nep-mac New Economics Papers
on Macroeconomics
Issue of 2017‒02‒05
93 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Large and State-Dependent Effects of Quasi-Random Monetary Experiments By Jorda, Oscar; Schularick, Moritz; Taylor, Alan M.
  2. Large and State-Dependent Effects of Quasi-Random Monetary Experiments By Òscar Jordà; Moritz Schularick; Alan M. Taylor
  3. Forward guidance and the state of the economy By Keen, Benjamin D.; Richter, Alexander; Throckmorton, Nathaniel
  4. Financialisation, Debt and Inequality: Export-led Mercantilist and Debt-led Private Demand Boom Economies in a Stock-flow consistent Model By Daniel Detzer
  5. Appendix for Financial Frictions and Fluctuations in Volatility By Arellano, Cristina; Bai, Yan; Kehoe, Patrick J.
  6. Fiscal Policy and Occupational Employment Dynamics By Bredemeier, Christian; Juessen, Falko; Winkler, Roland
  7. The Macroeconomic Effects of Government Asset Purchases: Evidence from Postwar US Housing Credit Policy By Andrew Fieldhouse; Karel Mertens; Morten O. Ravn
  8. Economic policy uncertainty and the credit channel: aggregate and bank level U.S. evidence over several decades By Bordo, Michael D.; Duca, John V.; Koch, Christoffer
  9. Public capital in the 21st century: As productive as ever? By Jasper de Jong; Marien Ferdinandusse; Josip Funda
  10. Oil prices and the global economy: is it different this time around? By Mohaddes, Kamiar; Pesaran, M. Hashem
  11. Foreign Banks and International Transmission of Monetary Policy: Evidence from the Syndicated Loan Market By Asli Demirguc-Kunt; Balint Horvath; Harry Huizinga
  12. The roles of inflation expectations, core inflation, and slack in real-time inflation forecasting By Kishor, N. Kundan; Koenig, Evan F.
  13. Are nonlinear methods necessary at the zero lower bound? By Richter, Alexander; Throckmorton, Nathaniel
  14. Unconditionally Optimal Ramsey policy By Tatiana Damjanovic; Vladislav Damjanovic; Charles Nolan
  15. How diabolic is the sovereign-bank loop? The effects of post-default fiscal policies By André Diniz; Bernardo Guimaraes
  16. The Illusion of the Perpetual Money Machine By Peter Cauwels; Didier Sornette
  17. Expected Inflation Regimes in Japan By OKIMOTO, Tatsuyoshi
  18. Collateral, Central Bank Repos, and Systemic Arbitrage By Falko Fecht; Kjell G. Nyborg; Jörg Rocholl; Jiri Woschitz
  19. Estimating the real effects of uncertainty shocks at the zero lower bound By Caggiano, Giovanni; Castelnuovo, Efrem; Pellegrino, Giovanni
  20. Testing Wagner's Law for The Gambia, 1977-2013 By Jobarteh, Mustapha
  21. Macroeconomic Determinants of Stock Market Volatility and Volatility Risk-Premiums By Valentina Corradi; Walter Distaso; Antonio Mele
  22. Financial Structure, Cycle, and Instability By Kenshiro Ninomiya
  23. Central bank communications: a case study By Davis, J. Scott; Wynne, Mark A.
  24. Challenging Lucas: from overlapping generations to infinite-lived agent models By Michael Assous; Pedro Garcia Duarte
  25. Decoupling of wages from productivity: Macro-level facts By Cyrille Schwellnus; Andreas Kappeler; Pierre-Alain Pionnier
  26. How Government Policy and Demographics affect Money Demand Function in Bangladesh? By Iftekhar, Umbreen; Dawood, Mamoon; Shahid, Hasaan
  27. Value added, wages, and labor market flows at the establishment level By Merkl, Christian; Stüber, Heiko
  28. How Fast are Semiconductor Prices Falling? By David M. Byrne; Stephen D. Oliner; Daniel E. Sichel
  29. Investment Demand and Structural Change By Manuel García-Santana; Josep Pijoan-Mas; Lucciano Villacorta
  30. The Global Rise of Corporate Saving By Chen, Peter; Karabarbounis, Loukas; Neiman, Brent
  31. Optimal Equilibrium State in Two-Sector Growth Model By Yashin, Pete
  32. Mending the broken link: heterogeneous bank lending and monetary policy pass-through. By Carlo Altavilla; Fabio Canova; Matteo Ciccarelli
  33. Exchange Rate Pass-Through in the Euro Area By Mariarosaria Comunale; Davor Kunovac
  34. Narrative Economics By Robert J. Shiller
  35. Israel’s Triumph over Inflation: The Long and Winding Road By Assaf Razin
  36. Flexible Prices and Leverage By Francesco D’Acunto; Ryan Liu; Carolin Pflueger; Michael Weber
  37. Taxation and Labor Supply of Married Couples across Countries: A Macroeconomic Analysis By Bick, Alexander; Fuchs-Schündeln, Nicola
  38. Forecasting economic activity in data-rich environment By Maxime Leroux; Rachidi Kotchoni; Dalibor Stevanovic
  39. Fiscal space on the Eurozone periphery: The case of Spain By Jorge Uxo; Ignacio Àlvarez; Eladio Febrero
  40. End of 9-Endings and Price Perceptions By Haipeng (Allan) Chen; Daniel Levy; Avichai Snir
  41. Targeted search in matching markets By Cheremukhin, Anton A.; Restrepo-Echavarria, Paulina; Tutino, Antonella
  42. Has the South African Reserve Bank responded to equity prices since the sub-prime crisis? An asymmetric convergence approach By Phiri, Andrew
  43. On what states do prices depend? answers from ecuador By Benedict, Craig; Crucini, Mario J.; Landry, Anthony E.
  44. Aggregate recruiting intensity By Alessandro Gavazza; Simon Mongey; Giovanni L Violante
  45. Deposit Flight and Capital Controls: A Tale from Greece By Michalis Rousakis; Romanos Priftis
  46. Mixed-frequency models for tracking short-term economic developments in Switzerland By Christian Hepenstrick and Rolf Scheufele Alain Galli
  47. Trends and cycles in small open economies: making the case for a general equilibrium approach By Chen, Kan; Crucini, Mario J.
  48. Optimal Dynamic Capital Requirements By Caterina Mendicino; Kalin Nikolov; Javier Suarez; Dominik Supera
  49. System reduction and finite-order VAR solution methods for linear rational expectations models By Martinez-Garcia, Enrique
  50. Macroeconomic news and asset prices before and after the zero lower bound By Koch, Christoffer; Yung, Julieta
  51. Die chinesische Investitionsoffensive "One Belt, One Road" Wirtschaftliche Potentiale für Österreich? By Julia Grübler; Robert Stehrer
  52. Controlling public debt without forgetting Inflation By Ferrari, Giorgio
  53. Complex-Task Biased Technological Change and the Labor Market By Colin Caines; Florian Hoffmann; Gueorgui Kambourov
  54. Sources of Borrowing and Fiscal Multipliers By Priftis, Romanos; Zimic, Srecko
  56. Lending to unhealthy firms in Japan during the lost decade: distinguishing between technical and financial health By Chakraborty, Suparna; Peek, Joe
  57. Exposure to international crises: trade vs. financial contagion By Grant, Everett
  58. Do central banks respond timely to developments in the global economy? By Hilde C. Bjørnland; Leif Anders Thorsrud; Sepideh K. Zahiri
  59. The interplay between trade unions and the social security system in an aging economy By Friese, Max
  60. The Globalisation of Inflation: the Growing Importance of Global Value Chains By Auer, Raphael; Borio, Claudio; Filardo, Andrew J.
  61. L’hyperinflation Bulgare de 1997 : Transition, Fragilité Bancaire et Change By Charles, Sébastien; Marie, Jonathan
  62. Is modern technology responsible for jobless recoveries? By Georg Graetz; Guy Michaels
  63. Is Modern Technology Responsible for Jobless Recoveries? By Graetz, Georg; Michaels, Guy
  64. Oil Price Shocks and Policy Uncertainty: New Evidence on the Effects of US and non-US Oil Production By Kang, Wensheng; Ratti, Ronald A.; Vespignani, Joaquin L.
  65. Confidence Interval Projections of the Federal Reserve Balance Sheet and Income By Erin E. Syron Ferris; Soo Jeong Kim; Bernd Schlusche
  66. Appendix for How Exporters Grow By Fitzgerald, Doireann; Haller, Stephanie; Yedid-Levi, Yaniv
  67. Asset Prices, Nominal Rigidities, and Monetary Policy: Case of Housing Price By Kengo Nutahara
  68. Job and worker flows: New stylized facts for Germany By Bachmann, Rüdiger; Bayer, Christian; Merkl, Christian; Seth, Stefan; Stüber, Heiko; Wellschmied, Felix
  69. Financial performance and macroeconomic fundamentals in emerging market economies over the global financial cycle By Davis, J. Scott; Zlate, Andrei
  70. Trends in productivity and sources of productivity growth in Slovenia By Urban Sila; Hermes Morgavi; Jeanne Dall'Orso
  71. The winner's curse on art markets By Kräussl, Roman; Mirgorodskaya, Elizaveta
  72. Scenarios for potential macroeconomic impact of Brexit on Hungary By László Békési; Zsolt Kovalszky; Tímea Várnai
  73. Bank-specific shocks and house price growth in the U.S. By Bremus, Franziska; Krause, Thomas; Noth, Felix
  74. What drives commodity price booms and busts? By Jacks, David S.; Stuermer, Martin
  75. Les allocations chômage devraient-elles être dégressives ? By Bruno Coquet
  76. Monetary policy, Farm sector income and Farm Household Well-being --a VECM Analysis By gao, chen; leatham, david
  77. Macroeconomic forecasting for Australia using a large number of predictors By Bin Jiang; George Athanasopoulos; Rob J Hyndman; Anastasios Panagiotelis; Farshid Vahid
  78. Does the Design of a Fiscal Rule Matter for Welfare? By Landon, Stuart; Smith, Constance
  79. Secular Stagnation? The Effect of Aging on Economic Growth in the Age of Automation By Daron Acemoglu; Pascual Restrepo
  80. Malaysia’s economic success story and challenges By Vincent Koen; Hidekatsu Asada; Stewart Nixon; Habeeb Rahuman, M.R.; Mohd Arif, A.Z.
  81. Employee Profit Sharing and Labor Extraction in a Classical Model of Distribution and Growth By Jaylson Jair da Silveira; Gilberto Tadeu Lima
  82. Hires and Separations in Equilibrium By Edward P. Lazear; Kristin McCue
  83. Tax-Subsidized Underpricing: Issuers and Underwriters in the Market for Build America Bonds By Dario Cestau; Richard C. Green; Norman Schürhoff
  84. Asymmetric volatility connectedness on the forex market By Jozef Barunik; Evzen Kocenda; Lukas Vacha
  85. From self-fulfilling mistakes to behavioral learning equilibria By Cars Hommes
  86. Globalization, market structure and inflation dynamics By Guilloux-Nefussi, Sophie
  87. Mixed-Frequency Macro-Financial Spillovers By John Cotter; Mark Hallam; Kamil Yilmaz
  88. Mixed-frequency macro-financial spillovers By John Cotter; Mark Hallam; Kamil Yilmaz
  89. Pass-through with low inflation and volatile exchange rates By Alexius, Annika; Holmberg, Mikaela
  90. Money-Financed versus Debt-Financed Fiscal Stimulus with Borrowing Constraints By Lorenza Rossi; Chiara Punzo
  91. Does federal contracting spur development? Federal contracts, income, output, and jobs in US cities By Michiel Gerritse; AndrŽs Rodr’guez-Pose
  92. Relationship of Fiscal Discipline and House hold Income on Money Demand Function in Sri Lanka By Iftekhar, Umbreen; Dawood, Mamoon; Shahid, Hassan
  93. The influence of financial conditions on optimal ordering and payment policies under progressive interest schemes. By Ries, J. M.; Glock, C. H.; Schwindl, K.

  1. By: Jorda, Oscar (Federal Reserve Bank of San Francisco); Schularick, Moritz (Department of Economics, University of Bonn); Taylor, Alan M. (University of California, Davis)
    Abstract: Fixing the exchange rate constrains monetary policy. Along with unfettered cross-border capital flows, the trilemma implies that arbitrage, not the central bank, determines how interest rates fluctuate. The annals of international finance thus provide quasi-natural experiments with which to measure how macroeconomic outcomes respond to policy rates. Based on historical data since 1870, we estimate the local average treatment effect (LATE) of monetary policy interventions and examine its implications for the population ATE with a trilemma instrument. Using a novel control function approach we evaluate the robustness of our findings to possible spillovers via alternative channels. Our results prove to be robust. We find that the effects of monetary policy are much larger than previously estimated, and that these effects are state-dependent.
    JEL: E01 E30 E32 E44 E47 E51 F33 F42 F44
    Date: 2017–01–13
  2. By: Òscar Jordà; Moritz Schularick; Alan M. Taylor
    Abstract: Fixing the exchange rate constrains monetary policy. Along with unfettered cross-border capital flows, the trilemma implies that arbitrage, not the central bank, determines how interest rates fluctuate. The annals of international finance thus provide quasi-natural experiments with which to measure how macroeconomic outcomes respond to policy rates. Based on historical data since 1870, we estimate the local average treatment effect (LATE) of monetary policy interventions and examine its implications for the population ATE with a trilemma instrument. Using a novel control function approach we evaluate the robustness of our findings to possible spillovers via alternative channels. Our results prove to be robust. We find that the effects of monetary policy are much larger than previously estimated, and that these effects are state-dependent.
    JEL: E01 E30 E32 E44 E47 E51 F33 F42 F44
    Date: 2017–01
  3. By: Keen, Benjamin D. (University of Oklahoma); Richter, Alexander (Federal Reserve Bank of Dallas); Throckmorton, Nathaniel (College of William & Mary)
    Abstract: This paper examines forward guidance using a nonlinear New Keynesian model with a zero lower bound (ZLB) constraint on the nominal interest rate. Forward guidance is modeled with news shocks to the monetary policy rule. The effectiveness of forward guidance depends on the state of the economy, the speed of the recovery, the ZLB constraint, the degree of uncertainty, the monetary response to inflation, the size of the news shocks, and the forward guidance horizon. Specifically, the stimulus from forward guidance falls as the economy deteriorates or as households expect a slower recovery. When the ZLB binds, less uncertainty about the economy or an expectation of a stronger response to inflation reduces the benefit of forward guidance. Forward guidance via a news shock is less stimulative than an unanticipated monetary policy shock around the steady state, but a news shock is more stimulative near the ZLB and always has a larger cumulative effect on output. When the central bank extends the forward guidance horizon, the cumulative effect initially increases but then decreases. These results indicate that there are limits to the stimulus forward guidance can provide, but that stimulus is largest when the news is communicated early in a recession.
    Keywords: Forward guidance; zero lower bound; news shocks; global solution method
    JEL: E43 E58 E61
    Date: 2016–11–08
  4. By: Daniel Detzer (Berlin School of Economics and Law)
    Abstract: In the era of financialisation, increasing income inequality could be observed in most developed and many developing countries. Despite these similar developments in inequality, the growth performance and drivers for growth differed markedly among countries, allowing clusters of different growth regimes to be identified. Among them are two extreme types: the debt-led private-demand boom and the export-led mercantilist economies. Whereas the former rely mainly on credit-financed household consumption in order to compensate for the potential lack of demand (associated with the depressing effect of financialisation), the latter rely on net exports as the main driver of aggregate demand. Using a stock-flow consistent model it will be demonstrated how increasing inequality, depending on a countries institutional structure and regulatory framework, affects growth differently, explaining the occurrence of both regime types.
    JEL: E02 E12 E21 E25 E44 E65 F40 F41 F43
    Date: 2017–01
  5. By: Arellano, Cristina (Federal Reserve Bank of Minneapolis); Bai, Yan (University of Rochester); Kehoe, Patrick J. (Federal Reserve Bank of Minneapolis)
    Abstract: This appendix contains five sections. Section 1 provides details for the comparative statics exercise performed in the simple example. Section 2 discusses extending the model to allow firms to default on the wages for managers. Section 3 describes the firm-level and aggregate data. Section 4 contains the details of the computational algorithm. Finally, Section 5 reports the results for our model with a lower labor elasticity.
    Keywords: Uncertainty shocks; Great Recession; Labor wedge; Firm heterogeneity; Credit constraints; Credit crunch
    JEL: D52 D53 E23 E24 E32 E44
    Date: 2017–01–24
  6. By: Bredemeier, Christian (University of Cologne); Juessen, Falko (University of Wuppertal); Winkler, Roland (TU Dortmund)
    Abstract: We document substantial heterogeneity in occupational employment dynamics in response to government spending shocks. Employment rises most strongly in service, sales, and office ("pink-collar") occupations. By contrast, employment in blue-collar occupations is hardly affected by fiscal stimulus which is striking in light of its strong exposure to the cycle and its long-run decline due to technical change and globalization. We provide evidence that occupation-specific changes in labor demand are key to understand these findings and develop a business-cycle model that explains the heterogeneous occupational employment dynamics as a consequence of differences in the short-run substitutability between labor and capital services across occupations.
    Keywords: fiscal policy, composition of employment, occupations, industries, heterogeneity
    JEL: E62 E24 J21 J23
    Date: 2017–01
  7. By: Andrew Fieldhouse (Cornell University); Karel Mertens (Centre for Economic Policy Research (CEPR); Department of Economics Cornell University; National Bureau of Economic Research (NBER)); Morten O. Ravn (Centre for Economic Policy Research (CEPR); Centre for Macroeconomics (CFM); Department of Economics University College London (UCL))
    Abstract: We document the portfolio activity of federal housing agencies and provide evidence on its impact on mortgage markets and the economy. Through a narrative analysis, we identify historical policy changes leading to expansions or contractions in agency mortgage holdings. Based on those regulatory events that we classify as unrelated to short-run cyclical or credit market shocks, we find that an increase in mortgage purchases by the agencies boosts mortgage lending and lowers mortgage rates. Agency purchases influence prices in other asset markets and stimulate residential investment. Using information in GSE stock prices to construct an alternative instrument for agency purchasing activity yields very similar results as our benchmark narrative identification approach.
    Keywords: Credit Policy, Monetary Policy, Mortgage Credit, Residential Investment, Government Sponsored Enterprises
    JEL: E44 E52 N22 R38 G28
    Date: 2017–01
  8. By: Bordo, Michael D. (Rutgers University); Duca, John V. (Federal Reserve Bank of Dallas); Koch, Christoffer (Federal Reserve Bank of Dallas)
    Abstract: Economic policy uncertainty aspects decisions of households, businesses, policy makers and financial intermediaries. We first examine the impact of economic policy uncertainty on aggregate bank credit growth. Then we analyze commercial bank entity level data to gauge the effects of policy uncertainty on financial intermediaries' lending. We exploit the cross-sectional heterogeneity to back out indirect evidence of its effects on businesses and households. We ask (i) whether, conditional on standard macroeconomic controls, economic policy uncertainty affected bank level credit growth, and (ii) whether there is variation in the impact related to banks' balance sheet conditions; that is, whether the effects are attributable to loan demand or, if impact varies with bank level financial constraints, loan supply. We find that policy uncertainty has a significant negative effect on bank credit growth. Since this impact varies meaningfully with some bank characteristics - particularly the overall capital-to-assets ratio and bank asset liquidity-loan supply factors at least partially (and significantly) help determine the influence of policy uncertainty. Because other studies have found important macroeconomic effects of bank lending growth on the macroeconomy, our findings are consistent with the possibility that high economic policy uncertainty may have slowed the U.S. economic recovery from the Great Recession by restraining overall credit growth through the bank lending channel.
    Keywords: money and banking; economic policy uncertainty; business cycles
    JEL: E40 E50 G21
    Date: 2016–07–08
  9. By: Jasper de Jong; Marien Ferdinandusse; Josip Funda
    Abstract: The global financial crisis and the euro area sovereign debt crisis that followed induced a rapid deterioration in the fiscal positions of countries across the globe. In the ensuing fiscal adjustment process, public investments were severely reduced in many countries. How harmful is this for growth perspectives? Our main objective is to find out whether the importance of public capital for long run output growth has changed in recent years. We also aim to provide information on the relevance of international spillovers of public capital. To these ends, we expand time series on public capital stocks for 20 OECD countries as constructed by Kamps (2006) and estimate country-specific recursive VARs. Results show that the effect of public capital shocks on economic growth has not increased in general, although results differ widely between countries. This suggests that the current level of public investments generally does not pose an immediate threat to potential output. Of course, this could change if low investment levels are sustained for a long time. We furthermore provide some tentative evidence of positive spillovers of public capital shocks between European countries.
    Keywords: Public capital stock; economic growth,; spillovers
    JEL: E22 E62 H54
    Date: 2017–01
  10. By: Mohaddes, Kamiar (University of Cambridge); Pesaran, M. Hashem (University of Southern California)
    Abstract: The recent plunge in oil prices has brought into question the generally accepted view that lower oil prices are good for the US and the global economy. In this paper, using a quarterly multi-country econometric model, we first show that a fall in oil prices tends relatively quickly to lower interest rates and inflation in most countries, and increase global real equity prices. The effects on real output are positive, although they take longer to materialize (around 4 quarters after the shock). We then re-examine the effects of low oil prices on the US economy over different sub-periods using monthly observations on real oil prices, real equity prices and real dividends. We confirm the perverse positive relationship between oil and equity prices over the period since the 2008 financial crisis highlighted in the recent literature, but show that this relationship has been unstable when considered over the longer time period of 1946-2016. In contrast, we find a stable negative relationship between oil prices and real dividends which we argue is a better proxy for economic activity (as compared to equity prices). On the supply side, the effects of lower oil prices differ widely across the different oil producers, and could be perverse initially, as some of the major oil producers try to compensate their loss of revenues by raising production. Taking demand and supply adjustments to oil price changes as a whole, we conclude that oil markets equilibrate but rather slowly, with large episodic swings between low and high oil prices.
    JEL: C32 E17 E32 F44 F47 O51 Q43
    Date: 2016–07–21
  11. By: Asli Demirguc-Kunt; Balint Horvath; Harry Huizinga
    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: Cross-border lending, monetary transmission, banking FDI, bank regulation, capital controls.
    JEL: E44 E52 F34 F38 F42 G15 G20
    Date: 2017–01–25
  12. By: Kishor, N. Kundan (University of Wisconsin); Koenig, Evan F. (Federal Reserve Bank of Dallas)
    Abstract: Using state-space modeling, we extract information from surveys of long-term inflation expectations and multiple quarterly inflation series to undertake a real-time decomposition of quarterly headline PCE and GDP-deflator inflation rates into a common long-term trend, common cyclical component, and high-frequency noise components. We then explore alternative approaches to real-time forecasting of headline PCE inflation. We find that performance is enhanced if forecasting equations are estimated using inflation data that have been stripped of high-frequency noise. Performance can be further improved by including an unemployment-based measure of slack in the equations. The improvement is statistically significant relative to benchmark autoregressive models and also relative to professional forecasters at all but the shortest horizons. In contrast, introducing slack into models estimated using headline PCE inflation data or conventional core inflation data causes forecast performance to deteriorate. Finally, we demonstrate that forecasting models estimated using the Kishor-Koenig (2012) methodology-which mandates that each forecasting VAR be augmented with a flexible state-space model of data revisions-consistently outperform the corresponding conventionally estimated forecasting models.
    Keywords: Inflation; real-time forecasting; unobserved component model; slack
    JEL: E31 E37
    Date: 2016–11–01
  13. By: Richter, Alexander (Federal Reserve Bank of Dallas); Throckmorton, Nathaniel (College of William & Mary)
    Abstract: This paper examines the importance of the zero lower bound (ZLB) constraint on the nominal interest rate by estimating three variants of a small-scale New Keynesian model: (1) a nonlinear model with an occassionally binding ZLB constraint; (2) a constrained linear model, which imposes the constraint in the filter but not the solution; and (3) an unconstrained linear model, which never imposes the constraint. The posterior distributions are similar, but important differences arise in their predictions at the ZLB. The nonlinear model fits the data better at the ZLB and primarily attributes the ZLB to a reduction in household demand due to discount factor shocks. In the linear models, the ZLB is due to large contractionary monetary policy shocks, which is at odds with the Fed’s expansionary policy during the Great Recession. Posterior predictive analysis shows the nonlinear model is partially able to account for the increase in output volatility and the negative skewness in output and inflation that occurred during the ZLB period, whereas the linear models predict almost no changes in those statistics. We also compare the results from our nonlinear model to the quasi-linear solution based on OccBin. The quasi-linear model fits the data better than the linear models, but it still generate too little volatility at the ZLB and predicts that a large policy shock caused the ZLB to bind in 2008Q4.
    Keywords: Bayesian estimation; model comparison; zero lower bound; particle filter
    JEL: C11 E43 E58
    Date: 2016–08–02
  14. By: Tatiana Damjanovic (Durham University, Durham University Business School); Vladislav Damjanovic (Durham University, Durham University Business School); Charles Nolan (Adam Smith Business School, University of Glasgow)
    Abstract: We discuss a time invariant policy which delivers the unconditionally optimal outcomes in purely forward-looking models and Ramsey outcomes in purely backward-looking models. This policy is a product of interaction between two institutions with distinct responsibilities. Motivated by Brendon and Ellison (2015), we think of them as arms of government. One institution is responsible for ëforward guidanceí, setting rules which are necessary and su¢ cient to determine private expectations. The second institution implements optimal policy taking expectations as given. The forward guidance rules are designed to maximise the unconditional expectation of the social objectives.
    Keywords: Time inconsistency, forward guidance, unconditional optimisation, Ramsey optimal policy.
    JEL: E50 E60 E51
    Date: 2017–01
  15. By: André Diniz (Sao Paulo School of Economics - FGV); Bernardo Guimaraes (Sao Paulo School of Economics - FGV; Centre for Macroeconomics (CFM))
    Abstract: The deleterious effect of debt restructuring on banks' balance sheets and, consequently, on the economy as a whole has been a key policy issue. This paper studies how post-default fiscal policy interacts with this sovereign-bank loop and shape the response of a model economy. Calibration of the model matches characteristics of the Greek economy at the time of the Bond Exchange. Debt restructuring in place of higher lump-sum taxation or non-productive government spending harms the economy even if no other cost of default is considered. However, the sovereign-debt loop is less costly to the economy than increases in labour or capital taxes to service debt. Even so, if fiscal policy is too responsive, a crowding-out effect inhibits the recovery of capital markets, hence a more conservative fiscal stance is desirable. Thus how diabolic the post-default sovereign-bank loop is depends to a large extent on the way fiscal policy responds.
    Keywords: Financial frictions, Fiscal policy, Soverign default, Soverign-bank loop
    JEL: E32 E62 F34 G01 H63
    Date: 2017–01
  16. By: Peter Cauwels (ETH Zürich); Didier Sornette (Swiss Finance Institute and ETH Zürich)
    Abstract: We argue that the present crisis and stalling economy continuing since 2007 have clear origins, namely in the delusionary belief in the merits of policies based on a “perpetual money machine†type of thinking. Indeed, we document strong evidence that, since the early 1980s, consumption has been increasingly funded by smaller savings, booming financial profits, wealth extracted from house price appreciation and explosive debt. This is in stark contrast with the productivity-fueled growth that was seen in the 1950s and 1960s. This transition, starting in the early 1980s, was further supported by a climate of deregulation and a massive growth in financial derivatives designed to spread and diversify the risks globally. The result has been a succession of bubbles and crashes, including the worldwide stock market bubble and great crash of 19 October 1987, the savings and loans crisis of the 1980s, the burst in 1991 of the enormous Japanese real estate and stock market bubbles and its ensuing “lost decades†, the emerging markets bubbles and crashes in 1994 and 1997, the LTCM crisis of 1998, the dotcom bubble bursting in 2000, the recent house price bubbles, the financialization bubble via special investment vehicles, speckled with acronyms like CDO, RMBS and CDS, the stock market bubble, the commodity and oil bubbles and the debt bubbles, all developing jointly and feeding on each other until the climax of 2008, which brought our financial system close to collapse. Rather than still hoping that real wealth will come out of money creation, an illusion also found in the current management of the on-going European sovereign and banking crises, we need fundamentally new ways of thinking. Governing is the art of planning and prediction. In uncertain times, it is essential, more than ever, to think in scenarios: what can happen in the future, and, what would be the effect on your wealth and capital? How can you protect yourself and your dearest against adverse scenarios? We thus end by examining the question “what can we do?†from the macro level, discussing the fundamental issue of incentives and of constructing and predicting scenarios as well as developing investment insights.
    Keywords: economic growth, productivity, financial markets, investments, returns, debt, bubbles, monetary policy
    JEL: D53 D90 E20 E30 E60 G01
  17. By: OKIMOTO, Tatsuyoshi
    Abstract: This paper examines the dynamics of expected inflation regimes in Japan over the last three decades based on the smooth transition Phillips curve model. We find that there is a strong connection between the expected inflation and monetary policy regimes. The results also suggest that the introduction of the inflation targeting policy, and quantitative and qualitative easing in the beginning of 2013 have successfully escaped from the deflationary regime, but was not enough to achieve the 2% inflation target. Finally, our results indicate the significance of exchange rates in explaining the recent fluctuations of inflation, and the importance of oil and stock prices in maintaining the positive expected inflation regime.
    Keywords: Hybrid Phillips curve, monetary policy, inflation targeting, qualitative and quantitative easing, smooth transition model
    JEL: C22 E31 E52
    Date: 2017–01
  18. By: Falko Fecht (Frankfurt School of Finance & Management); Kjell G. Nyborg (University of Zurich, Centre for Economic Policy Research (CEPR), and Swiss Finance Institute); Jörg Rocholl (ESMT European School of Management and Technology); Jiri Woschitz (University of Zurich)
    Abstract: Central banks are under increased scrutiny because of the rapid growth in, and composition of, their balance sheets. Therefore, understanding the processes that shape these balance sheets and their consequences is crucial. We contribute by studying an extensive dataset of banks’ liquidity uptake and pledged collateral in central bank repos. We document systemic arbitrage whereby banks funnel credit risk and low-quality collateral to the central bank. Weaker banks use lower quality collateral to demand disproportionately larger amounts of central bank money (liquidity). This holds both before and after the financial crisis and may contribute to financial fragility and fragmentation.
    Keywords: Collateral, repo, systemic arbitrage, central bank, collateral policy, banks, liquidity, interbank market, financial stability, financial fragmentation
    JEL: G12 G21 E42 E51 E52 E58
  19. By: Caggiano, Giovanni; Castelnuovo, Efrem; Pellegrino, Giovanni
    Abstract: We employ a parsimonious nonlinear Interacted-VAR to examine whether the real effects of uncertainty shocks are greater when the economy is at the Zero Lower Bound. We find the contractionary effects of uncertainty shocks to be statistically larger when the ZLB is binding, with differences that are economically important. Our results are shown not to be driven by the contemporaneous occurrence of the Great Recession and high financial stress, and to be robust to different ways of modeling unconventional monetary policy. These findings lend support to recent theoretical contributions on the interaction between uncertainty shocks and the stance of monetary policy.
    JEL: C32 E32
    Date: 2017–02–01
  20. By: Jobarteh, Mustapha
    Abstract: Wagner’s law relates the positive nexus between public spending and economic activity, where greater economic activity leads to increased public spending. This paper examines the validity of this hypothesis for The Gambia for the period 1977-2013. Using econometric techniques of ARDL bounds test, Johansen and Juselius (1990) multivariate cointegration test, Granger causality and Toda and Yamamota (1995) Granger non-causality tests, the findings show validity for Wagner’s law for The Gambia. Therefore, the government of the Gambia should channel it’s expenditures toward the productive sectors of economy so as to promote economic growth in the country.
    Keywords: Wagner’s law, Bounds test, The Gambia, Granger causality.
    JEL: E6 E62 H50
    Date: 2017–01–09
  21. By: Valentina Corradi (University of Warwick); Walter Distaso (Imperial College Business School); Antonio Mele (Swiss Finance Institute, University of Lugano, and Centre for Economic Policy Research (CEPR))
    Abstract: How does stock market volatility relate to the business cycle? We develop, and estimate, a no-arbitrage model to study the cyclical properties of stock volatility and the risk-premiums the market requires to bear the risk of uctuations in this volatility. The level of stock market volatility cannot be explained by the mere existence of the business cycle. Rather, it relates to the presence of some unobserved factor. At the same time, our model predicts that such an unobservable factor cannot explain the ups and downs stock volatility experiences over time - the "volatility of volatility." Instead, the volatility of stock volatility relates to the business cycle. Finally, volatility risk-premiums are strongly countercyclical, even more so than stock volatility, and are partially responsible for the large swings in the VIX index occurred during the 2007-2009 subprime crisis, which our model does capture in out-of-sample experiments.
    Keywords: Aggregate stock market volatility, volatility risk-premiums, volatility of volatility, business cycle, no-arbitrage restrictions, simulation-based inference
    JEL: C15 C32 E37 E44 G13 G17
  22. By: Kenshiro Ninomiya (Faculty of Economics, Shiga University)
    Abstract: The subprime loan mortgage crisis has revived scholarly interest in Minsky fs financial instability hypothesis. The related mathematical models present two types of Minskian financial structures. We construct macrodynamic models that consider both structures and discuss financial instability and cycles. We also demonstrate that one of the financial cycles occurs when a real factor stabilizes the economy. The burden of interest-bearing debt is an important determinant of the cycle. We posit that the escalating financial fragility in this cycle is a more appropriate interpretation of the Minskian financial structure that refers to hedging, speculative and Ponzi behaviors. We further demonstrate that another financial structure destabilizes the economy. If the instability occurs at the point of fragility, then the economy may deteriorate into financial crisis. Fragility then becomes instability.
    Keywords: Minskian financial structure, financial fragility, business cycle, financial instability.
    JEL: E12 E32 E43
    Date: 2015–07
  23. By: Davis, J. Scott (Federal Reserve Bank of Dallas); Wynne, Mark A. (Federal Reserve Bank of Dallas)
    Abstract: Over the past twenty five years, central bank communications have undergone a major revolution. Central banks that previously shrouded themselves in mystery now embrace social media to get their message out to the widest audience. The Federal Reserve System has not always been at the forefront of these changes, but the volume of information about monetary policy that the Federal Open Market Committee (FOMC) now releases dwarfs what it was releasing a quarter century ago. In this paper we focus on just one channel of FOMC communications, the post-meeting statement. We document how it has evolved over time, and in particular the extent to which it has become more detailed, but also more difficult to understand. We then use a VAR with daily financial market data to estimate a daily time series of U.S. monetary policy shocks. We show how these shocks on Fed statement release days have gotten larger as the statement has gotten longer and more detailed, and we show that the length and complexity of the statement has a direct effect on the size of the monetary policy shock following a Fed decision.
    JEL: E58 E65
    Date: 2016–09–01
  24. By: Michael Assous; Pedro Garcia Duarte
    Abstract: The canonical history of macroeconomics, one of the rival schools of thought and the great economists, gives Robert Lucas a prominent role in shaping the recent developments in the area. According to it, his followers were initially split into two camps, the “real business cycle” theorists with models of efficient fluctuations, and the “new-Keynesians” with models in which fluctuations are costly, and the government has a role to play, due to departures from the competitive equilibrium (such as nominal rigidities and imperfect competition). Later on, a consensus view emerged (the so-called new neoclassical synthesis), based on the dynamic stochastic general equilibrium (DSGE) model, which combines elements of the models developed by economists of those two groups. However, this account misses critical developments, as already pointed out by Cherrier and Saïdi (2015). As a reaction to Lucas’s 1972 policy ineffectiveness results, based on an overlapping generations (OLG) model, a group of macroeconomists realized that a competitive OLG model may have a continuum of equilibria and that this indeterminacy justified government intervention for competitive cycles that emerged even in deterministic models. We can identify here two distinct, but related, groups: one of the deterministic cycles of David Gale, David Cass, and Jean-Michel Grandmont, and another of the stochastic models and sunspots of Karl Shell, Roger Guesnerie, Roger Farmer and Costas Azariadis (Lucas’s PhD student). Here, the OLG was the workhorse model. Following from these works, a number of authors, including Michael Woodford, argued that similar results could occur in models with infinitely lived agents when there are various kinds of market imperfections. With such generalization, some of these macroeconomists saw that once these imperfections are introduced, nothing important for business cycle modeling was lost and they could therefore leave the OLG model aside as a model of business fluctuations, to the dismay of authors such as Grandmont, Robert Solow and Frank Hahn. In this paper, we scrutinize the differences between the deterministic cycles and sunspot groups and explore the many efforts of building a dynamic competitive business cycle model that implies a role for the government to play. We then assess the transformation process that took place in the late 1980s when several macroeconomists switched from OLG to infinite-lived agents models with imperfections that eventually became central to the DSGE literature. With this we hope to shed more light on the origins of new neoclassical synthesis.
    Keywords: overlapping generations model; Robert Lucas; Michael Woodford; DSGE model; new neoclassical synthesis
    JEL: B22 B23 E32
    Date: 2017–01–26
  25. By: Cyrille Schwellnus; Andreas Kappeler; Pierre-Alain Pionnier
    Abstract: Over the past two decades, aggregate labour productivity growth in most OECD countries has decoupled from real median compensation growth, implying that raising productivity is no longer sufficient to raise real wages for the typical worker. This paper provides a quantitative description of decoupling in OECD countries over the past two decades, with the results suggesting that it is explained by declines in both labour shares and the ratio of median to average wages (a partial measure of wage inequality). Labour shares have declined in about two thirds of the OECD countries covered by the analysis. However, the contribution of labour shares to decoupling is smaller if sectors are excluded for which labour shares are driven by changes in commodity and asset prices or for which labour shares are driven by imputation choices (primary, housing and non-market sectors). The ratio of median to average wages has declined in all but two of the OECD countries covered by the analysis and appears to reflect disproportionate wage growth at the very top of the wage distribution rather than stagnating median wages. The causes for these developments will be analysed in follow-up research. Découplage des salaires et de la productivité : Les faits au niveau macroéconomique Au cours des deux dernières décennies, la productivité du travail au niveau agrégé et la rémunération réelle médiane du travail ont divergé dans la plupart des pays de l’OCDE, ce qui signifie que les gains de productivité n’ont pas permis d’accroître la rémunération réelle du salarié médian. Cet article décrit quantitativement ce phénomène de découplage au cours des vingt dernières années et suggère qu’il s’explique à la fois par une baisse de la part de la rémunération dans la valeur ajoutée et du ratio entre le salaire médian et le salaire moyen (une mesure partielle de l’inégalité salariale). La part de la rémunération dans la valeur ajoutée a baissé dans les deux tiers des pays de l’OCDE pris en compte dans cette étude. Néanmoins, sa contribution au phénomène de découplage est moindre si on exclut les secteurs pour lesquels les évolutions de la part des rémunérations sont liées à des évolutions de prix d’actifs ou de matières premières ou à des imputations (secteur primaire, secteur immobilier et secteurs non marchands). Le ratio entre le salaire médian et le salaire moyen a baissé dans tous les pays de l’OCDE pris en compte dans cette étude, sauf deux. Cette évolution est liée à une évolution hors normes des salaires tout en haut de la distribution plutôt qu’à la stagnation du salaire médian. Des articles à venir analyseront plus en détail l’origine de ces phénomènes.
    Keywords: labour share, productivity, wage inequality
    JEL: D3 E24 E25
    Date: 2017–01–31
  26. By: Iftekhar, Umbreen; Dawood, Mamoon; Shahid, Hasaan
    Abstract: Money demand has a key position in macroeconomics generally and monetary economics particularly. The improved economic condition of any country is a sign of increasing money demand and deteriorating economic climate is a sign of decreasing money demand (Maravic and Palic, 2005). In this study, Autoregressive distributed lag (ARDL) approach of co-integration developed by Pesaran et al., (2001) is used to estimate the money demand function. Real interest rate, GDP per capita, exchange rate, fiscal deficit, urban and rural population are selected to determine money demand function in Bangladesh over the period from 1975-2013. The co-integration analysis reveals that interest rate and per capita GDP exerts significant effect upon money demand both in long run and short run as well. Both urban and rural population have significant effect on money demand in the long run and short run and money demand function is found stable over time.
    Keywords: Government Policy, Demography, Money Demand
    JEL: E4 E41
    Date: 2017–01–31
  27. By: Merkl, Christian; Stüber, Heiko
    Abstract: In this paper, we analyze the connection between value added, wages, and labor market ows at the establishment level. For this purpose, we first develop a simple model to illustrate the expected comovement of these variables. For the empirical analysis, we link the new German Administrative Wage and Labor Market Flow Panel (AWFP) dataset to the IAB Establishment Panel survey. We show that establishments' hires rates have a positive and separations rates a negative comovement with establishment-specific value added, whereby hires react by more than separations. Our estimation results point towards inefficient separation behavior in some parts of the economy. In addition, we provide evidence that establishments' partial equilibrium reaction is an important driver for aggregate labor market dynamics.
    Keywords: labor market flows,value added,wages,administrative data,establishments
    JEL: E24 E32 J64
    Date: 2017
  28. By: David M. Byrne; Stephen D. Oliner; Daniel E. Sichel
    Abstract: The Producer Price Index (PPI) for the United States suggests that semiconductor prices have barely been falling in recent years, a dramatic contrast to the rapid declines reported from the mid-1980s to the early 2000s. This slowdown in the rate of decline is puzzling in light of evidence that the performance of microprocessor units (MPUs) has continued to improve at a rapid pace. Over the course of the 2000s, the MPU prices posted by Intel, the dominant producer of MPUs, became much stickier over the chips' life cycle. As a result of this change, we argue that the matched-model methodology used in the PPI for MPUs likely started to be biased after the early 2000s and that hedonic indexes can provide a more accurate measure of price change since then. MPU prices fell rapidly through 2004 on every price measure we present, with the PPI declining at an even quicker pace than the hedonic indexes. However, from 2004 to 2009, our preferred hedonic index fell faster than the PPI, and from 2009 to 2013 the gap widened further, with our preferred index falling at an average annual rate of 42 percent, while the PPI declined at only a 6 percent rate. Given that MPUs currently represent about half of U.S. shipments of semiconductors, this difference has important implications for gauging the rate of innovation in the semiconductor sector.
    Keywords: Economic development, technological change, and growth ; Industrial production ; Prices, business fluctuations, and cycles ; Productivity ; Measurment ; Hedonic price index ; Quality adjustment ; Microprocessor
    JEL: E1 E31 E66 L16 L63 O33 N72
    Date: 2017–01
  29. By: Manuel García-Santana (Universitat Pompeu Fabra and Barcelona GSE); Josep Pijoan-Mas (CEMFI, Centro de Estudios Monetarios y Financieros); Lucciano Villacorta (Banco Central de Chile)
    Abstract: The sectoral composition of growing economies is largely affected by the evolution of the investment rate outside the balanced growth path. We present three novel facts consistent with this idea: (a) the value added share of manufacturing within investment goods is larger than within consumption goods, (b) the standard hump-shaped profile of manufacturing with development is much more apparent for the whole economy than for the investment and consumption goods separately, and (c) the investment rate displays a hump with development similar to the one of the value added share of manufacturing. Using a standard multi-sector growth model estimated with a large panel of countries, we find that this mechanism is especially important for the industrialization of several countries since the 1950's and for the deindustrialization of many Western economies since the 1970's. In addition, it explains a substantial part of the standard hump-shaped relationship between manufacturing and development, which has been a challenge for theories of structural transformation under balanced growth. Finally, the different composition of investment and consumption goods can also explain up to half of the decline in the relative price of investment since 1980.
    Keywords: Structural change, transitional dynamics, neo-classical growth model.
    JEL: E23 E21 O41
    Date: 2016–11
  30. By: Chen, Peter (University of Chicago); Karabarbounis, Loukas (Federal Reserve Bank of Minneapolis); Neiman, Brent (University of Chicago)
    Abstract: The sectoral composition of global saving changed dramatically during the last three decades. Whereas in the early 1980s most of global investment was funded by household saving, nowadays nearly two-thirds of global investment is funded by corporate saving. This shift in the sectoral composition of saving was not accompanied by changes in the sectoral composition of investment, implying an improvement in the corporate net lending position. We characterize the behavior of corporate saving using both national income accounts and firm-level data and clarify its relationship with the global decline in labor share, the accumulation of corporate cash stocks, and the greater propensity for equity buybacks. We develop a general equilibrium model with product and capital market imperfections to explore quantitatively the determination of the flow of funds across sectors. Changes including declines in the real interest rate, the price of investment, and corporate income taxes generate increases in corporate profits and shifts in the supply of sectoral saving that are of similar magnitude to those observed in the data.
    Keywords: Corporate saving; Profits; Labor share; Cost of capital
    JEL: E21 E25 G32 G35
    Date: 2017–01–24
  31. By: Yashin, Pete
    Abstract: The paper studies a two-sector growth model for two cases: with flexible technology and with fixed coefficients. Different states of economic equilibrium (steady states) are compared. We find that the price of investment goods with respect to the price of consumer goods should be changed if the equilibrium state has shifted. Therefore, the aggregate production function cannot be considered as a purely technical. We assume that the income distribution is determined by the direct proportionality between the profits and the investment. Then the resulting function of aggregate output is continuous and differentiable in the domain of definition, even if the technology is fixed. In the last case the function has diminishing returns of capital under Uzawa capital-intensity condition; the state of economic equilibrium is stable only when this condition is valid. We suggest that the optimal is an equilibrium state that maximizes the total profit. The model with fixed coefficients predicts the possible existence of such an optimum.
    Keywords: two-sector growth model;optimal equilibrium state; aggregate production function; Uzawa capital-intensity condition; profit maximization
    JEL: E00 E10
    Date: 2017–02–01
  32. By: Carlo Altavilla; Fabio Canova; Matteo Ciccarelli
    Abstract: We analyze the pass-through of monetary policy measures to lending rates to Örms and households in the euro area using a novel bank-level dataset. Banksí characteristics such as the capital ratio, the exposure to sovereign debt, and the percentage of non-performing loans are responsible for the heterogeneity in pass-through of conventional monetary policy changes. The location of a bank is irrelevant. Non-standard measures normalized the capacity of banks to grant loans. Banks with high level of non-performing loans and low capital ratio were most a§ected. Banksílending margins fell considerably. Macroeconomic implications are discussed.
    Keywords: Monetary policy pass-through, european banks, heterogeneity, VARs.
    Date: 2016–10
  33. By: Mariarosaria Comunale (Bank of Lithuania); Davor Kunovac (Bank of Finland)
    Abstract: In this paper we analyse the exchange rate pass-through (ERPT) in the euro area as a whole and for four euro area members - Germany, France, Italy and Spain. For that purpose we use Bayesian VARs with identification based on a combination of zero and sign restrictions. Our results emphasize that pass-through in the euro area is not constant over time - it may depend on a composition of economic shocks governing the exchange rate. Regarding the relative importance of individual shocks, it seems that pass-through is the strongest when the exchange rate movement is triggered by (relative) monetary policy shocks and the exchange rate shocks. Our shock-dependent measure of ERPT points to a large but volatile pass-through to import prices and overall very small pass-through to consumer inflation in the euro area.
    Keywords: Exchange rate pass-through, import prices, consumer prices, in?ation, bayesian vector autoregression.
    JEL: C38 E31 F31
    Date: 2017–01–29
  34. By: Robert J. Shiller
    Abstract: This address considers the epidemiology of narratives relevant to economic fluctuations. The human brain has always been highly tuned towards narratives, whether factual or not, to justify ongoing actions, even such basic actions as spending and investing. Stories motivate and connect activities to deeply felt values and needs. Narratives “go viral” and spread far, even worldwide, with economic impact. The 1920-21 Depression, the Great Depression of the 1930s, the so-called “Great Recession” of 2007-9 and the contentious political-economic situation of today, are considered as the results of the popular narratives of their respective times. Though these narratives are deeply human phenomena that are difficult to study in a scientific manner, quantitative analysis may help us gain a better understanding of these epidemics in the future.
    JEL: E00 E03 E30 G02 N1
    Date: 2017–01
  35. By: Assaf Razin
    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.
    JEL: E0 F0
    Date: 2017–01
  36. By: Francesco D’Acunto; Ryan Liu; Carolin Pflueger; Michael Weber
    Abstract: The frequency with which firms adjust output prices helps explain persistent differences in capital structure across firms. Unconditionally, the most flexible-price firms have a 19% higher long-term leverage ratio than the most sticky-price firms, controlling for known determinants of capital structure. Sticky-price firms increased leverage more than flexible-price firms following the staggered implementation of the Interstate Banking and Branching Efficiency Act across states and over time, which we use in a difference-in-differences strategy. Firms' frequency of price adjustment did not change around the deregulation.
    JEL: E12 E44 G28 G32 G33
    Date: 2017–01
  37. By: Bick, Alexander (Arizona State University); Fuchs-Schündeln, Nicola (Goethe University Frankfurt)
    Abstract: We document contemporaneous differences in the aggregate labor supply of married couples across 17 European countries and the US. Based on a model of joint household decision making, we quantify the contribution of international differences in non-linear labor income taxes and consumption taxes to the international differences in hours worked in the data. Through the lens of the model, taxes, together with wages and the educational composition, account for a significant part of the small differences in married men's and the large differences in married women's hours worked in the data. Taking the full nonlinearities of labor income tax codes, including the tax treatment of married couples, into account is crucial for generating the low cross-country correlation between married men's and women's hours worked in the data, and for explaining the variation of married women's hours worked across European countries.
    Keywords: taxation, two-earner households, hours worked
    JEL: E60 H20 H31 J12 J22
    Date: 2017–01
  38. 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
  39. By: Jorge Uxo; Ignacio Àlvarez; Eladio Febrero
    Abstract: On the one hand, every official document about fiscal policy in Spain, and most orthodox academic papers argue that Spain has no "fiscal space" and that it should apply resolute actions to assure budget consolidation. On the other hand, Spain also had the second highest unemployment rate in the Eurozone in 2015: 21% of the active population. A rapid decline in that rate would require a higher fiscal impulse to sustain higher economic growth rates. This IMK working paper addresses this dilemma, presenting two alternative scenarios for the next years analyzing their impact on unemployment and fiscal sustainability. The first scenario represents a firm commitment to budget consolidation, while in the second the government uses the fiscal instrument to stimulate domestic demand and ensures a GDP growth rate target. The second scenario is based on an application of an "imperfect" balanced budget multiplier, proposing a combination of discretionary increases in both public expenditure and revenue. The main conclusion is that the end of fiscal austerity is feasible and perfectly compatible with fiscal finances sustainability for Spain. In addition some more general topics are discussed: the difference between the "functional finance" and the "sound finance" approaches to fiscal policy; the possibility of a Balanced Budget expansion; a discussion of the concept of "fiscal space"; and the inadequacy of European fiscal rules.
    Keywords: Fiscal Policy, Fiscal Space, Functional Finance, Balance Budget Multiplier, Spain
    JEL: E61 E62
    Date: 2017
  40. By: Haipeng (Allan) Chen (Mays Business School, Texas A&M University, USA); Daniel Levy (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; The Rimini Centre for Economic Analysis, Italy); Avichai Snir (Department of Banking and Finance, Netanya Academic College, Israel)
    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: 2017–01
  41. By: Cheremukhin, Anton A. (Federal Reserve Bank of Dallas); Restrepo-Echavarria, Paulina (Federal Reserve Bank of St. Louis); Tutino, Antonella (Federal Reserve Bank of Dallas)
    Abstract: We endogenize the degree of randomness in the matching process by proposing a model where agents have to pay a search cost to locate potential matches more accurately. The model features a tension between an agent’s desire to find a more productive match and to maximize the odds of finding a match. This tension drives a wedge between the shape of sorting patterns and the shape of the underlying match payoff function. We show the empirical relevance of the latter prediction by applying the model to the U.S. marriage market.
    Keywords: Matching; sorting; assignment; search
    JEL: C78 D83 E24 J64
    Date: 2016–05–20
  42. By: Phiri, Andrew
    Abstract: The global financial crisis of 2008 sparked an ongoing debate concerning the interlink between monetary policy and equity returns. This study contributes to the debate by examining whether the South African Reserve Bank (SARB) repo rate responds asymmetrically to changes in the returns on four equity indices on the Johannesburg Stock Exchange (JSE). Our empirical model is the momentum threshold autoregressive (MTAR) model which is applied to monthly data corresponding to periods before the financial crisis (2002:01 - 2008:08) and periods after the crisis (2008:08 - 2016:12). There are three main findings which can be derived from our empirical analysis. Firstly, we significant negative relationship between equity prices to the repo rate before the crisis and this relationship turns insignificant in periods after the crisis. Secondly, we find that the Reserve Bank mainly monitored positive disturbances to equity indices before the crisis whereas after the crisis the Reserve Bank appears to be more responsive to negative equity deviations. Lastly, we find significant error correcting behaviour in periods before the crisis but not afterwards. Overall, our results indicate that the SARB appears to have been responsive to equity returns prior to the crisis but not for subsequent periods.
    Keywords: Repo rate; Stock market returns; Monetary Policy; South African Reserve Bank (SARB); Johannesburg Stock Exchange (JSE); Financial crisis; South Africa.
    JEL: C22 C51 C52 E52 G10
    Date: 2017–02–02
  43. By: Benedict, Craig (SUNY Oswego); Crucini, Mario J. (Vanderbilt University and NBER); Landry, Anthony E. (Bank of Canada)
    Abstract: In this paper, we argue that differences in the cost structure across sectors play an important role in the decision of firms to adjust their prices. We develop a menu cost model of pricing in which retail firms intermediate trade between producers and consumers. An important facet of our analysis is that the labor-cost share of retail production differs across goods and services in the consumption basket. For example, the price of gasoline at the retail pump is predicted to adjust more frequently and by more than the price of a haircut due to the high volatility in wholesale gasoline prices relative to the wages of unskilled labor, even when both retailers face a common menu cost. This modeling approach allows us to account for some of the cross-sectional differences observed in the frequency of price adjustments across goods. We apply this model to Ecuador to take advantage of inflation variations and the rich panel of monthly retail prices.
    JEL: E3 E5 F3 F33
    Date: 2016–08–12
  44. By: Alessandro Gavazza; Simon Mongey; Giovanni L Violante
    Abstract: We develop a model of firm dynamics with random search in the labor market where hiring firms exert recruiting effort by spending resources to fill vacancies faster. Consistent with micro evidence, in the model fast-growing firms invest more in recruiting activities and achieve higher job-filling rates. In equilibrium, individual decisions of hiring firms aggregate into an index of economy-wide recruiting intensity. We use the model to study how aggregate shocks transmit to recruiting intensity, and whether this channel can account for the dynamics of aggregate matching efficiency around the Great Recession. Productivity and financial shocks lead to sizable pro-cyclical fluctuations in matching efficiency through recruiting effort. Quantitatively, the main mechanism is that firms attain their employment targets by adjusting their recruiting effort as labor market tightness varies. Shifts in sectoral composition can have a sizable impact on aggregate recruiting intensity. Fluctuations in new-firm entry, instead, have a negligible effect despite their contribution to aggregate job and vacancy creations.
    Keywords: Aggregate Matching Efficiency; Firm Dynamics; Macroeconomic Shocks; Recruiting Intensity; Unemployment; Vacancies
    JEL: R14 J01
    Date: 2016–10
  45. By: Michalis Rousakis; Romanos Priftis
    Abstract: Abstract This paper presents an analytical narration of the later stages of the Greek crisis, focusing on two key events that unfolded during 2014-2015 and set Greece apart from other episodes of sovereign debt crises: the risk of Grexit and the imposition of capital controls on the banking sector. To account for them both, we extend the standard small open economy environment along three dimensions. First, we allow for an informal sector. Second, we allow for a richer menu of assets that include cash, which is needed for informal consumption and is costly to hold. Third, we introduce a banking sector that turns households' deposits into capital. We show that a risk of Grexit leads households to run down their deposits to the detriment of bank balance sheets, increase their demand for cash, and increase their consumption whilst reallocating it towards formal goods. As evidenced by the data capital controls mitigate the deposit ight and reinforce the switch of consumption to formality.
    Keywords: Capital controls, small open economy, exit from a currency union, cash, informal economy, financial intermediaries, Greece
    JEL: E2 E4 F41 G11 G28
    Date: 2017–01–25
  46. By: Christian Hepenstrick and Rolf Scheufele Alain Galli
    Abstract: We compare several methods for monitoring short-term economic developments in Switzerland. Based on a large mixed-frequency data set, the following approaches are presented and discussed: factor-based information combination approaches (including factor model versions based on the Kalman filter/smoother, a principal component based version and the three-pass regression filter), a model combination approach resting on MIDAS regression models and a model selection approach using a specific-to-general algorithm. In an out-of-sample GDP forecasting exercise, we show that the considered approaches clearly beat relevant benchmarks such as univariate time-series models and models that work with one or a small number of indicators. This suggests that a large data set is an important ingredient for successful real-time monitoring of the Swiss economy. The models using a large data set particularly outperform others during and after the Great Recession. Forecast pooling of the most-promising methods turns out to be the best option for obtaining a reliable nowcast for the Swiss economy.
    Keywords: Mixed frequency, GDP, nowcasting, forecasting, Switzerland
    JEL: C32 C53 E37
    Date: 2017
  47. By: Chen, Kan (BBVA Research); Crucini, Mario J. (Vanderbilt University and NBER)
    Abstract: Economic research into the causes of business cycles in small open economies is almost always undertaken using a partial equilibrium model. This approach is characterized by two key assumptions. The first is that the world interest rate is unaffected by economic developments in the small open economy, an exogeneity assumption. The second assumption is that this exogenous interest rate combined with domestic productivity is sufficient to describe equilibrium choices. We demonstrate the failure of the second assumption by contrasting general and partial equilibrium approaches to the study of a cross-section of small open economies. In doing so, we provide a method for modeling small open economies in general equilibrium that is no more technically demanding than the small open economy approach while preserving much of the value of the general equilibrium approach.
    JEL: C55 C68 F41 F44
    Date: 2016–08–12
  48. By: Caterina Mendicino (European Central Bank); Kalin Nikolov (European Central Bank); Javier Suarez (CEMFI); Dominik Supera (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: We characterize welfare maximizing capital requirement policies in a macroeconomic model with household, firm and bank defaults calibrated to Euro Area data. We optimize on the level of the capital requirements applied to each loan class and their sensitivity to changes in default risk. We find that getting the level right (so that bank failure risk remains small) is of foremost importance, while the optimal sensitivity to default risk is positive but typically smaller than under Basel IRB formulas. When starting from low levels, initially both savers and borrowers benefit from higher capital requirements. At higher levels, only savers are in favour of tighter and more time-varying capital charges.
    Keywords: Macroprudential policy, bank fragility, capital requirements, financial frictions, default risk.
    JEL: E3 E44 G01 G21
    Date: 2016–12
  49. By: Martinez-Garcia, Enrique (Federal Reserve Bank of Dallas)
    Abstract: This paper considers the solution of a large class of linear rational expectations (LRE) models and its characterization via finite-order VARs. The solution of the canonical LRE model can be cast in state-space form and solved for by the method of undetermined coefficients. In this paper I propose an approach that simplifies the systematic characterization of the solution into finite-order VAR form and checks existence and uniqueness based on the solution of a companion Sylvester equation. Solving LRE models with a finite-order VAR representation via the Sylvester equation is straightforward to implement, efficient, and can be handled easily with standard matrix algebra. An application to the workhorse New Keynesian model with accompanying Matlab codes is provided to illustrate the implementation of the procedure in practice.
    JEL: C32 C62 C63 E37
    Date: 2016–09–01
  50. By: Koch, Christoffer (Federal Reserve Bank of Dallas); Yung, Julieta (Federal Reserve Bank of Dallas)
    Abstract: With short-term policy interest rates constrained by their effective zero lower bound (ZLB), monetary policy relied on communicating the future path of policy conditional on incoming macroeconomic data. Motivated by this, we exploit intra-day prices to investigate how updates on the state of the U.S. economy affect interest rates and exchange rates before and after the ZLB. We find that releases reflecting the dual mandate of the Fed rose in importance and – as an ex-post acknowledgement of the sources of the Great Recession – additional housing market indicators and GDP revisions, that hitherto left markets unaffected, became market movers.
    JEL: F42 F44 G14
    Date: 2016–10–01
  51. By: Julia Grübler; Robert Stehrer
    Abstract: Die Motive Chinas für eine Wiederbelebung der historischen Seidenstraßen sind vielseitig und sowohl von handels- als auch geopolitischer Bedeutung. Die „One Belt, One Road“-Initiative sieht den Ausbau von Straßen- und Zugverbindungen sowie von maritimer Infrastruktur vor. Dafür kommen mehrere Routen in Frage, die rund 40 Länder einschließen. Durch die chinesische Übernahme von 67 Prozent der Anteile am größten griechischen Hafen in Piräus im Juli 2016 liegt aktuell der geographische Fokus hinesischer Infrastrukturinvestitionen in Europa im Westbalkan. Durch Verträge oder Absichtserklärungen bekannte Projekte belaufen sich für diese Region auf über 10 Milliarden Euro. Kurzfristig könnten sich für Österreich Potenziale durch die für Infrastrukturprojekte gefragte heimische Expertise z.B. im Tunnelbau oder in der Forschung, sowie über bestehende Handelsverflechtungen mit Zentral- und Osteuropa ergeben. Eine Analyse mittels internationaler Input-Output-Tabellen zeigt leicht positive Effekte für Österreich. Aktuelle, durch China finanzierte Projekte im Westbalkan könnten demnach das österreichische Bruttoinlandsprodukt (BIP) aufgrund von Handelsverflechtungen um 0,03 Prozent erhöhen. Mittelfristig könnte auch die Erhöhung des Einkommens in den Westbalkanstaaten die Nachfrage nach österreichischen Produkten steigern. Zudem verkürzen die anvisierten Infrastrukturprojekte Transportzeiten entlang der Seidenstraßen erheblich. Österreich könnte diese Entwicklungen nutzen, um Exporte nach Asien zu erhöhen.
    Keywords: Arbeitsproduktivität, Totale Faktorproduktivität, Österreich
    JEL: E24 O47
    Date: 2017–01
  52. By: Ferrari, Giorgio (Center for Mathematical Economics, Bielefeld University)
    Abstract: Consider the problem of a government that wants to control its debt-to-GDP (gross domestic product) ratio, while taking into consideration the evolution of the inflation rate of the country. The uncontrolled inflation rate follows an Ornstein-Uhlenbeck dynamics and affects the growth rate of the debt ratio. The level of the latter can be reduced by the government through fiscal interventions. The government aims at choosing a debt reduction policy which minimises the total expected cost of having debt, plus the total expected cost of interventions on debt ratio. We model such problem as a two-dimensional singular stochastic control problem over an infinite time-horizon. We show that it is optimal for the government to adopt a policy that keeps the debt-to-GDP ratio under an inflation-dependent ceiling. This curve is the free-boundary of an associated fully two-dimensional optimal stopping problem, and it is shown to be the unique solution of a nonlinear integral equation.
    Keywords: debt-to-GDP ratio, inflation rate, debt ceiling, singular stochastic control, optimal stopping, free-boundary, nonlinear integral equation
    Date: 2016–07–21
  53. By: Colin Caines; Florian Hoffmann; Gueorgui Kambourov
    Abstract: In this paper we study the relationship between task complexity and the occupational wage- and employment structure. Complex tasks are defined as those requiring higher-order skills, such as the ability to abstract, solve problems, make decisions, or communicate effectively. We measure the task complexity of an occupation by performing Principal Component Analysis on a broad set of occupational descriptors in the Occupational Information Network (O*NET) data. We establish four main empirical facts for the U.S. over the 1980-2005 time period that are robust to the inclusion of a detailed set of controls, subsamples, and levels of aggregation: (1) There is a positive relationship across occupations between task complexity and wages and wage growth; (2) Conditional on task complexity, routine-intensity of an occupation is not a significant predictor of wage growth and wage levels; (3) Labor has reallocated from less complex to more complex occupations over time; (4) Within groups of occupations with similar task complexity labor has reallocated to non-routine occupations over time. We then formulate a model of Complex-Task Biased Technological Change with heterogeneous skills and show analytically that it can rationalize these facts. We conclude that workers in non-routine occupations with low ability of solving complex tasks are not shielded from the labor market effects of automatization.
    Keywords: Occupational Task Content; Complex Tasks; Wage Polarization; Skills
    JEL: E24 J21 J23 J24 J31
    Date: 2017–01–28
  54. By: Priftis, Romanos; Zimic, Srecko
    Abstract: We find that debt-financed government spending multipliers vary considerably depending on the location of the debt holder. In a sample of 59 countries we find that government spending multipliers are larger when government purchases are financed by issuing debt to foreign investors (non-residents), compared to the case when government purchases are financed by issuing debt to home investors (residents). In a theoretical model we show that the location of the government debt holder produces these differential responses through the extent that private investment is crowded out in each case. Increasing international capital mobility of the resident private sector decreases the difference between the two types of financing, a prediction, which is also confirmed by the data. The share of rule-of-thumb workers, as well as the strength of the public good in the utility function play a key role in generating model-based fiscal multipliers, which are quantitatively comparable with those of the data.
    Keywords: Debt financing, Fiscal multipliers, Government spending, Magnitude restrictions, Small open economy
    JEL: E2 F41 G15 H6
    Date: 2017
  55. By: Gerdie Everaert; Martin Iseringhausen (-)
    Abstract: This paper studies output fluctuations in a panel of OECD economies with the aim to decompose the evolution in output volatility into domestic and international factors. To this end we use a factor-augmented dynamic panel model with both domestic and international shocks and spillovers between countries through trade linkages. Changes in the volatility of output growth can be due to a time-varying sensitivity to these shocks, changes in the propagation mechanism or shifts in the variances of shocks. We explicitly model cross-sectional dependence in the variance equation by specifying a common factor structure in the volatility of domestic shocks. The results show that while the size of international shocks and spillovers does not decrease in most countries, the volatilities of domestic shocks share a clear common decreasing trend. Hence, the `Great Moderation' appears to be mainly driven by a decline in the volatility of domestic shocks rather than smaller international shocks.
    Keywords: Volatility, business cycle, Bayesian model selection
    JEL: C32 E32 F44
    Date: 2017–01
  56. By: Chakraborty, Suparna (University of San Francisco); Peek, Joe (Federal Reserve Bank of Boston)
    Abstract: We investigate the misallocation of credit in Japan associated with banks’ evergreening loans, distinguishing between two types of firm distress: (perhaps temporary) financial distress and technical distress, which reflects weak operational capabilities, as indicated by low total factor productivity. We show that previous evidence related to firms’ financial health is problematic due to the mixing of loan-demand and loan-supply effects. Using a direct measure of operational health, we provide unambiguous, direct evidence of evergreening behavior, as well as confirming evidence based on the relative impacts on subsequent firm viability of loans by bank types with different incentives to evergreen loans.
    Keywords: total factor productivity; bank lending; Japan; zombie firms; financial crisis
    JEL: E44 E51 G21
    Date: 2016–12–01
  57. By: Grant, Everett (Federal Reserve Bank of Dallas)
    Abstract: I identify new patterns in countries' economic performance over the 2007-2014 period based on proximity through distance, trade, and finance to the US subprime mortgage and Eurozone debt crisis areas. To understand the causes of the cross-country variation, I develop an open economy model with two transmission channels that can be shocked separately: international trade and finance. The model is the first to include a government and heterogeneous firms that can default independently of one another and has a novel endogenous cost of sovereign default. I calibrate the model to the average experiences of countries near to and far from the crisis areas. Using these calibrations, disturbances on the order of those observed during the late 2000s are separately applied to each channel to study transmission. The results suggest credit disruption as the primary contagion driver, rather than the trade channel. Given the substantial degree of financial contagion, I run a series of counterfactuals studying the efficacy of capital controls and find that they would be a useful tool for preventing similarly severe contagion in the future, so long as there is not capital immobility to the degree that the local sovereign can default without suffering capital flight.
    JEL: E32 F40 F41 F44 H63
    Date: 2016–08–12
  58. By: Hilde C. Bjørnland; Leif Anders Thorsrud; Sepideh K. Zahiri
    Abstract: Our analysis suggests; they do not! To arrive at this conclusion we construct a real-time data set of interest rate projections from central banks in three small open economies; New Zealand, Norway, and Sweden, and analyze if revisions to these projections (i.e., forward guidance) can be predicted by timely information. Doing so, we find a systematic role for forward looking international indicators in predicting the revisions to the interest rate projections in all countries. In contrast, using similar indexes for the domestic economy yields largely insignificant results. Furthermore, we find that revisions to forward guidance matter. Using a VAR identified with external instruments based on forecast errors from the predictive regressions, we show that the responses to output, inflation, the exchange rate and asset returns resemble those one typically associates with a conventional monetary policy shock.
    Keywords: Monetary policy, interest rate path, forecast revisions and global indicators
    Date: 2016–11
  59. By: Friese, Max
    Abstract: The paper investigates the impacts of demographic change on the financial sustainability of a pay-as-you-go social security system in an economy with unemployment caused by trade unions. Using a simple two-period overlapping generations approach, it can be shown that the trade union behavior with respect to wage setting may have favorable effects on per capita contributions, if labor demand is sufficiently inelastic with respect to the wage rate. In contrast, if firm's labor demand reacts more sensitive to changes in the wage rate, the behavior of the trade union may amplify the imposed burden of demographic change on the social security system.
    Keywords: demographic change,PAYG public pensions,trade unions,unemployment,tax burden,output elasticity of capital,wage elasticity of labor demand
    JEL: E24 H55 J11 J51
    Date: 2017
  60. By: Auer, Raphael (Bank of International Settlements); Borio, Claudio (Bank of International Settlements); Filardo, Andrew J. (Bank of International Settlements)
    Abstract: Greater international economic interconnectedness over recent decades has been changing inflation dynamics. This paper presents evidence that the expansion of global value chains (GVCs), ie cross-border trade in intermediate goods and services, is an important channel through which global economic slack influences domestic inflation. In particular, we document the extent to which the growth in GVCs explains the established empirical correlation between global economic slack and national inflation rates, both across countries and over time. Accounting for the role of GVCs, we also find that the conventional tradebased measures of openness used in previous studies are poor proxies for this transmission channel. The results support the hypothesis that as GVCs expand, direct and indirect competition among economies increases, making domestic inflation more sensitive to the global output gap. This can affect the trade-offs that central banks face when managing inflation.
    Date: 2017–01–01
  61. By: Charles, Sébastien; Marie, Jonathan
    Abstract: This article has two objectives: to study the 1997 episode of hyperinflation in Bulgaria and to compare and contrast this analysis with the post-Keynesian theoretical approach. This approach highlights the role of three components observed simultaneously in order to understand the emergence of hyperinflation: a virulent distribution conflict, the presence of indexing mechanisms, and finally flight from domestic currency into one or more foreign currencies. The article reveals that a transitional economy like that of Bulgaria in the 1990s may generate hyperinflation in the absence of any violent distribution conflict: the transition and the banking crisis engender inflation. The foreign exchange rate is decisive in the emergence of hyperinflationary dynamics (and therefore mistrust of domestic currency). Lastly, this interpretation of hyperinflation is confirmed by an econometric analysis.
    Keywords: hyperinflation, change, transition
    JEL: C12 E12 E31 P22
    Date: 2017–01
  62. By: Georg Graetz; Guy Michaels
    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; routine-biased technological change; robots
    JEL: E32 J23 O33
    Date: 2017–01
  63. By: Graetz, Georg (Uppsala University); Michaels, Guy (London School of Economics)
    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, routine-biased technological change, robots
    JEL: E32 J23 O33
    Date: 2017–01
  64. By: Kang, Wensheng (Kent State University); Ratti, Ronald A. (Western Sydney University); Vespignani, Joaquin L. (University of Tasmania)
    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 variatio in economic policy uncertainty as structural shocks on the demand side of the oil market.
    Date: 2017–01–01
  65. 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: 2017–01–13
  66. By: Fitzgerald, Doireann (Federal Reserve Bank of Minneapolis); Haller, Stephanie (University College Dublin); Yedid-Levi, Yaniv (University of British Columbia)
    Abstract: No abstract
    Keywords: Firm dynamics; Exporter dynamics; Customer base
    JEL: E20 F10 L10
    Date: 2017–01–24
  67. By: Kengo Nutahara
    Abstract: Carlstrom and Fuerst (2007) ["Asset Prices, Nominal Rigidities, and Monetary Policy," Review of Economic Dynamics 10, 256-275] find that monetary policy response to share prices is a source of equilibrium indeterminacy in a stickyprice economy. We find that if housing price is a target of a central bank, monetary policy response to asset price is helpful for equilibrium determinacy.
    Date: 2017–01
  68. By: Bachmann, Rüdiger; Bayer, Christian; Merkl, Christian; Seth, Stefan; Stüber, Heiko; Wellschmied, Felix
    Abstract: We study the relationship between cyclical job and worker flows at the establishment level using the new German AWFP dataset spanning from 1975-2014. We find that worker turnover moves more procyclical than job turnover. This procyclical worker churn takes place along the entire employment growth distribution of establishments. We show that these procyclical conditional worker flows result almost exclusively from job-tojob transitions. Growing establishments fuel their employment growth by poaching workers from other establishments as the boom matures. At the same time, non-growing establishments replace these workers by hiring from other establishments and non-employment.
    Keywords: job flows,worker flows,aggregate fluctuations
    JEL: E32 J23 J63
    Date: 2017
  69. By: Davis, J. Scott (Federal Reserve Bank of Dallas); Zlate, Andrei (Federal Reserve Bank of Boston)
    Abstract: This paper explores the relationship between financial performance and macroeconomic fundamentals in emerging market economies not only in times of crises, but in general during crisis and non-crisis years over the global financial cycle. Using a panel framework with data for 119 emerging market economies at an annual frequency, we examine whether the relationship between performance and fundamentals varies in magnitude and/or switches sign between crisis and non-crisis years. We find that better macroeconomic fundamentals (such as a stronger net foreign asset positions and higher stocks of foreign exchange reserves) are associated with better financial performance not just during crisis episodes, but also during normal times. Quantitatively, the impact of fundamentals on performance is smaller during normal times than during crisis years, but works in the same direction and is statistically significant. The results are consistent with those of recent empirical studies on the link between financial performance and fundamentals during episodes of global financial stress, but generalizes the results to the global financial cycle.
    JEL: E5 F3
    Date: 2016–09–01
  70. By: Urban Sila; Hermes Morgavi; Jeanne Dall'Orso (OECD)
    Abstract: Slovenia’s living standards measured in GDP per capita are currently some 20% below the EU15 average and have not yet reached their pre-crisis level. Given that most of this gap comes from differences in labour productivity, the paper looks at productivity trends and sources of productivity growth over past two decades. The largest labour productivity lags are in agriculture and mining and utilities, but lags are also present in services sectors such as information and communication activities, financial and insurance activities and professional services. The importance of the high and medium high technology manufacturing has risen in the last two decades, and their share in total manufacturing value added is relatively high in Slovenia. Growth accounting shows that total factor productivity (TFP) and physical capital were the main sources of economic growth before the crisis in Slovenia, while the contribution of human capital was low. With the crisis, however, the GDP growth turned highly negative due to large drops in TFP and the labour input contribution. The contribution from physical capital was also reduced, reflecting subdued investment activity. Slovenia has a high level of state control in the economy and low foreign direct investment (FDI). Using two different panel datasets – one spanning the OECD countries and another spanning Slovenia's economic activities - we find that improving both measures could significantly raise productivity. Tendances de la productivité et les sources de croissance de la productivité en Slovénie Le niveau de vie de la Slovénie, mesuré en PIB par habitant, est actuellement inférieur d'environ 20% à la moyenne de l'UE15 et n'a pas encore atteint son niveau d'avant crise. Étant donné que la plupart de cet écart provient des différences de productivité du travail, ce document examine les tendances et les sources de croissance de la productivité au cours des deux dernières décennies. Les plus grands décalages de productivité sont présents dans l'agriculture, l’industrie minière, et les services publics. Des retards sont également présents dans certaines activités de services (information et communication, finance et assurance, et les services professionnels). L'importance de la haute et moyenne-haute technologie dans l’industrie manufacturière a augmenté au cours des deux dernières décennies, et leur part dans la valeur ajoutée manufacturière totale est relativement élevé en Slovénie. La comptabilité de la croissance montre que la productivité totale des facteurs (PTF) et le capital physique étaient les principales sources de croissance économique avant la crise en Slovénie, pendant que la contribution du capital humain était faible. Cependant avec la crise, la croissance du PIB est devenue fortement négative en raison de baisses élevées de la PTF et de la contribution du facteur travail. De même la contribution du capital physique a également été réduite, reflétant la faiblesse des investissements. La Slovénie est caractérisée par un haut niveau de contrôle de l'État dans l'économie et peu d’investissements étrangers directs (IED). À l’aide de deux ensembles de données de panel différents - l'un couvrant les pays de l'OCDE et l'autre les activités économiques de la Slovénie - nous constatons que l'amélioration des deux mesures pourrait augmenter significativement la productivité.
    Keywords: foreign direct investment, growth accounting, high technology manufacturing, productivity
    JEL: E24 J24 O47
    Date: 2017–01–31
  71. By: Kräussl, Roman; Mirgorodskaya, Elizaveta
    Abstract: We investigate the effect of overreaction in the fine art market. Using a unique sample of auction prices of modern prints, we define an overvalued (undervalued) print as a print that was bought for a price above (below) its high (low) auction pricing estimate. Based on the overreaction hypothesis, we predict that overvalued (undervalued) prints generate a negative (positive) excess return at a subsequent sale. Our empirical findings confirm our expectations. We report that prints that were bought for a price 10 percent above (below) its high (low) pricing estimate generate a positive (negative) excess return of 12 percent (17 percent) after controlling for the general price movement on the prints market. The price correction for overvalued (undervalued) prints is more pronounced during recessions (expansions).
    Keywords: overreaction,winner's curse,pricing estimates,repeat sale,auction,art market
    JEL: E32 G11 G14
    Date: 2016
  72. By: László Békési (Magyar Nemzeti Bank (Central Bank of Hungary)); Zsolt Kovalszky (Magyar Nemzeti Bank (Central Bank of Hungary)); Tímea Várnai (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: The purpose of this paper is to illustrate the economic impact mechanism of the secession of Great Britain from the European Union (Brexit) on the Hungarian economy, and to quantify the domestic growth risks. Several international studies have dealt with this topic using partial analysis and model based simulations, but only partial analyses are available regarding the Hungarian economy. Our analysis provides a broader picture by using the new macroeconomic forecast model of the MNB. Upon determining the exogenous assumptions in our simulations we relied on the central bank experts’ broad knowledge. The applied model handles the wealth heterogeneity in the decision making processes of the households and the corporate sector. This feature makes the model suitable for explaining prolonged after-crisis recovery and the role of the financial accelerator feedback mechanism. In the course of illustrating the economic impact mechanism we show the main channels through which Brexit can spread over to Hungarian economic growth. Besides the primary channels, our analysis includes the secondary channel effects increasingly in the spotlight: we investigate the shock resilience ability of the financial system, and analyze the potential room for manoeuvre for fiscal policy.
    Keywords: Macroeconomic modelling, Simulation, Alternative Scenarios, Brexit, Economic Outlook
    JEL: E27 E66
    Date: 2017
  73. By: Bremus, Franziska; Krause, Thomas; Noth, Felix
    Abstract: This paper investigates the link between mortgage supply shocks at the banklevel and regional house price growth in the U.S. using micro-level data on mortgage markets from the Home Mortgage Disclosure Act for the 1990-2014 period. Our results suggest that bank-specific mortgage supply shocks indeed affect house price growth at the regional level. The larger the idiosyncratic shocks to newly issued mortgages, the stronger is house price growth. We show that the positive link between idiosyncratic mortgage shocks and regional house price growth is very robust and economically meaningful, however not very persistent since it fades out after two years.
    Keywords: house prices,idiosyncratic shocks,granularity,credit supply
    JEL: E44 G21 R20
    Date: 2017
  74. By: Jacks, David S. (Simon Fraser University); Stuermer, Martin (Federal Reserve Bank of Dallas)
    Abstract: What drives commodity price booms and busts? We provide evidence on the dynamic effects of commodity demand shocks, commodity supply shocks, and inventory demand shocks on real commodity prices. In particular, we analyze a new data set of price and production levels for 12 agricultural, metal, and soft commodities from 1870 to 2013. We identify differences in the type of shock driving prices of the various types of commodities and relate these differences to commodity types which reflect differences in long-run elasticities of supply and demand. Our results show that demand shocks strongly dominate supply shocks.
    Keywords: Commodity prices; natural resources; structual VAR
    JEL: E30 N50 Q31 Q33
    Date: 2016–11–01
  75. By: Bruno Coquet (affilié à l'OFCE et IZA)
    Abstract: La dégressivité des allocations chômage est une réforme structurelle populaire et prisée par les organisations internationales dans leurs programmes d’ajustement structurel. Il s’agit destimuler la reprise d’emploi en réduisant l’aléa moral des chômeurs indemnisés afin de diminuer les dépenses d'assurance chômage. Nous effectuons une revue de la littérature consacrée d’une part au profil optimal des allocations chômage et d’autre part aux formes d’aléa moral que des allocations chômage dégressives visent à éliminer. Ces travaux montrent que les indicateurs observés pour diagnostiquer la présence d’aléa moral lié à des allocations chômage constantes amplifient cet effet et sont imprécis sur son origine. Par ailleurs, les effets positifs prêtés à la dégressivité des allocations chômage ne sont pas attestés par la littérature, même sous des hypothèses très restrictives; ce profil n’est que rarement optimal car il doit être associé à une générosité élevée et qu’il induit des effets indésirables. Les travaux empiriques montrent que la dégressivité ralentirait les sorties du chômage, et que cette taxe sur le chômage de longue durée a au mieux de faibles effets agrégés sur les dépenses de l’assurance chômage. Ainsi la littérature conclut majoritairement à l'optimalité de droits constants, ou même progressifs. Pour limiter l’apparitiond’aléa moral tout en renforçant l’optimalité des règles, des instruments bien plus précis peuventêtre utilisés: un contrôle ciblé des chômeurs susceptibles d’aléa moral, l’adaptation automatique de la durée des droits potentiels à la conjoncture de l’emploi, ou encore l’utilisation à la marge de comptes individuels
    Keywords: assurance chômage, allocations chômage, taux de remplacement,comptes individuels
    JEL: E24 J64 J65 H53
    Date: 2017–01
  76. By: gao, chen; leatham, david
    Abstract: Farm sector seems to be countercyclical to the household well-being and general economy. In recent years the farm sector is experiencing downtrend with net farm income significantly drops from 2013 high. On the other hand, average farm household income keeps booming, even has higher growth rates than average U.S. household income. Considering the whole economy fully recovered, Federal Reserve started to hike interest rate in 2015. This paper aims to address the linkage and equilibrium among farm sector income, farm household well-being and macroeconomic monetary policies empirically. By using Vector Error Correction Model (VECM), we show both the ratio of average farm household income to U.S. household income and the off-farm earnings of farm household are cointegrated with CPI. Farm portion of farm household income, although strongly positive correlated with farm sector net income, is not cointegrated with either CPI or farm sector net income. Towards sector level analysis, farm sector net income, Federal Funds Rate (FFR) and CPI are proved to be all cointegrated. CPI is dominating the decision of FFR and further affecting net farm income. Combining our results from household level and sector level, a jump in FFR can lead to slower pace of CPI and farm sector net income, then dragging down the ratio of average farm household income to U.S. household income and the off-farm earnings. In the next few years with FFR goes up, we expect farm sector income will keep in relatively low level and farm household may suffer from reduced off-farm earnings. Related farm supporting policies are then discussed conceptually.
    Keywords: monetary policy farm income VECM, Agribusiness, Agricultural and Food Policy, Agricultural Finance, Community/Rural/Urban Development, Financial Economics, Q10 C22 E52,
    Date: 2017
  77. By: Bin Jiang; George Athanasopoulos; Rob J Hyndman; Anastasios Panagiotelis; Farshid Vahid
    Abstract: A popular approach to forecasting macroeconomic variables is to utilize a large number of predictors. Several regularization and shrinkage methods can be used to exploit such high-dimensional datasets, and have been shown to improve forecast accuracy for the US economy. To assess whether similar results hold for economies with different characteristics, an Australian dataset containing observations on 151 aggregate and disaggregate economic series is introduced. An extensive empirical study is carried out investigating forecasts at different horizons, using a variety of methods and with information sets containing different numbers of predictors. The results share both differences and similarities with the conclusions from the literature on forecasting US macroeconomic variables. The major difference is that forecasts based on dynamic factor models perform relatively poorly compared to forecasts based on other methods which is the opposite of the conclusion made by Stock and Watson (2012) for the US. On the other hand, a conclusion that can be made for both the Australian and US data is that there is little to no improvement in forecast accuracy when the number of predictors is expanded beyond 20-40 variables.
    Keywords: Australian economy, Bayesian VAR, bagging, dynamic factor model, ridge regression, least angular regression, shrinkage, regularization.
    JEL: C52 C53 C55
    Date: 2017
  78. By: Landon, Stuart (University of Alberta, Department of Economics); Smith, Constance (University of Alberta, Department of Economics)
    Abstract: This study uses Monte Carlo methods to examine the impact on welfare of several types of commonly used fiscal rules. The simulations employ an expected intertemporal welfare function and the parameters from a three-variable structural VAR estimated using data for sixteen European countries. The VAR captures the potential interaction effects between output, government spending and revenue. We find welfare gains from many, but not all, of the fiscal rules. The best rules target a zero structural deficit and cause government spending volatility to fall by about one third. However, a simple rule, where government expenditure is set equal to a one-period ahead forecast of revenue, performs almost as well. In particular, this simple rule yields a welfare gain and a reduction in volatility similar to that of the more complicated zero structural deficit rule adopted by Switzerland and several other countries. Balanced budget rules perform less well than rules that target the structural deficit. A rule that keeps real per capita government spending equal to a constant—a type of rule adopted by some U.S. states—yields relatively low welfare and often leads to significant debt accumulation. These results highlight the importance of the appropriate design of a fiscal rule.
    Keywords: fiscal rules; fiscal policy; stabilization; government spending; European economic policy
    JEL: E61 E62 E63 H61 H62 H63
    Date: 2017–01–30
  79. By: Daron Acemoglu; Pascual Restrepo
    Abstract: Several recent theories emphasize the negative effects of an aging population on economic growth, either because of the lower labor force participation and productivity of older workers or because aging will create an excess of savings over desired investment, leading to secular stagnation. We show that there is no such negative relationship in the data. If anything, countries experiencing more rapid aging have grown more in recent decades. We suggest that this counterintuitive finding might reflect the more rapid adoption of automation technologies in countries undergoing more pronounced demographic changes, and provide evidence and theoretical underpinnings for this argument.
    JEL: E30 J11 J24 O33 O47 O57
    Date: 2017–01
  80. By: Vincent Koen; Hidekatsu Asada (OECD); Stewart Nixon (OECD); Habeeb Rahuman, M.R. (OECD); Mohd Arif, A.Z. (OECD)
    Abstract: Malaysia has sustained over four decades of rapid, inclusive growth, reducing its dependence on agriculture and commodity exports to become a more diversified, modern and open economy. GDP per capita is now higher than in a number of OECD economies, while poverty and income inequality have declined considerably. Growth has also been remarkably resilient in the face of external shocks. Going forward, the Malaysian government's 11th Malaysia Plan (2016-20) emphasises the need for greater inclusiveness. Continued, gradual fiscal consolidation is a key policy priority, building on earlier energy and food subsidy rationalisation and on the introduction of a goods and services tax. So is continued prudent monetary and financial policy. Further reforms are needed for Malaysia to become a high-income nation around 2020: productivity growth needs to be reinvigorated through various structural reforms while growth needs to become more inclusive. Succès et défis économiques de la Malaisie La Malaisie a connu plus de quatre décennies de croissance rapide et inclusive, réduisant sa dépendance à l'égard de l'agriculture et des exportations de matières premières, pour devenir une économie plus diversifiée, moderne et ouverte. Le PIB par tête est désormais plus élevé que dans un certain nombre d'économies de l'OCDE, alors que la pauvreté et les inégalités de revenu ont considérablement reculé. La croissance s'est également montrée résiliente face aux chocs externes. Pour l'avenir, le 11ème plan du gouvernement malaisien (2016-2020) souligne l'importance d'une plus grande inclusion. La poursuite graduelle de la consolidation budgétaire est une priorité majeure, dans la foulée de la rationalisation des subventions énergétiques et alimentaires et de l'introduction d'une taxe sur les biens et services. La continuation d'une politique monétaire et financière prudente en est une autre. La Malaisie doit réformer plus avant pour devenir un pays à haut revenu autour de 2020: diverses réformes sont nécessaires pour stimuler la croissance de la productivité et pour une croissance plus inclusive.
    Keywords: ASEAN, commoditities, competition, education, employment, fiscal consolidation, monetary policy, productivity
    JEL: E20 E50 F1 G15 G3 H11 H20 H30 H50 H60 I0 O1 O40 P48
    Date: 2017–01–31
  81. By: Jaylson Jair da Silveira; Gilberto Tadeu Lima
    Abstract: This paper sets forth a classical model of economic growth in which the distribution of income features the possibility of profit sharing with workers, as firms choose periodically between two labor-extraction compensation strategies. Firms choose to compensate workers with either solely a conventional wage or a share of profits on top of this conventional wage. In accordance with considerable empirical evidence, labor productivity in profit-sharing firms is higher than labor productivity in non-sharing firms. The frequency distribution of labor-extraction compensation strategies and labor productivity across firms is evolutionarily time-varying as driven by satisficing imitation dynamics. We derive two main results which carry relevant implications. First, heterogeneity in labor-extraction compensation strategies across firms can be a stable long-run equilibrium configuration. Second, though the convergence to a long-run, evolutionary equilibrium may occur with either a falling or increasing proportion of profit-sharing firms, the net share of profits in aggregate income and the rates of net profit, capital accumulation and economic growth, all nonetheless converge to their highest possible long-run equilibrium values
    Keywords: Profit sharing; income distribution; economic growth; evolutionary dynamics
    JEL: E11 E25 J33 O41
    Date: 2017–01–25
  82. By: Edward P. Lazear; Kristin McCue
    Abstract: Hiring is positively correlated with separation, both across firms and over time. A theory of hiring and separation based on shifts in demand implies the opposite. One firm or industry hires and grows when another fires and contracts. But hiring for expansion and layoff for contraction comprises the minority of hiring and separation. A more accurate view is that hiring and separation reflect churn and are balanced in equilibrium, where one is the mirror image of the other. Hiring occurs primarily to fill vacant slots that open up when a firm separates a worker. Equivalently, a separation results when a worker is hired away by another firm. A model of efficient mobility yields several specific predictions in addition to the positive correlation between hires and separations. Labor market churn is most likely in firms and industries with low mean wages and high wage variance. Additionally, churn decreases during recessions with hires falling first followed by a decline in separations to match hiring. Finally, the young are predicted to bear the brunt of hiring declines. These predictions are borne out in the LEHD microdata at the economy and firm levels.
    JEL: E24 J01 M0 M00 M5
    Date: 2017–01
  83. By: Dario Cestau (Carnegie Mellon University); Richard C. Green (Carnegie Mellon University); Norman Schürhoff (University of Lausanne, Ecole Polytechnique Fédérale de Lausanne, Swiss Finance Institute, and Centre for Economic Policy Research (CEPR))
    Abstract: Build America Bonds (BABs) were issued by states and municipalities for twenty months as an alternative to tax-exempt bonds. The program was part of the 2009 fiscal stimulus package. The bonds are taxable to the holder, but the federal Treasury rebates 35% of the coupon payment to the issuer. The stated purpose of the program was to provide municipal issuers with access to a more liquid market by making them attractive to foreign, tax-exempt, and tax-deferred investors. We evaluate one aspect of the liquidity of the bonds|the underpricing when the bonds are issued. We show that the structure of the rebate creates additional incentives to underprice the bonds when they are issued, and that the underpricing is larger for BABs than for traditional municipals, controlling for characteristics such as size of the issue or the trade. This suggests that the bonds are not more liquid, contrary to the stated purpose of the program, or that issuers and underwriters are strategically underpricing the bonds to increase the tax subsidy, or both. Several findings point to strategic underpricing. There is a negative correlation between the underwriter's spread and the underpricing. The underpricing for BABs is quite evident for institutional and interdealer trades, while that for tax-exempts is primarily for smaller sales to customers. Counterfactuals for our estimated structural model also suggest strategic underpricing.
    Keywords: Underpricing, Build America Bonds, Municipal Finance, Financial Intermediation, Incentive Conflicts
    JEL: E44 E63 G23 H74
  84. By: Jozef Barunik (Institute of Economic Studies, Charles University Institute of Information Theory and Automation, The Czech Academy of Sciences); Evzen Kocenda (Institute of Economic Studies, Charles University); Lukas Vacha (Institute of Economic Studies, Charles University Institute of Information Theory and Automation, The Czech Academy of Sciences)
    Abstract: We show how bad and good volatility propagate through the forex market, i.e., we provide evidence for asymmetric volatility connectedness on the forex market. Using highfrequency, intra-day data of the most actively traded currencies over 2007-2015 we document the dominating asymmetries in spillovers that are due to bad, rather than good, volatility. We also show that negative spillovers are chiefly tied to the dragging sovereign debt crisis in Europe while positive spillovers are correlated with the subprime crisis, different monetary policies among key world central banks, and developments on commodities markets. It seems that a combination of monetary and real-economy events is behind the positive asymmetries in volatility spillovers, while scal factors are linked with negative spillovers.
    Keywords: volatility, connectedness, spillovers, semivariance, asymmetric effects, forexmarket
    JEL: C18 C58 E58 F31 G15
    Date: 2017–01
  85. By: Cars Hommes (CeNDEF, University of Amsterdam and Tinbergen Institute, The Netherlands)
    Abstract: This essay links some of my own work on expectations, learning and bounded rationality to the inspiring ideas of Jean-Michel Grandmont. In particular, my work on consistent expectations and behavioral learning equilibria may be seen as formalizations of JMG's ideas of self-fulfilling mistakes. Some of our learning-to-forecast laboratory experiments with human subjects have also been strongly influenced by JMG's ideas. Key features of self-fulfilling mistakes are multiple equilibria, excess volatility and persistence amplification.
    Keywords: expectations; learning; bounded rationality; chaos; almost self-fulfilling equilibria; laboratory experiments
    JEL: D84 D83 E32 C92
    Date: 2017–01–30
  86. By: Guilloux-Nefussi, Sophie (Banque de France)
    Abstract: The decline in the sensitivity of inflation to domestic slack observed in developed countries since the mid 1980’s has been often attributed to globalization. However, this intuition has so far not been formalized. I develop a general equilibrium setup in which the sensitivity of inflation to marginal cost decreases when international trade costs fall. In order to do so, I add three ingredients to an otherwise standard two-country new-Keynesian model. Strategic interactions generate a time varying desired markup; endogenous entry and heterogeneous productivity engender a self-selection of the most productive firms (also the largest ones) in international trade. Hence the weight of large firms in domestic production increases. These firms transmit less marginal cost fluctuations to price adjustments, rather absorbing them into their desired markup in order to protect their market share. At the aggregate level, domestic inflation reacts less to real activity fluctuations.
    JEL: E31 F41 F62
    Date: 2016–11–03
  87. By: John Cotter (University College Dublin); Mark Hallam (University of Essex); Kamil Yilmaz (Koc University)
    Abstract: We develop a new methodology to analyse spillovers between the real and financial sides of the economy that employs a mixed-frequency modelling approach. This enables high-frequency financial and low-frequency macroeconomic data series to be employed directly, avoiding the data aggregation and information loss incurred when using common-frequency methods. In a detailed analysis of macro- financial spillovers for the US economy, we find that the additional high-frequency information preserved by our mixed-frequency approach results in estimated spillovers that are typically substantially higher than those from an analogous common-frequency approach and are more consistent with known in-sample events. We also show that financial markets are typically net transmitters of shocks to the real side of the economy, particularly during turbulent market conditions, but that the bond and equity markets act heterogeneously in both transmitting and receiving shocks to the non- financial sector. We observe substantial short and medium-run variation in macro- financial spillovers that is statistically associated with key variables related to financial and macroeconomic fundamentals; the values of the term spread, VIX and unemployment rate in particular appear to be important determinants of macro-financial spillovers.
    Keywords: spillovers, connectedness, macro- nancial, mixed-frequency
    Date: 2017–02
  88. By: John Cotter (School of Business and Geary Institute for Public Policy, University College Dublin); Mark Hallam (Essex Business School, University of Essex); Kamil Yilmaz (Koç University)
    Abstract: We develop a new methodology to analyse spillovers between the real and financial sides of the economy that employs a mixed-frequency modelling approach. This enables high-frequency financial and low-frequency macroeconomic data series to be employed directly, avoiding the data aggregation and information loss incurred when using common-frequency methods. In a detailed analysis of macro-financial spillovers for the US economy, we find that the additional high-frequency information preserved by our mixed-frequency approach results in estimated spillovers that are typically substantially higher than those from an analogous common-frequency approach and are more consistent with known in-sample events. We also show that financial markets are typically net transmitters of shocks to the real side of the economy, particularly during turbulent market conditions, but that the bond and equity markets act heterogeneously in both transmitting and receiving shocks to the non-financial sector. We observe substantial short and medium-run variation in macro-financial spillovers that is statistically associated with key variables related to financial and macroeconomic fundamentals; the values of the term spread, VIX and unemployment rate in particular appear to be important determinants of macro- financial spillovers.
    Keywords: spillovers, connectedness, macro-financial, mixed-frequency
    Date: 2017–01–26
  89. By: Alexius, Annika (Dept. of Economics, Stockholm University); Holmberg, Mikaela (Dept. of Economics, Stockholm University)
    Abstract: As central banks struggle to boost inflation rates in the face of low global inflation and volatile foreign exchange markets, it has become particularly important to understand how inflation in open economies is affected by movements in exchange rates and foreign inflation. Using a time-varying parameter Bayesian VAR, we analyze the behavior of pass-through across time and in relation to macroeconomic variables. We find little support for the Taylor (2000) hypothesis that pass-through is lower when inflation is close to target. In our data, inflation rates are often below rather than above target, and pass-through does not appear to increase significantly at low inflation rates. Furthermore, inflation persistence is unrelated to pass-through. The pass-through of foreign prices is much higher than the pass through of exchange rates. It is positively associated with the variance of foreign inflation, which is consistent with Calvo pricing.
    Keywords: Pass through; inflation; Bayesian time varying parameter VAR
    JEL: E31 F41
    Date: 2017–01–27
  90. By: Lorenza Rossi (Department of Economics and Management, University of Pavia); Chiara Punzo (Università Cattolica Sacro Cuore, Milano)
    Abstract: We consider a NK-DSGE model with distortive taxation and heterogeneous agents, modeled using a modified version of the mechanism pro- posed by Bilbiie, Monacelli and Perotti (2012). Following Galì (2014), we study the effects of a shock to government purchases under two alternative financing regimes: (i) monetary financing; (ii) debt financing. Particularly, we focus on the redistributive effects of the two regimes and we find the following. Both regimes imply a redistributive effect from savers to borrowers, measured in terms of the ratio between the consumption of borrowers and that of savers. The redistribution is much greater in the money-financed fiscal stimulus, where the consumption ratio is more than three times higher than the implied one in the debt-financed fiscal stimulus. Borrowers are better o¤ also in terms of their relative labor supply and money demand. Finally, with respect to the representative agent model, the presence of borrowers enhances the impact of the fiscal intervention on aggregate output, when spending is debt financed. Remarkably, with respect to Galì (2014) the same regime implies a reduction of the debt burden instead of an increase.
    Date: 2016–12
  91. By: Michiel Gerritse; AndrŽs Rodr’guez-Pose
    Abstract: Government contracts are frequently courted by firms and governments alike as a solution to generate more jobs, income, and economic growth. However, the development impact of government contracts remains controversial. This paper uses georeferenced data on United States (US) federal contracts, distinguishing between the location of the recipient and the location of performance, for the years 2005-2014 in order to assess the extent to which federal government contracting has contributed to job and wealth generation and economic growth in metropolitan areas of the US. The results of the analysis show that individuals living in cities with a higher share of contract spending per capita witnessed improvements in employment. Aggregate GDP per capita also rose in cities hosting the companies receiving the contracts. However, the effects Ð once reverse causality and spurious trends are controlled for using a fine-scale fixed effect strategy and instrumentation Ð are very small, raising reasonable questions about the viability of federal contracting as a vehicle for economic development.Ê Length:
    Keywords: Federal contracting, government spending, jobs, wages, economic growth, urban development
    JEL: R11 R38 O23 E62 R58
    Date: 2017–01
  92. By: Iftekhar, Umbreen; Dawood, Mamoon; Shahid, Hassan
    Abstract: This paper attempts to find those determinants stirring the function of money demand in Sri Lanka during 1975-2013. The empirical analysis starts from applying the unit root tests i.e. Ng-Perron. We apply ARDL bound testing approach of co-integration to scrutinize the co-integration in variables. We select independent variables like per capita GDP, interest rate, exchange rate, fiscal deficit, urban population and rural population to determine money demand function. The findings revealed that income, interest rate and fiscal deficit effect money demand significantly and positively. The exchange rate affects negatively and significantly upon money demand. The stable money demand function is found over time applying CUSUM and CUSUMSQ stability test. The model of our study strongly recommends the real demand for M2 is vital monetary aggregate in terms of policy implication including the appropriateness of model in Sri Lanka.
    Keywords: Interest Rates, Money Demand, Household Income
    JEL: E4 E40
    Date: 2017–01–31
  93. By: Ries, J. M.; Glock, C. H.; Schwindl, K.
    Date: 2016–09–12

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