nep-mac New Economics Papers
on Macroeconomics
Issue of 2017‒04‒02
eighty-two papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Measuring the Effects of Oil Price and Euro-area Shocks on CEECs Business Cycles By Antonella Cavallo; Antonio Ribba
  2. International Inflation Spillovers Through Input Linkages By Auer, Raphael; Levchenko, Andrei A.; Sauré, Philip
  3. Une perspective macroprudentielle pour la stabilité financière By Pinshi, Christian
  4. Empirical Evidence from a Japanese Lending Survey within the TVP-VAR Framework: Does the Credit Channel Matter for Monetary Policy? By Tatsuki Okamoto; Yoichi Matsubayashi
  5. The globalisation of inflation: the growing importance of global value chains By Auer, Raphael; Borio, Claudio; Filardo, Andrew J
  6. Macroeconomic Dynamics in Korea during and after the Global Financial Crisis: A Bayesian DSGE Approach By Hyunju Kang; Hyunduk Suh
  7. Financial Markets and Fiscal Unions By Patrick J. Kehoe; Elena Pastorino
  8. Intangible Capital and Measured Productivity By Ellen R. McGrattan
  9. Durations at the Zero Lower Bound By Richard Dennis
  10. Can Trade Unions Increase Social Welfare? An R&D Model with Cash-in-Advance Constraints By Neto, António; Furukawa, Yuichi; Ribeiro, Ana Paula
  11. The effects of productivity and benefits on unemployment: Breaking the link By Brown, Alessio J. G.; Kohlbrecher, Britta; Merkl, Christian; Snower, Dennis J.
  12. PROSPECT THEORY AND SELF-FULFILLING MARKET SENTIMENTS By Giuseppe Ciccarone; Francesco Giuli; Enrico Marchetti
  13. Monedas digitales emitidas por los bancos centrales: adopción y repercusiones By Olga Gouveia; Enestor Dos Santos; Santiago Fernández de Lis; Alejandro Neut; Javier Sebastián
  14. Uncertainty and Monetary Policy in Good and Bad Times By Giovanni Caggiano; Efrem Castelnuovo; Gabriela Nodari
  15. This paper empirically assesses the effect of monetary policy on asset price bubbles and aims to disentangle the competing predictions of theoretical bubble models. First, we take advantage of the model averaging feature of Principal Component Analysis to estimate bubble indicators, for the stock, bond and housing markets in the United States and Euro area, based on the structural, econometric and statistical approaches proposed in the literature to measure bubbles. Second, we assess the linear and non-linear dynamic effects of monetary shocks on these bubble components using local projections. The main result of this paper is that expansionary monetary policy does not inflate asset price bubble components, except for the US stock market. Overall, evidence tends to favor the prediction of rational bubble models. By Christophe Blot; Paul Hubert; Fabien Labondance
  16. Использование взаимосвязи между ВВП и денежной массой для экономического прогнозирования By BLINOV, Sergey
  17. Macroeconomic effects of secondary market trading By Daniel Neuhann
  18. An estimated two-country EA-US model with limited exchange rate pass-through By Gregory De Walque; Thomas Lejeune; Yuliya Rychalovska; Rafael Wouters
  19. Government Spending Policy Uncertainty and Economic Activity: U.S. Time Series Evidence By Kim, Wongi
  20. Redistributive effects of the US pension system among individuals with different life expectancy By Sanchez-Romero, Miguel; Fürnkranz-Prskawetz, Alexia
  21. The pre-crisis monetary policy implementation framework By Kroeger, Alexander; McGowan, John; Sarkar, Asani
  22. Welfare Cost of Inflation: The Role of Price Markups and Increasing Returns to Production Specialization By Chang, Juin-Jen; Lai, Ching-Chong; Liao, Chih-Hsing
  23. International Transmission of U.S. Monetary Policy Surprises By Kim, Kyunghun
  24. Crises and mortality: Does the level of unemployment matter? By Laliotis, Ioannis; Stavropoulou, Charitini
  25. The calm policymaker By Barrdear, John
  26. How much Keynes and how much Schumpeter? An Estimated Macromodel of the US Economy By Cozzi, Guido; Pataracchia, Beatrice; Ratto, Marco; Pfeiffer, Philipp
  27. Fiscal sustainability under physical and human capital accumulation in an overlapping generations model By Takumi Motoyama
  28. Term Structure Models with Negative Interest Rates By Yoichi Ueno
  29. Depreciation: a Dangerous Affair By Cozzi, Guido
  30. International Evidence on Long-Run Money Demand By Benati, Luca; Lucas, Robert E.; Nicolini, Juan Pablo; Weber, Warren E.
  31. Sovereign risk and firm heterogeneity By Arellano, Cristina; Bai, Yan; Bocola, Luigi
  32. Medición de los efectos de un aumento del 20% de las tarifas de Estados Unidos sobre la economía mexicana a través de modelización multisectorial By Luz Dary Beltrán Jaimes; Manuel Alejandro Cardenete; María del Carmen Delgado
  33. Datos en Tiempo Real, Regla de Taylor y Política Monetaria en Colombia: Otro Ejercicio Empírico By Gloria Bernal y Andrés Giraldo; Andrés Giraldo
  34. Datos en Tiempo Real, Regla de Taylor y Política Monetaria en Colombia: Otro Ejercicio Empírico By Gloria Bernal y Andrés Giraldo; Andrés Giraldo
  35. Filling the Gap-- Open Economy Considerations for More Reliable Potential Output Estimates By Zsolt Darvas; András Simon
  36. The Cost Channel Effect of Monetary Transmission: How Effective Is the ECB’s Low Interest Rate Policy for Increasing Inflation? By Dorothea Schäfer; Andreas Stephan; Khanh Trung Hoang
  37. Substitution Bias in Multilateral Methods for CPI Construction using Scanner Data By Diewert, W. Erwin; Fox, Kevin J.
  38. Precautionary Saving: a review of the theory and the evidence By Lugilde, Alba; Bande, Roberto; Riveiro, Dolores
  39. Asymmetric effects of shocks on TFP By Marcelo Arbex; Sidney Caetano; Michel Souza
  40. Concordian Economics: Beyond Micro and Macroeconomics By Gorga, Carmine
  41. Credit Misallocation During the European Financial Crisis By Schivardi, Fabiano; Sette, Enrico; Tabellini, Guido
  42. Decomposing Value Added Growth into Explanatory Factors By W. Erwin Diewert; Kevin J. Fox
  43. Monetary policy's rising FX impact in the era of ultra-low rates By Ferrari, Massimo; Kearns, Jonathan; Schrimpf, Andreas
  44. Financial intermediation, resource allocation, and macroeconomic interdependence By Galip Kemal Ozhan
  45. The Role of Financial Depth on The Asymmetric Impact of Monetary Policy By Mustafa Caglayan; Ozge Kandemir Kocaaslan; Kostas Mouratidis
  46. Growth without scale effects due to entropy By Tiago Neves Sequeira; Pedro Mazeda Gil; Óscar Afonso
  47. CATalytic Insurance: The Case for Natural Disasters By Tito Cordella; Eduardo Levy Yeyati
  48. Equipment Failure: Feeble Business Investment Costs Canadians their Competitive Edge, By William B.P. Robson; Benjamin Dachis; Aaron Jacobs
  49. The Distribution of Optimal Liquidity for Economic Growth and Stability By PYO , Hak K.; Song , Saerang
  50. The Emergence of Market Structure By Maryam Farboodi; Gregor Jarosch; Robert Shimer
  51. Banks' exposure to interest rate risk and the transmission of monetary policy By Matthieu Gomez; Augustin Landier; David Sraer; David Thesmar
  52. The Making of Hawks and Doves: Inflation Experiences on the FOMC By Malmendier, Ulrike M.; Nagel, Stefan; Yan, Zhen
  53. Great Moderation and Great Recession. From plain sailing to stormy seas? By Ana gomez-Loscos; M. Dolores Gadea (Universidad de Zaragoza); Gabriel Perez-Quiros (Bank of Spain)
  54. Macroeconomic policy coordination in the global economy: VAR and BVAR-DSGE analyses By Keshab Raj Bhattarai; Sushanta K. Mallick
  55. Is innovation destroying jobs? Firm-level evidence from the EU By Piva, Mariacristina; Vivarelli, Marco
  56. Optimal Progressive Income Taxation in a Bewley-Grossman Framework By Juergen Jung; Chung Tran
  57. Myopia and Discounting By Gabaix, Xavier; Laibson, David
  58. Balance de la economía gallega en el año 2016 By González Laxe, Fernando; Armesto Pina, José Francisco; Sánchez-Fernández, Patricio; Lago Peñas, Santiago
  59. An empirical analysis of Minsky regimes in the US economy By Leila E. Davis - Joao Paulo A. de Souza y Gonzalo Hernandez; Joao Paulo A. de Souza; Gonzalo Hernandez
  60. Linking Bank Crises and Sovereign Defaults: Evidence from Emerging Markets By Irina Balteanu; Aitor Erce
  61. Povincial Inflation Dynamics in Indonesia: Hybrid New Keynesian Phillips Curve Approach By Mr Insukindro; Chandra Utama
  62. Labor market reforms and current account imbalances - beggar-thy-neighbor policies in a currency union? By Timo Baas; Ansgar Belke
  63. Do central bank forecasts matter for professional forecasters? By Jacek Kotłowski
  64. Hysteresis and US Labor Markets > > (1990-2014) By Leyla Baştav
  65. The use of cheques in the European Union: a cross-country analysis By Vania Silva; Esmeralda Ramalho; Carlos Vieira
  66. Measuring the Systemic Risk in Interfirm Transaction Networks By Hazama, Makoto; Uesugi, Iichiro
  67. Monitoring tourism flows and destination management: Empirical evidence for Portugal By Jorge Andraz; Paulo Rodrigues
  68. Belgium; 2017 Article IV Consultation-Press Release; Staff Report; Supplementary Information By International Monetary Fund
  69. Inflation and Real Wage Dispersion: A Model of Frictional Markets By Zhang, Min; Huangfu, Stella
  70. Global or domestic? Which shocks drive inflation in the small open economies? By Aleksandra Halka; Jacek Kotłowski
  71. The Composition Effects of Tax-Based Consolidations on Income Inequality By Ciminelli, Gabriele; Ernst, Ekkehard; Giuliodori, Massimo; Merola, Rossana
  72. Credit conditions, macroprudential policy and house prices By Robert Kelly, Fergal McCann, Conor O'Toole
  73. Долгосрочное банковское кредитование: какие банки им занимаются и почему? By Vernikov, Andrei; Mamonov, Mikhail
  74. Financial Development and Growth: Panel Cointegration Evidence from South-Eastern and Central Europe By Stojkoski, Viktor; Popova, Kristina
  75. Structural correlations in the Italian overnight money market: An analysis based on network configuration models By Luu, Duc Thi; Lux, Thomas; Yanovski, Boyan
  76. Paraguay; Technical Assistance Report-Establishing a Structural Balance Rule and a Public Debt Objective By International Monetary Fund
  77. Gauging two sides of regional economic resilience in Western Germany. Why resitance and recovery should not be lumped together By Franziska Pudelko; Christian Hundt
  78. Did the Basel Process of Capital Regulation Enhance the Resiliency of European Banks? By Gehrig, Thomas; Iannino, Maria Chiara
  79. Partial Fiscalization: Some Lessons on Europe’s Unfinished Business By Michael D. Bordo; Harold James
  80. Countercyclicality of financial crisis interventions in an open economy with credit constraint By Carmiña O. Vargas; Julian A. Parra-Polania
  81. Economic shocks and changes in global production structure : methods for measuring economic resilience By Hashiguchi, Yoshihiro; Yamano, Norihiko; Webb, Colin
  82. Trade in Intermediate Goods: Implications for Productivity and Welfare in Korea By Kim, Young Gui; Pyo, Hak K.

  1. By: Antonella Cavallo; Antonio Ribba
    Abstract: This paper aims to assess the effects of external macroeconomic shocks on business cycles of Central and Eastern European Countries, not yet Euro-area members. Using quarterly data from 1999 to 2015 and the structural near-VAR methodology, we focus on the effects of Euro-area monetary policy and global oil price shocks on prices and output of the analyzed countries. Results show that business cycle fluctuations are mainly explained by domestic shocks in the short run, while monetary policy and oil price shocks play an increasing role in the medium run. Adding domestic fiscal shocks the overall picture does not change significantly, since fiscal policy turns out to be a minor driver of business cycle fluctuations in CEECs.
    Keywords: CEECs; Business Cycle Fluctuations; Euro Area; Common Shocks; near-Structural VAR
    JEL: C32 E32 Q43
    Date: 2017–03
  2. By: Auer, Raphael; Levchenko, Andrei A.; Sauré, Philip
    Abstract: We document that observed international input-output linkages contribute substantially to synchronizing producer price inflation (PPI) across countries. Using a multi-country, industry-level dataset that combines information on PPI and exchange rates with international and domestic input-output linkages, we recover the underlying cost shocks that are propagated internationally via the global input-output network, thus generating the observed dynamics of PPI. We then compare the extent to which common global factors account for the variation in actual PPI and in the underlying cost shocks. Our main finding is that across a range of econometric tests, input-output linkages account for half of the global component of PPI inflation. We report three additional findings: (i) the results are similar when allowing for imperfect cost pass-through and demand complementarities; (ii) PPI synchronization across countries is driven primarily by common sectoral shocks and input-output linkages amplify co-movement primarily by propagating sectoral shocks; and (iii) the observed pattern of international input use preserves fat-tailed idiosyncratic shocks and thus leads to a fat-tailed distribution of inflation rates, i.e., periods of disinflation and high inflation.
    Keywords: global value chain; globalisation; inflation; input linkages; input-output linkages; international inflation synchronization; monetary policy; production structure; Supply Chain
    JEL: E31 E52 E58 F02 F14 F33 F41 F42 F62
    Date: 2017–03
  3. By: Pinshi, Christian
    Abstract: The need to strengthen the macroprudential orientation of financial regulatory and supervisory frameworks stays a priority for financial and real good health. Stability financial is threatened with endogenous and exogenous risks translating crises, hence it has to a healthy regulation for the reduction risks. Macroprudential policy proves to be a best regulation limiting systemic risk. We wonder about adoption a framework macroprudential for stability financial in Democratic Republic of Congo (DRC). The great correlation between countercyclical capital buffer and stability financial justify to make use of framework macroprudential. The causality analysis put in light the effect of policy macroprudential on financial stability. The coefficient of reserve requirements, used like an indicator par excellence, and countercyclical capital buffer cause financial stability. That’s justify an adoption of framework macroprudential in DRC. Then, we showed that credit growth in DRC is below crisis threshold, banks should grant more credit as much as they are below crisis threshold instead of drain credits. Finally, we suggest a best Framework governance for a macroprudential policy in DRC. The game must be cooperative but flexible with monetary policy, it means, we must create a general management or autonomous institution macroprudential. However monetary policy must have a power supreme or a low of veto on this financial stability general management.
    Keywords: Monetary Policy, financial stability, macroprudential policy
    JEL: E3 E37 E51 G13
    Date: 2016–06–10
  4. By: Tatsuki Okamoto (Graduate School of Economics, Kobe University); Yoichi Matsubayashi (Graduate School of Economics, Kobe University)
    Abstract: This paper examines whether Japanese monetary policy had been working through the credit channel and its sub-channels between March 2000 and March 2016 using time-varying parameter VAR. The identification of credit transmission channels is a very difficult problem due to the impossibility to observe the conditions of credit supply and demand. However, using the credible data collected from the ‘Senior Loan Officer Opinion Survey on Bank Lending Practices at Large Japanese Banks’ (SLOS), we identified the credit channel and its sub-channels. To the best of the authors’ knowledge, there are no previous studies that have employed SLOS data for the evaluation of transmission channels. The estimation findings show a high possibility that large and middle-sized firms had little effect on monetary policy through the credit channel, but did have an effect through portfolio rebalancing. Small firms are thought to have an effect through the credit channel and its sub-channels, but it is not a big effect. The detailed reason as to why the effect of monetary easing differed by the firm size should be considered by looking at more specific portfolio rebalancing effects and loans to overseas.
    Keywords: Time-Varying Parameter vector autoregressive (TVP-VAR) model, Credit Channel, Credit supply, Lending standards, Monetary policy.
    JEL: E41 E44 E51 E52 G21
    Date: 2017–03
  5. By: Auer, Raphael; Borio, Claudio; Filardo, Andrew J
    Abstract: Greater international economic interconnectedness over recent decades has been changing inflation dynamics. This paper presents evidence that the expansion of global value chains (GVCs), ie cross-border trade in intermediate goods and services, is an important channel through which global economic slack influences domestic inflation. In particular, we document the extent to which the growth in GVCs explains the established empirical correlation between global economic slack and national inflation rates, both across countries and over time. Accounting for the role of GVCs, we also find that the conventional trade-based measures of openness used in previous studies are poor proxies for this transmission channel. The results support the hypothesis that as GVCs expand, direct and indirect competition among economies increases, making domestic inflation more sensitive to the global output gap. This can affect the trade-offs that central banks face when managing inflation.
    Keywords: global value chain; globalisation; inflation; input-ouput linkages; international inflation synchronisation; monetary policy; Phillips curve; production structure; Supply Chain
    JEL: E31 E52 E58 F02 F14 F41 F42 F62
    Date: 2017–03
  6. By: Hyunju Kang (Korea Capital Market Institute); Hyunduk Suh (Department of Economics, Inha University)
    Abstract: We estimate a medium-scale DSGE model, including a financial accelerator and the search and matching framework in labor markets, for the Korean economy, using the Bayesian technique. The estimated model shows that the recent sluggishness in GDP growth can be explained by slow technology growth, and the decline in CPI inflation is affected by a falling markup in domestic homogeneous goods production and a negative intertemporal consumption preference. Although wages, unemployment, and total labor hours are influenced by various factors, households¡¯ weak bargaining power causes a slow recovery in wages, while pushing the unemployment rate down. There was also a spillover from non-big-5 to big-5 firms during the global financial crisis, while monetary and fiscal policy has been mostly conservative in the post-crisis period.
    Keywords: DSGE Model, Financial Frictions, Employment Frictions, Korean Economy
    JEL: C5 E3 E5 F4 G1
    Date: 2017–03
  7. By: Patrick J. Kehoe; Elena Pastorino
    Abstract: Do sophisticated international financial markets obviate the need for an active union-wide authority to orchestrate fiscal transfers between countries to provide adequate insurance against country-specific economic fluctuations? 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.
    JEL: E0 E5 E6 E62 F33 F36 F38 F42 F44
    Date: 2017–03
  8. By: Ellen R. McGrattan
    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 in- vestments, 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.
    JEL: D57 E32 O41
    Date: 2017–03
  9. By: Richard Dennis
    Abstract: Many central banks in developed countries have had very low policy rates for quite some time. A growing number are experimenting with official rates that are negative. We develop a New Keynesian model in which the zero lower bound (ZLB) on nominal interest rates is imposed as an occasionally binding constraint and use this model to examine the duration of ZLB episodes. In addition, we show that capital accumulation and capital adjustment costs can raise significantly the length of time an economy spends at the ZLB, as can the conduct of monetary policy. We identify anticipation effects that make the ZLB more likely to bind and we show that allowing negative nominal interest rates shortens average durations, but only by about one quarter.
    Keywords: Monetary policy, zero lower bound, new Keynesian
    JEL: E3 E4 E5
    Date: 2017–03
  10. By: Neto, António; Furukawa, Yuichi; Ribeiro, Ana Paula
    Abstract: Economic growth crucially depends on the level of R&D investment, as well as on the existing labour market institutions (LMI); the latter might shape the amount of profit obtained by each firm and its incentives to continuously innovate. This paper proposes a novel analysis combining a Schumpeterian growth model with cash-in-advance (CIA) constraints on R&D to study the impact of trade unions on economic growth and social welfare. Two main results arise: one the one hand, economic growth is always decreasing in trade union’s markup and interest rate. However, in terms of social welfare, although Friedman rule appears to be optimal across all the considered scenarios, free labour market can be suboptimal below a specific threshold level of economic growth, depending on whether there is over or underinvestment in R&D. Hence, by demanding a wage above the perfect competition equilibrium, trade unions can have a positive impact on welfare through a reallocation of labour among sectors. This relationship seems to be stronger for countries with lower labour share and higher rents in the intermediate sector. This latter case highlights the redistributive effect of trade unions, contributing for a decrease in inequality between monopolists and workers. Therefore, for the case of the Eurozone, a “common” labour market setting might be more “inefficient” than a common monetary policy.
    Keywords: Employment, trade unions, economic growth, R&D
    JEL: E24 J51 O40 O42
    Date: 2017–03
  11. By: Brown, Alessio J. G.; Kohlbrecher, Britta; Merkl, Christian; Snower, Dennis J.
    Abstract: In the standard macroeconomic search and matching model of the labor market, there is a tight link between the quantitative effects of (i) aggregate productivity shocks on unemployment and (ii) unemployment benefits on unemployment. This tight link is at odds with the empirical literature. We show that a two-sided model of labor market search where the household and firm decisions are decomposed into job offers, job acceptances, firing, and quits can break this link. In such a model, unemployment benefits affect households' behavior directly, without having to run via the bargained wage. A calibration of the model based on U.S. JOLTS data generates both a solid amplification of productivity shocks and a moderate effect of benefits on unemployment. Our analysis shows the importance of investigating the effects of policies on the households' work incentives and the firms' employment incentives within the search process.
    Keywords: unemployment benefits,search and matching,aggregate shocks,macro models of the labor market
    JEL: E24 E32 J63 J64
    Date: 2017
  12. By: Giuseppe Ciccarone; Francesco Giuli; Enrico Marchetti
    Abstract: In this paper we present a novel channel through which the volatility of the monetary/financial sector affects the instability of the real macroeconomic variables originated by self-fulfilling market sentiments. To this aim, we insert some elements of Prospect Theory in the preferences of agents living in an overlapping generations economy where consumers’ heterogeneity and firms’ imperfect information on the level of aggregate demand allow market sentiments to affect the equilibrium path of the economy. In this environment, greater heterogeneity in the household’s narrow framing parameter favour the emergence of self-fulfilling equilibria by exacerbating the coordination problem generated by a pair-wise matching process in the labor market. Furthermore, higher volatility of the money market, by increasing the effect of Prospect Theory on households’ choices, makes the signal upon which firms form their demand schedules noisier; this, in its turn, generates greater variability in market sentiments and hence in real economic activity.
    Keywords: Prospect theory; Self-fulfilling equilibria; Sentiments; Behavioral macroeconomics.
    JEL: D84 E03 E32
    Date: 2017–03
  13. By: Olga Gouveia; Enestor Dos Santos; Santiago Fernández de Lis; Alejandro Neut; Javier Sebastián
    Abstract: Los libros contables distribuidos (distributed ledgers, en inglés) constituyen una tecnología que permite una versión digitalizada del dinero en efectivo al tiempo que potencialmente mantiene sus cuatro características principales: la universalidad, el anonimato, la intercambiabilidad entre pares (P2P) y un valor nominal constante.
    Keywords: Banca , Documento de Trabajo , Economía Digital , Global
    JEL: E42 E50 E61 G20 O33
    Date: 2017–03
  14. By: Giovanni Caggiano (Department of Economics, Monash University; Department of Economics and Management, University of Padova; and Bank of Finland); Efrem Castelnuovo (Melbourne Institute of Applied Economic and Social Research, the University of Melbourne; Department of Economics, The University of Melbourne; and Department of Economics and Management, University of Padova); Gabriela Nodari (Reserve Bank of Australia)
    Abstract: We investigate the role played by systematic monetary policy in tackling the real effects of uncertainty shocks in U.S. recessions and expansions. We model key indicators of the business cycle with a nonlinear VAR that allows for different dynamics in busts and booms. Uncertainty shocks are identified by focusing on historical events that are associated to jumps in financial volatility. Uncertainty shocks hitting in recessions are found to trigger a more abrupt drop and a faster recovery in real activity than in expansions. Counterfactual simulations suggest that the effectiveness of systematic monetary policy in stabilizing real activity is greater in expansions. Finally, we provide empirical and narrative evidence pointing to a risk management approach by the Federal Reserve.
    Keywords: Uncertainty shocks, nonlinear Smooth Transition Vector AutoRegressions, Generalized Impulse Response Functions, systematic monetary policy
    JEL: C32 E32
    Date: 2017–03
  15. By: Christophe Blot (OFCE, Sciences Po); Paul Hubert (OFCE, Sciences Po); Fabien Labondance (Université de Bourgogne Franche-Comté, CRESE)
    Keywords: Asset price bubbles, Monetary policy, Quantitative Easing, Federal Reserve, ECB
    JEL: E44 G12 E52
    Date: 2017–03
  16. By: BLINOV, Sergey
    Abstract: Forecasts showing how the economy will be developing are very important both for the government and for all the economic agents, including citizens. In Russia, the common practice is to forecast based on price assumptions for hydrocarbons, primarily oil. Such an approach causes serious errors. This paper proposes a different approach driven by the close linkage between the GDP and the real money supply. By way of an example, forecast scenarios for Russia’s GDP in 2017 are adduced. Options for using the proposed methodology in economic, including anti-crisis, policies are suggested. Прогнозы развития экономики очень важны как для государства, так и для всех экономических агентов, включая граждан. В России распространённой практикой является прогнозирование, базирующееся на предположениях о ценах на углеводородное сырьё, прежде всего нефть. Такой подход приводит к серьёзным ошибкам. В данной работе предлагается другой подход, основанный на тесной взаимосвязи ВВП и реальной денежной массы. В качестве примера приведены варианты прогноза ВВП России на 2017 год. Предложены варианты использования предложенной методики в экономической, в том числе антикризисной, политике.
    Keywords: денежно-кредитная политика; экономические циклы; методы прогнозирования; энергоресурсы;
    JEL: C53 C54 E37 E52 Q43
    Date: 2017–03–12
  17. By: Daniel Neuhann
    Abstract: This paper develops a theory of the secondary market trading of financial securitities in which endogenous asset market dynamics generate periods of growing aggregate credit volumes and falling credit standards even in the absence of “financial shocks.” Falling credit standards in turn lead to excess risk exposure in the aggregate, precipitating future crises. The credit cycle is triggered by low interest rates, and longer booms lead to sharper crises. Saving gluts and expansionary monetary policy thus lead to financial fragility over time. Pro-cyclical regulation of secondary market traders, such as asset managers or hedge funds, can improve welfare even when such traders are not levered. JEL Classification: G01, E32, E44
    Keywords: secondary markets, securitization, credit cycles, financial crisis, financial fragility, credit booms, saving gluts, risk-taking channel of monetary policy
    Date: 2016–09
  18. By: Gregory De Walque (NBB, Economics and Research Department); Thomas Lejeune (NBB, Economics and Research Department); Yuliya Rychalovska (University of Namur); Rafael Wouters (NBB, Economics and Research Department)
    Abstract: We develop a two-country New Keynesian model with sticky local currency pricing,distribution costs and a demand elasticity increasing with the relative price. These features help to reduce the exchange rate pass-through to import price at the border and down the chain towards consumption price, both in the short and the long run. Oil and imported goods enter at the same time as inputs in the production process and as consumption components. The model is estimated using Bayesian full information maximum likelihood techniques and based on real and nominal macroeconomic series for the euro area and the United States together with the bilateral exchange rate and oil prices. The estimated model is shown to perform well in an out-of-sample forecasting exercise and is able to reproduce most of the cross-series co-variances observed in the data. It is then used for forecast error variance decomposition and historical decomposition exercises.
    Keywords: Open-economy macroeconomics, DSGE models, exchange-rate pass through, Bayesian inference, forecasting, policy analysis
    JEL: C11 E32 E37 F41
    Date: 2017–03
  19. By: Kim, Wongi (Korea Institute for International Economic Policy)
    Abstract: In this paper, I empirically examine the effects of uncertainty about government spending policy on economic activity using U.S. time series data. To this end, I constructed government spending policy uncertainty indexes and estimate proxy SVAR model. Proxy SVAR model with constructed indexes shows that an increase in government spending policy uncertainty has negative, sizable, and prolonged effects on economic activity. Moreover, the results imply that the commonly adopted recursive SVAR model in literature on policy uncertainty systematically underestimates the adverse effect of government spending policy uncertainty because of the endogeneity issue. One policy suggestion based on the empirical finding is clear announcement of future government spending path.
    Keywords: Policy Uncertainty; Government Spending Policy Uncertainty Index; Government Spending Policy Uncertainty Shock; Proxy SVAR
    JEL: C32 E32 E62
    Date: 2016–12–16
  20. By: Sanchez-Romero, Miguel; Fürnkranz-Prskawetz, Alexia
    Abstract: We investigate the differential impact that pension systems have on the labor supply and the accumulation of physical and human capital for individuals that differ by their learning ability and levels of life expectancy. Our analysis is calibrated to the US economy using a general equilibrium model populated by overlapping generations, in which all population groups interact through the pension system, the labor market, and the capital market. Within our framework we analyze the redistributive and macroeconomic effects of a progressive versus a flat replacement rate of the pension system.
    Keywords: Human capital,Longevity,Inequality,Life cycle,Social Security
    JEL: E24 J10 J18 H55
    Date: 2017
  21. By: Kroeger, Alexander (Analysis Group); McGowan, John (Federal Reserve Bank of New York); Sarkar, Asani (Federal Reserve Bank of New York)
    Abstract: This paper describes the Federal Reserve’s framework for implementing monetary policy prior to the expansion of the Fed’s balance sheet during the financial crisis. The pre-crisis framework was a reserve-scarcity regime in which banks demanded reserves in order to meet minimum reserve requirements. The New York Fed’s open market trading desk implemented monetary policy by carefully managing the supply of reserves, primarily through the conduct of daily repo operations with primary dealers. The open market trading desk was able to achieve its monetary policy implementation objectives efficiently in the pre-crisis period without impairing financial market functioning. However, the framework deployed was complex relative to alternative implementation frameworks and required substantial intraday overdrafts from the Fed to meet banks’ short-term payment needs. Once its balance sheet expanded in response to the financial crisis, the Fed was no longer able to rely on the pre-crisis framework to control the policy rate. Nevertheless, the open market trading desk successfully controlled the policy rate using the new, post-crisis framework, suggesting that effective monetary control may be achieved through different frameworks.
    Keywords: Fed; monetary policy framework; pre-crisis
    JEL: E52 E58 N10
    Date: 2017–03–01
  22. By: Chang, Juin-Jen; Lai, Ching-Chong; Liao, Chih-Hsing
    Abstract: Estimates of the welfare costs of moderate inflation are generally modest or small. This paper, by shedding light on increasing returns to production specialization, obtains a substantial welfare cost of 8% in an endogenous growth model of monopolistic competition with endogenous entry. Analytically, we show that the effect of inflation is aggravated (resp. alleviated) by a price markup if the degree of increasing returns to production specialization is relatively high (resp. low). Accordingly, our quantitative analysis indicates that the welfare cost of inflation exhibits an inverted U-shaped relationship with the price markup. This non-monotone is sharply in contradiction to the conventional notion. Nonetheless, the welfare cost of inflation is unambiguously increasing in the degree of increasing returns to production specialization.
    Keywords: Welfare cost of inflation, price markup, increasing returns to production specialization.
    JEL: E5 E52 O4 O42
    Date: 2017–03–21
  23. By: Kim, Kyunghun (Korea Institute for International Economic Policy)
    Abstract: This paper examines the international transmission of the US monetary policy surprises. The US monetary policy surprises are defined by the gap between the actual fed fund rate and its forecast estimated a quarter ahead. The US monetary policy surprises are used as external shocks to investigate the spillover effects of policy uncertainty on other economies and address the endogeneity problem. The US is the base country where the monetary policy uncertainty shocks take place. I construct the each country's international linkages such as the equity market and debt market linkages vis-à-vis the epicenter, US to investigate how the shocks are transmitted to other countries through those linkages. The empirical result shows that the equity market integration is associated with the business cycle divergence and the debt market integration is associated with the business cycle co-movement when the US policy uncertainty index is low. However, the equity market integration is associated with the business cycle comovement and the debt market integration plays insignificant role in transmitting the monetary policy surprises when the US policy uncertainty index is high.
    Keywords: Business Cycle Co-Movement; Spillover; Monetary Policy; Global Financial Market; Capital Control
    JEL: E52 F33 F42 F44
    Date: 2016–07–29
  24. By: Laliotis, Ioannis; Stavropoulou, Charitini
    Abstract: We study whether mortality responds non-linearly and asymmetrically to unemployment in the context of national economic crises. Although both the assumption of linearity and symmetry have been challenged in other domains, this has been hitherto neglected in the mortality-unemployment literature. Greece offers an ideal setting to our study as unemployment had been moderately falling for about a decade till mid-2008 when it sharply and suddenly increased as a result of a severe economic crisis. Contrary to previous literature, our results from regional panel data estimates (1999q1-2013q4) indicate a countercyclical behaviour of total mortality and a further deteriorating crisis effect. We provide robust evidence that mortality is both non-linear and asymmetric, which suggests that the effect on the number of deaths changes for very high values of unemployment and depends on its direction. Both non-linearity and asymmetry are driven by those above 65 years old. Our findings have important methodological implications and suggest that empirical investigations on fluctuations, recessions and mortality should consider possible non-linear and asymmetric behaviours.
    Keywords: Mortality; Unemployment; Crisis; Non-linearity; Asymmetry; Greece
    JEL: E32 I10 J60
    Date: 2017–03–23
  25. By: Barrdear, John (Bank of England)
    Abstract: Determinacy is ensured in the New Keynesian model when firms face imperfect common knowledge, regardless of whether the Taylor principle is satisfied. Strategic complementarity in pricing and idiosyncratic noise in firms’ signals, however small, are together sufficient to eliminate backward-looking solutions without appealing to the assumptions of Blanchard and Kahn (1980). Standard solutions emerge when the Taylor principle is followed, but when the policymaker demurs, the price level — and not just inflation — is stationary. A unique and stable solution also emerges with the interest rate pegged to its steady-state value, in contrast to Sargent and Wallace (1975).
    Keywords: Dispersed information; imperfect common knowledge; New Keynesian; indeterminacy; Blanchard-Kahn; Taylor rules; Taylor principle; interest rate peg
    JEL: D84 E31 E52
    Date: 2017–03–24
  26. By: Cozzi, Guido; Pataracchia, Beatrice; Ratto, Marco; Pfeiffer, Philipp
    Abstract: The macroeconomic experience of the last decade stressed the importance of jointly studying the growth and business cycle fluctuations behavior of the economy. To analyze this issue, we embed a model of Schumpeterian growth into an estimated medium-scale DSGE model. Results from a Bayesian estimation suggest that Investment risk premia are a key driver of the slump following the Great Recession. Endogenous innovation dynamics amplifies financial crises and helps explain the slow recovery. Moreover, financial conditions also account for a substantial share of R&D Investment dynamics.
    Keywords: Endogenous growth; New Keynesian Economics; R&D; Schumpeterian Growth; Bayesian Estimation.
    JEL: E32 O3 O33 O42
    Date: 2017–02–03
  27. By: Takumi Motoyama (Graduate School of Economics, Osaka University)
    Abstract: We consider fiscal sustainability by using an overlapping generations model with human capital accumulation (private and public education) and public debt. Based on this model, we explicitly show (i) the parameter region in which the economy cannot be fiscally sustainable for any initial endowment, and (ii) the threshold of initial endowment over (under) which the economy diverges (converges) to the steady state. Importantly, the threshold is neutral to the level of initial human capital. Further, we show the existence and uniqueness of the growth-maximizing level of each policy variable (i.e., the tax rate and public education/production ratio).
    Keywords: Human capital accumulation, Public education, Public debt, Fiscal sustainability
    JEL: E62 H52 H63 I28
    Date: 2017–03
  28. By: Yoichi Ueno (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: This paper proposes a new term structure model to generalize the Gaussian affine model and the Black model with an efficient and accurate solution method. The new model assumes that arbitrage between money or reserves and government bonds works but not perfectly. The new model enables us to quantify the effects of forward guidance, quantitative easing, and the negative interest rate policy. Estimation results for Switzerland, Germany, and Japan show that the new model outperforms both the Gaussian affine model and the Black model. Moreover, the results indicate that the power of arbitrage moves in tandem with basis swap spreads.
    Keywords: Term Structure Model, Monetary Policy, Negative Interest Rate, Basis Swap Spreads
    JEL: E43 E52 G12
    Date: 2017–03
  29. By: Cozzi, Guido
    Abstract: What if the statutory fiscal depreciation of buildings was higher than their effective economic depreciation? This would imply that markets would value buildings more than their social fundamental value. I prove that this would allow house price bubbles to emerge and open the door to sudden crashes. This paper provides an example of how a misaligned fiscal policy measure could generate potentially destabilizing self-fulfilling prophecies even in an economy with fully rational and forward-looking individuals.
    Keywords: House price bubbles; Fiscal depreciation; Sunspot equilibria.
    JEL: E3 E6 R3
    Date: 2017–02
  30. By: Benati, Luca (University of Bern); Lucas, Robert E. (University of Chicago); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis); Weber, Warren E. (University of South Carolina)
    Abstract: We explore the long-run demand for M1 based on a data set that has comprised 32 countries since 1851. In many cases, cointegration tests identify a long-run equilibrium relationship between either velocity and the short rate or M1, GDP, and the short rate. Evidence is especially strong for the United States and the United Kingdom over the entire period since World War I and for moderate and high-inflation countries. With the exception of high-inflation countries–for which a “log-log” specification is preferred–the data often prefer the specification in the levels of velocity and the short rate originally estimated by Selden (1956) and Latané (1960). This is especially clear for the United States and other low-inflation countries.
    Keywords: Long-run money demand; Cointegration
    JEL: C32 E41
    Date: 2017–02–10
  31. By: Arellano, Cristina (Federal Reserve Bank of Minneapolis); Bai, Yan (University of Rochester); Bocola, Luigi (Northwestern University)
    Abstract: This paper studies the recessionary effects of sovereign default risk using firm-level data and a model of sovereign debt with firm heterogeneity. Our environment features a two-way feedback loop. Low output decreases the tax revenues of the government and raises the risk that it will default on its debt. The associated increase in sovereign interest rate spreads, in turn, raises the interest rates paid by firms, which further depresses their production. Importantly, these effects are not homogeneous across firms, as interest rate hikes have more severe consequences for firms that are in need of borrowing. Our approach consists of using these cross-sectional implications of the model, together with micro data, to measure the effects that sovereign risk has on real economic activity. In an application to Italy, we find that the progressive heightening of sovereign risk during the recent crisis was responsible for 50% of the observed decline in output.
    Keywords: Sovereign debt crises; Firm heterogeneity; Financial frictions
    JEL: E44 F34 G12 G15
    Date: 2017–03–22
  32. By: Luz Dary Beltrán Jaimes (Instituto Politécnico Nacional de México); Manuel Alejandro Cardenete (Universidad Loyola Andalucía); María del Carmen Delgado (Universidad Loyola Andalucía)
    Abstract: The goal of this research is to simulate the possible effects of the 20% increase in tariffs on the Mexican economy. The price model used is based on a general equilibrium linear model. With this price model, the estimate of the impact of the effects of a US tariff increase of 20% on the Mexican economy is roughly estimated, simulating this increase on prices in the rest of the world. In this way, it is possible to calculate the effects on consumer prices and welfare represented in this case by the CPI. The main result shows that the impact of the increase of the prices of the rest of the world to the increase of the tariffs in the United States on the CPI is inflationary with an increase of around 4%.
    Keywords: Social accounting matrix, Input-output analysis, Applied general equilibrium, Consumer price index.
    JEL: C68 D58 E31 R13
    Date: 2017–03
  33. By: Gloria Bernal y Andrés Giraldo; Andrés Giraldo
    Abstract: Este artículo presenta resultados de la estimación de una regla de Taylor con suavizamiento de tasa de interés y usando la base de tatos en tiempo real construida por Bernal y Tautiva (2011). El objetivo es obtener estimaciones puntuales de la aversión a la inflación y compararlos con estimaciones donde se usa la versión revisada de la base de datos de producto. La aversión a la inflación es mayor que uno pero los resultados son puntualmente distintos. Por lo tanto, el banco central debe tener en cuenta esas diferencias cuando toma las decisiones de cambio en la tasa de intervención.
    Keywords: Regla de Taylor, Principio de Taylor, Datos en tiempo real, modelos espacio-estado, filtro de Kalman
    JEL: C22 E52 E58
    Date: 2017–01–18
  34. By: Gloria Bernal y Andrés Giraldo; Andrés Giraldo
    Abstract: Este artículo presenta resultados de la estimación de una regla de Taylor con suavizamiento de tasa de interés y usando la base de tatos en tiempo real construida por Bernal y Tautiva (2011). El objetivo es obtener estimaciones puntuales de la aversión a la inflación y compararlos con estimaciones donde se usa la versión revisada de la base de datos de producto. La aversión a la inflación es mayor que uno pero los resultados son puntualmente distintos. Por lo tanto, el banco central debe tener en cuenta esas diferencias cuando toma las decisiones de cambio en la tasa de intervención.
    Keywords: Regla de Taylor, Principio de Taylor, Datos en tiempo real, modelos espacio-estado, filtro de Kalman
    JEL: C22 E52 E58
    Date: 2017–01–18
  35. By: Zsolt Darvas; András Simon
    Abstract: This paper argues that in open economies the Phillips-curve relationship is not sufficient to trace back the output gap, because the effect of excess demand is not symmetric across tradable and non-tradable sectors. In the non-tradable sector excess demand creates excess employment and inflation via the Phillips-curve, while in the tradable sector much of the excess demand is absorbed by the trade balance. We set up an unobserved-components model including both a Phillips-curve and a trade equation to trace back ‘sustainable’ output. We apply the model to a Greece, Ireland, Spain, Portugal, Argentina, Mexico, Korea and Hungary to test the importance of the two relationships. state-space models and Kalman-filter We find that the trade balance is more important than the Phillips-curve in identifying sustainable output. Our sustainable output estimates for euro-area periphery countries differ substantially from the potential output estimates of the European Commission and, in our view, our results can be better interpreted in light of economic developments. We also found that our model was able to correctly identify the sign of the output gap in real time, in contrast to the estimates of the European Commission. Furthermore, the revisions in our output gap estimates were smaller than the revisions of the European Commission’s estimates. NOTE: AN EARLIER VERSION OF THIS PAPER WAS ACCEPTED FOR PRESENTATION AT 2014 ECOMOD, BUT I COULD NOT OBTAIN FUNDING TO TRAVEL TO INDONESIA. THIS YEAR I WILL HAVE FUNDING TO TRAVEL TO BOSTON.
    Keywords: Greece, Ireland, Spain, Portugal, Argentina, Mexico, Korea and Hungary, Business cycles, Macroeconometric modeling
    Date: 2015–07–01
  36. By: Dorothea Schäfer; Andreas Stephan; Khanh Trung Hoang
    Abstract: We examine whether monetary transmission during the financial and sovereign debt crisis was dominated by the cost channel or by the demand-side channel effect. We use two approaches to track down the potential passthrough of changes in the monetary policy rate to those in consumer prices. First, we utilize panel data from the German manufacturing industry. Second, we conduct time series analyses for Germany, Italy, and Spain. We find that when manufacturing firms’ interest costs drop, the changes in their respective industry’s price index are smaller one year later. This finding is consistent with the cost channel theory. Taken together, the results of both panel data and time series analyses imply that the ECB’s low interest rate policy has worked better for boosting inflation in Italy and Spain than in Germany
    Keywords: Inflation, cost channel, monetary transmission
    JEL: G01 E31
    Date: 2017
  37. By: Diewert, W. Erwin; Fox, Kevin J.
    Abstract: The use of multilateral comparison methods in a time series context is increasingly becoming an accepted approach for incorporating scanner data in a Consumer Price Index. The attractiveness stems from the ability to be able to control for chain drift bias. Consensus on two key issues has yet to be achieved: (i) the best multilateral method to use, and (ii) the best way of extending the resulting series when new observations become available. This paper presents theoretical and simulation evidence on the extent of substitution biases in alternative multilateral methods. The multilateral index number formulae studied include the GEKS, CCDI, Geary-Khamis and Weighted Time Product Dummy Methods as well as some price similarity linking methods. The paper also assesses alternative methods for extending non-revisable series, with particular regard to the possibility of introducing chain drift bias. Overall, our results suggest the use of the CCDI index with a new method, the “mean splice†, for updating.
    Keywords: Consumer Price Indexes, superlative indexes, chain drift, scanner data, Time Product Dummy method, Geary-Khamis, GEKS and CCDI methods for making inte
    JEL: C43 E31
    Date: 2017–03–23
  38. By: Lugilde, Alba; Bande, Roberto; Riveiro, Dolores
    Abstract: Standard macroeconomic models show that uncertainty plays a significant role in consumption and saving decisions under rather mild conditions, namely the convexity of the marginal utility of consumption. Increased uncertainty generates a positive extra saving, the so-called “precautionary saving”. Although this hypothesis has been tested by a large number of authors, both at macro and micro level, the empirical results are not conclusive, and the main conclusion than can be drawn is that there is neither consensus on the intensity of that motive for saving, nor on the most appropriate measure of uncertainty. This paper provides a comprehensive review of the literature (both theoretical and empirical) and discusses the main controversial issues and the different approaches followed by the studies addressing empirically the test of precautionary saving.
    Keywords: precautionary saving, Euler equation, preferences types, empirical puzzles, uncertainty measures
    JEL: D11 D14 E21
    Date: 2017–03
  39. By: Marcelo Arbex (Department of Economics, University of Windsor); Sidney Caetano (Department of Economics, Federal University of Juiz de Fora); Michel Souza (Department of Economics, Federal University of Minas Gerais)
    Abstract: We study the TFP distribution and examine the non-stationarity of productivity series at various quantiles. Using the quantile autoregression unit root test, we find that the US TFP exhibits an asymmetric adjustment dynamics, i.e., positive and negative shocks might have different (permanent or temporary) effects on the TFP. Shocks dissemination depends on the local behavior of the TFP. We find that positive shocks have permanent effects on the TFP, while negative shocks can potentially have only transitory effects.
    Keywords: TFP, Unit root tests, Quantile autoregression
    JEL: C22 E32 O47
    Date: 2017–03
  40. By: Gorga, Carmine
    Abstract: In Concordian economics there is no distinction between micro and macro economics, because the economic process is the same for the individual person, the city, the nation, or the world, What changes is the scale, but not the structure of the process. When micro and macro economics are seen as one, it makes no sense to add monetary wealth to real wealth. It becomes then evident that monetary wealth is not wealth; monetary wealth is a legal representation of real wealth.
    Keywords: JEL: A10, B40, B59, D10, E10, K10, O10.
    JEL: A10 B40 B59 D10 E10 K10 O10
    Date: 2017–03–13
  41. By: Schivardi, Fabiano; Sette, Enrico; Tabellini, Guido
    Abstract: Do banks with low capital extend excessive credit to weak firms, and does this matter for aggregate efficiency? Using a unique data set that covers almost all bank-firm relationships in Italy in the period 2004-2013, we find that, during the Eurozone financial crisis: (i) Under-capitalized banks were less likely to cut credit to non-viable firms. (ii)\ Credit misallocation increased the failure rate of healthy firms and reduced the failure rate of non viable firms. (iii) Nevertheless, the adverse effects of credit misallocation on the growth rate of healthier firms were negligible, and so were the effects on TFP dispersion. This goes against previous influential findings that, we argue, face serious identification problems. Thus, while banks with low capital can be an important source of aggregate inefficiency in the long run, their contribution to the severity of the great recession via capital misallocation was modest.
    Keywords: Bank capitalization; capital misallocation; zombie lending
    JEL: D23 E24 G21
    Date: 2017–03
  42. By: W. Erwin Diewert (Vancouver School of Economics, University of British Columbia, and School of Economics, UNSW); Kevin J. Fox (School of Economics and CAER, UNSW Business School, UNSW)
    Abstract: A method for decomposing nominal value added growth is presented, which identifies the contributions from efficiency change, growth of primary inputs, changes in output and input prices, technical progress and returns to scale. In order to implement the decomposition, an estimate of the relevant cost constrained value added function for the two periods under consideration is required. This is taken to be the free disposal hull of past observations. Aggregation over sectors is also considered. The methodology is illustrated using U.S. data for two sectors over the years 1960-2014.
    Keywords: Symmetry; Measurement of output, input and productivity, value added functions, revenue functions, variable profit functions, duality theory, economic price and quantity indexes, technical progress, total factor productivity, revenue efficiency, aggregation over sectors.
    JEL: C43 D24 D61 E23 H44 O47
    Date: 2017–01
  43. By: Ferrari, Massimo; Kearns, Jonathan; Schrimpf, Andreas
    Abstract: We show that the FX impact of monetary policy has been growing significantly. We use a high-frequency event study of the joint response of fixed income instruments and exchange rates to monetary policy news from seven major central banks spanning 2004-2015. News affecting short maturity bonds have the strongest impact, highlighting the relevance of communication regarding the path of future policy. The FX impact of monetary policy is state-dependent and is stronger the lower is the level of interest rates. A greater adjustment burden falls onto the exchange rate, as rates are increasingly constrained by the effective lower bound.
    Keywords: event study; Exchange Rates; forward guidance; High Frequency Data; Unconventional Monetary Policy
    JEL: E52 E58 F31
    Date: 2017–03
  44. By: Galip Kemal Ozhan
    Abstract: This paper studies the role of the financial sector in a↵ecting domestic resource allocation and cross-border capital flows. I develop a quantitative, two-country, macroeconomic model in which banks face endogenous and occasionally binding leverage constraints. Banks lend funds to be invested in tradable or non-tradable sector capital and there is international financial integration in the market for bank liabilities. I focus on news about economic fundamentals as the key source of fluctuations. Specifically, in the case of positive news on the valuation of non-traded sector capital that turn out to be incorrect at a later date, the model generates an asymmetric, belief-driven boom-bust cycle that reproduces key features of the recent Eurozone crisis. Bank balance sheets amplify and propagate fluctuations through three channels when leverage constraints bind: First, amplified wealth e↵ects induce jumps in import-demand (demand channel). Second, changes in the value of non-tradable sector assets alter bank lending to tradable sector firms (intra-national spillover channel). Third, domestic and foreign households re-adjust their savings in domestic banks, and capital flows further amplify fluctuations (international spillover channel). A common central bank’s unconventional policies of private asset purchases and liquidity facilities in response to unfulfilled expectations are successful at ameliorating the economic downturn. JEL Classification: E44, F32, F41, G15, G21
    Keywords: Bank Lending, Belief-Driven Dynamics, Current Account, Macroeconomic Interdependence
    Date: 2016–10
  45. By: Mustafa Caglayan; Ozge Kandemir Kocaaslan; Kostas Mouratidis
    Abstract: There is a growing literature on the importance of financial markets arguing that credit market imperfections act as a propagator of shocks and play a significant role in magnifying output fluctuations. However, we do not see any study that empirically studies the examines the role of financial markets on the effectiveness of monetary policy. This paper investigates the role of financial markets in evaluating the asymmetric impact of monetary policy on real output over the business cycle.To examine the role of financial markets in determining the impact of monetary policy on real output, we implement an instrumental variables Markov regime switching framework. A first draft is prepared and is attached to this conference submission.Results can be summarized as follows: i)Monetary policy has a regime dependent impact on output growth: a restrictive monetary policy has a negative and significant impact on output growth during recessions, yet this effect is not significant during expansions; ii) Financial depth significantly mitigates the impact of monetary policy in recessions. More concretely, we find that in recessions the total impact of monetary policy on output growth becomes much milder and even diminishes with the deepening of the financial markets. This finding makes sense firms mostly suffer from financial frictions during periods of recessions; however, deeper financial markets could help firms to raise funds even in bad times.
    Keywords: USA, Monetary issues, Macroeconometric modeling
    Date: 2015–07–01
  46. By: Tiago Neves Sequeira (Univ. Beira Interior and CEFAGE-UBI); Pedro Mazeda Gil (University of Porto, Faculty of Economics, and CEF.UP); Óscar Afonso (University of Porto, Faculty of Economics)
    Abstract: We eliminate scale effects in the Balanced Growth Path of an expanding-variety endogenous growth model using the concept of entropy as a complexity effect. This allows us to gradually diminish scaleeffects as the economy develops along the transitional dynamics, which conciliates evidence of the existence of scale effects long ago in history with evidence for no scale effects in today’s economies. We show that empirical evidence supports entropy as a stylized form of the complexity effect. Then we show that the model can replicate well the take-off after the industrial revolution. Finally, we show that a model with both network effects (as spillovers in R&D) and entropy (as complexity effects) can replicate the main facts of the very long-run evolution of the economy since A.D. 1. Future scenarios may help to explain (part of) the growth crises affecting the current generation.
    Keywords: Endogenous economic growth; Network effects; Complexity effects; Entropy.
    JEL: O10 O30 O40 E22
    Date: 2016
  47. By: Tito Cordella; Eduardo Levy Yeyati
    Abstract: Why should developing countries buy expensive catastrophe (CAT) insurance? Abstracting from risk aversion or hedging motives, we find that insurance may have a catalytic role on external finance. Such effect is particularly strong in those low to middle income countries that face financial constraints when hit by a shock or in its anticipation. Insurance makes defaults less likely, thereby relaxing the country's borrowing constraint, and enhancing its access to capital markets. The presence of multilateral lenders that explicitly or implicitly provide inexpensive reconstruction funds in the aftermath of a natural disaster weakens but does not eliminate the demand for catalytic insurance
    Date: 2015–09
  48. By: William B.P. Robson; Benjamin Dachis; Aaron Jacobs
    Keywords: Innovation and Business Growth
    JEL: E2
  49. By: PYO , Hak K. (Korea Institute for International Economic Policy); Song , Saerang (University of Wisconsin - Madison)
    Abstract: This research paper intends to redefine and extend the concept of 'optimal liquidity' discussed in Han and Lee (2012). For this purpose, we have distinguished between liquidity held by households and liquidity held by firms following Levhari and Patinkin (1968) and Yoo and Pyo (1986). Han and Lee (2012) have revised the 'money-in-utility' model by Walsh (2012) and derived the relationship between liquidity and consumption. In the present paper, we have extended Han and Lee (2012) to a 'money-in-utility-and-production' model. We have specified a DSGE model in which liquidity serves for both household utility and production input and have conducted the impulse-response analysis. The impulse-responses of most of important variables from the shock of TFP increase are consistent with the results of Bhattacharjee and Thoenissen (2007). On the other hand, the policy interest rate shows a hump-shaped impulse-response, which is consistent with the impulse response of monetary expansion in the cash-in-advance model. In addition, the increase in money supply has produced a kind of crowding-out effect reducing the share of liquidity held by firms. The main policy implication of our model is that not only the absolute level of optimal liquidity but also the relative distribution of the liquidity between households and firms are important determinant for economic growth and stability. In order to validate this proposition, we have conducted a panel regression analysis and have empirically verified the proposition that the relatively higher share of liquidity held by firms would contribute to both GDP growth and its stability.
    Keywords: Monetary Policy; Liquidity; DSGE; Panel Regression
    JEL: C32 E23 E40
    Date: 2015–12–28
  50. By: Maryam Farboodi; Gregor Jarosch; Robert Shimer
    Abstract: What market structure emerges when market participants can choose the rate at which they contact others? We show that traders who choose a higher contact rate emerge as intermediaries, earning profits by taking asset positions that are misaligned with their preferences. Some of them, middlemen, are in constant contact with other traders and so pass on their position immediately. As search costs vanish, traders still make dispersed investments and trade occurs in intermediation chains, so the economy does not converge to a centralized market. When search costs are a differentiable function of the contact rate, the endogenous distribution of contact rates has no mass points. When the function is weakly convex, faster traders are misaligned more frequently than slower traders. When the function is linear, the contact rate distribution has a Pareto tail with parameter 2 and middlemen emerge endogenously. These features arise not only in the (inefficient) equilibrium allocation, but also in the optimal allocation. Moreover, we show that intermediation is key to the emergence of the rest of the properties of this market structure.
    JEL: E44 G12 G20
    Date: 2017–03
  51. By: Matthieu Gomez; Augustin Landier; David Sraer; David Thesmar
    Abstract: We show that the cash-flow exposure of banks to interest rate risk, or income gap, affects the transmission of monetary policy shocks to bank lending and real activity. We first use a large panel of U.S. banks to show that the sensitivity of bank profits to interest rates increases significantly with measured income gap, even when banks use interest rate derivatives. We then document that, in the cross-section of banks, income gap predicts the sensitivity of bank lending to interest rates. The effect of income gap is larger or similar in magnitudes to that of previously identified factors, such as leverage, bank size or even asset liquidity. To alleviate the concern that this result is driven by the endogenous matching of banks and firms, we use loan-level data and compare the supply of credit to the same firm by banks with different income gap. This analysis allows us to trace the impact of banks’ income gap on firm borrowing capacity, investment and employment, which we find to be significant. JEL Classification: E52, G21, E44
    Keywords: interest rate risk, monetary policy, bank lending
    Date: 2016–06
  52. By: Malmendier, Ulrike M.; Nagel, Stefan; Yan, Zhen
    Abstract: We show that personal experiences of inflation strongly influence the hawkish or dovish leanings of central bankers. For all members of the Federal Open Market Committee (FOMC) since 1951, we estimate an adaptive learning rule based on their lifetime inflation data. The resulting experience-based forecasts have significant predictive power for members' FOMC voting decisions, the hawkishness of the tone of their speeches, as well as the heterogeneity in their semi-annual inflation projections. Averaging over all FOMC members present at a meeting, inflation experiences also help to explain the federal funds target rate, over and above conventional Taylor rule components.
    JEL: D84 E03 E50
    Date: 2017–03
  53. By: Ana gomez-Loscos; M. Dolores Gadea (Universidad de Zaragoza); Gabriel Perez-Quiros (Bank of Spain)
    Abstract: Many have argued that the Great Recession of 2008 marks the end of the Great Moderation of the eighties and nineties. This paper shows this is not the case through painstaking empirical analysis of the data. Output volatility remains subdued despite the tumult created by the Great Recession. This finding has important implications for policymaking since a lower volatility of output (the hallmark of the Great Moderation) is associated with lower recoveries. We revisit the results obtained in the seminal paper of McConnell and Perez-Quiros (2000) with the updated sample so as to include the most recent developments associated with the GR. We find that the GM, as it was originally formulated, still holds. However, we want to test the robustness of this result. Firstly, we apply additional econometric techniques that allow the possibility of multiple structural breaks in the volatility of the series. Secondly, to test the validity of the results, we perform different experiments considering alternative economic scenarios for the future, extending the business cycle features of the GR several periods ahead, concocting the observations of the GR with those of the GM and even simulating processes of higher volatility. The global financial crisis of 2007 and the ensuing economic recession has prompted a debate on the possible end of the tranquil times of the GM. However, this paper presents evidence that the decrease in volatility associated with the GM seems to be quite a permanent phenomenon that holds in spite of the occurrence of further downturns in the characteristics of the GR or even of the fact that this may continue to extended horizons. The fact that the GR holds even though we have su ered a strong recession, and the fact that it would hold even if we have this pattern of recession-recovery for a long time, should make us reconsider the explanations roposed in the literature about the causes of the GM, especially those related to good policy or good luck.
    Keywords: the United States, Business cycles, Macroeconometric modeling
    Date: 2015–07–01
  54. By: Keshab Raj Bhattarai; Sushanta K. Mallick
    Abstract: Impulse response and variance decomposition estimations are similar in traditional VAR (1) and BVAR-DSGE models but the later model can provide theoretical and structural reasons behind those estimations. In the context of growth competition and spill over effects of policies, it is important to quantify such positive or complementary from negative or competitive impacts so that appropriate actions could be taken for policy coordination. Cooperative mechanism should be structured based on these analysis and evaluation of likely scenarios in coming years. Analysis of business cycle results from the VAR and BVAR-DSGE models illustrate the degree of interactions and interdependence in the global economy in the short to medium runs. Impulse response and variance decomposition estimations are similar in traditional VAR (1) and BVAR-DSGE models but the later model can provide theoretical and structural reasons behind those estimations. In the context of growth competition and spill over effects of policies, it is important to quantify such positive or complementary impacts from negative or competitive impacts so that appropriate actions could be taken for policy coordination. Cooperative mechanism should be structured based on these analysis and evaluation of likely scenarios in coming years. First two models in this paper illustrated how interactions and interdependence could be studied using VAR and BVAR-DSGE models of India and the US. Then strategic macroeconomic policy coordination and interdependence were studied strategically with VAR models of China, India, Germany, UK and the US estimated using the quarterly time series of growth rates. Persistency and conditional dependencies are observed and fluctuations around the average growth rates are compared across countries. Estimates show that there is a considerable growth competition among these countries. India's growth is influenced much by its fundamentals but slows down a bit when China, Germany, UK or US grow. In contrast China is able to absorb foreign growth to its benefit except that it competes with Germany. Germany's growth is more determined by its fundamentals and that of the US. Higher growth rates in other countries seem to lower it. Growth rate in the UK are positively related to the growth of Germany, UK and US but not related to that of India and China. The US growth rate are positively linked to that of India, the UK and the US growth itself.
    Keywords: India and USA, Modeling: new developments, Business cycles
    Date: 2015–07–01
  55. By: Piva, Mariacristina (Università Cattolica del Sacro Cuore, Milano); Vivarelli, Marco (UNU-MERIT, Università Cattolica del Sacro Cuore, Milano, and IZA, Bonn)
    Abstract: Using a unique firm-level database comprising the top European R&D investors over the period 2002-2013 and running LSDVC estimates, this study finds a significant labour-friendly impact of R&D expenditures. However, this positive employment effect appears limited in magnitude and entirely due to the medium-and high-tech sectors, while no effect can be detected in the low-tech industries. From a policy point of view, this outcome is supporting the EU2020 strategy, but - taking into account that most European economies are specialised in low-tech activities - is also worrying in terms of future perspectives of the European labour market.
    Keywords: Innovation, R&D, innovation, employment, firm-level analysis, EU
    JEL: E24 O14 O15 O33 O52
    Date: 2017–03–10
  56. By: Juergen Jung (Department of Economics, Towson University); Chung Tran (Research School of Economics, The Australian National University)
    Abstract: We study the optimal progressivity of income taxation in a Bewley-Grossman model of health capital accumulation where individuals are exposed to earnings and health risks over the lifecycle. We impose the U.S. tax and transfer system and calibrate the model to match U.S. data. We then optimize the progressivity of the income tax code. The optimal income tax system is more progressive than current U.S. income taxes with zero taxes at the lower end of the income distribution and a marginal tax rate of over 50 percent for income earners above US$ 200,000. The Suits index—a Gini coefficient for the income tax contribution by income—is around 0.53 and much higher than 0.17 in the U.S. benchmark tax system. Welfare gains from switching to the optimal tax system amount to over 5 percent of compensating consumption. Moreover, we find that the structure of the health insurance system affects the degree of optimal progressivity of the income tax system. The introduction of Affordable Care Act in 2010—a program that redistributes wealth from high income and healthy types, to low income and sicker types—reduces the optimal progressivity level of the income tax system. Finally, we demonstrate that the optimal tax system is sensitive to the parametric specification of the income tax function and the transfer policy.
    Keywords: Health risk, inequality, tax progressivity, Suits index, social insurance, optimal tax, general equilibrium.
    JEL: E62 H24 I13 D52
    Date: 2017–03
  57. By: Gabaix, Xavier; Laibson, David
    Abstract: We assume that perfectly patient agents estimate the value of future events by generating noisy, unbiased simulations and combining those signals with priors to form posteriors. These posterior expectations exhibit as-if discounting: agents make choices as if they were maximizing a stream of known utils weighted by a discount function, D(t). This as-if discount function reflects the fact that estimated utils are a combination of signals and priors, so average expectations are optimally shaded toward the mean of the prior distribution, generating behavior that partially mimics the properties of classical time preferences. When the simulation noise has variance that is linear in the event's horizon, the as-if discount function is hyperbolic, D(t)=1/(1+at). Our agents exhibit systematic preference reversals, but have no taste for commitment because they suffer from imperfect foresight, which is not a self-control problem. In our framework, agents that are more skilled at forecasting (e.g., those with more intelligence) exhibit less discounting. Agents with more domain-relevant experience exhibit less discounting. Older agents exhibit less discounting (except those with cognitive decline). Agents who are encouraged to spend more time thinking about an intertemporal tradeoff exhibit less discounting. Agents who are unable to think carefully about an intertemporal tradeoff -- e.g., due to cognitive load -- exhibit more discounting. In our framework, patience is highly unstable, fluctuating with the accuracy of forecasting.
    Keywords: Behavioral economics; discounting; myopia
    JEL: D03 D14 E03 E23
    Date: 2017–03
  58. By: González Laxe, Fernando; Armesto Pina, José Francisco; Sánchez-Fernández, Patricio; Lago Peñas, Santiago
    Abstract: The Galician economy accelerated its dynamism throughout 2016, achieving an average growth of 3.1% with respect to the previous year, the highest since 2007. In contrast with what happened the previous year, Galicia and Spain approach to both internal and external demand. In the last year the Galician economy continued to reduce the differential with the evolution of GDP in the whole of the State, which is only of one tenth.
    Keywords: GDP, Labour Market, Galicia, Spain
    JEL: E01 H83 P48 R11
    Date: 2017–03–01
  59. By: Leila E. Davis - Joao Paulo A. de Souza y Gonzalo Hernandez; Joao Paulo A. de Souza; Gonzalo Hernandez
    Abstract: In this paper we analyze Minskian dynamics in the US economy via an empirical application of Minsky's nancing regime classi cations to a panel of non nancial corporations. First, we map Minsky's de nitions of hedge, speculative and Ponzi nance onto rm-level data to describe the evolution of Minskian regimes. We highlight striking growth in the share of Ponzi rms in the post-1970 US, concentrated among small corporations. This secular growth in the incidence of Ponzi rms is consistent with the possibility of a long wave of increasingly fragile nance in the US economy. Second, we explore the possibility of short-run Minskian dynamics at a business-cycle frequency. Using linear probability models relating rms' probability of being Ponzi to the aggregate output gap, which captures short-term macroeconomic uctuations exogenous to individual rms, we nd that aggregate downturns are correlated with an almost zero increased probability that rms are Ponzi. This result is corroborated by quantile regressions using a continuous measure of nancial fragility, the interest coverage ratio, which identify almost zero effects of short-term uctuations on nancial fragility across the interest coverage distribution. Together, these results speak to an important question in the theoretical literature on nancial fragility regarding the duration of Minskian cycles, and lend support, in particular, to the contention that Minskian dynamics may take the form of long waves, but do not operate at business cycle frequencies.
    Keywords: Minsky cycles, nancial fragility, rm behavior
    Date: 2017–02–15
  60. By: Irina Balteanu (Bank of Spain); Aitor Erce (ESM)
    Abstract: We analyze the mechanisms through which bank and sovereign distress feed into each other, using a large sample of emerging market economies over three decades. After defining “twin crises” as events where bank crises and sovereign defaults combine, and further distinguishing between those bank crises that end up in sovereign defaults and vice-versa, we study what differentiates “single” and “twin” events. Using an event analysis methodology, we document systematic differences between “single” and “twin” crises across various dimensions. We show that many of the regularities often associated with either “bank” or “debt” crises are present in twin events only. We further show that “twin” crises themselves are heterogeneous events: the proper time sequence of crises that compose “twin” episodes is important for understanding these events. Guided by these facts, we use discrete-variable econometric techniques to assess the main channels of distress transmission between crises. We find that balance sheet interconnections, credit dynamics, financial openness and economic growth are important drivers of twin crises. Our results inform the flourishing theoretical literature on the mechanisms surrounding feedback loops of sovereign and bank stress.
    Keywords: Banking Crises, Sovereign Defaults, Feedback Loops, Balance Sheets
    JEL: E44 F34 G01 H63
    Date: 2017–02–15
  61. By: Mr Insukindro; Chandra Utama
    Abstract: In general, the previous studies analyze the inflation dynamics in Indonesia using national data which may have some weaknesses because the results tend to be dominated by the behavior of inflation in Java. It is expected that the results of this study can represent the inflation dynamics in the whole provinces of Indonesia. This paper attempts to analyze the provincial inflation dynamics in Indonesia for the period of 2005 (III) -2013 (III) by utilizing Hybrid New Keynesian Phillips Curve (HNKPC) theory and recent developments in econometric analysis of data panel. The approaches follow relevant HNKPC theory, using dynamic (backward- and forward- looking) data panel analysis and Generalized Method of Moment (GMM) estimation. The findings show that HNKPC approach can be utilized to estimate the inflation dynamics in the whole provinces of Indonesia. The empirical results also indicate that formations of inflation expectations are determined by past and future inflation. In other words, the provincial inflation dynamics in Indonesia are dominated by the forward-looking behavior of economic agents. The estimated parameters of the backward- and forward-looking behavior are relatively lower than those of the previous studies. Those may be because the previous studies use national data instead of provincial data. It is suggested that our economic agents respond quickly to the credible policies introduced by government and future information.
    Keywords: Indonesia, Macroeconometric modeling, Monetary issues
    Date: 2015–07–01
  62. By: Timo Baas; Ansgar Belke
    Abstract: Member countries of the European Monetary Union (EMU) initiated wide-ranging labor market reforms in the last decade. This process is ongoing as countries that are faced with serious labor market imbalances perceive reforms as the fastest way to restore competitiveness within a currency union. Among observers, however,there are fears about a beggar-thy-neighbor policy that leaves non-reforming countries with a loss in competitiveness and an increase in foreign debt. By analyzing the impact of reforms on foreign debt, we contribute to the debate on whether labor market reforms increase or reduce current account imbalances. Using a two-country, two-sector search and matching DSGE model, we analyze the impact of labor market reforms on the transmission of macroeconomic shocks in both, non-reforming and reforming countries.In the case of a positive technology shock hitting a reforming country with the characteristics of a typical EMU member, fears about a beggar-thy-neighbor cannot be corroborated by us for the specic bundle of reforms considered. The positive effect of a reduction in the replacement rate more than compensates negative spillovers from increases in matching ef- ciency and a decrease in vacancy posting costs. This does not hold for a negative productivity shock in the non-reforming country, as the second reform measure, a reduction in vacancy posting costs in the tradable sectors,is dominating the overall impact of labor market reforms and, thus, increasing the foreign debt of the non-reforming country.
    Keywords: Eurozone, Business cycles, Labor market issues
    Date: 2015–07–01
  63. By: Jacek Kotłowski
    Abstract: This paper examines to what extent public information provided by the central bank affects the forecasts formulated by professional forecasters. We investigated empirically whether disclosing GDP and inflation forecasts by Narodowy Bank Polski (the central bank of Poland) reduced the disagreement in professional forecasters' expectations. We also checked whether the strength of the forecasters’ reaction to the release of the central bank’s projection depends on the phase of the business cycle. Finally we identified the determinants of the dispersion among the forecasters.In the first step we used single equation models estimated separately for inflation and GDP forecasts. While the results confirm that by publishing its projection of future GDP growth, the central bank was reducing the dispersion of GDP forecasts, we extended the linear model and introduced asymmetry in the response of individual GDP forecasts to the release of NBP projection. Therefore in the second step we used the Smooth Transition Regression (STR) models with both logistic function and exponential transition function.The results only partially support the hypothesis on the coordinating role of the central bank existing in the literature. The main finding is that by publishing its projection of future GDP growth, the central bank was reducing the dispersion of one-year-ahead GDP forecasts. Our study indicates that the role of the central bank in reducing the forecasts dispersion was strengthening over time. We also found using non-linear STR models that the extent to which the projection release affected the dispersion of GDP forecasts varied over the business cycle. By disclosing its own projection the central bank reduced the disagreement among the forecasters the most in the periods when the economy moved from one phase of the business cycle to another.
    Keywords: Poland, Monetary issues, Forecasting and projection methods
    Date: 2015–07–01
  64. By: Leyla Baştav
    Abstract: This study aims to analyse inflation dynamics of the US economy (2000:01-2014:04) with quarterly series within the framework of Phillips Curve (PC). Following stationarity tests; price equations will be estimated by GMM with unemployment (UN)/employment (N), output gap (Ygap) and rate of growth of each variable, as explanatory variables. PC and/or NKPC estimations will reveal whether the price dynamics is responsive to the level of of output, UN/N variables or the rate of increase of these variables, supporting the existence of hysteresis patterns. As frequently criticised in the recent literature, PC has lost its explanatory power in the post 2008 period; for the inflation rate should have fallen further with the prevailing level of high unemployment in the economy, namely "the case of missing deflation". Further analyzing the PC tradeoff in the economy between real activity and rate of inflation, we will estimate the PC/NKPC equation against short term unemployment (SRU) and long term unemployment (LRU) separately. In relevant research there is some belief that SRU puts more pressure on wages and thus prices, which is hardly tested by quantitative empirical analysis. The results will provide further information on both the nature of inflation and hysteresis dynamics, for affective SRU will provide support for the hysteresis hypothesis. As time and resources permit equations may also alternatively be estimated in the PC/NKPC format against detrended marginal cost index, labor income share (and alternatively) employment expectations gap. While labor income share and employment expectations gap are available time series, a new marginal cost index will be constructed to represent the manufacturing costs' structure of the US. See above See above
    Keywords: USA, Macroeconometric modeling, Labor market issues
    Date: 2015–07–01
  65. By: Vania Silva (CEFAGE, Universidade de Évora, Portugal); Esmeralda Ramalho (Department of Economics and CEFAGE-UE, Universidade de Évora); Carlos Vieira (Department of Economics and CEFAGE-UE, Universidade de Évora)
    Abstract: Some European Union (EU) countries have implemented policies to discourage the use of cheques due to its considerable social costs and risks. This paper provides a cross-country analysis for the period 2000-2012 of the determinants of cheque usage, measured both as per capita number and share of payments. Special attention is given to the effects of the application of fees in a framework where unfunded cheques are considered as an autonomous type of crime in some EU countries. Our results suggest that the existence of fees influences negatively cheque usage, even when there are legal elements that increase its security.
    Keywords: European Union, Retail Payments, Cheques, Panel Data.
    JEL: F36 G21 E41 E42
    Date: 2016
  66. By: Hazama, Makoto; Uesugi, Iichiro
    Abstract: Using a unique and massive data set that contains information on interfirm transaction relationships, this study examines default propagation in trade credit networks and provides direct and systematic evidence of the existence and relevance of such default propagation. Not only do we implement simulations in order to detect prospective defaulters, we also estimate the probabilities of actual firm bankruptcies and compare the predicted defaults and actual defaults. We find, first, that an economically sizable number of firms are predicted to fail when their customers default on their trade debt. Second, these prospective defaulters are indeed more likely to go bankrupt than other firms. Third, firms that have abundant external sources of financing or whose transaction partners have such abundant sources are less likely to go bankrupt even when they are predicted to default. This provides evidence for the existence and relevance of firms – called “deep pockets” by Kiyotaki and Moore (1997) – that can act as shock absorbers.
    Keywords: interfirm networks, trade credit, default propagation
    JEL: E32 G21 G32 G33
    Date: 2017–02
  67. By: Jorge Andraz (Faculdade de Economia, Universidade do Algarve and CEFAGE); Paulo Rodrigues (Banco de Portugal and NOVA School of Business and Economics, Universidade Nova de Lisboa)
    Abstract: We propose the use of a tool recently introduced by Gayer (2010), known as the "economic climate tracer", to analyze and monitor the cyclical evolution of tourism source markets to Portugal. Considering the period 1987-2015, we evaluate how tourism to Portugal has been affected by economic cycles. This tool is useful as it clearly illustrates the evolutionary patterns of different markets, and allows us to identify close relationships with economic fluctuations. We found that German tourism plays a leading role, since its movements are followed with delays by tourism flows from other countries, and exhibits higher resilience to shocks. Also, domestic and Spanish tourism have both displayed less irregular behaviors than tourism from other source markets. On the contrary, tourism from the Netherlands and the UK, have displayed irregular patterns, which demonstrates the urgency to diversify tourism source markets to reduce the country's vulnerability to external shocks and economic cycles.
    Keywords: Tourism cycles, tourism demand, Portugal, crises.
    Date: 2016
  68. By: International Monetary Fund
    Abstract: Following successful reforms during the government’s initial year in office, the year 2016 proved to be more difficult. The terror attacks in Paris and Brussels had a significant, albeit temporary, effect on the economy. The fiscal strategy veered off track, with a sizeable overshoot of the deficit target. Growth prospects for 2017 and beyond are modest, as in other euro area countries. The Belgian labor market remains severely fragmented.
    Date: 2017–03–17
  69. By: Zhang, Min; Huangfu, Stella
    Abstract: Current Population Survey (CPS) data over the period from 1994 - 2008 shows that inflation has a positive effect on the residual wage dispersion. To explain this phenomenon, we introduce uncoordinated job searches into a general equilibrium monetary search framework. Our model shows that the uncoordinated job searches by unemployed workers give rise to an equilibrium where a firm is matched with zero, one or multiple job applicants. The ex post dfference in matching probabilities generates a two-point wage dispersion among identical workers when the Mortensen rule is implemented in the wage determination process. In our model, inflation positively influences the wage dispersion directly through its impact on firm's real profit and indirectly through the effect of inflation that spills over from the goods market to the labor market. With reasonable parameter values, the calibrated model can account for most of the observed responses of residual wage dispersion to inflation..
    Keywords: Inflation, Residual Wage Dispersion, Uncoordinated Job Search, Spillover Effect
    Date: 2016–05
  70. By: Aleksandra Halka; Jacek Kotłowski
    Abstract: In the paper we investigate to what extent the inflation in small open economies is driven by global demand and supply shocks. The experience of the last decades reveals the growing role of the global factors in shaping inflation in many economies. As indicated by Borio and Filardo [2007] and Ciccareli and Mojon [2008] this phenomenon is usually explained by growing impact of globalization related to increasing turnovers in international trade combined by falling unit labour costs in China and other emerging economies. While the most of research related to the impact of globalization on inflation works with macro data we conduct the analysis using disaggregated price indices. In the research we focus on Central and Eastern European economies tightly integrated via trade and financial channel with the euro area and due to their involvement in global value chains strongly affected by the globalization process.We proceed in two steps. In the first step we use SVAR methodology with sign restrictions as proposed by Canova and De Nicolo [2002] and Frey and Pagan [2011] and from the set of global variables we extract three shocks, which may contribute the most to the overall variability of inflation: global demand shock, commodity specific shock and non-commodity supply shock associated, to some extent, with the globalization process. In the second step we regress the dissagregated price indices for selected CEE economies (Poland, Czech Republic and Hungary) on the global shocks extracted in the previous step simultaneously controlling for the domestic output gap and exchange rate. This approach allows us to identify these groups of goods of services which prices react the most to the global shocks in particular to non-commodity supply shock.The general outcome stemming from our analysis indicate that the role of the global shocks in shaping inflation in CEE economies relies on their size and openness. The global supply and demand shocks are transmitted to the domestic inflation to greater extent for smaller and more open economies. However there are several similarities across the CEE economies. The supply shocks in all countries affect prices of semi durables, mostly clothing and footwear, but also communication or transport. Since we assign supply shocks to the globalization and technological progress it is not a surprise. The dynamics of clothing’s prices exhibit downward trend which can be attributed to the movement of the production to the countries with lower production costs. Similar explanation relates to the prices of transport equipment. The relationship between global supply shocks and prices of communication may be also explained to some extent by globalization process reflected in growing productiveness and increasing competitiveness on this market. The influence of the global demand shocks on the inflation in the analyzed countries is not the crucial one. For Poland, which is the biggest country, with the largest domestic market, the most of the analyzed price indices react to the domestic output gap rather than global demand shocks. For the two other countries – Hungary and Czech Republic, which are smaller and more open economies – both: domestic output gaps and global demand shocks are less important for the domestic inflation. According to our intuition prices of energy and transport (which are strongly influenced by oil prices) in all analyzed countries are affected by the commodity shocks.
    Keywords: Poland, Czech Republic and Hungary, Macroeconometric modeling, Monetary issues
    Date: 2015–07–01
  71. By: Ciminelli, Gabriele; Ernst, Ekkehard; Giuliodori, Massimo; Merola, Rossana
    Abstract: We analyse the effects of tax-based consolidations on income inequality, output and labour market conditions for a sample of 16 OECD countries over the period 1978-2012 employing a panel vector autoregressive methodology. We find that tax-based consolidations reduce income inequality, but at the cost of weaker economic activity. However, tax composition does matter. We show that indirect taxes reduce income inequality by more than direct taxes, possibly due to the operation of a positive labour supply channel. Among indirect taxes, value added and sale taxes are the most successful tool for policy-makers to balance efficiency and equity. Finally, we show that tax-based consolidations reduce disposable income inequality via a decrease in market income disparities and an increase in government redistribution respectively in countries with a weaker and a stronger preference for redistribution.
    Keywords: Income distribution,Tax-based consolidation,Fiscal consolidation,Labour force participation,Tax composition
    JEL: E2 H2 O1
    Date: 2017
  72. By: Robert Kelly, Fergal McCann, Conor O'Toole
    Abstract: We provide a micro-empirical link between the large literature on credit and house prices and the burgeoning literature on macroprudential policy. Using loan-level data on Irish mortgages originated between 2003 and 2010, we construct a measure of credit availability which varies at the borrower level as a function of income, wealth, age, interest rates and prevailing market conditions around Loan to Value ratios (LTV), Loan to Income ratios (LTI) and monthly Debt Service Ratios (DSR). We deploy a property-level house price model which shows that a ten per cent increase in credit available leads to an 1.5 per cent increase in the value of property purchased. Coefficients from this model are then used to fit values under scenarios of macroprudential restrictions on LTV, LTI and DSR on credit availability and house prices in Ireland for 2003 and 2006. Our results suggest that macroprudential limits would have had substantial impacts on house prices, and that both the level at which they are set and the timing of their introduction is a crucial determinant of their impact on housing values. JEL Classification: E58, G28, G21, R31
    Keywords: Mortgages, credit availability, macroprudential policy, house prices
    Date: 2017–02
  73. By: Vernikov, Andrei; Mamonov, Mikhail
    Abstract: We study the determinants of longer-term bank lending to the real economy in Russia. Our empirical results confirm the «development view» of state-controlled banks who display the highest propensity to lend long-term. We control for such variables as cost of funding and the market power in the corporate loan market. The share of long-term loans in bank assets would benefit from a lower average cost of funds and a diversification of funding sources, as well as larger average size of banks, higher capital adequacy and a less risky lending policy.
    Keywords: Russia, bank lending, state-controlled banks
    JEL: E50 G21 O16 P2
    Date: 2017–02–27
  74. By: Stojkoski, Viktor; Popova, Kristina
    Abstract: Ever since Schumpeter, macroeconomists have argued that financial development has a large and direct effect on the long run wealth of a nation. In this paper, we empirically investigate this relationship for a panel of 16 South-Eastern and Central European countries over the period 1995-2014 by employing a state-of-the-art panel cointegration technique. We find that financial development has a positive effect on the income per capita. The effect is statistically robust to other estimation methods and is economically large since it is almost twice the size of the gross capital formation. Nevertheless, the panel cointegration tests indicate a possibility of an endogenous relationship between the phenomena.
    Keywords: panel-cointegration, financial development, economic growth
    JEL: C23 C51 E50 O11 O47 O52
    Date: 2016–01–24
  75. By: Luu, Duc Thi; Lux, Thomas; Yanovski, Boyan
    Abstract: We study the structural correlations in the Italian overnight money market over the period 1999-2010. We show that the structural correlations vary across different versions of the network. Moreover, we employ different configuration models and examine whether higher-level characteristics of the observed network can be statistically reconstructed by maximizing the entropy of a randomized ensemble of networks restricted only by the lower-order features of the observed network. We find that often many of the high order correlations in the observed network can be considered emergent from the information embedded in the degree sequence in the binary version and in both the degree and strength sequences in the weighted version. However, this information is not enough to allow the models to account for all the patterns in the observed higher order structural correlations. In particular, one of the main features of the observed network that remains unexplained is the abnormally high level of weighted clustering in the years preceding the crisis, i.e. the huge increase in various indirect exposures generated via more intensive interbank credit links.
    Keywords: Interbank Network,Structural Correlations,Clustering Coefficients,Configuration Models,Network Reconstruction
    JEL: G21 G01 E42
    Date: 2017
  76. By: International Monetary Fund
    Abstract: The enactment of the Fiscal Responsibility Law in 2013, which came into force in 2015, was a major achievement toward strengthening Paraguay’s fiscal framework. Its implementation has nonetheless been complex, with slippages occurring in the first year of its enactment. Concerns have also emerged about the current design of the nominal balance rule, which is perceived as excessively rigid. Given the high volatility of fiscal revenues, the rule translates into an unstable path of public expenditure and does not provide sufficient space for countercyclical policies. Paraguay’s tight fiscal deficit ceiling may also constrain capital expenditure plans, possibly to the detriment of overall economic development needs. The authorities have decided to replace the nominal balance rule with a structural balance rule, starting in 2019, to achieve a more stable path of public expenditure and better link it to the medium-term objectives of fiscal policy. The government is also considering modifications of the Fiscal Responsibility Law in order to enhance public investment without damaging the credibility of the rule-based framework.
    Keywords: Fiscal framework;Public debt;Structural fiscal balance;Fiscal rules;Fiscal policy;Econometric models;Technical Assistance Reports;Paraguay;
    Date: 2017–03–15
  77. By: Franziska Pudelko (Department of Geography, Philipps University Marburg); Christian Hundt (Department of Geography, Ruhr University Bochum)
    Abstract: The paper empirically investigates the economic resilience of Western German regions in the wake of the Great Recession of 2008/2009. In particular, the focus is laid on the influence of regional agglomeration economies (arising from specialization, related and unrelated variety) and the explicit sudivision of short-term resilience into resistance and recovery. The necessity to distinguish between different factors and phases is well documented by means of the OLS regression results as all three types of agglomeration economies reveal varying, if not opposing directions of influences across the resistance and recovery phase. A pregnant example refers to regional specialization. Not only does it show a negative impact on resistance while exerting a positive influence during the recovery phase, but it is also mediated by the regional share in manufacturing workforce. This workforce reveals opposing phase-specific facts itself. hence, ignoring the two-component structure of short-term resilience entails the risk of imprecise, if not false conclusions on the driving mechanisms stabilizing and/or destabilizing regional economies in times of crisis.
    Keywords: regional economic resilience, resistance, recovery, agglomeration economies, industry structure
    JEL: R11 R12 E32
    Date: 2017–03
  78. By: Gehrig, Thomas; Iannino, Maria Chiara
    Abstract: This paper analyses the evolution of the safety and soundness of the European banking sector during the various stages of the Basel process of capital regulation. In the first part we document the evolution of various measures of systemic risk as the Basel process unfolds. Most strikingly, we find that the exposure to systemic risk as measured by SRISK has been steeply rising for the highest quintile, moderately rising for the second quintile and remaining roughly stationary for the remaining three quintiles of listed European banks. This observation suggests that the Basel process has succeeded in containing systemic risk for the majority of European banks but not for the largest institutions. In the second part we analyse the drivers of systemic risk. We find compelling evidence that the increase in exposure to systemic risk (SRISK) is intimately tied to the implementation of internal models for determining credit risk as well as market risk. Based on this evidence, the sub-prime crisis found especially the largest and more systemic banks ill-prepared and lacking resiliency. This condition has even aggravated during the European sovereign crisis. Banking Union has not (yet) brought about a significant increase in the safety and soundness of the European banking system. Finally, low interest rates affect considerably to the contribution to systemic risk across the whole spectrum of banks.
    Keywords: capital shortfall; internal risk models; quantile regressions; resilience; systemic risk
    JEL: B26 E58 G21 G28 H12 N24
    Date: 2017–03
  79. By: Michael D. Bordo; Harold James
    Abstract: The recent Eurozone crisis of 2010-2013 has brought to the fore the argument that a successful monetary union needs to be combined with a fiscal union. The history of the U.S. monetary/fiscal union is often given as a template for Europe. In this paper we describe how the push towards creation of the American fiscal union was long and arduous—it took from 1790 to the mid 1930s. In the European case ,unlike the U.S. story, there is strong opposition to creating a fiscal union because members fear the loss of sovereignty that is entailed. As a compromise between the status quo and a U.S. style fiscal union we highlight a series of measures which amount to partial fiscalization. These include: a banking union; a tax union; a capital markets union; a social security union; an energy union; and a military union. These fiscalizations can be viewed as a variety of insurance mechanisms in which different risks for different participants are covered. Each taken by itself may produce substantial objections from those who fear that someone else’s risks are being covered at their expense. The answer to such objections may be to think not in terms of partial but comprehensive reform packages as are often negotiated in the sphere of international trade.
    JEL: E62 N14
    Date: 2017–03
  80. By: Carmiña O. Vargas (Banco de la República de Colombia); Julian A. Parra-Polania (Banco de la República de Colombia)
    Abstract: In an open-economy model with collateral constraint, Schmitt-Grohé and Uribe (2016) propose a procyclical policy (it calls for capital controls that are higher during crises than during normal times) that supposedly solves the externality problem that results from the underestimation of the social costs of decentralized debt decisions. We show that such policy does not solve the problem and recall that previous literature has established that a countercyclical tax on debt (positive during normal times and nil during crisis) does. We also show that the externality problem can be solved as well by a countercyclical subsidy on consumption (positive during crises and zero in normal times). The latter result, however, is not a robust policy recommendation because it is not a solution if we remove the assumption that lenders overlook the effect of lump-sum taxes on borrowing capacity. Classification JEL: F34, F41, G01, H23, D62
    Keywords: credit constraint; financial crisis; policy cyclicality; capital controls; macroprudential
    Date: 2017–03
  81. By: Hashiguchi, Yoshihiro; Yamano, Norihiko; Webb, Colin
    Abstract: Conventional studies into the impacts of economic shocks using global input-output tables (sensitivity analyses) assume stable production structures and thus, only reveal the marginal impacts of changes in final demand. However, when economic shocks occur, whether at home or abroad, economic agents are expected to react to reduce the negative impact or amplify the positive effects. The ability of a country to contain economic losses can be defined as the resilience to economic shocks. Using the OECD's annual Inter-Country Input-Output (ICIO) tables, 1995 to 2011, this paper investigates the relationship between changes in final demand and production structures for 61 economies. Our findings are summarized as follows. Production and final demand structures tend to change to reduce the negative feedbacks from final demand shocks. During economic downturns, structures tend to change so that the dependency on domestic services increases, while the dependency on domestic demand for goods, and the dependency on foreign demand for domestic goods and services, both decrease. Therefore, the domestic service sector seems to play a key role in temporarily containing the negative feedback. Countries that are able to prop up their economy by domestic service sectors instead of domestic goods and foreign sectors are more resilient to negative economic shocks.
    Keywords: International trade, Input-output tables, Industrial structure, World, Economic resiliency, Structural changes, Input-output, Global value chains
    JEL: C14 D57 E12 F47
    Date: 2017–03
  82. By: Kim, Young Gui (Korea Institute for International Economic Policy); Pyo, Hak K. (Seoul National University)
    Abstract: There have been voluminous contributions such as Daudin et al. (2011), Johnson and Noguera (2012), Koopmans et al. (2010), and Trefler and Zhu (2010) in measuring value added trade based on input-output tables as generalizations of the vertical specialization measures following Hummels et al. (2001). These studies focused on trade in intermediate goods as a key feature of recent global trade. In the case of Korea, about 50% of total exports and 70% of its total imports are intermediate goods trade. This paper contributes to the discussion about the trade in intermediate goods and productivity by revisiting Basu (1995), Jones (2011), and Lee and Pyo (2007) to examine implications of trade in intermediate goods for macroeconomic business cycles and productivity and welfare at the current stage of Korean development. The major revision of the Basu (1995) model is attempted by decomposing intermediate goods into domestically produced intermediate inputs and imported intermediate inputs to investigate implications of the model in a small open economy. The major finding is that the procyclicality of the intermediate goods usage relative to labor usage and TFP changes in both value added and gross-output regressions are significantly weaker in a small open economy like Korea than the large economy of the United States. We also investigate the effects of misallocation and multiplier effects due to intermediate goods on industrial productivity and efficiency following the model of Jones (2011). Since the effects of misallocation can be intensified through the industrial input-output structure of the economy, we calculate the intermediate goods multiplier by Korea's 29 manufacturing industries. We find technical changes and the degree of inefficiency are related with the magnitude of multipliers, but we leave a fundamental identification problem to future research.
    Keywords: Imported Intermediate Goods; Productivity; Business Cycle; Misallocation
    JEL: E20 F10 O10
    Date: 2016–12–30

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