nep-mac New Economics Papers
on Macroeconomics
Issue of 2017‒01‒29
109 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Macro-economic Management in an Electronic Credit/Financial System By Joseph E. Stiglitz
  2. Measuring Economic Uncertainty and Its Effects By Angus Moore
  3. Inequality, fiscal policy, and business cycle anomalies in emerging markets By Amanda Michaud; Jacek Rothert
  4. The Signaling Effect of Raising Inflation By Jean Barthélemy; Eric Mengus
  5. Public debt expansions and the dynamics of the household borrowing constraint By António Antunes; Valerio Ercolani
  6. İnflyasiya hədəflənməsinin əməliyyat çərçivəsi: ölkə təcrübələri AMB üçün nə vəd edir? By Adigozalov, Shaig; Huseynov, Salman
  7. Intuitive and reliable estimates of the output gap from a Beveridge-Nelson Filter By Gunes Kamber; James Morley; Benjamin Wong
  8. House prices, lending standards, and the macroeconomy By Silvo, Aino
  9. The impact of the Basel III liquidity coverage ratio on macroeconomic stability: An agent-based approach By Li, Boyao
  10. Financial Constraints and Nominal Price Rigidities By Balleer, Almut; Hristov, Nikolay; Menno, Dominik
  11. Finance and Growth: From the Business Cycle to the Long Run By Thomas Grjebine; Fabien Tripier
  12. Fiscal Activism and Price Volatility: Evidence from Advanced and Emerging Economies By António Afonso; João Tovar Jalles
  13. Housing Prices, Mortgage Interest Rates and the Rising Share of Capital Income in the United States By Gianni La Cava
  14. The Household Cash Flow Channel of Monetary Policy By Gianni La Cava; Helen Hughson; Greg Kaplan
  15. Foreign Banks and International Transmission of Monetary Policy: Evidence from the Syndicated Loan Market By Demirguc-Kunt, Asli; Horvath, Balint; Huizinga, Harry
  16. Why Does Household Investment Lead Business Investment over the Business Cycle?: Comment By Hashmat Khan; Jean-François Rouillard
  17. The time-varying price of financial intermediation in the mortgage market By Fuster, Andreas; Lo, Stephanie; Willen, Paul S.
  18. Time to Innovate and Aggregate Fluctuations: a New Keynesian Model with Endogenous Technology By Toshihiro Okada
  19. Measuring News Sentiment By Shapiro, Adam Hale; Sudhof, Moritz; Wilson, Daniel J.
  20. Fiscal deficit composition and economic growth relation in India: A time series econometric analysis By Ramu M R, Anantha; Gayithri, K
  21. Disagreement about Inflation Expectations By Alexander Ballantyne; Christian Gillitzer; David Jacobs; Ewan Rankin
  22. Job creation tax credits, fiscal foresight,and job growth: evidence from U.S. States By Robert S. Chirinko; Daniel J. Wilson
  23. The Government Wage Bill and Private Activity By Dimitrios Bermperoglou; Evi Pappa; Eugenia Vella
  24. Israel's Triumph over Inflation: The Long and Winding Road By Razin, Assaf
  25. The Effect of Consumer Sentiment on Consumption By Christian Gillitzer; Nalini Prasad
  26. Oil price shocks and policy uncertainty: New evidence on the effects of US and non-US oil production By Wensheng Kang; Ronald A. Ratti; Joaquin L. Vespignani
  27. IGEM II: a New Variant of the Italian General Equilibrium Model By Barbara Annichiarico; Fabio Di Dio; Francesco Felici
  28. L’impact des réformes commerciales sur l’emploi et le bien-être dans les pays de la CEDEAO : le cas du Sénégal By Sokhna Diarra MBOUP; Racky BALDE; Thierno Malick DIALLO; Christian Arnault EMINI
  29. What Helps Forecast U.S. Inflation?—Mind the Gap! By Ayse Kabukcuoglu; Enrique Martínez-García
  30. Demonetisation: Some Theoretical Perspectives By Waknis, Parag
  31. Implicit public debt thresholds: an empirical exercise for the case of Spain By Javier Andrés; Javier J. Pérez; Juan A. Rojas
  32. The Effects of Labour Market Reforms upon Unemployment and Income Inequalities: an Agent Based Model By Giovanni Dosi; Manoela Carrera Pereira; Andrea Roventini; Maria Enrica Virgillito
  33. The "Magic Square" of Economic Policy measured by a Macroeconomic Performance Index By Oliver Picek
  34. Some implications of learning for price stability By Stefano Eusepi; Marc P. Giannoni; Bruce Preston
  35. Subjective Interest Rate Uncertainty and the Macroeconomy: A Cross-country Analysis. By K. Istrefi; S. Mouabbi
  36. Fire buys of central bank collateral assets By de Roure, Calebe
  37. Trade Invoicing Currency and First-stage Exchange Rate Pass-through By Christian Gillitzer; Angus Moore
  38. To QE or not to QE? New perspectives of an unconventional way of Eurozone revival after Brexit By Economou, Emmanouel/Marios/Lazaros; Kyriazis, Nikolaos
  39. Identifying Interbank Loans from Payments Data By Anthony Brassil; Helen Hughson; Mark McManus
  40. Fiscal and other rules in EU economic governance: helpful, largely irrelevant or unenforceable? By Iain Begg
  41. The Beveridge Curve in the OECD. Before and after the great recession By Sergio Destefanis; Giuseppe Mastromatteo
  42. Fiscal Sustainability of Macedonia on its path towards the EU By Trenovski, Borce; Tashevska, Biljana
  43. Lower Oil Prices and the U.S. Economy: Is This Time Different? By Baumeister, Christiane; Kilian, Lutz
  44. Euler Equations, Subjective Expectations and Income Shocks By Agnes Kovacs; Orazio Attanasio
  45. Surviving the perfect storm: the role of the lender of last resort By Nuno Alves; Diana Bonfim; Carla Soares
  46. The cyclical character of fiscal policy in transition countries By Rilind Kabashi
  47. Why Do Companies Fail? By Rose Kenney; Gianni La Cava; David Rodgers
  48. The Federal Reserve’s Evolving Monetary Policy Implementation Framework: 1914-1923 By Chabot, Benjamin
  49. Sovereign Debt Effects and Composition: Evidence from Time-Varying Estimates By António Afonso; João Tovar Jalles
  50. Debt Overhang and the Macroeconomics of Carry Trade By Jakucionyte, Egle; van Wijnbergen, Sweder
  51. Interventions in Markets with Adverse Selection: Implications for Discount Window Stigma By Ennis, Huberto M.
  52. End of 9-Endings and Price Perceptions By Chen, Haipeng (Allan); Levy, Daniel; Snir, Avichai
  53. End of 9-Endings and Price Perceptions By Chen, Haipeng (Allan); Levy, Daniel; Snir, Avichai
  54. End of 9-Endings and Price Perceptions. By Haipeng (Allan) Chen; Daniel Levy; Avichai Snir
  55. Jobs or Hours? Cyclical Labour Market Adjustment in Australia By James Bishop; Linus Gustafsson; Michael Plumb
  56. Forecasting economic activity in data-rich environment By Maxime Leroux; Rachidi Kotchoni; Dalibor Stevanovic
  57. The Janus-Faced Nature of Debt: Results from a Data-Driven Cointegrated SVAR Approach By Mattia Guerini; Alessio Moneta; Mauro Napoletano; Andrea Roventini
  58. Arab Republic of Egypt; Request for Extended Arrangement Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt By International Monetary Fund.
  59. The Memornada trap and almost fall of the Greek economy By Kyriazis, Nicholas; Economou, Emmanouel/Marios/Lazaros
  60. Learning Efficiency Shocks, Knowledge Capital and the Business Cycle: A Bayesian Evaluation By Alok Johri; Muhebullah Karimzada
  61. Labor-market scars when youth unemployment is extremely high: Evidence from Macedonia By Marjan Petreski; Nikica Mojsoska-Blazevski; Marcelo Bérgolo
  62. Current economic conditions and the implications for monetary policy: remarks at the Connecticut Business & Industry Association and the MetroHartford Alliance Economic Summit & Outlook 2017, Hartford, Connecticut, January 9, 2017. By Rosengren, Eric S.
  63. Impact of the Degree of Relative Risk Aversion, the Interest Rate and the Exchange Rate Depreciation on Economic Welfare in a Small Open Economy By Soriano-Morales, Yazmín Viridiana; Vallejo-Jiménez, Benjamín; Venegas-Martínez, Francisco
  64. Kuwait; 2016 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund.
  65. Is the People’s Republic of China’s Current Slowdown a Cyclical Downturn or a Long-term Trend? A Productivity-Based Analysis By Bai, Chong–En; Zhang, Qiong
  66. Using Confidence Data to Forecast the Canadian Business Cycle By Kevin Moran; Simplice Aime Nono
  67. A discussion of economic conditions and the role of monetary policy: remarks before the Money Marketeers of New York University, New York City, June 23, 2016. By Kaplan, Robert Steven
  68. Saver types: An evolutionary-adaptive approach By Gergely Varga; Janos Vincze
  69. A small scale forecasting and simulation model for Azerbaijan (FORSAZ) By Huseynov, Salman; Mammadov, Fuad
  70. Capital stocks and capital services: integrated and consistent estimates for the United Kingdom, 1950–2013 By Nicholas Oulton; Gavin Wallis
  71. A Unified Framework for Dimension Reduction in Forecasting By Alessandro Barbarino; Efstathia Bura
  72. Korea’s Challenges Ahead—Lessons from Japan’s Experience By Edda Zoli
  73. Senegal; Staff Report for the Article IV Consultation and Third Review Under the Policy Support Instrument-Press Release, and Staff Report By International Monetary Fund.
  74. Key secular trends and implications for monetary policy: remarks before the official monetary and financial institutions forum, Beijing, China, August 2, 2016. By Kaplan, Robert Steven
  75. The Impact of Sovereign Ratings on Eurozone SMEs Credit Rationing By Demoussis, Michael; Drakos, Konstantinos; Giannakopoulos, Nicholas
  76. Long-run expectations in a Learning-to-Forecast Experiment By Colasante, Annarita; Alfarano, Simone; Camacho-Cuena, Eva; Gallegati, Mauro
  77. Is Modern Technology Responsible for Jobless Recoveries? By Graetz, Georg; Michaels, Guy
  78. Austerity, Inequality, and Private Debt Overhang By Mathias Klein; Roland Winkler
  79. Pledgeability, Industry Liquidity, and Financing Cycles By Douglas W. Diamond; Yunzhi Hu; Raghuram G. Rajan
  80. Investigating the Benefits of a Currency Union to Trade: A Case Study on WAMZ Countries By Cham, Tamsir
  81. Expert Group on Disparities in a National Accounts Framework: Results from the 2015 Exercise By Jorrit Zwijnenburg; Sophie Bournot; Federico Giovannelli
  82. Confidence Interval Projections of the Federal Reserve Balance Sheet and Income By Erin E. Syron Ferris; Soo Jeong Kim; Bernd Schlusche
  83. The Slowdown in US Productivity Growth: Breaks and Beliefs By Rachael McCririck; Daniel Rees
  84. The Effects of Collecting Income Taxes on Social Security Benefits By Jones, John Bailey; Li, Yue
  85. The Role of Marriage in Fighting HIV: A Quantitative Illustration for Malawi By Jeremy Greenwood; Philipp Kircher; Cezar Santos; Michele Tertilt
  86. Business cycle estimation with high-pass and band-pass local polynomial regression By Luis J. Álvarez
  87. United Republic of Tanzania; United Republic of Tanzania: Fifth Review Under the Policy Support Instrument-Press Release; Staff Report By International Monetary Fund.
  88. How Biased Are U.S. Government Forecasts of the Federal Debt? By Neil R. Ericsson
  89. Sovereign defaults during the Great Depression: the role of fiscal fragility By Andrea Papadia
  90. Finland: Financial sector Assessment Program; Technical Note-Macroprudential Policy Framework By International Monetary Fund.
  91. Stock Market Development in the Philippines: Past and Present By Ho, Sin-Yu; Odhiambo, Nicholas M.
  92. Distributional and revenue effects of a tax shift from labor to property By Paetzold, Jorg; Tiefenbacher, Markus
  93. Central African Republic; First Review of the Arrangement Under the Extended Credit Facility, Financing Assurances Review and Request for Waiver of Nonobservance of Performance Criterion By International Monetary Fund.
  94. Uganda; Seventh Review Under the Policy Support Instrument-Press Release; and Staff Report By International Monetary Fund.
  95. Republic of Estonia; 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Estonia By International Monetary Fund.
  96. Long-tarm Monetary Statistics for Russia By Nakamura, Yasushi
  97. Fiscal Sustainability Report 2016 By Jonasson, Erik
  98. Die gesetzliche Einschränkung von Bargeldzahlungen und die Abschaffung von Bargeld auf dem rechtlichen Prüfstand By Hirdina, Ralph
  99. Walras' Law in the steady state of DSGE models By Costa Junior, Celso José
  100. Five Macroeconomic Questions for 2017 : a presentation at Forecasters Club of New York, New York, N.Y. January 12, 2017. By Bullard, James B.
  101. The Cultural Foundations of Happiness By Pierluigi Conzo; Arnstein Aassve; Giulia Fuochi; Letizia Mencarini
  102. Symmetric information bubbles: Experimental evidence By Yasushi Asako; Yukihiko Funaki; Kozo Ueda; Nobuyuki Uto
  103. Some areas of concern about Indian Manufacturing Sector GDP estimation. By Sapre, Amey; Sinha, Pramod
  104. Resource Discovery and the Politics of Fiscal Decentralization By Sambit Bhattacharyya; Louis Conradie; Rabah Arezki
  105. Rwanda; First Review of the Standby Credit Facility Arrangement and Sixth Review Under the Policy Support Instrument, Request for Waiver and Modification of Performance and Assessment Criteria-Press Release; and Staff Report By International Monetary Fund.
  106. Econometric modeling of exchange rate determinants by market classification: An empirical analysis of Japan and South Korea using the sticky-price monetary theory By Works, Richard Floyd
  107. People's Republic of China-Hong Kong Special Administrative Region; 2016 Article IV Consultation-Press Release and Staff Report By International Monetary Fund.
  108. Econophysics Macroeconomic Model By Victor Olkhov
  109. Open Borders in the European Union and Beyond: Migration Flows and Labor Market Implications By John Kennan

  1. By: Joseph E. Stiglitz
    Abstract: Modern technology provides the basis of an efficient low-cost electronic payments as an alternative to the current system where fiat money is the medium of exchange. This paper explores possible macro-economic implication, showing how such a financial system might enhance government’s ability to control the level of aggregate demand. As in other arenas, in second-best situations with uncertainty, systems where there is an attempt to directly control quantities directly may perform better (e.g. have less volatility) than those using prices and other indirect control mechanisms. The paper identifies conditions under which in a system of electronic money, macroeconomic variability is lower when the level and direction of credit creation is directly controlled, through appropriately designed credit auctions, than in a system of indirect control of, say, investment via the interest rate. This is especially important since much macro-economic instability is associated with instability in credit creation and in the fraction allocated to newly produced goods and services. The paper also explains how, in an open economy, in a system of electronic money, credit auctions combined with trade chits might enable the control of net exports, again enhancing macro-stability. Finally, we explain how under a system of electronic money, the rents that are currently associated with credit creation and that arise from bank franchises—that constitute a form of appropriation of the returns from trust in the government and its ability and willingness to bail-out banks in the event of a crisis or bank run—could be appropriated by the government to a greater degree than at present.
    JEL: E42 E44 E51 E52 F32 F38
    Date: 2017–01
  2. By: Angus Moore (Reserve Bank of Australia)
    Abstract: I construct a monthly index of economic uncertainty for Australia. Economic uncertainty rose to historically high levels during the global financial crisis and remained elevated until late 2013. More recently, it has been a bit below its long-term average. The index of economic uncertainty: is higher around recessions, elections, monetary policy surprises and some major geopolitical events; tends to increase faster than it decreases; and is driven by both domestic and foreign factors. I use the index to assess how uncertainty affects the Australian economy. Consistent with the 'real options' channel of uncertainty, I find that it reduces investment and employment growth. Similarly, uncertainty raises the household saving ratio and reduces consumption growth for durable goods, consistent with the 'precautionary savings' channel of uncertainty. My results suggest that economic uncertainty can be an important independent driver of economic outcomes. It is therefore worth considering in policy and empirical work.
    Keywords: uncertainty; economic uncertainty index; real options; precautionary savings; investment; employment
    JEL: E20 E22 E24 E32
    Date: 2016–02
  3. By: Amanda Michaud; Jacek Rothert
    Abstract: Government expenditures are procyclical in emerging markets and countercyclical in developed economies. We show this pattern is driven by differences in social transfers: transfers are more countercyclical and make up a larger portion of spending in developed economies. We use a small open economy model to study how much these differences in fiscal policies can account for differences in business cycle characteristics of emerging economies, particularly excess volatility of private consumption. We find that ignoring disparate fiscal policy results in an overestimation of the persistence of technology shocks in emerging markets relative to developed by 52%. We study how this conclusion depends on differences in the extent and sources of inequality across countries.
    Keywords: fiscal policy, emerging markets, trasnfers, inequality
    JEL: E21 E32 E62 F41
    Date: 2016
  4. By: Jean Barthélemy (Département d'économie); Eric Mengus (HEC Paris - Recherche - Hors Laboratoire)
    Abstract: This paper argues that central bankers should raise inflation when anticipating liquidity traps to signal their credibility to forward guidance policies. As stable inflation in normal times either stems from central banker's credibility, e.g. through reputation, or from his aversion to inflation, the private sector is unable to infer the central banker's type from observing stable inflation, jeopardizing the efficiency of forward guidance policy. We show that this signaling motive can justify level of inflation well above 2% but also that the low inflation volatility during the Great Moderation was insufficient to ensure fully efficient forward guidance when needed.
    Keywords: Forward guidance; Inflation; Signaling
    JEL: E31 E52 E65
    Date: 2016–08
  5. By: António Antunes; Valerio Ercolani
    Abstract: We show that the endogeneity of the household borrowing constraint accounts for a sizeable part of the efects in output, credit and welfare of fiscal policies that entail government debt expansions, using an incomplete-markets model featuring heterogeneous agents. These policies make the borrowing constraint tighter because of a higher interest rate. The tightening favors a deleveraging process in terms of private credit and reinforces the precautionary saving motive. This in turn exerts a downward pressure on the interest rate, dampening the tightening itself. As an example, under a plausible debt-financed transfers policy, the majority of households supports the policy within our baseline economy with the endogenous borrowing constraint, whereas it is against the policy if the endogeneity of the borrowing limit is not considered.
    JEL: E21 E44 E62 H60
    Date: 2016
  6. By: Adigozalov, Shaig; Huseynov, Salman
    Abstract: The CBAR plans to make a transition from the current peg regime where exchange rate acts as a “nominal anchor” to an inflation targeting (IT) regime. All leading central banks which adhere to an IT regime adopt a respective operational framework consistent with the announced monetary regime. Unfortunately, in compared to the transmission mechanism of the monetary policy which is under the spotlight, operational frameworks are not that much illuminated. This study explores a relatively “least conspicuous facet” of monetary policy, mainly focusing on experiences of various leading central banks. In addition, this paper analyzes the current operational framework of the Bank, pointing out the constraints and proposes several recommendations on how to adopt a proper operational framework for the new regime.
    Keywords: Inflation Targeting, operational framework, monetary transmission
    JEL: E42 E43 E52 E58
    Date: 2015–05–22
  7. By: Gunes Kamber; James Morley; Benjamin Wong
    Abstract: The Beveridge-Nelson (BN) trend-cycle decomposition based on autoregressive forecasting models of U.S. quarterly real GDP growth produces estimates of the output gap that are strongly at odds with widely-held beliefs about the amplitude, persistence, and even sign of transitory movements in economic activity. These antithetical attributes are related to the autoregressive coefficient estimates implying a very high signal-tonoise ratio in terms of the variance of trend shocks as a fraction of the overall quarterly forecast error variance. When we impose a lower signal-to-noise ratio, the resulting BN decomposition, which we label the “BN filter”, produces a more intuitive estimate of the output gap that is large in amplitude, highly persistent, and typically increases in expansions and decreases in recessions. Real-time estimates from the BN filter are also reliable in the sense that they are subject to smaller revisions and predict future output growth and inflation better than estimates from other methods of trend-cycle decomposition that also impose a low signal-to-noise ratio, including deterministic detrending, the Hodrick-Prescott filter, and the bandpass filter.
    Keywords: Beveridge-Nelson decomposition, output gap, signal-to-noise ratio
    JEL: C18 E17 E32
    Date: 2017–01
  8. By: Silvo, Aino
    Abstract: I study the link between house prices, lending standards, and aggregate over-investment in housing. I develop a model of the housing market where the credit market is affected by asymmetric information. Selection is towards less creditworthy borrowers. Asymmetric information coupled with deadweight costs of default can create endogenous boom-bust cycles in house prices. I show that lending standards are loose and the incentives for less-than-creditworthy borrowers to apply for a loan are particularly strong, first, when future house values are expected to be high, which leads to high leverage of borrowers; and second, when safe interest rates are low, which implies low costs of borrowing. However, there are strong nonlinearities in the relationship between borrowing incentives and economic fundamentals. The results shed light on incentive mechanisms that can help explain the developments in the U.S. housing market in the early 2000s. They also imply that loose monetary policy can have a direct impact on the stability of the housing market through the cost of borrowing and the opportunity cost of housing investment.
    JEL: E21 E32 E44 G14 G21
    Date: 2017–01–26
  9. By: Li, Boyao
    Abstract: Commercial banks across the world have been implementing the Basel III accord, which is the most important international response to the 2007-2008 financial crisis. Particularly, the liquidity coverage ratio (LCR) introduced by the Basel III accord is the first global standard for banking liquidity management. Does this requirement work? And what macroeconomic effects does it produce? In order to address such crucial issues, the author develops a stock-flow consistent (SFC)/agent-based computational economic (ACE) model. As he knows, there is a real danger that the requirement restricts the availability of bank credit and hence reducing economic activity. However, in comparison to the prior works, the author finds that the externality is presented as a positive self-reinforcing feedback process, which causes the macroeconomic conditions to spiral downwards. This dynamic feedback process that hardly can be revealed by the current macroeconomic models based on equilibrium analyses. The results also shed some light on the fact that credit creation substantially affects economic activity and macroeconomic stability, as the fundamental reason leading to the results. Therefore, the bank as the driver of credit creation is crucial in an economy, and meanwhile bank regulations have great potential impacts on entire economy rather than only in the bank sector itself.
    Keywords: credit creation,liquidity coverage ratio,bank regulation,economic stability,agentbased macroeconomics,stock-flow consistency,business cycle,crisis
    JEL: E27 E44 E51 E32 G01 G28
    Date: 2017
  10. By: Balleer, Almut; Hristov, Nikolay; Menno, Dominik
    Abstract: This paper investigates how financial market imperfections and the frequency of price adjustment interact. Based on new firm-level evidence for Germany, we document that financially constrained firms adjust prices more often than their unconstrained counterparts, both upwards and downwards. We show that these empirical patterns are consistent with a partial equilibrium menu-cost model with a working capital constraint. We then use the model to show how the presence of financial frictions changes profits and the price distribution of firms compared to a model without financial frictions. Our results suggest that tighter financial constraints are associated with higher nominal rigidities, higher prices and lower output. Moreover, in response to aggregate shocks, aggregate price rigidity moves substantially, the response of inflation is dampened, while output reacts more in the presence of financial frictions. This means that financial frictions make the aggregate supply curve flatter for all calibrations considered in our model. We show that this differs fundamentally from models in which the extensive margin of price adjustment is absent (Rotemberg, 1982) or constant (Calvo, 1983). Hence, the interaction of financial frictions and the frequency of price adjustment potentially induces important consequences for the effectiveness of monetary policy.
    Keywords: Financial Frictions; Frequency of price adjustment; menu cost model
    JEL: E31 E44
    Date: 2017–01
  11. By: Thomas Grjebine; Fabien Tripier
    Abstract: This paper proposes a new methodology to assess the long-run relationship between economic and financial growth. By linking long-run growth to the properties of business cycles, this methodology offers a better understanding of the channels through which finance can impact long-term growth. We first define the direct elasticity between financial and economic growth to measure the contemporaneous effect of financial growth. If financial booms make recessions more severe, losses of growth during recessions are low when compared with growth supplements during expansions. Beyond this contemporaneous effect of financial booms, we identify a persistent effect of financial growth detrimental to subsequent cycles, which is referred as a hysteresis phenomenon. Then, financial and economic growth rates are positively correlated only up to a certain threshold of financial activity. In our panel of economies, the average level of financial activity is well above this threshold, implying that the total elasticity between finance and growth is negative in the long run.
    Keywords: Growth;Business Cycles;Hysteresis;Financial Cycles;Growth Cycles
    JEL: E32 E44
    Date: 2016–12
  12. By: António Afonso; João Tovar Jalles
    Abstract: Using a panel of 54 countries between 1980 and 2013, we find empirical support for the view that changes in the fiscal policy stance (year-on-year change in the cyclically adjusted primary balance) have a significant positive correlation with inflation volatility. An increase in the volatility of discretionary fiscal policies by one standard deviation raises inflation volatility between 5 and 6 percent. Moreover, results using alternatively different inflation volatility proxies confirm that an expansionary fiscal stance increases price volatility. Another relevant outcome is that in a context of economic expansions (recessions) the harmful impact of fiscal activism on price volatility is soften (heightened), while the negative impact of fiscal activism on price stability is higher when fiscal policy is expansionary. Finally, fiscal activism fuels inflation volatility much more pronouncedly in emerging market economies vis-a-vis advanced economies. Key Words : volatility, fiscal policy, inflation, GARCH, Consensus Forecasts
    JEL: C23 E31 E62 G01 H62
    Date: 2017–04
  13. By: Gianni La Cava (Reserve Bank of Australia)
    Abstract: Piketty (2014) documents how the share of aggregate income going to capital in the United States has risen in the post-war era. Rognlie (2015) has since shown that this is largely due to the housing sector. I explore the determinants of the secular rise in the share of housing capital income (or 'rental income') in the US economy. I first decompose the aggregate national accounts by geographic region and also by type of housing. I then exploit variation across US states in factors that could explain housing capital income, such as interest rates, housing prices and income growth. I show that the long-run increase in the aggregate share of housing capital income is mainly due to higher imputed rental income going to owner-occupiers. I also find evidence that the rise in the share of housing capital income over recent decades reflects a combination of: 1) lower real interest rates; 2) lower consumer price inflation; and 3) constraints on the supply of new housing in some large US cities. In effect, I argue that the fall in nominal interest rates over the 1980s and 1990s raised the demand for housing and pushed up housing prices and rents (relative to non-housing prices) in supply-constrained areas. I estimate that the long-term decline in interest rates can explain more than half the increase in the share of nominal income spent on housing since the early 1980s.
    Keywords: interest rates; housing prices; housing supply; imputed rent; inequality
    JEL: D33 D63 E01 E21 E43 R31
    Date: 2016–05
  14. By: Gianni La Cava (Reserve Bank of Australia); Helen Hughson (Reserve Bank of Australia); Greg Kaplan (Reserve Bank of Australia)
    Abstract: We explore whether changes in interest rates affect household consumption by changing the amount of cash that households have to spend – the household cash flow channel of monetary policy. Based on a panel of Australian households, we find that, when interest rates decline, the cash flows and durable goods spending of households with variable-rate mortgage debt increases relative to comparable fixed-rate borrowers. This is consistent with a 'borrower' cash flow channel. We also find that lower interest rates reduce the cash flows available to households that receive interest on bank deposits and that this, in turn, is associated with lower spending by these households. This is consistent with a 'lender' cash flow channel. Overall, the borrower channel is a stronger channel of monetary transmission than the lender channel, such that lower interest rates will typically increase household cash flows and lead to higher spending in aggregate. The central estimates imply that lowering interest rates by 100 basis points would be associated with an increase in aggregate household expenditure of about 0.1 to 0.2 per cent per annum. Overall, the household cash flow channel appears to be an important channel of monetary transmission in Australia.
    Keywords: cash flow; consumption; liquidity constraints; monetary policy; mortgage debt
    JEL: D31 E21 E52
    Date: 2016–12
  15. By: Demirguc-Kunt, Asli; Horvath, Balint; Huizinga, Harry
    Abstract: This paper uses loan-level data from 124 countries over 1995–2015 to examine the transmission of monetary policy through the cross-border syndicated loan market. The results show that the expansion of monetary policy increases cross-border credit supply especially to weaker firms. However, greater foreign bank presence in the borrower country appears to reduce the potentially destabilizing impact of lower policy interest rates on cross-border lending, as it attenuates increases in loan volume and maturity while magnifying increases in collateralization and covenant use. The mitigating effect of foreign banking presence in the borrowing country on the transmission of monetary policy is robust to controlling for borrower-country economic and financial development, and a range of borrower and lender country policies and institutions, including the strength of bank regulation and supervision, exchange rate flexibility, and restrictions on capital flows. The findings qualify the characterization of international banks as sources of credit instability, and suggest that foreign bank entry can improve the stability of cross-border credit in the face of international monetary policy shocks.
    Keywords: Bank Regulation; Banking FDI; capital controls; Cross-border lending; Monetary Transmission
    JEL: E44 E52 F34 F38 F42 G15 G20
    Date: 2017–01
  16. By: Hashmat Khan (Department of Economics, Carleton University); Jean-François Rouillard (Department of Economics, Université de Sherbrooke)
    Abstract: We demonstrate that the model in Fisher (2007) produces two counterfactual results when the capital tax rate is calibrated to 35%—a rate consistent with estimates of the effective tax rate in the literature. First, household investment lags business investment. Second, household investment is less volatile than business investment with a relative volatility of .62. We show that increasing the degree of household capital complementarity cannot resolve these problems because the model produces counterfactual factor shares in market production relative to the empirical estimates in Fisher (2007). Accounting for U.S. investment dynamics, therefore, remains a significant challenge for macroeconomists.
    Keywords: household investment, business investment, capital taxation
    JEL: E22 E32
    Date: 2017–01–16
  17. By: Fuster, Andreas (Federal Reserve Bank of New York); Lo, Stephanie (Harvard University); Willen, Paul S. (Federal Reserve Bank of Boston, NBER)
    Abstract: The U.S. mortgage market links homeowners with savers all over the world. In this paper, we ask how much of the flow of money from savers to borrowers goes to the intermediaries that facilitate these transactions. Based on a new methodology and a new administrative data set, we find that the price of intermediation, measured as a fraction of the loan amount at origination, is large— 142 basis points on average over the 2008-14 period. At daily frequencies, intermediaries pass on price changes in the secondary market to borrowers in the primary market almost completely. At monthly frequencies, the price of intermediation fluctuates significantly and is highly sensitive to volume, likely reflecting capacity constraints: a one standard deviation increase in applications for new mortgages leads to a 30-35 basis point increase in the price of intermediation. Additionally, over 2008-14, the price of intermediation increased about 30 basis points per year, potentially reflecting higher mortgage servicing costs and an increased legal and regulatory burden. Taken together, the sensitivity to volume and the positive trend led to an implicit total cost to borrowers of about $140 billion over this period. Finally, increases in application volume associated with “quantitative easing” (QE) led to substantial increases in the price of intermediation, which attenuated the benefits of QE to borrowers.
    Keywords: mortgage finance; financial intermediation; monetary policy transmission
    JEL: E44 E52 G21 L11
    Date: 2017–01–01
  18. By: Toshihiro Okada (School of Economics, Kwansei Gakuin University)
    Abstract: This paper develops a new Keynesian DSGE model with endogenous technology and explores the role of the endogenous mechanism of technology in macroeconomic fluctuations. It particularly considers the implications for the Phillips curve, the effects of news shocks and the persistence of the impacts of shocks. It has three main results. First, the model solves the "inflation persistence puzzle." It explains the persistence in inflation (the existence of the backward-looking term in the estimation of the new Keynesian Phillips curve) without relying on the ad hoc and empirically inconsistent assumptions made by conventional new Keynesian models. Second, the model solves the "disinflationary news shock puzzle." It explains the disinflationary effect of a news shock, which conventional new Keynesian models have difficulty explaining. Third, the model shows that the mechanism of an endogenous technological change generates larger volatility (a 12 percent increase in the standard deviation of output growth). It also shows that even monetary policy and government expenditure shocks have some persistent impacts on TFP and output.
    Keywords: New Keynesian Models, Endogenous Technology, Phillips Curve, Inflation, New Shock.
    JEL: E3 O4
    Date: 2017–01
  19. By: Shapiro, Adam Hale (Federal Reserve Bank of San Francisco); Sudhof, Moritz (Kanjoya); Wilson, Daniel J. (Federal Reserve Bank of San Francisco)
    Abstract: We develop and assess new time series measures of economic sentiment based on computational text analysis of economic and financial newspaper articles from January 1980 to April 2015. The text analysis is based on predictive models estimated using machine learning techniques from Kanjoya. We analyze four alternative news sentiment indexes. We find that the news sentiment indexes correlate strongly with contemporaneous business cycle indicators. We also find that innovations to news sentiment predict future economic activity. Furthermore, in most cases, the news sentiment measures outperform the University of Michigan and Conference board measures in predicting the federal funds rate, consumption, employment, inflation, industrial production, and the S&P500. For some of these economic outcomes, there is evidence that the news sentiment measures have significant predictive power even after conditioning on these survey-based measures.
    JEL: E32 E37
    Date: 2017–01–05
  20. By: Ramu M R, Anantha; Gayithri, K
    Abstract: High and persistent fiscal deficit is one of the major macroeconomic problems in India since the mid-1980s. Fiscal consolidation is in the forefront of policy discussion in India not only at present but since the early 1990s. However the actual administrative measure to control it constitutionally by enacting an Act took place in 2003 and the Fiscal Responsibility & Budget Management (FRBM) Act came into force in April 2004. The major reason behind controlling fiscal deficit is its adverse effect on the macro economy, particularly output growth. Monetary policy makers in India (RBI) argue that high deficit will adversely affect growth and hence requires control. But fiscal policy makers (Ministry of Finance) argue that government spending will promote growth. Hence, there exists a puzzle about how fiscal deficit is affecting GDP in India. This paper tries to answer the puzzle by taking up a long-term time series analysis starting from 1980-81 to 2012-13. It also carries a detailed analysis by including the composition of fiscal deficit and its impact on GDP. By adopting a Vector Error Correction method, this paper proves that fiscal deficit is adversely affecting growth and also argues that if fiscal deficit money is spent on capital formation, it promotes growth, supporting the ‘Golden Rule’ of public finance.
    Keywords: Fiscal Deficit, Economic Growth, VEC
    JEL: C32 E62 O40
    Date: 2016–01
  21. By: Alexander Ballantyne (Reserve Bank of Australia); Christian Gillitzer (Reserve Bank of Australia); David Jacobs (Reserve Bank of Australia); Ewan Rankin (Reserve Bank of Australia)
    Abstract: Average and median measures of inflation expectations can disguise substantial disagreement in expectations. Disagreement in expectations has important implications for anchoring of inflation expectations and central bank credibility. We use individual response data from five survey measures of inflation expectations to document five features of disagreement about inflation expectations in Australia: (1) there has been a decline in disagreement since the introduction of inflation targeting, except among consumers; (2) disagreement responds little to most macroeconomic news surprises; (3) disagreement among consumers is much larger than among professional forecasters; (4) disagreement and the mean level of inflation expectations co-move for consumers but not professional forecasters; (5) there appear to be persistent differences in consumer inflation expectations across different demographic groups. For professional forecasters, the reduction in the overall level of disagreement and unresponsiveness of disagreement to most macroeconomic news surprises is consistent with well-anchored inflation expectations.
    Keywords: inflation expectations; disagreement; dispersion; information rigidity
    JEL: E31 E52
    Date: 2016–04
  22. By: Robert S. Chirinko; Daniel J. Wilson
    Abstract: This paper studies fiscal foresight -- alterations of current behavior by forwardlooking agents in anticipation of future policy changes – using variation in state job creation tax credits (JCTCs). Nearly half of the U.S. states enacted JCTCs between 1990 and 2007, and their unique experiences provide a rich source of information for assessing the quantitative importance of fiscal foresight. We investigate whether JCTCs affect employment growth before, at, and after the time they go into effect. A theoretical model identifies three key conditions necessary for fiscal foresight, captures the effects of the rolling base feature of JCTCs, and generates several empirical predictions. We evaluate these predictions in a difference-in-difference regression framework applied to monthly panel data on employment, the JCTC effective and legislative dates,and various controls. Failing to account for the distorting effects of fiscal foresight can result in upwardly biased estimates of the impact of the JCTC fiscal policy by as much as 34%. We also find that the cumulative effect of the JCTCs is positive, but it takes several years for the full effect to be realized. The cost per job created is approximately $18,000, which is low relative to cost estimates of recent federal fiscal programs. This figure implies a fiscal multiplier on JCTC tax expenditures of about 1.66.
    Keywords: Fiscal foresight, job creation tax credits, state business tax incentives, implementation lags, fiscal policy
    JEL: E62 E24 H25 H71
    Date: 2016–12
  23. By: Dimitrios Bermperoglou; Evi Pappa; Eugenia Vella
    Abstract: We estimate the macroeconomic effects of public wage expenditures in U.S. data by identifying shocks to public employment and public wages using sign restrictions. Aggregate public wage bill shocks induce typically insignifi?cant effects. Disaggregating by government level reveals that public employment shocks are mildly expansionary at the federal level and strongly expansionary at the state and local level by crowding in private consumption and increasing labor force participation and private-sector employment.Similarly, state and local government wage shocks lead to increases in consumption and output, while shocks to federal government wages induce signifi?cant contractionary effects.In a stylized DSGE model we show that the degree of complementarity between public and private goods in the consumption bundle is key for explaining the observed heterogeneity.
    Keywords: Matching; government wage bill, fiscal multipliers, VARs, sign restrictions, DSGE model, search and matching frictions
    JEL: C22 E12 E32 E62
    Date: 2016–12
  24. By: Razin, Assaf
    Abstract: The paper gives an economic-history perspective of the long struggle with Inflation. It covers the early acceleration to three-digit levels, lasting 8 years; The stabilization program, based on political backing triggered sharp fall in inflationary expectation, and consequently to sharp inflation reduction to two- digit levels; The convergence to the advanced countries' levels during the "great Moderation", And Israel's resistance to the deflation-depression forces that the 2008 crisis created. The emphasis is on the forces of globalization and the building of institutions, political, regulatory, financial, budget design, and monetary, which helped stabilize prices and output.
    Keywords: Deflation-Depression forces; Hyperinflation; Stabilization
    JEL: E00 E6 F3 F38
    Date: 2017–01
  25. By: Christian Gillitzer (Reserve Bank of Australia); Nalini Prasad (School of Economics, University of New South Wales)
    Abstract: This paper seeks to identify whether changes in consumer sentiment have a direct effect on consumption. In order to demonstrate a causal effect running from sentiment to consumption we need to identify changes in sentiment that are likely to be unrelated to other factors simultaneously affecting sentiment and consumption. To do this, we take advantage of the fact that immediately after elections at which there is a change of government consumers supporting the winning party report substantially more optimistic expectations about both personal and general economic conditions than supporters of the losing party. Following a change of government, we find robust evidence that supporters of the winning party report higher spending intentions than supporters of the losing party, providing evidence that consumer sentiment has a causal effect on consumption. We also find evidence that, following changes of government, motor vehicle purchases increased by relatively more in postcodes with a greater share of votes for the winning party. This provides evidence that self-reported spending intentions are indicative of actual consumption behaviour. Because the share of supporters for the government and the opposition is similar, the variation in sentiment that we use for identification is not evident at the national level. Thus, our results do not imply that changes of government have a noticeable effect on aggregate consumption. However, they do imply a causal effect that can run from sentiment to consumption.
    Keywords: consumer sentiment; Australia
    JEL: E20 E21
    Date: 2016–11
  26. By: Wensheng Kang; Ronald A. Ratti; Joaquin L. Vespignani
    Abstract: Important interaction has been established for US economic policy uncertainty with a number of economic and financial variables including oil prices. This paper examines the dynamic effects of US and non-US oil production shocks on economic policy uncertainty using a structural VAR model. Such an examination is motivated by the substantial increases in US oil production in recent years with implications for US political and economic security. Positive innovations in US oil production are associated with decreases in US economic policy uncertainty. The economic forecast interquartile ranges about the US CPI and about federal/state/local government expenditures are particularly sensitive to innovations in US oil supply shocks. Shocks to US oil supply disruption causes rises in the CPI forecast uncertainty and accounts for 21% of the overall variation of the CPI forecaster disagreement. Dis-aggregation of oil production shocks into US and non-US oil production yield novel results. Oil supply shocks identified by US and non-US origins explain as much of the variation in economic policy uncertainty as structural shocks on the demand side of the oil market.
    Keywords: US oil production, Economic policy uncertainty, CPI forecast uncertainty, Structural VAR
    JEL: E44 G12 Q43
    Date: 2017–01
  27. By: Barbara Annichiarico; Fabio Di Dio; Francesco Felici
    Abstract: This paper provides a full technical description of a variant of the Italian General Equilibrium Model (IGEM), a dynamic general equilibrium model used as a laboratory for policy analysis at the Department of the Italian Treasury. This version of IGEM presents four specific key features: (i) imperfectly competitive final good sector; (ii) involuntary unemployment; (iii) a business tax bearing on firms; (iv) market frictions in the labor market of atypical workers. The paper presents some simulation scenarios of structural and fiscal reforms.
    Keywords: Dynamic General Equilibrium Model, Quantitative Policy Analysis, Simulation Analysis, Italy
    JEL: E27 E30 E60
    Date: 2016–10
  28. By: Sokhna Diarra MBOUP; Racky BALDE; Thierno Malick DIALLO; Christian Arnault EMINI
    Abstract: This study evaluates the impact of the ECOWAS-CET and the Economic Partnership Agreement (EPA) on youth employment and on welfare in Senegal. The analysis is conducted using the PEP-1-1 model, which is a static computable general equilibrium model. The simulation results indicate that applying ECOWAS-CET instead of WAEMU-CET generates an increase in youth and female employment, whatever their qualification level, as well as a general increase in welfare for households in Senegal. However, the implementation of EPA downgrades this situation and leads to a reverse effect on employment of all workers, mainly youth and female employment, as well as on welfare.
    Keywords: ECOWAS, Senegal, Trade, Free trade, Regional Integration, Economic Partnership Agreement (EPA), Employment, Welfare, Computable general equilibrium (CGE) model
    JEL: F13 F43 C68 E24 E27
    Date: 2016
  29. By: Ayse Kabukcuoglu (Koc University); Enrique Martínez-García (Federal Reserve Bank of Dallas and SMU)
    Abstract: The Phillips curve, which posits a relationship between inflation and domestic economic activity, introduces a crucial trade-off between real and nominal objectives for the central bank. Atkeson and Ohanian (2001), among others, present evidence that forecasts of U.S. inflation from Phillips curve-based models tend to underperform relative to naïve forecasts. We propose that globalization can be an important factor in explaining the poor performance of forecasts under a closed-economy Phillips curve. To illustrate that, we empirically evaluate the performance of open-economy Phillips curve-based forecasts constructed with global variables, such as G7 credit growth, G7 money supply growth, terms of trade, and the real effective exchange rate. These global variables perform significantly better than domestic variables, and serve as proxies for poorly-measured indicators of global slack. Moreover, we show that forecasts using simulated data from a workhorse open-economy New Keynesian model support our empirical findings on the open economy Phillips curve and also suggest that better monetary policy and aspects of the Great Moderation have improved the forecast accuracy of open-economy models.
    Keywords: Global Slack, New Open-Economy Phillips Curve, Open-Economy New Keynesian Model, Forecasting.
    JEL: F41 F44 F47 C53 F62
    Date: 2016–12
  30. By: Waknis, Parag
    Abstract: On November 8, 2017, the Prime Minister of India Narendra Modi declared currency denominations of Rs.500 and Rs.1000 to be illegal for use in transactions. These currency denominations together constituted almost 85% of total currency in circulation according to some estimates. Based on essentiality of money, and a segmented markets model perspective, I analyze the effects of this surprise demonetisation policy on the Indian economy.
    Keywords: demonetisation, essentiality of money, segmented markets, informal economy.
    JEL: E42 E51 E52
    Date: 2017–01–23
  31. By: Javier Andrés (University of Valencia); Javier J. Pérez (Banco de España); Juan A. Rojas (ESM)
    Abstract: We extend previous work that combines the Value at Risk approach with estimation of the correlation pattern of the macroeconomic determinants of public debt dynamics by means of Vector Auto Regressions (VARs). These estimated models are used to compute the probability that the public debt ratio exceeds a given threshold, by means of MonteCarlo simulations. We apply this methodology to Spanish data and compute time-series probabilities to analyse the possible correlation with market risk assessment, measured by the spread over the German bond. Taking into account the high correlation between the probability of crossing a pre-specifi ed debt threshold and the spread, we go a step further and ask what would be the threshold that maximises the correlation between the two variables. The aim of this exercise is to gauge the implicit debt threshold or «prudent debt level» that is most consistent with market expectations as measured by the sovereign yield spread. The level thus obtained is consistent with the medium-term debt-to-GDP ratio anchor of 60% of GDP.
    Keywords: public debt, early warning indicators, fiscal sustainability
    JEL: H63 H68 E61 E62
    Date: 2017–01
  32. By: Giovanni Dosi (Laboratory of Economics and Management); Manoela Carrera Pereira (Universidade Estadual de Campinas); Andrea Roventini (Laboratory of Economics and Management (Pisa) (LEM)); Maria Enrica Virgillito (Scuola Superiore Sant'Anna)
    Abstract: This paper is meant to analyse the e ects of labour market structural reforms by means of an agent-based model. Building on Dosi et al. (2016b) we introduce a policy regime change characterized by a set of structural reforms on the labour market, keeping constant the structure of the capital- and consumption-good markets. Con rming a recent IMF report (Jaumotte and Buitron, 2015), the model shows how labour market structural reforms re- ducing workers' bargaining power and compressing wages tend to increase (i) unemployment, (ii) functional income inequality, and (iii) personal income inequality. We further undertake a global sensitivity analysis on key variables and parameters which con rms the robustness of our findings.
    Keywords: Labor market structural reforms; Income distribution; Inequality; Unemployment; Long run growth
    JEL: C63 E2 E12 E24 O11
    Date: 2016–07
  33. By: Oliver Picek (Department of Economics, New School for Social Research)
    Abstract: The "Magic Square of Economic Policy" highlights four main goals of economic policy: growth, full employment, price stability, and balanced trade. A Macroeconomic Performance Index can be used to assign relative weights to the dierent goals within the Magic Square, giving a single index number per year per country. The legitimacy of the simplest weighting scheme that assigns equal weight to all four goals is discussed. The macroeconomic performance of eleven euro zone area countries is evaluated over time and across countries.
    Keywords: Macroeconomic Policy, Economic Performance, Misery Index, Magic Polygon, Magisches Vieleck, Magisches Viereck, Magic Rectangle, Macroeconomic Imbalances
    JEL: E60 E61 P52 I31 C82
    Date: 2017–01
  34. By: Stefano Eusepi; Marc P. Giannoni; Bruce Preston
    Abstract: Survey data on expectations of a range of macroeconomic variables exhibit low-frequency drift. In a New Keynesian model consistent with these empirical properties, optimal policy in general delivers a positive inflation rate in the long run. Two special cases deliver classic outcomes under rational expectations: as the degree of low-frequency variation in beliefs goes to zero, the long-run inflation rate coincides with the inflation bias under optimal discretion; for non-zero low-frequency drift in beliefs, as households become highly patient valuing utility in any period equally, the optimal long-run inflation rate coincides with optimal commitment - price stability is optimal.
    Keywords: Optimal monetary policy, Learning dynamics, Price stability
    JEL: E32 D83 D84
    Date: 2017–01
  35. By: K. Istrefi; S. Mouabbi
    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 Bank of France would have implemented the strictest eligibility rule. This effect is identified independently of changes in policy interest rates and the fiscal deficit.
    Keywords: interest rates, subjective uncertainty, surveys of professional forecasters, macroeconomic fluctuations, structural VAR
    JEL: C32 E43 E47 F44 F47
    Date: 2017
  36. By: de Roure, Calebe
    Abstract: In times of financial distress, central banks provide unlimited liquidity to avoid fire sales. In response, banks raise their demand for collateral assets, and the short-term scarcity of collateral securities leads to higher prices, the Fire Buy premium. To avoid collateral scarcity, central banks increase the set of eligible collateral assets. However, if the risk-shifting channel is open for these newly eligible securities, banks prefer to pledge them and pay another premium, the Risk-Shifting premium. With the full fixed-income trading book of 26 German banks, I identify each trade of each bank and investigate how unlimited liquidity provision affects collateral prices. Also, I match banks' trades with their balance sheet and show how funding liquidity impacts premia payment. I quantify the Fire Buy premium to be 15.6 bps; and the Risk-Shifting premium on BBB-rated assets to be 65.6 bps.
    Keywords: Fire Buy,Risk-Shifting,Haircut Subsidy,ECB,Over-the-Counter Markets
    JEL: E41 E44 E58 G11 G14 G15 G21
    Date: 2016
  37. By: Christian Gillitzer (Reserve Bank of Australia); Angus Moore (Reserve Bank of Australia)
    Abstract: We use disaggregated trade data to estimate whether the currency in which imports are invoiced affects the pass-through of exchange rate changes to import prices. We estimate first-stage pass-through to be only around 14 per cent after two years for imports invoiced in Australian dollars, which is quantitatively important given that this accounts for about 30 per cent of imports. In contrast, first-stage pass-through for foreign currency-invoiced imports is immediate and complete. These results are likely to reflect foreign exporters with low desired pass-through choosing to invoice in Australian dollars. Our results have several important implications. First, Australian dollar invoicing dampens the response of importers' costs to exchange rate changes and so may make consumer price inflation less responsive to exchange rate changes, increasingly so if Australian dollar invoicing becomes more prevalent. Second, import price models that impose the law of one price are likely to be unsuitable, at least over relatively short-run periods. Third, invoice-share-weighted exchange rate indices should be preferable to trade-share-weighted exchange rate indices for modelling import price changes, although the empirical evidence on this is weak. Finally, exogenous changes in the exchange rate might have persistent effects on the goods terms of trade.
    Keywords: exchange rates; import prices; pass-through; invoicing currency
    JEL: E31 F14 F31
    Date: 2016–06
  38. By: Economou, Emmanouel/Marios/Lazaros; Kyriazis, Nikolaos
    Abstract: In the aftermath of the UK referendum on 23 June, 2016 that resulted in a sonorous negative decision regarding the willingness of the British people to remain in the EU, a significant number of alarming questions have emerged. Although Europe should have forged in crises, nowadays, many compromises have to be made in order to maintain the European construction as intact as possible. The question we attempt to answer is whether a new phase of unconventional monetary policy in the form of QE would be appropriate to lessen the threat of an upcoming crisis. This is why we examine Eurozone QE perspectives through the prism of the new without the UK era of the EU in order to highlight the pros and cons of the historical Brexit decision. As new rounds of unconventional monetary policy are believed to be essential for supporting the weaker countries in the European south, perspectives of non-conventional success could alter and optimal policies be substantially reformulated subject to the newly-arising constraints.
    Keywords: Brexit, European Union, Quantitative Easing, Eurozone
    JEL: E02 E51 E52 E58 G2 H1
    Date: 2016–09–21
  39. By: Anthony Brassil (Reserve Bank of Australia); Helen Hughson (Reserve Bank of Australia); Mark McManus (Reserve Bank of Australia)
    Abstract: The interbank overnight cash market is central to the implementation of monetary policy in Australia. The Reserve Bank of Australia (RBA) has historically gathered information about this market via a survey that provided a summary of participants' daily lending and borrowing. These data were highly aggregated and, until May 2016, were the RBA's only source of quantitative information on this market. This paper develops an innovative algorithm that identifies overnight interbank loans from the millions of payments settled through Australia's high-value payments system. Using this algorithm, we are able to construct a historical loan-level database. By comparing aggregates from our database to the survey data collected by the RBA, we conclude that our algorithm successfully identifies these loans. Between 2005 and 2015, the daily correlations between the summary data and the algorithm output are greater than 90 per cent. The novel features of our algorithm are important; applying existing algorithms to Australia produces correlations below 40 per cent. So these novel features may also be useful for identifying overnight interbank loans in other countries. Using the loan-level database, this paper explores features of the market that were previously unobservable. But the main advantage of this new database is the ability to conduct previously infeasible analyses of this market, such as forthcoming analysis of how the market evolved during the global financial crisis.
    Keywords: interbank loans; payments; Furfine; rollovers
    JEL: C81 E42 E58 G21
    Date: 2016–12
  40. By: Iain Begg
    Abstract: EU Member States, particularly in the euro area, have been pushed to adopt more extensive and intrusive fiscal rules, but,what is the evidence that the rules are succeeding?. The EU level Stability and Growth Pact (SGP) has been – and remains – the most visible rule-book, but it has been complemented by a profusion of national rules and by new provisions on other sources of macroeconomic imbalance. Much of the analysis of rules has concentrated on their technical merits, but tends to neglect the political economy of compliance. This paper examines the latter looking at compliance with fiscal rules at EU and Member State levels, and at the rules-based mechanisms for curbing other macroeconomic imbalances. It concludes that politically driven implementation and enforcement shortcomings have been given too little attention, putting at risk the integrity and effectiveness of the rules.
    Keywords: Fiscal rules; European economic governance; Macroeconomic imbalances; Political economy of compliance; Fiscal councils in Europe
    JEL: E61 F42 H11 H61 H77 H81
    Date: 2017
  41. By: Sergio Destefanis; Giuseppe Mastromatteo
    Abstract: This paper analyses the Beveridge Curve across nine OECD countries from 1985 to 2012. Besides allowing for some customary labour-market institutions, we assess the role of various kinds of structural factors (technological progress, globalisation, oil prices) and of the current recession on the Curve. Significant institutional variables include unemployment benefits, the tax wedge, active labour-market policies and employment protection legislation (the latter improving the unemployment-vacancies trade-off). Technological progress (R&D intensity) shifts the Curve outwards, producing evidence in support of a creative destruction effect. Globalisation and unfavourable oil price shocks also shift the Curve outwards. Structural relationships seem to be stable throughout the 2008-2012 period, suggesting that the Great Recession mainly implied moves along the Curve.
    Keywords: Unemployment, vacancies, globalisation, creative destruction, labour-market policies
    JEL: E24 J20 F60 O40
    Date: 2016–12
  42. By: Trenovski, Borce; Tashevska, Biljana
    Abstract: The 2008 global economic crisis exposed the importance of state fiscal intervention, and more than two decades of neoclassic paradigm and a non-fiscal domination paradigm, it brought back fiscal activism and the Keynesian ideas and measures at the top of government agendas. However, drastic worsening of many developed nations’ fiscal state, as a result of a decreased economic activityand of various fiscal packages aimed at the financial sector and the economy as a whole, complemented by budgetary pressures from an aging population, activated debates on the size, sustainability and the consequences of budget deficits and public dept. Recent events, particularly the conditions created by the European debt crisis under which, some EU member states faced difficulties in access to markets, confirmed that the challenges of fiscal sustainability are not only long-term, and are not typical only of developing countries, but are a real problem for developed countries with a growing public debt, stagnant economic growth, unfavorable demographic trends and obligations passed on by the financial sector. This imposed the sustainability of public finances (important for the creation of sufficient fiscal space to tackle future unfavorable macroeconomic shocks and with costs associated with an aging population) as one of the most important macroeconomic subjects for EU member states and candidates, according to its importance in maintaining EU’s stability. The subject of fiscal sustainability is relevant for the Republic of Macedonia which has a relatively low but growing level of public debt, that from the beginning of the crisis until December 2015 grew more than 20pp of GDP and reached 46.5% of GDP (38% of GDP state debt). Estimation of fiscal sustainability is an infallible part of analysis carried out by international financial institutions (IMF, World Bank) in countries of interest, including Macedonia.This is particularly important taking into account the growth tempo of Macedonia’s debt, its structure, and efficiency of fiscal politics, one of the key indicators for assessment of our stability on the path towards the EU. In context of the above, this paper defines the concept of fiscal sustainability, presents the problem’s relevance for developed countries of the European debt crisis case, and lastly, elaborates Macedonia’s fiscal politics, public debt, and fiscal sustainability.
    Keywords: fiscal policy, fiscal sustainability, public debt
    JEL: E61 E62 H5
    Date: 2016
  43. By: Baumeister, Christiane; Kilian, Lutz
    Abstract: We explore the effect on U.S. real GDP growth of the sharp and sustained decline in the global price of crude oil and hence in the U.S. price of gasoline after June 2014. Our analysis suggests that this decline produced a cumulative stimulus of about 0.9 percentage points of real GDP growth by raising private real consumption and non-oil related business investment and an additional stimulus of 0.04 percentage points reflecting a shrinking petroleum trade deficit. This stimulating effect, however, has been largely offset by a large reduction in real investment by the oil sector. Hence, the net stimulus since June 2014 has been close to zero. We show that the response of the U.S. economy was not fundamentally different from that observed after the oil price decline of 1986. Then as now the response of the U.S. economy is consistent with standard economic models of the transmission of oil price shocks. We found no evidence of an additional role for frictions in reallocating labor across sectors or for increased uncertainty about the price of gasoline in explaining the sluggish response of U.S. real GDP growth. Nor did we find evidence of financial contagion, of spillovers from oil-related investment to non-oil related investment, of an increase in household savings, or of households deleveraging.
    Keywords: oil loans; oil price decline; reallocation; shale oil; Stimulus; uncertainty
    JEL: E32 Q43
    Date: 2017–01
  44. By: Agnes Kovacs; Orazio Attanasio
    Abstract: Abstract In this paper, we make three substantive contributions: first, we use elicited subjective income expectations to identify the levels of permanent and transitory income shocks in a life-cycle framework; second, we use these shocks to assess whether households' consumption is insulated from them; third, we use the shock data to estimate an Euler equation for consumption. We find that households are able to smooth transitory shocks, but adjust their consumption in response to permanent shocks, albeit not fully. The estimates of the Euler equation parameters with and without expectational errors are similar, which is consistent with rational expectations. We break new ground by combining data on subjective expectations about future income from the Michigan Survey with micro data on actual income from the Consumer Expenditure Survey.
    Keywords: life cycle models, estimating Euler Equations, survey expectations
    JEL: C13 D12 D84 D91 E21
    Date: 2017–01–24
  45. By: Nuno Alves; Diana Bonfim; Carla Soares
    Abstract: When banks are hit by a severe liquidity shock, central banks have a key role as lenders of last resort. Despite the well-established importance of this mechanism, there is scarce empirical evidence that allows analyzing this key role of central banks. We are able to explore a unique setting in which banks suddenly lose access to market funding due to contagion fears at the onset of the euro area sovereign debt crisis. Using monthly data at the loan, bank, and firm level, we are able to test the role of the central bank in a scenario of imminent collapse. We find that the liquidity obtained from the central bank played a critical role in avoiding the materialization of such a scenario.
    JEL: E44 E5 G21
    Date: 2016
  46. By: Rilind Kabashi (National Bank of the Republic of Macedonia)
    Abstract: This study investigates the cyclical character of fiscal policy in transition countries in Central, Eastern and Southeastern Europe (CESEE) in the period from 1995 to 2011, using system GMM as the preferred estimation method for the underlying sample and model specification. The study finds discretionary policy in the CESEE EU Member States and in the Western Balkan countries to have been procyclical, thus aggravating economic fluctuations, whereas automatic stabilizers moved overall policy to an acyclical stance. In addition, the analysis indicates considerable differences in the cyclical character of fiscal policy between transition countries and the Western European EU Member States, where both overall fiscal policy and discretionary policy were acyclical. Finally, the study also offers several recommendations for policymakers, particularly in transition countries.
    Keywords: fiscal policy, transition countries, European Union, system GMM
    JEL: H62 E32 C33
    Date: 2016–08
  47. By: Rose Kenney (Reserve Bank of Australia); Gianni La Cava (Reserve Bank of Australia); David Rodgers (Reserve Bank of Australia)
    Abstract: We explore the determinants of corporate failure in Australia using a large panel of public and private non-financial companies. A novel finding of our research is that corporate failure depends on 'structural' company-level characteristics. For instance, public companies are more likely to fail than comparable private companies; perhaps because the greater separation of ownership and control within public companies allows their managers to take greater risks. Consistent with overseas research, we find that cyclical company-specific factors are important determinants of failure; a corporation is more likely to fail if it has low liquidity, low profitability or high leverage. Cyclical and structural company-level characteristics are the key determinants of the relative risk of a company failing, while aggregate (macroeconomic) conditions appear to be an important determinant of annual changes in the rate of corporate failure. We quantify the potential contribution of corporate failure to financial stability risks using a 'debt-at-risk' framework. By our estimates, less than 1 per cent of aggregate corporate debt is currently at risk, with debt at risk concentrated in some very large companies. Our estimates suggest that trade credit (or business-to-business lending) is an important component of the relationship between corporate failure and financial stability.
    Keywords: failure; bankruptcy; business cycle; financial stability; leverage
    JEL: D22 E32 G33 L25
    Date: 2016–11
  48. By: Chabot, Benjamin (Federal Reserve Bank of Chicago)
    Abstract: The Federal Reserve has relied upon a number of different monetary policy implementation frameworks throughout its history. This paper describes the original implementation framework that evolved between 1914 and 1923 in response to new policy objectives and changing market conditions.
    Keywords: Monetary policy implementation; standing facilities; open market operations
    JEL: E52 E58 E59
    Date: 2017–01–18
  49. By: António Afonso; João Tovar Jalles
    Abstract: We compute time-varying responses of the sovereign debt ratio to primary budget balances for 13 advanced economies between 1980 and 2012, and assess how fiscal sustainability reacts to different characteristics of government debt. We find that the fiscal sustainability time-varying coefficient increases the higher the share of public debt denominated in foreign currency. Moreover, the countries become more sustainable if they contract a higher share of long-term public debt, if it is held by the central bank or if it is easily marketable. Key Words : sovereign debt, fiscal sustainability, time-varying coefficients, debt composition
    JEL: C23 E62 F34 H63
    Date: 2017–01
  50. By: Jakucionyte, Egle; van Wijnbergen, Sweder
    Abstract: Abstract The depreciation of the Hungarian forint in 2009 left Hungarian borrowers with a skyrocketing value of foreign currency debt. The resulting losses worsened debt overhang in to debt-ridden firms and eroded bank capital. Therefore, although Hungarian banks had partially isolated their balance sheets from exchange rate risk by extending FX-denominated loans, the ensuing debt overhang in borrowing firms exposed the banks to elevated credit risk. Firms, households and banks had run up the open FX-positions hoping to profit from low foreign rates in the run-up to Euro adoption. This example of carry trade in emerging Europe motivates our analysis of currency mismatch losses in different sectors in the economy, and the macroconsequences of reallocating losses from the corporate to the banking sector ex post. We develop a small open economy New Keynesian DSGE model that accounts for the implications of domestic currency depreciation for corporate debt overhang and incorporates an active banking sector with financial frictions. The model, calibrated to the Hungarian economy, shows that, in periods of unanticipated depreciation, allocating currency mismatch losses to the banking sector generates a milder recession than if currency mismatch is placed at credit constrained firms. The government can intervene to reduce aggregate losses even further by recapitalizing banks and thus mitigating the effects of currency mismatch losses on credit supply.
    Keywords: Debt overhang; foreign currency debt; Hungary; leveraged banks; small open economy
    JEL: E44 F41 P2
    Date: 2017–01
  51. By: Ennis, Huberto M. (Federal Reserve Bank of Richmond)
    Abstract: I study the implications for central bank discount window stigma of the model by Philippon and Skreta (2012). I take an equilibrium perspective for a given discount window program instead of following the program-design approach of the original paper. This allows me to narrow the focus on the model's positive predictions. In the model, firms (banks) need to borrow to finance a productive project. There is limited liability and firms have private information about their ability to repay their debts. This creates an adverse selection problem. The central bank can ameliorate the impact of adverse selection by lending to firms. Discount window borrowing is observable and it may be taken as a signal of firms' credit worthiness. Under some conditions, firms borrowing from the discount window may pay higher interest rates to borrow in the market, a phenomenon often associated with the presence of stigma. I discuss these conditions in detail and what they suggest about the relevance of stigma as an empirical phenomenon.
    Keywords: Banking; Federal Reserve; Central Bank; Policy; Lender of last resort
    JEL: E51 E58 G21 G28
    Date: 2017–01–09
  52. By: Chen, Haipeng (Allan); Levy, Daniel; Snir, Avichai
    Abstract: We take advantage of a natural experiment to document an emergence of a new price ending that has the same effects as 9-endings. In January 2014, the Israeli parliament has passed a law prohibiting the use of non 0-ending prices. We find that one year after 9-ending prices have disappeared, 90-ending prices acquired the same status as 9-ending prices had before the law was passed. 90-ending prices became the new psychological price points. The retailers and the shoppers both reacted to the regulatory intervention optimally, which has eliminated the regulation’s intended effect.
    Keywords: 9-ending prices,psychological price points,sticky prices,price regulation,rigid prices,price recall,price control,integer constraint
    JEL: E31 L16 K20
    Date: 2017
  53. By: Chen, Haipeng (Allan); Levy, Daniel; Snir, Avichai
    Abstract: We take advantage of a natural experiment to document an emergence of a new price ending that has the same effects as 9-endings. In January 2014, the Israeli parliament has passed a law prohibiting the use of non 0-ending prices. We find that one year after 9-ending prices have disappeared, 90-ending prices acquired the same status as 9-ending prices had before the law was passed. 90-ending prices became the new psychological price points. The retailers and the shoppers both reacted to the regulatory intervention optimally, which has eliminated the regulation’s intended effect.
    Keywords: 9-ending prices, psychological price points, sticky prices, rigid prices, price recall, price control, price regulation, integer constraint
    JEL: E31 K20 L16
    Date: 2017–01–20
  54. By: Haipeng (Allan) Chen; Daniel Levy (Bar-Ilan University); Avichai Snir (Bar-Ilan University)
    Abstract: We take advantage of a natural experiment to document an emergence of a new price ending that has the same effects as 9-endings. In January 2014, the Israeli parliament has passed a law prohibiting the use of non 0-ending prices. We find that one year after 9-ending prices have disappeared, 90-ending prices acquired the same status as 9-ending prices had before the law was passed. 90-ending prices became the new psychological price points. The retailers and the shoppers both reacted to the regulatory intervention optimally, which has eliminated the regulation’s intended effect.
    Keywords: 9-ending prices, psychological price points, sticky prices, rigid prices, price recall, price control, price regulation, integer constraint
    JEL: E31 L16 K20
    Date: 2017–02
  55. By: James Bishop (Reserve Bank of Australia); Linus Gustafsson (Reserve Bank of Australia); Michael Plumb (Reserve Bank of Australia)
    Abstract: During a downturn, firms can reduce their use of labour by reducing the number of workers they employ and/or by reducing the hours worked by their employees. The nature of adjustment can have implications for the economy, particularly given the costs associated with unemployment; reducing employment is likely to be more costly than reducing hours. We explore the nature of cyclical labour market adjustment in Australia, using both aggregate time series data and an individual-level panel dataset of labour force transitions during the late 2000s downturn. We find that the share of labour market adjustment due to changes in average hours worked has increased threefold since the late 1990s. This has not been the case for the major advanced economies. We argue that the short and shallow nature of the economic downturns in Australia since the late 1990s has played a role in this, while labour market reforms may also have contributed. An important driver of cyclical adjustments in average hours during downturns looks to have been reductions in hours worked for employees who remained in the same job, as opposed to changes in the composition of aggregate employment.
    Keywords: average hours worked; labour demand; economic downturns
    JEL: E24 J23
    Date: 2016–09
  56. By: Maxime Leroux; Rachidi Kotchoni; Dalibor Stevanovic
    Abstract: This paper compares the performance of five classes of forecasting models in an extensive out-of-sample exercise. The types of models considered are standard univariate models, factor-augmented regressions, dynamic factor models, other data-rich models and forecast combinations. These models are compared using four types of data: real series, nominal series, the stock market index and exchange rates. Our findings can be summarized in a few points: (i) data-rich models and forecasts combination approaches are the best for predicting real series; (ii) ARMA(1,1) model predicts inflation change incredibly well and outperform data-rich models; (iii) the simple average of forecasts is the best approach to predict future SP500 returns; (iv) exchange rates can be predicted at short horizons mainly by univariate models but the random walk dominates at medium and long terms; (v) the optimal structure of forecasting equations changes much over time; and (vi) the dispersion of out-of-sample point forecasts is a good predictor of some macroeconomic and financial uncertainty measures as well as of the business cycle movements among real activity series.
    Keywords: Forecasting, Factor Models, Data-rich environment, Model averaging,
    JEL: C55 C32 E17
    Date: 2017–01–25
  57. By: Mattia Guerini; Alessio Moneta; Mauro Napoletano; Andrea Roventini
    Abstract: In this paper, we investigate the causal effects of public and private debts on U.S. output dynamics. We estimate a battery of Cointegrated Structural Vector Autoregressive models, and we identify structural shocks by employing Independent Component Analysis, a data-driven technique which avoids ad-hoc identification choices. The econometric results suggest that the impact of debt on economic activity is Janus-faced. Public debt shocks have positive and persistent influence on economic activity. In contrast, rising private debt has a milder positive impact on GDP, but it fades out over time. The analysis of the possible transmission mechanisms reveals that public debt crowds-in private consumption and investment. In contrast, mortgage debt fuels consumption and output in the short-run, but shrinks them in the medium-run.
    Keywords: Public and Private Debt, Business Cycle Fluctuations, Independent Component Analysis, SVAR Identification
    Date: 2017–01–23
  58. By: International Monetary Fund.
    Abstract: Egypt’s underlying structural weaknesses and the prolonged political transition have led to the build-up of macroeconomic imbalances. A significantly overvalued exchange rate has undermined competitiveness and depleted international reserves. Weak revenue combined with poorly targeted subsidies and a growing public sector wage bill have resulted in persistent large fiscal deficits and a high level of public debt. Real and potential growth have slowed since 2011 as foreign exchange shortages and the weak business climate deterred investment and impeded productivity improvement and job creation. Regional instability and security concerns have also taken a toll on the economy, especially on tourism. Risks of economic distress increased.
    Date: 2017–01–18
  59. By: Kyriazis, Nicholas; Economou, Emmanouel/Marios/Lazaros
    Abstract: We analyse economic and political developments in Greece for the period 2010-2015, after the introduction of the memoranda agreements between Greece, the European Union (EU), the European central Bank (ECB) and the International Monetary Fund (IMF). We suggest that a vicious cycle took place, whereby austerity measures, badly implemented programs, mistakes of economic policy, unwillingness on the part of the Greek governments to implement structural reforms, and political immaturity from both politicians and citizens led to the failure of the memoranda and furthered political instability. We introduce a game theoretical approach as a model for the “European game” played by Greece and the EU and the complex and confused situation and diverging aims among the major participants: Greece, Germany, the USA, France, the Baltic States, Finland, the IMF, etc. as well as a presentation of the June 5th referendum in Greece. We then present our estimations for the sustainability of the public debt, followed by our conclusions.
    Keywords: Memoranda, Greek economic crisis, public debt, debt projection analysis
    JEL: E60 E62 H50 H63 N14
    Date: 2016–04–09
  60. By: Alok Johri; Muhebullah Karimzada
    Abstract: We incorporate shocks to the efficiency with which firms learn from production activity and accumulate knowledge into an otherwise standard real DSGE model with imperfect competition. Using real aggregate data and Bayesian inference techniques, we find that learning efficiency shocks are an important source of observed variation in the growth rate of aggregate output, investment, consumption and especially hours worked in post-war US data. The estimated shock processes suggest much less exogenous variation in preferences and total factor productivity are needed by our model to account for the joint dynamics of consumption and hours. This occurs because learning efficiency shocks induce shifts in labour demand uncorrelated with current TFP, a role usually played by preference shocks. At the same time, knowledge capital acts like an endogenous source of productivity variation in the model. Measures of model fit prefer the specification with learning efficiency shocks.
    Keywords: Business Cycles, Learning-by-Doing, Learning Efficiency Shocks, Knowledge Capital
    JEL: E32
    Date: 2016–10
  61. By: Marjan Petreski; Nikica Mojsoska-Blazevski; Marcelo Bérgolo
    Abstract: The aim of this study is to assess how the duration of the unemployment spell of Macedonian youth affects later employment (the employment ‘scarring’ effect) and wage outcomes (the wage ‘scarring’ effect). For this purpose, we first devise a model in which the unemployment spell is determined by individual and household characteristics, and work attitudes and preferences. A discrete-time duration method is used to estimate this model. Then, we rely on standard employment and Mincer earnings functions. We repeatedly impute missing wages to address the selection of observables, and use the regional unemployment rate when the individual finished school as an instrument to mitigate the selection of unobservable. The School to Work Transition Survey 2012 is used. Results robustly suggest a presence of an employment scar as those young persons who stayed unemployed over a longer period of time were found to have lower chances of finding a job afterwards. On the other hand, the study does not provide evidence for the existence of a wage scar.
    Keywords: employment scarring, wage scarring, extremely high unemployment, Macedonia
    JEL: E24 J24 J64
    Date: 2016
  62. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: Boston Fed President Eric Rosengren said the economy has shown "remarkable progress" given where it was, and is approaching employment and inflation levels consistent with the Fed's mandate for maximum sustainable employment and price stability.
    Date: 2017–01–09
  63. By: Soriano-Morales, Yazmín Viridiana; Vallejo-Jiménez, Benjamín; Venegas-Martínez, Francisco
    Abstract: This paper is aimed at assessing the impact of the degree of relative risk aversion on economic welfare for different levels of the interest rate and the exchange rate depreciation in a small open economy. To do this, a representative consumer-producer makes decisions on consumption, money balances, and leisure. In order to find a closed-form solution of the household’s economic welfare, it is assumed that individual’s preferences belong to the family of Constant Relative Risk Aversion (CRRA) utility functions. Several comparative statics graphical experiments about the effects of the degree of relative risk aversion on economic welfare for different levels of nominal variables are carried out. Finally, we find that, under the stated assumptions, household’s economic welfare seen as a function of the degree of relative risk aversion is responsive to different values of nominal variables.
    Keywords: Consumer-producer economics, economic welfare, degree of relative risk aversion, small open economy, interest rate, foreign exchange.
    JEL: E43 F31
    Date: 2017–01–26
  64. By: International Monetary Fund.
    Abstract: With large financial buffers, low debt, and a well-capitalized financial sector, the country is well positioned to face “lower-for-longer†oil prices. Nonetheless, fiscal and external balances have weakened and nonoil growth has softened somewhat. The main policy priorities are to sustain reforms to gradually raise fiscal savings, reduce susceptibility to oil price cycles, and boost private sector growth and job creation.
    Keywords: Article IV consultations;Economic growth;Oil prices;Nonoil sector;Private sector;Fiscal reforms;Labor market reforms;Currency pegs;Banking sector;Economic indicators;Debt sustainability analysis;Press releases;Staff Reports;Kuwait;
    Date: 2017–01–17
  65. By: Bai, Chong–En (Asian Development Bank Institute); Zhang, Qiong (Asian Development Bank Institute)
    Abstract: Whether the People’s Republic of China’s (PRC) economic slowdown since the 2008 financial crisis is a cyclical downturn or a long-run trend has important policy implications. Based on provincial panel data, we identify the determinants of productivity and uses counter-factual analysis to decompose the causes of the PRC’s post-crisis slowdown. We find that economic openness has a significantly positive impact on the technical efficiency of production, whereas the income level has a significantly negative effect. Second, a significantly negative correlation is observed between the stock of inventory and productivity, while the opposite is observed between employment involvement rate and productivity. Third, government size and investment rates both have significantly negative effects on productivity. Lastly, the diminishing late-mover advantage and the growth in investment rate are both major contributors to the current decline in the PRC’s productivity. Although the stimulus-induced investment surge has effectively offset the negative effects of the crisis on the PRC’s growth, it is not conducive to the growth of productivity and consumption. The current economic slowdown does not seem to be a cyclical downturn. Indeed, further reforms are needed to stabilize the PRC’s growth.
    Keywords: productivity; technical efficiency; utilization efficiency; allocative efficiency; counter-factual analysis
    JEL: E20 O47
    Date: 2017–01–19
  66. By: Kevin Moran; Simplice Aime Nono
    Abstract: This paper assesses the contribution of confidence - or sentiment - data in predicting Canadian economic slowdowns. A probit framework is specified and applied to an indicator on the status of the Canadian business cycle produced by the OECD. Explanatory variables include all available Canadian data on sentiment (which arise from four different surveys) as well as various macroeconomic and financial data. The model is estimated via maximum likelihood and sentiment data are introduced either as individual variables, as simple averages (such as confidence indices) and as confidence factors extracted, via principal components' decompositions, from a larger dataset in which all available sentiment data have been collected. Our findings indicate that the full potential of sentiment data for forecasting future business cycles in Canada is attained when all data are used through the use of factor models.
    Date: 2016
  67. By: Kaplan, Robert Steven (Federal Reserve Bank of Dallas)
    Abstract: Remarks before the Money Marketeers of New York University, New York City, June 23, 2016.
    Date: 2016–06–23
  68. By: Gergely Varga (Corvinus University of Budapest); Janos Vincze (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Corvinus University of Budapest)
    Abstract: We set up an agent-based macromodel focusing on consumption-saving without the assumption of utility maximization, but preserving certain "rational" aspects of human choice based on the idea of ecological rationality Todd et al. (2012). In this framework we address the classical problem of the efficiency of long-run capital accumulation. Three qualitatively different saving strategies are defined: 1. buffer stock saving (prudent and forward looking), 2. permanent income saving (forward looking without prudence), and 3. myopic saving (caring only about immediate consumption, and saving accidentally). In the model these types (that have subtypes depending on continuous parameters) may coexist, and we explore their respective survival chances by conducting simulations. It is found that prudent saving behavior becomes prevalent when the selection pressure is very high, but an economy comprising only prudent households tends to accumulate capital in excess of what is implied by the Golden Rule. As selecion pressure is reduced, myopic consumers appear, and under very low selection pressure the distribution of the main saver types becomes almost random. A seemingly puzzling fact emerges: the economy gets close to the Golden Rule of capital accumulation via endogenous selection of subtypes in a way that can be interpreted as "perverse exploitation", i.e. the exploitation of the rich by the poor. In other words, lowering the intensity of evolutionary forces, that results in more diversity in saver types, may be socially beneficial. Crickets may be useful for society as a whole, including prudent and cautious ants.
    Keywords: agent-based macromodel, bounded rationality, evolutionary learning, savings types
    JEL: C69 E21
    Date: 2017–01
  69. By: Huseynov, Salman; Mammadov, Fuad
    Abstract: In our study, we model both steady state and short-run dynamics of the important aspects of the national economy using quarterly data for the period 1999Q1-2016Q2. We explicitly model government, money market and external sector, but omit household sector, labor market, wage dynamics and volume of the physical capital specifications due to serious data quality issues. Using Fully Modified OLS (FMOLS) co-integration methodology we explore co-integration relations among the variables. Coefficient estimates of short-run dynamics are in compliance with our ex-ante expectations. Stability tests indicate that the system seems to exhibit stability around its steady state values and model variables converges to their steady state values approximately within 140 periods (2016Q3-2050Q4). Impulse-response analysis also show stable convergence of the model and predict economically consistent results. The results of in-sample and out-of-sample simulation exercises for the inflation, the government consumption and the imports are satisfactory. However, it seems that the model cannot adequately capture ex-post dynamics of NFA and reserve money. In general the results indicate that model can be used for the specific policy analysis and forecasting of main macroeconomic variables of Azerbaijan.
    Keywords: general equilibrium; co-integration analysis; forecast evaluation
    JEL: C32 C51 C52 E17
    Date: 2016–11–30
  70. By: Nicholas Oulton; Gavin Wallis
    Abstract: The evolution of capital services is crucial for understanding labour productivity growth. Capital stocks and the wealth–income ratio are important for understanding welfare and inequality. Accordingly, we present annual estimates of fixed capital services and capital stocks for the United Kingdom, 1950–2013, for the whole economy and for the market sector. Our estimates cover nine asset types including R&D. We compare estimates of capital services based on an endogenous (ex post) rate of return with ones based on a hybrid method which allows for ex ante risk: firms' expectations may not be satisfied. Contrary to expectation, we find that capital intensity (capital services per hour worked) rose during the Great Recession even though labour productivity fell. And the wealth–income ratio is now substantially lower than it was in the early 1980s unless dwellings are included in the total.
    Keywords: capital services; capital stocks; rate of return; depreciation
    JEL: D24 E22 E23 O47
    Date: 2016–04
  71. By: Alessandro Barbarino; Efstathia Bura
    Abstract: Factor models are widely used in summarizing large datasets with few underlying latent factors and in building time series forecasting models for economic variables. In these models, the reduction of the predictors and the modeling and forecasting of the response y are carried out in two separate and independent phases. We introduce a potentially more attractive alternative, Sufficient Dimension Reduction (SDR), that summarizes x as it relates to y, so that all the information in the conditional distribution of y|x is preserved. We study the relationship between SDR and popular estimation methods, such as ordinary least squares (OLS), dynamic factor models (DFM), partial least squares (PLS) and RIDGE regression, and establish the connection and fundamental differences between the DFM and SDR frameworks. We show that SDR significantly reduces the dimension of widely used macroeconomic series data with one or two sufficient reductions delivering similar forecasting performance to that of competing methods in macro-forecasting.
    Keywords: Diffusion Index ; Dimension Reduction ; Factor Models ; Forecasting ; Partial Least Squares ; Principal Components
    JEL: C32 C53 C55 E17
    Date: 2017–01–12
  72. By: Edda Zoli
    Abstract: This paper draws out the parallels between Korea and Japan in terms of demographics, potential growth, balance sheets, asset prices and inflation. Korea’s demographic trends seem to track Japan’s with a lag of about 20 years. Low productivity in the service sector and labor market duality are common to both countries and need to be addressed with structural reforms. While Korea’s corporate balance sheets are stronger than Japan’s in the early 1990s, Korea needs to progress with the restructuring of nonviable firms to avoid the adverse consequences of delayed balance-sheet repair that Japan experienced. Given its strong fiscal balance sheet position, Korea can afford using fiscal policy actively to incentivize corporate restructuring and structural reforms and cushion their possible short-term adverse impact. Korea can prevent bubbles in asset prices that were at the origin of Japan’s initial crisis with the continued use of macroprudential policies. Although Korea does not appear to be headed toward deflation, new econometric analysis presented in the paper suggests that aging will exert a downward drag on its inflation going forward.
    Date: 2017–01–18
  73. By: International Monetary Fund.
    Abstract: Implementation of the “Plan Sénégal Emergent†(PSE) is beginning to pay dividends, contributing to projected growth of over 6 percent for the second year in a row. However, for growth to be sustained, further reforms are needed to improve the business environment and create economic space for private domestic and foreign investment. The challenge of meeting infrastructure development objectives without undermining debt sustainability will require continuing efforts to improve the quality of investment while pursuing a prudent debt strategy that keeps the cost of borrowing at reasonable rates. Failure to strengthen debt management and master treasury operations may jeopardize the rating of low risk of debt distress.
    Keywords: Article IV consultation reports;Economic growth;Fiscal policy;Global competitiveness;Private sector;Banking sector;Financial stability;Economic indicators;Letters of Intent;Debt sustainability analysis;Staff Reports;Policy Support Instrument;Press releases;Senegal;
    Date: 2017–01–04
  74. By: Kaplan, Robert Steven (Federal Reserve Bank of Dallas)
    Date: 2016–08–02
  75. By: Demoussis, Michael; Drakos, Konstantinos; Giannakopoulos, Nicholas
    Abstract: In this study we investigate whether sovereign credit ratings have any discernible impact on credit rationing in Euro zone countries. We utilize firm-level data from the Survey on the Access to Finance of SMEs for the period 2009-2013 conducted by the ECB. A negative association between the rating of sovereign creditworthiness and credit rationing is identified, while credit rationing varies substantially even among countries with the highest quality of sovereign bonds. Credit rationing is lower in sovereigns with high quality ratings and higher in sovereigns near default. These results remain intact when fundamental firm characteristics (e.g. firm’s age and size, sector of economic activity, financial situation etc.) are taken into consideration. This indicates that the interconnection of sovereign debt risk with domestic credit market outcomes is robust.
    Keywords: Credit rationing; Firms; Sovereign debt; Euro zone
    JEL: C35 E51 G2 H63
    Date: 2016
  76. By: Colasante, Annarita; Alfarano, Simone; Camacho-Cuena, Eva; Gallegati, Mauro
    Abstract: We conduct a Learning to Forecast Experiment (LtFE) using a novel setting in which we elicit subjects' short and long-run expectations on the future price of an asset. We find that: (i) the rational expectations equilibrium (REE) is not a meaningful description for subjects' expectations, (ii) which are, instead, better described by an adaptive learning scheme. (iii) Subjects exhibit a higher degree of inertia when revising long-run expectations vis-a-vis short-run expectations.
    Keywords: Experiment, Expectations, Coordination
    JEL: D84 E37 G12
    Date: 2016
  77. By: Graetz, Georg; Michaels, Guy
    Abstract: Since the early 1990s, recoveries from recessions in the US have been plagued by weak employment growth. One possible explanation for these 'jobless' recoveries is rooted in technological change: middle-skill jobs, often involving routine tasks, are lost during recessions, and the displaced workers take time to transition into other jobs (Jaimovich and Siu, 2014). But technological replacement of middle-skill workers is not unique to the US - it also takes place in other developed countries (Goos, Manning, and Salomons, 2014). So if jobless recoveries in the US are due to technology, we might expect to also see them elsewhere in the developed world. We test this possibility using data on recoveries from 71 recessions in 28 industries and 17 countries from 1970-2011. We find that though GDP recovered more slowly after recent recessions, employment did not. Industries that used more routine tasks, and those more exposed to robotization, did not recently experience slower employment recoveries. Finally, middle-skill employment did not recover more slowly after recent recessions, and this pattern was no different in routine-intensive industries. Taken together, this evidence suggests that technology is not causing jobless recoveries in developed countries outside the US.
    Keywords: Job polarization; jobless recoveries; robots; routine-biased technological change
    JEL: E32 J23 O33
    Date: 2017–01
  78. By: Mathias Klein; Roland Winkler
    Abstract: Using panel data of 17 OECD countries for 1980-2011, we find that the distributional consequences of fiscal consolidations depend significantly on the level of private indebtedness. Austerity leads to a strong and persistent increase in income inequality during periods of private debt overhang. In contrast, there are no discernible distributional effects when private debt is low. This result is robust to alternative identifications of fiscal consolidations, to different ways of defining periods of private debt overhang, and to controlling for the state of the business cycle. We explore different channels through which our findings can be rationalized.
    Keywords: austerity, fiscal policy, inequality, private debt, local projections
    JEL: E62 E64 D63
    Date: 2017
  79. By: Douglas W. Diamond; Yunzhi Hu; Raghuram G. Rajan
    Abstract: Why are downturns following prolonged episodes of high valuations of firms so severe and long? Why do firms promise high external payments when they anticipate high valuations, and underperform subsequently? In this paper, we propose a theory of financing cycles where the control rights to enforce claims in an asset price boom (rights to sell assets) differ from the control rights used in more normal times (rights over cash flows that we term “pledgeability”). Firm management’s limited incentive to enhance pledgeability in an asset price boom can have long-drawn adverse effects in a downturn, which may not be resolved by renegotiation. This can also explain why involuntary asset turnover and asset misallocation to outsiders are high in a downturn as well as why industry productivity falls. The paper highlights an adverse consequence of high anticipated liquidity, working through leverage, on the economy’s access to finance and productivity when that liquidity fails to materialize.
    JEL: E00 E02 E59 G20 G21 G31 G33
    Date: 2017–01
  80. By: Cham, Tamsir (The Islamic Research and Teaching Institute (IRTI))
    Abstract: This paper assesses the benefits of a currency union by using the West African Monetary Zone (WAMZ) and the traditional gravity model approach. This is the first investigative study on WAMZ’s impact on trade using a modified gravity model approach that incorporates the instability index, which characterizes the zone. This approach is useful in checking the impact of a single currency on trade enhancement and the impact of the instability index on economic growth. Using an Ordinary Least Squares (OLS) with different specifications of the gravity model and panel data set consisting of bilateral trade observations on 9 countries from 1980-2014, the empirical findings supported the hypothesis that currency unions do have a significant positive impact on trade flows. The results indicated that impact of the currency union on trade in the West African countries considered exceeds 20 percent. It therefore suffices to state that a currency union leads to trade enhancement.
    Keywords: Currency Union; Gravity Model; Trade
    JEL: E52 E63 F15 F43
    Date: 2016–01–01
  81. By: Jorrit Zwijnenburg (OECD); Sophie Bournot (OECD); Federico Giovannelli (OECD)
    Abstract: In 2011, an Expert Group was launched to carry out a feasibility study on the compilation of distributional measures of income, consumption and wealth across household groups consistent with national accounts data. This group developed a methodology on the basis of which first experimental results on income, consumption and savings according to income quintiles were compiled and published in 2013. In 2015, the expert group engaged in a second exercise focusing on a more recent year and taking into account a number of adjustments to the methodology used in the previous exercise. This paper describes the sources, methods and results of this second exercise. The results of the exercise show that in general all countries are able to comply with the methodology. Furthermore, countries have micro data available for most of the national accounts items and in case of lacking data, imputations lead to comparable results. However, the results also show that in some cases gaps between the micro aggregates and the national accounts totals are quite substantial, possibly affecting the overall distributional results. Furthermore, more information is needed on how countries link data across various data sources. The experimental results show that Mexico records the highest income and consumption disparities, followed by the United States and Portugal, and that Slovenia records the lowest. The paper also shows that breakdowns into other household groups, such as age group and labour market status reveal very interesting information.
    Keywords: distributional results, households, national accounts
    JEL: C82 D31 E01 E21
    Date: 2017–01–28
  82. By: Erin E. Syron Ferris; Soo Jeong Kim; Bernd Schlusche
    Abstract: In response to the financial crisis of 2008 and the subsequent recession, the Federal Reserve employed large-scale asset purchases (LSAPs) and a maturity extension program (MEP) with the purpose of reducing longer-term interest rates, and thereby promoting more accommodative financial conditions at a time when the conventional monetary policy tool, the federal funds rate, was at its effective lower bound. In this note, we presented the implications for the Federal Reserve's balance sheet and income arising from a range of future potential macroeconomic outcomes.
    Date: 2016–01–13
  83. By: Rachael McCririck (Reserve Bank of Australia); Daniel Rees (Reserve Bank of Australia)
    Abstract: We use a business cycle model to explore the timing and size of breaks in long-run equilibrium total factor productivity growth in the United States. We find that steady-state productivity growth halved over the past 50 years, with the decrease most likely to have occurred in the early 1970s. The decline in productivity growth was hard to detect in real time – the behaviour of households and firms indicates that their beliefs about steady-state productivity growth did not adjust until the early-to-mid 2000s. As well as reducing growth in output, slower productivity growth has lowered the neutral real interest rate in the United States and made it harder for monetary policy to combat recessions. Had productivity growth not slowed, the federal funds rate may not have hit the zero lower bound until late 2010.
    Keywords: business cycles, productivity, monetary policy
    JEL: C51 E30 O47
    Date: 2016–10
  84. By: Jones, John Bailey (Federal Reserve Bank of Richmond); Li, Yue (University at Albany)
    Abstract: Since 1983, Social Security benefits have been subject to income taxation, a provision that can significantly increase the marginal income tax rate for older individuals. To assess the impact of this tax, we construct and calibrate a detailed life-cycle model of labor supply, saving, and Social Security claiming. We find that in a long-run stationary environment, replacing the taxation of Social Security benefits with a revenue-equivalent increase in the payroll tax would significantly increase labor supply, consumption and welfare. From an ex-ante perspective an even more desirable reform would be to make the portion of benefits subject to income taxes completely independent of other income.
    Keywords: Social Security; Labor Supply; Taxation
    JEL: E21 H24 H55 I38
    Date: 2017–01–12
  85. By: Jeremy Greenwood (University of Pennsylvania); Philipp Kircher (European University Institute and University of Edinburgh); Cezar Santos (Getulio Vargas Foundation); Michele Tertilt (University of Mannheim)
    Abstract: How might policies that promote marriage and/or dissuade divorce help in the fight against HIV/AIDS? This question is addressed employing a choice-theoretic general equilibrium search model, using Malawi as a case study. In the framework developed, individuals can choose between married and single life. A single person can select among abstinence and sex with or without a condom. The results suggest that marriage-friendly policies can help to abate HIV/AIDS. The policy predictions that obtain from general equilibrium analysis are compared with those that arise from simulated synthetic field experiments and epidemiological studies. AEA, Papers and Proceedings, forthcoming.
    Keywords: AIDS, circumcision, condoms, general equilibrium modeling, HIV, marriage and divorce, Malawi, sex markets, search
    JEL: D10 D50 E10 I10 O11
    Date: 2017–01
  86. By: Luis J. Álvarez (Banco de España)
    Abstract: Filters constructed on the basis of standard local polynomial regression (LPR) methods have been used in the literature to estimate the business cycle. We provide a frequency domain interpretation of the contrast filter obtained by the difference between a series and its long-run LPR component and show that it operates as a kind of high-pass filter, meaning it provides a noisy estimate of the cycle. We alternatively propose band-pass local polynomial regression methods aimed at isolating the cyclical component. Results are compared to standard high-pass and band-pass filters. Procedures are illustrated using the US GDP series.
    Keywords: business cycles, local polynomial regression, filtering, high-pass, band-pass, US cycles
    JEL: C13
    Date: 2017–01
  87. By: International Monetary Fund.
    Abstract: Tanzania’s macroeconomic performance remains strong. Economic growth was strong during the first half of 2016 and is projected to remain at about 7 percent this fiscal year. Inflation came down below the authorities’ target of 5 percent and is expected to remain close to the target. There are downside risks to economic growth, however, stemming from the currently tight stance of macroeconomic policies, the slow pace of implementation of public investment, and private sector uncertainty about the government’s new economic strategies.
    Keywords: Policy Support Instrument;Economic growth;Fiscal policy;Poverty reduction;Domestic payments arrears;Development plans;Fiscal reforms;Corruption;Monetary policy;Economic indicators;Letters of Intent;Staff Reports;Press releases;Tanzania;
    Date: 2017–01–12
  88. By: Neil R. Ericsson (Board of Governors of the Federal Reserve System)
    Abstract: Government debt and forecasts thereof attracted considerable attention during the recent financial crisis. The current paper analyzes potential biases in different U.S. government agencies’ one-year-ahead forecasts of U.S. gross federal debt over 1984—2012. Standard tests typically fail to detect biases in these forecasts. However, impulse indicator saturation (IIS) detects economically large and highly significant time-varying biases, particularly at turning points in the business cycle. These biases do not appear to be politically related. IIS defines a generic procedure for examining forecast properties; it explains why standard tests fail to detect bias; and it provides a mechanism for potentially improving forecasts.
    Keywords: Autometrics, bias, debt, federal government, forecasts, impulse indicator saturation, heteroscedasticity, projections, United States.
    JEL: H68 C53
    Date: 2017–01
  89. By: Andrea Papadia
    Abstract: The debt crisis of the early 1930s was probably the largest and most widespread in history. The defaults of national and sub-national governments were pivotal events of the Great Depression and contributed to shaping post-World War II finance in the United States and worldwide. I study the role of a so-far largely unexplored factor - fiscal fragility - in the crisis. In order to do this, I construct and analyse a dataset comprising a new measure of default size and new estimates of the size and composition of public debts for around 25 countries. The data accounts for maturity structures, sub-national borrowing as well as other key characteristics of debt burdens. I show econometrically that the severe deterioration in public revenues experienced by national and sub-national governments in a number of countries was a key determinant of the defaults above and beyond the Great Depression income shock. Countries hardest hit by the slump were more likely to renege on their external debts at both the national and subnational level, but countries whose public revenues fell more moderately were able avoid or limit the size of default. I furthermore show that the collapse in public revenues was not part of an explicit strategy to counter the slump through an active fiscal policy. On the contrary, the evidence indicates that fiscally weak countries saw their public expenditures collapse alongside revenues.
    Keywords: Great Depression; Sovereign Defaults; Public Debt; Local Borrowing; Fiscal Development
    JEL: N0
    Date: 2017–01
  90. By: International Monetary Fund.
    Abstract: The macroprudential policy framework in Finland has experienced major changes recently and the mandate has become shared with the ECB. First, a domestic framework was formalized in 2014. The Board of the Financial Supervisory Authority (FIN-FSA) was designated as the authority to implement a set of macroprudential instruments in Finland, and a coordination mechanism among domestic authorities for macroprudential policy, including the Bank of Finland (BoF), was established. Second, with the start of the European Single Supervisory Mechanism (SSM) in 2014, the European Central Bank (ECB) was designated as a macroprudential authority for the euro area, with the European Systemic Risk Board (ESRB) continuing to play an advisory role for all European Union (EU) countries. As a result, macroprudential policy has become a shared responsibility among the national authorities, and the European Union and euro-area level authorities.
    Keywords: Financial Sector Assessment Program;Macroprudential Policy;Housing;Housing prices;Financial sector;Banks;Credit expansion;Financial risk;Financial stability;Finland;
    Date: 2017–01–11
  91. By: Ho, Sin-Yu; Odhiambo, Nicholas M.
    Abstract: This paper explores the origins and development of the Philippine stock market. Specifically, it looks at the structural and regulatory development of the stock exchange, and the growth of the stock market in terms of size, liquidity, and other key market indicators. The Philippine stock market has undergone a number of reforms and development since the 1990s. These include the unification of two stock exchanges, the demutualization of the Philippine Stock Exchange (PSE), and the enactment of the Securities Regulation Code. As a result, the Philippine stock market has experienced a phenomenal growth over the years. Measured by market capitalization ratio, the world ranking of the Philippine stock market has improved from 44th in 2009 to 12th in 2014. Although the PSE has developed fast over the years, it still faces a wide range of challenges, including a less diversified investor base, a lack of competition on the PSE when compared with its regional counterparts, weak corporate governance, and weak legal framework for financial sector development.
    Keywords: Philippines, investment, stock market, stock exchange, Philippine Stock Exchange, PSE, Securities Regulation Code, Philippine stock market, securities, market capitalization ratio
    Date: 2016
  92. By: Paetzold, Jorg; Tiefenbacher, Markus
    Abstract: Contrary to frequent recommendations of the public finance literature and international institutions, a persistently high tax wedge on labor is observed in Europe. Simultaneously, the scope for shifting taxes to more growth-friendly revenue sources appears underused. This motivates our simulation of a tax shift from labor to property for Germany, a country where property tax revenues are particularly low and the tax wedge on labor income is among the highest in industrialized countries. We simulate a reform where property is no longer taxed by its (often) outdated cadastral value but by its market value, using the additional revenue to reduce social insurance contributions (SIC). To make such a simulation possible, we match property-related information with the input data of the tax-benefit microsimulation model EUROMOD. We find a considerable increase in property tax revenues, allowing to reduce the implicit tax rate on labor from 37.2% to 36.5%. Distributive effects tend to be modest, and depend critically on the design of the SIC reduction. Overall, our results suggest that more households would gain than lose from the tax shift, with gainers mostly situated in the middle of the income distribution.
    Date: 2016–12–30
  93. By: International Monetary Fund.
    Abstract: The three-year arrangement under the Extended Credit Facility (ECF) was approved on July 20, 2016 in an amount of SDR 83.55 million (75 percent of quota) for the Central African Republic (C.A.R.). The ECF arrangement supports the government’s reform agenda to restore macroeconomic stability, boost economic growth and job creation, reduce poverty, and build resilience towards exiting fragility.
    Keywords: Extended Credit Facility;Economic recovery;Economic growth;Fiscal policy;Tax administration;Tax collection;Banking sector;Economic indicators;Balance of payments statistics;Letters of Intent;Staff Reports;Press releases;Performance criteria waivers;Central African Republic;
    Date: 2017–01–12
  94. By: International Monetary Fund.
    Abstract: The economy has performed reasonably well in a complex environment. Growth slowed marginally in FY15/16, reflecting muted sentiment in an election year and adverse global and regional developments. Growth should nudge up in FY16/17 to 5 percent, low compared to past performance and regional peers. Credit to the private sector has stalled, and non-performing loans (NPLs) have increased, also reflecting domestic government arrears. The current account deficit is fully financed. The Shilling has stabilized after a sharp depreciation in 2015, and international reserve coverage remains adequate.
    Keywords: Policy Support Instrument;Fiscal policy;Banking sector;Monetary policy;Economic indicators;Balance of payments statistics;Letters of Intent;Debt sustainability analysis;Staff Reports;Press releases;Performance criteria modifications;Performance criteria waivers;Uganda;
    Date: 2017–01–10
  95. By: International Monetary Fund.
    Abstract: Effectively addressing low productivity growth and risks to competitiveness requires a three-pronged approach: (i) making growth promotion more effective through oversight of programs by a dedicated productivity unit in the Prime Ministry, better calibrating programs to company’s needs, incentivizing take-up, and scaling-up selected programs; (ii) re-anchoring wage developments in fundamentals by moderating government and minimum wage policies and mobilizing additional labor resources for the private sector, including through faster reduction of government employment; and (iii) social security contribution cuts to provide relief from pressures on profitability.
    Keywords: Article IV consultation reports;Economic conditions;Economic growth;Wage increases;Global competitiveness;Fiscal policy;Financial sector;Banks;Economic indicators;Social indicators;Balance of payments statistics;Staff Reports;Press releases;Estonia;
    Date: 2017–01–13
  96. By: Nakamura, Yasushi
    Abstract: Monetary statistics in the Russian Empire, the Soviet Union, and the Russian Federation were reviewed. The result showed that it is difficult to construct some historical time series of monetary indicators consistent for the entire period of 150 years, because the financial systems in these three periods were very different from each other and that in a market economy. We need to understand the characteristics of each monetary and financial system to use the monetary and financial statistics. The financial system in the Russian Empire developed slower than that of West Europe and was characterized by strong government influence. This characteristic seemed to be carried over to the Soviet Union. The state budget was the main pillar of the Soviet financial system; bank financing merely had a minor and subsidiary role, and its main source of finance was government funds. This pattern of Soviet finance changed in the mid-1960s. Bank financing expanded rapidly using increasing household deposits as its source of finance, while the government sector became a net absorber of financial resources. This financial system was unsustainable and eventually collapsed. After the collapse of the Soviet Union, the Russian financial system returned to a standard financial system for a market economy; however, a sound financial system is still under construction.
    Date: 2016–11
  97. By: Jonasson, Erik (National Institute of Economic Research)
    Abstract: The NIER assesses the long-term sustainability of Sweden’s public finances annually at the government’s request. Public finances can be considered sustainable if government income under current rules is sufficient to fund future expenditure to maintain the public sector commitment. The assessment is based on long-term projections of government income and expenditure under various assumptions. The projection horizon generally extends to 2040, but the report also contains projections through to the year 2100. The aim of sustainability assessments of this kind is not to produce longterm forecasts but to identify potential future imbalances in public finances at an early stage.
    Keywords: fiscal sustainability; public finances
    Date: 2016–03–04
  98. By: Hirdina, Ralph
    Abstract: In vielen Industriestaaten ist die Diskussion über die Abschaffung von Bargeld oder die Einführung gesetzlicher Bargeldobergrenzen voll entbrannt. Das Zurückdrängen von Bargeldzahlungen wird einerseits damit begründet, nur so könne die Negativzinspolitik von Zentralbanken ihre volle Wirkung entfalten. Andererseits werde Bargeld für illegale Transaktionen genutzt, wie zur Terrorfinanzierung, der Steuerhinterziehung und Geldwäsche. Rechtsexperten diskutieren aktuell, ob die Abschaffung von Bargeld oder die Einführung gesetzlicher Bargeldobergrenzen fundamentale Rechte der Bürger und Unternehmen verletzt. Der nachfolgende Beitrag bringt Aspekte in die aktuelle Diskussion ein, insbesondere die Frage, ob das Untermaßverbot zur Verwirklichung von Grundfreiheiten den Staat verpflichtet, Bargeld bereit zu stellen und ob die Bargeldabschaffung Grundrechte, insbesondere das Recht auf den Schutz persönlicher Daten, verletzt.
    Keywords: Bargeldabschaffung,Gesetzliche Bargeldobergrenzen,Negativzinspolitik,Illegale Transaktionen,Grundrechtsverletzungen
    JEL: E42 G20 G28 K22
    Date: 2016
  99. By: Costa Junior, Celso José
    Abstract: The determination of the steady state of DSGE models remains the obscure stage of the resolution methods of this modeling. Researchers seek to solve a nonlinear system rather than understand the theory behind these models. In order to fill this gap and help in learning this methodology, this paper develops a procedure for finding the steady- state by using concepts that rest on Walras' Law.
    Keywords: C60; E13; E30
    JEL: E13
    Date: 2016
  100. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: Before the Forecasters Club of New York, President James Bullard posed and discussed five key questions: 1) Will the current period of low real (i.e., inflation-adjusted) interest rates on short-term safe assets give way to a period of high real interest rates this year? (2) Will new policies from President-elect Donald Trump’s administration drive the real GDP growth rate higher? (3) Is inflation set to rise? (4) Should the federal funds rate move meaningfully higher this year? and (5) Could the Fed’s balance sheet now be allowed to shrink?
    Date: 2017–01–12
  101. By: Pierluigi Conzo (Università di Torino, CSEF and Collegio Carlo Alberto); Arnstein Aassve (Università Bocconi, Dondena Centre for Research on Social Dynamics and Public Policy); Giulia Fuochi (Università di Padova); Letizia Mencarini (Università Bocconi, Dondena Centre for Research on Social Dynamics and Public Policy)
    Abstract: The paper provides a framework for how culture affects happiness. According to self-determination theory, well-being is driven by the satisfaction of three basic psychological needs: autonomy, relatedness and competence. We assess if, and to what extent, generalized trust and the values of obedience and respect influence Europeans’ satisfaction of these needs, controlling for income and education. We find a positive and significant impact for generalized morality (high trust and respect, low obedience), which is robust to different checks for endogeneity, including instrumental variable regressions at country, regional and individual level and panel-data estimations.
    Keywords: self-determination, culture, trust, subjective well-being, happiness, life satisfaction.
    JEL: A13 E02 P48 I31 Z13
    Date: 2017–01–13
  102. By: Yasushi Asako; Yukihiko Funaki; Kozo Ueda; Nobuyuki Uto
    Abstract: This study experimentally analyses traders’choices, with and without asymmetric information, based on the riding-bubble model. While asymmetric information has been necessary to explain a bubble in past theoretical models, our experiments show that traders have an incentive to hold a bubble asset for longer, thereby expanding the bubble in a market with symmetric, rather than asymmetric information. This finding implies a possibility that information symmetry promotes cooperation. However, when traders are more experienced, the size of the bubble decreases, in which case bubbles do not arise, even with symmetric information.
    Keywords: riding bubbles, crashes, asymmetric information, experiment, clock game
    JEL: C72 D82 D84 E58 G12 G18
    Date: 2017–01
  103. By: Sapre, Amey (Indian Institute of Technology); Sinha, Pramod (National Institute of Public Finance and Policy)
    Abstract: In this paper, we discuss some of the methodological issues involved in the computation of value addition in the manufacturing sector. We deal with (i) problems of blow-up of estimates (ii) choice of indicators in measuring output, and (iii) a possible misclassification of companies in the MCA21 database that can distort the GVA estimates. A sample based blow-up exercise shows that Paid-Up Capital and GVA contribution of firms have no one-to-one correspondence and the method can lead to overestimation of value addition. We construct an alternate method of blow-up by using representative industry GVA growth rates to scale up previous GVA estimates to account for data of unavailable companies. We show that a potential misclassification of companies in the MCA21 can also lead to significant distortion in GVA estimates.
    Date: 2016–08
  104. By: Sambit Bhattacharyya (Department of Economics, University of Sussex); Louis Conradie (Department of Economics, University of Sussex); Rabah Arezki (Research Department, IMF)
    Abstract: If the central government is a revenue maximizing Leviathan then resource discovery and democratization should have a discernible impact on the degree of fiscal decentralization. We systematically explore this effect by exploiting exogenous variation in giant oil and mineral discoveries and permanent democratization. Using a global dataset of 77 countries over the period 1970 to 2012 we find that resource discovery has very little effect on revenue decentralization but induces expenditure centralization. Oil discovery appears to be the main driver of centralization and not minerals. Resource discovery leads to centralization in locations which have not experienced permanent democratization. Tax and intergovernmental transfers respond most to resource discovery shocks and democratization whereas own source revenue, property tax, educational expenditure, and health expenditure do not seem to be affected. Higher resource rent leads to more centralization and the effect is moderated by democratization.
    Keywords: Resource discovery; Resource rent; Democratization; Fiscal decentralization
    JEL: H41 H70 O11
    Date: 2016–03
  105. By: International Monetary Fund.
    Abstract: The authorities’ policy adjustment program is producing early results. By end-October, the exchange rate had depreciated more than expected for the year, and fiscal and monetary policies were tightened in line with the agreed program. During the first 10 months of the year, import volumes contracted, despite large public investment projects, and export volumes improved, despite continued difficulties in the mining sector. Growth began decelerating in Q2, in line with expectations. Inflation has picked up, mainly as a result of food shortages stemming from drought, and to a lesser extent exchange rate pass—through. The 2016 current account balance will improve slightly less than envisaged with a higher services deficit, but medium term improvement is in line with the program.
    Keywords: Standby Credit Facility;Economic conditions;Monetary policy;Inflation targeting;Flexible exchange rate policy;Fiscal policy;Current account balances;Economic indicators;Letters of Intent;Staff Reports;Policy Support Instrument;Press releases;Rwanda;
    Date: 2017–01–10
  106. By: Works, Richard Floyd
    Abstract: Numerous researchers have studied the connection between exchange rate fluctuations and macroeconomic variables for various market economies. Few studies, however, have addressed whether these relationships may differ based on the market classification of the given economy. This study examined the impact on exchange rates for Japan (a proxy for developed economies) and South Korea (a proxy for emerging economies) yielding from the macroeconomic variables of the sticky-price monetary model between February 1, 1989 and February 1, 2015. The results show that money supply and inflation constituted a significant, but small, influence on South Korean exchange rate movements, whereas no macroeconomic variable within the model had a significant impact on Japanese exchange rates fluctuations. The results of the autoregressive error analyses suggest small variances in the affect that macroeconomic variables may have on developed versus emerging market economies. This may provide evidence that firms may use similar forecasting techniques for emerging market currencies as used with developed market currencies.
    Keywords: Developed economies, Emerging economies, Exchange rates, Sticky-price
    JEL: F31 F37
    Date: 2016–12–31
  107. By: International Monetary Fund.
    Abstract: The vibrant Hong Kong SAR economy has been supported by low interest rates and mainland China’s economic development over the past decade. But the external outlook is now more challenging. Long-term issues such as aging and a housing supply shortage also loom. Strong policy frameworks and ample buffers are in place to weather a less favorable environment. Prudent fiscal policy and intensive supervision of the financial system have built buffers that can be drawn on when needed.
    Keywords: Article IV consultation reports;China;Financial sector;Housing;Housing prices;Fiscal policy;Economic indicators;Balance of payments statistics;Debt sustainability analysis;External Sector Report;Staff Reports;Press releases;Hong Kong SAR;
    Date: 2017–01–12
  108. By: Victor Olkhov
    Abstract: This paper presents macroeconomic model that is based on parallels between macroeconomic multi-agent systems and multi-particle systems. We use risk ratings of economic agents as their coordinates on economic space. Aggregates of economic or financial variables like Investment, Assets, Demand, Credits and etc. of economic agents near point x define corresponding macroeconomic variables as functions of time t and coordinates x on economic space. Parallels between multi-agent and multi-particle systems on economic space allow describe transition from economic kinetic-like to economic hydrodynamic-like approximation and derive macroeconomic hydrodynamic-like equations on economic space. Economic or financial transactions between economic agents determine evolution of macroeconomic variables This paper describes local macroeconomic approximation that takes into account transactions between economic agents with coordinates near same point x on economic space only and describes interaction between macroeconomic variables by linear differential operators. For simple model of interaction between macroeconomic variables as Demand on Investment and Interest Rate we derive hydrodynamic-like equations in a closed form. For perturbations of these macroeconomic variables we derive macroeconomic wave equations. Macroeconomic waves on economic space can propagate with exponential growth of amplitude and cause irregular time fluctuations of macroeconomic variables or induce economic crises.
    Date: 2017–01
  109. By: John Kennan
    Abstract: In 2004, the European Union admitted 10 new countries, and wages in these countries were generally well below the levels in the existing member countries. Citizens of these newly-admitted countries were subsequently free to take jobs anywhere in the EU, and many did so. In 2015, a large number of refugees from Syria and other broken countries sought to migrate to EU countries (along very dangerous routes), and these refugees were met with fierce resistance, at least in some places. This paper seeks to understand the labor market implications of allowing free migration across borders, with particular reference to the EU. The aim is to quantify the migration flows associated with EU enlargement, and to analyze the extent to which these flows affected equilibrium wages. The main conclusion is that the real wage effects are small, and the gains from open borders are large.
    JEL: E25 F22 J61
    Date: 2017–01

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