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on Macroeconomics |
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Issue of 2017‒03‒12
99 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Chen, Hongyi; Funke, Michael; Lozev, Ivan; Tsang, Andrew |
| Abstract: | This paper discusses the macroeconomic effects of China’s informal banking regulatory tool “win-dow guidance,” introduced in 1998. Using an open-economy DSGE model that includes the com-mercial banking sector, we study the stabilizing effects of this non-standard quantitative monetary policy tool and the implications of quantity-based vs. price-based monetary policy instruments for welfare. The analyses are relevant to the current overhaul of Chinese monetary policy. |
| JEL: | C61 E32 E44 E52 |
| Date: | 2017–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2017_003&r=mac |
| By: | Cheikh, Nidhaleddine Ben (ESSCA School of Management); Rault, Christophe (University of Orléans) |
| Abstract: | In this paper, we evaluate the first-stage pass-through, namely the responsiveness of import prices to the exchange rate changes, for a sample of euro area (EA) countries. Our study aims to shed further light on the role of microeconomic factors vs. macroeconomic factors in influencing the extent of the exchange rate pass-through (ERPT). As a first step, we conduct a sectoral analysis using disaggregated import prices data. We find a much higher degree of pass-through for more homogeneous goods and commodities, such as oil and raw materials, than for highly differentiated manufactured products, such as machinery and transport equipment. Our results confirm that cross-country differences in pass-through rates may be due to divergences in the product composition of imports. The higher share of imports from sectors with lower degrees of pass-through, the lower ERPT for an economy will be. In a next step, we investigate for the impact of some macroeconomics factors or common events experienced by EA members on the extent of pass-through. Using the System Generalized Method of Moments within a dynamic panel-data model, our estimates indicate that decline of import-price sensitivity to the exchange rate is not significant since the introduction of the single currency. Our findings suggest instead that the weakness of the euro during the first three years of the monetary union significantly raised the extent of the ERPT. This outcome could explain why the sensitivity of import prices has not fallen since 1999. We also point out a significant role played by the inflation in the Eurozone, as the responsiveness of import prices to exchange rate fluctuations tends to decline in a low and more stable inflation environment. Overall, our findings support the view that the extent of pass-through is comprised of both macro- and microeconomic aspects that policymakers should take into account. |
| Keywords: | exchange rate pass-through, import prices, dynamic panel data |
| JEL: | E31 F31 F40 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10555&r=mac |
| By: | Kim, Soyoung; Mehrotra, Aaron |
| Abstract: | We examine the effects of monetary and macroprudential policies in the Asia-Pacific region, where many inflation targeting economies have adopted macroprudential policies in order to safeguard financial stability. Using structural panel vector autoregressions that identify both monetary and macro-prudential policy actions, we show that tighter macroprudential policies used to contain credit growth have also had a significant negative impact on macroeconomic aggregates such as real GDP and the price level. The similar effects of monetary and macroprudential policies may suggest a complementary use of the two policies at normal times. However, they could also create challenges for policy-makers, especially during times when low inflation coincides with buoyant credit growth. |
| JEL: | E58 E61 |
| Date: | 2017–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2017_004&r=mac |
| By: | Glas, Alexander; Hartmann, Matthias |
| Abstract: | We analyze the determinants of average individual inflation uncertainty and disagreement based on data from the European Central Bank’s Survey of Professional Forecasters. We empirically confirm the implication from a theoretical decomposition of inflation uncertainty that disagreement is an incomplete approximation to overall uncertainty. Both measures are associated with macroeconomic conditions and indicators of monetary policy, but the relations differ qualitatively. In particular, average individual inflation uncertainty is higher during periods of expansionary monetary policy, whereas disagreement rises during contractionary periods. |
| JEL: | E31 E52 E58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145888&r=mac |
| By: | Fieldhouse, Andrew; Mertens, Karel; Ravn, Morten O |
| Abstract: | We document the portfolio activity of federal housing agencies and provide evidence on its impact on mortgage markets and the economy. Through a narrative analysis, we identify historical policy changes leading to expansions or contractions in agency mortgage holdings. Based on those regulatory events that we classify as unrelated to short-run cyclical or credit market shocks, we find that an increase in mortgage purchases by the agencies boosts mortgage lending and lowers mortgage rates. Agency purchases influence prices in other asset markets and stimulate residential investment. Using information in GSE stock prices to construct an alternative instrument for agency purchasing activity yields very similar results as our benchmark narrative identification approach. |
| Keywords: | credit policy; GSEs; monetary policy; mortgage credit; residential investment |
| JEL: | E44 E52 G28 N22 R38 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11830&r=mac |
| By: | Cloyne, James (UC Davis); Huber, Kilian (London school of Economics); Ilzetzki, Ethan (London School of Economics); Kleven, Henrik (London School of Economics) |
| Abstract: | We investigate the effect of house prices on household borrowing using administrative mortgage data from the United Kingdom and a new empirical approach. The data contain household-level information on house prices and borrowing in a panel of homeowners, who refinance at regular and quasi-exogenous intervals. The data and setting allow us to develop an empirical approach that exploits house price variation coming from idiosyncratic and exogenous timing of refinance events around the Great Recession. We present two main results. First, there is a clear and robust effect of house prices on borrowing, but the responsiveness is smaller than recent US estimates. Second, the effect of house prices on borrowing can be explained largely by collateral effects. We study the collateral channel in two ways: through a multivariate heterogeneity analysis of proxies for collateral and wealth effects, and through a test that exploits interest rate notches that depend on housing collateral. |
| Keywords: | House prices; household borrowing; collateral channel |
| JEL: | D14 E21 E32 E43 E51 G21 |
| Date: | 2017–02–24 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0650&r=mac |
| By: | Nektarios A. Michail (Central Bank of Cyprus); Demetris Koursaros (Cyprus University of Technology); Christos S. Savva (Cyprus University of Technology) |
| Abstract: | Using the shock persistence methodology of Lee, Pesaran and Pierse (1992), we examine whether monetary policy has persistent effects on bank lending behaviour, both directly through the credit channel and indirectly through the risk-taking and liquidity channels. The findings suggest that policy actions aimed at affecting credit risk and bank lending will not have any persistent effects if only the interest rate is employed. Macro-prudential policy should focus on other factors which affect lending decisions, notably the liquidity channel which appears to be an important determinant of the level of lending. |
| Keywords: | bank lending, persistence, euro area, monetary policy, interest rate |
| JEL: | E52 E58 E44 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:cyb:wpaper:2016-01&r=mac |
| By: | Efraim Benmelech; Carola Frydman; Dimitris Papanikolaou |
| Abstract: | We provide new evidence that a disruption in credit supply played a quantitatively significant role in the unprecedented contraction of employment during the Great Depression. To analyze the role of financing frictions in firms' employment decisions, we use a novel, hand-collected dataset of large industrial firms. Our identification strategy exploits preexisting variation in the need to raise external funds at a time when public bond markets essentially froze. Local bank failures inhibited firms' ability to substitute public debt for private debt, which exacerbated financial constraints. We estimate a large and negative causal effect of financing frictions on firm employment. Interpreting the estimated elasticities through the lens of a simple structural model, we find that the lack of access to credit may have accounted for 10% to 33% of the aggregate decline in employment of large firms between 1928 and 1933. |
| JEL: | E24 E5 G01 G21 G31 J6 N42 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23216&r=mac |
| By: | Michele Fratianni (Indiana University, Kelly School of Business, Bloomington US, Univ. Politecnica Marche and MoFiR) |
| Abstract: | This paper argues that the Italian banking system would benefit from a profound restructuring achieved by separating safe banks, or money banks, from credit banks. The former would accept demandable deposits to be fully collateralized by a combination of monetary base and interestrate- and-credit-risk-free assets. The latter would fund illiquid loans with equities and long-dated debt obligations. The money bank would fulfill the objective of fully protecting savings in the form of money without the necessity of heavy regulation. The risky bank, the credit bank, would not be exposed to liquidity crises because one cannot run against long-dated bonds and equity. The credit bank, which is subject to insolvency risk, would bear a more intense regulatory and supervision structure than the money bank. |
| Keywords: | Chicago Plan, money bank, credit bank, regulation, too big to fail |
| JEL: | E42 E51 E52 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:anc:wmofir:138&r=mac |
| By: | Orphanides, Athanasios |
| Abstract: | Monetary policy and fiscal dynamics are inexorably linked. When a government faces the risk of getting caught in a high debt trap, debt monetization may become an appealing option. However, independent central banks may be able to allay debt concerns without compromising price stability. One option is financial repression which, despite associated distortions, can create some fiscal space while preserving price stability. Financial repression is a feature of quantitative easing, which has proven to be an effective policy tool at the zero lower bound. This paper examines the policies of the Federal Reserve, the Bank of Japan and the ECB in relation to debt dynamics for the United States, Japan, Germany and Italy since the crisis. Important differences are identified across the four states, reflecting differences in the policy choices of the three central banks. While decisive QE policies by the Federal Reserve and, more recently, by the Bank of Japan have been effective, ECB policies have had decidedly uneven consequences on Germany and Italy. The normalization of the Federal Reserve’s balance sheet is also discussed in a historical context. |
| Keywords: | Bank of Japan; debt sustainability; ECB; Federal Reserve; financial repression; Germany; Italy; Japan; Quantitative easing; United States |
| JEL: | E52 E58 E61 G12 H63 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11834&r=mac |
| By: | Jorg Bibow |
| Abstract: | This paper investigates the (lack of any lasting) impact of John Maynard Keynes's General Theory on economic policymaking in Germany. The analysis highlights the interplay between economic history and the history of ideas in shaping policymaking in postwar (West) Germany. The paper argues that Germany learned the wrong lessons from its own history and misread the true sources of its postwar success. Monetary mythology and the Bundesbank, with its distinctive anti-inflationary bias, feature prominently in this collective odyssey. The analysis shows that the crisis of the euro today is largely the consequence of Germany's peculiar anti-Keynesianism. |
| Keywords: | John Maynard Keynes; Mercantilism; Economic and Monetary Union; Euro Crisis |
| JEL: | B31 E30 E58 E65 N14 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_886&r=mac |
| By: | Thiem, Christopher |
| Abstract: | This paper reinvestigates the influence of oil price uncertainty on real economic activity in the U.S. using a four-variable VAR, GARCH-in-mean, asymmetric BEKK model. In contrast to previous studies in this area, the analysis focuses on business cycle fluctuations and we control for global supply and demand factors that might affect the real price of oil, its volatility as well as the U.S. economy. We find that - even after accounting for these factors - oil price uncertainty still has a highly significant negative influence on the U.S. business cycle. Our computations show that the effect is economically important during several periods, mostly after a significant variance shift in the mid-1980s. We simultaneously estimate the effect on the global business cycle, but find that it is comparatively weak. A battery of robustness checks confirms these results. Finally, significant spillover effects in the GARCH model suggest that oil price volatility is a gauge and channel of transmission of more general macroeconomic shocks and uncertainty. These linkages are particularly strong in case of unexpected bad news. @Dieser Beitrag untersucht den Einfluss von Ölpreisunsicherheit auf die Wirtschaftsaktivität der USA mit Hilfe eines VAR, GARCH-in-mean, asymmetrischen BEKK Modells mit vier Variablen. Im Gegensatz zu früheren Studien in diesem Bereich konzentriert sich die Analyse unmittelbar auf Schwankungen im Konjunkturzyklus. Außerdem kontrollieren wir für globale Angebots- und Nachfragefaktoren, die potentiell nicht nur den realen Ölpreis und dessen Volatilität beeinflussen, sondern gleichzeitig auch einen direkten Einfluss auf die US-Wirtschaft haben. Unsere Untersuchung zeigt, dass - auch nach Berücksichtigung der globalen Einflussfaktoren - Ölpreisunsicherheit weiterhin einen statistisch signifikanten, negativen Einfluss auf den US-Konjunkturzyklus ausübt. Ferner zeigen unsere Berechnungen, dass dieser Effekt während mehrerer Zeitabschnitte auch von erheblicher ökonomischer Bedeutung ist. Dies gilt insbesondere nach einer signifikanten strukturellen Änderung der Varianzen ab Mitte der 80er Jahre. Simultan schätzen wir auch den Einfluss der Ölpreisunsicherheit auf den globalen Konjunkturzyklus, finden hier jedoch nur einen vergleichsweise schwachen Effekt. Beide Ergebnisse werden durch eine ganze Reihe an Robustheitstests bestätigt. Schlussendlich deuten signifikante Spillover-Effekte im GARCH-Modell darauf hin, dass Ölpreisvolatilität auch ein Gradmesser und Übertragungskanal für allgemeinere makroökonomische Schocks und Unsicherheit ist. Die entsprechenden Verknüpfungen sind insbesondere im Fall unerwarteter schlechter Neuigkeiten stark ausgeprägt. |
| Keywords: | Asymmetric BEKK model,crude oil,multivariate GARCH-in-mean,oil price volatility,real options,U.S. business cycle |
| JEL: | C32 E32 Q43 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:674&r=mac |
| By: | Jair N. Ojeda-Joya (Banco de la Republica, Bogotá D.C.); Oscar E. Guzman (Office of the National Comptroller, Bogotá D.C.) |
| Abstract: | In this paper we estimate the effect of government consumption shocks on GDP using a panel of 21 developing economies. Our goal is to better understand the reasons for the low fiscal multipliers found in the literature by performing estimations for alternative exchange rate regimes, business-cycle phases, and monetary policy stances. In addition, we perform counterfactual simulations to analyze the possible gains from fiscal-monetary policy coordination. The results imply that government consumption shocks are usually followed by monetary policy tightening in developing economies with flexible regimes. Our simulations show that this reaction partially explains the presence of low fiscal multipliers in these economies. On the other hand, we find that government consumption shocks have better multipliers in developing economies during fixed regimes, economic booms and monetary expansions. In particular, implementing fiscal programs during monetary expansions seems to improve significantly their economic stimulus. |
| Keywords: | Fiscal Policy, Monetary Policy, Structural Vector Autoregression, Exchange Rate Regime, Panel VAR |
| JEL: | E62 E63 F32 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp08-2017&r=mac |
| By: | McGrattan, Ellen R. (Federal Reserve Bank of Minneapolis) |
| Abstract: | Because firms invest heavily in R&D, software, brands, and other intangible assets—at a rate close to that of tangible assets—changes in measured GDP, which does not include all intangible investments, understate the actual changes in total output. If changes in the labor input are more precisely measured, then it is possible to observe little change in measured total factor productivity (TFP) coincidentally with large changes in hours and investment. This mismeasurement leaves business cycle modelers with large and unexplained labor wedges accounting for most of the fluctuations in aggregate data. To address this issue, I incorporate intangible investments into a multi-sector general equilibrium model and parameterize income and cost shares using data from an updated U.S. input and output table, with intangible investments reassigned from intermediate to final uses. I employ maximum likelihood methods and quarterly observations on sectoral gross outputs for the United States over the period 1985–2014 to estimate processes for latent sectoral TFPs—that have common and sector-specific components. Aggregate hours are not used to estimate TFPs, but the model predicts changes in hours that compare well with the actual hours series and account for roughly two-thirds of its standard deviation. I find that sector-specific shocks and industry linkages play an important role in accounting for fluctuations and comovements in aggregate and industry-level U.S. data, and I find that the model’s common component of TFP is not correlated at business cycle frequencies with the standard measures of aggregate TFP used in the macroeconomic literature. |
| Keywords: | Business cycles; Total factor productivity; Intangible investments; Input-output linkages |
| JEL: | D57 E32 O41 |
| Date: | 2017–03–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:545&r=mac |
| By: | Salzmann, Leonard |
| Abstract: | Using a factor structural VAR for 14 countries out of the G20 group, we document that output innovations originating outside the G7 account for shares of 10 to 25 percent in the business cycle fluctuations of G7 GDP growth. Using auxiliary regressions, we additionally find that these innovations contribute noticeably, relative to G7 output innovations, to short-term fluctuations in important other national G7 variables such as employment, the current account balance, inflation, and inflation volatility, and in global macroeconomic indicators like the oil price, world stock market returns, and exchange rate volatility. The results indicate that in a globalized world spillovers from emerging markets and industrial countries other than the G7 play a relevant role for major aspects of the G7 and world business cycle. |
| JEL: | E32 F44 F62 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145633&r=mac |
| By: | Kaufmann, Sylvia; Gaggl, Paul |
| Abstract: | We analyze quarterly occupation-level data from the US Current Population Survey for 1976-2013. Based on common cyclical employment dynamics, we identify two clusters of occupations that roughly correspond to the widely discussed notion of “routine” and “non-routine” jobs. After decomposing the cyclical dynamics into a cluster-specific (“structural”) and an occupationspecific (“idiosyncratic”) component, we detect significant structural breaks in the systematic dynamics of both clusters around 1990. We show that, absent these breaks, employment in the three “jobless recoveries” since 1990 would have recovered significantly more strongly than observed in the data, even after controlling for observed idiosyncratic shocks. |
| JEL: | J21 E32 E24 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145869&r=mac |
| By: | Wilhelm, Matthias; Buchheim, Lukas; Watzinger, Martin |
| Abstract: | We study the labor market effects of a €60 billion investment program in photovoltaics in Germany between 2003 and 2012. According to our estimates, the program created one job lasting one year for every €120,000 in investment. Gains were concentrated in the construction sector, with spillovers to local services. The effects are stronger in weaker economic times. To address endogeneity concerns, we exploit the fact that local investment was pre-determined by the amount of available rooftops and solar radiation in a region to construct an instrumental variable estimator. |
| JEL: | E24 E62 R23 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145551&r=mac |
| By: | Olga Gouveia; Enestor Dos Santos; Santiago Fernández de Lis; Alejandro Neut; Javier Sebastián |
| Abstract: | Distributed ledgers are a technology that can support a digitized version of cash while potentially withholding its four major features: universality, anonymity, peer-to-peer exchangeability (P2P) and a constant nominal value. |
| Keywords: | Banks , Digital economy , Global , Working Paper |
| JEL: | E42 E50 E61 G20 O33 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:bbv:wpaper:1704&r=mac |
| By: | Yakov Ben-Haim; Maria Demertzis; Jan Willem Van den End |
| Abstract: | This paper applies the info-gap approach to the unconventional monetary policy of the Eurosystem and so takes into account the fundamental uncertainty on inflation shocks and the transmission mechanism. The outcomes show that a more demanding monetary strategy, in terms of lower tolerance for output and inflation gaps, entails less robustness against uncertainty, particularly if financial variables are taken into account. Augmenting the Taylor rule with a financial variable leads to a smaller loss of robustness than taking into account the effect of financial imbalances on the economy. However, in some situations, the augmented model is more robust than the baseline model. A conclusion from our framework is that including financial imbalances in the monetary policy objective does not necessarily increase policy robustness, and may even decrease it. |
| Keywords: | Monetary Policy; Monetary Strategy; Knightian uncertaint; info-gaps |
| JEL: | E42 E47 E52 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:544&r=mac |
| By: | Kose, Ayhan; Lakatos, Csilla; Ohnsorge, Franziska; Stocker, Marc |
| 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: | Business Cycles; global economy.; Trade; uncertainty; United States |
| JEL: | C15 E32 E52 F13 H30 O51 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11836&r=mac |
| By: | Jérémie Cohen-Setton (Peterson Institute for International Economics); Joshua K. Hausman (University of Michigan); Johannes F. Wieland (University of California, San Diego) |
| Abstract: | The effects of supply-side policies in depressed economies are controversial. This Working Paper sheds light on this debate using evidence from France in the 1930s. In 1936, France departed from the gold standard and implemented mandatory wage increases and hours restrictions. Deflation ended but output stagnated. The authors present time-series and cross-sectional evidence that these supply-side policies, in particular the 40-hour law, contributed to French stagflation. These results are inconsistent both with the standard one-sector new Keynesian model and with a medium-scale, multi-sector model calibrated to match the authors’ cross-sectional estimates. They conclude that the new Keynesian model is a poor guide to the effects of supply-side shocks in depressed economies. |
| Keywords: | Depression, stagflation |
| JEL: | E32 E31 E65 N14 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp17-4&r=mac |
| By: | Tóth, Peter |
| Abstract: | The aim of this paper is to estimate a small dynamic factor model (DFM) for nowcasting GDP growth in Slovakia. The model predicts the developments of real activity based on monthly indicators, such as sales, employment, employers’ health care contributions, export and foreign surveys. The forecast accuracy of the model prevails over naive models that ignore monthly data. This result holds especially on the shortest horizon of one quarter ahead and on the evaluation period including the crisis of 2008-2009. Thus we may conclude that our small DFM is a valuable indicator of business cycle turning points in Slovakia. Further, the model allows for frequent and automatic updates of the GDP forecast each time new monthly data becomes available. This makes it useful for institutions which monitor the developments of monthly indicators of real activity. |
| Keywords: | dynamic factor model, real activity, short-term forecasting |
| JEL: | C52 C53 E23 E27 |
| Date: | 2017–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:77245&r=mac |
| By: | Baskaya, Yusuf Soner; di Giovanni, Julian; Kalemli-Ozcan, Sebnem; Ulu, Mehmet Fatih |
| 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-à-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 |
| Keywords: | Bank credit; Capital Flows; Firm Heterogeneity; Risk premium; VIX |
| JEL: | E0 F0 F1 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11839&r=mac |
| By: | Yusuf Soner Baskaya; Julian di Giovanni; Sebnem Kalemli-Özcan; 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-à-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. |
| Keywords: | Capital Flows, VIX, Risk Premium, Bank Credit, Firm Heterogeneity |
| JEL: | E0 F0 F1 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1559&r=mac |
| By: | Shota Kai (Graduate School of Economics, Kobe University); Yoichi Matsubayashi (Graduate School of Economics, Kobe University) |
| Abstract: | Using local projection, this study investigates the dynamic effect of credit risk on the real economy in European countries. We obtain credit spread shocks of nancial and non- nancial institutions in four major eurozone countries by controlling their endogenous changes caused by fear of the global nancial market, the European Central Bank's monetary policy and the anxiety of national government debt. Our rst nding is that industrial production responses to the non- nancial institution credit spread shock are earlier than that for the nancial institution shock. Second, in the case of rising credit risk, Germany, France and Finland increase bank lending to domestic companies. Finally, we nd that these two tendencies were mainly due to the European common factor by verifying the impulse response functions to idiosyncratic credit spread shocks. We conclude that credit risks in each country are largely common in the eurozone. |
| Keywords: | Credit Risk, Local Projection, Financial Crisis, Euro Area |
| JEL: | C32 E44 E47 G32 |
| URL: | http://d.repec.org/n?u=RePEc:koe:wpaper:1706&r=mac |
| By: | Bonga-Bonga, Lumengo; Simo-Kengne, Beatrice Desiree |
| Abstract: | This paper introduces the possibility of asymmetry in the relationship between output growth and inflation in South Africa based on signal extraction model. The Markov-switching vector autoregression is used to this end. The results of the empirical analysis show that, consistent with the attenuation principle, the response of output growth to inflation shocks is asymmetric and depends on inflation volatility regimes and the magnitude of the monetary policy reaction to inflation shocks. |
| Keywords: | Inflation, Economic Growth, Non-Linearity, MSVAR |
| JEL: | C23 E31 |
| Date: | 2017–03–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:77286&r=mac |
| By: | Fabrizio Balassone (Bank of Italy); Sara Cecchetti (Bank of Italy); Martina Cecioni (Bank of Italy); Marika Cioffi (Bank of Italy); Wanda Cornacchia (Bank of Italy); Flavia Corneli (Bank of Italy); Gabriele Semeraro (Bank of Italy) |
| Abstract: | The unchecked build-up of imbalances during the 2000s exposed the euro area to the risk of sudden stops. Such risk materialized in 2009-10 and its consequences were amplified by the absence of adequate institutions. Europe embarked on a thorough process of reforming its economic governance. We review the measures taken concerning sovereigns and banks since 2010 and discuss possible ways forward on both fronts. We argue that, while significant progress has been achieved, a lot of ground remains to be covered. In general, reforms have favoured risk reduction over risk sharing. As a result, in the face of exceptional circumstances, the euro area is not equipped with the fiscal tools necessary for macroeconomic stabilization; moreover, banking union lacks common financial backstops. Only further risk (and sovereignty) sharing can avoid harmful pro-cyclical excesses. |
| Keywords: | economic and monetary union, banking union, fiscal union, sovereign risk, prudential regulation, sovereigns-banks nexus |
| JEL: | E58 E62 F42 F45 G28 H63 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_344_16&r=mac |
| By: | Winkler, Roland; Bredemeier, Christian |
| Abstract: | We examine differences in employment dynamics across population groups using Bayesian vector autoregressions. We document that groups who are particularly strongly affected by business-cycle fluctuations (males, young people, non-whites, the less educated, and workers in blue-collar occupations) also tend to be affected early in the build-up of a boom or bust. We further identify the drivers of the different cyclicalities across population groups. Supply shocks seem to be most important for the heterogeneous employment fluctuations and particularly for the early effects of recessions and booms on the most affected groups. Dynamics in sectoral activity and in hiring rates can help to understand our findings. |
| JEL: | J10 E32 J21 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145687&r=mac |
| By: | Luis J. Álvarez (Banco de España); Isabel Sánchez (Banco de España) |
| Abstract: | This paper describes the econometric models used by the Banco de España to monitor consumer price inflation and forecast its future trends. The strategy followed heavily relies on the results from a set of econometric models, supplemented by expert judgment. We consider three different types of approaches and highlight the relevance of heterogeneity in price-setting behaviour and the importance of using models that allow for a slowly evolving local mean when forecasting inflation. |
| Keywords: | inflation, forecasting, Phillips curves, transfer functions, judgemental forecasts |
| JEL: | C53 E31 E37 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:1703&r=mac |
| By: | Ehrmann, Michael; Talmi, Jonathan |
| Abstract: | Press releases announcing and explaining monetary policy decisions play a critical role in the communication strategy of central banks. Due to their market-moving potential, it is particularly important how they are drafted. Often, central banks start from the previous statement, and update the earlier text at the margin. This makes it straightforward to compare statements and see how the central bank’s thinking has evolved; however, more substantial changes, which will eventually be required, might then be harder to understand. Using variation in the drafting process at the Bank of Canada, this paper studies the extent to which similarity in central bank statements matters for the reception of their content in financial markets. It shows that similar press releases generate less market volatility, but that more substantial textual changes after a sequence of very similar statements lead to much larger volatility. JEL Classification: E43, E52, E58 |
| Keywords: | ARCH models, Bank of Canada, central bank communication, semantic similarity, volatility |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172023&r=mac |
| By: | Awijen, Haithem; Hammami, Sami |
| Abstract: | This paper examines empirically the nonlinear business cycle dynamics due to the presence of financial frictions. Using a threshold vector auto regression, the authors estimate the behavior of interest rate shocks in which a regime change occurs if the two respective threshold variables namely asset price and exchange rate cross their critical threshold value. The authors find evidence that non linearity is strongly directed by regime-dependency; in fact the results suggest that output growth response is bigger when the economy is initially an appreciation regime.In addition, the empirical findings prove the presence of asymmetric responses to interest rate shocks however this reaction is recognized via asset price "debt-deflation mechanism" rather than shocks stemming from "exchange rate depreciation spirals". The results also show that a response to large shocks to interest rate shows disproportionate effects compared with responses to small shocks. |
| Keywords: | Collateral Constraints,Business Cycle Asymmetry,financial frictions,Threshold VAR |
| JEL: | E51 E32 C20 C63 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20176&r=mac |
| By: | Adeel Malik (Oxford Centre for Islamic Studies and Department of International Development, University of Oxford) |
| Abstract: | Revisiting macroeconomic policies and outcomes of Arab resource-rich economies (RREs), this paper synthesizes the political economy considerations that underpin policy choices. The paper argues that, in the context of Arab RREs, fiscal and financial sector policies play a particularly important role in absorbing natural resource rents. Fiscal policy is highly pro-cyclical and rooted in the underlying political settlement, which is based on extensive distributional commitments. Financial systems are deep but are known for restricted financial access to vast areas of economy. Given the excessive dependence on hydrocarbon rents and the prevalence of fixed exchange rate regimes, the external constraint remains more binding. Even where monetary policy has greater room to operate, existing policy frameworks are not geared towards domestic targets, such as inflation and unemployment, and are largely determined outside the purview of macroeconomic policy. I argue that the political objective function is essential for understanding these macroeconomic arrangements. With weak productive constituencies and few institutional constraints, macroeconomic policy involves limited feedback from the private sector and upholds the interest of the sovereign. In this milieu, institutional constraints on fiscal policy are more important than central bank independence. The paper also discusses the stability implications of current macroeconomic arrangements, arguing that stability in Arab RREs is almost entirely predicated on the uninterrupted flow of oil rents rather than resilient institutional structures. |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:erg:wpaper:1034&r=mac |
| By: | Koeniger, Winfried; Fella, Giulio; Frache, Serafin |
| Abstract: | We structurally estimate a buffer-stock savings model using panel data from the Italian Survey of Household Income and Wealth that contains information not only about income and consumption but also wealth. We exploit the information about wealth and the responses of wealth and consumption to income shocks over different time horizons to infer the degree of insurance against permanent and transitory income shocks. The estimated model implies that Italian households can insure 5-10% of a permanent shock and 90-95% of a transitory shock. The degree of insurance against permanent shocks is at the low end of the range of existing estimates for the U.S. |
| JEL: | E21 D91 E20 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145507&r=mac |
| By: | Conrad, Christian; Loch, Karin |
| Abstract: | We explain the time-varying correlation between stock and bond returns by survey expectations on the future macroeconomic development. A modified DCC-MIDAS specification allows us to relate daily changes in the correlation to monthly expectations data. For a cross-section of countries, we show that the stock-bond correlation is mainly determined by expectations regarding the future course of monetary policy as well as stress in financial markets. From a European perspective, the asymmetry in the response of the stock-bond correlation to heightened stock market volatility in the UK, Germany and France on the one hand, and Italy on the other hand is of high policy relevance. |
| JEL: | E44 C32 C58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145530&r=mac |
| By: | De Grauwe, Paul; Ji, Yuemei |
| Abstract: | Business cycles among Eurozone countries are highly correlated. We develop a two-country behavioral macroeconomic model in a monetary union setting where the two countries are linked with each other by international trade. The net export of country 1 depends on the output gap of country 2 and on real exchange rate movements. The synchronization of the business cycle is produced endogenously. The main channel of synchronization occurs through a propagation of "animal spirits" , i.e. waves of optimism and pessimism that become correlated internationally. We find that this propagation occurs with relatively low levels of trade integration. We analyze the role of the common central bank in this propagation mechanism. We explore the transmission of demand and supply shocks and we study how the central bank affects this transmission. We verify the main predictions of the model empirically. |
| Keywords: | animal spirits; behavioral macroeconomics; Business Cycles; monetary union |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11887&r=mac |
| By: | Bignon, Vincent; Jobst, Clemens |
| Abstract: | This paper shows that a central bank can more efficiently mitigate economic crises when it broadens eligibility for its discount facility to any safe asset or solvent agent. We use difference-in-differences panel regressions and emulate crises by studying how defaults of banks and non-agricultural firms were affected by the arrival of an agricultural disease. We exploit the specificities of the implementation of the discount window to deal with the endogeneity of the access to the central bank to the arrival of the crisis and local default rates. We find that broad eligibility reduced significantly the increase in the default rate when the shock hit the local economy. A counterfactual exercise shows that defaults would have been 10% to 15% higher if the central bank would have implemented the strictest eligibility rule. This effect is identified independently of changes in policy interest rates and the fiscal deficit. JEL Classification: E44, E51, G28, E58, N14, N54 |
| Keywords: | Bagehot rule, Bank of France, collateral, default, discount window |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172027&r=mac |
| By: | Bullard, James B. (Federal Reserve Bank of St. Louis) |
| Abstract: | Now may be a good time for the Federal Open Market Committee (FOMC) to begin allowing the balance sheet to normalize by ending reinvestment, St. Louis Fed President James Bullard said at George Washington University in Washington, D.C. He noted that current FOMC policy is distorting the yield curve and that ending reinvestment may allow for a more natural adjustment of rates across the yield curve as normalization proceeds. He also suggested acting now, during relatively good times, in case the Fed must resort to using the balance sheet as a monetary policy tool in a future downturn, as it did when the fed funds rate was closer to zero. |
| Date: | 2017–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:281&r=mac |
| By: | Ho, Sin-Yu |
| Abstract: | This study examines the macroeconomic determinants of stock market development in Malaysia during the period 1981-2015. Specifically, it examines the impact of banking sector development, economic performance, inflation rate, foreign direct investment and trade openness on the development of Malaysian stock market. Currently, while theoretical and empirical literature presents diverse views on the relationship between each macroeconomic determinant and stock market development, no studies have been conducted with particular reference to the Malaysian stock market. Given the significant role the Malaysian stock market plays among the ASEAN 5, there is a need for more understanding of the impacts of macroeconomic factors on its development. This paper contributes to the existing literature by investigating the macroeconomic determinants of stock market development in Malaysia using the ARDL bounds testing procedure. The results find that economic performance and trade openness have positive long-run impacts, whereas banking sector development has a negative long-run impact on stock market development. In the short run, the results find that the previous period of banking sector development, and the current and previous periods of trade openness have positive impacts on stock market development, whereas inflation rate exerts a negative impact. These findings carry important policy implications. |
| Keywords: | Macroeconomic determinants; Stock market development; Malaysia; ARDL bounds testing |
| JEL: | C22 E44 G23 |
| Date: | 2017–02–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:77232&r=mac |
| By: | Pascal Seppecher (Centre d'Economie de l'Université de Paris Nord (CEPN)); Isabelle Salle (Utrecht University, School of Economics); Marc Lavoie (Centre d'Economie de l'Université de Paris Nord (CEPN)) |
| Abstract: | This paper studies coordination between firms in a multi-sectoral macroeconomic model with endogenous business cycles. Firms are both in competition and interdependent, and set their prices with a markup over unit costs. Markups are heterogeneous and evolve under market pressure. We observe a systematic coordination within firms in each sector, and between each sector. The resulting pattern of relative prices are consistent with the labor theory of value. Those emerging features are robust to technology shocks. |
| Keywords: | General interdependence, Pricing, Agent-based modeling, Learning |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:upn:wpaper:2017-03&r=mac |
| By: | Eichler, Stefan; Lähner, Tom; Noth, Felix |
| Abstract: | This study analyzes if regionally affiliated Federal Open Market Committee (FOMC) members take their districts’ regional banking sector instability into account when they vote. Considering the period 1978–2010, we find that a deterioration in a district’s bank health increases the probability that this district’s representative in the FOMC votes to ease interest rates. According to member-specific characteristics, the effect of regional banking sector instability on FOMC voting behavior is most pronounced for Bank presidents (as opposed to Governors) and FOMC members who have career backgrounds in the financial industry or who represent a district with a large banking sector. |
| JEL: | E43 E52 E58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145803&r=mac |
| By: | Tsoy, Lyubov (Sogang University); Heshmati, Almas (Jönköping University, Sogang University) |
| Abstract: | This study examines the impact of 1997 Asian and 2008 Global financial crises on the capital structure of Korean listed companies. Using a data set covering 1,159 Korean listed non-financial firms from 10 industrial sectors over period 1985-2015, the pattern of firms' capital structure before and after the crises is investigated and the speed of adjustment toward the optimal leverage identified. Different effects of the two crises on both capital structure and its adjustment speed is found. The average debt ratio fell significantly, the distance between optimal and observed debt ratios shrank, while the speed of adjustment increased twofold after the Asian crisis. Unlike the Asian crisis, the Global crisis of 2008 had a positive effect on companies' debt ratio and the speed of their adjustment toward optimal leverage. The empirical analysis revealed that Korean non-financial listed companies on average decreased their debt ratios over the entire study period, with leverage being highest before the Asian crisis and lowest after the Global financial crisis. The results also show that the debt ratio of Korean chaebols is higher than that of non-chaebols. Moreover, the high level of leverage is associated with tangible assets, income variability, size and age of the firm, non-debt tax shield, and uniqueness. |
| Keywords: | capital structure, optimal leverage, speed of adjustment, Korean listed companies, financial crises, chaebols |
| JEL: | C33 D21 C51 E22 G32 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10554&r=mac |
| By: | Thorsten Beck; Steven Poelhekke |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:545&r=mac |
| By: | Beck, Thorsten; Poelhekke, Steven |
| 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: | Banking; Financial Development; Natural resources |
| JEL: | E20 F41 G20 O10 Q32 Q33 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11872&r=mac |
| By: | Legroux, Vincent; Rahmouni-Rousseau, Imène; Szczerbowicz, Urszula; Valla, Natacha |
| Abstract: | Central banks have been blamed for the negative side effects of the non-conventional monetary policy measures they have implemented since 2008. In this paper, we argue that central banks played a positive role in the money market and interbank liquidity recovery. Using novel, micro data of the French banking system on the pool of collateral eligible to ECB open market operations, we construct a "liquidity mismatch indicator (LMI)" for the aggregate banking sector that highlights the central bank influence on the bank liquidity condition. Our results show that central bank liquidity and haircut policies have indeed helped banks to reduce the mismatch of liquidity between their assets and their liabilities that had widened after the 2011 stress episode. Moreover, our bank liquidity measure can be useful as an early warning indicator for the macro-prudential purposes. It gives the "cash equivalent value" of the French banking sector and indicates the amount of the liquidity support that the ECB might have to provide in case of financial crisis. The LMI can also help identify the systematically important French institution in terms of their liquidity exposures. |
| Keywords: | bank liquidity,liquidity crises,unconventional monetary policy,macroprudential regulation |
| JEL: | E58 G21 G28 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:eibwps:201701&r=mac |
| By: | Nitsch, Volker |
| Abstract: | The massive decline in international trade in 2008/09 is often attributed to the global deterioration in financial conditions after the bankruptcy of a US investment bank, Lehman Brothers. This paper examines the association between external finance and firm activity in Germany in more detail. In particular, we explore a novel data set that matches a full sample of quarterly bank-firm lending data with detailed information on borrowers and lenders. Our results indicate that foreign sales of German non-financial corporations are insensitive to variations in external finance. While German banks affected by the crisis have significantly reduced their credit supply, we only observe a causal (negative) effect on their clients’ domestic sales. Exporting firms, in contrast, seem to be particularly good borrowers. |
| JEL: | F40 G21 E44 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145753&r=mac |
| By: | Hernández Vega Marco A. |
| Abstract: | We study how unconventional monetary policy announcements affect the entry of foreign investment in debt and equity in Mexico, placing special focus on announcements related to the third QE program and the taper tantrum episode. A novel dataset on daily debt and equity flows, that maps Balance of Payments data quite well, allows this paper to provide a better insight into movements of capital. The results suggest that both equity and debt flows appear to react immediately to unexpected U.S. monetary policy announcements, in particular if these are considered as bad news by investors. In turn, results using weekly data support the idea that investors interested in fixed income instruments move more prudently than those interested in equity who react quickly. |
| Keywords: | Monetary Policy Announcements, Unconventional Monetary Policies, Foreign Portfolio Investment, Mexican Equity and Bond Market |
| JEL: | E4 E52 F21 F3 F62 G10 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:bdm:wpaper:2017-02&r=mac |
| By: | Seele, Stefanie; Burda, Michael |
| Abstract: | The supply and demand framework of Katz and Murphy (1992) provides new evidence on the source of changes in socially insured full-time and part-time employment in years preceding and following the implementation of the landmark Hartz reforms in Germany. Our findings are consistent with a stable demand for labor, especially in western Germany, implying that supply factors were decisive for the evolution of the labor market after 2003. The correlation of changes in wages and labor force participation is also consistent with a positive labor supply shock at a given working-age population. We also show that part-time employment played a decisive role in the post-2003 improvement of the German labor market. |
| JEL: | E24 J21 J01 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145650&r=mac |
| By: | Islamaj, Ergys; Kose, Ayhan; Ohnsorge, Franziska; Ye, Lei Sandy |
| Abstract: | Investment growth in emerging market and developing economies has slowed sharply since 2010. This paper presents a comprehensive analysis of the causes and implications of this slowdown and presents a menu of policy responses to improve investment growth. It reports four main results. First, the slowdown has been broad-based and most pronounced in the largest emerging markets and in commodity exporters. Second, it reflects a range of obstacles: weak activity, negative terms-of- trade shocks, declining foreign direct investment inflows, elevated private debt burdens, heightened political risk, and adverse spillovers from major economies. Third, by slowing capital accumulation and technological progress embedded in investment, weak post- crisis investment growth has contributed to sluggish growth of potential output in recent years. Finally, although specific policy priorities depend on country circumstances, policymakers can boost investment both directly, through public investment, and indirectly, by encouraging private investment, including foreign direct investment, and by undertaking measures to improve overall growth prospects and the business climate. |
| Keywords: | emerging markets; infrastructure investment; investment slowdown; policies; policy space |
| JEL: | E22 F2 F6 O1 O4 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11886&r=mac |
| By: | Baqaee, David Rezza; Farhi, Emmanuel |
| 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. |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11845&r=mac |
| By: | M. Ayhan Kose; Franziska Ohnsorge; Lei Sandy Ye; Ergys Islamaj |
| Abstract: | Investment growth in emerging market and developing economies has slowed sharply since 2010. This paper presents a comprehensive analysis of the causes and implications of this slowdown and presents a menu of policy responses to improve investment growth. It reports four main results. First, the slowdown has been broad-based and most pronounced in the largest emerging markets and in commodity exporters. Second, it reflects a range of obstacles: weak activity, negative terms-of-trade shocks, declining foreign direct investment inflows, elevated private debt burdens, heightened political risk, and adverse spillovers from major economies. Third, by slowing capital accumulation and technological progress embedded in investment, weak post-crisis investment growth has contributed to sluggish growth of potential output in recent years. Finally, although specific policy priorities depend on country circumstances, policymakers can boost investment both directly, through public investment, and indirectly, by encouraging private investment, including foreign direct investment, and by undertaking measures to improve overall growth prospects and the business climate. |
| Keywords: | emerging markets, developing economies, investment slowdown, policy space, infrastructure investment, monetary policy, fiscal policy, structural reforms |
| JEL: | E22 F2 F6 O1 O4 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2017-19&r=mac |
| By: | Georg Graetz; Guy Michaels |
| Abstract: | Since the early 1990s, the United States has been plagued by weak employment growth when emerging from recessions - so-called 'jobless recoveries'. Georg Graetz and Guy Michaels look at multiple recoveries elsewhere in the world over a 40-year period to see if the same applies - and whether modern technology is responsible. |
| Keywords: | job polarization, jobless recoveries, routine-biased technological change, robots |
| JEL: | E32 J23 O33 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepcnp:496&r=mac |
| By: | Yusuf Soner Baskaya; Julian di Giovanni; Sebnem Kalemli-Özcan; José-Luis Peydró; Mehmet Fatih Ulu |
| Abstract: | We examine the role of the international credit channel in Turkey over 2005-2013. We show that larger, more capitalised banks with higher non-core liabilities increase credit supply when capital inflows are higher. This result is stronger for domestic banks relative to foreign banks and survives during the crisis period of post 2008, when foreign banks in general stop lending in emerging markets and retreat to their home countries. By decomposing capital inflows into bank and non-bank flows, we show the importance of domestic banks' external borrowing for domestic credit growth. |
| Keywords: | Capital Flows, Bank-Lending Channel, Bank Heterogeneity. |
| JEL: | E0 F0 F1 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1557&r=mac |
| By: | Onyimadu, Chukwuemeka |
| Abstract: | This paper investigates the relationship between macroeconomic volatility and long run economic growth in a panel of 40 African countries over the period 1980 – 2014. The paper re – examines the postulates of both Ramey and Ramey (1995) – where investment was the primary link between volatility and growth - and Aghion et al (2005) – where financial credit constraints was the primary link - , that there is a negative and significant correlation between macroeconomic volatility and long run economic growth. The findings in the paper refutes this negative relationship between volatility and economic growth, with the conclusion that there exist a significant and positive correlation between volatility and economic growth with reference to the sample data set used. The findings of this paper are robust to controls for investment, different and appropriate measures of financial development, level of openness, government size and each countries initial level of real per capita GDP. |
| Keywords: | Macroeconomic Volatility, Economic Growth, Financial Development, Investment |
| JEL: | E6 G1 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:77200&r=mac |
| By: | Garbinti, Bertrand; Goupille-Lebret, Jonathan; Piketty, Thomas |
| Abstract: | This paper combines different sources and methods (income tax data, inheritance registers, national accounts, wealth surveys) in order to deliver consistent, unified wealth distribution series by percentiles for France over the 1800-2014 period, with detailed breakdowns by age, gender, income and assets over the 1970-2014 sub-period. We find a large decline of the top 10% wealth share from the 1910s to the 1980s (from 80-90% of total wealth during the 19th century up until World War 1, down to 50-60% in the 1980s), mostly to the benefit of the middle 40% of the distribution (the bottom 50% wealth share is always less than 10%). Since the 1980s-90s, we observe a moderate rise of wealth concentration, with large fluctuations due to asset price movements. In effect, rising inequality in saving rates and rates of return pushes toward rising wealth concentration, in spite of the contradictory effect of housing prices. We develop a simple simulation model highlighting how the combination of unequal saving rates, rates of return and labor earnings leads to large multiplicative effects and high steady-state wealth concentration. Small changes in the key parameters appear to matter a lot for long-run inequality. We discuss the conditions under which rising concentration is likely to continue in the coming decades. |
| Keywords: | saving rate; steady-state; Wealth Inequality |
| JEL: | D31 E21 N34 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11848&r=mac |
| By: | Caballero, Ricardo; Farhi, Emmanuel; Gourinchas, Pierre-Olivier |
| Abstract: | The secular decline in safe interest rates since the early 1980s has been the subject of considerable attention. In this short paper, we argue that it is important to consider the evolution of safe real rates in conjunction with three other first-order macroeconomic stylized facts: the relative constancy of the real return to productive capital, the decline in the labor share, and the decline and subsequent stabilization of the earnings yield. Through the lens of a simple accounting framework, these four facts offer suggestive insights into the economic forces that might be at work. |
| Keywords: | automation; Labor Share; rents; risk premia; technical change |
| JEL: | E2 E4 G1 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11833&r=mac |
| By: | Uxó González, Jorge; Álvarez, Ignacio; Febrero, Eladio |
| Abstract: | On the one hand, every official document about fiscal policy in Spain, and most orthodox academic papers argue that Spain has no "fiscal space" and that it should apply resolute actions to assure budget consolidation. On the other hand, Spain also had the second highest unemployment rate in the Eurozone in 2015: 21% of the active population. A rapid decline in that rate would require a higher fiscal impulse to sustain higher economic growth rates. This paper addresses this dilemma, presenting two alternative scenarios for the coming years and analyzing their impact on unemployment and fiscal sustainability. The first scenario represents a firm commitment to budget consolidation, while in the second the government uses the fiscal instrument to stimulate domestic demand and ensure a GDP growth rate target. The second scenario is based on an application of an "imperfect" balanced budget multiplier, proposing a combination of discretionary increases in both public expenditure and revenue. The main conclusion is that the end of fiscal austerity is feasible and perfectly compatible with fiscal finances sustainability for Spain. |
| Keywords: | Fiscal Policy,Fiscal Space,Functional Finance,Balance Budget Multiplier,Spain |
| JEL: | E61 E62 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:842017&r=mac |
| By: | Silvia Miranda-Agrippino (Bank of England; Centre for Macroeconomics (CFM)); Giovanni Ricco (Department of Economics University of Warwick) |
| Abstract: | Despite years of research, there is still uncertainty around the effects of monetary policy shocks. We reassess the empirical evidence by combining a new identification that accounts for informational rigidities, with a exible econometric method robust to misspecifications that bridges between VARs and Local Projections. We show that most of the lack of robustness of the results in the extant literature is due to compounding unrealistic assumptions of full information with the use of severely misspecified models. Using our novel methodology, we find that a monetary tightening is unequivocally contractionary, with no evidence of either price or output puzzles. |
| Keywords: | Monetary Policy, Local Projections, VARs, Expectations, Information Rigidity, Survey Forecasts, External Instruments |
| JEL: | C32 E52 G14 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1711&r=mac |
| By: | Javier L. Arnaut (International Centre for Research and Analysis (ICRA), Warsaw, Poland) |
| Abstract: | This paper examines the long-run fiscal sustainability of the colonial finances of Spanish America. Using econometric tests of intertemporal stability and a macroeconomic budget constraint framework, the analysis revisits how the long-run fiscal dynamics of the colonial treasuries adjusted for inflation changed over time. Findings suggest that in spite of historical breakpoints associated to major financial difficulties during wartime, in general the treasuries achieved sustainable fiscal balances. However, there was a shifting pattern of fiscal sustainability between the treasuries across the colonial period. |
| Keywords: | Fiscal sustainability, Colonialism, Cajas reales, Spanish America, Cointegration. |
| JEL: | C32 H61 E62 F54 N16 N26 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ahe:dtaehe:1703&r=mac |
| By: | Groneck, Max; Schön, Matthias; Wallenius, Johanna |
| Abstract: | In this paper, we study the intra-generational redistribution of the U.S. social security system in a dynamic, structural life cycle model of couples with uncertain marital status and survival risk. We focus particularly on auxiliary benefits, namely spousal and survivor benefits, where eligibility is directly linked to marital status. We show that marital stability increases strongly with income, leading to redistribution from the bottom to the top. We evaluate the impact of auxiliary social security benefits on both the poverty rate of the elderly and on household labor supply. |
| JEL: | J26 E62 D91 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145801&r=mac |
| By: | Miranda-Agrippino, Silvia (Bank of England and CFM); Ricco, Giovanni (University of Warwick and OFCE - Science Po) |
| Abstract: | Despite years of research, there is still uncertainty around the effects of monetary policy shocks. We reassess the empirical evidence by combining a new identi cation that accounts for informational rigidities, with a flexible econometric method robust to misspecifications that bridges between VARs and Local Projections.We show that most of the lack of robustness of the results in the extant literature is due to compounding unrealistic assumptions of full information with the use of severely misspecified models. Using our novel methodology, we find that a monetary tightening is unequivocally contractionary, with no evidence of either price or output puzzles. |
| Keywords: | Monetary Policy ; Local Projections ; VARs ; Expectations ; Information ; Rigidity ; Survey Forecasts ; External Instruments |
| JEL: | E52 G14 C32 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1136&r=mac |
| By: | Becker, Sebastian |
| Abstract: | Short-time work (STW) was one of the most popular labor market policies during the great recession and is considered a main factor of the German Labor Market Miracle. However, little is known about the labor market outcomes of participants after the crisis. Using a unique dataset on STW linked with IAB’s Integrated Employment Biographies, I can observe which workers firms selected into the scheme and also observe their labor market outcomes during and after the crisis. Comparing participants and non-participants within firms I find that workers with higher tenure, age, full time jobs and education are more likely to be chosen for STW. Furthermore, participants have by far a higher probability to keep their job. |
| JEL: | E24 J08 J63 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145889&r=mac |
| By: | Claessens, Stijn; Coleman, Nicholas; Donnelly, Michael |
| Abstract: | Interest rates in many advanced economies have been low for almost a decade now and are often expected to remain so. This creates challenges for banks. Using a sample of 3,385 banks from 47 countries from 2005 to 2013, we find that a one percentage point interest rate drop implies an 8 basis points lower net interest margin, with this effect greater (20 basis points) at low rates. Low rates also adversely affect bank profitability, but with more variation. And for each additional year of “low for long†, margins and profitability fall by another 9 and 6 basis points, respectively. |
| Keywords: | Bank profitability; interest rates; Low-for-long; Net interest margin |
| JEL: | E43 G21 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11842&r=mac |
| By: | Cubadda, Gianluca; Hecq, Alain; Telg, Sean |
| Abstract: | This paper introduces the notion of common noncausal features and proposes tools for detecting the presence of co-movements in economic and financial time series subject to phenomena such as asymmetric cycles and speculative bubbles. For purely causal or noncausal vector autoregressive models with more than one lag, the presence of a reduced rank structure allows to identify causal from noncausal systems using the usual Gaussian likelihood framework. This result cannot be extended to mixed causal-noncausal models, and an approximate maximum likelihood estimator assuming non-Gaussian disturbances is needed for this case. We find common bubbles in both commodity prices and price indicators. |
| Keywords: | mixed causal-noncausal process, common features, vector autoregressive models, commodity prices, common bubbles. |
| JEL: | C12 C32 E32 |
| Date: | 2017–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:77254&r=mac |
| By: | Demetris Koursaros (Cyprus University of Technology); Nektarios A. Michail (Central Bank of Cyprus); Christos S. Savva (Cyprus University of Technology) |
| Abstract: | We examine the relationship between lending to the private sector and GDP growth using a two-period model and test model conclusions through a Smooth Transition Conditional Correlation (STCC) model for the G7 countries. Theory suggests that the correlation between private lending and growth is positive and this relationship exhibits diminishing returns after a threshold. The empirical exercise confirms that this relationship holds, and while thresholds exist for most countries, the correlation between private lending and growth is never negative. Overall, the evidence indicates that policy should not emphasise the level of lending but its allocation in the economy. |
| Keywords: | private debt, correlation, bank lending, threshold, policy |
| JEL: | E51 E60 C32 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:cyb:wpaper:2016-02&r=mac |
| By: | Anastasios Demertzidis (University of Kassel); Vahidin Jeleskovic (University of Kassel) |
| Abstract: | This paper introduces a major novelty: the empirical estimation of spot intraday yield curves based on tick by tick data on the Italian electronic interbank credit market (e-MID). To analyze the consequences of the recent financial crisis, we split the data into four periods which include events before, during, and after the recent financial crisis starting in 2007. Our first result is that, from a practical point of view, the intraday yield curve can be modeled by standard models for yield curves providing advantages for intraday trading on intraday interbank credit markets. Moreover, the estimates show that the systematic dynamics in the intraday yield curves during the turmoil was highly noticeable, resulting in the significantly better goodness-of-fit. Based on this fact, we infer that investors in the interbank credit market base their investment decisions on the effects of the intraday dynamics of intraday interest rates more intensively during a financial crisis. Our explanation for this is that during a turmoil the process of incoming news may be more frequent and more intensive so that traders must update their trading strategies more often and more radically. Due to this, the systematic impact on e-MID appears to be stronger and econometric modeling of the intraday interest rate curve becomes even more attractive. In the future, this fact and the observation of similar intraday dynamics of intraday yield curves can be used as a potential indicator of financial crises. |
| Keywords: | Interbank credit market, e-MID, Nelson-Siegel model, intraday yield curve estimation, financial crisis |
| JEL: | C13 C58 E43 G01 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201649&r=mac |
| By: | Scharnagl, Michael; Mandler, Martin; Volz, Ute |
| Abstract: | We study cross-country differences in monetary policy transmission across the large four euro area countries (France, Germany, Italy and Spain) using a large Bayesian vector autoregressive model with endogenous prior selection. Drawing both on the posterior distributions of the cross-country differences in impulse responses as well as on a battery of other tests we find real output to respond less negatively to a monetary policy tightening in Spain than in the other three countries while the price level decline is weaker in Germany. Bond yields rise stronger and more persistently in France and Germany than in Italy and Spain. |
| JEL: | C11 C54 E52 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145847&r=mac |
| By: | Patrick J. Kehoe (; Centre for Macroeconomics (CFM)) |
| Abstract: | Before the advent of sophisticated international financial markets, a widely accepted belief was that within a monetary union, a union-wide authority orchestrating fiscal transfers between countries is necessary to provide adequate insurance against country-specific economic fluctuations. A natural question is then: Do sophisticated international financial markets obviate the need for such an active union-wide authority? We argue that they do. Specifically, we show that in a benchmark economy with no international financial markets, an activist union-wide authority is necessary to achieve desirable outcomes. With sophisticated financial markets, however, such an authority is unnecessary if its only goal is to provide cross-country insurance. Since restricting the set of policy instruments available to member countries does not create a fiscal externality across them, this result holds in a wide variety of settings. Finally, we establish that an activist union-wide authority concerned just with providing insurance across member countries is optimal only when individual countries are either unable or unwilling to pursue desirable policies. |
| Keywords: | Cross-country Externalities, Cross-country Insurance, Cross-country Transfers, Fiscal Externalities, International Financial Markets, International Transfers, Optimal Currency Area |
| JEL: | E60 E61 F33 F35 F38 F42 G15 G28 G33 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1712&r=mac |
| By: | Eichenbaum, Martin; Johannsen, Benjamin; Rebelo, Sérgio |
| 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. |
| Keywords: | currency forecasting; Taylor rule |
| JEL: | E52 F31 F41 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11844&r=mac |
| By: | Powell, Jerome H. (Board of Governors of the Federal Reserve System (U.S.)) |
| Date: | 2017–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgsq:937&r=mac |
| By: | Hasanujzaman, Muhammad |
| Abstract: | This paper examines the dynamic effects of export growth to the stock market index in a managed-floating exchange rate regime in Bangladesh during the period 2004:M06-2013:M07. Using vector autoregressive (VAR) model, the impulse responses of the exchange rate and stock index (as well as prices, import and money market rate) to the export shock is studied. The result shows that exchange rate reacts negatively against a positive export shock.On the contrary, the response of stock index to one standard deviation positive innovation on export is positive, at least after certain period. |
| Keywords: | Vector Autoregression, Stock Market, Managed Floating Exchange rate Regime |
| JEL: | E52 E58 |
| Date: | 2016–10–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:77123&r=mac |
| By: | Tomoyuki Nakajima (Institute of Economic Research, Kyoto University); Shuhei Takahashi (Institute of Economic Research, Kyoto University) |
| Abstract: | Japan's net government debt reached 130% of GDP in 2013. The present paper analyzes the welfare implications of the large debt for Japan. We use a heterogeneous- agent, incomplete-market model with idiosyncratic wage risk and endogenous labor supply. We nd that under the utilitarian welfare measure, the optimal government debt for Japan is 50% of GDP and the current level of debt incurs the welfare cost that is 0.22% of consumption. Decomposing the welfare cost reveals substantial wel- fare e¤ects arising from changes in the level, inequality, and uncertainty. The level and inequality costs are 0.38% and 0.52% respectively, whereas the uncertainty bene t is 0.68%. Adjusting consumption taxes instead of factor income taxes to balance the gov- ernment budget reduces the welfare cost of the current debt, whereas the indivisibility of labor increases the cost. |
| Keywords: | Government debt; welfare; incomplete markets; inequality; uncertainty; Japanese economy. |
| JEL: | E62 H63 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:964&r=mac |
| By: | Claudio Borio; Leonardo Gambacorta |
| Abstract: | This paper analyses the effectiveness of monetary policy on bank lending in a low interest rate environment. Based on a sample of 108 large international banks, our empirical analysis suggests that reductions in short-term interest rates are less effective in stimulating bank lending growth when rates reach a very low level. This result holds after controlling for business and financial cycle conditions and different bank-specific characteristics such as liquidity, capitalisation, funding costs, bank risk and income diversification. We find that the impact of low rates on the profitability of banks' traditional intermediation activity helps explain the subdued evolution of lending in the period 2010-14. |
| Keywords: | bank lending, monetary transmission mechanisms, low interest rate environment |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:612&r=mac |
| By: | Albert Solé-Ollé (Universitat de Barcelona & IEB); Elisabet Viladecans-Marsal (Universitat de Barcelona & IEB & CEPR) |
| Abstract: | This paper examines how local governments adjust their spending, savings and taxes in response to a temporary revenue windfall generated by a housing boom and how they cope with the inevitable shortfall that appears during the bust. We focus on Spanish local governments given the intensity of the last housing boom-bust experienced there and the large share of construction-related revenues they obtain. We find, first, that just a small share of the boom windfall was saved, with revenues being used primarily to increase spending (above all, current spending) and (to a lesser extent) cut taxes. Second, we find that the failure to save during the boom is higher in places with less informed voters and more contested elections. Third, we also examine what happens during the bust, and find that these governments had to cut abruptly their spending (above all, capital), raise taxes, and allow deficits to grow. Finally, in places wit less informed voters and more contested elections local governments had more trouble in adjusting during the bust, and they tend to rely more on spending cuts than on tax increases. |
| Keywords: | Tax volatility, forward-looking behavior, policy myopia |
| JEL: | E62 H72 R5 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ieb:wpaper:doc2017-05&r=mac |
| By: | Mavee, Nasha; Bonga-Bonga, Lumengo |
| Abstract: | This paper investigates the relationship between the future spot and forward rates in the South African foreign exchange market to infer whether the unbiased forward rate hypothesis (UFRH) holds in South Africa. More specifically we examine whether the hypothesis holds in the face of the different monetary policy regimes taken by the South African reserve bank. We distinguish between two periods; (1) the period before inflation targeting and (2) the period after inflation targeting from February 2000 to the present. The study applies the autoregressive dynamic lag (ARDL) cointegration technique to test the existence of the long-run relationship between the two variables. The results of this investigation indicate that existence of a long-run relationship between the two variables for all forward rates horizons, especially for the period after inflation targeting. This indicates that an improvement of market efficiency in South Africa during the inflation targeting period. |
| Keywords: | UFRH, cointegration, monetary policy |
| JEL: | C50 G15 |
| Date: | 2017–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:77195&r=mac |
| By: | Littke, Helge C. N.; Eichler, Stefan; Tonzer, Lena |
| Abstract: | We analyze the effect of central bank transparency on cross-border bank activities. Based on a panel gravity model for cross-border bank claims for 21 home and 47 destination countries from 1998 to 2010, we find strong empirical evidence that central bank transparency in the destination country on average increases cross-border claims. Using interaction models, we find that the positive effect of central bank transparency on cross-border claims is only significant if the central bank is politically independent. Central bank transparency and credibility are thus considered as complements by banks investing abroad. |
| JEL: | E58 F30 G15 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145598&r=mac |
| By: | Ngotran, Duong |
| Abstract: | Using the sparse grid, we solve a DSGE model where there are two types of electronic money: reserves (e-money that is issued by the central bank for banks) and zero maturity deposits (e-money that is issued by banks). Transactions between bankers are settled by reserves, while transactions in the non-bank private sector are settled by zero maturity deposits. We use our model to discuss about unconventional monetary policy tools during the Great Recession. Due to the maturity mismatch between deposits and loans, we find that keeping the federal funds rate at the lower bound for a long but finite time stimulates the economy in the short run but creates deflation and lower outputs in the long run. To get out of the zero lower bound, the central bank can conduct helicopter money and increase the interest rate paid on reserves simultaneously, which is impossible in the Keynesian theory, but possible with the current electronic money system. |
| Keywords: | e-money, reserves, quantitative easing, zero lower bound, interest on reserves, helicopter money |
| JEL: | E4 E40 |
| Date: | 2016–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:77206&r=mac |
| By: | Buiter, Willem H. |
| Abstract: | A border tax adjustment (BTA) is under consideration for the corporate profit tax in the US. Mainstream economic theory holds that BTAs - a switch from taxing exports and exempting imports to taxing imports and exempting exports - is neutral: it will not affect competitiveness and sectoral profitability in the country implementing the BTA or abroad, through adjustments in the exchange rate and in domestic and foreign prices and costs. Conventional wisdom has it that (real) BTA neutrality is achieved through an appreciation of the currency equal in percentage terms to the tax rate. So, with a 20% US corporate tax rate, a neutral BTA would cause the US dollar to strengthen (appreciate) by 20%. This paper shows that the conventional wisdom is not robust. Alternative assumptions about the behaviour of domestic and foreign nominal prices that are (at least) as plausible as the assumptions that imply a 20% appreciation of the US dollar, would instead result in a 20% strengthening of the foreign currency and a matching depreciation of the US dollar. Two key aspects of rigidities in nominal prices are involved: (1) are prices sticky (constant) in terms of the currency of the country of origin or in terms of the currency of the country of destination (pricing-to-market)?; (2) are prices sticky (constant) net-of-tax or tax-inclusive? The empirical evidence slightly favors pricing-to-market (US import prices constant in dollars and US export prices constant in foreign currency). There is no empirical evidence on whether nominal rigidities apply to tax-inclusive or net-of-tax prices. Pricing-to-market for net-of-tax prices produces the depreciation outcome. So does currency-of-origin pricing for tax-inclusive prices. Pricing-to-market for tax-inclusive prices and currency-of-origin pricing for net-of-tax prices produces the appreciation outcome. Given the lack of robust empirical evidence, I believe it is not possible to have any confidence about even the direction of the response of the dollar to a BTA in the US - let alone about the magnitude. The paper has real BTA neutrality as its maintained hypothesis. This is, however, a disputed empirical issue. This further boosts the uncertainty about the exchange rate implications of a BTA. |
| Keywords: | Border tax adjustment; equivalence; exchange rate appreciation; neutrality; nominal price and wage rigidities |
| JEL: | E31 E62 F11 F13 F41 H25 H87 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11885&r=mac |
| By: | Souhaïb Chamseddine Zardi (Central Bank of Tunisia) |
| Abstract: | The aim of this paper is to evaluate the relative performance of different forecasts of inflation methods for the case of Tunisia. For that, we use a large number of econometric models to forecast short-run inflation. Specifically, we use univariate models as Random Walk, SARIMA, a Time Varying Parameter model and a suite of multivariate autoregressive models as Bayesian VAR and Dynamic Factor models. The forecasting results suggest that models which incorporate more economic information outperform the benchmark random walk for the first two quarters ahead. Furthermore, we combine our forecasts by means and the results reveal that the combination of forecasts leads to a reduction in forecast errors compared to individual models. |
| Keywords: | Short-run forecasting, Dynamic Factor Models, Forecast combination |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp07-2017&r=mac |
| By: | Stefano Bosi (EPEE - Université d'Evry); Cuong Le Van (Centre d'Economie de la Sorbonne - Paris School of Economics, IPAG Business School and VCREME); Ngoc-Sang Pham (Centre d'Economie de la Sorbonne and EPEE - Université d'Evry) |
| Abstract: | We build dynamic general equilibrium models with heterogeneous producers and financial market imperfections. First, we prove the existence of equilibrium. Second, we investigate the role of financial market imperfection in growth and land prices. Third, we introduce land dividends, then define and study land bubbles as well as individual land bubbles |
| Keywords: | Infinite horizon; general equilibrium; financial market imperfection; incomplete markets; asset valuation; rational bubbles |
| JEL: | C62 D53 D9 E44 G10 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:15067r&r=mac |
| By: | Scheuermeyer, Philipp; Bofinger, Peter |
| Abstract: | Based on a panel of 29 advanced economies, this paper documents a non-monotonic link between inequality and the aggregate household saving rate. It finds that, at a low level of inequality, more inequality is associated with higher saving; but it also shows that a negative relationship between inequality and saving prevails, where inequality is high. Using different empirical approaches, we locate the turning-point at a net income Gini coefficient around 30. Moreover, we show that the relationship between inequality and saving depends on financial market conditions. While inequality increases saving, when credit is scarce, it tends to reduce saving at high levels of financial depth. |
| JEL: | C23 D31 E21 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145901&r=mac |
| By: | Farmer, Roger E A |
| 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. |
| Keywords: | Banking; financial crisis; money; public policy |
| JEL: | E0 E2 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11846&r=mac |
| By: | Haan, Peter; Haywood, Luke |
| Abstract: | We estimate a dynamic life-cycle model of labor supply with a focus on time preferences for women. We extend the dynamic discrete choice model to accommodate potentially non-exponential discounting. Variation in job protection regulations provides identifying variation to test time discounting, affecting future and not current payoffs. Reforms to job protection legislation in Germany constitute a natural experiment to identify the key time preference parameters of our model. We shed light on the importance of time-inconsistent preferences on maternal labor market return. The structure of time preferences will importantly affect cost and effectiveness of labor market policies. |
| JEL: | J24 D91 E24 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145751&r=mac |
| By: | Daniel Paravisini; Veronica Rappoport; Enrichetta Ravina |
| Abstract: | We estimate risk aversion from the actual financial decisions of 2,168 investors in Lending Club (LC), a person-to-person lending platform. We develop a methodology that allows us to estimate risk aversion parameters from each portfolio choice. Since the same individual makes repeated investments, we are able to construct a panel of risk aversion parameters that we use to disentangle heterogeneity in attitudes towards risk from the elasticity of investor-specific risk aversion to changes in wealth. In the cross section, we find that wealthier investors are more risk averse. Using changes in house prices as a source of variation, we find that investors become more risk averse after a negative wealth shock. These preferences consistently extrapolate to other investor decisions within LC. |
| Keywords: | risk aversion; portfolio choice; crowdfunding |
| JEL: | D12 D14 E21 G11 |
| Date: | 2016–02–29 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:62137&r=mac |
| By: | Prante, Franz J. |
| Abstract: | This paper presents a simple illustrative post-Kaleckian model of distribution and growth that incorporates personal income inequality and interdependent social norms. The model shows in an easily accessible manner how personal and functional income inequality can potentially have contrary effects on aggregate demand and growth. It can illustrate some of the major domestic developments that took place in different countries in the decades prior to the Great Recession and which were connected to inequality and country specific consumption and saving behaviour. Furthermore, aggregate consumption functions are estimated for the United States and Germany. The finding of previous studies regarding a higher elasticity of aggregate consumption with respect to wage income than with respect to profit income is confirmed. We find positive long-run effects of personal income inequality on consumption in the US. The effect is strongest for the top 10% income share and the Gini index and less strong for the top 5% and 1% income shares. While this is evidence for relative consumption patterns, it also supports the view that the 'super rich' are a somewhat distant strata for most people - questioning the notion of expenditure cascades from the very top to the very bottom of the distribution. For Germany, we fail to find compelling evidence for substantial effects of personal income distribution. |
| Keywords: | Income inequality,Personal and functional income distribution,Demand and growth regimes,Relative income hypothesis,Kaleckian model |
| JEL: | C22 D31 D33 E11 E12 E25 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ipewps:832017&r=mac |
| By: | Musoke, Zakia |
| Abstract: | The debate regarding the usage of domestic currency versus dollarizing an economy is still robust in many developing countries. Dollarizing an economy commonly entails dollarizing bank deposits and loans, transacting in dollars and tagging prices of goods and services in dollar. In Tanzania, commercial banks have the power to open foreign currency deposit accounts for any account holder, giving them the freedom to hold foreign currency and pay in foreign currency. Due to the strength of foreign currencies over the domestic shilling, investors prefer to hold bank accounts in foreign currencies preferably USD. This paper's main focus is dollarization and currency devaluation; of which are yet unresolved both theoretically and empirically. Using monthly nominal exchange rate data for the study period 2000-2014, the author introduced GARCH models to examine the relationship between dollarization and exchange rate. The Autoregressive Conditional Heteroscedasticity models indicate that dollarization does indeed induce currency depreciation as well as exchange rate volatility. Based on the findings and conclusions from other literature, this paper also proposes measures on how the country can prevent or offset the negative impacts of dollarization. |
| Keywords: | dollarization,currency devaluation,GARCH,exchange rates |
| JEL: | C8 E5 E41 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:20178&r=mac |
| By: | van den Berg, Gerard J. (University of Mannheim); Gerdtham, Ulf-G. (Department of Economics, Lund University); von Hinke, Stephanie (Department of Economics, Bristol University); Lindeboom, Maarten (Tinbergen Institute, VU Amsterdam); Lissdaniels, Johannes (Department of Clinical Science, Lund University); Sundquist, Jan (Center for Primary Health Care Research, Lund University); Sundquist, Kristina (Center for Primary Health Care Research, Lund University) |
| Abstract: | There has been much interest recently in the relationship between economic conditions and mortality, with some studies showing that mortality is pro-cyclical, while others find the opposite. Some suggest that the aggregation level of analysis (e.g. individual vs. regional) matters. We use both individual and aggregated data on a sample of 20-64 year-old Swedish men from 1993 to 2007. Our results show that the association between the business cycle and mortality does not depend on the level of analysis: the sign and magnitude of the parameter estimates are similar at the individual level and the aggregate (county) level; both showing pro-cyclical mortality. |
| Keywords: | Mortality; Recessions; Business Cycle; Health; Unemployment; Income. |
| JEL: | E03 I10 I12 |
| Date: | 2017–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2017_005&r=mac |
| By: | Keiichiro Kobayashi; Daichi Shirai |
| Abstract: | Economic growth slows for an extended period after a financial crisis. We construct a model in which the one-time buildup of debt can depress the economy persistently even when there is no shock on financial technology. We consider the debt dynamics of a firm under an endogenous borrowing constraint. When the initial debt is large, the borrowing constraint binds tight and production is inefficient for an extended period. A firm is called debt-ridden when it owes the maximum sustainable amount of debt. A debt-ridden firm pays all income every period as the interest payment on the debt. A noticeable result in the deterministic case is that a debt-ridden firm continues inefficient production permanently. Further, if the initial debt exceeds a certain threshold, the firm chooses to increase borrowing and become debt-ridden intentionally. The emergence of a substantial number of debt-ridden firms lowers economic growth persistently by reducing the growth rate of aggregate productivity. As lenders have no incentive to reduce debt, a policy intervention that provides debtridden borrowers with relief from excessive debt may thus be necessary to restore economic growth. |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:cnn:wpaper:17-002e&r=mac |
| By: | U. Devrim Demirel |
| Abstract: | This study evaluates how the state of the economy, as measured by the rate of unemployment, influences the short-term effects of tax changes on output and employment. I examine the effects of narratively identified tax changes by employing two alternative approaches to estimating state-dependent impulse response functions that have been widely used in the recent literature. Both approaches suggest that short-term effects of tax changes on output and employment become smaller during times of higher unemployment. That may be because changes in incentives governing the supply of productive |
| JEL: | E20 E60 H20 |
| Date: | 2016–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:cbo:wpaper:51824&r=mac |
| By: | Hany Abdel-Latif (School of Management, Swansea University); Tapas Mishra |
| Abstract: | This paper empirically explores how fiscal policy represented by acceleration in government spending exerts asymmetric effects on economic growth in the context of a developing country, Egypt in particular. By allowing the theoretical plausibility of asymmetric effects of fiscal policy on economic activity, our research suggests that nothing can guarantee linearity between the growth impact of increasing and decreasing government expenditures. Using a non-linear ARDL model on Egypt data at both aggregated and disaggregated levels- for the period 1980-2013, this paper provides new evidence of a non-linear relationship between government spending and economic growth. |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:erg:wpaper:1035&r=mac |
| By: | Parker, Miles |
| Abstract: | This paper studies the role of global factors in causing common movements in consumer price inflation, with particular focus on the food, housing and energy sub-indices. It uses a comprehensive dataset of 223 countries and territories collected from national and international sources. Global factors explain a large share of the variance of national inflation rates for advanced countries – and more generally those with greater GDP per capita, financial development and central bank transparency – but not for middle and low income countries. Common factors explain a large share of the variance in food and energy prices. JEL Classification: E31, E52, F42 |
| Keywords: | common factor, energy prices, food prices, global inflation |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172024&r=mac |
| By: | de Jong, Jasper; Ferdinandusse, Marien; Funda, Josip; Vetlov, Igor |
| Abstract: | We consider the effect of an increase in public investments on output in Europe against the background of a sharp drop of public investments in a number of EU countries during the crisis and subsequent policy discussions on the need to stimulate public investments. We start with a brief overview of recent developments in public investments, including some methodological issues, and provide a literature overview of the effect of public investments on growth. On the basis of updated estimates of the public capital stock, we estimate the output response to a public capital impulse, using VAR models. In addition, using a structural model, we investigate the sensitivity of the macroeconomic impact of an increase in public investments to alternative assumptions about economic structures and policy implementations. JEL Classification: E32, E62, C30 |
| Keywords: | euro area, fiscal policy, general equilibrium modelling, public investment |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172021&r=mac |
| By: | Konstantinos Angelopoulos; Spyridon Lazarakis; James Malley |
| Abstract: | This paper examines the relationship between idiosyncratic earn- ings, employment and wage risk and fluctuations in aggregate labour market quantities for Great Britain. We use data from the British Household Panel Survey (BHPS) for 1991-2008 and from the BHPS sub-sample of Understanding Society for 2010-2014. We measure idio- syncratic risk by the relevant moments of the distribution of earnings, employment and wage shocks across individuals. Our main finding is that each of these measures of idiosyncratic labour income risk re- spond asymmetrically to fluctuations in the labour market aggregates. Furthermore, we find evidence of insurance, both within the household and in the form of public insurance. |
| Keywords: | Idiosyncratic income risk, employment, social insurance policy |
| JEL: | D31 E24 J31 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2017_02&r=mac |
| By: | Beyer, Robert |
| Abstract: | The paper uses a large survey (GSOEP) to analyze the labor market performance of immigrants in Germany. It finds that new immigrant workers earn on average 20 percent less than native workers with otherwise identical characteristics. The gap is smaller for immigrants from advanced countries, with good German language skills, and with a German degree, and larger for others. The gap declines gradually over time. Less success in obtaining jobs with higher occupational autonomy explains half of the wage gap. Immigrants are also initially less likely to participate in the labor market and more likely to be unemployed. While participation fully converges after 20 years, immigrants always remain more likely to be unemployed than the native labor force. |
| JEL: | E24 J31 J61 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145799&r=mac |
| By: | Svensson, Lars E. O. |
| Abstract: | The main result in Svensson (2017) and its previous versions is that, given current knowledge and empirical estimates, the cost of using monetary policy to "lean against the wind" for nancialstability purposes exceeds the benefit by a substantial margin. Adrian and Liang (2016a) conduct a sensitivity analysis of this result, state that "the result that costs exceed benefits rely critically on assumptions about the change in unemployment in a recession or crisis, the crisis probability, and the elasticity of crisis probability with respect to the interest rate," and provide alternative assumptions that they assert would overturn the result. This paper shows that Adrian and Liang's alternative assumptions are hardly realistic: they exceed existing empirical estimates by more than 11, 13, and 40 standard errors. Adrian and Liang furthermore do not comment on the extensive sensitivity analysis already done in previous versions of Svensson (2017), which supports the robustness of my result. JEL Classification: E52, E58, G01 |
| Keywords: | Financial crises, monetary policy., nancial stability |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172031&r=mac |
| By: | Cabello, Miguel (Banco Central de Reserva del Perú); Lupú, José (Banco Central de Reserva del Perú); Minaya, Elías (Banco Central de Reserva del Perú) |
| Abstract: | In the last decade, the banking credit has grown significantly in Peru, a partial dollarized economy. That imposed some challenges to the financial regulators to mitigate the risks derived from both excessive economic growth and currency mismatches of banks debtors. This document assesses the effectiveness of two macroprudential measures implemented by the financial regulators: dynamic provisioning and conditional reserve requirements. By using a credit register data, there is evidence that dynamic provisioning has a dampening impact on commercial credit growth. Moreover, mortgage dollarization has declined more rapidly after the implementation of the Conditional Reserve Requirement scheme, but there is no clear evidence about its impact on banks assets quality. In the case of dynamic provisioning, its effect over non-performing loans is asymmetric. |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2017-002&r=mac |
| By: | Yuzo Honda (Department of Informatics, Kansai University); Hitoshi Inoue (Faculty of Economics, Sapporo Gakuin University) |
| Abstract: | This paper examines the effects of the negative interest rate policy (NIRP) introduced by the Bank of Japan in January 2016. It has effectively stimulated private residential investment, and in lowering long-term interest rates, it has likely supported private nonresidential investment. There is also reason to believe that it likely stopped the appreciation of the yen and arrested the downward trend in Japanese stock prices around August 2016. Overall, we find that the NIRP has had expansionary effects, and therefore serves as a legitimate policy tool in alleviating Japan fs zero-interest rate lower bound, notwithstanding some potential negative side effects. |
| Keywords: | Negative Interest Rates, Residential/Nonresidential Investment, Foreign Exchange Rates |
| JEL: | E52 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1702&r=mac |
| By: | Micheli, Martin |
| Abstract: | The standard model of optimal minimum wage policy in a perfectly competitive labor market suggests that a positive tax rate on minimum wage income is Pareto inefficient. However, most countries with a minimum wage exhibit a positive tax rate for minimum wage income. This paper introduces discrimination of individuals that do not contribute to social welfare, typically individuals that do not participate in the political process, into the standard model. If a minimum wage is introduced for discriminatory purposes, a positive tax rate on minimum wage income can be compatible with optimal government policy. In the empirical part, we show that the approval of discrimination against foreigners in the labor market and the presence of a minimum wage are indeed positively correlated. |
| JEL: | E24 J31 J71 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc16:145830&r=mac |
| By: | Yakov Ben-Haim; Maria Demertzis; Jan Willem van den End |
| Abstract: | This paper applies the info-gap approach to the unconventional monetary policy of the Eurosystem and so takes into account the fundamental uncertainty on inflation shocks and the transmission mechanism. The outcomes show that a more demanding monetary strategy, in terms of lower tolerance for output and inflation gaps, entails less robustness against uncertainty, particularly if financial variables are taken into account. Augmenting the Taylor rule with a financial variable leads to a smaller loss of robustness than taking into account the effect of financial imbalances on the economy. However, in some situations, the augmented model is more robust than the baseline model. A conclusion from our framework is that including financial imbalances in the monetary policy objective does not necessarily increase policy robustness, and may even decrease it. |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:bre:wpaper:19317&r=mac |
| By: | Effrosyni Adamopoulou (Bank of Italy); Emmanuele Bobbio (Bank of Italy); Marta De Philippis (Bank of Italy); Federico Giorgi (Bank of Italy) |
| Abstract: | This paper analyses wage dynamics in Italy in the last 25 years with special focus on the recent recession. Using linked employer-employee data we document the presence of a trade-off between wage and employment adjustments: firms experiencing more wage rigidities exhibit more employment adjustments. Over time, the average amount of nominal wage rigidities was subdued during the recession years. Most of the adjustments took place through the part of wages that is not negotiated at the national level. In a rather rigid institutional context, a larger share of temporary workers, whose contractual relationship may be terminated without cost and whose wages are more frequently renegotiated, served instead as a significant flexibility enhancing margin. More broadly, we find that larger firms, with a greater share of blue-collar workers or belonging to a sector in which firm bonuses represent a large part of annual earnings, were the ones displaying a higher level of wage flexibility. |
| Keywords: | wage dynamics, negotiated wages |
| JEL: | J31 J33 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_338_16&r=mac |