nep-mac New Economics Papers
on Macroeconomics
Issue of 2017‒02‒19
100 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Unconventional Monetary Policy Effects on Bank Lending in the Euro Area By Stefan Behrendt
  2. How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output By Kyle Herkenhoff; Gordon Phillips; Ethan Cohen-Cole
  3. Capital Misallocation and Secular Stagnation By Andrea Caggese; Ander Perez
  4. Monetary Policy and Indeterminacy after the 2001 Slump By Weder, Mark; Doko Tchatokay, Firmin; Groshenny, Nicolas; Haque, Qazi
  5. Pushing on a string: US monetary policy is less powerful in recessions By Silvana Tenreyro; Gregory Thwaites
  6. Temptation and Forward Guidance By Airaudo, Marco
  7. Banking theories and Macroeconomics. By Claudio Sardoni; Antonio Bianco
  8. Revisions in Utilization-Adjusted TFP and Robust Identification of News Shocks By Kurmann, André; Sims, Eric
  9. The Impact of US Monetary Policy and Other External Shocks on the Hong Kong Economy: A Factor-augmented VAR Approach By Hongyi Chen; Andrew Tsang
  10. An investment and equality-led sustainable development strategy for Europe By Onaran, Özlem; Andersen, Lars; Cozzi, Giovanni; Dahl, Signe; Nissen, Thea; Obst, Thomas; Tori, Daniele
  11. Optimal Domestic (and External) Sovereign Default By D'Erasmo, Pablo; Mendoza, Enrique G.
  12. The Janus-faced nature of debt : result from a data-driven cointegrated SVAR approach By Mattia Guerini; Alessio Moneta; Mauro Napoletano; Andrea Roventini
  13. The effect of income distribution and fiscal policy on growth, investment, and budget balance: the case of Europe By Obst, Thomas; Onaran, Özlem; Nikolaidi, Maria
  14. Capital Controls and Monetary Policy Autonomy in a Small Open Economy By J. Scott Davis; Ignacio Presno
  15. A New Dilemma: Capital Controls and Monetary Policy in Sudden-Stop Economies By Michael B. Devereux; Eric R. Young; Changhua Yu
  16. What Explains the Speed of Recovery from Banking Crises? By Ambrosius, Christian
  17. The 2016 Long-Term Budget Outlook By Congressional Budget Office
  18. The 2016 Long-Term Budget Outlook By Congressional Budget Office
  19. Is There a SADC Business Cycle? Evidence from a Dynamic Factor Model By Ntokozo Patrick Nzimande; Harold Ngalawa
  20. The Consumption Response to Positive and Negative Income Changes By Bunn, Philip; LeRoux, Jeanne; Reinold, Kate; Surico, Paolo
  21. Coordinating expectations through central bank projections By Fatemeh Mokhtarzadeh; Luba Petersen
  22. The Effectiveness of Monetary Policy in China: Evidence from a Qual VAR By Hongyi Chen; Kenneth ChowAuthor-Workplace-Name: Hong Kong Monetary Authority; Peter Tillmann
  23. Inflation Bias and Markup Shocks in a LAMP Model with Strategic Interaction of Monetary and Fiscal Policy By Alice Albonico; Lorenza Rossi
  24. Inflation bias and markup shocks in a LAMP model with strategic interaction of monetary and fiscal policy By Alice, Albonico; Lorenza, Rossi;
  25. Does monetary policy generate asset price bubbles ? By Christophe Blot; Paul Hubert; Fabien Labondance
  26. Rents, Technical Change, and Risk Premia: Accounting for Secular Trends in Interest Rates, Returns on Capital, Earning Yields, and Factor Shares By Ricardo J. Caballero; Emmanuel Farhi; Pierre-Olivier Gourinchas
  27. The global role of the US economy: Linkages, policies and spillovers By M. Ayhan Kose; Csilla Lakatos; Franziska Ohnsorge; Marc Stocker
  28. Public Insurance and Wealth Inequality - A Euro Area Analysis By Pham-Dao, Lien
  29. Asset Bubbles, Technology Choice, and Financial Crises By Takuma Kunieda; Tarishi Matsuoka; Akihisa Shibata
  30. On Phase Shifts in a New Keynesian Model Economy By Joseph H. Haslag; Xue Li
  31. Has the Exchange Rate Pass-Through changed in South Africa? By Alain Kabundi; Asi Mbelu
  32. Reaffirming the Influence of Milton Friedman on U.K. Economic Policy By Nelson, Edward
  33. Quantitative easing and the price-liquidity trade-off By Ferdinandusse, Marien; Freier, Maximilian; Ristiniemi, Annukka
  34. Can we Identify the Fed's Preferences? By Chatelain, Jean-Bernard; Ralf, Kirsten
  35. The impact of inflation expectations on Polish consumers’ spending and saving By Filip Premik; Ewa Stanisławska
  36. Migration, Unemployment and the Business Cycle - A Euro Area Perspective By Clemens, Marius
  37. The (Unintended?) Consequences of the Largest Liquidity Injection Ever By Matteo Crosignani; Miguel Faria-e-Castro; Luis Fonseca
  38. Delayed Credit Recovery in Croatia:Supply or Demand Driven? By Mirna Dumičić; Igor Ljubaj
  39. The Global Rise of Corporate Saving By Peter Chen; Loukas Karabarbounis; Brent Neiman
  40. Lending Conditions in EU: The Role of Credit Demand and Supply By Svatopluk Kapounek
  41. The Post-Crisis Slump in the Euro Area and the US: Evidence from an Estimated Three-Region DSGE Model By Vogel, Lukas; Kollmann, Robert; Pataracchia, Beatrice; Ratto, Marco; Roeger, Werner
  42. Post Keynesian Dynamic Stochastic General Equilibrium Theory By Roger E.A. Farmer
  43. The Anatomy of Sentiment-Driven Fluctuations By Sushant Acharya; Jess Benhabib; Zhen Huo
  44. Are linear models really unuseful to describe business cycle data? By Lopes, Artur Silva; Zsurkis, Gabriel Florin
  45. Regular versus Lump-Sum Payments in Union Contracts and Household Consumption By Adamopoulou, Effrosyni (Efi); Zizza, Roberta
  46. Intangible investment in the EU and US before and since the Great Recession and its contribution to productivity growth By Corrado, Carol; Haskel, Jonathan; Jona-Lasinio, Cecilia; Iommi, Massimiliano
  47. Financial Structure and Instability in an Open Economy By Kenshiro Ninomiya
  48. Publish and Perish: Creative Destruction and Macroeconomic Theory By Chatelain, Jean-Bernard; Ralf, Kirsten
  49. Entrepreneurial Status, Social Norms, and Economic Growth By Dimitrios Varvarigos; Nikolaos Kontogiannis
  50. Economic, institutional and socio-cultural determinants of consumer credit in the context of monetary integration By Jakub Borowski; Krystian Jaworski; Jakub Olipra
  51. Monetary Policy and Asset Mispricing By Beckers, Benjamin; Bernoth, Kerstin
  52. Racing With or Against the Machine? Evidence from Europe By Gregory, Terry; Salomons, Anna; Zierahn, Ulrich
  53. Capital Flows and the International Credit Channel By Baskaya, Yusuf Soner; di Giovanni, Julian; Kalemli-Ozcan, Sebnem; Peydró, José Luis; Ulu, Mehmet Fatih
  54. The economic ramification of equating women empowerment to feminism in Africa By Senzu, Emmanuel Tweneboah
  55. Capital Misallocation: Frictions or Distortions? By Joel M. David; Venky Venkateswaran
  56. An empirical analysis of Minsky regimes in the US economy By Leila E. Davis; Joao Paulo A. de Souza; Gonzalo Hernandez
  57. Asymmetric Consumption Effects of Transitory Income Shocks By Dimitris Christelis; Dimitris Georgarakos; Tullio Jappelli; Luigi Pistaferri; Maarten van Rooij
  58. Crisis and theoretical methods: equilibrium and disequilibrium once again By Duncan Foley
  59. The Performance of Immigrants in the German Labor Market By Robert C.M. Beyer
  60. Concentrating on the Fall of the Labor Share By Autor, David; Dorn, David; Katz, Lawrence; Patterson, Christina; Van Reenen, John
  61. Do House Prices Hedge Inflation in the US? A Quantile Cointegration Approach By Christina Christou; Rangan Gupta; Wendy Nyakabawo; Mark E. Wohar
  62. Cultural Determinants of Household Saving Behavior By Paule-Paludkiewicz, Hannah; Fuchs-Schündeln, Nicola; Masella, Paolo
  63. SOE and Chinese Real Business Cycle By Daoju Peng; Kang ShiAuthor-Workplace-Name: Chinese University of Hong Kong; Juanyi XuAuthor-Workplace-Name: Hong Kong University of Science and Technology
  64. Effects of Monetary Policy Shocks on Exchange Rate in Emerging Countries By Soyoung Kim; Kuntae Lim
  65. Do sovereign wealth funds dampen the negative effects of commodity price volatility? By Kamiar Mohaddes; Mehdi Raissi
  66. Why Have Business Investments Decreased? By Ali-Yrkkö, Jyrki; Kuusi, Tero; Maliranta, Mika
  67. The Diffusion and Dynamics of Producer Prices, Deflationary Pressure across Asian Countries, and the Role of China By Hongyi Chen; Michael Funke; Andrew Tsang
  68. Search-for-Yield and Business Cycle* By Katsuhiro Oshima
  69. Un Indicador Líder de Actividad Real para el Perú By Pérez, Fernando; Ghurra, Omar; Grandez, Rodrigo
  70. Discretion Rather than Rules? Binding Commitments versus Discretionary Policymaking By Jensen, Christian
  71. Recent changes in British wage inequality: Evidence from firms and occupations By Schaefer, Daniel; Singleton, Carl
  72. Should forecasters use real-time data to evaluate leading indicator models for GDP prediction? German evidence By Heinisch, Katja; Scheufele, Rolf
  73. Econophysics of Macroeconomics: "Action-at-a-Distance" and Waves By Victor Olkhov
  74. Delayed Collection of Unemployment Insurance during Recessions By Xie, Zoe
  75. Pledging, Praising and Shaming: Experimental Labour Markets in Ghana By Davies, Elwyn; Fafchamps, Marcel
  76. Is Potential Output Growth Falling? By Ivan Mendieta-Muñoz
  77. How and when do firms adjust their investments toward targets? By Klepsch, Catharina; Elsas, Ralf
  78. Survey of volatility and spillovers on financial markets By Evžen Kočenda
  79. The Macroeconomic and Budgetary Effects of Federal Investment By Congressional Budget Office
  80. The Macroeconomic and Budgetary Effects of Federal Investment By Congressional Budget Office
  81. The Macroeconomic and Budgetary Effects of Federal Investment By Congressional Budget Office
  82. A Brexit deal that minimizes damage for working people? By Onaran, Özlem
  83. The Behavior of Small and Large Firms during Business Cycle Episodes and during Monetary Policy Episodes: A Comparison of Earlier and Recent Periods By Sung-Eun Yu
  84. Comparing different data descriptors in Indirect Inference tests on DSGE models By Minford, Patrick; Wickens, Michael R.; Xu, Yongdeng
  85. Nominal GDP Targeting with Heterogeneous Labor Supply By Bullard, James; Singh, Aarti
  86. External shocks, food security, and development: Exploring scenarios for Central America: By Díaz-Bonilla, Eugenio; Piñeiro, Valeria; Elverdin, Pablo
  87. Asymmetric Investment Responses to Firm-Specific Uncertainty By Buchholz, Manuel; Tonzer, Lena; Berner, Julian
  88. The Country Chronologies to Exchange Rate Arrangements into the 21st Century: Will the Anchor Currency Hold? By Ethan Ilzetzki; Carmen M. Reinhart; Kenneth S. Rogoff
  89. Exchange Arrangements Entering the 21st Century: Which Anchor Will Hold? By Ethan Ilzetzki; Carmen M. Reinhart; Kenneth S. Rogoff
  90. Exchange Arrangements Entering the 21st Century: Which Anchor Will Hold? By Ilzetzki, Ethan; Reinhart, Carmen M.; Rogoff, Kenneth
  91. Harrodian Instability: a Misleading Concept By Trezzini, Attilio
  92. Brexit and new perspectives of an unconventional way of Eurozone revival By Nikolaos, Kyriazis; Economou, Emmanouel/Marios/Lazaros
  93. Der ökonomische Fußabdruck der Privaten Krankenversicherung in Deutschland. Quantifizierung der volkswirtschaftlichen Bedeutung der PKV im Kontext der Gesundheitswirtschaftlichen Gesamtrechnung (GGR) des Bundesministeriums für Wirtschaft und Energie (BMWi) By Ostwald, Dennis A.; Legler, Benno; Schwärzler, Marion Cornelia
  94. A stock-flow-fund ecological macroeconomic model By Dafermos, Yannis; Nikolaidi, Maria; Galanis, Giorgos
  95. Long-run variation in capacity utilization in the presence of a fixed normal rate By Mark Setterfield
  96. International Migration and Regional Housing Markets: Evidence from France By D'Albis, Hippolyte; Boubtane, Ekrame; Coulibaly, Dramane
  97. The Great Recession: A Macroeconomic Earthquake By Christiano, Lawrence J.
  98. The Impact of Consumer Credit Access on Employment, Earnings, and Entrepreneurship By Kyle Herkenhoff; Gordon Phillips; Ethan Cohen-Cole
  99. Globalization and Inclusive Human Development in Africa By Simplice Asongu; Jacinta C. Nwachukwu
  100. Global Inequality Dynamics: New Findings from By Facundo Alvaredo; Lucas Chancel; Thomas Piketty; Emmanuel Saez; Gabriel Zucman

  1. By: Stefan Behrendt (Friedrich Schiller University Jena, School of Economics and Business Administration)
    Abstract: This paper employs a structural VAR framework with sign restrictions to estimate the effects of unconventional monetary policies of the European Central Bank since the Global Financial Crisis, mainly in their effectiveness towards bank lending. Using a variable for newly issued credit instead of the outstanding stock of credit, the effects on bank lending are smaller than found in previous similar studies for the Euro area.
    Keywords: unconventional monetary policy, zero lower bound, bank lending, SVAR
    JEL: C32 E30 E44 E51 E52 E58
    Date: 2017–02–08
  2. By: Kyle Herkenhoff (University of Minnesota); Gordon Phillips (Dartmouth College Tuck School of Business); Ethan Cohen-Cole (Econ One Research)
    Abstract: How does access to consumer credit affect the allocation of workers to firms, and what happens to sorting and the subsequent recovery if credit tightens during a recession? To answer this question, we develop a labor sorting model with saving and borrowing. We show that even with two-sided heterogeneity and risk aversion, the model remains tractable because it admits a unique block recursive solution. We find that if credit limits tighten during a downturn, employment recovers quicker, but output and productivity remain depressed. This is because when limits tighten, low-asset, low-productivity job losers cannot self-insure. Therefore, they search less thoroughly and take more accessible jobs at less productive firms. We then build a new administrative dataset that merges credit reports with employment histories, and we test the model's mechanisms.
    Keywords: sorting model, credit constraints, block recursive, self-insurance
    JEL: E13 E20 E24 E32 J21 J24 J31 J60 J63 J64 J65
    Date: 2017–02
  3. By: Andrea Caggese; Ander Perez
    Abstract: The widespread emergence of intangible technologies in recent decades may have significantly hurt output growth--even when these technologies replaced considerably less productive tangible technologies--because of structurally low interest rates caused by demographic forces. This insight is obtained in a model in which intangible capital cannot attract external finance, firms are credit constrained, and there is substantial dispersion in productivity. In a tangibles-intense economy with highly leveraged firms, low rates enable more borrowing and faster debt repayment, reduce misallocation, and increase aggregate output. An increase in the share of intangible capital in production reduces the borrowing capacity and increases the cash holdings of the corporate sector, which switches from being a net borrower to a net saver. In this intangibles-intense economy, the ability of firms to purchase intangible capital using retained earnings is impaired by low interest rates, because low rates increase the price of capital and slow down the accumulation of corporate savings.
    Keywords: Borrowing Constraints ; Capital Reallocation ; Intangible Capital ; Secular Stagnation
    JEL: E22 E43 E44
    Date: 2017–01–17
  4. By: Weder, Mark; Doko Tchatokay, Firmin; Groshenny, Nicolas; Haque, Qazi
    Abstract: This paper estimates a New Keynesian model of the U.S. economy over the period following the 2001 slump, a period for which the adequacy of monetary policy is intensely debated. To relate to this debate, we consider three alternative empirical inflation series in the estimation. When using CPI or PCE, we find some support for the view that the Federal Reserve's policy was extra easy and may have led to equilibrium indeterminacy. Instead, when measuring inflation with core PCE, monetary policy appears to have been reasonable and suffciently active to rule out indeterminacy. We then relax the assumption that inflation in the model is measured by a single indicator. We re-formulate the artificial economy as a factor model where the theory's concept of inflation is the common factor to the three empirical inflation series. We find that CPI and PCE provide better indicators of the latent concept while core PCE is less informative. Again, this procedure cannot dismiss indeterminacy.
    JEL: E50 E30 E32
    Date: 2016
  5. By: Silvana Tenreyro; Gregory Thwaites
    Abstract: We investigate how the response of the US economy to monetary policy shocks depends on the state of the business cycle. The effects of monetary policy are less powerful in recessions, especially for durables expenditure and business investment. The asymmetry relates to how fast the economy is growing, rather than to the level of resource utilization. There is some evidence that fiscal policy has counteracted monetary policy in recessions but reinforced it in booms. We also find evidence that contractionary policy shocks are more powerful than expansionary shocks, but contractionary shocks have not been more common in booms. So this asymmetry cannot explain our main finding.
    JEL: E21 E22 E32 E52
    Date: 2016–10
  6. By: Airaudo, Marco (School of Economics)
    Abstract: In the aftermath of the recent financial crisis, several central banks have resorted to "forward guidance" in monetary policy - that is, announcing publicly the future path of the short-term interest rate - to stimulate inflation and economic activity, and therefore move the economy away from the liquidity trap. Standard monetary models predict sizable stimulative effects of forward guidance, which are much in excess of what observed in the data and grow exponentially with the forward guidance horizon. This apparent disconnect between theory and data has been labeled by the literature as the forward guidance puzzle. We introduce temptation and dynamic-self-control preferences, as formalized by Gul and Pesendorfer (Econometrica 2002, 2004), into an otherwise standard New Keynesian model. In our set-up, the representative agent faces a temptation to liquidate his entire financial wealth for the purpose of immediate consumption. Resisting temptation involves cognitive effort (or self-control) and hence some disutility. Optimal behavior therefore trades of the temptation for immediate satisfaction with long-run optimal consumption smoothing. We show that, for suitable parameterizations, dynamic self-control preferences deliver a discounted Euler equation,lower households. sensitivity to real interest rates, and make the Phillips curve less forward-looking. These features combined help solve the puzzle. Moreover, they have stark implications for what concerns the conditions for equilibrium determinacy, the adverse effects of large negative shocks to the real interest rate, and the paradox of volatility.
    Keywords: Monetary Policy; New Keynesian Model; Forward Guidance; Temptation; Self-Control
    JEL: E31 E32 E43 E52 E58
    Date: 2017–02–07
  7. By: Claudio Sardoni (Department of Social Sciences and Economics, Sapienza University of Rome); Antonio Bianco (Dipartimento di Scienze Sociali ed Economiche, Sapienza University of Rome (Italy).)
    Abstract: The recently expanding macro-financial literature is facing the analytical challenge to analyse the working of modern market economies without losing touch with the factual role played by financial institutions. Mainstream macroeconomic models that embody a financial sector are characterized by the understanding of banks as intermediaries of loanable funds (deposit-taking paving the way for loan extension). This approach to banking is increasingly considered as a major flaw in macroeconomic thinking. The Post-Keynesian theory of inside money creation is gaining momentum even in mainstream circles. The present article highlights the key differences of these alternative doctrines from a money supply perspective, so to stress the key aspects of the monetary dimension of the so-called financial cycle and the fact that monetary policy alone has no impact on aggregate expenditure.
    Keywords: Financial Cycle, Money Supply, Banking, Inside Money, Liquidity Risk.
    JEL: E44 E51
    Date: 2017–02
  8. By: Kurmann, André (School of Economics); Sims, Eric (University of Notre Dame & NBER)
    Abstract: This paper documents large revisions in a widely-used series of utilization-adjusted total factor productivity (TFP) by Fernald (2014) and shows that these revisions can materially affect empirical conclusions about the macroeconomic effects of news shocks. We propose an alternative identification that is robust to measurement issues with TFP, including the revisions in Fernald's series. When applied to U.S. data, the shock predicts sustained future productivity growth while simultaneously generating strong impact responses of novel indicators of technological innovation and forward-looking information variables. The shock does, however, not lead to comovement in macroeconomic aggregates as typically associated with business cycle fluctuations.
    Keywords: Total factor productivity; variable utilization; news shocks
    JEL: E22 E23 E32 O47
    Date: 2017–01–27
  9. By: Hongyi Chen (Hong Kong Institute for Monetary Research); Andrew Tsang (Hong Kong Institute for Monetary Research)
    Abstract: This paper uses the factor-augmented VAR (FAVAR) framework to study the impact on the Hong Kong economy of the diverging monetary policies by the Fed, ECB and BoJ as well as the Mainland economy slowdown. The empirical results show that changes in US monetary policy mainly affect interest rate-sensitive sectors in Hong Kong; while real variables such as real GDP growth, unemployment rate are more sensitive to the economic slowdown in Mainland China. Monetary easing from the ECB and BoJ to some extent offsets the tightening of the Fed. The transmission channels of external shocks are through trade and capital markets. It is estimated that the combined effect of the four external shocks will on average lower Hong Kong¡¯s quarterly GDP growth by 0.6 percentage points and quarterly inflation by 0.2 percentage points in the first 4 quarters. However, Hong Kong¡¯s financial stability, particularly with regard to loan quality, banks¡¯ capital and liquidity, is well maintained by macroprudential policies suggesting that Hong Kong¡¯s financial system is resilient to external shocks.
    JEL: C3 E5 E3
    Date: 2016–06
  10. By: Onaran, Özlem; Andersen, Lars; Cozzi, Giovanni; Dahl, Signe; Nissen, Thea; Obst, Thomas; Tori, Daniele
    Abstract: Austerity policies coupled with rising inequality in Europe have resulted in a prolonged stagnation and a vicious circle of chronically low demand, slow down in investment and productivity, and economic, social and political instability. In order to end this vicious cycle, Europe needs directed public investment policies accompanied by industrial policy, higher equality, stimulated demand, and regulation of finance and corporate governance. Our research presents strong empirical evidence that expansionary fiscal policy is sustainable when wage and public investment policies are combined with progressive tax policy; the impact is stronger when these policies are implemented in a coordinated fashion across Europe due to strong positive spill over effects on demand. A strong investment performance also requires a process of de-financialization of the economy and a new approach to corporate governance.
    Keywords: Public spending; Tax policy; Wage share; Growth; Financialization; Investment; Non-financial sector; Financial development; Social infrastructure; Physical infrastructure; Sustainable development; Europe
    JEL: C23 D22 E12 E22 E25 E62 G31
    Date: 2017–01–24
  11. By: D'Erasmo, Pablo (Federal Reserve Bank of Philadelphia); Mendoza, Enrique G. (University of Pensylvania)
    Abstract: Infrequent but turbulent episodes of outright sovereign default on domestic creditors are considered a “forgotten history” in macroeconomics. We propose a heterogeneous- agents model in which optimal debt and default on domestic and foreign creditors are driven by distributional incentives and endogenous default costs due to value of debt for self-insurance, liquidity, and risk-sharing. The government’s aim to redistribute resources across agents and through time in response to uninsurable shocks produces a rich dynamic feedback mechanism linking debt issuance, the distribution of government bond holdings, the default decision, and risk premia. Calibrated to Spanish data, the model is consistent with key cyclical comovements and features of debt-crisis dynamics. Debt exhibits protracted fluctuations. Defaults have a low frequency of 0.93 percent, are preceded by surging debt and spreads, and occur with relatively low external debt. Default risk limits the sustainable debt, and yet spreads are zero most of the time.
    Keywords: public debt; sovereign default; debt crisis; European crisis
    JEL: E44 E6 F34 H63
    Date: 2017–02–10
  12. By: Mattia Guerini (OFCE-Sciences PO); Alessio Moneta (Scuola Superiore Sant'Anna, Pisa, Italy); Mauro Napoletano (OFCE-Sciences Po); Andrea Roventini (Scuola Superiore Sant'Anna, Pisa, Italy)
    Abstract: In this paper, we investigate the causal effects of public and private debts on U.S. output dynamics. We estimate a battery of Cointegrated Structural Vector Autoregressive models, and we identify structural shocks by employing Independent Component Analysis, a data-driven technique which avoids ad-hoc identification choices. The econometric results suggest that the impact of debt on economic activity is Janus-faced. Public debt shocks have positive and persistent influence on economic activity. In contrast, rising private debt has a milder positive impact on GDP, but it fades out over time. The analysis of the possible transmission mechanisms reveals that public debt crowds in private consumption and investment. In contrast, mortgage debt fuels consumption and output in the short-run, but shrinks them in the medium-run.
    Keywords: Public and private debt, Business cycle fluctuations, Independant component analysis, SVAR identifications
    JEL: E32 E62 C58 H63
    Date: 2017–01
  13. By: Obst, Thomas; Onaran, Özlem; Nikolaidi, Maria
    Abstract: This paper develops a multi-country Post-Kaleckian model augmented by a government sector with public spending and taxes on consumption, labour and capital and estimates it for the EU15 countries. We estimate country specific equations to find the effect of income distribution, public spending and taxes on growth, on each component of private aggregate demand (i.e., consumption, investment, and net exports) and on budget balance for the EU15 countries. Next, we calculate a Europe-wide multiplier based on the responses of each country to changes not only in domestic income distribution, taxation and government expenditure but also to changes in the other European countries’ wage share, taxes and public spending. One novelty of this paper is that it goes beyond an isolated country-by-country analysis and integrates cross-country effects of a simultaneous change in the wage share on demand in Europe in a government augmented Post-Kaleckian model.Extending the model by taxes on labour and capital increases the likelihood of a wage-led economic regime. The fiscal multiplier effects are much stronger when policies are implemented simultaneously, and wage, tax and public spending policies are integrated into the policy mix. The impact of egalitarian wage policies are positive but small; the overall stimulus becomes much stronger when mixed with fiscal expansion. Expansionary fiscal policy is sustainable when wage, public spending and progressive tax policies are combined. The analysis of the paper can guide the development of a fiscal and wage policy mix conducive to equitable development.
    Keywords: Wage share; growth; European multiplier; demand regime; government sector; public spending; tax policy;
    JEL: E12 E22 E25 E62
    Date: 2017–01–01
  14. By: J. Scott Davis; Ignacio Presno
    Abstract: Is there a link between capital controls and monetary policy autonomy in a country with a floating currency? Shocks to capital flows into a small open economy lead to volatility in asset prices and credit supply. To lessen the impact of capital flows on financial instability, a central bank finds it optimal to use the domestic interest rate to "manage" the capital account. Capital account restrictions affect the behavior of optimal monetary policy following shocks to the foreign interest rate. Capital controls allow optimal monetary policy to focus less on the foreign interest rate and more on domestic variables.
    Keywords: Capital controls ; Credit constraints ; Small open economy
    JEL: F32 F41 E52 E32
    Date: 2017–02
  15. By: Michael B. Devereux (University of British Columbia); Eric R. Young (University of Virginia); Changhua Yu (Peking University)
    Abstract: The dangers of high capital flow volatility and sudden stops have led economists to promote the use of capital controls as an addition to monetary policy in emerging market economies. This paper studies the benefits of capital controls and monetary policy in an open economy with financial frictions, nominal rigidities, and sudden stops. We focus on a time-consistent policy equilibrium. We find that during a crisis, an optimal monetary policy should sharply diverge from price stability. Without commitment, policymakers will also tax capital inflows in a crisis. But this is not optimal from an ex-ante social welfare perspective. An outcome without capital inflow taxes, using optimal monetary policy alone to respond to crises, is superior in welfare terms, but not time-consistent. If policy commitment were in place, capital inflows would be subsidized during crises. We also show that an optimal policy will never involve macro-prudential capital inflow taxes, or a departure from price stability, as a precaution against the risk of future crises (whether or not commitment is available).
    Keywords: Sudden stops, Pecuniary externality, Monetary policy, Capital controls, Time-consistency
    JEL: E44 E58 F38 F41
    Date: 2016–03
  16. By: Ambrosius, Christian
    Abstract: While much research has been done on causes and effects of banking crises, little is known about what determines recovery from banking crises, despite of large variations in post-crises performances across countries. In order to identify local and global factors that determine the length of recovery (i.e. the time it takes until countries reach their pre-crisis level of per capita GDP), this paper employs event history analysis on 138 incidents of banking crises between 1970 and 2013. Cox proportional hazards show that crises characteristics, specific country conditions as well as external factors affect the duration of recovery. Regarding domestic factors, simultaneous currency crises, large financial sectors and overvalued currencies are associated with later recovery. Regarding external factors, a low growth of world trade has a negative effect on recovery, and so does uncertainty in financial markets as reflected in high gold prices. Moreover, contractionary monetary policy of the US Fed as Central Bank of the international key currency has a negative effect on the length of recovery in middle-income countries. In general, the dominance of global variables as well as variables related to the exchange-rate underline that the speed of recovery is particularly constrained by countries’ positions within the global economy.
    JEL: H12 E44 O23
    Date: 2016
  17. By: Congressional Budget Office
    Abstract: CBO’s long-run budget projections show a substantial imbalance in the federal budget beyond the next 10 years, with revenues falling short of spending by steadily increasing amounts. As a result, federal debt as a share of GDP would reach unprecedented levels if current laws generally remain unchanged. Such high and rising debt would have serious consequences for the nation’s budget and economy.
    JEL: E20 E60 E61 E62 E66 H50 H51 H53 H55 H60 H61 H62 H63 H68
    Date: 2016–07–12
  18. By: Congressional Budget Office
    Abstract: CBO’s long-run budget projections show a substantial imbalance in the federal budget beyond the next 10 years, with revenues falling short of spending by steadily increasing amounts. As a result, federal debt as a share of GDP would reach unprecedented levels if current laws generally remain unchanged. Such high and rising debt would have serious consequences for the nation’s budget and economy.
    JEL: E20 E60 E61 E62 E66 H50 H51 H53 H55 H60 H61 H62 H63 H68
    Date: 2016–07–12
  19. By: Ntokozo Patrick Nzimande; Harold Ngalawa
    Abstract: Countries that adopt a common currency automatically relinquish their monetary policy autonomy. Hence, it is imperative for countries wanting to join a currency union to ensure that their business cycles are synchronized in order to ensure symmetric propagation of the effect of monetary policy. Put differently, countries with asynchronous business cycles require country-specific policies to stabilize their economies. Thus, in this study we assess the readiness of the SADC region to adopt a single currency in 2018 as proposed. We rely on a dynamic factor model which assumes that business cycle is driven by two orthogonal factors that is a regional and idiosyncratic factors. In line with existing literature our findings suggest that SADC as whole is not ready to form a monetary union. However, CMA countries appear to be driven by a common factor thus they do not necessarily require country specific policies. Hence, they may consider adopting single currency.
    Keywords: SADC
    JEL: C11 C32 E32 F02
    Date: 2016–11
  20. By: Bunn, Philip; LeRoux, Jeanne; Reinold, Kate; Surico, Paolo
    Abstract: A set of newly added questions in the 2011 to 2014 Bank of England/NMG Consulting Survey reveals that British households tend to change their consumption by significantly more in reaction to temporary and unanticipated falls in income than to rises of the same size. Household balance sheet characteristics (including the presence of a savings buffer), concerns about credit market access and higher subjective risk of lower future income account for a sizable share of this spending asymmetry and explain significant variation in the marginal propensity to consume across households. Our findings have important implications for predicting the response of aggregate consumption to expansionary and contractionary macroeconomic policies.
    Keywords: Heterogeneity; household balance sheet; MPC asymmetry; transmission mechanism
    JEL: D12 E21 E52
    Date: 2017–02
  21. By: Fatemeh Mokhtarzadeh (University of Victoria); Luba Petersen (Simon Fraser University)
    Abstract: This paper explores how expectations are influenced by central bank projections within a learning-to-forecast laboratory macroeconomy. Subjects are incentivized to forecast output and inflation in a laboratory macroeconomy where their aggregated expectations directly influence macroeconomic dynamics. Using a between-subject design, we systematically vary whether the central bank communicates no information, ex-ante rational nominal interest rate projections, or rational or adaptive dual projections of output and inflation. Our experimental findings suggest that interest rate projections and adaptive dual projections can encourage backward-looking forecasting behavior. Expectations are best coordinated and stabilized by communicating rational output and inflation forecasts.
    Keywords: expectations, monetary policy, projections, communication, credibility, laboratory experiment, experimental macroeconomics
    JEL: C9 D84 E52 E58
    Date: 2017–02
  22. By: Hongyi Chen (Hong Kong Institute for Monetary Research); Kenneth ChowAuthor-Workplace-Name: Hong Kong Monetary Authority; Peter Tillmann (Justus Liebig University Giessen)
    Abstract: Analyzing monetary policy in China is not straightforward because the People¡¯s Bank of China (PBoC) implements policy by using more than one instrument. In this paper we use a Qual VAR, a conventional VAR system augmented with binary policy announcements, to extract a latent indicator of tightening and easing pressure, respectively, for China. The model acknowledges that policy announcements are endogenous and summarizes policy by a single indicator. The Qual VAR allows us to study the impact of monetary policy in terms of unexpected changes in these latent variables, which we identify using sign restrictions. We show that the transmission of monetary policy impulses to the rest of the economy is remarkably similar to the transmission process in advanced economies in terms of both output growth and inflation despite a very different monetary policy framework. We find that bank loans are not sensitive to policy changes, which implies that window guidance is still a necessary policy tool. We also find that the impact of monetary policy shocks is asymmetric in terms of asset prices, that is, the asset price reactions differ in their sensitivity to tightening shocks and easing shocks, respectively. In particular, an easing of monetary conditions boosts stock prices while a tightening shock leaves stock prices unaffected. This shows that monetary policy is not a suitable tool to stabilize asset prices, which raises implications for financial stability and macroprudential policy.
    Keywords: China, monetary policy, Qual VAR, transmission mechanism, asset prices, financial stability
    JEL: E4 E5 C3
    Date: 2016–05
  23. By: Alice Albonico (Department of Economics, Management and Statistics, University of Milan-Bicocca); Lorenza Rossi (Department of Economics and Management, University of Pavia)
    Abstract: This paper investigates the effects generated by limited asset market participation on optimal monetary and fiscal policy, where monetary and fiscal authorities are independent and play strategically. It shows that: (i) both the long run and the short run equilibrium require a departure from zero inflation rate; (ii) in response to a markup shock, fiscal policy becomes more aggressive as the fraction of liquidity constrained agents increases and price stability is no longer optimal even under Ramsey; (iii) overall, optimal discretionary policies imply welfare losses for Ricardians, while liquidity constrained consumers experience welfare gains with respect to Ramsey.
    Keywords: inflation bias, markup shocks, liquidity constrained consumers, optimal monetary and fiscal policy
    JEL: E3 E5
    Date: 2017–02
  24. By: Alice, Albonico; Lorenza, Rossi;
    Abstract: This paper investigates the effects generated by limited asset market participation on optimal monetary and fiscal policy, where monetary and fiscal authorities are independent and play strategically. It shows that: (i) both the long run and the short run equilibrium require a departure from zero inflation rate; (ii) in response to a markup shock, fiscal policy becomes more aggressive as the fraction of liquidity constrained agents increases and price stability is no longer optimal even under Ramsey; (iii) overall, optimal discretionary policies imply welfare losses for Ricardians, while liquidity constrained consumers experience welfare gains with respect to Ramsey.
    Keywords: inflation bias, markup shocks, liquidity constrained consumers, optimal monetary and fiscal policy
    JEL: E3 E5
    Date: 2017–02–14
  25. By: Christophe Blot (OFCE-Sciences PO); Paul Hubert (OFCE-Sciences PO); Fabien Labondance (Université de Bourgogne Franche Comté, CRESE, OFCE-Sciences PO)
    Abstract: This paper empirically assesses the effect of monetary policy on asset price bubbles and aims to disentangle the competing predictions of theoretical bubble models. First, we take advantage of the model averaging feature of Principal Component Analysis to estimate bubble indicators, for the stock, bond and housing markets in the United States and Euro area, based on the structural, econometric and statistical approaches proposed in the literature to measure bubbles. Second, we assess the linear and non-linear effect of monetary shocks on these bubble components using local projections. The main result of this paper is that monetary policy does not affect asset price bubble components, except for the US stock market for which we find evidence in favor of the prediction of rational bubble models.
    Keywords: Asset price bubbles, Monetary policy, Quantitative Easing, Federal Reserve, ECB
    JEL: E44 G12 E52
    Date: 2017–02
  26. By: Ricardo J. Caballero; Emmanuel Farhi; Pierre-Olivier Gourinchas
    Abstract: The secular decline in safe interest rates since the early 1980s has been the subject of considerable attention. In this short paper, we argue that it is important to consider the evolution of safe real rates in conjunction with three other first-order macroeconomic stylized facts: the relative constancy of the real return to productive capital, the decline in the labor share, and the decline and subsequent stabilization of the earnings yield. Through the lens of a simple accounting framework, these four facts offer suggestive insights into the economic forces that might be at work.
    JEL: E01 E22 E25 G1
    Date: 2017–02
  27. By: M. Ayhan Kose; Csilla Lakatos; Franziska Ohnsorge; Marc Stocker
    Abstract: This paper analyzes the role of the United States in the global economy and examines the extent of global spillovers from changes in U.S. growth, monetary and fiscal policies, and uncertainty in its financial markets and economic policies. Developments in the U.S. economy, the world’s largest, have effects far beyond its shores. A surge in U.S. growth could provide a significant boost to the global economy. Tightening U.S. financial conditions-whether due to contractionary U.S. monetary policy or other reasons-could reverberate across global financial markets, with adverse effects on some emerging market and developing economies that rely heavily on external financing. In addition, lingering uncertainty about the course of U.S. economic policy could have an appreciably negative effect on global growth prospects. While the United States plays a critical role in the world economy, activity in the rest of the world is also important for the United States.
    Keywords: United States, uncertainty, trade, business cycles, global economy
    JEL: C15 E32 E52 F13 H30
    Date: 2017–02
  28. By: Pham-Dao, Lien
    Abstract: Since the release of the first wave of the Household Finance and Consumption Survey, the causes of the large euro area differences in private net wealth inequality have been at the forefront of the political debate. This paper assesses the quantitative importance of cross-country differences in labor market risks and social security institutions for euro area differences in private net wealth inequality. I document the empirical puzzle that euro area countries with the largest reduction in the income Gini coefficient through public transfers and with most generous welfare states, robustly show a higher inequality in private net wealth. Going back to the argument by Hubbard et al. (1995) that public insurance crowds out private savings especially of the poor, I construct a life cycle model with heterogeneous households and incomplete markets that features exogenous labor market risks, social transfers and public and occupational pensions. Calibrating the model to the actual euro area differences in the gross earnings process, unemployment dynamics and social security systems, it can account for 61.2% of the cross-country differences in the net wealth Gini coefficients for the bottom 95% of the wealth distribution. The model results suggest that welfare policies contribute with 47.3% to the wealth inequality differences across the euro area, while gross earnings inequality and unemployment can rationalize 13.9%.
    JEL: D31 D91 E21
    Date: 2016
  29. By: Takuma Kunieda (School of Economics, Kwansei Gakuin University); Tarishi Matsuoka (Faculty of Urban Liberal Arts, Tokyo Metropolitan University); Akihisa Shibata (Institute of Economic Research, Kyoto University)
    Abstract: How does an economy fall into depression after an asset bubble bursts? To address this question, we extend Matsuyama’s (2007) overlapping-generations model with multiple technologies to a dynamic general equilibrium model with infinitely lived agents. Our analysis focuses on a case of two technologies: one with high productivity and another with low productivity. The crowd-in effect that asset bubbles have on capital accumulation occurs in equilibrium, in which the high interest rates resulting from asset bubbles crowd out low-productivity technology. When asset bubbles with high-productivity technology collapse, a depression follows.
    Keywords: Asset bubbles, Crowd-in effect, Matsuyama model, Infinitely-lived agents
    JEL: E32 E44 O41
    Date: 2017–02
  30. By: Joseph H. Haslag (Department of Economics, University of Missouri-Columbia); Xue Li (Institute of Chinese Financial Studies & Collaborative Innovation Center of Financial Security, Southwestern University of Finance and Economics)
    Keywords: phase shift, countercyclical price, procyclical inflation, necessary and sufficient shocks, Bayesian estimation
    JEL: E31 E32
    Date: 2017–02
  31. By: Alain Kabundi; Asi Mbelu
    Abstract: This paper uses the two-stage exchange rate pass-through (ERPT) framework instead of the direct pass-through (PT) from the exchange rate to consumer inflation to assess the variation in the ERPT for South Africa from 1994 to 2014. The paper uses rolling-window estimation to examine the possibility of change in the ERPT over time. In addition, it investigates the asymmetric behaviour of the ERPT over the business cycle. The results indicate that the ERPT for South Africa is complete in the …rst stage but incomplete in the second stage. It implies that retailers do not pass all the cost to consumers. The …first-stage ERPT has declined slightly since the Global Financial Crisis. Weak domestic demand and possibly the concentration of …rms in the manufacturing sector are the main forces behind this low PT. Moreover, there is evidence of asymmetry in the …first-stage ERPT in that it tends to rise in the upturn phase of the economy compared to the downturn. The second-stage ERPT shows a considerable decline since the adoption of the in‡ation-targeting regime. Similar to the fi…rst-stage case, the PT is muted in the downturn but rises in the expansionary phase by about 10 per cent.
    Keywords: Exchange rate pass-through, rolling-window regression, symmetric exchange rate pass-through
    JEL: C51 E52 E58
    Date: 2016–11
  32. By: Nelson, Edward
    Abstract: This paper finds a significant influence of Milton Friedman on U.K. economic policy from the 1970s onward, and especially during the period of the Thatcher Government. The finding is based on a consideration of statements by policymakers and key economic advisers, as well as an analysis of Friedman’s commentary in the 1970s, 1980s, and 1990s on U.K. economic developments. It is shown that explicit acknowledgments of Friedman’s influence were given on the record over the years by Margaret Thatcher, Chancellor of the Exchequer Geoffrey Howe, Bank of England officials, and others in policy circles. Examples of Friedman’s influence include the absorption into U.K. policy doctrine of the permanent income hypothesis and the natural rate hypothesis, the rejection from 1979 onward of incomes policy as a weapon against inflation, and U.K. officials’ repeated appeals to monetary sovereignty when arguing against monetary union or a sterling peg. Evidence of influence by Friedman on privatization policy and on the official perspective on the current account deficit can also be discerned. Friedman had only limited personal interaction with U.K. policymakers, but his influence was felt in the adoption into actual U.K. policymaking of recommendations made in his writings and in the fact that those writings—which were studied closely by a number of senior U.K. economic advisers—helped alter economists’ conceptual framework in the United Kingdom and thereby fostered doctrinal changes in U.K. economic policy. The analysis in this paper also shows that two key critics of the Conservative party’s economic policy under Margaret Thatcher—Labour’s Harold Wilson and the Conservatives’ Edward Heath—had good reason to ascribe this policy partly to the influence of Friedman, whom each of them had met before the Thatcher era.
    Keywords: Milton Friedman, U.K. economic policy, incomes policy, monetarism, Thatcher Government, doctrine of economic policy.
    Date: 2017–02
  33. By: Ferdinandusse, Marien (European Central Bank); Freier, Maximilian (European Central Bank); Ristiniemi, Annukka (Monetary Policy Department, Central Bank of Sweden)
    Abstract: We present a search theoretic model of over-the-counter debt with quantitative easing (QE). The impact of central bank asset purchases on yields depend on market tightness, which is determined by shares of preferred habitat investors. The model predicts that the impact of government bond purchases is higher in countries with a higher share of preferred habitat investors. Furthermore, there is a trade-off with liquidity, which is not present in other models of QE. We present a new index for the share of preferred habitat investors holding government bonds in Eurozone countries, based on the ECB's securities and holdings statistics, which we use to match the impact of QE on the observed yield changes in data and to test our model.
    Keywords: Quantitative easing; liquidity; search and matching
    JEL: E52 E58 G12
    Date: 2017–02–01
  34. By: Chatelain, Jean-Bernard; Ralf, Kirsten
    Abstract: A pre-test of Ramsey optimal policy versus time-consistent policy rejects time-consistent policy and (optimal) simple rule for the U.S. Fed during 1960 to 2006, assuming the reference new-Keynesian Phillips curve transmission mechanism with auto-correlated cost-push shock. The number of reduced form parameters is larger with Ramsey optimal policy than with time-consistent policy although the number of structural parameters, including central bank preferences, is the same. The new-Keynesian Phillips curve model is under-identified with Ramsey optimal policy (one identifying equation missing) and hence under-identified for time-consistent policy (three identifying equations missing). Estimating a structural VAR for Ramsey optimal policy during Volcker-Greenspan period, the new-Keynesian Phillips curve slope parameter and the Fed's preferences (weight of the volatility of the output gap) are not statistically different from zero at the 5% level.
    Keywords: Ramsey optimal policy,Time-consistent policy,Identification,Central bank preferences,New-Keynesian Phillips curve
    JEL: C61 C62 E52 E58
    Date: 2017
  35. By: Filip Premik; Ewa Stanisławska
    Abstract: We explore the relation between inflation expectations of consumers and their spending and saving behavior(proxied by buying and saving attitude) using micro data from Consumer Opinion Survey. This issue has gained attention in recent times due to the continuing deflation in Poland,raising concerns about consumption dynamics. The analysis suggests that inflation expectations negatively affect the saving attitude, especially in the group of consumers characterized by very good financial situation. Moreover, the role of inflation expectations has increased since the global financial crisis. The results for the buying attitude are somewhat puzzling – especially if we try to interpret them together with the results for the saving attitude – as they suggest also negative (although very weak) link to inflation expectations. We suspect that it is related to the formulation of the survey questions and attach more weight to the conclusions from analysis of the saving attitude.
    Keywords: inflation expectations, consumption, savings, survey data, consumer sentiment
    JEL: D12 D14 E31
    Date: 2017
  36. By: Clemens, Marius
    Abstract: In the recent European debt crisis, internal migration flows in the euro area reacted strongly to diverging labor market conditions. This experience points towards the prominent role of short-term business-cycle migration in the euro area and the consequent need to understand the motives behind it. Investigating the business cycle in 55 bilateral migration corridors in the euro area over the period 1980-2010, we find evidence for business cycle related fluctuations in net migration flows and the crucial role of unemployment in shaping migration patterns. While on average wage and unemployment differentials are negatively correlated with net migration, across migration corridors we document a considerable heterogeneity in both dimensions that is more pronounced for wages. In line with these findings, we built a two-country dynamic stochastic general equilibrium (DSGE) model of internal business cycle migration in the euro area and allow for unemployment that occurs as a consequence of labor market frictions and rigidities in both countries. Our model is able to replicate the empirical observations and explains the heterogeneity of migration corridors by differences in the type of shock that hits an economy and the relative price/wage rigidity. We contribute to the literature on the causes and consequences of temporary migration and bridge it to DSGE models with unemployment.
    JEL: E24 F22 F41
    Date: 2016
  37. By: Matteo Crosignani; Miguel Faria-e-Castro; Luis Fonseca
    Abstract: We study the design of lender of last resort interventions and show that the provision of long-term liquidity incentivizes purchases of high-yield short-term securities by banks. Using a unique security-level data set, we find that the European Central Bank’s three-year Long-Term Refinancing Operation incentivized Portuguese banks to purchase short-term domestic government bonds that could be pledged to obtain central bank liquidity. This "collateral trade" effect is large, as banks purchased short-term bonds equivalent to 8.4% of amount outstanding. The resumption of public debt issuance is consistent with a strategic reaction of the debt agency to the observed yield curve steepening.
    Keywords: Lender of Last Resort ; Sovereign Debt ; Unconventional Monetary Policy
    JEL: E58 G21 G28 H63
    Date: 2017–01
  38. By: Mirna Dumičić (The Croatian National Bank, Croatia); Igor Ljubaj (The Croatian National Bank, Croatia)
    Abstract: In order to enhance the understanding of credit cycle dynamics in Croatia we explore the evolution of credit demand and credit supply of corporates and households in Croatia and identify their determinants based on the switching regression framework. These results are crosschecked by the insights from the bank lending survey. The conducted analysis shows there are both supply and demand-side factors that limit the possibility of intensifying household and corporate credit activity. However, a more pronounced drag seems to be coming from subdued demand, which is greatly influenced by the unfavourable domestic macroeconomic environment and particularly GDP developments. This suggests that it is not unusual that credit recovery is still missing, but also confirms that the scope for monetary policy to stimulate lending is limited.
    Keywords: credit supply, credit demand, households, corporates, Croatia, switching regression framework
    JEL: E44 G21 G28
    Date: 2017–01
  39. By: Peter Chen; Loukas Karabarbounis; Brent Neiman
    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.
    JEL: E21 E25 G32 G35
    Date: 2017–02
  40. By: Svatopluk Kapounek (Mendel University in Brno, Czech Republic)
    Abstract: We analyse the bank lending activity after the financial crisis and focus on bank-specific supply factors. Using a rich microeconomic dataset from Bankscope and macroeconomic shocks data, we employ OLS and 2SLS fixed effects models with banking controls, macroeconomic shocks and institutional quality. The banks’ loan-rate spreads increased despite the recent policy of low interest rates and quantitative easing. We use the bank asset quality as instruments to capture exogenous changes in loan supply. The empirical evidence shows that loan-rate spread and through this the supply of loans is negatively affected by a low asset quality and capital ratios.
    Keywords: bank lending; loans; financial vulnerability; loan-rate spreads; institutions; macroeconomic shocks
    JEL: E58 G21 G28
    Date: 2017–01
  41. By: Vogel, Lukas; Kollmann, Robert; Pataracchia, Beatrice; Ratto, Marco; Roeger, Werner
    Abstract: The global financial crisis (2008-09) led to a sharp contraction in both Euro Area (EA) and US real activity, and was followed by a long-lasting slump. However, the post-crisis adjustment in the EA and the US shows striking differences—in particular, the EA slump has been markedly more protracted. We estimate a three-region (EA, US and Rest of World) New Keynesian DSGE model (using quarterly data for 1999-2014) to quantify the drivers of the divergent EA and US adjustment paths. Our results suggest that financial shocks were key drivers of the 2008-09 Great Recession, for both the EA and the US. The post-2009 slump in the EA mainly reflects a combination of adverse aggregate demand and supply shocks, in particular lower productivity growth, and persistent adverse shocks to capital investment, linked to the continuing poor health of the EA financial system. Adverse financial shocks were less persistent for the US. The dynamics of financial shocks identified by the model is consistent with observed performance indicators of the EA and US banking systems.
    JEL: E32 F41 C11
    Date: 2016
  42. By: Roger E.A. Farmer
    Abstract: This paper explains the connection between ideas developed in my recent books and papers and those of economists who self-identify as Post Keynesians. My own work is both neoclassical and ‘old Keynesian’. Much of my published work assumes that people have rational expectations and that ‘animal spirits’ should be modeled as a new fundamental. I adopt a general equilibrium framework to model the macroeconomy. But although I write from a neo-classical tradition the themes I explore in my published writing have much in common with heterodox economics. This paper explains the common elements between these seemingly disparate traditions. I make the case for unity between Post-Keynesian and General Equilibrium Theory under the banner of Post-Keynesian Dynamic Stochastic General Equilibrium Theory.
    JEL: E0 E12
    Date: 2017–01
  43. By: Sushant Acharya; Jess Benhabib; Zhen Huo
    Abstract: We characterize the entire set of linear equilibria of beauty contest games under general information structures. In particular, we focus on equilibria in which sentiments, that is self-fulfilling changes in beliefs that are orthogonal to fundamentals and exogenous noise, can drive aggregate fluctuations. We show that, under rational expectations, there exists a continuum of sentiment-driven equilibria that generate aggregate fluctuations. Without having to take a stance on the private information agents might possess, we provide a general characterization of necessary and sufficient conditions under which a change in sentiments can have prolonged effects on aggregate outcomes and when it can only have short-lived effects. In addition, we also provide a practical way to characterize these equilibria.
    JEL: E20 E32 F44
    Date: 2017–02
  44. By: Lopes, Artur Silva; Zsurkis, Gabriel Florin
    Abstract: The authors use first differenced logged quarterly series for the GDP of 29 countries and the euro area to assess the need to use nonlinear models to describe business cycle dynamic behaviour. Their approach is model (estimation)-free, based on testing only. The authors aim to maximize power to detect non-linearities and, simultaneously, they purport avoiding the pitfalls of data mining. The evidence the authors find does not support some descriptions because the presence of significant non-linearities is observed for 2/3 of the countries only. Linear models cannot be simply dismissed as they are frequently useful. Contrarily to common knowledge, nonlinear business cycle variation does not seem to be a universal, undisputable and clearly dominant stylized fact. This finding is particularly surprising for the U.S. case. Some support for nonlinear dynamics for some further countries is obtained indirectly, through unit root tests, but this can hardly be invoked to support nonlinearity in classical business cycles.
    Keywords: business cycles,nonlinear time series models,testing
    JEL: C22 C51 E32
    Date: 2017
  45. By: Adamopoulou, Effrosyni (Efi) (Bank of Italy); Zizza, Roberta (Bank of Italy)
    Abstract: We use information on monthly wage increases set by collective agreements in Italy and exploit their variation across sectors and over time in order to examine how household consumption responds to different types of positive income shocks (regular tranches versus lump-sum payments). Focusing on single-earner households, we find evidence of consumption smoothing in accordance with the Permanent-Income Hypothesis, since total and food consumption do not exhibit excess sensitivity to anticipated regular payments. Consumption does not respond at the date of the announcement of income increases either, as these are known to compensate workers for the overall loss in their wages' purchasing power. However, consumption responds, albeit a little, to transitory and less anticipated one-off payments, as the expenditures on clothing&shoes increase upon the receipt of the lump-sum payments. This behaviour is consistent with bounded rationality as consumers do not consider the lump-sum as part of the overall wage inflation adjustment.
    Keywords: union contracts, consumption, permanent income hypothesis, bounded rationality
    JEL: D12 E21 J51
    Date: 2017–01
  46. By: Corrado, Carol; Haskel, Jonathan; Jona-Lasinio, Cecilia; Iommi, Massimiliano
    Abstract: This paper uses a new cross-country cross-industry dataset on investment in tangible and intangible assets for 18 European countries and the US. We set out a framework for measuring intangible investment and capital stocks and their effect on output, inputs and total factor productivity. The analysis provides evidence on the diffusion of intangible investment across Europe and the US over the years 2000-2013 and offers growth accounting evidence before and after the Great Recession in 2008-2009. Our major findings are the following. First, tangible investment fell massively during the Great Recession and has hardly recovered, whereas intangible investment has been relatively resilient and recovered fast in the US but lagged behind in the EU. Second, the sources of growth analysis including only national account intangibles (software, R&D, mineral exploration and artistic originals), suggest that capital deepening is the main driver of growth, with tangibles and intangibles accounting for 80% and 20% in the EU while both account for 50% in the US, over 2000-2013. Extending the asset boundary to the intangible assets not included in the national accounts (Corrado, Hulten and Sichel (2005)) makes capital deepening increases. The contribution of tangibles is reduced both in the EU and the US (60% and 40% respectively) while intangibles account for a larger share (40% in EU and 60% in the US). Then, our analysis shows that since the Great Recession, the slowdown in labour productivity growth has been driven by a decline in TFP growth with relatively a minor role for tangible and intangible capital. Finally, we document a significant correlation between stricter employment protection rules and less government investment in R&D, and a lower ratio of intangible to tangible investment.
    Keywords: productivity growth,intangible capital,sources of growth,national accounts
    JEL: O47 E22 E01
    Date: 2016
  47. 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, which we identify as the lenders f risk type (LR) and the hedge, speculative and Ponzi type (HSP) We construct macrodynamic models in a fixed and floating exchange rate sys- tem which considers both the LR and HSP financial structures. We examine the effects of international capital mobility and international lenders f risks and demonstrate the significance of the LR and HSP financial structures in the fixed and floating exchange rate system. We emphasize the significance of stable financial structures in order to stabilize dynamic systems in an open economy.
    Keywords: Minskian financial structure, financial fragility, financial instability,international capital mobility
    JEL: E12 E32 E43
    Date: 2017–02
  48. By: Chatelain, Jean-Bernard; Ralf, Kirsten
    Abstract: Macroeconomic theories of the 1980s faced accelerated depreciation when not sudden death. By contrast with econometrics and microeconomics and despite massive progress in access to data and the use of statistical softwares, macroeconomic theory appears not to be a cumulative science so far. When attempts are done to settle controversies by "nature" (testing the theories), they are designed to fail due to Gresham's law of selecting theories based on too many parameters, which are weakly or non-identified when testing them. Two examples are provided, one in growth theory and testing convergence, one in business cycles theory and testing inflation persistence.
    Keywords: Macroeconomic theory,Controversies,Identification,Economic Growth,Convergence,Inflation Persistence
    JEL: B22 B23 B41 C52 E31 O41 O47
    Date: 2017
  49. By: Dimitrios Varvarigos; Nikolaos Kontogiannis
    Abstract: We offer a behavioural approach on the relation between growth and volatility, based on a monetary growth model where entrepreneurs borrow funds to invest in projects that produce capital goods. In addition to their varying pecuniary returns, different projects also vary with respect to the status they confer to the entrepreneurs who operate them. We show that social status promotes capital accumulation. We also show that, even when the status-induced increase of marginal utility is constant over time, the interaction between status and inflation is an additional source of transitional dynamics. When a social norm links this increase of marginal utility to past outcomes, however, the dynamics can generate endogenous cycles in the transition to the balanced growth path.
    Keywords: Social status, Norms, Economic growth, Cycles
    JEL: E32 O42 Z10
    Date: 2017–01
  50. By: Jakub Borowski; Krystian Jaworski; Jakub Olipra
    Abstract: We investigate the determinants of consumer credit in 23 EU countries using panel regressions with fixed effects for 1997–2014. Against our expectations, we found evidence of positive relationship between GDP per capita and volume of consumer credit in relation to nominal GDP. In line with existing literature, our estimates also point to procyclicality of consumer lending and its dependence on young people’s share in population and level of education. Further, consumer credit is driven by development and concentration of the banking sector. The latter relationship supports the effective structure hypothesis. Our results show that credit decreases when supervision is integrated into the central bank. This finding signals that access to consumer credit is harder when political independence of supervision is warranted. Finally, consumer lending is spurred by monetary integration and this result is consistent with permanent income theorem. We were unable to discover a relationship between socio-cultural factors and credit propensity. Identification of this link suggests an avenue for future research. Our results aid in assessing the probability of consumer lending boom and related risk to financial stability. They can be used to increase the effectiveness of macroprudential policy in avoiding excess consumer lending fuelled bymonetary integration.
    Keywords: lending boom, consumer credit, monetary integration
    JEL: C33 D12 E51 G29
    Date: 2017
  51. By: Beckers, Benjamin; Bernoth, Kerstin
    Abstract: This paper investigates whether conventional interest rate policy of central banks is a suitable instrument to attenuate excessive mispricing in stocks as suggested by the proponents of a "leaning against the wind" (LATW) monetary policy. For this, we decompose the stock price into a fundamental, a risk premium and a mispricing component. We argue that mispricing can arise for two reasons: (i) from false subjective expectations of investors about future fundamentals and equity premia, and (ii) from the inherent indeterminacy in asset pricing in line with rational bubbles. Employing a partial equilibrium asset pricing model, we show that the response of the excessive stock price component to a monetary policy shock is ambiguous in both the short- and long-run, and depends on the nature of the mispricing. Subsequently, we evaluate the scope for a LATW policy empirically by employing a time-varying parameter VAR with a flexible identification scheme based on impact and long-run restrictions using data for the S&P500 index from 1962Q1 to 2014Q4. We find that a contractionary monetary policy shock in fact lowers stock prices beyond what is implied by the response of their underlying fundamentals.
    JEL: E44 E52 G12
    Date: 2016
  52. By: Gregory, Terry; Salomons, Anna; Zierahn, Ulrich
    Abstract: A fast-growing literature shows that technological change is biased towards routine tasks, changing the structures of employment and wages in developed economies. This paper is the first to estimate the absolute rather than relative employment effects of routine-biased technological change (RBTC) for Europe as a whole and at the level of 238 European regions. We develop and estimate a task model of regional labor demand in tradable and non-tradable industries, building on Goos et al. (2014), and distinguish the main channels through which technological change affects labor demand. These channels include the direct substitution of capital for labor in task production, but also the compensating effects operating through product demand and local demand spillovers. We empirically estimate the contributions of the channels in our model to analyze how RBTC affects both aggregate and regional employment. Our results indicate that RBTC has on net created more than 11 million jobs across 27 European countries over 1999-2010, comprising half of total employment growth, and can account for some 40 percent of the observed European regional variation in employment growth over this period.
    JEL: E24 J23 R23
    Date: 2016
  53. By: Baskaya, Yusuf Soner; di Giovanni, Julian; Kalemli-Ozcan, Sebnem; Peydró, José Luis; Ulu, Mehmet Fatih
    Abstract: We examine the role of the international credit channel in Turkey over 2005-2013. We show that larger, more capitalised banks with higher non-core liabilities increase credit supply when capital inflows are higher. This result is stronger for domestic banks relative to foreign banks and survives during the crisis period of post 2008, when foreign banks in general stop lending in emerging markets and retreat to their home countries. By decomposing capital inflows into bank and non-bank flows, we show the importance of domestic banks' external borrowing for domestic credit growth.
    Keywords: Bank Heterogeneity ; Bank-Lending Channel; Capital Flows
    JEL: E0 F0 F1
    Date: 2017–02
  54. By: Senzu, Emmanuel Tweneboah
    Abstract: There is quantum empirical evidence and numerous literature that correlate women empowerment to macroeconomic growth, which further make a strong correlation of empowerment of women to feminism agenda. This has led to the rise of gender democracy and feminism in the past two decades up to date. However this development of women with high educational status driven under feminism is failing to correlate to any meaningful macroeconomic growth in Africa as proposed, which this paper phenomenological seeks to prove the lack of correlation between feminism and women empowerment, hence leading to low or no effect in macroeconomic growth in Africa economic ecosystem
    Keywords: women empowerment, feminism, macroeconomic development, Africa economic ecosystem
    JEL: E22 E26 O1 O11 P0
    Date: 2017–02
  55. By: Joel M. David; Venky Venkateswaran
    Abstract: We study a model of investment in which both technological and informational frictions as well as institutional/policy distortions lead to capital misallocation, i.e., static marginal products are not equalized. We devise an empirical strategy to disentangle these forces using readily observable moments in firm-level data. Applying this methodology to manufacturing firms in China reveals that adjustment costs and uncertainty have significant aggregate consequences but account for only a modest share of the observed dispersion in the marginal product of capital. A substantial fraction of misallocation stems from firm-specific distortions, both productivity/size-dependent as well as permanent. For large US firms, adjustment costs are relatively more salient, though permanent firm-level factors remain important. These results are robust to the presence of liquidity/financial constraints.
    JEL: E0 O11 O4
    Date: 2017–02
  56. By: Leila E. Davis (Department of Economics, Middlebury College); Joao Paulo A. de Souza (Department of Economics, Middlebury College); Gonzalo Hernandez (Department of Economics, Pontificia Universidad Javeriana)
    Abstract: In this paper we analyze Minskian dynamics in the US economy via an empirical application of Minsky financing regime classifications to a panel of nonfinancial corporations. First, we map Minsky definitions of hedge, speculative and Ponzi finance onto firm-level data to describe the evolution of Minskian regimes. We highlight striking growth in the share of Ponzi firms in the post-1970 US, concentrated among small corporations. This secular growth in the incidence of Ponzi firms is consistent with the possibility of a long wave of increasingly fragile finance in the US economy. Second, we explore the possibility of short-run Minskian dynamics at a business-cycle frequency. Using linear probability models relating firms probability of being Ponzi to the aggregate output gap, which captures short-term macroeconomic fluctuations exogenous to individual firms, we find that aggregate downturns are correlated with an almost zero increased probability that firms are Ponzi. This result is corroborated by quantile regressions using a continuous measure of financial fragility, the interest coverage ratio, which identify almost zero effects of short-term fluctuations on financial fragility across the interest coverage distribution. Together, these results speak to an important question in the theoretical literature on financial fragility regarding the duration of Minskian cycles, and lend support, in particular, to the contention that Minskian dynamics may take the form of long waves, but do not operate at business cycle frequencies.
    Date: 2017
  57. By: Dimitris Christelis (University of Naples Federico II, CSEF, CFS, CEPAR and Netspar); Dimitris Georgarakos (European Central Bank, CFS and University of Leicester); Tullio Jappelli (Università di Napoli Federico II, CSEF and CEPR); Luigi Pistaferri (Stanford University and NBER); Maarten van Rooij (De Nederlandsche Bank and Netspar)
    Abstract: We use the responses of a representative sample of Dutch households to survey questions that ask how much they would consume of an unexpected, transitory, and positive income change, and by how much they would reduce their consumption in response to an unexpected, transitory, and negative income change. The questionnaire distinguishes between relatively small income changes (a one-month increase or drop in income), and relatively larger ones (equal to three months of income). The results are broadly in line with models of intertemporal choice with precautionary saving, borrowing constraints, and finite horizons.
    Keywords: Transitory Income Shocks; Positive and Negative Income Shocks; Marginal Propensity to Consume
    JEL: D12 D14 E21
    Date: 2017–02–15
  58. By: Duncan Foley (Department of Economics, New School for Social Research)
    Abstract: The financial crisis of 2007-8 damaged the credibility of macroeconomic analysis based on price-taking Walrasian intertemporal general equilibrium models. This talk explores methodological alternatives, particularly stable Nash-Cournot equilibria of social interaction models that center on agents’ response to other agents’ actions rather than on agents’ forecasts of future paths of prices and production. Social interaction equilibria in conjunction with constraints from information theory highlight the social coordination problems at the root of macroeconomic policy questions. Equilibrium concepts enhance the explanatory power of economic theories in contrast with the limitations of disequilibrium dynamical systems analysis and agent-based modeling. Constrained maximum entropy methods offer a general approach to macroeconomic modeling. Various conceptions of equilibrium in economics arise from distinct conceptions of expectations.
    Keywords: Economic equilibrium, statistical equilibrium, Nash-Cournot equilibrium, expectations, maximum entropy
    JEL: B22 B40 C62 C72 D50 E12
    Date: 2017–02
  59. By: Robert C.M. Beyer
    Abstract: This paper uses a large survey (SOEP) to update and deepen our knowledge about the labor market performance of immigrants in Germany. It documents that immigrant workers initially earn on average 20 percent less than native workers with otherwise identical characteristics. The gap is smaller for immigrants from advanced countries, with good German language skills, and with a German degree, and larger for others. The gap declines gradually over time but at a decreasing rate and much stronger for more recent cohorts. Less success in obtaining jobs with higher occupational autonomy explains half of the wage gap. Immigrants are initially less likely to participate in the labor market and more likely to be unemployed. While participation fully converges after 20 years, immigrants always remain more likely to be unemployed than the native labor force.
    Keywords: migration, Germany, labor market, wages, unemployment, participation
    JEL: E24 F22 J15 J22 J31 J61
    Date: 2017
  60. By: Autor, David (MIT); Dorn, David (University of Zurich); Katz, Lawrence (Harvard University); Patterson, Christina (Massachusetts Institute of Technology); Van Reenen, John (Massachusetts Institute of Technology)
    Abstract: The recent fall of labor's share of GDP in numerous countries is well-documented, but its causes are poorly understood. We sketch a "superstar firm" model where industries are increasingly characterized by "winner take most" competition, leading a small number of highly profitable (and low labor share) firms to command growing market share. Building on Autor et al. (2017), we evaluate and confirm two core claims of the superstar firm hypothesis: the concentration of sales among firms within industries has risen across much of the private sector; and industries with larger increases in concentration exhibit a larger decline in labor's share.
    Keywords: labor share, sales concentration
    JEL: E24 J31 L11
    Date: 2017–01
  61. By: Christina Christou (School of Economics and Management, Open University of Cyprus, Cyprus); Rangan Gupta (Department of Economics, University of Pretoria, South Africa); Wendy Nyakabawo (Department of Economics, University of Pretoria, South Africa); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha, USA and School of Business and Economics, Loughborough University, Leicestershire, UK)
    Abstract: This study analyses the long-run relationship between U.S house prices and non-housing Consumer Price Index (CPI) over the monthly period 1953 to 2016 using a quantile cointegration analysis. Our findings show evidence of instability in standard cointegration models, suggesting possibility of structural breaks and nonlinearity in the relationship between house prices and non-housing CPI. This motivates the use of a time-varying approach, namely, a quantile cointegration analysis, which allows the cointegrating coefficient to vary over the conditional distribution of house prices and simultaneously test for the existence of cointegration at each quantile. Our results suggest that the U.S non-housing CPI and house price index series are cointegrated at lower quantiles only, with house prices over-hedging inflation at these quantiles.
    Keywords: house prices, inflation, hedging, quantile cointegration
    JEL: C22 C32 E31 R31
    Date: 2017–02
  62. By: Paule-Paludkiewicz, Hannah; Fuchs-Schündeln, Nicola; Masella, Paolo
    Abstract: We analyze whether culture affects the saving behavior of households and which cultural channels matter for this household decision. To disentangle cultural effects from economic and institutional factors, we study how the saving behavior of second-generation immigrants relates to the attitudes and beliefs in the respective countries of origin. Using data from Germany and the UK, we find that culture significantly determines household saving behavior. The two cultural components that we robustly identify to affect saving rates are the attitudes towards thrift and the wealth accumulation motive: second-generation immigrants from countries that value thrift and wealth accumulation more tend to save more in Germany. By linking parents to their children, we present evidence that these attitudes are related to the saving behavior of both parents and children. We also provide evidence that future-orientation is related to the saving behavior through the intergenerational transmission of language, rather than the direct transmission of attitudes.
    JEL: D14 Z10 E21
    Date: 2016
  63. By: Daoju Peng (Capital University of Economics and Business); Kang ShiAuthor-Workplace-Name: Chinese University of Hong Kong; Juanyi XuAuthor-Workplace-Name: Hong Kong University of Science and Technology
    Abstract: Chinese real business cycle (RBC) exhibits a unique pattern, which is characterized by moderate consumption volatility, substantially low investment volatility, and acyclical trade balance. These features are quite different from business cycles in other emerging markets and cannot be explained by existing emerging market RBC theories. Motivated by the facts that China undertook dramatic and persistent reform on state-owned enterprises (SOE) in the last 30 years, we construct a full-fledged general equilibrium model with SOE sector and show that the model does a fairly good job in accounting for the above features. The two main driving forces are: (1) shock to the share of downstream SOE in manufacturing sectors and (2) shock to upstream SOE's monopolistic position. These two shocks can explain 85 percent of output volatility, 79 percent of consumption volatility, 72 percent of investment volatility, and 57 percent of the volatility of trade balance-to-output ratio. Relatively speaking, standard shocks such as permanent productivity shock, credit shocks, country risk premium shocks, and preference shocks are less important in explaining Chinese economic fluctuations. Our results show that Chinese RBC may be affected substantially by domestic policies.
    Date: 2016–02
  64. By: Soyoung Kim (Seoul National University); Kuntae Lim (Bank of Korea)
    Abstract: This study empirically investigates the effects of monetary policy shocks on the exchange rate in six emerging countries (Korea, Thailand, the Philippines, Mexico, Brazil, and Colombia). VAR models are used, wherein sign restrictions on impulse responses are imposed to identify monetary policy shocks. The empirical model reflects the small open emerging economy features. The estimation period is the recent period in which these countries adopted inflation targeting and more flexible exchange rate regimes based on the experience of advanced countries. The main findings are as follows. First, various puzzles such as the ¡°exchange rate puzzle,¡± ¡°delayed overshooting puzzle,¡± and ¡°forward discount bias puzzle¡± are frequently found in these countries. Second, more severe puzzles are found in these emerging countries than in small open advanced countries.
    Keywords: VAR, Monetary Policy Shocks, Exchange Rate, UIP Condition, Delayed Overshooting
    JEL: F3 E5
    Date: 2016–12
  65. By: Kamiar Mohaddes; Mehdi Raissi
    Abstract: This paper studies the impact of commodity terms of trade (CToT) volatility on economic growth (and its sources) in a sample of 69 commodity-dependent countries, and assesses the role of Sovereign Wealth Funds (SWFs) and quality of institutions in their long-term growth performance. Using annual data over the period 1981-2014, we employ the Cross-Sectionally augmented Autoregressive Distributive Lag (CS-ARDL) methodology for estimation to account for cross-country heterogeneity, cross-sectional dependence, and feedback effects. We find that while CToT volatility exerts a negative impact on economic growth (operating through lower accumulation of physical capital and lower TFP), the average impact is dampened if a country has a SWF and better institutional quality (hence a more stable government expenditure).
    Keywords: Economic growth, commodity prices, volatility, sovereign wealth funds
    JEL: C23 E32 F43 O13 O40
    Date: 2017–02
  66. By: Ali-Yrkkö, Jyrki; Kuusi, Tero; Maliranta, Mika
    Abstract: In this study we analyse the development of business investments in Finland and in other countries of comparison on the basis of national accounts, survey data and a sector-level general equilibrium model. According to the results, the decline in investments in Finland is mainly explained by two factors: the decrease in the investments in construction and the collapse of the research and development costs of the Nokia cluster. The aggregate production has, however, dropped almost at a corresponding rate with the investments. For this reason, the investment rate of companies is currently almost at the same level as in the years 2000–2008. However, after the financial crisis the development of investment volume has been weaker in Finland than in many other countries. The differences cannot be explained by the availability of debt financing, as access to capital in clearly better in Finland than in most other European countries. The investment rate in Finland is reduced especially by weak future prospects for the growth of productivity. The anticipated decline in the labour force also somewhat hinders the rate of investment. The analyses also show that Finland competes against Estonia for manufacturing investments as well as for headquarter locations. In the long term, the greatest concern is that in industries other than electronics, the Finnish private R&D investments are no higher than the European average. In other words, Finland does not seem to have an especially strong ambition to seek for a competitive advantage in innovations.
    Keywords: Investment, business, structural change, comparison, financial constraint
    JEL: E22 O34
    Date: 2017–02–16
  67. By: Hongyi Chen (Hong Kong Institute for Monetary Research); Michael Funke (Hamburg University Department of Economics and CESifo Munich); Andrew Tsang (Hong Kong Institute for Monetary Research)
    Abstract: The ongoing producer price deflation in China and other Asian economies is a genuine concern. In particular, China¡¯s producer prices are down a cumulative 12.7 percent from their peak in 2011, extending the stretch of negative producer price readings for 52 months in a row. Given the problem of overcapacity and heavy debt burden, this persistent decline in the producer price index could hurt corporate revenue, which limits fixed investments and the country's overall growth. Against this background, the paper analyses the determinants of the producer price decline across 11 Asian economies, and finds that the recent synchronous and protracted producer price deflation is driven by weak production growth, sharp declines in commodity prices, spillover effects from China¡¯s producer price deflation and policy uncertainty and, to a lesser extent, exchange rate pass-through. Since China is at the heart of the region¡¯s producer price deflation challenge, we also discuss the necessary structural adjustments in China to cope with the decline and head off deflationary threats.
    Keywords: Producer prices, international spillovers, deflation, Asia, structural adjustments, China
    JEL: C23 C32 E31
    Date: 2016–08
  68. By: Katsuhiro Oshima (Graduate School of Economics,Kyoto University)
    Abstract: Observing ultra-low interest yields in recent years, it is often pointed out that the existence of "search-for-yield" behaviors of nancial institutions might have been inten- sifying interest rate drops. One hypothesis to explain "search-for-yield" is that banks try to buy longer-term bonds even when they expect upward paths of the short-term interest rate and they recognize negative term premium in long-term rates because they care about current portfolio income, not just expected holding-period returns. A main purpose of this paper is to study implications about general equilibrium effects from the existence of banks with this type of "search-for-yield". Hanson and Stein (2015) give explanations about what these investors bring to the long-term interest rate pricing from their partial equilibrium model. I incorporate a similar setting to theirs into a general equilibrium model with banks exposed to the value at risk constraint. Implica- tions found here are as follows. First, the existence of these banks makes recovery path after negative productivity shock hits the economy more sluggish. Second, as Hanson and Stein (2015) suggest, we observe lower term premium in the long-term bond in- terest rate. Third, when the scal authority is more sensitive to the increase in bond outstanding, these impacts become smaller.
    Keywords: Business cycle, Irrationality, Yield-search, Long-term real rates, Value at Risk Constraint, Banks' asset allocation
    JEL: E32 E43 G11 G12
    Date: 2017–02
  69. By: Pérez, Fernando (Banco Central de Reserva del Perú); Ghurra, Omar (Banco Central de Reserva del Perú); Grandez, Rodrigo (Banco Central de Reserva del Perú)
    Abstract: Dado el rezago en que se publican las cifras del crecimiento del PBI, es importante contar con indicadores líderes de la actividad económica que permitan conocer en tiempo real la evolución de la misma. Esto facilita la toma de decisiones de política económica. Por ello, en el presente trabajo, construimos un indicador líder de la actividad económica peruana siguiendo la metodología de Aruoba et al. (2009). Este indicador es extraído como un componente no observable que explica el co-movimiento de seis variables: producción de electricidad, consumo interno de cemento, IGV interno ajustado, ventas de pollo, producción minerometálica y PBI real. La principal ventaja de este indicador está en que puede actualizarse con un rezago menor a una semana respecto al mes de interés, dada la naturaleza de las variables que lo componen. Los resultados muestran una correlación positiva de nuestro indicador con el PBI real en alrededor de 85 %, lo que permite realizar el nowcasting del crecimiento con un alto nivel de precisión.
    Keywords: Indicador líder, actividad económica, PBI
    JEL: C32 E32
    Date: 2017–01
  70. By: Jensen, Christian
    Abstract: Because optimal plans are time-inconsistent, continuing one from a previous period is not optimal from today's perspective, and may not outperform discretion, even ignoring gains from surprise deviations. Hence, contrary to conventional wisdom, a binding and credible commitment does not always outperform discretion over time, even if a non-credible commitment does. Forward-looking policymakers might therefore not want to irrevocably bind themselves to the optimal plan from any particular period, even if they could. The vast literature proposing different commitment mechanisms illustrates that it is a common misconception that a credible commitment to the optimal plan is always preferable to discretion.
    Keywords: Commitment; discretion; policy rules; expectations
    JEL: E52 E61 H30
    Date: 2016–09
  71. By: Schaefer, Daniel; Singleton, Carl
    Abstract: Using a dataset covering a large sample of employees and their mostly very large employers, we study the dynamics of British wage inequality over the past two decades. Contrary to other studies, we find little evidence that recent increases in inequality have been driven by differences in the average wages paid by firms. Instead greater dispersion within firms can account for the majority of changes to the wage distribution. After controlling for the changing occupational content of employee wages, the role of average firm residual differences is approximately zero; the modestly increasing trend in between-firm wage inequality is explained by a combination of changes in between-occupation inequality and the occupational specialisation of firms. It is possible that previous studies, which assign some of the importance of changes in the between-firm component to industry, have misrepresented a significant role for occupations. These results are robust across measures of hourly, weekly and annual wages.
    Keywords: wage inequality, within-firm inequality, occupational wage premiums
    JEL: E24 J31
    Date: 2017–01
  72. By: Heinisch, Katja; Scheufele, Rolf
    Abstract: In this paper we investigate whether differences exist among forecasts using real-time or latest-available data to predict gross domestic product (GDP). We employ mixed-frequency models and real-time data to reassess the role of survey data relative to industrial production and orders in Germany. Although we find evidence that forecast characteristics based on real-time and final data releases differ, we also observe minimal impacts on the relative forecasting performance of indicator models. However, when obtaining the optimal combination of soft and hard data, the use of final release data may understate the role of survey information.
    Keywords: mixed-frequency VAR,real-time data,nowcasting,forecasting
    JEL: C53 C55 E37
    Date: 2017
  73. By: Victor Olkhov
    Abstract: We present macroeconomic model that describes evolution of macroeconomic variables and macroeconomic waves on economic space. Risk ratings of economic agents play role of their coordinates on economic space. Aggregation of economic variables like Assets and Investment, Credits and Loans of economic agents at point x define corresponding macroeconomic variables as functions of time t and coordinates x on economic space. Evolution of macroeconomic variables is determined by economic and financial transactions between economic agents. Such transactions can occur between economic agents with any coordinates x and y and that reflect non-local "action-at-a-distance" character of internal macroeconomic interactions. For instance, Buy-Sell transactions between points x and y on economic space define dynamics of Assets at point x and Investment at point y. Aggregates of transactions between economic agents at point x and y on economic space define economic fields as functions of two coordinates. To describe dynamics of economic fields on economic space we derive hydrodynamic-like equations. For simple models of interactions between economic fields we derive hydrodynamic-like equations in a closed form and obtain wave equations for their perturbations. Economic field waves propagate on economic space and their amplitudes can grow up as exponent in time and may disturb economic stability. Diversities of macroeconomic and financial waves on economic space in simple models uncover importance of wave processes for macroeconomic modeling and forecasting.
    Date: 2017–02
  74. By: Xie, Zoe
    Abstract: Contrary to assumptions in the unemployment insurance (UI) literature, this paper argues that unemployed workers do not always lose uncollected UI benefits when they start a new job. Instead, they may postpone the collection of leftover benefits to future unemployment spells. Further, using cross-time and cross-state variations in UI policies, the paper finds empirical evidence that allowing unemployed workers to delay the collection of benefits increases their incentives to find a job during recessions when wages are low, job separation rates are high, and UI benefits are extended. I quantify the effects of the policy of allowing delayed collection of benefits on aggregate unemployment by introducing endogenous search effort, benefit eligibility, and wage indexed benefits into a standard search-and-matching framework. The model demonstrates how the policy increases the future value of employment even though more generous UI benefits in general reduce the net value of employment. Using a calibrated model,I find that allowing delayed benefit collection raises the proportion of unemployed workers receiving benefits and reduces the unemployment rate during 2009–2012.
    Keywords: Unemployment insurance, Unemployment, Short-term employment
    JEL: E65 J64 J65
    Date: 2015–11–15
  75. By: Davies, Elwyn (University of Oxford); Fafchamps, Marcel (Stanford University)
    Abstract: Firm surveys have shown that labour management in developing countries is often problematic. Earlier experimental research (Davies & Fafchamps, 2017) has shown that managers in Ghana are reluctant to use monetary incentives to motivate workers. This paper presents the results from a gift-exchange game experiment in Ghana in which the worker can make a promise to the employer before a contract is offered (ex ante communication) and in which the employer can send negative or positive feedback to the worker after the worker has chosen effort (ex post communication). The results indicate that feedback can help sustain cooperate behaviour (high effort provision), but only if the wage offered is high enough. Feedback reinforces reciprocity concerns on the behalf of the worker. In particular positive messages (praising) leads to higher effort provision, no significant relation between negative feedback and effort can be found. Promises are related to higher effort, but do not necessarily lead to higher wages.
    Keywords: worker incentives, gift exchange, effort, worker criticism, communication
    JEL: C71 D2 D86 E24 O16
    Date: 2017–01
  76. By: Ivan Mendieta-Muñoz
    Abstract: We document differences between the evolution of a measure of potential output growth and the evolution of a measure of potential output per capita growth using time-varying parameter models estimated for four advanced economies (Canada, Germany, the United Kingdom and the United States). The evidence supports the view that most of the slowdown in potential output growth occurred prior to the Great Recession. However, the potential output per capita growth rate: 1) remained relatively constant in Canada; and 2) decreased less (more) than the potential output growth rate in Germany and the United States (in the United Kingdom). These results indicate that: 1) the decline in potential output growth in Canada is mainly associated with the decrease in population growth; and 2) the decrease in population growth is an important factor in order to explain the decline in potential output in Germany and the United States, but not in the United Kingdom.
    Keywords: Potential output growth rate, Potential output per capita growth rate, Rates of growth consistent with a constant unemployment rate JEL Classification: O41, O47
    Date: 2017
  77. By: Klepsch, Catharina; Elsas, Ralf
    Abstract: Due to adjustment costs, firms’ only partially adjust toward desired investment levels. By exploiting unique survey data on firms’ desired investments, we examine how and when firms adjust their investments toward stated plans (targets). More precisely, we examine how financing costs due to asymmetric information, disruption costs, and costs due to asset irreversibility influence firms’ adjustment costs and thus adjustment behavior. We find that firms with sufficient cash flows to finance all desired investments adjust significantly faster toward targets than firms with insufficient cash flows. Moreover, firms with either minor investment targets, a large fraction of desired replacement investments or low asset irreversibility adjust within shorter time compared to firms with major investment plans, capacity expansion targets or high asset irreversibility, respectively. Finally, although several prior studies find that the financial crisis of 2008 and 2009 reduced firms’ realized investment spending, our results indicate that firms’ speed of adjustment toward target investments was not influenced by the crisis.
    JEL: D92 E22 G31
    Date: 2016
  78. By: Evžen Kočenda (Institute of Economic Studies, Charles University, Prague)
    Abstract: In this survey article, we present a rich extent of literature on volatility and its propagation on financial markets via spillovers. We document how new approaches or improved existing methodologies lead to results that offer richer insights than those derived from standard econometric techniques. Moreover, the implications of the results can be related to a wide set of markets as the surveyed articles cover emerging and developed European markets as well as the United States.
    Keywords: volatility; volatility spillovers; financial markets
    JEL: C10 E44 F31 G15
    Date: 2017–02
  79. By: Congressional Budget Office
    Abstract: Federal investment in physical capital, education, and research and development facilitates commerce, helps develop a skilled workforce, and encourages innovation, all of which boost private-sector productivity. That increase in productivity raises the nation’s economic output and federal revenues—but only gradually. The macroeconomic effects of federal investment depend on how that spending is financed. An increase in investment that is financed by added federal borrowing boosts short-term output. However, that added borrowing reduces the amount of money available for private investment,
    JEL: E60 H40 H50 H60
    Date: 2016–06–16
  80. By: Congressional Budget Office
    Abstract: Federal investment in physical capital, education, and research and development facilitates commerce, helps develop a skilled workforce, and encourages innovation, all of which boost private-sector productivity. That increase in productivity raises the nation’s economic output and federal revenues—but only gradually. The macroeconomic effects of federal investment depend on how that spending is financed. An increase in investment that is financed by added federal borrowing boosts short-term output. However, that added borrowing reduces the amount of money available for private investment,
    JEL: E60 H40 H50 H60
    Date: 2016–06–16
  81. By: Congressional Budget Office
    Abstract: Federal investment in physical capital, education, and research and development facilitates commerce, helps develop a skilled workforce, and encourages innovation, all of which boost private-sector productivity. That increase in productivity raises the nation’s economic output and federal revenues—but only gradually. The macroeconomic effects of federal investment depend on how that spending is financed. An increase in investment that is financed by added federal borrowing boosts short-term output. However, that added borrowing reduces the amount of money available for private investment,
    JEL: E60 H40 H50 H60
    Date: 2016–06–16
  82. By: Onaran, Özlem
    Abstract: In this brief we discuss the impact on the economy through five channels via the effects of Brexit on trade, migration, budget deficit, private investment, and the depreciation of the pound. Moving forward, a Brexit deal that minimizes damage for working people would require minimum distortion to the relationship with Europe. This requires negotiating membership to the customs union as well as access to the single market.
    Keywords: UK Referendum; Brexit; Europe; inequality; wages; globalization; migration; capital mobility;
    JEL: E12 E22 E25
    Date: 2017–02–07
  83. By: Sung-Eun Yu
    Abstract: I provide more evidence on the behavior of small and large firms, employing the Flow of Funds data, the QFR data and other sources. The empirical test to examine behavior of small and large firms is conducted in two ways: (1) by different episodes, tight monetary policy episodes and business cycles episodes and (2) by different time periods, Pre-1990 periods and Post-1990 periods. First, I find that a monetary shock and an NBER recession shock differently affect firms’ short-term financing behavior. During recent periods, after a contractionary monetary shock, large firms increase their short-term debt more than small firms, whereas after an NBER recession shock, large firms decrease most balance sheet variables (including short-term debt) more than small firms. These findings suggest that small firms are more credit-constrained after a monetary policy shock, whereas large firms are more credit-constrained after an NBER recession shock. Second, I find that, after a contractionary monetary shock, during earlier periods, large firms decrease their short-term debt less than small firms, whereas during recent periods, large firms increase more than small firms. Although these findings appear to be contradictory, they are consistent in that small firms have continued to be more credit-constrained than large firms after contractionary monetary policy?at the time when demand for loans increases.
    Keywords: monetary policy shock, business cycle shock, small firms, large firms JEL Classification: E32, E 51, E52
    Date: 2017
  84. By: Minford, Patrick; Wickens, Michael R.; Xu, Yongdeng
    Abstract: Indirect inference testing can be carried out with a variety of auxiliary models. Asymptotically these different models make no difference. However, in small samples power can differ. We explore small sample power with three different auxiliary models: a VAR, average Impulse Response Functions and Moments. The latter corresponds to the Simulated Moments Method. We find that in a small macro model there is no difference in power. But in a large complex macro model the power with Moments rises more slowly with increasing misspecification than with the other two which remain similar.
    Keywords: Indirect Inference; DGSE model; Auxiliary models; Simulated Moments Method
    Date: 2017–01
  85. By: Bullard, James; Singh, Aarti
    Abstract: We study nominal GDP targeting as optimal monetary policy in a model with a credit market friction following Azariadis, Bullard, Singh and Suda (2016), henceforth ABSS. As in ABSS, the macroeconomy we study has considerable income inequality which gives rise to a large private sector credit market. Households participating in this market use non-state contingent nominal contracts (NSCNC). We extend the ABSS framework to allow for endogenous and heterogeneous household labor supply among credit market participant households. We show that nominal GDP targeting continues to characterize optimal monetary policy in this setting. Optimal monetary policy repairs the distortion caused by the credit market friction and so leaves heterogeneous households supplying their desired amount of labor, a type of "divine coincidence" result. We also analyze the case when there is an aging population. We interpret these findings in light of the recent debate in monetary policy concerning labor force participation.
    Keywords: Non-state contingent nominal contracting, optimal monetary policy, nominal GDP targeting, life cycle economies, heterogeneous households, credit market participation, labor supply.
    Date: 2017–02
  86. By: Díaz-Bonilla, Eugenio; Piñeiro, Valeria; Elverdin, Pablo
    Abstract: We conduct an ex ante evaluation of the impacts of a potential global recession within the next years and the possible policy responses to support economic activity and improve social indicators in five Central American countries: Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. We review the economic and social evolution of the past decades in those countries, and we consider a global scenario that includes further deceleration of world growth, lower commodity prices, and a decline in remittances and capital flows to those countries. We simulate those scenarios and related policy issues using recursive dynamic CGE models for the countries considered. The global shock is run under fixed exchange rates and flexible exchange rates (in the case of El Salvador, which has adopted the US dollar as the domestic currency, the simulation of a flexible exchange rate is just indicative). In all cases, a flexible exchange rate delivers better results in terms of GDP per capita, by softening the overall economic impact of the external shocks. Two possible interventions to deal with the recession are simulated: one focuses on policies to strengthen the safety net for the poor; the other applies a more general macroeconomic stimulus (a tax cut plus a modest increase in public investments, financed by un-conventional monetary policy) to try to cushion the shock. For all countries except El Salvador, these two simulations are run with a flexible exchange rate. In the first policy simulation GDP per capita in those countries does not change much, but the poor groups targeted clearly improve their incomes and consumption, helping them the most during the years of the negative shocks. In the second simulation, the macroeconomic stimulus improves the performance of the economies, allowing GDP per capita to be higher than in the case of the shock alone. In summary, facing a potential global downturn as the one simulated here, those countries that have flexible exchange rates and the use of domestic monetary policies can use a mix of adjustment in exchange rates combined with targeted poverty transfers and macroeconomic stimulus to alleviate the shock. El Salvador, which does not have the exchange rate and monetary instruments, will require further support from multilateral and bilateral sources to soften the shock
    Keywords: macroeconomics, economic growth,
    Date: 2016
  87. By: Buchholz, Manuel; Tonzer, Lena; Berner, Julian
    Abstract: This paper analyzes how firm-specific uncertainty affects firms’ propensity to invest. We measure firm-specific uncertainty as firms’ absolute forecast errors derived from survey data of German manufacturing firms over 2007-11. In line with the literature, our empirical findings reveal a negative impact of firm-specific uncertainty on investment. Yet, further results show that the investment response is asymmetric depending on the size and direction of the forecast error: The investment propensity declines significantly if the realized situation is worse than expected. However, firms do not adjust their investment if the realized situation is better than expected, which suggests that the uncertainty effect counteracts the positive effect due to unexpectedly favorable business conditions. This can be one explanation behind the phenomenon of slow recovery in the aftermath of financial crises. Additional results show that the forecast error is highly concurrent with an ex-ante measure of firm-specific uncertainty that we obtain from the survey data. Furthermore, the effect of firm-specific uncertainty is enforced for firms that face a tighter financing situation.
    JEL: D22 D84 E32
    Date: 2016
  88. By: Ethan Ilzetzki; Carmen M. Reinhart; Kenneth S. Rogoff
    Abstract: Detailed country-by-country chronologies are an informative companion piece to our paper “Exchange Arrangements Entering the 21st Century: Which Anchor Will Hold?,” which provides a comprehensive history of anchor or reference currencies, exchange rate arrangements, and a new measure of foreign exchange restrictions for 194 countries and territories over 1946-2016. The individual country chronologies are also a central component of our approach to classifying regimes. These country histories date dual or multiple exchange rate episodes, as well as to differentiate between pre-announced pegs, crawling pegs, and bands from their de facto counterparts. We think it is important to distinguish between say, de facto pegs or bands from announced pegs or bands, because their properties are potentially different. The chronologies also flag the dates for important turning points, such as when the exchange rate first floated, or when the anchor currency was changed. We extend our chronologies as far back as possible, even though we only classify regimes from 1946 onwards.
    JEL: E5 F3 F4 N2
    Date: 2017–02
  89. By: Ethan Ilzetzki; Carmen M. Reinhart; Kenneth S. Rogoff
    Abstract: This paper provides a comprehensive history of anchor or reference currencies, exchange rate arrangements, and a new measure of foreign exchange restrictions for 194 countries and territories over 1946-2016. We find that the often-cited post-Bretton Woods transition from fixed to flexible arrangements is overstated; regimes with limited flexibility remain in the majority. Our central finding is that the US dollar scores (by a wide margin) as the world’s dominant anchor currency and, by some metrics, its use is far wider today than 70 years ago. In contrast, the global role of the euro appears to have stalled in recent years. While the incidence of capital account restrictions has been trending lower for decades, an important wave toward capital market integration dates as recently as the mid-1990s. We suggest that record accumulation of reserves post 2002 has much to do with many countries’ desire to stabilize exchange rates in an environment of markedly greater capital mobility. Indeed, the continuing desire to manage exchange rates despite increased capital mobility post-2003 may be a key factor underpinning the modern-day Triffin dilemma that some have recently pointed to.
    JEL: E50 F3 F4 N2
    Date: 2017–02
  90. By: Ilzetzki, Ethan; Reinhart, Carmen M.; Rogoff, Kenneth
    Abstract: This paper provides a comprehensive history of anchor or reference currencies, exchange rate arrangements, and a new measure of foreign exchange restrictions for 194 countries and territories over 1946-2016. We find that the often-cited post-Bretton Woods transition from fixed to flexible arrangements is overstated; regimes with limited flexibility remain in the majority. Our central finding is that the US dollar scores (by a wide margin) as the world's dominant anchor currency and, by some metrics, its use is far wider today than 70 years ago. In contrast, the global role of the euro appears to have stalled in recent years. While the incidence of capital account restrictions has been trending lower for decades, an important wave toward capital market integration dates as recently as the mid-1990s. We suggest that record accumulation of reserves post 2002 has much to do with many countries' desire to stabilize exchange rates in an environment of markedly greater capital mobility. Indeed, the continuing desire to manage exchange rates despite increased capital mobility post-2003 may be a key factor underpinning the modern-day Triffin dilemma that some have recently pointed to.
    JEL: E5 F3 F4 N2
    Date: 2017–02
  91. By: Trezzini, Attilio (Università degli Studi Roma Tre (Roma Tre University))
    Abstract: The concept of Harrodian instability is reexamined taking into due consideration the fact that growth occurs through irregular fluctuations. This undermines the cornerstone of Harrodian instability, namely the way in which investment is assumed to react to a degree of utilization differing from its desired level. The methodo-logical consequence of Harrodian instability is reconsidered: the assumption that only theoretical positions in which capacity and demand are perfectly adjusted can be regarded as theoretically acceptable appears to be based on weak foundations. The relevance of the cumulative tendencies toward expansion and recession is greatly re-duced. Different ways of addressing these hypothetical phenomena are suggested.
    Keywords: Harrodian Instability; Demand-led Growth Theory; Methodology
    JEL: B41 E12 O40
    Date: 2017–02
  92. By: Nikolaos, Kyriazis; Economou, Emmanouel/Marios/Lazaros
    Abstract: In the aftermath of the UK referendum on 23 June, 2016 that resulted in a sonorous negative decision regarding the willingness of the British people to remain in the EU, a significant number of alarming questions have emerged. Although Europe should have forged in crises, nowadays, many compromises have to be made in order to maintain the European construction as intact as possible. The question we attempt to answer is whether a new phase of unconventional monetary policy in the form of QE would be appropriate to lessen the threat of an upcoming crisis. This is why we examine Eurozone QE perspectives through the prism of the new without the UK era of the EU in order to highlight the pros and cons of the historical Brexit decision. As new rounds of unconventional monetary policy are believed to be essential for supporting the weaker countries in the European south, perspectives of non-conventional success could alter and optimal policies be substantially reformulated subject to the newly-arising constraints.
    Keywords: Brexit, European Union, Quantitative Easing, Eurozone
    JEL: E52 E58 G18 G28 H7
    Date: 2017–01–05
  93. By: Ostwald, Dennis A.; Legler, Benno; Schwärzler, Marion Cornelia
    Abstract: The health economy today plays a central role in many areas of society. This development is evidenced, not least, by the increased perception of the health economy as a key economic factor in Germany. On this basis, many sub-sectors of the industry, such as the industrial health economy, are experiencing mounting social and political attention from an economic perspective. In this connection, health insurance, an important segment of the health economy, has so far been the subject of only a small number of academic studies. This study therefore aims to examine the importance, in economic and employment policy terms, of private health insurance as a key player in the health economy in the context of the German economy at large. Its importance will be quantified on the basis of the economic contribution that private health insurance makes to economic growth and the labour market. The answer to this question augments the current (academic) debate about the health economy generally as well as its individual players. The analysis places particular emphasis on the significance of these economic activities to German society and ultimately also to German gross domestic product (GDP). The design of this study builds on numerous research projects conducted by the Federal Ministry for Economic Affairs and Energy. These studies demonstrate that the health economy is one of the largest industries in Germany, accounting for roughly 12 percent of GDP in 2015. At the same time, just under one in six employed persons in Germany were employed in this industry, which also generates over 7 percent of Germany’s total exports. Taking as its basis the aforementioned research projects of the Federal Ministry for Economic Affairs and Energy, this study entitled “The economic footprint of private health insurance in Germany” is the first of its kind to depict private health insurance as an economic player with-in the health economy and, building on this, to quantify the direct, indirect and induced contribution private health insurance makes to growth and employment in Germany. This macroeconomic perspective constitutes an important step towards a comprehensive analysis of health economy players within a value chain of care. The recording of the individual contributions and, in particular, the interconnections between players such as the private health insurers and other industries allows quantitative arguments to be put forward in order to overcome the prevailing silo mentality of the individual actors in the health economy.
    Keywords: Gesundheitswirtschaft; Private Krankenversicherung; Gesundheitswirtschaftliche Gesamtrechnung; ökonomischer Fußabdruck; Input-Output-Analyse; Deutschland;
    JEL: C67 E01 I11 I13 I15 I18
    Date: 2016–12
  94. By: Dafermos, Yannis; Nikolaidi, Maria; Galanis, Giorgos
    Abstract: This paper develops a stock-flow-fund ecological macroeconomic model that combines the stock-flow consistent approach of Godley and Lavoie with the flow-fund model of Georgescu-Roegen. The model has the following key features. First, monetary and physical stocks and flows are explicitly formalised taking into account the accounting principles and the laws of thermodynamics. Second, Georgescu-Roegen’s distinction between stock-flow and fund-service resources is adopted. Third, output is demand-determined but supply constraints might arise either due to environmental damages or due to the exhaustion of natural resources. Fourth, climate change influences directly the components of aggregate demand. Fifth, finance affects macroeconomic activity and the materialisation of investment plans that determine ecological efficiency. The model is calibrated using global data. Simulations are conducted to investigate the trajectories of key environmental, macroeconomic and financial variables under (i) different assumptions about the sensitivity of economic activity to the leverage ratio of firms and (ii) different types of green finance policies.
    Keywords: Ecological macroeconomics; stock-flow consistent modelling; laws of thermodynamics; climate change; finance
    Date: 2016–09–14
  95. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: We develop a generic Kalecki-Robinson model of growth that, subject to different closures, illustrates the different channels through which the economy can adjust to a change in demand conditions in the long run. The closures are shown to have different implications for the behaviour of the rate of capacity utilization and hence whether and how the economy achieves a “fully-adjusted position” (equalization of the actual and normal rates of capacity utilization). Assuming that the normal rate of capacity utilization is exogenously fixed, it is then shown that variation in the actual capacity utilization rate can nevertheless occur – at least within limits – without triggering “Harrodian instability”. This result emanates from a discontinuity in the investment function that is grounded in Harrod’s own macrodynamics, so that it is ultimately the combination of Harrodian and Kaleckian dynamics that gives rise to long-run variations in the actual rate of capacity utilization in the presence of a fixed normal rate. Aggregate and industry-level US capacity utilization data are then used to calculate possible bands within which the rate of capacity utilization may vary without triggering Harrodian instability. A key finding is that the conditions necessary for the latter appear to be relatively rare.
    Keywords: Normal rate of capacity utilization, Harrodian instability, Kaleckian growth theory
    JEL: E11 E12 O41
    Date: 2017–02
  96. By: D'Albis, Hippolyte (University of Toulouse I); Boubtane, Ekrame (CERDI, University of Auvergne); Coulibaly, Dramane (CEPII, Paris)
    Abstract: This article examines the causal relations between non-European immigration and the characteristics of the housing market in host regions. We constructed a unique database from administrative records and used it to assess annual migration flows into France's 22 administrative regions from 1990 to 2013. We then estimated various panel VAR models, taking into account GDP per capita and the unemployment rate as the main regional economic indicators. We find that immigration has no significant effect on property prices, but that higher property prices significantly reduce immigration rates. We also find no significant relationship between immigration and social housing supply.
    Keywords: immigration, property prices, social housing, panel VAR
    JEL: E20 F22 J61
    Date: 2017–01
  97. By: Christiano, Lawrence J. (Federal Reserve Bank of Minneapolis)
    Abstract: The Great Recession was particularly severe and has endured far longer than most recessions. Economists now believe it was caused by a perfect storm of declining home prices, a financial system heavily invested in house-related assets and a shadow banking system highly vulnerable to bank runs or rollover risk. It has lasted longer than most recessions because economically damaged households were unwilling or unable to increase spending, thus perpetuating the recession by a mechanism known as the paradox of thrift. Economists believe the Great Recession wasn’t foreseen because the size and fragility of the shadow banking system had gone unnoticed. {{p}} The recession has had an inordinate impact on macroeconomics as a discipline, leading economists to reconsider two largely discarded theories: IS-LM and the paradox of thrift. It has also forced theorists to better understand and incorporate the financial sector into their models, the most promising of which focus on mismatch between the maturity periods of assets and liabilities held by banks.
    Date: 2017–02–07
  98. By: Kyle Herkenhoff (University of Minnesota); Gordon Phillips (Dartmouth College Tuck School of Business); Ethan Cohen-Cole (Econ One Research)
    Abstract: How does consumer credit access impact job flows, earnings, and entrepreneurship? To answer this question, we build a new administrative dataset which links individual employment and entrepreneur tax records to TransUnion credit reports, and we exploit the discrete increase in consumer credit access following bankruptcy flag removal. After flag removal, individuals flow into self-employment. New entrants earn more, borrow significantly using unsecured and secured consumer credit, and are more likely to become an employer business. In addition, after flag removal, non-employed and self-employed individuals are more likely to find unemployment-insured ``formal'' jobs at larger firms that pay greater wages. These estimates imply that firms believe previously bankrupt workers are 3.8% less productive than non-bankrupt workers, on average. These results suggest that consumer credit access matters for each stage of entrepreneurship and that credit-checks may be limiting formal sector employment opportunities.
    Keywords: credit access, entrepreneurship, bankruptcy
    JEL: K35 E50
    Date: 2017–02
  99. By: Simplice Asongu (Yaoundé/Cameroun); Jacinta C. Nwachukwu (Coventry University, UK)
    Abstract: This study extents the literature on responses to a recent World Bank report on the African poverty tragedy by assessing the effect of globalisation on inclusive human development in 51 African countries for the period 1996-2011. Political, economic, social and general globalisation variables are used. The empirical evidence is based on Generalised Method of Moments (GMM) and Instrumental Quantile Regressions (IQR). While estimated coefficients are not significant in GMM results, for IQR, globalisation positively affects inclusive human development and the beneficial effect is higher in countries with high initial levels of inclusive development. The main economic implication is that in the post-2015 development agenda, countries would benefit more from globalisation by increasing their levels of inclusive development.
    Keywords: Globalisation; inequality; inclusive development; Africa
    JEL: E60 F40 F59 D60 O55
    Date: 2016–11
  100. By: Facundo Alvaredo; Lucas Chancel; Thomas Piketty; Emmanuel Saez; Gabriel Zucman
    Abstract: This paper presents new findings on global inequality dynamics from the World Wealth and Income Database (, with particular emphasis on the contrast between the trends observed in the United States, China, France, and the United Kingdom. We observe rising top income and wealth shares in nearly all countries in recent decades. But the magnitude of the increase varies substantially, thereby suggesting that different country-specific policies and institutions matter considerably. Long-run wealth inequality dynamics appear to be highly unstable. We stress the need for more democratic transparency on income and wealth dynamics and better access to administrative and financial data.
    JEL: E01 H2 H5 J3
    Date: 2017–02

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