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on Macroeconomics |
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Issue of 2017‒02‒26
99 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Julio A. Carrillo; Enrique G. Mendoza; Victoria Nuguer; Jessica Roldán-Peña |
| Abstract: | Quantitative analysis of a New Keynesian model with the Bernanke-Gertler accelerator and risk shocks shows that violations of Tinbergen’s Rule and strategic interaction between policymaking authorities undermine significantly the effectiveness of monetary and financial policies. Separate monetary and financial policy rules, with the latter subsidizing lenders to encourage lending when credit spreads rise, produce higher welfare and smoother business cycles than a monetary rule augmented with credit spreads. The latter yields a tight money-tight credit regime in which the interest rate responds too much to inflation and not enough to adverse credit conditions. Reaction curves for the choice of policy-rule elasticity that minimizes each authority’s loss function given the other authority’s elasticity are nonlinear, reflecting shifts from strategic substitutes to complements in setting policy-rule parameters. The Nash equilibrium is significantly inferior to the Cooperative equilibrium, both are inferior to a first-best outcome that maximizes welfare, and both produce tight money-tight credit regimes. |
| JEL: | E3 E44 E52 G18 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23151&r=mac |
| By: | Rüth, Sebastian; Bachmann, Rüdiger |
| Abstract: | What are the macroeconomic consequences of changes in residential mortgage market loan-to-value (LTV) ratios? In a structural VAR, real GDP and business investment increase significantly following an expansionary LTV shock. The impact on residential investment, however, is contingent on the systematic reaction of monetary policy. Historically, the FED responded directly to lower collateral requirements by significantly raising the policy instrument, thereby increasing mortgage rates and reducing residential investment. In a counterfactual policy experiment, where the Federal Funds rate remains constant after the shock, the reaction of non-residential GDP components is magnified and residential investment increases significantly. While firms increase their borrowing after a relaxation of bank lending standards, whether monetary policy reacts endogenously or is held constant, household debt only increases in an environment of a counterfactually constant Federal Funds rate. |
| JEL: | E30 E44 E52 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145826&r=mac |
| By: | Schwanebeck, Benjamin; Palek, Jakob |
| Abstract: | The financial crisis proved strikingly that stabilizing the price level is a necessary but not a sufficient condition to ensure macroeconomic stability. The obvious candidate for addressing systemic risk is macroprudential policy. In this paper we study the optimal (Ramsey) monetary and macroprudential policy mix in a currency union in the case of different kinds of aggregate and idiosyncratic shocks. The monetary and macroprudential instruments are modelled as independent tools. With a union-wide macroprudential tool, full absorption on the aggregate level is possible, but welfare losses due to fluctuations in relative variables prevail. With country-specific macroprudential tools, full absorption of shocks is always possible. But it is only optimal as long as there is no difference in the financing of production factors. Evaluating the performance of different policy regimes shows that the additional welfare gain from having country-specific macroprudential tools vanishes as the ability of the central bank to commit decreases. |
| JEL: | E58 E32 E44 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145520&r=mac |
| By: | Michael T. Belongia; Peter N. Ireland |
| Abstract: | Discussions of monetary policy rules after the 2007-2009 recession highlight the potential ineffectiveness of a central bank’s actions when the short-term interest rate under its control is limited by the zero lower bound. This perspective assumes, in a manner consistent with the canonical New Keynesian model, that the quantity of money has no role to play in transmitting a central bank’s actions to economic activity. This paper examines the validity of this claim and investigates the properties of alternative monetary policy rules based on control of the monetary base or a monetary aggregate in lieu of the capacity to manipulate a short-term interest rate. The results indicate that rules of this type have the potential to guide monetary policy decisions toward the achievement of a long-run nominal goal without being constrained by the zero lower bound on a nominal interest rate. They suggest, in particular, that by exerting its influence over the monetary base or a broader aggregate, the Federal Reserve could more effectively stabilize nominal income around a long-run target path, even in a low or zero interest-rate environment. |
| JEL: | E31 E32 E37 E42 E51 E52 E58 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23157&r=mac |
| By: | Raphael A. Auer; Andrei A. Levchenko; Philip Sauré |
| Abstract: | We document that observed international input-output linkages contribute substantially to synchronizing producer price inflation (PPI) across countries. Using a multi-country, industry-level dataset that combines information on PPI and exchange rates with international and domestic input-output linkages, we recover the underlying cost shocks that are propagated internationally via the global input-output network, thus generating the observed dynamics of PPI. We then compare the extent to which common global factors account for the variation in actual PPI and in the underlying cost shocks. Our main finding is that across a range of econometric tests, input-output linkages account for half of the global component of PPI inflation. We report three additional findings: (i) the results are similar when allowing for imperfect cost pass-through and demand complementarities; (ii) PPI synchronization across countries is driven primarily by common sectoral shocks and input-output linkages amplify co-movement primarily by propagating sectoral shocks; and (iii) the observed pattern of international input use preserves fat-tailed idiosyncratic shocks and thus leads to a fat-tailed distribution of inflation rates, i.e., periods of disinflation and high inflation. |
| Keywords: | international inflation synchronization, globalisation, inflation, input linkages, monetary policy, global value chain, production structure, input-output linkages, supply chain |
| JEL: | E31 E52 E58 F02 F14 F33 F41 F42 F62 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2017-03&r=mac |
| By: | David Rezza Baqaee; Emmanuel Farhi |
| Abstract: | We provide a nonlinear characterization of the macroeconomic impact of microeconomic TFP shocks in terms of reduced-form non-parametric elasticities for efficient economies. We also provide the mapping from structural parameters to these reduced- form elasticities, under general equilibrium. In this sense, the paper extends the foundational theorem of Hulten (1978) beyond first-order terms to capture nonlinearities. Key features ignored by first-order approximations that play a crucial role are: structural elasticities of substitution, network linkages, structural returns to scale, and the degree to which factors can be reallocated. Higher-order terms are large and economically interesting: they magnify negative shocks and attenuate positive shocks, resulting in an output distribution that is asymmetric (negative skewness), fat-tailed (excess kurtosis), and has a lower mean. They explain how small microeconomic shocks to critical sectors can have a large macroeconomic impact. To give a sense of magnitudes: in our benchmark calibration, output losses due to business cycle fluctuations are 0:6% of GDP, an order of magnitude larger than the cost of business cycles calculated by Lucas (1987), and are entirely due to a reduction in the mean of GDP because of nonlinearities in production; and accounting for second-order terms increases the estimated impact of the price shock to the critical sector of oil in the 1970s from 0:7% to 2:4% of world GDP. |
| JEL: | E01 E1 E23 E32 L16 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23145&r=mac |
| By: | Ricardo M. Masolo (Bank of England; Centre for Macroeconomics (CFM)); Francesca Monti (Bank of England; Centre for Macroeconomics (CFM)) |
| Abstract: | Allowing for ambiguity, or Knightian uncertainty, about the behavior of the policy-maker helps explain the evolution of trend in ation in the US in a simple new-Keynesian model, without resorting to exogenous changes in the in ation target. Using Blue Chip survey data to gauge the degree of private sector confidence, our model helps reconcile the difference between target in ation and the in ation trend measured in the data. We also show how, in the presence of ambiguity, it is optimal for policymakers to lean against the private sectors pessimistic expectations. |
| Keywords: | Ambiguity Aversion, Monetary Policy, Trend Inflation |
| JEL: | D84 E31 E43 E52 E58 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1709&r=mac |
| By: | André Kurmann; Eric Sims |
| 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. |
| JEL: | E22 E23 E32 O47 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23142&r=mac |
| By: | Francesca Rondina (Department of Economics, University of Ottawa, Ottawa, ON) |
| Abstract: | This paper proposes a model uncertainty framework that accounts for the uncertainty about both the specification of the Phillips curve and the identification assumption to be used for parameter estimation. More specifically, the paper extends the framework employed by Cogley and Sargent (2005) to incorporate uncertainty over the direction of fit of the Phillips curve. I first study the evolution of the model posterior probabilities, which can be interpreted as a measure of the econometrician's real-time beliefs over the prevailing model of the Phillips curve. I then characterize the optimal policy rule within each model, and I analyze alternative policy recommendations that incorporate model uncertainty. As expected, different directions of fit of the same model of the Phillips curve imply very different optimal policy choices, with the “Classical” specifications typically suggesting low and stable optimal inflation rates. I also find that allowing rational agents to incorporate model uncertainty in their expectations does not change the optimal or robust policies. On the other hand, I show that the models' fit to the data and the robust policy recommendations are affected by the specific price index that is used to measure in inflation. |
| Keywords: | Phillips curve, Model Uncertainty, Robust Policy, Bayesian Model Averaging, Expectations |
| JEL: | C52 E37 E52 E58 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ott:wpaper:1702e&r=mac |
| By: | Lein, Sarah Marit; Bäurle, Gregor; Lein, Sarah M.; Steiner, Elizabeth |
| Abstract: | This paper analyzes how the size and composition of the balance sheet affects firms financing cost within a large panel of Swiss firms in the non-financial sector from 1998 to 2011. The data includes a large number of small firms, which makes the data representative. We use an instrumental variables approach to identify the investment finance supply curve. Our finding that financing cost increase with exogenous changes in leverage supports the financial accelerator mechanism a la Bernanke, Gertler and Gilchrist. We quantitatively evaluate the implications of our findings for the aggregate business cycle and find that the amplification mechanism of the financial accelerator is economically significant: the volatility of the business cycle is amplified by a factor of 2.25 due to the presence of the financial accelerator channel. |
| JEL: | E32 E22 E44 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145600&r=mac |
| By: | Ciccarelli, Matteo; Osbat, Chiara |
| Abstract: | After 2012, inflation has been unexpectedly low across much of the developed world and economists speak of a “missing inflation” puzzle, namely inflation was expected to be higher on the back of an ongoing recovery. This paper investigates the causes and consequences of low inflation in the euro area after 2012 and analyses whether monetary policy has been successful in dampening the risks associated to low inflation. The paper finds that the missing inflation was primarily due to cyclical factors – domestic in the earlier part of the period and global in the latter part – and that the Phillips curve remains a useful tool in understanding inflation dynamics over the period of interest. The succession of negative shocks constrained headline inflation for a prolonged period, and there is evidence of an increase in the persistence of inflation and a fall in the trend inflation rate, which had begun to have a greater influence on longer-term inflation expectations. This may have signalled uncertainty over the effectiveness of unconventional monetary policy measures, but public belief in the ECB’s commitment to keep the annual rate of HICP inflation below but close to 2% has remained intact. The paper concludes that unconventional monetary policy measures are effective in mitigating the downside risks to price stability, curtailing risks of de-anchoring, and expanding aggregate demand. JEL Classification: E31, E52, E58 |
| Keywords: | inflation expectations, low inflation, Phillips curve, unconventional monetary policy |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2017181&r=mac |
| By: | Francis Leni Anguyo (School of Economics, University of Cape Town, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, South Africa and IPAG Business School, Paris, France); Kevin Kotze (School of Economics, University of Cape Town, South Africa) |
| Abstract: | This paper considers the role of financial frictions and the conduct of monetary policy in Uganda. It makes use of a dynamic stochastic general equilibrium model, which incorporates small open-economy features and financial frictions that are introduced though the activities of heterogeneous agents in the household. Most of the parameters in the model are estimated with the aid of Bayesian techniques and quarterly macroeconomic data from 2000q1 to 2015q4. The results suggest that the central bank currently responds to changes in the interest rate spread, despite the fact that capital and financial markets are relatively inefficient in this low income country. In addition, the analysis also suggests that to reduce macroeconomic volatility the central bank should continue to respond to these financial sector frictions and that it may be possible to derive a more favourable sacrifice ratio by making use of a slightly more aggressive response to macroeconomic developments. |
| Keywords: | Monetary policy, inflation-targeting, financial frictions, small open-economy, low income country, dynamic stochastic general equilibrium model, Bayesian estimation |
| JEL: | E32 E52 F41 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201710&r=mac |
| By: | Geiger, Martin; Scharler, Johann |
| Abstract: | We study the revision of macroeconomic expectations due to aggregate demand, aggregate supply and monetary policy shocks. Using zero and sign restrictions, the macroeconomic shocks are identified in a vector autoregressive model in which we include survey data that measure macroeconomic expectations. We find that, in general, people tend to revise expectations in a way that is consistent with standard theory. In particular, people appear to differentiate among the three types of shocks and tend to revise expectations according to the characteristics of the shock. Nevertheless, the accuracy of responses varies with respect to which shock we consider. People process demand shocks most accurately meaning that they revise expectations about economic activity, inflation and the interest rate in a way consistent with standard theory. For supply shocks we find that people at least revise expectations about economic activity and inflation in a theory consistent manner. In the event of monetary policy shocks, people tend to be relatively uncertain about how to process these shocks. |
| JEL: | E00 E32 D84 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145747&r=mac |
| By: | Andrew Fieldhouse; Karel Mertens; Morten O. Ravn |
| Abstract: | We document the portfolio activity of federal housing agencies and provide evidence on its impact on mortgage markets and the economy. Through a narrative analysis, we identify historical policy changes leading to expansions or contractions in agency mortgage holdings. Based on those regulatory events that we classify as unrelated to short-run cyclical or credit market shocks, we find that an increase in mortgage purchases by the agencies boosts mortgage lending and lowers mortgage rates. Agency purchases influence prices in other asset markets and stimulate residential investment. Using information in GSE stock prices to construct an alternative instrument for agency purchasing activity yields very similar results as our benchmark narrative identification approach. |
| JEL: | E44 E5 G28 R38 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23154&r=mac |
| By: | David Berger; Joseph Vavra |
| Abstract: | The dispersion of many economic variables is countercyclical. What drives this fact? Greater dispersion could arise from greater volatility of shocks or from agents responding more to shocks of constant size. Without data separately measuring exogenous shocks and endogenous responses, a theoretical debate between these explanations has emerged. In this paper, we provide novel identification using the open-economy environment: using confidential BLS microdata, we document a robust positive relationship between exchange rate pass-through and the dispersion of item-level price changes. We show this relationship arises naturally in models with time-varying responsiveness but is at odds with models featuring volatility shocks. |
| JEL: | E10 E3 E31 E52 F3 F31 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23143&r=mac |
| By: | Raphael Raduzzi; Antonio Ribba |
| Abstract: | In this work we provide an analysis over the period 1999 - 2015 of the effects of oil shocks on prices and GDP in a group of small Euro-area economies. The group includes Austria, Belgium, Finland, Greece, Ireland, Italy, Netherlands, Portugal and Spain. We use the structural near-VAR methodology and are thus able to model the joint interaction of area-wide macroeconomic variables and national variables. We find that under the EMU oil price shocks have been important drivers of business cycle fluctuations in almost all these countries. Moreover, an increase in oil prices produces significant recessionary effects in all the countries included in the investigation. Thus, although there are different sizes in the responses of output in the investigated countries, our main conclusion is that oil prices (still) matter for European economies |
| Keywords: | Oil Shocks; Business Cycles; Near-Structural VARs; Euro area |
| JEL: | E31 E32 Q43 C32 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:mod:recent:127&r=mac |
| By: | Kyriakos T. Chousakos; Gary B. Gorton |
| Abstract: | Economic growth is persistently low following a financial crisis, possibly because of a continuing weal banking system. In a financial crisis bank health is significantly damaged. Post-crisis regulatory changes have aimed at restoring bank health, but measuring bank health by Tobin's Q, we find that the ill health of banks in the recent U.S. financial crisis and the Euro crisis has persisted, especially compared to other crises in advanced economies. The low Q's cannot be explained by the state of the macro-economy. The results seem to suggest that bank regulatory changes may be repressive. |
| JEL: | E32 E44 G01 G2 G21 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23167&r=mac |
| By: | Elena Andreou; Snezana Eminidou; Marios Zachariadis |
| Abstract: | We use monthly data across fifteen euro-area economies for the period 1985:1-2015:3 to obtain monetary policy changes that can be regarded as surprises for different types of consumers. A novel feature of our empirical approach is the estimation of monetary policy surprises based on changes in monetary policy that were unanticipated according to the consumers stated beliefs about the economy. We go on to investigate how these monetary policy surprises affect consumers’ inflation expectations. We find that such monetary policy surprises can have the opposite impact on inflation expectations to those obtained under the assumption that consumers are well informed about a set of macroeconomic variables describing the state of the economy. More specifically, when we relax the assumption of well informed consumers by focusing instead on their stated beliefs about the economy, unanticipated increases in the interest rate raise inflation expectations. This is consistent with imperfect information theoretical settings where unanticipated increases in interest rates are interpreted as positive news about the state of the economy by consumers that know policymakers have relatively more information. This impact changes sign since the Crisis. |
| Keywords: | Inflation; Expectations; Unanticipated; Monetary policy; Beliefs; Crisis |
| JEL: | E31 E52 F41 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:01-2017&r=mac |
| By: | Sergio Clavijo Vera; Alejandro Vera Sandoval; Nelson Vera Concha |
| Abstract: | La teoría monetaria moderna de las últimas tres décadas se ha desarrollado en el marco del debate “Reglas versus Discreción”, según los lineamientos de Kydland y Prescott (1977). Sin embargo, en la práctica, la distinción no es tan evidente, generando que las autoridades monetarias mezclen en sus decisiones las “Reglas” con la “Discreción”, de acuerdo a las diferentes etapas del ciclo económico. Todo este debate ha cobrado gran relevancia durante el último quinquenio, pues los desafíos de política de la Gran Recesión han llevado a los Bancos Centrales a mezclar, como nunca antes, las Reglas y la Discreción. Ello es particularmente evidente en los países desarrollados, donde sus Bancos Centrales emprendieron políticas monetarias no convencionales. Pero también resultará crucial en la respuesta que el Banco de la República (Colombia) deberá adoptar frente al fin del auge minero-energético que enfrenta la economía colombiana. ****** Over the last three decades, modern monetary theory has been developed within the framework of the “Rules vs Discretion”debate, based on the works of Kydland and Prescott (1977). However, in practice, the distinction becomes less clear, allowing monetary authorities have mixed decisions based on “Rules and Discretion” relying on the different stages of the economic cycle. This debate has had a reat significance over the last five years, since the political challenges of the Great Recession have led Central Banks to these kinds of situations, which is articularly visible in developed countries where Central Banks have introduced unconventional monetary policies. In Colombia, this Rules and Discretion ramework is useful for the Banco de la República in order to face the end of the economic boom of the mining and energy sector. |
| Keywords: | Política monetaria, Discrecionalidad, regla monetaria, monetary policy, discretion, monetary rule. |
| JEL: | E5 E44 E4 |
| Date: | 2015–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:col:000407:015324&r=mac |
| By: | Melolinna, Marko (Bank of England) |
| Abstract: | This paper studies the effects of macroeconomic shocks on business investment in the United Kingdom by filtering a large UK firm-level based dataset of financial accounts into macro-level proxy indicators, and then using these indicators in a Bayesian vector autoregression framework to analyse these effects. The analysis combines micro-level data with macro-level analysis in a unique way, and brings up several interesting empirical results. Supply shocks have tended to have been more persistent and more important than demand shocks in explaining UK investment dynamics over the past fifteen years, and their importance appears to have increased since the financial crisis. Furthermore, shocks to the cost of capital, and uncertainties related to it, have generally been more important for firms in sectors with higher indebtedness, whereas corporate governance issues as measured by dividend payments and share buybacks do not appear to have been a major driver of investment. |
| Keywords: | Business cycle; micro data; vector autoregression; sign restrictions; time-varying parameters |
| JEL: | C11 C32 D21 E32 E52 |
| Date: | 2017–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0646&r=mac |
| 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 E31 E52 E58 |
| Date: | 2017–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76831&r=mac |
| By: | Mazelis, Falk |
| Abstract: | This paper investigates the heterogeneous impact of monetary policy shocks on financial intermediaries. I distinguish between traditional banks and shadow banks based on their ability to raise debt and equity funding. The functional form for both intermediaries imposes no constraints ex ante, but a Bayesian estimation of key parameters results in traditional banks having a comparative advantage at raising debt while shadow banks are better at raising equity. In line with empirical observations, shadow bank lending moves in the opposite direction to bank lending following monetary policy shocks, which mitigates aggregate credit responses. The recognition of a distinct shadow banking sector results in an amplified propagation of real shocks and a muted propagation of financial shocks. This identification can help in assessing effects of financial regulation on the economy. A historical shock decomposition highlights the roles of traditional banks and shadow banks in the run-up to the 2008 financial crisis. |
| JEL: | E32 E44 G20 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145763&r=mac |
| By: | Ahmet Benlialper (Department of Economics, Middle East Technical University, Ankara, Turkey); Hasan Cömert (Department of Economics, Middle East Technical University, Ankara, Turkey); Nadir Öcal (Department of Economics, Middle East Technical University, Ankara, Turkey) |
| Abstract: | In the last decades, many developing countries abandoned their existing policy regimes and adopted inflation targeting (IT) by which they aimed to control inflation through the use of policy interest rates. During the period before the crisis, most of these countries experienced large appreciations in their currencies. Given that appreciation helps central banks curb inflationary pressures, we ask whether central banks in developing countries have different policy stances with respect to depreciation and appreciation in order to hit their inflation targets. To that end, we analyze central banks’ interest rate decisions by estimating a nonlinear monetary policy reaction function for a set of IT developing countries using a panel threshold model. Our findings suggest that during the period under investigation (2002-2008), central banks in developing countries implementing IT tolerated appreciation by remaining inactive in case of appreciation, but fought against depreciation pressures beyond some threshold. We are unable to detect a similar asymmetric response for IT advanced countries suggesting that asymmetric policy stance is peculiar to IT developing countries. Although there is a vast literature on asymmetric responses of various central banks to changes in inflation and output, asymmetric stance with regards to exchange rate has not been analyzed yet in a rigorous way especially within the context of IT developing countries. In this sense, our study is the first in the literature and thus is expected to fill an important gap. |
| Keywords: | Inflation Targeting, Central Banking, Developing Countries, Exchange Rates |
| JEL: | E52 E58 E31 F31 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:met:wpaper:1702&r=mac |
| By: | Olivier Blanchard; Guido Lorenzoni; Jean-Paul L'Huillier |
| Abstract: | Since 2010, U.S. GDP growth has been anemic, averaging 2.1% a year, and this despite interest rates very close to zero. Historically, one would have expected such low sustained rates to lead to much stronger demand. They have not. For a while, one could point to plausible culprits, from a weak financial system to fiscal consolidation. But, as time passed, the financial system strengthened, fiscal consolidation came to an end, and still growth did not pick up. We argue that this is due, in large part, not to legacies of the past but to lower optimism about the future, more specifically to downward revisions in forecast potential growth. Put simply, the anticipation of a less bright future is leading to temporarily weaker demand. If our explanation is correct, it has important implications for policy and for forecasts. It may weaken the case for secular stagnation, as it suggests that the need for very low interest rates may be partly temporary. |
| JEL: | E1 E24 E32 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23160&r=mac |
| By: | Breitenlechner, Maximilian; Scharler, Johann |
| Abstract: | The bank lending channel (BLC) holds that monetary policy is transmitted through the supply of bank loans. While the original formulation of the BLC stresses an imperfect substitution between reservable and non-reservable sources of banks' funding, as the transmission mechanism, recent contributions highlight changes of banks' risk premia as a more relevant link between monetary policy and loan supply. Using U.S. data, we quantify the relative importance of these two complementary channels with a SVAR approach. The differently transmitted monetary policy shocks are identified with sigh restrictions that disentangle different dynamics on the market for banks' wholesale funding. We find that policy shocks associated with dynamics on the wholesale funding market that are consistent with the traditional BLC or changes in banks' risk premia, contribute both to the variation of total loans, with the latter mechanism being nearly twice as strong as the traditional BLC. |
| JEL: | E44 E52 C32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145679&r=mac |
| By: | Swamy, Vighneswara |
| Abstract: | The wealth effects on consumption are a subject of continuing interest to economists. The conventional wisdom states that fluctuations in household wealth have caused major fluctuations in economic activity. This study analyses the macroeconomic dynamics of wealth effects in India and examines the nexus between the changes in housing wealth, financial wealth, and consumer spending. Using the quarterly data for the period 2005:1–2016:1, I estimate vector autoregression models and vector error-correction models, relating consumption to income and wealth measures. I find a statistically significant and rather large effect of housing wealth upon household consumption. The results show that (i) wealth effects are statistically significant and comparatively substantial in magnitude (ii) housing wealth effects tend to be greater while stock market wealth effects are considerable (iii) private consumption responses to the shocks to housing market wealth are relatively stronger than to the shocks in stock market wealth. There is a bidirectional causality running from private consumption to the two wealth forms and vice versa. Overall, the private consumption expenditure response to the changes in different wealth forms is observed to be substantial and significant. |
| Keywords: | wealth effects; consumption; stock price; housing price; economic growth; inflation; fiscal deficit; exchange rate |
| JEL: | E21 E31 F31 G12 H62 O4 R3 |
| Date: | 2017–02–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76836&r=mac |
| By: | Stéphane Moyen; Josef Schroth |
| Abstract: | We study constrained-efficient bank capital regulation in a model with market-imposed equity requirements. Banks hold equity buffers to insure against sudden loss of access to funding. However, in the model, banks choose to only partially self-insure because equity is privately costly. As a result, equity requirements are occasionally binding. Constrained-efficient regulation requires banks to build up additional equity buffers and compensates them for the cost of equity with a permanent increase in lending margins. When buffers are depleted, regulation relaxes the market-imposed equity requirements by raising bank future prospects through temporarily elevated lending margins. |
| Keywords: | Credit and credit aggregates, Financial Institutions, Financial stability, Financial system regulation and policies |
| JEL: | E13 E32 E44 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:17-6&r=mac |
| By: | Bunn, Philip (Bank of England); Le Roux, Jeanne (Bank of England); Reinold, Kate (Bank of England); Surico, Paolo (London Business School and CEPR) |
| Abstract: | A set of newly added questions in the 2011 to 2014 Bank of England/NMG Consulting Survey reveals that British households are estimated 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: | MPC asymmetry; household balance sheet; heterogeneity; transmission mechanism |
| JEL: | D12 E21 E52 |
| Date: | 2017–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0645&r=mac |
| By: | Krebs, Tom (University of Mannheim); Scheffel, Martin (University of Cologne) |
| Abstract: | This paper studies the effect of two labor market institutions, unemployment insurance (UI) and job search assistance (JSA), on the output cost and welfare cost of recessions. The paper develops a tractable incomplete-market model with search unemployment, skill depreciation during unemployment, and idiosyncratic as well as aggregate labor market risk. The theoretical analysis shows that an increase in JSA and a reduction in UI reduce the output cost of recessions by making the labor market more fluid along the job finding margin and thus making the economy more resilient to macroeconomic shocks. In contrast, the effect of JSA and UI on the welfare cost of recessions is in general ambiguous. The paper also provides a quantitative application to the German labor market reforms of 2003- 2005, the so-called Hartz reforms, which improved JSA (Hartz III reform) and reduced UI (Hartz IV reform). According to the baseline calibration, the two labor market reforms led to a substantial reduction in the output cost of recessions and a more moderate reduction in the welfare cost of recessions in Germany. |
| Keywords: | labor market institutions, cost of recessions, german labor market reform |
| JEL: | E21 E24 D52 J24 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10442&r=mac |
| By: | Andersson, Fredrik N. G. (Department of Economics, Lund University); Jonung, Lars (Department of Economics, Lund University) |
| Abstract: | Should an inflation-targeting central bank have an explicit tolerance band around its inflation target? This paper provides an answer derived from the Swedish experience. The Riksbank is exceptional in the sense that it first adopted and later abolished an explicit band and is currently considering bringing it back. We conclude that the band should be explicit for several reasons. Most important, an inflation-targeting central bank should be open and transparent to the public regarding its actual ability to control inflation. We discuss how a numerical measure of the proper width of the band can be constructed to foster communication and credibility. |
| Keywords: | inflation targeting; tolerance band; tolerance interval; monetary policy; the Riksbank; Sweden |
| JEL: | E30 E31 E58 |
| Date: | 2017–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2017_002&r=mac |
| By: | G. Kemal Ozhan (University of St Andrews) |
| Abstract: | This paper studies the role of the financial sector in affecting domestic resource allocation and cross-border capital flows. I develop a quantitative, two-country, macroeconomic model in which banks face endogenous and occasionally binding leverage constraints. Banks lend funds to be invested in tradable or non-tradable sector capital and there is international financial integration in the market for bank liabilities. I focus on news about economic fundamentals as the key source of fluctuations. Specifically, in the case of positive news on the valuation of non-traded sector capital that turn out to be incorrect at a later date, the model generates an asymmetric, belief-driven boom-bust cycle that reproduces key features of the recent Eurozone crisis. Bank balance sheets amplify and propagate fluctuations through three channels when leverage constraints bind: First, amplified wealth effects induce jumps in import-demand (demand channel). Second, changes in the value of non-tradable sector assets alter bank lending to tradable sector firms (intra-national spillover channel). Third, domestic and foreign households re-adjust their savings in domestic banks, and capital flows further amplify fluctuations (international spillover channel). A common central bank’s unconventional policies of private asset purchases and liquidity facilities in response to unfulfilled expectations are successful at ameliorating the economic downturn. |
| Keywords: | Bank Lending, Belief-Driven Dynamics, Current Account, Macroeconomic Interdependence |
| JEL: | E44 F32 F41 G15 G21 |
| Date: | 2017–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1701&r=mac |
| By: | G. Kemal Ozhan (University of St Andrews) |
| Abstract: | This paper studies the role of the financial sector in affecting domestic resource allocation and cross-border capital flows. I develop a quantitative, two-country, macroeconomic model in which banks face endogenous and occasionally binding leverage constraints. Banks lend funds to be invested in tradable or non-tradable sector capital and there is international financial integration in the market for bank liabilities. I focus on news about economic fundamentals as the key source of fluctuations. Specifically, in the case of positive news on the valuation of non-traded sector capital that turn out to be incorrect at a later date, the model generates an asymmetric, belief-driven boom-bust cycle that reproduces key features of the recent Eurozone crisis. Bank balance sheets amplify and propagate fluctuations through three channels when leverage constraints bind: First, amplified wealth effects induce jumps in import-demand (demand channel). Second, changes in the value of non-tradable sector assets alter bank lending to tradable sector firms (intra-national spillover channel). Third, domestic and foreign households re-adjust their savings in domestic banks, and capital flows further amplify fluctuations (international spillover channel). A common central bank’s unconventional policies of private asset purchases and liquidity facilities in response to unfulfilled expectations are successful at ameliorating the economic downturn. |
| Keywords: | Bank Lending, Belief-Driven Dynamics, Current Account, Macroeconomic Interdependence |
| JEL: | E44 F32 F41 G15 G21 |
| Date: | 2017–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:san:wpecon:1704&r=mac |
| By: | Sjögren, Tomas (Department of Economics, Umeå University) |
| Abstract: | This paper sets up an intertemporal two-sector general equilibrium model where capital and labor are complements in production and where the labor market initially functions as a competitive spot market in both sectors of the economy. The purpose is to analyze how the introduction of a marginal distortion on the labor market in one sector of the economy (here represented by the formation of a trade with a bargaining power marginally above zero) affects factor prices, the allocation of per-worker capital between the unionized and non-unionized sectors of the economy, aggregate saving, capital accumulation, output and welfare. It is shown that if the output elasticity w.r.t. capital is larger (smaller) in the unionized sector than in the non-unionized sector of the economy, then the formation of a weak trade union leads to a reallocation of capital and labor in such proportions that the per-worker capital stock increases (decreases) in the non-unionized part of the economy. This leads to a higher (lower) non-union wage, a reduced (increased) interest rate and an increase (decrease) in aggregate saving. The savings effect implies that the steady-state capital stock and the steady-state aggregate output both increase (decrease). It is also shown that if the output elasticity w.r.t. capital is larger (smaller) in the unionized sector than in the non-unionized sector of the economy, and if the steady-state capital stock initially exceeds the Golden Rule capital stock, then the formation of a weak trade union has a negative (positive) effect on the steady-state welfare. |
| Keywords: | Capital accumulation; trade unions; wage determination; employment |
| JEL: | E22 E24 J51 |
| Date: | 2017–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0946&r=mac |
| By: | M. Ayhan Kose (Development Prospects Group, World Bank; Brookings Institution; CAMA; CEPR); Csilla Lakatos (Development Prospects Group, World Bank); Franziska Ohnsorge (Development Prospects Group, World Bank; CAMA); Marc Stocker (Development Prospects Group, World Bank) |
| 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: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1706&r=mac |
| By: | Klein, Mathias |
| Abstract: | Based on a panel of OECD countries, I provide empirical evidence that the costs of austerity crucially depend on the level of private indebtedness. In particular, fiscal consolidations lead to severe contractions when implemented in high private debt states. Contrary, fiscal consolidations have no significant effect on economic activity when private debt is low. These results are robust for alternative definitions of private debt overhang, the composition of fiscal consolidations and controlling for the state of the business cycle and government debt overhang. Private debt-dependent responses are mainly driven by household debt, whereas the effects differ only slightly with the level of corporate debt. Moreover, in high private debt states austerity induces a substantial fall in house prices. Both of these latter findings indicate that deterioration in household balance sheets are important to understand private debt-dependent effects of austerity. One possible implication of this paper is that the negative effects of large-scale fiscal consolidations undertaken by Southern European countries were likely to be amplified by the high private debt burdens in these economies. |
| JEL: | C23 E32 E62 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145681&r=mac |
| By: | Christopher L. House; Christian Proebsting; Linda L. Tesar |
| Abstract: | We examine austerity in advanced economies since the Great Recession. Austerity shocks are reductions in government purchases that exceed reduced-form forecasts. Austerity shocks are statistically associated with lower real GDP, lower inflation and higher net exports. We estimate a cross-sectional multiplier of roughly 2. A multi-country DSGE model calibrated to 29 advanced economies generates a multiplier consistent with the data. Counterfactuals suggest that eliminating austerity would have substantially reduced output losses in Europe. Austerity shocks were sufficiently contractionary that debt-to-GDP ratios in some European countries increased as a consequence of endogenous reductions in GDP and tax revenue. |
| JEL: | E00 E62 F41 F44 F45 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23147&r=mac |
| By: | María Dolores Gadea-Rivas (UNIVERSIDAD DE ZARAGOZA); Ana Gómez-Loscos (Banco de España); Danilo Leiva-Leon (Banco central de Chile) |
| Abstract: | This paper studies the dynamics of the propagation of regional business cycle shocks in Europe and uncovers new features of its underlying mechanisms. To address the lack of high frequency data at the regional level, we propose a new method to measure timevarying synchronization in small samples that combines regime-switching models and dynamic model averaging. The results indicate that: (i) in just two years, the Great Recession synchronized Europe twice as much as the European Union integration process did over several decades; (ii) Ile de France is the region acting as the main channel for the transmission of business cycle shocks in Europe; followed by Inner London and Lombardia; and (iii) we identify a nonlinear relationship between sectoral composition and regional synchronization, which was amplified in the wake of the Great Recession. Similarities in services sectors are primarily responsible for this nonlinear relationship. |
| Keywords: | business cycle, sectoral composition, regime-switching, model averaging. |
| JEL: | C31 C32 E32 R11 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1705&r=mac |
| By: | Chen, Yunmin (Institute of Economics, Academia Sinica); Chien, YiLi (Federal Reserve Bank of St. Louis); Yang, C.C. (Institute of Economics, Academia Sinica) |
| Abstract: | What is the prescription of Ramsey capital taxes for Aiyagari’s (1994) incomplete-markets economy in steady state? Departing from the endogenous setting in Aiyagari (1995), this paper answers the question by assuming an exogenous stream of government purchases as in the canonical Ramsey problem. The departure makes the planner’s Euler equation involve the whole distribution of agents’ consumption, which is absent in Aiyagari (1995). Imposing the “measurability condition” to account for the incompleteness of markets, we are able to apply the primal approach to analytically solving for the Ramsey problem of the Aiyagari (1994) economy. It is shown that capital should be taxed in steady state to implement the modified golden rule; though this result may not hold for economies with other frictions. We also address transitional dynamics, showing that capital should be taxed all the time during transition if the elasticity of intertemporal substitution is not elastic. |
| Keywords: | Capital taxation; Ramsey problem; Heterogeneous Agents; Incomplete markets |
| JEL: | C61 E22 E62 H21 H30 |
| Date: | 2017–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-003&r=mac |
| By: | Yusuf Soner Baskaya; Julian di Giovanni; Sebnem Kalemli-Ozcan; Mehmet Fatih Ulu |
| Abstract: | We show that capital inflows are important drivers of domestic credit cycles using a firm-bank-loan level dataset for a representative emerging market. Instrumenting inflows by changes in global risk appetite (VIX), we find that a fall in VIX leads to a large decline in real borrowing rates and an expansion in credit supply. Estimates explain 40% of observed cyclical corporate credit growth. The OLS-elasticity of interest rates vis-á-vis capital inflows is smaller than the IV-elasticity. Banks with higher noncore funding offer relatively lower rates to low net worth firms, but do not extend more credit to them given collateral constraints |
| JEL: | E0 F2 F3 F4 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23149&r=mac |
| By: | Boone, Christopher (Cornell University); Dube, Arindrajit (University of Massachusetts Amherst); Goodman, Lucas (University of Maryland at College Park); Kaplan, Ethan (University of Maryland at College Park) |
| Abstract: | This paper examines the impact of unemployment insurance (UI) on aggregate employment by exploiting cross-state variation in the maximum benefit duration during the Great Recession. Comparing adjacent counties located in neighboring states, we find no statistically significant impact of increasing UI generosity on aggregate employment. Our point estimates are uniformly small in magnitude, and the most precise estimates rule out employment-to-population ratio reductions in excess of 0.32 percentage points from the UI extension. We show that a moderately sized fiscal multiplier can rationalize our findings with the small negative labor supply impact of UI typically found in the literature. |
| Keywords: | labor supply, unemployment insurance, fiscal multiplier |
| JEL: | J65 E62 E32 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10439&r=mac |
| By: | Fatih Guvenen; Sam Schulhofer-Wohl; Jae Song; Motohiro Yogo |
| Abstract: | The magnitude of and heterogeneity in systematic earnings risk has important implications for various theories in macro, labor, and financial economics. Using administrative data, we document how the aggregate risk exposure of individual earnings to GDP and stock returns varies across gender, age, the worker’s earnings level, and industry. Aggregate risk exposure is U-shaped with respect to the earnings level. In the middle of the earnings distribution, aggregate risk exposure is higher for males, younger workers, and those in construction and durable manufacturing. At the top of the earnings distribution, aggregate risk exposure is higher for older workers and those in finance. Workers in larger employers are less exposed to aggregate risk, but they are more exposed to a common factor in employer-level earnings, especially at the top of the earnings distribution. Within an employer, higher-paid workers have higher exposure to the employer-level risk than lower-paid workers. |
| JEL: | E24 E32 G11 G12 J31 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23163&r=mac |
| By: | Andrew J. Fieldhouse; Karel Mertens |
| Abstract: | This paper provides a narrative analysis of regulatory policy changes affecting the purchases and holdings of mortgages and related securities of five US government entities over the 1968–2014 period. We focus on federal government policies that aim to influence the allocation and/or volume of the supply of residential mortgage credit. We use contemporary primary sources and various institutional histories to identify significant policy interventions, to document their economic and regulatory context, surrounding motives, and pertinent timing, as well as to quantify projected impacts on agencies’ mortgage holdings. Finally, we classify each significant policy change as either “cyclically motivated” or “unrelated to the business and/or financial cycle.” |
| JEL: | E44 G28 N22 R38 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23165&r=mac |
| By: | Sebastian Edwards |
| Abstract: | On December 1933, John Maynard Keyes published an open letter to President Roosevelt, where he wrote: “The recent gyrations of the dollar have looked to me more like a gold standard on the booze than the ideal managed currency of my dreams.” In this paper I use high frequency data to investigate whether the gyrations of the dollar were unusually high throughout this period. My results show that although volatility was pronounced, it was not higher than during October 1931- July 1933. I analyze Keynes writings on the international monetary system in an effort to understand what he meant in his letter. I compare Keynes’s “The means to prosperity” with James P. Warburg’s plan for a “modified international standard.” |
| JEL: | B22 B26 B3 E31 E5 F31 N22 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23141&r=mac |
| By: | Link, Thomas; Neyer, Ulrike |
| Abstract: | This paper introduces a theoretical model of an interbank market and a central bank that implements an interest corridor system in order to exert control over the overnight interbank rate. We analyze in how far interbank market frictions in the form of broadly defined transaction costs influence banks' demand for excess reserves and the interbank market outcome under different corridor regimes. The friction costs might stem from asymmetric information about counterparty credit risks, reflect differing borrowing/lending conditions in fragmented money markets, or result from new regulatory capital rules affecting interbank exposures. We show that the transaction cost effect on banks' demand for excess reserves and on the interbank market outcome, as well as the importance of bank transaction cost heterogeneity and of the corridor width in this context, depend crucially on whether the central bank runs a standard or a floor operating system. |
| JEL: | E52 E58 G21 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145853&r=mac |
| By: | Francis Leni Anguyo (School of Economics, University of Cape Town); Rangan Gupta (Department of Economics, University of Pretoria); Kevin Kotze (School of Economics, University of Cape Town) |
| Abstract: | This paper considers the role of financial frictions and the conduct of monetary policy in Uganda. It makes use of a dynamic stochastic general equilibrium model, which incorporates small open-economy features and financial frictions that are introduced though the activities of heterogeneous agents in the household. Most of the parameters in the model are estimated with the aid of Bayesian techniques and quarterly macroeconomic data from 2000q1 to 2015q4. The results suggest that the central bank currently responds to changes in the interest rate spread, despite the fact that capital and financial markets are relatively inefficient in this low income country. In addition, the analysis also suggests that to reduce macroeconomic volatility the central bank should continue to respond to these financial sector frictions and that it may be possible to derive a more favourable sacrifice ratio by making use of a slightly more aggressive response to macroeconomic developments. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ctn:dpaper:2017-01&r=mac |
| By: | David Fielding; Christopher Hajzler; James MacGee |
| Abstract: | Inflation can affect both the dispersion of commodity-specific price levels across locations (relative price variability, RPV) and the dispersion of inflation rates (relative inflation variability, RIV). Some menu-cost models and models of consumer search suggest that the RIV-inflation relationship could differ from the RPV-inflation relationship. However, most empirical studies examine only RIV, finding that RIV is high when inflation is high. We examine city-level retail price data from Japan, Canada and Nigeria, and find that the impact of inflation on RIV differs from its effect on RPV. In particular, positive inflation shocks reduce RPV but raise RIV. |
| Keywords: | Inflation and prices |
| JEL: | E31 E50 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:17-3&r=mac |
| By: | Toni Beutler; Robert Bichsel; Adrian Bruhin; Jayson Danton |
| Abstract: | In this paper, we empirically analyze the transmission of realized interest rate risk - the gain or loss in a bank's economic capital caused by movements in interest rates - to bank lending. We exploit a unique panel data set that contains supervisory information on the repricing maturity profiles of Swiss banks and provides us with an individual measure of interest rate risk exposure net of hedging. Our analysis yields two main results. First, the impact of an interest rate shock on bank lending significantly depends on the individual exposure to interest rate risk. The higher a bank's exposure to interest rate risk, the higher the impact of an interest rate shock on its lending. Our estimates indicate that a year after a permanent 1 percentage point upward shock in nominal interest rates, the average bank in 2013Q3 would, ceteris paribus, reduce its cumulative loan growth by approximately 300 basis points. An estimated 12.5% of the impact would result from realized interest rate risk weakening the bank's economic capital. Second, bank lending appears to be mainly driven by capital rather than liquidity, suggesting that a higher capitalized banking system can better shield its creditors from shocks in interest rates. |
| Keywords: | Interest Rate Risk, Bank Lending, Monetary Policy Transmission |
| JEL: | E44 E51 E52 G21 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2017-04&r=mac |
| By: | Cobb, Marcus P A |
| Abstract: | This paper presents a framework that extends forecast combination to include an aggregate and its components in the same process. This is done with the objective of increasing aggregate forecasting accuracy by using relevant disaggregate information and increasing disaggregate forecasting accuracy by providing a binding context for the component’s forecasts. The method relies on acknowledging that underlying a composite index is a well defined structure and its outcome is a fully consistent forecasting scenario. This is particularly relevant for people that are interested in certain components or that have to provide support for a particular aggregate assessment. In an empirical application with GDP data from France, Germany and the United Kingdom we find that the outcome of the combination method shows equal aggregate accuracy to that of equivalent traditional combination methods and a disaggregate accuracy similar or better to that of the best single models. |
| Keywords: | Bottom-up forecasting; Forecast combination; Hierarchical forecasting; Reconciling forecasts |
| JEL: | C53 E27 E37 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76556&r=mac |
| By: | Aggarwal, Sakshi |
| Abstract: | This paper empirically analyses India’s money demand function during the period 1996 to 2013 using quarterly data. Cointegration test suggests that money demand represented by M1 and Interest Rate have a unit root, whereas in the presence of structural break both of the variables are found to be stationary which implies that shocks are temporary in nature. It was found that there is no long term equilibrium relationship in the money demand function. Moreover, when the money demand function was estimated using dynamic OLS, it is concluded that GDP and short term interest rate has a positive impact on money demand (M1). |
| Keywords: | Demand for Money, Monetary Policy, Cointegration |
| JEL: | E41 E52 |
| Date: | 2017–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76967&r=mac |
| By: | Mazzocchetti, Andrea; Raberto, Marco; Teglio, Andrea; Cincotti, Silvano |
| Abstract: | We study the effects of loans and mortgages securitisation on business cycles by using a large-scale agent-based stock-flow consistent macroeconomic model and simulator, that we enriched by including a financial vehicle corporation (FVC), that buys loans and mortgages from banks and issues ABSs and MBSs, and a mutual fund, that invests both in ABSs and MBSs. Households own the equity of the mutual fund in the form of equity shares. By means of securitisation, banks conduct regulatory capital arbitrage and reduce risk weighted assets in their balance sheet, in order to lend more loans and mortgages. Results show that different levels of securitisation propensity are able to affect credit and business cycles in different manners. On one side, securitisation increases banks lending activity, influencing positively investment and consumption. On the onther side, the increased amount of credit amplifies the negative shocks, due to higher loans write-offs probability, triggered by the boosted leding activity. Firms' bankruptcies impact the equity of banks, affecting their ability to grant new loans to consumption goods producers (CGPs), which need credit for their production activity, and mortgages to households, which are not able to purchase housing units. CGPs soon go bankrupt and households see their capital income reduced. The predominance of one effect on the other depends on the level of securitisation propensity and the time span considered. |
| Keywords: | Securitisation; Business Cycle; Financial Regulation; Agent-Based Macroeconomics |
| JEL: | C63 E32 G23 |
| Date: | 2017–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76760&r=mac |
| By: | Mayer, Eric; Maas, Daniel; Rüth, Sebastian |
| Abstract: | We investigate the negative correlation between housing markets and the current account in Spain. By employing robust sign restrictions, which we derive from a DSGE model for a currency union, we analyze the effects of Spanish pull and Eurozone push factors in a mixed frequency VAR framework. Savings glut, risk premium, and housing bubble shocks are capable of generating the negative co-movement of housing markets and the current account in the data. In contrast, and counterfactual to the housing boom, financial easing shocks in Spain predict a decline in, both, residential investment and house prices. Among the four identifed shocks, savings glut shocks have most explanatory power for real house prices, whereas risk premium shocks account for most of the variation in residential investment. Financial easing shocks explain fluctuations to a similar extend as savings glut and risk premium shocks, while housing bubble shocks explain slightly less variance in the data. |
| JEL: | E32 F32 F45 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145824&r=mac |
| By: | Paul Corrigan |
| Abstract: | Terms-of-trade shocks are known to be key drivers of business cycles in open economies. This paper argues that terms-of-trade shocks were also important for house price fluctuations in a panel of developed countries over the 1994–2015 period. In a panel vector error-correction model of house prices, household debt and real tradable prices, terms-of-trade shocks explain between 16 and 41 per cent of the long-run variance in house price growth in a typical country, and from 45 to 85 per cent of the long-run variance of the ratio of house prices to non-housing consumption. Most of the variation in the house price/consumption ratio is associated with changes in real import prices, with idiosyncratic shocks to real export prices playing a minor role. On average, a permanent 1 per cent decline in real import prices raises the ratio of real house prices to non-housing consumption by about 0.9 per cent. |
| Keywords: | Financial stability, Housing, International topics |
| JEL: | C32 E32 E51 F36 F41 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:17-1&r=mac |
| By: | J. Idier; T. Piquard |
| Abstract: | We propose in this paper a simulation framework of pandemic in financial system composed of banks, asset markets and interbank markets. This framework aims at complementing the usual stress-test strategies that evaluate the impact of shocks on individual balance-sheets without taking into account the interactions between several components of the financial system. We build on the network model of Gourieroux, Heam, and Monfort (2012) for the banking system, adding some asset market channels as in Greenwood, Landier, and Thesmar (2015) and interbank markets characterized by collateralized debt and margin calls. We show that rather small shocks can be amplified and destabilize the entire financial system. In our framework, the fact that the system enters in an adverse situation comes from first round losses amplification triggered by asset depreciation, interbank contraction and bank failures in chain. From our simulations, we explain how the different channels of transmission play a role in weakening the financial system, and measure the extent to which each channel could make banks more vulnerable. |
| Keywords: | Bank network, systemic risk, contagion, stress-testing |
| JEL: | E52 E44 G12 C58 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:621&r=mac |
| By: | Thorsten Beck (Cass Business School, City University London, CEPR, Engeland; CESifo, Germany); Steven Poelhekke (Vrije Universiteit Amsterdam, Tinbergen Institute, De Nederlandsche Bank, The Netherlands;CESifo, Germany) |
| Abstract: | The need to absorb windfalls gains and manage them appropriately has been discussed extensively by academics and policy makers alike. We explore the role of the financial sector in intermediating these windfalls. Controlling for the level of financial development, inflation, GDP growth and country fixed-effects, we find a relative decline in financial sector deposits in countries that experience an unexpected natural resource windfall as measured by shocks to exogenous world prices. Moreover, we find a similar relative decline in lending, which is mostly due to the decrease in deposits. The smaller role for the financial sector in intermediating resource booms is accompanied by a stronger role of governments in channeling resources into the economy, mostly through higher government consumption. |
| Keywords: | natural resources; financial development; banking |
| JEL: | E20 F41 G20 O10 Q32 Q33 |
| Date: | 2017–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20170027&r=mac |
| 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: | 2017–02–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76825&r=mac |
| By: | Ben Fung; Scott Hendry; Warren E. Weber |
| Abstract: | This paper studies the period in Canada when both private bank notes and government-issued notes (Dominion notes) were simultaneously in circulation. Because both of these notes shared many of the characteristics of today's digital currencies, the experience with these notes can be used to draw lessons about how digital currencies might perform. The paper begins with a brief historical review of how these notes came into existence and of the regulations regarding their issuance. It examines historical evidence on how desirable bank notes were as media of exchange by examining how well they functioned with respect to ease of transacting, counterfeiting, safety, scarcity, and par exchange (a uniform currency). It then examines whether the introduction of government-issued notes improved how bank notes functioned as media of exchange. It finds that they did not. Improvements in the functioning of bank notes were due to changes in government regulation. Using the Canadian experience and that of the United States, the paper concludes that privately issued digital currencies will not be perfectly safe without government intervention, government-issued digital currency will not drive out existing private digital currencies, and government intervention will be required for privately issued and government-issued digital currencies to be a uniform currency. |
| Keywords: | Bank notes, E-Money, Financial services |
| JEL: | E41 E42 E58 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:17-5&r=mac |
| By: | Jo, Soojin (Federal Reserve Bank of Dallas); Sekkel, Rodrigo (Bank of Canada) |
| Abstract: | We analyze the evolution of macroeconomic uncertainty in the United States, based on the forecast errors of consensus survey forecasts of various economic indicators. Comprehensive information contained in the survey forecasts enables us to capture a real-time subjective measure of uncertainty in a simple framework. We jointly model and estimate macroeconomic (common) and indicator-specific uncertainties of four indicators, using a factor stochastic volatility model. Our macroeconomic uncertainty has three major spikes aligned with the 1973–75, 1980, and 2007–09 recessions, while other recessions were characterized by increases in indicator-specific uncertainties. We also show that the selection of data vintages affects the estimates and relative size of jumps in estimated uncertainty series. Finally, our macroeconomic uncertainty has a persistent negative impact on real economic activity, rather than producing “wait-and-see” dynamics. |
| Keywords: | Factor stochastic volatility model; survey forecasts; Uncertainty |
| Date: | 2017–01–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1702&r=mac |
| By: | Junichi Fujimoto (National Graduate Institute for Policy Studies); Ko Munakata (Bank of Japan); Koji Nakamura (Bank of Japan); Yuki Teranishi (Keio University) |
| Abstract: | To reveal a policy mandate for financial stability, we introduce a frictional credit market with a search and matching process into a standard New Keynesian model with nominal rigidities in the goods market, and then investigate optimal policy under financial frictions. We show that a second-order approximation of social wel- fare includes terms for credit, in addition to terms for inflation and consumption, so that any optimal policy must hold responsibility for financial and price stabilities. We highlight this issue by considering several tools for monetary and macropru- dential policy. We find that optimal monetary policy requires keeping the credit market countercyclical against the real economy. Also, optimal macroprudential policy, which poses constraints on supply and demand sides of credit, reduces ex- cessive variations in lending and contributes to both financial and price stabilities. |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:16-30&r=mac |
| By: | Xavier Giroud; Holger M. Mueller |
| Abstract: | This paper shows that firms spread the adverse impacts of local employment shocks across regions through their internal networks of establishments. Linking confidential micro data at the establishment level from the U.S. Census Bureau’s Longitudinal Business Database to ZIP code-level variation in house price changes during the Great Recession, we find that local establishment-level employment responds strongly to employment shocks in other regions in which the firm has establishments. Consistent with theory, the elasticity of establishment-level employment with respect to shocks in other regions is increasing with firms’ financial constraints. Moreover, establishments belonging to more expansive firm networks exhibit smaller employment elasticities with respect to their own local shocks. To account for the impacts of general equilibrium adjustments, we examine aggregate employment at the county level. Similar to what we found at the establishment level, we obtain large elasticities of county-level employment with respect to employment shocks in other counties linked through firms’ internal networks. Overall, our results suggest that firms play an important role in the provision of regional risk sharing and the propagation of local employment shocks across different U.S. regions. |
| JEL: | D24 D85 E24 E32 G31 J21 J63 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23176&r=mac |
| By: | Winter, Christoph; Kraus, Beatrice |
| Abstract: | In this paper, we empirically document a link between tax changes and financial market conditions. Using the Romer and Romer (2010) narrative record of exogenous federal tax liability changes for the US, we show that an increase in taxes leads to higher risk premia for corporate bonds issued by financial and non-financial firms. Consistent with recent theories of intermediary asset pricing, we demonstrate that risk premia are driven by intermediaries' balance sheet conditions, which -- according to our results -- are in turn affected by tax changes. Two tax acts are particularly relevant for the transmission of taxes to financial market conditions, namely the Tax Reform Act of 1986 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. Interestingly, none of these two tax acts specifically targeted the financial sector. Therefore, an important implication of our results is that any tax change can potentially spill over to financial market conditions, with the associated consequences for real economic activity. |
| JEL: | E44 E62 G12 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145636&r=mac |
| By: | Wix, Carlo; Schüwer, Ulrich |
| Abstract: | This paper explores how credit demand affects the pass-through of monetary policy to bank lending. We employ a novel identification strategy based on exploiting exogenous cross-sectional variation in local mortgage credit demand across U.S. counties following the occurrence of large natural disasters. First, we show that large natural disasters cause increased local credit demand in the short-term and reduced local credit demand in the medium-term, which we interpret as intertemporal substitution. We then test whether the effect of monetary policy on bank lending is different for unaffected counties and counties subject to an exogenously reduced credit demand following a natural disaster. We find that credit growth associated with a one percentage point decrease in the federal funds rate is 9 percentage points higher in counties with reduced credit demand relative to unaffected counties. Hence, our results suggest that monetary policy is more effective when credit demand is low. |
| JEL: | E52 G21 Q54 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145943&r=mac |
| By: | Wolters, Maik Hendrik |
| Abstract: | Hours per capita measures based on the private sector as usually included in the set of observables for estimating macroeconomic models are affected by low-frequent demographic trends and sectoral shifts that cannot be explained by standard models. Further, model-based output gap estimates are closely linked to the observable hours per capita series. Hence, hours per capita that are not measured in concordance with the model assumptions can distort output gap estimates. This paper shows that sectoral shifts in hours and the changing share of prime age individuals in the working-age population lead indeed to erroneous output gap dynamics. Regarding the aftermath of the global financial crisis model-based output gaps estimated using standard hours per capita series are persistently negative for the US economy. This is not caused by a permanently depressed economy, but by the retirement wave of baby boomers which lowers aggregate hours per capita. After adjusting hours for changes in the age composition to bring them in line with the model assumptions, the estimated output gap gradually closes in the years following the global financial crisis. |
| JEL: | J11 C54 E32 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145812&r=mac |
| By: | David M. Byrne; Carol Corrado |
| Abstract: | This paper is a companion to our recent paper, "ICT Prices and ICT Services: What do they tell us about Productivity and Technology?" It provides the sources and methods used to construct national accounts-style price deflators for the major components of ICT investment--communications equipment, computer equipment, and software--that were presented and analyzed in that paper. The ICT equipment measures described herein were also used in Byrne, Fernald, and Reinsdorf (2016). |
| Keywords: | ICT asset prices ; Information and communication technology (ICT) ; Prices ; Price measurement |
| JEL: | E01 L63 E31 |
| Date: | 2017–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-16&r=mac |
| By: | Joshua K. Hausman; Paul W. Rhode; Johannes F. Wieland |
| Abstract: | In the four months following the trough of the Great Depression in March 1933, industrial production rose 57 percent. We argue that an important source of recovery was the direct effect of dollar devaluation on farm prices, incomes, and consumption. We call this the farm channel. Using daily spot and futures crop price data, we document that devaluation raised prices of traded crops and their close substitutes (other grains). And using novel state and county auto sales data, we document that recovery proceeded much more rapidly in farm areas. These cross-sectional effects are large, explain a substantial fraction of cross-state variation in auto sales growth, and are concentrated in areas growing traded crops or close substitutes. We also find that given the same exposure to farm price changes, spending rose more in counties with more farm debt. We aggregate our cross-sectional results using a simple incomplete markets model in which indebted farmers have high MPCs. It implies that the farm channel accounts for 30% or more of the spring recovery. |
| JEL: | E32 E65 N12 N52 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23172&r=mac |
| By: | Bauer, Anja; King, Ian Paul |
| Abstract: | We examine the proposition that the German Hartz reforms offset the GFC's effect on unemployment (leading to the "German miracle") and the GFC offset the Hartz reform's effects on reallocation, in Germany (leading to the "reallocation puzzle") over the period 2005-2010. To do so, we use a labor reallocation model based on Lucas and Prescott (1974), but with the additional features of unemployment benefits and rest unemployment. The model generates two simple conditions that must hold for two events to offset each other in this way. We estimate the key parameters of the model to assess the extent to whether these conditions were satisfied in Germany over that period. We find that the observed drop in productivity due to the GFC (6.3%) was very close to the drop required to explain the reallocation puzzle (6.8%). Conditional on this offset taking place, the observed percentage drop in unemployment benefits (16.7%) was approximately twice that required (6.3%) for the German miracle, and consistent with the significant drop in unemployment over the period. |
| JEL: | E24 J24 E65 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145702&r=mac |
| By: | Rosengren, Eric S. (Federal Reserve Bank of Boston) |
| Abstract: | Boston Fed President Eric Rosengren said that the economy has continued to improve and called for continued gradual removal of monetary policy accommodation. |
| Date: | 2017–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbsp:114&r=mac |
| By: | Schlegel, Jonas; Watzka, Sebastian |
| Abstract: | This paper takes a close look at one of the possible causes of Spain’s severe crisis and studies the extent to which the increase in Spanish unemployment is due to the effects of household balance sheet effects. By estimating proxies for housing net worth shocks as well as household sector debt to disposable income ratios for 52 Spanish provinces together with detailed data on sectoral provincial unemployment data, we find that household balance sheet effects contribute a significant portion to the increase in unemployment between 2008 and 2010. Our outcomes confirm the results for the US from Mian and Sufi (2014). In contrast, for the time period between 2007 and 2014, we do not find any explanation power. Mostly interesting, we find contrary results for the episode between 2010 and 2014: Provinces, which cut back demand between 2007 and 2010 significantly strongly, did so significantly less than other provinces subsequently. |
| JEL: | G01 J23 E21 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145911&r=mac |
| By: | Matthaei, Stephan; Stähler, Nikolai |
| Abstract: | The provisions of the German financial equalization system (Länderfinanzausgleich), a specific form of a fiscal union among the federal states (Länder), will expire in 2019. In this paper, we assess the effects of the system as well as of reform proposals on key macroeconomic variables and welfare by means of a two-region general equilibrium model. We find that, on the one hand, as expected, abolishing tax revenue equalization would favor transfer paying states in terms of GDP and consumption, and significantly hurt receiving states. Furthermore, households living in the financially strong states would benefit from higher wages and more leisure. This induces migration towards these states. On the other hand, on aggregate, the average German household's welfare would be negatively affected, even though those who live in the paying states would gain. However, the negative macroeconomic effects involved by the abolition of the equalization transfers might potentially be countervailed by the concomitant reduction in disincentive effects for the budgetary policy. |
| JEL: | H70 H77 E12 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145695&r=mac |
| By: | Mohaddes, Kamiar (University of Cambridge); Raissi, Mehdi (International Monetary Fund) |
| 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). |
| JEL: | C23 E32 F43 O13 O40 |
| Date: | 2017–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:304&r=mac |
| By: | Claire Giordano (Bank of Italy, Economic Outlook Division, Directorate General for Economics, Statistics and Research); Francesco Zollino (Bank of Italy, Economic Outlook Division, Directorate General for Economics, Statistics and Research) |
| Abstract: | We explore three alternative methodologies drawn from economic history literature to compute macroeconomic total-economy estimates of Italy’s mark-ups since 1861, based on the new historical national accounts presented in Baffigi (2013) and Giordano and Zollino (2015). Two key features of Italy’s history stand out: a) the increase in market power under the Fascist regime and b) the strengthening of competition since 1993. We then focus on a more limited time span (1970-2012) in order to estimate sectorial mark-ups using the model developed in Bassanetti, Torrini and Zollino (2010). Employing Istat and EU-KLEMs data, we find evidence of a reduction in mark-ups after the completion of the Single Market, with an acceleration after the inception of the European Monetary Union, owing mostly to the decrease in workers’ bargaining power rather than in firms’ margins. Moreover, we find large heterogeneity in mark-ups across sectors, with regulated services displaying weaker competition than manufacturing and market services. |
| Keywords: | mark-ups, completion policy, wage bargaining, growth accounting |
| JEL: | E01 J50 L50 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:workqs:qse_39&r=mac |
| By: | Colin Caines; Florian Hoffmann; Gueorgui Kambourov |
| Abstract: | In this paper we study the relationship between task complexity and the occupational wage- and employment structure. Complex tasks are defined as those requiring higher-order skills, such as the ability to abstract, solve problems, make decisions, or communicate effectively. We measure the task complexity of an occupation by performing Principal Component Analysis on a broad set of occupational descriptors in the Occupational Information Network (O*NET) data.We establish four main empirical facts for the U.S. over the 1980-2005 time period that are robust to the inclusion of a detailed set of controls, subsamples, and levels of aggregation: (1) There is a positive relationship across occupations between task complexity and wages and wage growth; (2) Conditional on task complexity, routine-intensity of an occupation is not a significant predictor of wage growth and wage levels; (3) Labor has reallocated from less complex to more complex occupations over time; (4) Within groups of occupations with similar task complexity labor has reallocated to non-routine occupations over time. We then formulate a model of Complex-Task Biased Technological Change with heterogeneous skills and show analytically that it can rationalize these facts. We conclude that workers in non-routine occupations with low ability of solving complex tasks are not shielded from the labor market effects of automatization. |
| Keywords: | Occupational Task Content ; Complex Tasks ; Wage Polarization ; Skills |
| JEL: | E24 J21 J23 J24 J31 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgif:1192&r=mac |
| By: | Schreiber, Sven; Beblo, Miriam |
| Abstract: | We revisit the alleged retirement consumption puzzle. According to the life-cycle theory, foreseeable income reductions such as those around retirement should not affect consumption. However, we first recall that given higher leisure endowments after retirement, the theory does predict a fall of total market consumption expenditures. In order not to mistake this predicted drop for a puzzle we focus on housing consumption which can be plausibly regarded as complementary to leisure, and we control for the leisure change in our empirical specifications, using micro data for Germany (SOEP), where housing expenditures are observable as rents for the majority (60%), as well as dwelling relocations. We still find significant negative impacts of the retirement status on housing consumption, which is hard to reconcile with the life-cycle theory. For retirees we also find significant effects of the income reduction at retirement on housing. However, the effects are small in quantitative terms, given the lock-in nature of past housing decisions. |
| JEL: | D91 E21 J22 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145924&r=mac |
| By: | Kocharkov, Georgi |
| Abstract: | Teenage childbearing is a common incident in developed countries. However, the occurrence of teenage births is much more likely in the United States than in any other industrialized country. The majority of these births are delivered by female teenagers coming from low-income families. The hypothesis put forward here is that the welfare state (a set of redistributive institutions) plays a significant role for teenage childbearing behavior. We develop an economic theory of parental investments and risky sexual behavior of teenagers. The model is estimated to fit stylized facts about income inequality, intergenerational mobility, and sexual behavior of teenagers in the United States. The welfare state institutions are introduced via tax and public education expenditure functions derived from U.S. data. In a quantitative experiment, we impose Norwegian taxes and/or education spending in the economic environment. The Norwegian welfare state institutions go a long way in explaining the differences in teenage birth rates between the United States and Norway. |
| JEL: | E24 H31 I28 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145657&r=mac |
| By: | David M. Byrne; Carol Corrado |
| Abstract: | This paper reassesses the link between ICT prices, technology, and productivity. To understand how the ICT sector could come to the rescue of a whole economy, we introduce a simple model that sets out the steady-state contribution of the sector to the growth in U.S. labor productivity. The model extends Oulton (2012) to include ICT services (e.g., cloud computing) which has implications for the relationship between prices for ICT services and prices for the capital stocks (i.e., ICT assets) used to supply them. ICT asset prices are then put under a microscope, and official prices are found to substantially understate ICT price declines. And because ICT use continues to diffuse through the economy increasingly via cloud and related services which are not fully accounted for in the standard narrative on ICT's contribution to economic growth the contribution of ICT to growth in output per hour going forward is calibrated to be substantially larger than thought in the past. |
| Keywords: | Cloud services ; Computer software and internet services ; High-performance computing ; Information and communications technology (ICT) ; Prices ; Productivity ; Technology ; Price measurement |
| JEL: | E01 E31 L63 |
| Date: | 2017–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-15&r=mac |
| By: | Cobb, Marcus P A |
| Abstract: | When it comes to point forecasting there is a considerable amount of literature that deals with ways of using disaggregate information to improve aggregate accuracy. This includes examining whether producing aggregate forecasts as the sum of the component’s forecasts is better than alternative direct methods. On the contrary, the scope for producing density forecasts based on disaggregate components remains relatively unexplored. This research extends the bottom-up approach to density forecasting by using the methodology of large Bayesian VARs to estimate the multivariate process and produce the aggregate forecasts. Different specifications including both fixed and time-varying parameter VARs and allowing for stochastic volatility are considered. The empirical application with GDP and CPI data for Germany, France and UK shows that VARs can produce well calibrated aggregate forecasts that are similar or more accurate than the aggregate univariate benchmarks. |
| Keywords: | Density Forecasting; Bottom-up forecasting; Hierarchical forecasting; Bayesian VAR; Forecast calibration |
| JEL: | C32 C53 E37 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76849&r=mac |
| By: | Carlos Ramirez |
| Abstract: | This paper proposes a novel link between the propagation of shocks within production networks and asset prices. It develops a dynamic network model in which the propagation of firm cash-flow shocks via inter-firm relationships affects the economy's equilibrium asset prices. When calibrated to match key features of customer-supplier networks in the United States, the model generates long-run risks, high and volatile risk premia, and a low and stable risk-free rate. Consistent with data from firms in manufacturing and service industries, the model predicts that central firms in the network command lower risk premiums than peripheral firms, and that firm-level return volatilities exhibit a high degree of co-movement. |
| Keywords: | Equilibrium asset prices ; Inter-firm relationships ; Networks ; Shock propagation |
| JEL: | G12 E32 L10 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-14&r=mac |
| By: | Andreas Fagereng; Luigi Guiso; Luigi Pistaferri |
| Abstract: | We propose a new approach to identify the strength of the precautionary motive and the extent of self-insurance in response to earnings risk based on Euler equation estimates. To address endogeneity problems, we use Norwegian administrative data and instrument consumption and earnings volatility with the variance of firm-specific shocks. The instrument is valid because firms pass some of their productivity shocks onto wages; moreover, for most workers firm shocks are hard to avoid. Our estimates suggest a coefficient of relative prudence of 2, in a very plausible range. |
| JEL: | D91 E21 J24 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23182&r=mac |
| By: | Ludwig, Alexander; Geppert, Christian; Abiry, Raphael |
| Abstract: | Ongoing demographic change will lead to a relative scarcity of raw labor to the effect that output growth will be decreasing in the next decades, a secular stagnation. As physical capital will be relatively abundant, this decrease of output will be accompanied by reductions of asset returns. We quantify these effects for the US economy by developing an overlapping generations model in which we explicitly model risky and risk-free asset returns. This enables us to predict how the natural interest rate is affected by the demography induced secular stagnation. Without adjustments of human capital, risky returns decrease until 2035 by about 0.7 percentage point, and the risk-free rate by about one percentage point, leading to severe welfare losses for asset rich households. Endogenous human capital adjustments strongly mitigate these effects. We conclude that human capital policies will be crucial in the context of labor shortages. |
| JEL: | E17 C68 G12 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145764&r=mac |
| By: | Robert C. Feenstra; Mingzhi Xu; Alexis Antoniades |
| Abstract: | We examine the price and variety of products at the barcode level in cities within China and the United States. In both countries, there is a greater variety of products in larger cities. But in China, unlike the United States, the prices of products tend to be lower in larger cities. We attribute the lower prices to a pro-competitive effect, whereby large cities attract more firms which leads to lower markups and prices. Combining the effect of greater variety and lower prices, it follows that the cost of living for grocery-store products in China is lower in larger cities. We further compare the cost-of-living indexes for particular product categories between China and the United States. In product categories with a significant presence of U.S. brands in the Chinese market, the availability of additional Chinese brands leads to greater variety than in the United States, and therefore lower Chinese price indexes for that reason. In product categories with much less presence of U.S. brands in the Chinese market, however, the observed prices differences between the countries (usually lower prices in China) are partially or fully offset by the variety differences (less variety in China), so that the cost of living in China is not as low as the price differences suggest, especially in smaller cities. |
| JEL: | E01 F11 L1 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23161&r=mac |
| By: | B. Camara; P. Pessarossi; T. Philippon |
| Abstract: | We provide a first evaluation of the quality of banking stress tests in the European Union. We use stress tests scenarios and banks’ estimated losses to recover bank level exposures to macroeconomic factors. Once macro outcomes are realized, we predict banks’ losses and compare them to actual losses. We find that stress tests are informative. Model-based losses are good predictors of realized losses and of banks’ equity returns around announcements of macroeconomic news. When we perform our tests for the Union as a whole, we do not detect biases in the construction of the scenarios, or in the estimated losses across banks of different sizes and ownership structures. There is, however, some evidence that exposures are underestimated in countries with ex-ante weaker banking systems. Our results have implications for the modeling of credit losses, quality controls of supervision, and the political economy of financial regulation. |
| Keywords: | stress test, credit losses, back-testing. |
| JEL: | E2 G2 N2 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:decfin:26&r=mac |
| By: | Adam Blandin (Department of Economics, Virginia Commonwealth University) |
| Abstract: | Many government policies affect incentives to acquire human cap- ital. Two workhorse models dominate the literature analyzing these policies: Learning by Doing (LBD) and Ben-Porath (BP). This paper makes two novel findings related to these models. First, LBD and BP generate different life-cycle predictions. Second, the model features that generate different life-cycle predictions between models also generate different policy implications. Specifically, increasing marginal labor tax rates for top earners depresses human capital accumulation more under BP. As a result, the Laffer curve for top marginal income tax rates is flatter, and peaks 10 percentage points lower, with BP versus LBD. |
| Keywords: | Life-cycle, Human capital, Progressive taxes |
| JEL: | E2 D91 H2 J24 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:vcu:wpaper:1604&r=mac |
| By: | Steger, Thomas Michael; Grossmann, Volker |
| Abstract: | This paper presents a novel dynamic general equilibrium model to examine the evolution of two major wealth-to-income ratios - housing wealth and non-residential wealth - in advanced countries since WWII. Our theory rests on three premises: (1) the overall land endowment is fixed; (2) the production of new houses requires land as an essential input; (3) land employed for real estate development must be permanently withdrawn from alternative uses. The model distinguishes, for the first time, between the extensive and the intensive margin of housing production. The calibrated model replicates the post WWII increase in the two major wealth-to-income ratios. It also suggests a moderate further increase in wealth-to-income ratios that is associated with a considerable future surge in land prices and house prices. Higher population density and technological progress do, however, not affect long run wealth-to-income ratios. The model also accounts for the close connection of house prices to land prices in the data. |
| JEL: | E10 E20 O40 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145936&r=mac |
| By: | José Ignacio González Giangrossi |
| Abstract: | En este trabajo se construyeron agregados monetarios Divisia para Uruguay en el periodo 1998.12-2015.06 y se lo comparó con los agregados monetarios tradicionales. Las diferencias encontradas van en aumento a medida que se amplían los agregados, siendo muy pequeñas para M1’ pero muy significativas para el caso de M2+títulos. Posteriormente, estas medidas se incorporaron en una función de demanda de dinero y utilizando un modelo de corrección de errores se examinó la dinámica de corto plazo, encontrándose un rápido ajuste al desvío de largo plazo, y en los modelos con Divisia una semi-elasticidad al costo de oportunidad del dinero más alta. De los seis candidatos, el modelo con Divisia M2 es el que presenta un mejor ajuste y con el cual resulta adecuado hacer el seguimiento de la demanda de dinero y complementar el análisis de la política monetaria. |
| Keywords: | Agregados monetarios, índices Divisia, demanda de dinero, cointegración, Uruguay |
| JEL: | C22 C52 E41 E51 N16 |
| Date: | 2016–10 |
| URL: | http://d.repec.org/n?u=RePEc:ude:wpaper:0916&r=mac |
| By: | Milos Markovic (Centre d'Economie de la Sorbonne); Michael A. Stemmer (Centre d'Economie de la Sorbonne) |
| Abstract: | Using a unique dataset of unlisted Serbian firms during the period between 2005 and 2012, we analyze the impact of internal financial constraints on firm growth with respect to several firm-level characteristics. We also assess potential effects created by the 2008-2009 Global Financial Crisis. To do so, we rely on panel data models, which estimate via GMM cash flow sensitivities of firm growth, following the dynamic specification of Guariglia et al. (2011). Controlling for investment opportunities, our results show that Serbian firms face high financial constraints and exhibit generally a high reliance on retained earnings for firm growth. We do not find evidence for a crisis effect, potentially due to ex ante accumulated internal funds. Conventional firm characteristics such as age, size or overall performance largely determine the dependency on cash for firm growth. Moreover, foreign-owned companies seem to escape the financing gap by tapping other resources. A comparison with Belgian firms contrasts our results with an advanced country setting |
| Keywords: | Financial constraints; firm growth; transition countries; dynamic panel data; GMM |
| JEL: | C23 D92 E44 G32 L25 O16 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:17012&r=mac |
| By: | Roger E.A. Farmer |
| Abstract: | I review The End of Alchemy by Mervyn King, published by W.W. Norton and Company in 2016. I discuss King's proposed regulatory reform, the ‘Pawn Broker for All Seasons’ (PFAS) and I compare it to an alternative solution developed in my own work. I argue that unregulated trade in the financial markets will not, in general, lead to Pareto optimal allocations. As a consequence, solutions like the PFAS that correct problems with existing institutions are likely to be circumvented by the development of new ones. |
| JEL: | E0 E02 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23156&r=mac |
| By: | Martin Eichenbaum; Benjamin K. Johannsen; Sergio Rebelo |
| Abstract: | This paper documents two facts about the behavior of floating exchange rates in countries where monetary policy follows a Taylor-type rule. First, the current real exchange rate is highly negatively correlated with future changes in the nominal exchange rate at horizons greater than two years. This negative correlation is stronger the longer is the horizon. Second, for most countries, the real exchange rate is virtually uncorrelated with future inflation rates both in the short and in the long run. We develop a class of models that can account for these and other key observations about real and nominal exchange rates. |
| JEL: | E52 F31 F41 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23158&r=mac |
| By: | Waldo Mendoza Bellido (Departamento de Economía de la PUCP del Perú) |
| Abstract: | El modelo IS-LM-AD-AS tradicional debe ser abandonado de la enseñanza de Macroeconomía. Primero, porque las economías no retornan automáticamente al equilibrio, luego que algún choque los saca de él. Segundo, porque los bancos centrales no controlan la oferta monetaria, sino la tasa de interés. Y tercero, porque lo que importa estudiar es la inflación, no el nivel de precios. En los últimos años se han publicado varios modelos que levantan los tres cuestionamientos. Sin embargo, ninguno de ellos ha logrado desplazar al modelo tradicional de la enseñanza de Macroeconomía en el pregrado. En este artículo se presenta un modelo alternativo, el IS-MR-AD-AS. El modelo es tan sencillo y flexible como el tradicional, pero levanta el principal cuestionamiento que se le hace, de que los bancos centrales no controlan la oferta monetaria, sino la tasa de interés. Su flexibilidad le permite abordar temas más complejos como el corto plazo, el equilibrio estacionario, la dinámica hacia el equilibrio estacionario y las expectativas racionales. El modelo aspira a sustituir al tradicional en la enseñanza de Macroeconomía en el pregrado. JEL Classification-JEL: E32, E52 |
| Keywords: | Alternativa al modelo IS-LM-DA-OA, modelo IS-LM-DA-OA, Politica monetaria, regla de política monetaria |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:pcp:pucwps:wp00433&r=mac |
| By: | Inna S. Lola (National Research University Higher School of Economics) |
| Abstract: | A specific feature of business conditions surveys describing actual and expected short-term trends of company financial and economic activities is the non-quantitative nature of the relevant data. To facilitate its interpretation and visualisation for various user groups, the respondents’ answers are typically aggregated into simple and composite indicators (CI). This study proposes, tests, and validates conceptual and information measurement hypotheses for building and applying such CI, which provide an integrated assessment of small entrepreneur (SE) economic sentiment. These CI demonstrate a strong, statistically significant correlation with growth cycles of reference statistical indicators. A theoretical model for building CI to measure business conditions for SE is presented, and a relevant toolset is described. Industry-specific features of building business conditions indicators are illustrated using the retail and wholesale sectors as examples. New opportunities for the visualisation and analytical presentation of the cyclic profiles of indicators are demonstrated, based on tracers tracking their phase-to-phase movement. New information and analysis-related areas are identified for the application of nonparametric data to estimate the current state and expected development of SE |
| Keywords: | small entrepreneurship, business conditions, composite indicators, cycle tracer, business conditions surveys |
| JEL: | E32 C81 C82 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:hig:wpaper:71sti2017&r=mac |
| By: | Amylkar Acosta Medina |
| Abstract: | Este documento se enfoca inicialmente en las lecciones aprendidas de los procesos de descentralización administrativa territorial a lo largo de la historia contemporánea de Colombia. La segunda parte interpreta los acontecimientos recientes y se discuten los aspectos relacionados a la mayor presencia del Gobierno Central en las decisiones territoriales con el Sistema General de Regalías (SGR) a través de la Secretaría de la Comisión Rectora. Por último, el artículo se ocupa de los importantes retrocesos en los procesos de autonomía territorial que se profundizan en el Plan Nacional de Desarrollo 2014-2018 al establecer Proyectos de Interesa Nacional Estratégico (PINES) con el fin de remover obstáculos y facilitar su ejecución. Lo anterior, se encuentra en contravía de los procesos de negociación para terminar el conflicto armado en el país si se considera que la paz se construye y consolida en los territorios. ****** This document primarily addresses the lessons learned through the territorial administrative decentralization processes throughout Colombia’s contemporary history. Moreover, this document is intended to interpret the recent events and aspects related to the larger presence of central government in territorial decisions in the general system of royalties through the Steering Committee and Secretariat. Finally, this article encompasses the significant reversals in the territorial autonomy processes deepened in the National Development Plan 2014-2018 setting up Projects of National Strategic Interest in order to remove obstacles and facilitate its implementation. However, everything mentioned above is still in the wrong direction of the process of negotiation aimed at ending the armed conflict in the country since peace is built and stablished in different territories. |
| Keywords: | Descentralización, gobierno central, autonomía, desarrolloterritorial, Decentralization, central government, autonomy, territorial development. |
| JEL: | N4 N40 D73 D74 E62 |
| Date: | 2015–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:col:000407:015337&r=mac |
| By: | Jean Lacroix; Pierre-Guillaume Méon; Khalid Sekkat |
| Abstract: | This paper investigates the evolution of foreign direct investment net inflows (FDI) around democratic transitions, in a panel of 115 developing countries from 1970 to 2014, using an event-study method. We find no effect of democratic transitions on FDI net inflows on average. We then distinguish the effect of democratic transitions per se and the effect of its consolidation. To do so, we specifically focus on consolidated democratic transitions, defined as transitions that did not reverse during five years at least. We find that consolidated democratic transitions do increase FDI net inflows. The bulk of the improvement appears ten years after the transition. Furthermore, the effect of consolidated democratic transitions on FDI is not limited to their impact on political risk. When controlling for the political risk index of the International Country Risk Guide, the intrinsic effect of consolidated democratic transitions appears immediately after the transition, suggesting that higher political risk accompanying the early years of democratic transitions offsets the positive intrinsic effect of democratictransition on FDI. The results are robust to controlling for GDP per capita and schooling, to alternative codings of the variables capturing the transition, disaggregating the political risk measure into several sub-components and the exclusion of outliers. Moreover local projections, propensity score matching, and IV estimates lend credence to a causal interpretation of our results. Furthermore the longer the democratic history of a country is, the fewer FDI this country may expect to attract thanks to a new democratic transition. |
| Keywords: | FDI; Democratic transitions; Institutions; Development |
| JEL: | E20 F21 O11 |
| Date: | 2017–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/246943&r=mac |
| By: | Tony Chernis; Rodrigo Sekkel |
| Abstract: | This paper estimates a dynamic factor model (DFM) for nowcasting Canadian gross domestic product. The model is estimated with a mix of soft and hard indicators, and it features a high share of international data. The model is then used to generate nowcasts, predictions of the recent past and current state of the economy. In a pseudo real-time setting, we show that the DFM outperforms univariate benchmarks as well as other commonly used nowcasting models, such as mixed-data sampling (MIDAS) and bridge regressions. |
| Keywords: | Business fluctuations and cycles, Econometric and statistical methods |
| JEL: | C38 C32 C53 E37 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:17-2&r=mac |
| By: | Nir Jaimovich; Henry E. Siu |
| Abstract: | We study the role of foreign-born workers in the growth of employment in STEM occupations since 1980. Given the importance of employment in these fields for research and innovation, we consider their role in a model featuring endogenous non-routine-biased technical change. We use this model to quantify the impact of high-skilled immigration, and the increasing tendency of such immigrants to work in innovation, on the pace of non-routine-biased technical change, the polarization of employment opportunities, and the evolution of wage inequality since 1980. |
| JEL: | E0 J0 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23185&r=mac |
| By: | Pamela Lenton (Department of Economics, University of Sheffield); Mike Masiye (Department of Economics, University of Sheffield); Paul Mosley (Department of Economics, University of Sheffield) |
| Abstract: | The theoretical literature around effective tax systems, which are a preconditionof an effective state and therefore of development, has coalesced around the idea of a‘fiscal social contract’, in which beneficial expenditures are delivered to taxpayers in returnfor their tax payments, rather than a coercive relationship existing between them and thegovernment. However, these ideas about governance have with few exceptions not beenincorporated into empirical analyses of tax yield and how to increase it. In this paper, weattempt to fill this gap. Our starting-point is the model of the (fundamentally) democratic social contract proposedby Rousseau 250 years ago, which suggests that increased democracy will be good for manystate-building functions including fiscal mobilisation. We develop this idea by means of aprisoner’s dilemma model, which shows that a ‘fiscal contract’ between taxpayers and thegovernment (in the sense of a top left-hand corner, ‘win-win’ solution of the prisoner’sdilemma) will be most likely to emerge not only as a result of greater democraticaccountability, but also if taxpayers feel that they are getting good value from, and are wellinformed about, government expenditures in exchange for their tax payments. This modelis then estimated empirically against a sample of 62 developing countries between 1980-2008 (with the share of human capital expenditures in public expenditure used as anindicator of the value which taxpayers derive from that expenditure), backed by two casestudies of Ghana and Zambia. Our results, both from econometric analysis and the casestudies, suggest that increasing levels of democratic accountability and the quality of publicexpenditure are correlated, and causally connected, with increasing tax/GDP ratios, and thatin countries where competitiveness is blunted by high levels of rent-seeking, the tax ratiowill be less buoyant. Also, the process by which fiscal contracts are constructed isimportant. The government needs to send the taxpayer an effective signal, or bona-fide,illustrating the benefits to be derived from paying their tax bills. Illustrations of effectivebona-fides are provided. |
| Keywords: | fiscal policy, tax ratios, fiscal contracts, bona-fides, democracy |
| JEL: | D72 D78 E62 O23 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2017004&r=mac |
| By: | Tiziana Leone; Ernestina Coast; Divya Parmar; Bellington Vwalika |
| Abstract: | Zambia has one of the most liberal abortion laws in sub-Saharan Africa. However, rates of unsafe abortion remain high with negative health and economic consequences. Little is known about the economic burden on women of abortion care-seeking in low income countries. The majority of studies focus on direct costs (e.g.: hospital fees). This paper estimates the individual-level economic burden of safe and unsafe abortion care-seeking in Zambia, incorporating all indirect and direct costs. It uses data collected in 2013 from a tertiary hospital in Lusaka, (n=112) with women who had an abortion. Three treatment routes are identified: i) safe abortion at the hospital ii) unsafe clandestine medical abortion initiated elsewhere with post-abortion care at the hospital and iii) unsafe abortion initiated elsewhere with post-abortion care at the hospital. Based on these three typologies, we use descriptive analysis and linear regression to estimate the costs for women of seeking safe and unsafe abortion and to establish whether the burden of abortion care-seeking costs is equally distributed across the sample. Around 39% of women had an unsafe abortion, incurring substantial economic costs before seeking post-abortion care. Adolescents and poorer women are more likely to use unsafe abortion. Unsafe abortion requiring post-abortion care costs women 27% more than a safe abortion. When accounting for uncertainty this figure increases dramatically. For safe and unsafe abortions, unofficial provider payments represent a major cost to women. This study demonstrates that despite a liberal legislation, Zambia still needs better dissemination of the law to women and providers and resources to ensure abortion service access. The policy implications of this study include: the role of pharmacists and mid-level providers in the provision of medical abortion services; increased access to contraception, especially for adolescents; and, elimination of demands for unofficial provider payments. |
| JEL: | E6 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:64716&r=mac |
| By: | Ulrich K. Müller; Mark W. Watson |
| Abstract: | We develop inference methods about long-run comovement of two time series. The parameters of interest are defined in terms of population second-moments of lowfrequency trends computed from the data. These trends are similar to low-pass filtered data and are designed to extract variability corresponding to periods longer than the span of the sample divided by q/2, where q is a small number, such as 12. We numerically determine confidence sets that control coverage over a wide range of potential bivariate persistence patterns, which include arbitrary linear combinations of I(0), I(1), near unit roots and fractionally integrated processes. In an application to U.S. economic data, we quantify the long-run covariability of a variety of series, such as those giving rise to the “great ratios”, nominal exchange rates and relative nominal prices, unemployment rate and inflation, money growth and inflation, earnings and stock prices, etc. |
| JEL: | C22 C53 E17 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23186&r=mac |
| By: | Kim Huynh; Philipp Schmidt-Dengler; Gregor W. Smith; Angelika Welte |
| Abstract: | The discrete choice to adopt a financial innovation affects a household’s exposure to inflation and transactions costs. We model this adoption decision as being subject to an unobserved cost. Estimating the cost requires a dynamic structural model, to which we apply a conditional choice simulation estimator. A novel feature of our method is that preference parameters are estimated separately, from the Euler equations of a shopping-time model, to aid statistical efficiency. We apply this method to study ATM card adoption in the Bank of Italy’s Survey of Household Income and Wealth. There, the implicit adoption cost is too large to be consistent with standard models of rational choice, even when sorted by age, cohort, education or region. |
| Keywords: | Bank notes, Econometric and statistical methods, Financial services |
| JEL: | E41 D14 C35 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:17-8&r=mac |
| By: | Emmanuel Farhi; Ivan Werning |
| Abstract: | This paper extends the benchmark New-Keynesian model with a representative agent and rational expectations by introducing two key frictions: (1) incomplete markets with uninsurable idiosyncratic risk and occasionally-binding borrowing constraints; and (2) bounded rationality in the form of level- k thinking. Compared to the benchmark model, we show that the interaction of these two frictions leads to a powerful mitigation of the effects of monetary policy, which is much more pronounced at long horizons. This offers a potential rationalization of the ?forward guidance puzzle?. Each of these frictions, in isolation, would lead to no or much smaller departures from the benchmark model. We conclude that the interaction of bounded rationality and is important. |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:qsh:wpaper:503421&r=mac |
| By: | Yellen, Janet L. (Board of Governors of the Federal Reserve System (U.S.)) |
| Date: | 2017–01–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:934&r=mac |
| By: | Adamopoulou, Effrosyni; Zizza, Roberta |
| 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. JEL Classification: D12, E21, J51 |
| Keywords: | bounded rationality, consumption, permanent income hypothesis, union contracts |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172013&r=mac |