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on Macroeconomics |
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Issue of 2017‒04‒23
sixty-five papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | BLINOV, Sergey |
| Abstract: | Attempts to establish a link between inflation and economic growth are made quite regularly. The aim of such attempts is not only to determine the impact of inflation on economic growth but also to assess efficiency of the inflation rein-in policy, for example, the policy of inflation targeting. This work reveals the nature of the inter-connection between inflation and economic growth and explains why this inter-connection cannot be sustainable without considering the third parameter, i.e. money supply. Попытки установить взаимосвязь между инфляцией и экономическим ростом предпринимаются регулярно. Цель этих попыток не только определить влияние инфляции на экономический рост, но и оценить эффективность политики по сдерживанию инфляции, например, политики инфляционного таргетирования. В данной работе раскрывается характер взаимосвязи между инфляцией и экономическим ростом и объясняется, почему эта взаимосвязь не может быть устойчивой без учёта третьего параметра – денежной массы. |
| Keywords: | денежно-кредитная политика; уровень цен; инфляция; дефляция; экономический рост; экономические циклы |
| JEL: | E30 E32 E51 E52 E58 N10 O11 O40 O42 |
| Date: | 2017–04–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78087&r=mac |
| By: | Brain Micallef (Central Bank of Malta) |
| Abstract: | This paper applies a multivariate filter on a small macroeconomic model to derive estimates of Malta’s potential output growth, the output gap and NAIRU. These unobservable variables are derived from a system that accounts for the interactions between output, core inflation, unemployment and foreign demand, the latter reflecting the structural characteristics of Malta as a small and open economy. The model is estimated using Bayesian inference methods on quarterly data for the period 1999-2013. The estimates from the multivariate filter are compared with those derived from a univariate filter and production function approaches. The economic and financial crisis of 2009 had a negative impact on Malta’s growth potential, although there are tentative signs of a gradual recovery in 2013. On the contrary, the crisis had no permanent impact on NAIRU. |
| JEL: | E32 E62 H20 H50 |
| URL: | http://d.repec.org/n?u=RePEc:mlt:wpaper:0514&r=mac |
| By: | Hamed Ghiaie (Université de Cergy-Pontoise, THEMA) |
| Keywords: | Financial frictions, Basel, Credit Crunch, DSGE models. |
| JEL: | E32 E44 E62 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2017-09&r=mac |
| By: | Adriano A. Rampini; S. Viswanathan |
| Abstract: | We propose a dynamic theory of financial intermediaries that are better able to collateralize claims than households, that is, have a collateralization advantage. Intermediaries require capital as they can borrow against their loans only to the extent that households themselves can collateralize the assets backing these loans. The net worth of financial intermediaries and the corporate sector are both state variables affecting the spread between intermediated and direct finance and the dynamics of real economic activity, such as investment, and financing. The accumulation of net worth of intermediaries is slow relative to that of the corporate sector. The model is consistent with key stylized facts about macroeconomic downturns associated with a credit crunch, namely, their severity, their protractedness, and the fact that the severity of the credit crunch itself affects the severity and persistence of downturns. The model captures the tentative and halting nature of recoveries from crises. |
| JEL: | E02 E32 E51 G01 G21 G32 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23302&r=mac |
| By: | Aleksandar Vasilev (Department of Economics, American University in Bulgaria) |
| Abstract: | In this paper we introduce reciprocity in labor relations and government sector to investigate how well the real wage rigidity that results out of that arrangement explains business cycle uctuations in Bulgaria. The reciprocity mechanism described in this paper follows Danthine and Kurmann (2010) and is generally consistent with micro-studies, e.g. Lozev et all. (2011) and Paskaleva (2016), while at the same time comes into contrast with models with eciency wages of no-shirking type that emphasize the importance of aggregate labor market conditions as the main determinant in wage setting, e.g. Vasilev (2017). Rent-sharing considerations, and worker's own past wages turn out to be the most important aspects of how labor contracting happens. In contrast, aggregate economic conditions, as captured by the employment rate, are not found to be quantitatively important for wage dynamics. Overall, the model with reciprocity and fiscal policy performs well vis-a-vis data, especially along the labor market dimension, and in addition dominates the market-clearing labor market frame- work featured in the standard RBC model, e.g Vasilev (2009). |
| Keywords: | general equilibrium, reciprocity, gift exchange, eciency wages, unemployment, fiscal policy, Bulgaria |
| JEL: | E24 E32 J41 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:sko:wpaper:bep-2017-03&r=mac |
| By: | Fátima Herranz González (Banco de España); Carmen Martínez-Carrascal (Banco de España) |
| Abstract: | Using a large sample of Spanish companies, this paper investigates the impact that firms’ financial health has on their investment and employment decisions. The results indicate that firms’ financial position is important for explaining firms’ capital expenditures and their employment levels, since cash flow, indebtedness and the debt burden appear to be relevant for explaining investment and employment dynamics. Likewise, the results obtained point to a non-linear impact of financial position on these decisions, this being larger for companies in a less sound financial situation, and suggest that the role of financial factors in explaining investment and employment dynamics is likely to be greater in recessionary periods. |
| Keywords: | financial position, investment, employment, panel data |
| JEL: | C33 E22 E24 E44 G32 J23 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1714&r=mac |
| By: | Mattia Guerini (Scuola Superiore Sant'Anna); Alessio Moneta; Mauro Napoletano (Observatoire français des conjonctures économiques); Andrea Roventini (Laboratory of Economics and Management) |
| Abstract: | In this paper, we investigate the causal effects of public and private debts on U.S. output dynamics. We estimate a battery of Cointegrated Structural Vector Autoregressive models, and we identify structural shocks by employing Independent Component Analysis, a data-driven technique which avoids ad-hoc identification choices. The econometric results suggest that the impact of debt on economic activity is Janus-faced. Public debt shocks have positive and persistent influence on economic activity. In contrast, rising private debt has a milder positive impact on GDP, but it fades out over time. The analysis of the possible transmission mechanisms reveals that public debt crowds in private consumption and investment. In contrast, mortgage debt fuels consumption and output in the short-run, but shrinks them in the medium-run. |
| Keywords: | Public and Private Debt; Business Cycle Fluctuations; Independant component analysis; SVAR identification |
| JEL: | E32 E62 C58 H63 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/3l2vounfl99nvqsr0k24sn3k5l&r=mac |
| By: | Eric T. Swanson |
| Abstract: | I extend the methods of Gurkaynak, Sack, and Swanson (2005) to separately identify the effects of Federal Reserve forward guidance and large-scale asset purchases (LSAPs) during the 2009–15 U.S. zero lower bound (ZLB) period. I find that both forward guidance and LSAPs had substantial and highly statistically significant effects on medium-term Treasury yields, stock prices, and exchange rates, comparable in magnitude to the effects of the federal funds rate before the ZLB. Forward guidance was more effective than LSAPs at moving short-term Treasury yields, while LSAPs were more effective than forward guidance and the federal funds rate at moving longer-term Treasury yields, corporate bond yields, and interest rate uncertainty. However, the effects of forward guidance were not very persistent, with a half-life of 1–4 months. The effects of LSAPs seem to be more persistent. I conclude that, overall in terms of these criteria, LSAPs were a more effective policy tool than forward guidance during the ZLB period. |
| JEL: | E44 E52 E58 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23311&r=mac |
| By: | Mariarosaria Comunale; Jonas Striaukas |
| Abstract: | In this paper, we review a range of approaches used to capture monetary policy in a period of Zero Lower Bound (ZLB). We concentrate here on methods closely linked to interest rates, which include: spreads, synthetic indices from principal component analysis, and different shadow rates. Next, we calculate these measures for the euro area, draw comparisons among different approaches, and look at the effects on main macroeconomic variables, with a special focus on inflation. By and large, the impact of unconventional monetary policy shocks on inflation is found to be significantly positive across studies and methods. Finally, we summarize the literature on the Natural Real Rate of Interest. This overview may help to assess how long low (real) interest rates in a ZLB stay in place, potentially leading to more accurate policy recommendations. |
| Keywords: | Unconventional monetary policy, zero lower bound, shadow rates, natural interest rate, inflation. |
| JEL: | E43 E52 E58 F42 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2017-29&r=mac |
| By: | Medel, Carlos A. |
| Abstract: | This article analyses the multihorizon predictive power of the Hybrid New Keynesian Phillips Curve (HNKPC) covering the period from 2000.1 to 2014.12, for the Chilean economy. A distinctive feature of this article is the use of a Global Vector Autoregression (GVAR) specification of the HNKPC to enforce an open economy version. Another feature is the use of direct measures of inflation expectations--Consensus Forecasts--differing from a fully-founded rational expectations model. The HNKPC point forecasts are evaluated using the Mean Squared Forecast Error (MSFE) statistic and statistically compared with several benchmarks, including combined forecasts. The results indicate that there is evidence to do not reject the hypothesis of the HNKPC for the Chilean economy, and it is also robust to alternative specifications. In predictive terms, the results show that in a sample previous to the global financial crisis, the evidence is mixed between atheoretical benchmarks and the HNKPC by itself or participating in a combined prediction. However, when the evaluation sample is extended to include a more volatile inflation period, the results suggest that the HNKPC (and combined with the random walk) delivers the most accurate forecasts at horizons comprised within a year. In the long-run the HNKPC deliver accurate results, but not enough to outperform the candidate statistical models. |
| Keywords: | New Keynesian Phillips Curve; inflation forecasts; out-of-sample comparisons; survey data; Global VAR; structured time-series models; forecast combinations |
| JEL: | C22 C26 C53 E31 E37 |
| Date: | 2017–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78439&r=mac |
| By: | Berlin, Mitchell (Federal Reserve Bank of Philadelphia) |
| Abstract: | On October 1–2, 2015, the Payment Cards Center and the Research Department of the Federal Reserve Bank of Philadelphia hosted their eighth biennial conference focused on new research in consumer credit and payments. The seven papers presented during New Perspectives on Consumer Behavior in Credit and Payments Markets used new data and techniques to explore a number of longstanding questions pertaining to the design, and sometimes renegotiation, of financial contracts; the linkages between consumer credit and the real economy; the effects of government policy during the Great Recession; and the effect of timely disclosures about the cost of student loans on borrowing decisions. |
| Keywords: | asymmetric information; auto loans; business cycles; credit cards; educational finance; financial contracts; financial markets and the macro economy; government policy; government regulation; monetary policy and the supply of credit; mortgages; personal loans; student loans; unemployment duration; job search |
| JEL: | D12 D82 E32 E44 E5 G18 I22 J64 |
| Date: | 2015–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpdp:16-04&r=mac |
| By: | Schäfer, Dorothea (DIW Berlin, JIBS and CERBE); Stephan, Andreas (Linnæus University, Ratio Institute and JIBS); Trung Hoang, Khanh (DIW Berlinn) |
| 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: | E31 E43 E43 G01 G01 |
| Date: | 2017–03–23 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:ratioi:0287&r=mac |
| By: | Elisa Palagi; Mauro Napoletano (Observatoire français des conjonctures économiques); Andrea Roventini (Laboratory of Economics and Management); Jean-Luc Gaffard (Observatoire français des conjonctures économiques) |
| Abstract: | We build an agent-based model populated by households with heterogenous and time-varying financial conditions in order to study how different inequality shocks affect income dynamics and the effects of different types of fiscal policy responses. We show that inequality shocks generate persistent falls in aggregate income by increasing the fraction of credit-constrained households and by lowering aggregate consumption. Furthermore, we experiment with different types of fiscal policies to counter the effects of inequality-generated recessions, namely deficit-spending direct government consumption and redistributive subsidies financed by different types of taxes. We find that subsidies are in general associated with higher fiscal multipliers than direct government expenditure, as they appear to be better suited to sustain consumption of lower income households after the shock. In addition, we show that the effectiveness of redistributive subsidies increases if they are financed by taxing financial incomes or savings. |
| Keywords: | Income inequality; Fiscal multipliers; Redistributive policies; Credit-rationing ; agent-based models |
| JEL: | E63 E21 C63 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/6u2usmuctn9r3rgj50gbomltva&r=mac |
| By: | Jang-Ting Guo (Department of Economics, University of California Riverside); Yan Zhang (Shanghai University of Finance and Economics) |
| Abstract: | It has been analytically shown that under an additively separable preference formulation between consumption and hours worked, indeterminacy and sunspots may arise in a standard one-sector real business cycle model when the labor tax rate is endogenously determined by a balanced-budget rule with a pre-specified constant level of government expenditures. This paper finds that local indeterminacy disappears if the period utility function is postulated to exhibit no income effect on the household's demand for leisure. In particular, the model's low-tax steady state always displays saddle-path stability and equilibrium uniqueness; whereas the high-tax steady state is either a source or a saddle point. |
| Keywords: | Keywords: Income Effect; Balanced-Budget Rules; Indeterminacy; Business Cycles. |
| JEL: | E32 E62 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:201704&r=mac |
| By: | Floro, Danvee; van Roye, Björn |
| Abstract: | This study tests for the state-dependent response of monetary policy to increases in overall financial stress and financial sector-specific stress across a panel of advanced and emerging economy central banks. We use a factor-augmented dynamic panel threshold regression model with (estimated) common components to deal with crosssectional dependence. We find strong evidence of state-dependence in the response of monetary policy to financial sector-specific stress for advanced economy central banks, as they pursue aggressive monetary policy loosening in response to stock market and banking stress only in times of high financial market volatility. By comparison, evidence of threshold effects of financial stress is generally weak for emerging market central banks. JEL Classification: E31, E44, E52, E58, C23, C24 |
| Keywords: | cross-section dependence, Financial stress, monetary policy, threshold panel regression |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172042&r=mac |
| By: | Mustafa Göktu? Kaya (Tax Inspectors Association); Perihan Hazel Kaya (Selcuk University) |
| Abstract: | The country, where the individuals and institutions benefit from public services paying less taxes outside the country, is called tax haven countries.These countries is used as part of economic activities and they are preferred as the center of financial affairs so the phenomenon of interstate competition become a current issue. International tax competition is a tax policy which implementing that economic activity that occurred in another country to take his own country putting a lower tax rate.When taken out the country known as a tax haven it is said that this countries are too small and some of them? name and location in the map are unknown.The purpose of the study is to find out the relationship between of tax competition and tax haven in the World and Turkey. In this direction, firstly on the conceptual framework tax competition and tax havens issues will be discussed. Secondly, the effects of the relationship between tax competition and tax havens on fiscal policy will be examined. Finally, studies conducted on the fight against tax competition and tax havens in the World and Turkey will be examined. |
| Keywords: | Tax Competition, Tax Haven, Fiscal Policy, Turkey, Tax Haven Countries |
| JEL: | E00 E21 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:4707351&r=mac |
| By: | Juan Pablo Mateo (Department of Economics, New School for Social Research and University of Valladolid) |
| Abstract: | This paper addresses the Marx´s theory of crisis in order to analyze the Great Recession in Spain, a peripheral economy within the Eurozone. It is shown the underlying problem in the capacity to generate surplus value behind the housing bubble, which in turn explain some particularities related to the capital composition and productivity, as well as wages and finance. The document also carries out a critic of both orthodox and heterodox approaches that focus i) on a profit squeeze caused by labor market rigidities, ii) underconsumption because of stagnant wages, as well as iii), finances: interest rates and indebtedness. |
| Keywords: | Theory of crisis, profit rate, Spain, housing bubble, interest rates, wages |
| JEL: | B14 E11 E20 E43 J30 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1715&r=mac |
| By: | Falk Bräuning; Victoria Ivashina |
| Abstract: | Global banks use their global balance sheets to respond to local monetary policy. However, sources and uses of funds are often denominated in different currencies. This leads to a foreign exchange (FX) exposure that banks need to hedge. If cross-currency flows are large, the hedging cost increases, diminishing the return on lending in foreign currency. We show that, in response to domestic monetary policy easing, global banks increase their foreign reserves in currency areas with the highest interest rate, while decreasing lending in these markets. We also find an increase in FX hedging activity and its rising cost, as manifested in violations of covered interest rate parity. |
| JEL: | E44 E52 F31 G21 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23316&r=mac |
| By: | Fève, Patrick; Matheron, Julien; Sahuc, Jean-Guillaume |
| Abstract: | In a neoclassical growth model with incomplete markets and heterogeneous, liquidity-constrained agents, the properties of the Laffer curve depend on whether debt or transfers are adjusted to balance the government budget constraint. The Laffer curve conditional on public debt is horizontally S-shaped. Two opposing forces explain this result. First, when government wealth increases, the fiscal burden declines, calling for lower tax rates. Second, because the interest rate decreases when government wealth increases, fiscal revenues may also decline, calling for higher taxes. For sufficiently negative government debt, the second force dominates, leading to the odd shape of the Laffer curve conditional on debt. |
| Keywords: | Laffer Curve, Incomplete Markets, Labor Supply, Public Debt. |
| JEL: | E00 E60 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31553&r=mac |
| By: | Belke, Ansgar; Dubova, Irina; Volz, Ulrich |
| Abstract: | This paper explores the extent to which changes to long-term interest rates in major advanced economies have influenced long-term government bond yields in Emerging Asia. To gauge long-term interest spillover effects, the paper uses VAR variance decompositions with high frequency data. Our results reveal that sovereign bond yields in Emerging Asia responded significantly to changes to US and Eurozone bond yields, although the magnitudes were heterogeneous across countries. The size of spillovers varied over time. The pattern of these variations can partially be explained by the implementation of different unconventional monetary policy measures in advanced countries. |
| Keywords: | Long-term interest rates,bond yields,monetary policy spillovers,Emerging Asia |
| JEL: | E52 E58 F42 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:41&r=mac |
| By: | Olivier Coibion; Yuriy Gorodnichenko; Rupal Kamdar |
| Abstract: | This paper argues for a careful (re)consideration of the expectations formation process and a more systematic inclusion of real-time expectations through survey data in macroeconomic analyses. While the rational expectations revolution has allowed for great leaps in macroeconomic modeling, the surveyed empirical micro-evidence appears increasingly at odds with the full-information rational expectation assumption. We explore models of expectation formation that can potentially explain why and how survey data deviate from full-information rational expectations. Using the New Keynesian Phillips curve as an extensive case study, we demonstrate how incorporating survey data on inflation expectations can address a number of otherwise puzzling shortcomings that arise under the assumption of full-information rational expectations. |
| JEL: | E3 E4 E5 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23304&r=mac |
| By: | Jean Barthélémy; Vincent Bignon; Benoît Nguyen |
| Abstract: | This paper assesses the effect on banks’ lending activity of accepting illiquid collateral at the central bank refinancing facility in times of wholesale funding stress. We exploit original data on the loans granted by the 177 largest euro area banks between 2011m1 and 2014m12 and on the composition of their pool of collateral pledged with the Eurosystem. During this period, two-thirds of the banks in our sample experienced a sizable loss of wholesale funding. Panel regression estimates show that the banks that pledged more illiquid collateral with the Eurosystem reduced their lending to non-financial firms and households less: a one standard deviation increase in the volume of illiquid collateral pledged corresponded to a 0.6% increase in loans to the economy. This result holds for banks that were and were not run. Our finding thus suggests that the broad range of collateral eligible in the euro area may have helped to mitigate the credit crunch during the euro debt crisis. |
| Keywords: | collateral, loans, central bank, euro crisis. |
| JEL: | E52 E58 G01 G21 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2017-21&r=mac |
| By: | Christophe Blot (Observatoire français des conjonctures économiques); Paul Hubert (Observatoire français des conjonctures économiques); Fabien Labondance (Observatoire français des conjonctures économiques) |
| Abstract: | This paper empirically assesses the effect of monetary policy on asset price bubbles and aims to disentangle the competing predictions of theoretical bubble models. First, we take advantage of the model averaging feature of Principal Component Analysis to estimate bubble indicators, for the stock, bond and housing markets in the United States and Euro area, based on the structural, econometric and statistical approaches proposed in the literature to measure bubbles. Second, we assess the linear and non-linear effect of monetary shocks on these bubble components using local projections. The main result of this paper is that monetary policy does not affect asset price bubble components, except for the US stock market for which we find evidence in favor of the prediction of rational bubble models. |
| Keywords: | Asset price bubbles; Monetary polikcy; Quantitative easing; Federal Reserve; ECB |
| JEL: | E44 G12 E52 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/2geqol5jud8hgonsak4roj21gh&r=mac |
| By: | Attinasi, Maria Grazia; Lalik, Magdalena; Vetlov, Igor |
| Abstract: | The fiscal consolidation measures adopted in many euro area countries over 2010–13 reduced excessive domestic fiscal imbalances, but came at the cost of short-term output losses. This simultaneous tightening of fiscal policy raised concerns that such output losses might be exacerbated by negative spillovers from other countries. This paper presents some model-based simulations for the euro area with a view to gauge the cross-country impact of the fiscal measures adopted over 2010–13. The paper finds that the output effects of the fiscal consolidation were heterogeneous across countries, reflecting the different amounts and composition of fiscal measures adopted. We find that the trade channel is able to generate sizeable cross-border fiscal spillovers in the euro area. However, once the analysis takes into account the remaining channels (e.g. monetary policy reaction, exchange rate, and risk premium) total spillovers are estimated to be relatively small. In general, when compared to the growth fallout of domestic fiscal policies, negative fiscal spillovers do not seem to have added much to the economic growth woes of vulnerable countries. JEL Classification: E42, E32, F42, F45 |
| Keywords: | Fiscal consolidation, macroeconomic models, policy spillovers |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172040&r=mac |
| By: | Chahrour, Ryan; Ulbricht, Robert |
| Abstract: | We develop a methodology to estimate DSGE models with incomplete information, free of parametric restrictions on information structures. First, we define a “primal” economy in which deviations from full information are captured by wedges in agents' equilibrium expectations. Second, we provide implementability conditions, which ensure the existence of an information structure that implements these wedges. We apply the approach to estimate a New Keynesian model in which firms, households and the monetary authority have dispersed information about business conditions and productivity is the only aggregate fundamental. The estimated model fits the data remarkably well, with informational shocks able to account for the majority of U.S. business cycles. Output is driven mainly by household sentiments, whereas firm errors largely determine inflation. Our estimation indicates that firms and the central bank learn the aggregate state of the economy quickly, while household confusion about aggregate conditions is sizable and persistent. |
| Keywords: | Business cycles, dispersed information, DSGE models, primal approach, sentiments. |
| JEL: | D84 E32 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31575&r=mac |
| By: | Hyunju Kang (Korea Capital Market Institute); Hyunduk Suh (Department of Economics, Inha University); Jongmin Yu (Department of Economics, Hongik University) |
| Abstract: | We conduct an empirical analysis on the effect of air pollution on retail sales, using monthly regional panel data on air quality and large retail store sales in Korea. We account for regional heterogeneity in air pollution and control for various macroeconomic and climatic factors that can affect retail sales. We also use the air quality indicator in the west coastal islands - affected by trans-border pollution, but uncorrelated with economic activity in the mainland - as an instrumental variable. The estimation result shows that one additional day of PM10 level higher than 80 reduces monthly retail sales by about 0.1 percent in general. However, an adaptive pattern appears over time, in particular when the level of air pollution in the previous month was severe. |
| Keywords: | Air pollution, PM10, Consumption, Large store Retail Sales, Adaptation |
| JEL: | E21 E60 Q53 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:inh:wpaper:2017-4&r=mac |
| By: | Han , Chirok (Korea University); Shin , Kwanho (Korea University) |
| Abstract: | Some countries have persistent current account surplus, contributing to global imbalances up to a level that is worrisome. For example, Germany has been continuously experiencing current account surpluses since 2002, amounting to 8.4% of GDP in 2015. China has never experienced current account deficits since 1997, the year that data is first available. Japan's record is even longer; its consecutive current account surplus started from 1981. Recently, Korea joined this large current-account surplus club: since the currency crisis in 1997, Korea's current account balance has been continuously in the black, expanding even more in these recent years. In this paper, we present an empirical methodology that explains how current account balances are determined and by employing it, try to diagnose factors that account for Korea's current account surplus. In fact, the IMF has introduced a methodology, the External Balance Assessment (EBA: Phillips et al., 2013), to assess exchange rate and current account gaps that are defined as the difference between current levels and those consistent with fundamentals. For example, the 2016 External Sector Report, by utilizing this methodology, demonstrates that Korea's real effective exchange rate in 2015 was 4 to 12 percent undervalued than the level consistent with fundamentals. While the IMF's EBA is a state-of-the-art methodology that incorporates major studies in the literature, we feel that it has some limitations when analyzing the movements of Korea's current account balances. The method implicitly assumes that the current account surpluses of these countries will be substantially reduced by changing the exchange rate. However, the current account surpluses of Korea cannot be explained by the exchange rate alone. After the global financial crisis, despite rapid appreciation of the real effective exchange rate, Korea's current account surplus has been continuously increasing. Korea experienced a currency crisis in 1998. Since then it has experienced continuous current account surpluses. The current account surpluses just after the crisis were extremely helpful for the economy to recover from the crisis. Managing a modest level of current account surpluses has also been beneficial for the economy in preventing future crises. However, Korea's current account surplus in 2015 amounted to 7.7% of GDP, causing a concern that it may be too excessive. This exorbitant reliance on external demand can escalate political pressures from trading partners to appreciate the exchange rate. It is also argued that maintaining more balanced demand sources by giving domestic demand a greater role is essential for a sustained growth path. In this paper, we investigated underlying reasons as to why Korea's current account surpluses are widening. We found that the upward trend in Korea's current account surpluses is essentially explained by demographical changes it is currently experiencing. Moreover, we show that since Korea's population is rapidly aging, its current account surplus is expected to disappear by 2042 as it becomes one of the most aged economies in the world. In fact, demographical changes are so powerful that they explain quite successfully the trend of current account balances of other aged economies such as Japan, Germany, Italy, Finland and Greece as well. However, demographics do not explain cross-country differences in the level of current account balances, i.e. the high level of Korea's current account surpluses is mainly explained by a country fixed effect. When we add the real exchange rate as an additional explanatory variable, it is statistically significant with the right sign, but the magnitude explained by it is quite limited. For example, in order to reduce current account surplus by 1 percentage point, a whopping 12% depreciation is needed. Since other economic variables are yet included as explanatory variables, this can be considered to be the maximum estimate of the effect of the exchange rate changes. If it is true that Korea's current exchange rate is 4 to 12 percent undervalued than the level consistent with fundamentals, it is impossible to reduce Korea's current account surplus to a reasonable level by adjusting the exchange rate alone. Another possibility to reduce current account surplus is expanding fiscal policies. We find, however, that the impact of fiscal adjustments on current account surplus is even more limited. According to our estimates, reducing current account surplus by 1 percentage point requires a 5-6 percentage points increase in budget deficits (as a ratio to GDP). The above impacts of exchange rate and fiscal policy adjustments are estimated without considering the endogeneity of these policy variables. If we allow endogenous movements of these variables, the impact of exchange rate adjustment is 1.6 times larger, while that of fiscal policy decreases so that it is no longer statistically significant. When we add other economically fundamental variables such as GDP gap, oil prices, net foreign asset and so on, they contribute to explaining short run fluctuations without much improvement in explaining the trend nor country fixed effects. On the other hand, while the upward trend in Korea's current account surplus since 1997 is mainly explained by demographical changes, the current level of current account surplus, i.e. 7.7% of GDP, is placed quite above the fitted line derived by the economically fundamental variables including demographical changes. This idiosyncrasy of Korea's current account surplus seems to be related to increasing saving propensity of households especially among aged people. However, we will need further detailed analyses for more rigorous evidence to support this argument. |
| Keywords: | Current Account Surplus; Real Exchange Rate; Budget Surplus; Global Imbalances |
| JEL: | E17 E62 F32 F42 |
| Date: | 2016–12–16 |
| URL: | http://d.repec.org/n?u=RePEc:ris:kiepwp:2016_015&r=mac |
| By: | Ricardo Reis (Economics Department London School of Economics (LSE); Centre for Macroeconomics (CFM)) |
| Abstract: | While there is much that is wrong with macroeconomics today, most critiques of the state of macroeconomics are off target. Current macroeconomic research is not mindless DSGE modeling filled with ridiculous assumptions and oblivious of data. Rather, young macroeconomists are doing vibrant, varied, and exciting work, getting jobs, and being published. Macroeconomics informs economic policy only moderately and not more nor all that differently than other fields in economics. Monetary policy has benefitted significantly from this advice in keeping inflation under control and preventing a new Great Depression. Macroeconomic forecasts perform poorly in absolute terms and given the size of the challenge probably always will. But relative to the level of aggregation, the time horizon, and the amount of funding, they are not so obviously worst than those in other fields. What is most wrong with macroeconomics today is perhaps that there is too little discussion of which models to teach and too little investment in graduate-level textbooks. |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1713&r=mac |
| By: | Bruce Sacerdote |
| Abstract: | Despite the large increase in U.S. income inequality, consumption for families at the 25th and 50th percentiles of income has grown steadily over the time period 1960-2015. The number of cars per household with below median income has doubled since 1980 and the number of bedrooms per household has grown 10 percent despite decreases in household size. The finding of zero growth in American real wages since the 1970s is driven in part by the choice of the CPI-U as the price deflator; small biases in any price deflator compound over long periods of time. Using a different deflator such as the Personal Consumption Expenditures index (PCE) yields modest growth in real wages and in median household incomes throughout the time period. Accounting for the Hamilton (1998) and Costa (2001) estimates of CPI bias yields estimated wage growth of 1 percent per year during 1975-2015. Meaningful growth in consumption for below median income families has occurred even in a prolonged period of increasing income inequality, increasing consumption inequality and a decreasing share of national income accruing to labor. |
| JEL: | D6 E2 E31 I3 J0 J3 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23292&r=mac |
| By: | Idrisov Georgy (Gaidar Institute for Economic Policy); Gordeev Dmitry (Gaidar Institute for Economic Policy) |
| Abstract: | The paper analyzes the need to change the approaches to Russia’s natural gas pricing in domestic and foreign markets. The authors conclude that changes are inevitable in the medium term because existing pricing practices are becoming obsolete in the rapidly transforming gas market. The development of the gas industry is severely hampered by inefficient domestic consumption due to distorted price incentives, lack of competition in the domestic market and the pegging of export gas prices to the oil product basket. The paper discusses possible development options for Russia’s gas industry and their potential macroeconomic effects. |
| Keywords: | natural gas, pricing, cross subsidization |
| JEL: | D24 D40 D60 E20 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:gai:wpaper:wpaper-2017-274&r=mac |
| By: | Benigno, Gianluca; Fornaro, Luca |
| Abstract: | We provide a Keynesian growth theory in which pessimistic expectations can lead to very persistent, or even permanent, slumps characterized by unemployment and weak growth. We refer to these episodes as stagnation traps , because they consist in the joint occurrence of a liquidity and a growth trap. In a stagnation trap, the central bank is unable to restore full employment because weak growth depresses aggregate demand and pushes the interest rate against the zero lower bound, while growth is weak because low aggregate demand results in low profits, limiting firms' investment in innovation. Policies aiming at restoring growth can successfully lead the economy out of a stagnation trap, thus rationalizing the notion of job creating growth. JEL Classification: E32, E43, E52, O42 |
| Keywords: | Endogenous Growth, Growth Traps, Liquidity Traps, Multiple Equilibria, Secular Stagnation |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172038&r=mac |
| By: | Adama Zerbo (GED, Université de Bordeaux) |
| Abstract: | Ce papier a développé les fondements théoriques de la loi d’Okun (LO) et un modèle intégré IS-LM-LO permettant de mieux cerner les effets de politiques économiques sur le chômage. Enoncé et démontré, le théorème de la loi d’Okun confirme l’existence d’une relation négative entre le taux de croissance économique et la variation du taux de chômage. Cependant, cette relation d’Okun ne peut pas être considérée comme stable. Entre autres, les chocs démographiques, les chocs sur le salaire réel moyen, les profits bruts réels, les droits à l’importation et taxes nettes sur les biens et services induisent des changements structurels dans la relation d’Okun. Le changement structurel dans la relation d’Okun peut être vertueux ou vicieux. Lorsque la dynamique économique engendre un changement structurel vicieux dans la relation d’Okun de sorte que le nouveau seuil d’Okun qu’elle induit est toujours supérieur au taux de croissance observé, le taux de chômage augmente. La croissance économique a un impact plus important sur le chômage lorsqu’elle est forte et engendre un changement structurel vertueux dans la relation d’Okun. Ainsi, de l’analyse du modèle IS-LM-LO, il ressort que la politique budgétaire et/ou monétaire, bien qu’ayant un effet positif sur la croissance économique, entrainerait une hausse du chômage si elle engendre un changement structurel vicieux dans la relation d’Okun. La politique de relance économique la plus efficace dans la lutte contre le chômage est celle qui, en plus d’accélérer la croissance, induit un changement structurel vertueux dans la relation d’Okun. This paper has stated the theoretical framework of Okun's law (LO) and an integrated IS-LM-LO model to better understand the effects of economic policies on unemployment. Stated and demonstrated, the Okun law theorem confirms the existence of a negative link between economic growth and variation in the unemployment rate. However, this Okun relation cannot be considered stable. Among other things, demographic shocks, shocks onto the average real wage, real gross profits, importation duties and net taxes on goods and services induce structural changes in Okun's relation. The structural change in Okun's relation can be virtuous or vicious. When economic dynamic generates a vicious structural change in Okun's relation so that the Okun new threshold it induces is always higher than the observed economic growth rate, the unemployment rate increases. Economic growth has a greater impact on unemployment when it is strong and engenders a virtuous structural change in Okun's relation. Thus, analysis of the IS-LM-LO model shows that, though fiscal or monetary policy have a positive effect on economic growth, it would lead to an increasing unemployment if it engenders a vicious structural change in Okun’s relation. The most effective economic recovery policy to take on unemployment is the one that, in addition to accelerating economic growth, induces a virtuous structural change in Okun's relation.(Full text in french) |
| JEL: | E24 E63 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:mon:ceddtr:176&r=mac |
| By: | Mian Abdullah Tahir (State Bank of Pakistan); Waqas Ahmad (State Bank of Pakistan) |
| Abstract: | A comprehensive exercise is conducted for the estimation of potential output and output gap for Pakistan while considering shortcomings of existing relevant literature. A number of approaches, combining both state-space and structural estimation have been employed for this purpose. These include Bayesian inference, multivariate filter method, vector auto regression (with identification restrictions), state-space model and univariate filtering for estimation of output gap and potential output. The study finds fall in potential output growth of Pakistan during FY09 – FY13, has increased the economy’s vulnerability by making it more susceptible to demand shocks. Forecast of output gap on quarterly and annual frequencies for FY17 is also presented portraying upbeat aggregate demand going forward. |
| Keywords: | State–Space Models, Potential Output, Output Gap. |
| JEL: | E10 C31 E52 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:sbp:wpaper:85&r=mac |
| By: | Roberta Cardani; Alessia Paccagnini; Stelios D. Bekiros |
| Abstract: | We assess the effectiveness of the forward guidance undertaken by European Central Bank using a standard medium-scale DSGE model à la Smets and Wouters (2007). Exploiting data on expectations from surveys, we show that incorporating expectations should be crucial in performance evaluation of models for the forward guidance. We conduct an exhaustive empirical exercise to compare the pseudo out-of-sample predictive performance of the estimated DSGE model with a Bayesian VAR and a DSGE-VAR models. DSGE model with expectations outperforms others for inflation; while for output and short term-interest rate the DSGE-VAR with expectations reports the best prediction. |
| Keywords: | DSGE Bayesian estimation; Survey professional forecasts; Real time data |
| JEL: | C52 C53 E58 E52 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:wpaper:201701&r=mac |
| By: | Martin Bodenstein; Gunes Kamber; C. Thoenissen |
| Abstract: | We investigate the connection between commodity price shocks and unemployment in advanced resource-rich small open economies from an empirical and theoretical perspective. Shocks to commodity prices are shown to influence labour market conditions primarily through the real exchange rate. The empirical impact of commodity price shocks is obtained from estimating a panel vector autoregression; a positive price shock is found to expand the components of GDP, to cause the real exchange rate to appreciate, and to improve labour market conditions. For every one percent increase in commodity prices, our estimates suggest a one basis point decline in the unemployment rate and at its peak a 0.3% increase in unfilled vacancies. We then match the impulse responses to a commodity price shock from a small open economy model with net commodity exports and search and matching frictions in the labour market to these empirical responses. As in the data, an increase in commodity prices raises consumption demand in the small open economy and induces a real appreciation. Facing higher relative prices for their goods, non-commodity producing firms post additional job vacancies, causing the number of matches between firms and workers to rise. As a result, unemployment falls, even if employment in the commodity-producing sector is negligible. For commodity price shocks, there is little difference between the standard Diamond (1982), Mortensen (1982), and Pissarides (1985) approach of modelling search and matching frictions and the alternating offer bargaining model suggested by Hall (2008). |
| Keywords: | Commodity prices ; Search and matching ; Unemployment |
| JEL: | E44 E61 F42 |
| Date: | 2017–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-39&r=mac |
| By: | Sandra Gomes; Nikola Bokan; Andrea Gerali; Massimiliano Pisani; Pascal Jacquinot |
| Abstract: | We aim to properly assess domestic and cross-country macroeconomic effects of financial shocks. To do so, we introduce a number of new features in a model previously developed by some of the authors. which together with the full characterization of trade balance and real exchange rate dynamics and with a rich array of financial shocks – allow a detailed analysis of the transmission of financial shocks. We incorporate financial linkages in a multi-country New-Keynesian microfounded general equilibrium model of the euro area by including financial frictions and country-specific banking sectors. The model is non-linear and simulated under perfect foresight. The experiments are run in Dynare. Our results support the views that (1) the business cycles in the euro area can be driven not only by real shocks, but also by financial shocks, (2) the financial sector could amplify the transmission of (real) shocks, and (3) the financial/ banking shocks and the banking sectors can be sources of business cycle asymmetries and spillovers across countries in a monetary union. |
| Keywords: | Euro area (split into Germany and the rest of the euro area), Modeling: new developments, Macroeconometric modeling |
| Date: | 2016–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:009007:9431&r=mac |
| By: | Jochen Güntner; Katharina Linsbauer |
| Abstract: | This paper investigates how the University of Michigan’s Index of Consumer Sentiment (ICS) – a survey measure of U.S. households’ expectations about current and future economic conditions – responds to structural oil supply and demand shocks. We find that the response to an observed increase in the real price of crude oil depends on the underlying reason. While oil supply shocks have little effect on the ICS, other oil demand shocks such as a precautionary demand shock, for example, have a statistically significant negative impact over a two-year horizon. The effect of aggregate demand shocks associated with the global business cycle is positive in the first few months and negative thereafter. Considering the responses of ICS sub-indices and more specific survey questions, we find that expectations about higher future inflation and the associated reduction of real household income as well as a deterioration of perceived vehicle and house buying conditions are the main transmission channels of aggregate demand and other oil demand shocks. Oil shocks also affect consumers’ satisfaction with U.S. economic policy. |
| Keywords: | Consumer sentiment; Oil price shocks; Structural VAR estimation; Transmission channels |
| JEL: | C32 E30 N50 Q41 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2016_14&r=mac |
| By: | Muhammad Rehman (State Bank of Pakistan); Sajawal Khan (State Bank of Pakistan); Zafar Hayat (State Bank of Pakistan) |
| Abstract: | In this paper, we develop and estimate a small open economy Dynamic Stochastic General Equilibrium (DSGE) model with an enriched specification, which enables us to include a variable of high significance for Pakistan viz. workers’ remittances. The results indicate that a positive shock to workers’ remittances help boost real growth via increased consumption and imported investment and helps ease-off the pressure on current account balance and thereby exchange rate. Too much dependence on workers’ remittances to help meet the trade deficits may potentially leave the economy in doldrums in case sizable negative shocks occur to the flow of foreign remittances. Therefore there is a need for structural reforms to help the economy out of the historical trade deficits, and decrease dependence on the workers’ remittances source to allow for a sustainable economic growth. |
| Keywords: | Business cycles, Workers remittances, Open economy |
| JEL: | E32 F24 F43 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:sbp:wpaper:84&r=mac |
| By: | Fischer, A.M. |
| Abstract: | The external financing of domestic government expenditures, as exemplified by the financing of social protection with official flows (aid and other official flows), faces what can be called a monetary transformation dilemma. This refers to the fact that official flows are in foreign currency and hence cannot be directly used for expenditures in domestic currency. Nor do domestic expenditures require foreign currency given that they can be financed through conventional domestic monetary and fiscal operations. The extent to which official flows are actually able to fund domestic expenditures therefore involves a range of macroeconomic management concerns, which are in turn prone to exacerbate the already thorny political relations between donors and recipient governments. This calls for a serious rethink of many of the accepted premises in the political economy of aid and social protection literatures, particularly with respect to the dominant focus on domestic governance rather than a broader systemic understanding of the often convoluted and contradictory external dynamics that domestic actors must contend with in the power relations that condition official flows. Several examples can be highlighted. First, conventional measures of absorption, as used by the IMF, actually include income payments to foreigners, which seriously muddles our understanding of the extent to which aid flows represent actual redistribution. Second, large mismatches between the absorption and notional domestic spending of aid appear to be the norm in most of the countries studied in the macroeconomic literature on aid and, given the first point, absorption is generally overestimated in this literature. Third, the full absorption and spending of aid, as advocated by the IMF, is in contradiction with the need to accumulate reserves in the face of financial account liberalisations, as also advocated by the IMF and other IFIs. Fourth, the full spending of aid is similarly in contradiction with substitutive approaches to social protection, as commonly advocated by donors and IFIs, which imply no net increase in spending. Finally, the obscurity of these monetary transformation dilemmas exacerbates donor concerns about fungibility, transparency and accountability, thereby inciting donors to seek ways of strengthening their micro-control over the end uses of aid, as exemplified by recent innovations in aid modalities such as cash-on-delivery or payment-by-results. Impulses to control recipient countries obviously do not originate from the monetary transformation dilemma although the associated tensions nonetheless reinforce broader ideological predilections to subordinate recipient countries within donor-recipient power relations, in parallel with increasingly conservative reactions to welfare in donor countries, thereby running counter to donor commitments of respecting national ownership. |
| Keywords: | aid (official development assistance), official flows, social protection, fiscal and monetary policy, political economy of development, international finance and development finance, balance of payments, structuralist macroeconomics |
| Date: | 2017–04–10 |
| URL: | http://d.repec.org/n?u=RePEc:ems:euriss:98968&r=mac |
| By: | Williamson, Stephen D. (Federal Reserve Bank of St. Louis) |
| Abstract: | How do low real interest rates constrain monetary policy? Is the zero lower bound optimal if the real interest rate is sufficiently low? What is the role of forward guidance? A model is constructed that can in- corporate sticky price frictions, collateral constraints, and conventional monetary distortions. The model has neo-Fisherian properties. Forward guidance in a liquidity trap works through the promise of higher future inflation, generated by a higher future nominal interest rate. With very tight collateral constraints, the real interest rate can be very low, but the zero lower bound need not be optimal. |
| JEL: | E4 E5 |
| Date: | 2017–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-010&r=mac |
| By: | Kim, Jiyoung |
| Abstract: | This study evaluates the authorities' monetary policies on a "from-whom-to-whom" basis for Korean FOF tables and using the input–output analysis method. In order to compare the monetary policy of the central bank with that of the government, net induced investments (NII) are calculated and decomposed. The notable findings of this study are as follows. After the Asian financial crisis in 1997, negative investments by the financial sectors, induced by the central bank, increased drastically. The sign of total NII finally turned negative during the period of credit card distress. However, the global financial crisis in 2008 was a turning point, in which the NII of the financial sectors, and especially banks, switched to being positive. In contrast, net investments induced by the Korean government have shown a steady increase. In addition, other than in 2008, the effects of changes in the government portfolio have been positive and constant. In addition, the NII of a combination of financial instruments are used to analyze monetary or fiscal policy simulations. This method will provide useful indicators for policy authorities when needing to select optimal amounts and types of financial instruments for open-market operations. |
| Keywords: | Monetary policy, Finance, Banks, South Korea, Monetary policy evaluation, Flow-of-funds, Asset-liability-matrix |
| JEL: | C67 E01 E58 G38 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:jet:dpaper:dpaper664&r=mac |
| By: | Cristina Arellano; Yan Bai; Luigi Bocola |
| 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. |
| JEL: | E44 F34 G12 G15 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23314&r=mac |
| By: | Johan Winbladh (Webster University, Vienna, Austria) |
| Abstract: | The purpose of this study is to identify leading macroeconomic indicators causing or coinciding with systemic banking crises. The clear focus on systemic banking crisis leave little ambiguity of what constitutes a banking crisis. The macroeconomic leading indicators are chosen with economic theory in mind. The indicators are tested using multivariate regression with a dichotomous variable for systemic banking crisis or no systemic banking crisis. The results shows that inflation is the strongest leading indicator coinciding with systemic banking crisis in both advanced economies as well as in South American middle income economies. Inflation is a broad indicator of general economic difficulties as well as for policy related issues. |
| Keywords: | Systemic banking crisis, multivariate regression analysis, macroeconomic leading indicators, and macroeconomic fundamental problems. |
| JEL: | G01 C58 E44 |
| URL: | http://d.repec.org/n?u=RePEc:sek:iacpro:4707470&r=mac |
| By: | Cynthia L. Doniger; J. David Lopez-Salido |
| Abstract: | We model hysteresis in the labor market as resulting from a strategic complementarity in firms' wage setting and workers' job search strategies. Strategic complementarity results in a continuum of possible equilibria with higher-wage equilibria welfare dominating lower-wage equilibria. Further, we specify a protocol for revelation of the new equilibria following shocks such that the model exhibits (1) periods of endogenous rigidity in wages and participation, (2) persistent changes in wages, participation, and output in response to transitory movements in labor productivity, (3) sluggish recoveries including both a "jobless" phase and a "wageless" phase. Furthermore, regardless of the history, expansions are insufficiently robust in the sense that misallocation remains during expansions. |
| Keywords: | Hysteresis ; Jobless Recovery ; Kinked Labor Supply ; Real Rigidity ; Strategic Complementarity ; Wageless Recovery |
| JEL: | D83 E24 J42 |
| Date: | 2017–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-44&r=mac |
| By: | Sebastian Infante |
| Abstract: | It has been documented that an increase in the demand for safe assets induces the private sector to create more money-like claims. Focusing on private repos backed by U.S. Treasury securities, I show that an increase in the demand for safe assets leads to a decreases in the issuance of Treasury repos. The intuition is that Treasury securities already function as a safe asset, thus in terms of safe asset creation, private Treasury repos are neutral. In the model, Treasury repos are beneficial because they shift risk (i.e. term premia) from relatively risk averse households to a more risk tolerant financial sector, which issues repos to finance its portfolio. When the demand for safe assets increases, Treasury securities are reallocated to households, reducing the amount of Treasury repo issued by the financial sector. By contrast, Treasury repos created by the Federal Reserve's RRP program---a safe asset created by the public sector---increase with the demand for safe as sets. I show the data supports the model's main predictions. |
| Keywords: | Federal Reserve Board and Federal Reserve System ; Monetary policy ; Private money ; Repo ; Safe assets |
| JEL: | G2 G12 E4 E51 |
| Date: | 2017–04–11 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-41&r=mac |
| By: | Neuhann, Daniel |
| Abstract: | This paper develops a theory of the credit cycle to account for recent evidence that capital is increasingly allocated to inefficiently risky projects over the course of the boom. The model features lenders who sell risk exposure to non-lender investors in order to relax borrowing constraints, but are tempted to produce and sell off bad assets when asset prices are sufficiently high. Asset prices gradually increase during the boom because non-lender wealth grows as their risk-taking pays off, triggering a fall in asset quality and precipitating an eventual crisis. I study the initial conditions that give rise to the credit cycle and consider policy implications. JEL Classification: G01, E32, E44 |
| Keywords: | credit booms, credit cycles, financial crisis, financial fragility, risk-taking channel of monetary policy, saving gluts, secondary markets, securitization |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172039&r=mac |
| By: | Dirk Hoorelbeke |
| Abstract: | The competitivity of the Flemish economy is a continuously ongoing priority of policymakers. Very often the focus is only on labour costs in comparison with the neighbouring countries (measured as labour cost per unit of output, for instance total labour cost divided by value added). A wider analysis also takes into account labour productivity (measured as value added divided by employment). A comprehensive measure of productivity is total factor productivity. Total factor productivity does not focus only on the production factor labour but also takes into account the other production factors, such as capital and energy. Total factor productivity is not available in the national accounts or other official databases. It is also not possible to obtain it via a simple operation of available series (such as a division of two series). Total factor productivity needs to be derived through econometric estimations (and by imposing hypotheses). For instance one could impose a Cobb-Douglas production function which needs to be estimated (after log-linearisation). The OLS estimator, however, is inadequate because of endogeneity problems. Using a 2SLS estimation method could be a solution. Other possibilities are panel data estimation and the method proposed by Olley and Pakes (1996). The goal of this paper is to derive sectoral total factor productivity for the Belgian regions and to show a graphical instrument for policy making purposes, as proposed by Goesaert and Reynaerts (2012). The graphical instrument allows to identify strong and weak sectoral branches. |
| Keywords: | Belgium (regional level), Regional modeling, Sectoral issues |
| Date: | 2016–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:009007:9619&r=mac |
| By: | Waknis, Parag |
| Abstract: | The standard undergraduate textbook models in macroeconomics like the IS-LM/AD-AS model are not disaggregated enough to understand the effects of monetary policy shocks in developing economies typically characterized by substantial informality, and goods and financial markets segmentation. In this paper, I present a version of a segmented markets model based on Williamson (2009, 2011) that could be used as an effective alternative. I demonstrate the use of the framework by analyzing the effects of demonetization- a substantial reduction in the availability of outside money- in a developing country setting. |
| Keywords: | segmented markets, developing countries, demonetization, economic education, informal markets, undergraduate macroeconomics. |
| JEL: | A22 E42 O17 |
| Date: | 2017–03–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78011&r=mac |
| By: | Camba-Méndez, Gonzalo; Werner, Thomas |
| Abstract: | In this paper we construct model-free and model-based indicators for the inflation risk premium in the US and the euro area. We study the impact of market liquidity, surprises from inflation data releases, inflation volatility and deflation fears on the inflation risk premium. For our analysis, we construct a special dataset with a broad range of indicators. The dataset is carefully constructed to ensure that at every point in time the series are aligned with the information set available to traders. Furthermore, we adopt a Bayesian variable selection procedure to deal with the strong multicollinearity in the variables that potentially can explain the movements in the inflation risk premium. We find that the inflation risk premium turned negative, on both sides of the Atlantic, during the post-Lehman period. This confirms the recent finding by Campbell et al. (2016) that nominal bonds are no longer "inflation bet" but have turned into "deflation hedges". We also find, and contrary to common beliefs, that indicators of inflation uncertainty alone cannot explain the movements in the inflation risk premium in the post-Lehman period. The decline in the inflation risk premium seems mostly related to increased deflation fears and the belief that inflation will stay far away from the monetary policy target rather than declining inflation uncertainty. This in turn would suggest that central banks should not be complacent with low or even negative inflation risk premia. JEL Classification: E44, G17 |
| Keywords: | inflation expectations, Inflation linked swaps, inflation risk premium |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172033&r=mac |
| By: | Sajjad Zaheer (State Bank of Pakistan); Fatima Khaliq (State Bank of Pakistan); Muhammad Rafiq (State Bank of Pakistan) |
| Abstract: | We investigate the impact of government borrowing from the scheduled banks on the credit to private sector in Pakistan, using monthly data from 1998:M6 to 2015:M12. We find that a one percentage point growth in the government borrowing leads to 8 basis points crowding out of the private sector credit in four months. Albeit small, there is negative impact of government borrowing on the private sector credit. The results remain unchanged even after implementation of the interest rate corridor since August 2009. |
| Keywords: | Private sector credit, Government policy and regulation, Government borrowing, Emerging economies |
| JEL: | E5 G18 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:sbp:wpaper:83&r=mac |
| By: | Martin Eichenbaum; Benjamin K. Johannsen; Sergio Rebelo |
| Abstract: | This paper documents two facts about the behavior of floating exchange rates in countries where monetary policy follows a Taylor-type rule. First, the current real exchange rate is highly negatively correlated with future changes in the nominal exchange rate at horizons greater than two years. This negative correlation is stronger the longer is the horizon. Second, for most countries, the real exchange rate is virtually uncorrelated with future inflation rates both in the short and in the long run. We develop a class of models that can account for these and other key observations about real and nominal exchange rates. |
| Keywords: | Exchange rates and foreign exchange ; Monetary policy |
| JEL: | E52 F31 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-37&r=mac |
| By: | Golec, Pascal; Perotti, Enrico |
| Abstract: | We survey the emerging literature on safe assets. The recent evidence on a time-varying safety premium suggests a demand for safety quite distinct from liquidity and classic money demand, offering insight on a strong segmentation between safe savings and speculative investment markets. A related theoretical literature studies the private creation of (quasi) safe assets by intermediaries, shedding new light on bank intermediation and financial stability. Novel concepts such as maturity races, information sensitivity, risk-intolerant debt and induced runs reinforce the liquidity risk externality associated with banking, and have significant implications for research on credit cycles as well as for prudential policy. JEL Classification: E41, E44, E52, G21 |
| Keywords: | demand for safety, liquidity premium, riskless debt, safe assets, safety premium |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172035&r=mac |
| By: | Akhmetov, Almaz |
| Abstract: | This paper uses Vector Autoregression (VAR) models to test the presence of the Dutch disease in Kazakhstan. It was found that tradable industries and world oil price have immediate effect on domestic currency appreciation. This in return has delayed negative impact on agricultural production and positive delayed effect on non-tradable industries. Prolonged period of low oil prices could hurt Kazakh economy if no effective policies to combat the negative effects of the Dutch disease are implemented. |
| Keywords: | Kazakhstan, Dutch disease, VAR |
| JEL: | E6 O13 O53 |
| Date: | 2017–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:77936&r=mac |
| By: | Céline Antonin (Observatoire français des conjonctures économiques); Vincent Touze (Observatoire français des conjonctures économiques) |
| Abstract: | This article addresses the issue of capital taxation relying on three levels of analysis. The first level deals with the multiple ways to tax capital (income or value, proportional or progressive taxation, and the temporality of the taxation) and presents some of France's particular features within a heterogeneous European context. The second area of investigation focuses on the main dynamic properties generated by capital taxation: the principle of equivalence with a tax on consumption; the issue of double taxation if it targets taxation of nominal income; neutrality of the uniform tax on the capital value; lastly, the risk of confiscatory taxation if there is a disjunction between taxation of the value and the income. The final level ofanalysis consists in assessing the debate on the optimal level of capital taxation drawing on the lessons in the literature. These discussions are organized into eight themes: (1) double taxation, (2) optimal growth, (3)property, (4) tax competition, (5) supervisory arguments, (6) measuring capital gains, (7) complexity and (8) fiscal stability |
| Keywords: | Taxation; Savings; Accumulation of capital |
| JEL: | D90 E21 H20 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/4cl38kom1f8d9op7lrto184dm8&r=mac |
| By: | Bruno Coquet (International Zeolite Association) |
| Abstract: | La dégressivité des allocations chômage est une réforme structurelle populaire et prisée par les organisations internationales dans leurs programmes d’ajustement structurel. Il s’agit de stimuler la reprise d’emploi en réduisant l’aléa moral des chômeurs indemnisés afin de diminuer les dépenses d'assurance chômage. Nous effectuons une revue de la littérature consacrée d’une part au profil optimal des allocations chômage et d’autre part aux formes d’aléa moral que des allocations chômage dégressives visent à éliminer. Ces travaux montrent que les indicateurs observés pour diagnostiquer la présence d’aléa moral lié à des allocations chômage constantes amplifient cet effet et sont imprécis sur son origine. Par ailleurs, les effets positifs prêtés à la dégressivité des allocations chômage ne sont pas attestés par la littérature, même sous des hypothèses très restrictives; ce profil n’est que rarement optimal car il doit être associé à une générosité élevée et qu’il induit des effets indésirables. Les travaux empiriques montrent que la dégressivité ralentirait les sorties du chômage, et que cette taxe sur le chômage de longue durée a au mieux de faibles effets agrégés sur les dépenses de l’assurance chômage. Ainsi la littérature conclut majoritairement à l'optimalité de droits constants, ou même progressifs. Pour limiter l’apparition d’aléa moral tout en renforçant l’optimalité des règles, des instruments bien plus précis peuvent être utilisés: un contrôle ciblé des chômeurs susceptibles d’aléa moral, l’adaptation automatique de la durée des droits potentiels à la conjoncture de l’emploi, ou encore l’utilisation à la marge de comptes individuels. |
| Keywords: | Assurance chômage; Allocations chômage; Taux de remplacement; Comptes individuels |
| JEL: | E24 J64 J65 H53 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/2vagho9cns9668gqt9f4q5v8rg&r=mac |
| By: | Ute Volz; Martin Mandler; Michael Scharnagl |
| Abstract: | We analyse empirically whether the common monetary policy of the Eurosystem has heterogeneous effects on the four large member countries of the European Monetary Union (France, Germany, Italy and Spain) focussing on possible cross-country differences in the reaction of output, the price level and financial variables to changes in the Euroystem’s monetary policy interest rate. We use a large multi-country Bayesian vector autoregression to jointly model the dynamics of output, prices and financial variables in the four countries after 1999. Following Giannone, Lenza, and Primiceri (2015) the prior distributions are selected in a data-driven way. We compare across countries the reactions of the variables to exogenous changes in the Eurosystem’s common monetary policy interest rate. The Bayesian approach specifically allows us to make explicit probabilistic statements about the extent of cross-country heterogeneity in the effects of monetary policy. We further strengthen the robustness our results using a battery of additional tests on cross-country differences in the distributions of the effects of monetary policy. Comparing the macroeconomic effects of an exogenous increase in the Eurosystem’s monetary policy interest rate across countries we find real output to respond less negatively in Spain compared to the other three countries while the drop in the price level is less pronounced in Germany relative to France, Italy and Spain. Bond yields rise more strongly and persistently in France and Germany compared to Italy and Spain. |
| Keywords: | France, Germany, Italy, Spain, Monetary issues, Macroeconometric modeling |
| Date: | 2016–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:009007:9609&r=mac |
| By: | Sebastian Heise |
| Abstract: | Economists have long suspected that firm-to-firm relationships might increase price rigidity due to the use of explicit or implicit fixed-price contracts. Using transaction-level import data from the U.S. Census, I study the responsiveness of prices to exchange rate changes and show that prices are in fact substantially more responsive to these cost shocks in older versus newly formed relationships. Based on additional stylized facts about a relationship's life cycle and interviews I conducted with purchasing managers, I develop a model in which a buyer-seller pair subject to persistent, stochastic shocks to production costs shares profit risk under limited commitment. Once structurally estimated, the model replicates the empirical correlation between relationship age and the responsiveness of prices to shocks. My results suggest that changes to the average length of relationships in the economy -e.g., in a recession, when the share of young relationships declines- can influence price flexibility and hence the effectiveness of monetary policy. |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:17-33&r=mac |
| By: | Fabio Cerina; Alessio Moro; Michelle Petersen Rendall |
| Abstract: | WWe document that U.S. employment polarization in the 1980-2008 period is largely generated by women. Female employment shares increase both at the bottom and at the top of the skill distribution, generating the typical U-shape polarization graph, while male employment shares decrease in a more similar fashion along the whole skill distribution. We show that a canonical model of skill-biased technological change augmented with a gender dimension, an endogenous market/home labor choice and a multi-sector environment accounts well for gender and overall employment polarization. The model also accounts for the absence of employment polarization during the 1960- 1980 period and broadly reproduces the different evolution of employment shares across decades during the 1980-2008 period. The faster growth of skill-biased technological change since the 1980s accounts for most of the employment polarization generated by the model. |
| Keywords: | Job polarization, gender, skill-biased technological change, home production |
| JEL: | E20 E21 J16 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:250&r=mac |
| By: | Aida Caldera Sánchez (OECD); Alain de Serres (OECD); Filippo Gori (OECD); Mikkel Hermansen (OECD); Oliver Röhn (OECD) |
| Abstract: | Considering the deep and long-lasting impact of severe recessions, such as the 2008-09 financial crisis, it is important that measures be taken to minimise the risk of such event. But in doing so the benefits need to be balanced against the potential costs in terms of lower average growth that some of the actions to lower vulnerabilities to bad events could entail. Insofar as the risk-mitigating measures can involve a trade-off between growth and crisis risk, the most cost-effective actions need to be identified, spanning both macro and structural policies. The work summarised in this paper has explored this issue using two complementary empirical approaches, both providing insights on the impact of various policy settings on average GDP growth on the one hand, and either crisis risks or GDP growth at the (negative) tail end, on the other. The results indicate that pro-growth product and labour market policies generally have little impact on the exposure to crisis. More significant tradeoffs between efficiency and crisis risk arise in the case of financial market policies. |
| Keywords: | financial crisis, financial liberalisation, GDP tail risk, resilience, severe recession |
| JEL: | E02 E61 F32 G01 |
| Date: | 2017–04–22 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaab:20-en&r=mac |
| By: | Elmar Hillebrand (EEFA Research Institute); Marten Hillebrand (Johannes Gutenberg University Mainz) |
| Abstract: | This paper develops a dynamic general equilibrium model with an arbitrary number of different regions to study the economic consequences of climate change under alternative climate policies. Regions di?er with respect to their state of economic development, factor endowments, and climate damages and trade on global markets for capital, output, and exhaustible resources. Our main result derives an optimal climate policy consisting of an emissions tax and a transfer policy. The optimal tax can be determined explicitly in our framework and is independent of any weights attached to the interests of different countries. Such weights only determine optimal transfers which distribute tax revenues across countries. We infer that the real political issue is not the tax policy required to reduce global warming but rather how the burden of climate change should be shared via transfer payments between di?erent countries. We propose a simple transfer policy which induces a Pareto improvement relative to the Laissez faire solution. |
| Keywords: | Multi-region model; Dynamic equilibrium; Climate change; Optimal climate tax; Optimal transfer policy; Emissions trading system |
| JEL: | E10 E61 H21 H23 Q43 Q54 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:jgu:wpaper:1704&r=mac |
| By: | Guney, Ibrahim Ethem; Hacihasanoglu, Yavuz Selim; Tumen, Semih |
| Abstract: | We investigate the impact of a substantial minimum wage increase, which became effective in January 2016, on consumer loans in Turkey. Using bank-level data and designing an original identification strategy, we ask whether the loans provided by banks with a historically high share of low-wage loan customers have increased relative to those provided by banks with a historically low share of low-wage loan customers after January 2016. Our results suggest that consumer loan flows have displayed a limited but statistically and economically meaningful increase following the minimum wage hike. This increase mostly comes from the increase in long-term general-purpose loans. Vehicle loans have also increased, while there is no change in housing loans. In the overall, the minimum wage hike has generated a moderate and transitory increase in the flow of consumer loans extended to low-wage earners in Turkey|perhaps due to delayed consumption effect. Consumption of durables, which can further increase household borrowing capacity through collateralized debt channel, has only slightly and temporarily increased. The underlying long-term trends in the stock of consumer loans have hardly changed. |
| Keywords: | Consumer loans,labor income shocks,minimum wages,triple difference |
| JEL: | D14 E24 G21 J31 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:58&r=mac |
| By: | Klára Major; Drucker, Luca Flóra |
| Abstract: | This paper presents the results of a CGE application that is used to measure and understand how sectoral shocks might influence the Hungarian economy, its economic agents and its different industries. The electricity outages are modelled by the decrease in the supply of energy. A 62 sectoral CGE model has been calibrated for the Hungarian economy. The capital stock of the energy industry is shocked, which has led to a decrease in the supply of energy. It is assumed that energy is a close complement to other goods both in production and consumption. In the base scenario a 2.08% decline in the supply of energy leads to a 0.53% decline in the GDP. Without price rigidities and other frictions, the adjustment is mainly driven by agents who can react at the lowest price. Therefore, this estimation should be considered as a lower bound on the real costs of adjustment. It is also shown that if prices are distorted, the costs of an outage are higher. |
| Keywords: | Hungary, Impact and scenario analysis, General equilibrium modeling |
| Date: | 2016–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:009007:9580&r=mac |
| By: | Batiz-lazo, Bernardo; del Angel, Gustavo |
| Abstract: | In this paper we discuss the emergence of the credit card in Mexico (1968) and Spain (1970) to document the importance of the institutional framework for the adoption and takeoff of this innovation in the system of payments. Our research compares the dissemination of a relatively homogeneous product in totally different environments and explains how this innovation was transformed from a technology with a closed system to a global network. With this we also seek to show some lessons in financial history to better understand contemporary phenomena, such as the adoption of innovations that are expected to be disruptive in the retail financial markets. |
| Keywords: | credit card, means of payment, banks, Mexico, Spain |
| JEL: | E5 L5 N0 N2 |
| Date: | 2016–10–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:78004&r=mac |
| By: | Rafael Alves de Albuquerque Tavares |
| Abstract: | This paper analyzes the effect of the municipal elections on the personnel expenses of Brazilian municipal governments, in search of evidence on the existence of electoral cycles in municipal expenditures. Using data that covers the 2002-2009 period, I estimate a Fixed Effects model. The results of the article indicate that in electoral years there is a decrease in personnel expenses. By separating the type of employment relationship of the worker, this article shows evidence that there is a decrease in the number of appointed and by-contract workers and the maintenance of the number of statutory workers. In addition, the total wage bill is reduced for all types of employment relation. |
| Keywords: | Electoral Cycles; Municipal Public Finance; Public Sector Employment. |
| JEL: | E32 H72 C23 |
| Date: | 2017–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2017wpecon06&r=mac |
| By: | Tomáš Domonkos; Filip Ostrihoň; Ivana Šikulová; Maria Širaňová |
| Abstract: | This research aims to evaluate the efficiency of the currently applied MIP Scoreboard’s indicators. The question we want to answer is that: If this procedure had been applied before the crisis, would it have been able to effectively and on time identify potential macroeconomic imbalances in the EU countries? In order to answer this question, we examine the behavior of the MIP Scoreboard’s indicators in terms of the business cycle. The analysis relies mostly on binary response models and on signaling approach. The data used cover the time period from 2004 till 2014. The results of this study aim to improve the MIP procedure and identify useful amendments to the set of indicators used in the crisis-identification procedure. This would result in better and more target-oriented policies and help avoid adverse macroeconomic development across European countries. |
| Keywords: | EU, Macroeconometric modeling, Impact and scenario analysis |
| Date: | 2016–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:009007:9660&r=mac |