responds differently to fluctuations and long-run growth, and the nature of these responses varies over the lifecycle. Fertility is procyclical, falling during recessions, but also declines with long-run growth. Lifetime fertility is affected by fluctuations near the end of the reproductive period but not those at prime reproductive age. Our results are consistent with models linking demography, human capital, and long-run growth, extended to include a lifecycle with liquidity constraints.
    JEL: E32 J13 O47
    Date: 2016–12
  85. By: Marius del Giudice Rodriguez; Emre Yoldas
    Abstract: In this note, we provide a comparative analysis of inflation swaps for three advanced economies: the United States, the euro area, and the United Kingdom. We consider empirical proxies for energy prices, economic activity, exchange rates, and risky asset prices as potential drivers of inflation expectations and risk premiums in a regression framework.
    Date: 2016–12–30
  86. By: Lukmanova, Elizaveta; Tondl, Gabriele
    Abstract: This paper investigates a new category of influential factors on business cycle synchronization (BCS), so far hardly regarded in the BCS literature: It provides an empirical assessment of the impact of macroeconomic imbalances, as monitored by the European Commission by the scoreboard indicators since 2011, on BCS in the Euozone. We use a quarterly data set covering the period 2002-2012 and estimate the direct and indirect effects of macroeconomic imbalances in the pre- and post-crisis period in a simultaneous equations model. Business cycle correlation between EA members is measured by the recently proposed dynamic conditional correlation of Engle 2002 which can better identify synchronous and asynchronous behaviour of BC than the commonly used measures. We find that appearing differences between EA members in the current account, in government deficit and public debt, in private debt and unit labor cost developments have reduced BCS in the EA, even more in the post-crisis period than before. Moreover, these explanatory factors of BCS, generally reinforce each other and are also influenced by other critical macro imbalances. Since BCS is essential in a monetary union, this paper provides clear support that a stronger, common economic governance would be important for the functioning and survival of the Eurozone. (authors' abstract)
    Keywords: Business cycle synchronization; Macroeconomic imbalances; Monetary union; Euro Area; Simultaneous equations model; Panel data
    Date: 2016–06
  87. By: Diewert, W. Erwin; Huang, Ning; Kate Burnett-Isaacs, Kate
    Abstract: Measuring the service flow and the stock value of condominium apartments in Canada and decomposing these values into constant quality price and quantity components is important for many purposes. In addition, the System of National Accounts requires that these service flows and stock values for condos be decomposed into constant quality land and structure components. In Canada and most other countries, such a land and structure decomposition of condominium apartment sale prices does not currently exist. In this paper, we provide such a decomposition of condominium apartment sales in Ottawa for the period 1996-2009. Specific attention is paid to the roles of communal land and structure space, as well as building commercial space, on condominium apartment unit selling prices. Key findings include methods to allocate land and building space to a single condominium unit, identifying the characteristics that best explain condominium prices, and developing an average depreciation rate for condos for the 14 year time period.
    Keywords: Condominium apartment price indexes, land and structure price indexes, hedonic regressions, net depreciation rates, System of National Accounts.
    JEL: C2 C23 C43 E31 R21
    Date: 2016–11–23
  88. By: Bendetta Frassi; Christian Hagist; Fabio Pammolli
    Abstract: Our paper estimates the impact of immigration on the sustainability of the Italian public finances using the methodology of Generational Accounting. We take into account socio-economic differences between the main migrants’ communities resident in Italy and we present three possible scenarios to reflect the potential economic degree of integration of foreigners in the Italian territory. Moreover, for each scenario we propose several options for migrants concerning both the length of permanence in Italy and the possible collection of retirement benefits. Our results show that the burden of current fiscal policy reduces as integration of the foreign-born increases. If migrants’ children are economically perfectly integrated, the fiscal gap is reduced from 71.9 to -15.3 percent of GDP.
    Keywords: accounting, economic integration, generations, migration, public pensions, social security
    JEL: E62 H60 J10
    Date: 2017–01–02
  89. By: Francesco Grigoli; Mario Mansilla; Martín Saldías
    Abstract: We propose a stress testing framework of credit risk, which analyzes macro-financial linkages, generates consistent forecasts of macro-financial variables, and projects NPL on the basis of such forecasts. Economic contractions are generally associated with increases in non-performing loans (NPL). However, despite the common assumption used in the empirical literature of homogenous impact across banks, the strength of this relationship is often bank-specific, and imposing homogeneity may lead to over or underestimating the resilience of the financial system to macroeconomic woes. Our approach accounts for banks’ heterogeneous reaction to macro-financial shocks in a dynamic context and potential cross-sectional dependence across banks caused by common shocks. An application to Ecuador suggests that substantial heterogeneity is present and that this should be taken into account when trying to anticipate inflections in the quality of portfolio.
    Keywords: Non-performing loans;Ecuador;Banks;Interconnectedness;Credit risk;Systemic risk;Stress testing;Econometric models;banks; cross-sectional dependence; heterogeneity; macro-financial linkages; non-performing loans; stress test
    Date: 2016–12–07
  90. By: Alexander Murray
    Abstract: Inclusive innovation requires that opportunities for participation in innovation be broadly available and that the benefits of innovation be broadly shared. This report considers a number of innovation policy reforms through the lens of this dual emphasis. For policies that would facilitate both innovation and inclusiveness, there is a strong case for implementation. Policies that might promote innovation at the expense of inclusiveness would require that the trade-off be managed or mitigated. Education and training is a potential area of complementarity between inclusiveness and innovation because a highly skilled population is an important facilitator of both. Clusters pose a potential trade-off between the goals of innovation and inclusion, which must be taken into account in the context of policies aimed at supporting their development. There is no strong case for subsidizing small businesses generally. Instead, targeted support should be provided to help growth-oriented small firms to grow. The scope for further regulatory improvement to enhance innovation may be limited, given what Canada has already done in recent decades. But room for improvement still exists in terms of foreign investment barriers and the speediness and accessibility of the legal system. Government investment can play a productive role in an inclusive innovation system; the government should increase direct funding for basic research, especially in clean energy technology.
    Keywords: Innovation, Income Distribution, Inequality, Education, Clusters, Regulation, Public Policy
    JEL: J68 O31 E24 I28
    Date: 2016–12
  91. By: Ravi Bansal; Marcelo Ochoa; Dana Kiku
    Abstract: To study the welfare implications of rising temperature we propose a temperature-augmented long-run risks model that accounts for the interaction between temperature, economic growth and risk. The model simultaneously matches the projected temperature path, the observed consumption growth dynamics, discount rates provided by the risk-free rate and equity market returns, and the negative elasticity of equity prices to temperature risks documented in the data. We use the calibrated model to quantify the social cost of carbon (SCC) and to frame the optimal climate policy. We show that a preference for early resolution of uncertainty and long-run impact of temperature on growth imply a significant SCC and motivate early actions to abate global warming.
    JEL: E0 G0 Q0
    Date: 2016–12
  92. By: Manzano, Carolina; Vives, Xavier
    Abstract: We analyze a divisible good uniform-price auction that features two groups each with a finite number of identical bidders. Equilibrium is unique, and the relative market power of a group increases with the precision of its private information but declines with its transaction costs. In line with empirical evidence, we find that an increase in transaction costs and/or a decrease in the precision of a bidding group's information induces a strategic response from the other group, which thereafter attenuates its response to both private information and prices. A "stronger" bidding group -which has more precise private information, faces lower transaction costs, and is more oligopsonistic- has more market power and so will behave competitively only if it receives a higher per capita subsidy rate. When the strong group values the asset no less than the weak group, the expected deadweight loss increases with the quantity auctioned and also with the degree of payoff asymmetries. Market power and the deadweight loss may be negatively associated.
    Keywords: demand/supply schedule competition; electricity auctions; liquidity auctions; private information; Treasury auctions
    JEL: D44 D82 E58 G14
    Date: 2016–12
  93. By: Gabor Fukker (Magyar Nemzeti Bank)
    Abstract: This paper investigates the effects of contagion in interbank lending networks. I introduce a new measure based on the harmonic distance of Acemoglu et al. (2015) and, motivated by their theoretical results, compare it to well-known centrality measures already applied in the systemic risk literature which do not take into account the structure of a contagion mechanism. I derive an explicit formula of size-adjusted harmonic distances and extend it with the usage of liquid assets for a heterogeneous banking system. The simulation results on scale-free and complete networks do not confirm that this new distance would perform better than "off-the-shelf" measures but its performance becomes similar to the best known measures in case of averaged networks which are applied in central banking analysis. This new measure is capable of identifying systemically important institutions and its time variation is also presented in an interbank network. I also test for the scale-free property of the Hungarian interbank lending network and besides, network measures as systemic risk indicators are analyzed on Hungarian data.
    Keywords: systemic risk, financial networks, interbank contagion, macroprudential regulation.
    JEL: D85 E44 G01 G21 G28 L14
    Date: 2017
  94. By: Raphael Auer; Claudio Borio; Andrew Filardo
    Abstract: Greater international economic interconnectedness over recent decades has been changing inflation dynamics. This paper presents evidence that the expansion of global value chains (GVCs), ie cross-border trade in intermediate goods and services, is an important channel through which global economic slack influences domestic inflation. In particular, we document the extent to which the growth in GVCs explains the established empirical correlation between global economic slack and national inflation rates, both across countries and over time. Accounting for the role of GVCs, we also find that the conventional trade-based measures of openness used in previous studies are poor proxies for this transmission channel. The results support the hypothesis that as GVCs expand, direct and indirect competition among economies increases, making domestic inflation more sensitive to the global output gap. This can affect the trade-offs that central banks face when managing inflation.
    Keywords: globalisation, inflation, Phillips curve, monetary policy, global value chain, production structure, international inflation synchronisation, input-ouput linkages, supply chain
    Date: 2017–01
  95. By: Badinger, Harald; Fichet de Clairfontaine, Aurélien; Reuter, Wolf Heinrich
    Abstract: This paper investigates the relationship between countries' fiscal balances and current accounts with an emphasis on the role of fiscal rules. The direct effect of fiscal policy on the current account via aggregate (import) demand is potentially amplified by indirect effects, materializing through interest rate effects and inter-generational transfers that reduce savings. On the other hand, the implied positive relation between fiscal and external balances is potentially attenuated by offsetting changes in savings through Ricardian equivalence considerations. We expect this attenuation effect to be stronger in countries with more stringent fiscal rules and test this hypothesis using a panel of 73 countries over the period 1985-2012. As previous studies we find a positive effect of fiscal balances on the current account, supporting the twin deficit hypothesis. However, the effect of fiscal balances on the current account depends on the stringency of fiscal (budget balance or debt) rules in place; it is reduced by one third on average and virtually eliminated for countries with the most stringent fiscal rules. (authors' abstract)
    Keywords: Twin Deficits; Fiscal Policy; Fiscal Rules; Current Account
    Date: 2015–07
  96. By: Heinz Welsch (University of Oldenburg; ZenTra - Center for Transnational Studies); Jan Kühling (University of Oldenburg; ZenTra - Center for Transnational Studies)
    Abstract: This paper explores the relationship between institutional change and macroeconomic performance in 30 member countries of the Organization for Economic Cooperation and Development (OECD). We use data on the subjective well-being (SWB) of more than 91,000 individuals in these countries to assess the well-being effects of national income growth, unemployment and inflation, and we employ the relationships found to construct an index of macroeconomic performance in terms of SWB. Applying the index to the period 1990-2009, we find that macroeconomic performance has improved in OECD overall and in the majority of countries, and that there has been a convergence of performance within the OECD. We then present evidence that OECD countries’ performance, as measured, is positively related to institutional change towards more trade openness and better institutional quality. We argue that both increased openness and improved institutional quality are correlates of economic and political integration and conclude that international integration has enhanced SWB by improving OECD countries’ national macroeconomic performance.
    Keywords: institutional change, macroeconomic performance, international integration, subjective well-being, OECD
    JEL: F15 E61 I31
    Date: 2015–11
  97. By: Barnichon, Régis; Brownlees, Christian
    Abstract: Vector Autoregressions (VAR) and Local Projections (LP) are well established methodologies for the estimation of Impulse Responses (IR). These techniques have complementary features: The VAR approach is more efficient when the model is correctly specified whereas the LP approach is less efficient but more robust to model misspecification. We propose a novel IR estimation methodology -- Smooth Local Projections (SLP) -- to strike a balance between these approaches. SLP consists in estimating LP under the assumption that the IR is a smooth function of the forecast horizon. Inference is carried out using semi-parametric techniques based on Penalized B-splines, which are straightforward to implement in practice. SLP preserves the flexibility of standard LP and at the same time can increase precision substantially. A simulation study shows the large gains in IR estimation accuracy of SLP over LP. We show how SLP may be used with common identification schemes such as timing restrictions and instrumental variables to directly recover structural IRs. We illustrate our technique by studying the effects of monetary shocks.
    Keywords: impulse response; local projections; semiparametric estimation
    JEL: C14 C32 C53 E47
    Date: 2016–12
  98. By: Solé-Ollé, Albert; Viladecans-Marsal, Elisabet
    Abstract: This paper examines how local governments adjust their spending, savings and taxes in response to a temporary revenue windfall generated by a housing boom and how they cope with the inevitable shortfall that appears during the bust. We focus on Spanish local governments given the intensity of the last housing boom-bust experienced there and the large share of construction-related revenues they obtain. We find, first, that just a small share of the boom windfall was saved, with revenues being used primarily to increase spending (above all, current spending) and (to a lesser extent) to cut taxes. Second, we find that the failure to save during the boom is higher in places with less informed voters and more contested elections. Third, we also examine the what happens during the bust, and find that these governments had to cut abruptly their spending (above all, capital), raise taxes, and allow deficits to grow. Finally, in places wit less informed voters and more contested elections local governments had more trouble in adjusting during the bust, and they tend to rely more on spending cuts than on tax increases.
    Keywords: tax volatility,forward-looking behaviour,voter information
    JEL: E62 H72 R5
    Date: 2017
  99. By: Michel De Vroey (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: This paper is an assessment of Claveau and Gingras’s paper, “Macrodynamics of Economics: A Bibliometric History”. Its contention is that for all its innovative character, bibliometric history cannot replace inside-knowledge history. To make my point, I examine the particular case of the history of macroeconomics by confronting what their paper can say about this history with what an inside-knowledge approach has to offer.
    Date: 2016–12–22
  100. By: D.S.G. Pollock
    Abstract: Discrete-time ARMA processes can be placed in a one-to-one correspondence with a set of continuous-time processes that are bounded in frequency by the Nyquist value of ? radians per sample period. It is well known that, if data are sampled from a continuous process of which the maximum frequency exceeds the Nyquist value, then there will be a problem of aliasing. However, if the sampling is too rapid, then other problems will arise that may cause the ARMA estimates to be severely biased. The paper reveals the nature of these problems and it shows how they may be overcome.
    Keywords: ARMA Modelling, Stochastic Differential Equations, Frequency-Limited Stochastic Processes, Oversampling
    JEL: C22 C32 E32
    Date: 2017–01
  101. By: Leila Posenato Garcia; Gabriela Drummond Marques da Silva
    Abstract: As doenças transmissíveis relacionadas à pobreza afetam desproporcionalmente pessoas que vivem em comunidades pobres ou marginalizadas. A pobreza cria condições que favorecem a disseminação de doenças transmissíveis e impede que as pessoas afetadas obtenham acesso adequado à prevenção e à assistência. O uso dos determinantes sociais como fatores analíticos privilegiados permite a identificação de padrões de agregação geográfica e sobreposição espacial das doenças transmissíveis. O presente estudo tem como objetivo descrever a distribuição espacial dos indicadores epidemiológicos das doenças transmissíveis relacionadas à pobreza nos municípios brasileiros, visando demarcar áreas geográficas com concentração de morbidades e condições socioeconômicas precárias para o direcionamento de ações integradas de políticas públicas de saúde e sociais. Trata-se de estudo ecológico descritivo com abordagem espacial, tendo como unidades de análise os municípios brasileiros. A partir de dados dos sistemas de informação do Ministério da Saúde (MS) e do Instituto Brasileiro de Geografia e Estatística (IBGE), foram calculados indicadores de incidência das seguintes doenças transmissíveis relacionadas à pobreza, segundo sua relevância para a saúde pública e disponibilidade de dados: tuberculose, hanseníase, leishmaniose tegumentar, leishmaniose visceral e malária. No triênio 2009-2011, no Brasil, foram notificados 217.274 casos novos de tuberculose, 109.283 casos novos de hanseníase, 66.510 casos novos de leishmaniose tegumentar, 10.194 casos novos de leishmaniose visceral, e na região da Amazônia Legal, 936.006 casos novos de malária. Um grande volume destes casos concentrou-se em reduzida parcela de municípios. Para tuberculose, hanseníase e leishmaniose tegumentar, em torno de 10% dos municípios brasileiros concentraram 80% dos casos novos de cada uma dessas doenças. Para a leishmaniose visceral, 6% dos municípios concentraram 80% dos casos novos da doença. Municípios com maiores taxas de urbanização tiveram maior ocorrência de tuberculose, enquanto aqueles com maiores proporções de domicílios com condições de saneamento inadequadas tiveram maior ocorrência de leishmaniose tegumentar e visceral e também de hanseníase. Observou-se, ainda, que a ocorrência destas doenças foi maior nos municípios mais pobres, mais desiguais e com maior aglomeração domiciliar. Os resultados deste estudo reforçam a persistência de diversas doenças transmissíveis relacionadas à pobreza e a sua distribuição desigual no território nacional. Evidencia-se a necessidade da continuidade dos investimentos e esforços para o enfrentamento destas doenças, levando em consideração seu padrão de distribuição espacial, a sobreposição geográfica entre diferentes morbidades e com características socioeconômicas precárias, assim como outras políticas públicas que abordem os determinantes sociais da saúde.
    Date: 2016–12
  102. By: D.S.G. Pollock
    Abstract: A variety of filters that are commonly employed by econometricians are analysed with a view to determining their effectiveness in extracting well-defined components of economic data sequences. These components can be defined in terms of their spectral structures—i.e. their frequency content—and it is argued that the process of econometric signal extraction should be guided by a careful appraisal of the periodogram of the detrended data sequence. Whereas it is true that many annual and quarterly economic data sequences are amenable to relatively unsophisticated filtering techniques, it is often the case that monthly data that exhibit strong seasonal fluctuations require a far more delicate approach. In such cases, it may be appropriate to use filters that work directly in the frequency domain by selecting or modifying the spectral ordinates of a Fourier decomposition of data that have been subject to a preliminary detrending.
    Keywords: Time series, Spectral analysis, Business cycles, Turning points, Seasonality.
    Date: 2017–01
  103. By: Sophia Chen; Romain Ranciere
    Abstract: We study the forecasting power of financial variables for macroeconomic variables for 62 countries between 1980 and 2013. We find that financial variables such as credit growth, stock prices and house prices have considerable predictive power for macroeconomic variables at one to four quarters horizons. A forecasting model with financial variables outperforms the World Economic Outlook (WEO) forecasts in up to 85 percent of our sample countries at the four quarters horizon. We also find that cross-country panel models produce more accurate out-of-sample forecasts than individual country models.
    Date: 2016–12–23

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