nep-mac New Economics Papers
on Macroeconomics
Issue of 2017‒05‒21
103 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Could the boom-bust in the eurozone periphery have been prevented? By Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa; Krzysztof Makarski
  2. Systematic Monetary Policy and the Macroeconomic Effects of Shifts in Loan-to-Value Ratios By Bachmann, Rüdiger; Rueth, Sebastian
  3. Monetary-Fiscal Interactions and the Euro Area's Malaise By Jarocinski, Marek; Mackowiak, Bartosz Adam
  4. Central bank communication: Managing expectations through the monetary dialogue By Belke, Ansgar
  5. The Macroeconomic Effects of Quantitative Easing in the Euro Area: Evidence from an Estimated DSGE Model By Hohberger, Stefan; Priftis, Romanos; Vogel, Lukas
  6. Monetary Policy through Production Networks: Evidence from the Stock Market By Ali Ozdagli; Michael Weber
  7. Prices of High-Tech Products, Mismeasurement, and Pace of Innovation By David Byrne; Stephen Oliner; Daniel Sichel
  8. Unconventional monetary policy: interest rates and low inflation. A review of literature and methods By Mariarosaria Comunale; Jonas Striaukas
  9. Besser ohne Bargeld? Gesamtwirtschaftliche Wohlfahrtsverluste der Bargeldabschaffung By Rösl, Gerhard; Seitz, Franz; Tödter, Karl-Heinz
  10. The natural rate of interest in a nonlinear DSGE model By Yasuo Hirose; Takeki Sunakawa
  11. Forgotten macroeconomics in the manifesto debate By Onaran, Özlem
  12. Effects of Monetary Policy Shocks on Inequality in Japan By Masayuki Inui; Nao Sudo; Tomoaki Yamada
  13. What determines Chinaís housing price dynamics? New evidence from a DSGE-VAR By Liu, Chunping; Ou, Zhirong
  14. The effects of Fiscal Consolidations: Theory and Evidence By Alesina, Alberto; Barbiero, Omar; Favero, Carlo A.; Giavazzi, Francesco; Paradisi, Matteo
  15. Interbank Market Frictions and Unconventional Policy in a Currency Union By Swarbrick, Jonathan Mark; Blattner, Tobias
  16. A Theory on the Economic Impacts of Immigration By Harashima, Taiji
  17. On the sources of business cycles: implications for DSGE models By Andrle, Michal; Brůha, Jan; Solmaz, Serhat
  18. Measuring the size of the shadow economy using a dynamic general equilibrium model with trends By Solis-Garcia, Mario; Xie, Yingtong
  19. La inflación de la Escuela austriaca. Las implicaciones de su uso en la política económica By Harold Esteban Perdomo Ruíz
  20. The nature of the eurocrisis. A reply to Febrero, Uxò and Bermejo By Sergio Cesaratto
  21. Lifetime Incomes in the United States over Six Decades By Fatih Guvenen; Greg Kaplan; Jae Song; Justin Weidner
  22. Does bank competition affect bank stability after the global financial crisis? By Shijaku, Gerti
  23. Product Turnover and Deflation: Evidence from Japan By Kozo Ueda; Kota Watanabe; Tsutomu Watanabe
  24. The Macroeconomic Effects of Japan's Unconventional Monetary Policies By MIYAO Ryuzo; OKIMOTO Tatsuyoshi
  25. Real Exchange Rate Volatility and Domestic Consumption in Ghana By Njindan Iyke, Bernard; Ho, Sin-Yu
  26. Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy By Martin Feldkircher Author-Email: Author-WorkPlace-Name: Oesterreichische Nationalbank (OeNB); Thomas Gruber Author-Email: Author-WorkPlace-Name: Oesterreichische Nationalbank (OeNB) Author-Name: Florian Huber Author-Email: Author-WorkPlace-Name: Department of Economics, Vienna University of Economics and Business Note: PDF Document Keywords: Euro area monetary policy, quantitative easing, spillovers Classification-JEL: C30, E52, F41, E32 Abstract: As a consequence of asset purchases by the European Central Bank (ECB), longer-term yields in the euro area decline, and spreads between euro area long-term yields narrow. To assess spillovers of these recent financial developments, we use a Bayesian variant of the global vector autoregressive (BGVAR) model with stochastic volatility and propose a novel mixture of zero impact and sign restrictions that we impose on the cross-section of the data. Both shocks generate positive and significant spillovers to industrial production in Central, Eastern and Southeastern Europe (CESEE) and other non-euro area EU member states. These effects are transmitted via the financial channel (mainly through interest rates and equity prices) and outweigh costs of appreciation pressure on local currencies vis-a-vis the euro (trade channel). While these results represent general trends, we also find evidence for both cross-country heterogeneity of effects within the euro area and region-specific spillovers thereof.
  27. Does concentration matter for bank stability - evidence from Albanian Banking System By Shijaku, Gerti
  28. Capital Accumulation, Private Property and Rising Inequality in China, 1978-2015 By Thomas Piketty; Li Yang; Gabriel Zucman
  29. Growth Effects of Annuities and Government Transfers in Perpetual Youth Models By Miyoshi, Yoshiyuki; Toda, Alexis Akira
  30. West African Economic and Monetary Union; Common Policies of Member Countries-Press Release; Staff Report; and Statement by the Executive Director for the West African Economic and Monetary Union By International Monetary Fund.
  31. Una nessuna centomila – Le molte verità di Target2 By Sergio Cesaratto
  32. Nowcasting des deutschen BIP By Doll, Jens; Rosenthal, Beatrice; Volkenand, Jonas; Hamella, Sandra
  33. A Note on the Size Distribution of Consumption: More Double Pareto than Lognormal By Toda, Alexis Akira
  34. The premium of government debt: Disentangling safety and liquidity By Xiong, Qizhou
  35. Central Bank Legal Frameworks in the Aftermath of the Global Financial Crisis By Ashraf Khan
  36. Price Rigidity at Near-Zero Inflation Rates: Evidence from Japan By Kota Watanabe; Tsutomu Watanabe
  37. A revised approach to trend employment projections in long-term scenarios By Maria Chiara Cavalleri; Yvan Guillemette
  38. A New Way to Quantify the Effect of Uncertainty By Richter, Alexander; Throckmorton, Nathaniel
  39. Is GDP more volatile in developing countries after taking the shadow economy into account? Evidence from Latin America By Solis-Garcia, Mario; Xie, Yingtong
  40. Bank lending in uncertain times By Piergiorgio Alessandri; Margherita Bottero
  41. Evaluating regulation within an artificial financial system: A framework and its application to the liquidity coverage ratio regulation By Riedler, Jesper; Brueckbauer, Frank
  42. Asymmetric Consumption Effects of Transitory Income Shocks By Christelis, Dimitris; Georgarakos, Dimitris; Jappelli, Tullio; Pistaferri, Luigi; Van Rooij, Maarten
  43. Liquidity Constraints in the U.S. Housing Market By Denis Gorea; Virgiliu Midrigan
  44. Consumption Inequality and the Frequency of Purchases By Olivier Coibion; Yuriy Gorodnichenko; Dmitri Koustas
  45. The stability of short-term interest rates pass-through in the euro area during the financial market and sovereign debt crises By Sanvi Avouyi-Dovi; Guillaume Horny; Patrick Sevestre
  46. Malaysia; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Authorities of Malaysia By International Monetary Fund.
  47. Benin; Request for a Three-year Arrangement Under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Benin By International Monetary Fund.
  48. Panama; 2017 Article IV Consultation-Press Release; and Staff Report for Panama By International Monetary Fund.
  49. Do Misperceptions about Demand Matter? Theory and Evidence By Kenza Benhima; Céline Poilly
  50. Do You Save More or Less in Response to Bad News? A New Identification of the Elasticity of Intertemporal Substitution By Schmidt, Lawrence; Toda, Alexis Akira
  51. Simulações da Trajetória da Dívida Bruta do Governo Geral (2017 a 2037) By José Ronaldo de Castro Souza Júnior; Francisco E. de Luna; Almeida Santos
  52. Republic of Kazakhstan; 2017 Article IV Consultation- Press Release; and Staff Report By International Monetary Fund
  53. Exploring the economy’s recent progress, and the implications for policy: remarks at the Lake Champlain Regional Chamber of Commerce and the Central Vermont Chamber of Commerce, South Burlington, Vermont, May 10, 2017 By Rosengren, Eric S.
  54. Consumer Loan Response to Permanent Labor Income Shocks: Evidence from a Major Minimum Wage Increase By Guney, Ibrahim Ethem; Hacihasanoglu, Yavuz Selim; Tumen, Semih
  55. Bank Lending Constraints in the Euro Area By Daniel P. Monteiro; Romanos Priftis
  56. What Has Publishing Inflation Forecasts Accomplished? Central Banks And Their Competitors By Siklos, Pierre
  57. Automation, New Technology, and Non-Homothetic Preferences By Clemens Struck; Adnan Velic
  58. The Passage of Time, Capital, and Investment in Traditional and in Recent Neoclassical Value Theory By Fabio Petri
  59. Do conventional monetary policy instruments matter in unconventional times? By Buchholz, Manuel; Schmidt, Kirsten; Tonzer, Lena
  60. Exploring Italy's Growth Challenge A Model-Based Exercise By Dino Pinelli; István P. Székely; János Varga
  61. Skill Premium, Labor Supply and Changes in the Structure of Wages in Latin America By Fernandez Sierra, Manuel; Messina, Julián
  62. Alternative Approaches for Resale Housing Price Indexes By Burnett-Isaacs,, Kate; Diewert, Erwin; Huang, Ning
  63. A Survey on Inequality-Adjusted Human Development in Africa By Asongu, Simplice
  64. Turbulence, Firm Decentralization and Growth in Bad Times By Philippe Aghion; Nicholas Bloom; Brian Lucking; Raffaella Sadun; John Van Reenen
  65. The Time-Varying Effect of Monetary Policy on Asset Prices By Paul, Pascal
  66. Huggett Economies with Multiple Stationary Equilibria By Toda, Alexis Akira
  67. The Effectiveness of Consumption Taxes and Transfers as Insurance against Idiosyncratic Risk By Tomoyuki Nakajima; Shuhei Takahashi
  68. U.S. Economic Outlook: Seven years of steady but tepid growth By -
  69. Kingdom of the Netherlands-Netherlands: Financial Sector Assessment Program:; Technical Note-Macroprudential Policy Framework By International Monetary Fund.
  70. Exchange Rate Disconnect in General Equilibrium By Oleg Itskhoki; Dmitry Mukhin
  71. Testing the Fisher Hypothesis in the G-7 Countries Using I(d) Techniques By Guglielmo Maria Caporale; Luis A. Gil-Alana
  72. International Migration and Regional Housing Markets: Evidence from France By Hippolyte d'Albis; Ekrame Boubtane; Dramane Coulibaly
  73. "The Two Factors of the Phases of Business Cycle " (in Japanese) We study business cycle from the theoretical perspective of Marxian economics in this paper. Marxian economists long have been investigating the cause of the crisis without paying sufficient attention to the whole dynamics of capitalism, i.e. business cycles. This paper tries to construct theoretical apparatus to capture the image of the business cycle of the capitalist economy. In section 1, we examine the texts in Capital in relation to the business cycle in order to confirm Marx’s viewpoint on the issue. Section 2 aims at constructing the theory of business cycle as phase transitions, especially focusing on Michiaki Obata’s recent attempt (M. Obata, Critical Studies on the Marxian Theory of Crisis, University of Tokyo Press, 2014) on the basis of Japanese Marxian traditions. Here we take the rate of profit (r) and the rate of accumulation (s) as two factors that determines the phases of the business cycle. In section 3, we analyse the outside of phases. We distinguish phase transition and unstable state, the combination of which would amount to crisis phenomena. In addition, the phase transition is to be classified into two: r transition and s transition. The former is led by the dynamics of the real economy and the latter is mainly caused by that of asset market. By Kei Ehara
  74. Descripción del ajuste de algunas economías de América Latina 2013 -2016 By Gabriel PIRAQUIVE GALEANO
  75. Point sur la fourniture de liquidié publique By Anne-Marie Rieu-Foucault
  76. Non-Tax Revenue in the European Union: A Source of Fiscal Risk? By Gilles Mourre; Adriana Reut
  77. EU Consumers’ Quantitative Inflation Perceptions and Expectations: An Evaluation By Rodolfo Arioli; Colm Bates; Heinz Dieden; Ioana Duca; Roberta Friz; Christian Gayer; Geoff Kenny; Aidan Meyler; Iskra Pavlova
  78. Should bank capital requirements be less risk-sensitive because of credit constraints? By Ambrocio, Gene; Jokivuolle, Esa
  79. Gestion de portefeuille et politique : existe-t-il une prime partisane sur le marché français ?, Portfolio management and politics : is there a presidential premium on the French market ? By Gérard CHARREAUX
  80. Can They Do It All? Fiscal Space in Low-Income Countries By Anja Baum; Andrew Hodge; Aiko Mineshima; Marialuz Moreno Badia; Rene Tapsoba
  81. The transmission channels of monetary, macro- and microprudential policies and their interrelations By Beyer, Andreas; Nicoletti, Giulio; Papadopoulou, Niki; Papsdorf, Patrick; Rünstler, Gerhard; Schwarz, Claudia; Sousa, João; Vergote, Olivier
  82. Georgia; Request for Extended Arrangement Under the Extended Fund Facility and Cancellation of Stand-By Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Georgia By International Monetary Fund.
  83. How Important are Spillovers from Major Emerging Markets? By Huidrom, Raju; Kose, Ayhan; Ohnsorge, Franziska
  84. The Causes and Costs of Misallocation By Diego Restuccia; Richard Rogerson
  85. Clusterização Espacial e não Espacial: um estudo aplicado à agropecuária brasileira By Alexandre Xavier Ywata de Carvalho; Pedro Henrique Melo Albuquerque; Camilo Rey Laureto; Guilherme Costa Chadud Moreira; Gustavo Gomes Basso; Luiz Felipe Dantas Guimarães; Marina Garcia Pena
  86. The impact of warnings published in a financial stability report on loan-to value ratios By Andrés Alegría; Rodrigo Alfaro; Felipe Córdova
  87. Assessing the Euro Area’s Shock-Absorption Capacity - Risk sharing, consumption smoothing and fiscal policyAbstract: Based on a combination of quantitative analysis and a qualitative forward-looking approach, this paper assesses both the state of play and the future capacity of the EMU to respond and adapt to asymmetric shocks. The objective is to provide a basis upon which to gauge the potential value added of a European Unemployment Benefit Scheme (EUBS), against the background of the recent plans for the Banking Union, the Capital Markets Union and the reform of the fiscal governance framework. We find that the capacity of the system to deal with asymmetric shocks (and in principle reduce their occurrence) is likely to increase due to these changes; but it will remain limited in the medium term and certainly lower than in the US. We also argue that given the broad pro-cyclicality of fiscal policy, the idea that national policies alone can deal alone with asymmetric shocks is not realistic. Lastly, we maintain that an ex-ante fiscal insurance mechanism can provide some degree of income smoothing and is likely to catalyse market insurance. Fiscal and market insurance can reduce the role of credit and borrowing, which until now has been the main channel for shock absorption in the euro area but also the least effective in times of crisis. We conclude that, from a macroeconomic point of view, an EUBS is a useful tool to improve shock absorption capacity and is not mutually exclusive with market risk sharing. This report was prepared in the context of a research project on “The Feasibility and Added Value of a European Unemployment Benefits Scheme”, commissioned by DG EMPL of the European Commission and carried out by a consortium of researchers led by CEPS. It is published by CEPS with the kind permission of the European Commission. By Alcidi, Cinzia; Thirion, Gilles
  88. Measuring fiscal spillovers in EMU and beyond: A Global VAR approach By Belke, Ansgar; Osowski, Thomas
  89. Channels of Sovereign Risk Spillovers and Investment in the Manufacturing Sector By Sebastian Deininger; Dietmar Maringer
  90. Taking Stock; Who Benefited from the Oil Price Shocks? By Diego A. Cerdeiro; Dmitry Plotnikov
  91. Republic of Moldova; First Reviews Under the Extended Credit Facility and Extended Fund Facility Arrangements and Request for Modification of Performance Criteria-Press Release; and Staff Report By International Monetary Fund.
  92. Government Bond Yields at the Effective Lower Bound: International Evidence By Domenico Lombardi, Pierre Siklos, Samantha St.Amand
  93. A Strategy for Evaluating the Opportunity Cost of Time Estimates from New Choice Margins By K.E. McConnell; Juha V. Siikamäki; V. Kerry Smith
  94. The Eurosystem collateral framework explained By Bindseil, Ulrich; Corsi, Marco; Sahel, Benjamin; Visser, Ad
  95. A Road Map To Cashless Economy In India By Varma, Vijaya Krushna Varma
  96. The Outlook for the Economy and Monetary Policy 05-08-2017 The Chicago Council on Global Affairs, Chicago, IL By Mester, Loretta J.
  97. Investment Puzzle: Deeper Roots By Kim , Sujin
  98. Household Savings Rate in National Accounts and Household Surveys in Japan (Japanese) By UNAYAMA Takashi; OHNO Taro
  99. Measuring the Uncertainty in Predicting Public Revenue By Gilles Mourre; Caterina Astarita; Anamaria Maftei
  100. The impact of macroprudential housing finance tools in Canada By Jason Allen; Timothy Grieder; Tom Roberts; Brian Peterson
  101. Are Recessions Good for Staffing in Nursing Homes? By R. Tamara Konetzka; Karen B. Lasater; Edward C. Norton; Rachel M. Werner
  102. Tax devaluation with endogenous margins By Pascal Belan; Clément Carbonnier; Martine Carré
  103. On the Relationship between Globalisation and the Economic Participation of Women in Sub-Saharan Africa By Asongu, Simplice; Efobi, Uchenna; Tanankem, Belmondo

  1. By: Marcin Bielecki (Narodowy Bank Polski, University of Warsaw); Michał Brzoza-Brzezina (Narodowy Bank Polski, Warsaw School of Economics); Marcin Kolasa (Narodowy Bank Polski, Warsaw School of Economics); Krzysztof Makarski (Narodowy Bank Polski, Warsaw School of Economics)
    Abstract: Boom-bust cycles in the eurozone periphery almost toppled the common currency and recent experience suggests that they may return soon. We check whether monetary or macroprudential policy could have prevented the periphery’s violent boom and bust after the euro adoption. We estimate a DSGE model for the two euro area regions, core and periphery, and conduct a series of historical counterfactual experiments in which monetary and macroprudential policy follow optimized rules that use area-wide welfare as the criterion. We show that common monetary policy could have better stabilized output in both regions, but not the housing market or the periphery’s trade balance.In contrast, region-specific macroprudential policy could have substantially smoothed the credit cycle in the periphery and reduced the build-up of external imbalances.
    Keywords: euro-area imbalances, monetary policy, macroprudential policy, Bayesian estimation
    JEL: E32 E44 E58
    Date: 2017
  2. By: Bachmann, Rüdiger; Rueth, Sebastian
    Abstract: What are the macroeconomic consequences of changing aggregate lending standards in residential mortgage markets, as measured by loan-to-value (LTV) ratios? In a structural VAR, GDP and business investment increase following an expansionary LTV shock. Residential investment, by contrast, falls, a result that depends on the systematic reaction of monetary policy. We show that, historically, the Fed tended to respond directly to expansionary LTV shocks by raising the monetary policy instrument, and, as a result, mortgage rates increase and residential investment declines. The monetary policy reaction function in the US appears to include lending standards in residential markets, a finding we confirm in Taylor rule estimations. Without the endogenous monetary policy reaction residential investment increases. House prices and household (mortgage) debt behave in a similar way. This suggests that an exogenous loosening of LTV ratios is unlikely to explain booms in residential investment and house prices, or run ups in household leverage, at least in times of conventional monetary policy.
    Keywords: Cholesky identification; loan-to-value ratios; monetary policy; residential investment; structural VAR; Taylor rules
    JEL: E30 E32 E44 E52
    Date: 2017–05
  3. By: Jarocinski, Marek; Mackowiak, Bartosz Adam
    Abstract: When monetary and fiscal policy are conducted as in the euro area, output, inflation, and government bond default premia are indeterminate according to a standard general equilibrium model with sticky prices extended to include defaultable public debt. With sunspots, the model mimics the recent euro area data. We specify an alternative configuration of monetary and fiscal policy, with a non-defaultable eurobond. If this policy arrangement had been in place since the onset of the Great Recession, output could have been much higher than in the data with inflation in line with the ECB's objective.
    Keywords: fiscal theory of the price level; eurobond; self-ful lfiling expectations; zero lower bound
    JEL: E31 E32 E63
    Date: 2017–05
  4. By: Belke, Ansgar
    Abstract: Successfully managing a course back to normality ("exit") will depend crucially on the central banks' ability to communicate effectively a credible strategy for an orderly exit from such kind of policies. In this context, clear, deliberate, coordinated messages that are anchored in the central banks' mandate are essential. We focus upon transparency and "forward guidance" as potential tools to stimulate the economy in the Euro Area. We then deliver details on whether and how the effectiveness of central bank's policies can be improved through more transparency and "forward guidance". We do so by highlighting marked differences in the Fed's and the ECB's interpretation of "forward guidance". In order to highlight the key issues of central bank communication and the management of expectations referring to a practical institutional example, we also comment on the role of the Monetary Dialogue, i.e. the regular appearances of the President of the European Central Bank (ECB) before the European Parliament (EP), in the context of an evolving monetary policy. Communication is finally described as a policy option in terms of minimising risk in the context of exit from unconventional monetary policies and of the signalling channel which refers to what the public learns from announcements of unconventional monetary policy operations such as Quantitative Easing.
    Keywords: central bank communication,European Central Bank,forward guidance,monetary dialogue,transparency
    JEL: E52 E58 G14
    Date: 2017
  5. By: Hohberger, Stefan; Priftis, Romanos; Vogel, Lukas
    Abstract: This paper analyses the macroeconomic effects of the ECB's quantitative easing programme using an open-economy DSGE model estimated with Bayesian techniques. Using data on government debt stocks and yields across maturities we identify the parameter governing portfolio adjustment in the private sector. Shock decompositions suggest a positive contribution of ECB QE to EA year-on-year output growth and inflation of up to 0.4 and 0.5 pp in the standard linearised version of the model. Allowing for an occasionally binding zero-bound constraint by using piecewise linear solution techniques raises the positive impact up to 1.0 and 0.7 pp, respectively.
    Keywords: E44, E52, E53, F41
    JEL: E44 E52 F41
    Date: 2017–03–14
  6. By: Ali Ozdagli (Federal Reserve Bank of Boston); Michael Weber (University of Chicago Booth School of Business)
    Abstract: Monetary policy shocks have a large impact on aggregate stock market returns in narrow event windows around press releases by the Federal Open Market Committee. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct (demand) effect and an indirect (network) effect. We attribute 50%-85% of the overall effect to indirect effects. The decomposition is robust to different sample periods, event windows, and types of announcements. Direct effects are larger for industries selling most of the industry output to end-consumers compared to other industries. We find similar evidence of large indirect effects using ex-post realized cash-fundamentals. A simple model with intermediate inputs guides our empirical methodology. Our findings indicate that production networks might be an important propagation mechanism of monetary policy to the real economy.
    Keywords: Input-output linkages, Spillover effects, Asset prices, High frequency identification
    JEL: E12 E31 E44 E52 G12 G14
    Date: 2017
  7. By: David Byrne; Stephen Oliner; Daniel Sichel
    Abstract: Two recent papers have made compelling cases that mismeasurement of prices of high tech products cannot explain the slow pace of labor productivity growth that has prevailed since the mid-2000s. Does that result indicate that mismeasurement of high-tech products has limited implications for patterns of economic growth? The answer in this paper is “no.” We demonstrate that the understatement of price declines for high-tech products in official measures has a dramatic effect on the pattern of MFP growth across sectors. In particular, we show that correcting this mismeasurement implies faster MFP growth in high-tech sectors and slower MFP advance outside the high-tech sector. If MFP growth is taken as a rough proxy for the pace of innovation, our results suggest that innovation in the tech sector has been more rapid than the rate that would be inferred from official statistics (and less rapid outside high-tech). These results deepen the productivity puzzle. If the pace of innovation in high-tech sectors has been more rapid than indicated by official statistics, then it is perhaps even more puzzling that overall labor productivity growth has been so sluggish in recent years.
    JEL: E01 E22 E24 L63 L86 O3 O33 O4 O41
    Date: 2017–04
  8. By: Mariarosaria Comunale (Bank of Lithuania and The Australian National University); Jonas Striaukas (Louvain School of Management)
    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: 2017–05–12
  9. By: Rösl, Gerhard; Seitz, Franz; Tödter, Karl-Heinz
    Keywords: zero lower bound,cash abolishment,negative interest rates,welfare loss,compensated variation,deadweight loss
    JEL: E41 E21 E58 I3
    Date: 2017
  10. By: Yasuo Hirose; Takeki Sunakawa
    Abstract: This paper investigates how and to what extent nonlinearity, including the zero lower bound on the nominal interest rate, affects the estimates of the natural rate of interest in a dynamic stochastic general equilibrium model with sticky prices and wages. We find that the estimated natural rate of interest in a nonlinear model is substantially different from that in its linear counterpart because of a contractionary effect of the zero lower bound, and that other nonlinearities such as price and wage dispersion, from which a linear model abstracts, play a minor role in identifying the natural rate.
    Keywords: Natural rate of interest, Nonlinearity, Zero lower bound, Particle filter
    JEL: C32 E31 E43 E52
    Date: 2017–05
  11. By: Onaran, Özlem
    Abstract: The assessment of the impact of the policies in the election manifestos in the media is rather static as comments mostly ignore their positive impacts on growth, investment and productivity. This policy brief brings in the forgotten macroeconomic principles into this debate: Policies proposed in the Labour manifesto to provide a decent physical and social infrastructure, patient, long-term finance via the National Investment Bank, stable macroeconomic environment, incentives to remove new plant and machinery from business rate calculations and disincentives for speculation via broadening the financial transaction tax can lead to higher private investment and productivity and help to rebalance the economy. Policies encouraging a healthy growth in wages could reverse the shaky growth model in Britain driven by a massive increase in private household debt, decrease economic fragility, improve household confidence and domestic demand, which can stimulate business investment.
    Keywords: inequality; investment; productivity; National Investment Bank;
    JEL: E12 E22 E25
    Date: 2017–05–18
  12. By: Masayuki Inui (Bank of Japan); Nao Sudo (Bank of Japan); Tomoaki Yamada (Meiji University)
    Abstract: Impacts of monetary easing on inequality have recently attracted increasing attention. In this paper, we use the micro-level data of Japanese households to study the distributional effects of monetary policy. We construct quarterly series of income and consumption inequality measures from 1981 to 2008, and estimate their response to a monetary policy shock. We do find that monetary policy shocks do not have statistically significant impacts on inequalities across Japanese households in a stable manner. We find evidence, when considering inequality across households whose head is employed, an expansionary monetary policy shock increased income inequality through a rise in earnings inequality, in the period before the 2000s. Such procyclical responses are, however, scarcely observed when the current data is included in the sample period, or when earnings inequality across all households is considered. We also find that, transmission of income inequality to consumption inequality is minor even during the period when procyclicality of income inequality was pronounced. Using a two-sector dynamic general equilibrium model with attached labor inputs, we show that labor market flexibility is the central to the dynamics of income inequality after monetary policy shocks. We also use the micro-level data of households' balance sheet and show that distributions of households' financial assets and liabilities do not play a significant role in the distributional effects of monetary policy.
    Keywords: Monetary Policy; Income inequality; Consumption inequality
    JEL: E3 E4 E5
    Date: 2017–05–10
  13. By: Liu, Chunping (Nottingham Trent University); Ou, Zhirong (Cardiff Business School)
    Abstract: We investigate what determines Chinaís housing price dynamics using a DSGE-VAR estimated with priors allowing for the featured operating of normal and ëshadowí banks in China, with data observed between 2001 and 2014. We Önd that the housing demand shock, which is the essential factor for housing price ëbubblesí to happen, accounts for over 80% of the housing price áuctuation. We also Önd that a prosperous housing market could have led to future economic growth, though quantitatively its marginal impact is small. But this also means that, for policy-makers who wish to stabilise the housing market, the cost on output reduction would be rather limited.
    Keywords: Housing price; Bubbles; Market spillovers; DSGE-VAR; China
    JEL: C11 E32 E44 R31
    Date: 2017–04
  14. By: Alesina, Alberto; Barbiero, Omar; Favero, Carlo A.; Giavazzi, Francesco; Paradisi, Matteo
    Abstract: We investigate the macroeconomic effects of fiscal consolidations based upon government spending cuts, transfers cuts and tax hikes. We extend a narrative dataset of fiscal consolidations, finding details on over 3500 measures. Government spending and transfer cuts are much less harmful than tax hikes. Standard New Keynesian models match our results when fiscal shocks are persistent. Wealth effects on aggregate demand mitigates the impact of a persistent spending cut. Static distortions caused by persistent tax hikes cause larger shifts in aggregate supply under sticky prices. This channel explains different sizes of multipliers found in fiscal stimuli compared to consolidation plans.
    Keywords: fiscal consolidation plans; Fiscal multipliers
    JEL: E62
    Date: 2017–05
  15. By: Swarbrick, Jonathan Mark; Blattner, Tobias
    Abstract: In this paper we show how interbank market frictions can play an important role in propagating and enhancing the effects of shocks in a currency union, and discuss the efficacy of two unconventional policy measures; multi-period central bank refinance operations and large scale asset purchases. To this end, a two-country structural model with idiosyncratic risk and country-specific transactional costs on interbank lending is proposed and used to show that (i) the effectiveness of monetary policy is enhanced when banks face an external finance premium in the interbank market; (ii) adverse shocks to the real economy can be the source of banking crisis, causing an increase in the interbank finance premia, aggravating the initial shock; and (iii) asset purchase policies and long-term refinancing operations can both be successful in supporting conventional monetary policy in mitigating the adverse effects of shocks.
    Keywords: Interbank market,monetary union,financial frictions,unconventional monetary policy
    JEL: E44 E52 F32 F36
    Date: 2017
  16. By: Harashima, Taiji
    Abstract: The standard view on the economic impact of immigration has been criticized for its inability to solve the “immigration policy puzzle.” It also has a problem in that the “net” income of heterogeneous workers is equalized. These problems arise because the standard view generally depends on a production function in which the elasticity of substitution between heterogeneous workers is constant. This paper constructs an alternative production function in which the elasticity of substitution between heterogeneous workers is not constant and is instead based on a model of total factor productivity. The alternative view presented based on this production function indicates that an “open door” policy is not necessarily economically optimal for host countries under some conditions
    Keywords: Immigration; Immigration policy; Production function
    JEL: D24 E23 E24 F22 F62 F66 F68
    Date: 2017–05–05
  17. By: Andrle, Michal; Brůha, Jan; Solmaz, Serhat
    Abstract: What are the drivers of business cycle fluctuations? And how many are there? By documenting strong and predictable co-movement of real variables during the business cycle in a sample of advanced economies, we argue that most business cycle fluctuations are driven by one major factor. The positive co-movement of real output and inflation convincingly argues for a demand story. This feature—robust across time and space—provides a simple smell test for structural macroeconomic models. We propose a simple statistic that can compare data and models. Based on this statistic, we show that the recent vintage of structural economic models has difficulties replicating the stylized facts we document. JEL Classification: C10, E32, E50
    Keywords: business cycle, demand shocks, DSGE models, dynamic principal component analysis
    Date: 2017–05
  18. By: Solis-Garcia, Mario; Xie, Yingtong
    Abstract: We propose a methodology for measuring the size and properties of the shadow economy. We use a two-sector dynamic deterministic general equilibrium model with four different trends: hours worked, investment-specific productivity, formal productivity, and shadow productivity. We find that the shadow productivity trend is endogenous, in the sense that it is an exact function of model parameters and the other three trends. We also document that, in order to be consistent with observed (real-world) trend growths, the shadow sector needs to exhibit increasing returns to scale, which is contrary to the standard procedure of imposing decreasing returns to this sector. We apply our methodology to a set of seven Latin American and Asian countries and document several empirical regularities that emerge from our analysis, the most important one being that the volatility of shadow sector output is considerably larger than the one in formal sector output.
    Keywords: shadow economy, business cycles, DSGE models
    JEL: E26 E32 O17
    Date: 2017–01–03
  19. By: Harold Esteban Perdomo Ruíz
    Abstract: La teoría propuesta por la Escuela austriaca determina que la inflación no se ve afectada por el aumento en el nivel general de precios, sino que, se presenta por una variación de la masa monetaria sobre la variación del PIB. En este sentido, el documento busca encontrar esta medida de inflación para Colombia e interpretar, según el ciclo económico austriaco, las crisis presentadas en el periodo 1991-2011.
    Keywords: Inflación, Escuela austriaca, ciclo de negocios, masa monetaria, PIB
    JEL: B53 E31 E32
    Date: 2017–05–10
  20. By: Sergio Cesaratto
    Abstract: Febrero et al. (2017) criticise the balance of payments (BOP) view of the EMU crisis. I have no major objections to most of the single aspects of the crisis pointed out by these authors, except that they appear to underlie specific sides of the EMU crisis, while missing a unifying and realistic explanation. Specific semi-automatic mechanisms differentiate a BOP crisis in a currency union from a traditional one. Unfortunately, these mechanisms give Febrero et al. the illusion that a BOP crisis in a currency union is impossible. My conclusion is that an interpretation of the Eurozone troubles as a balance of payments (BOP) crisis provides a more consistent framework. The debate has some relevance for the policy prescriptions to solve the eurocrisis. Given the costs that all sides would incur if the currency union were to break up, austerity policies are still seen by European politicians as a tolerable price to pay to keep foreign imbalances at bay - with the sweetener of some ECB support, for as long as Berlin allows the ECB to provide it.
    Keywords: European economic and monetary union, ECB, balance of payment crisis, Target2, Euro
    JEL: E11 E12 E42 E58 F32 F33 F34 F36 N24
  21. By: Fatih Guvenen; Greg Kaplan; Jae Song; Justin Weidner
    Abstract: Using panel data on individual labor income histories from 1957 to 2013, we document two empirical facts about the distribution of lifetime income in the United States. First, from the cohort that entered the labor market in 1967 to the cohort that entered in 1983, median lifetime income of men declined by 10%–19%. We find little-to-no rise in the lower three-quarters of the percentiles of the male lifetime income distribution during this period. Accounting for rising employer-provided health and pension benefits partly mitigates these findings but does not alter the substantive conclusions. For women, median lifetime income increased by 22%–33% from the 1957 to the 1983 cohort, but these gains were relative to very low lifetime income for the earliest cohort. Much of the difference between newer and older cohorts is attributed to differences in income during the early years in the labor market. Partial life-cycle profiles of income observed for cohorts that are currently in the labor market indicate that the stagnation of lifetime incomes is unlikely to reverse. Second, we find that inequality in lifetime incomes has increased significantly within each gender group. However, the closing lifetime gender gap has kept overall lifetime inequality virtually flat. The increase within gender groups is largely attributed to an increase in inequality at young ages, and partial life-cycle income data for younger cohorts indicate that the increase in inequality is likely to continue. Overall, our findings point to the substantial changes in labor market outcomes for younger workers as a critical driver of trends in both the level and inequality of lifetime income over the past 50 years.
    JEL: E24 J24 J31
    Date: 2017–04
  22. By: Shijaku, Gerti
    Abstract: This paper addresses the dynamic relationship between competition and bank stability in Albanian banking system during the period 2008 - 2015. To this purpose, we construct a proxy for bank competition as referred to the Boone indicator. We also calculated the Lerner index and the efficient adjusted Lerner index, as well as the profit elasticity index and the Herfindahl–Hirschman Index. The main results provide support for the “competition – stability” view – that lower degree of market power sets banks to less overall risk exposure. The results further show that increasing concentration will have a larger impact on bank’s fragility. Similar, bank stability is positively linked with macroeconomic conditions and capital ratio and inverse with operational efficiency. We also used a quadratic term of the competition measures to capture a possible non-linear relationship between competition and stability, but find no supportive evidence.
    Keywords: Bank Fragility, Competition, Boone and Lerner indicator, Panel Data, GMM.
    JEL: C26 C32 E32 E43 G21 H63
    Date: 2016–11–17
  23. By: Kozo Ueda (Waseda University and Centre for Applied Macroeconomic Analysis (CAMA)); Kota Watanabe (Canon Institute for Global Studies and University of Tokyo); Tsutomu Watanabe (University of Tokyo)
    Abstract: In this study, we evaluate the effects of product turnover on a welfare-based cost-of-living index. We first present several facts about price and quantity changes over the product cycle employing scanner data for Japan for the years 1988-2013, which cover the deflationary period that started in the mid 1990s. We then develop a new method to decompose price changes at the time of product turnover into those due to the quality effect and those due to the fashion effect (i.e., the higher demand for products that are new). Our main findings are as follows: (i) the price and quantity of a new product tend to be higher than those of its predecessor at its exit from the market, implying that Japanese firms use new products as an opportunity to take back the price decline that occurred during the life of its predecessor under deflation; (ii) a considerable fashion effect exists, while the quality effect is slightly declining; and (iii) the discrepancy between the cost-of- living index estimated based on our methodology and the price index constructed only from a matched sample is not large. Our study provides a plausible story to explain why Japan's deflation during the lost decades was mild.
    Keywords: cost-of-living index; product creation and destruction; fashion effect; substitution; lost decades
    JEL: C43 E31 E32 O31
    Date: 2016–12
  24. By: MIYAO Ryuzo; OKIMOTO Tatsuyoshi
    Abstract: Japan is the country with the longest history of implementing unconventional monetary policies, which were first introduced 15 years ago and have since been expanded several times. A case in point is the quantitative and qualitative monetary easing (QQE) policy introduced by the Bank of Japan (BOJ) in early 2013 along with the commitment to continue with the program as long as necessary to achieve a 2% price stability target. This study attempts to assess the overall macroeconomic effects of Japan's unconventional monetary policies, with an emphasis on the recent QQE program. Using a stylized block-recursive vector autoregression (VAR) framework, the analysis suggests that expansionary unconventional monetary policy shocks have clear macroeconomic effects, leading to a persistent rise in real output and inflation in Japan. The evidence also suggests that these macroeconomic effects became larger and more persistent after the introduction of QQE. A formal analysis that allows for a regime shift based on a smooth-transition VAR model supports these findings.
    Date: 2017–05
  25. By: Njindan Iyke, Bernard; Ho, Sin-Yu
    Abstract: Consumption forms a vital component of aggregate demand. Hence, its behaviour influences business cycles, long-term growth, employment and macroeconomic policy decisions. The literature has therefore focused on establishing the determinants of consumption. Chiefly among the key determinants established in the literature are income and the interest rate. The recent literature has added changes in the real exchange rate and its volatility as critical factors influencing consumption decisions, owing to their pass-through effects on inflation and inflation volatility. The extant studies have examined the effects of exchange rate volatility on consumption by considering countries in regions other than Sub-Saharan Africa (SSA). In this paper, we examined this issue by focusing on a small open SSA country, Ghana, which has experienced exchange rate volatility. Using annual data covering the period 1980–2015, and the annualised variance of the real exchange rate as a measure of exchange rate volatility, we found that exchange rate volatility has negative effects on domestic consumption in the short run, which is passed on as negative long-run effects. This conclusion is unaffected by an alternative measure of exchange rate volatility and the choice of lag restrictions. Our finding suggests that policymakers should seek to reduce or prevent exchange rate volatility by pursuing various policies including limiting foreign currency transactions within the country, and promoting quality exports.
    Keywords: Exchange Rate Volatility; Domestic Consumption; Ghana.
    JEL: C22 E31 F31
    Date: 2017
  26. By: Martin Feldkircher Author-Email: Author-WorkPlace-Name: Oesterreichische Nationalbank (OeNB); Thomas Gruber Author-Email: Author-WorkPlace-Name: Oesterreichische Nationalbank (OeNB) Author-Name: Florian Huber Author-Email: Author-WorkPlace-Name: Department of Economics, Vienna University of Economics and Business Note: PDF Document Keywords: Euro area monetary policy, quantitative easing, spillovers Classification-JEL: C30, E52, F41, E32 Abstract: As a consequence of asset purchases by the European Central Bank (ECB), longer-term yields in the euro area decline, and spreads between euro area long-term yields narrow. To assess spillovers of these recent financial developments, we use a Bayesian variant of the global vector autoregressive (BGVAR) model with stochastic volatility and propose a novel mixture of zero impact and sign restrictions that we impose on the cross-section of the data. Both shocks generate positive and significant spillovers to industrial production in Central, Eastern and Southeastern Europe (CESEE) and other non-euro area EU member states. These effects are transmitted via the financial channel (mainly through interest rates and equity prices) and outweigh costs of appreciation pressure on local currencies vis-a-vis the euro (trade channel). While these results represent general trends, we also find evidence for both cross-country heterogeneity of effects within the euro area and region-specific spillovers thereof.
    Date: 2017–05
  27. By: Shijaku, Gerti
    Abstract: Motivated by the debate on concentration-stability nexus, this paper studies the impact of bank concentration on the likelihood of a country suffering systemic bank fragility. For this reason, we followed a new approach using on-site bank balance sheet information to construct our proxy that represent each bank stability condition and use a variety of internal and external factors to estimate a balance panel dynamic two-step General Method of Moments (GMM) approach for the period 2008 – 2015. First, results provide supportive evidence consistent with the concentration-fragility view. Second, macroeconomic variables seem to have a significant effect on bank stability, which is not found for the sovereignty primary risk. By contrast, the bank-specific variables have also a significant effect on bank stability conditions. Finally, non-systemic banks are found to be more sensitive to macroeconomic condition and market concentration, while the better capitalised banks are less sensitive to fragility at the expense of lower operation efficiency.
    Keywords: Bank Fragility, Primary Sovereignty Risk, Panel Data, Dynamic GMM
    JEL: C26 E32 E43 G21 H63
    Date: 2016–08–31
  28. By: Thomas Piketty; Li Yang; Gabriel Zucman
    Abstract: This paper combines national accounts, survey, wealth and fiscal data (including recently released tax data on high-income taxpayers) in order to provide consistent series on the accumulation and distribution of income and wealth in China over the 1978-2015 period. We find that the aggregate national wealth-income ratio has increased from 350% in 1978 to almost 700% in 2015. This can be accounted for by a combination of high saving and investment rates and a gradual rise in relative asset prices, reflecting changes in the legal system of property. The share of public property in national wealth has declined from about 70% in 1978 to 30% in 2015, which is still a lot higher than in rich countries (close to 0% or negative). Next, we provide sharp upward revision of official inequality estimates. The top 10% income share rose from 27% to 41% of national income between 1978 and 2015, while the bottom 50% share dropped from 27% to 15%. China’s inequality levels used to be close to Nordic countries and are now approaching U.S. levels.
    JEL: D31 E01 E21 O53
    Date: 2017–04
  29. By: Miyoshi, Yoshiyuki; Toda, Alexis Akira
    Abstract: We show that in overlapping generations endogenous growth models with uncertain lifetime, the introduction of government transfers always increases economic growth by crowding out the private annuity market and increasing accidental bequests. In particular, if the government imposes a flat-rate consumption tax (which is neutral to the consumption-saving margin), uses part of the tax revenue for unproductive purposes, and rebates the rest equally across agents as a lump-sum transfer, the economy grows faster and improves the welfare of future generations.
    Keywords: annuity, endogenous growth, overlapping generations, redistribution
    JEL: D58 E21 H20 H21 O41
    Date: 2016–05–16
  30. By: International Monetary Fund.
    Abstract: The WAEMU region has experienced strong growth over the last five years but vulnerabilities have increased. Public debt is on the rise and external buffers have shrunk. Good progress has been made in upgrading the financial sector regulatory framework but significant pockets of vulnerability remain. The outlook remains positive, provided macroeconomic stability and strong resolve to improve the business environment and promote private investment are maintained. Downside risks stem from a sharper slowdown of economic growth, tighter international financing conditions, delays in implementing fiscal consolidation, sluggish structural reforms as well as a sustained decline in cocoa prices. In addition, security threats remain significant.
    Date: 2017–04–26
  31. By: Sergio Cesaratto
    Abstract: Questo saggio è indirizzato principalmente (ma non esclusivamente) a un pubblico nonaccademico, e in questo senso è un proseguo delle Sei lezioni, anche nello stile. Metto tuttavia questo pubblico (e non solo) a dura prova. Le note sono utilizzabili anche a scopo didattico. Dopo aver spiegato cos’è Target 2, si fanno tre casi in cui insorgono passività Target 2, mostrando come queste ultime abbiano la natura economica di un debito. Per questa ragione, nel caso di un’uscita di un Paese dall’euro (o di una rottura di quest’ultimo) e di una mancata regolazione di quelle passività, i Paesi creditori subirebbero una perdita nella loro ricchezza nazionale netta. Questo non vuol dire che questi debiti non possano diventare oggetto di negoziazione, anzi questo sarebbe molto probabile. Una appendice contiene una rassegna critica di alcuni interventi sulla stampa e in rete relativi alle recenti dichiarazione di Draghi in merito. Commenti e integrazioni sui probabili errori e imprecisioni sono più che benvenuti. “Se mi sbaglio mi corrigerete”
    JEL: E11 E12 E42 E52 F32 F33 F34 F36 N24
  32. By: Doll, Jens; Rosenthal, Beatrice; Volkenand, Jonas; Hamella, Sandra
    Abstract: Obgleich es zahlreiche Institutionen gibt, die das deutsche Bruttoinlandsprodukt vorhersagen, mangelt es aktuell an sogenannten "Nowcasting"-Modellen, deren Prognosegüte mit jedem neu verfügbaren, das deutsche Bruttoinlandsprodukt beeinflussenden Datenpunkt verbessert wird. In der folgenden Arbeit wird ein Konzept entwickelt und getestet, das auf Basis einer Bottom-up-Modellierung Nowcasting-Prognosen für das deutsche Bruttoinlandsprodukt ermöglicht. Hierbei bringt es mit der verwendeten Kombination von Modellen einen neuen Ansatz in die aktuelle Literatur des Nowcasting für das deutsche Bruttoinlandsprodukt ein. Durch die diversifizierte Vorhersage der einzelnen Komponenten ist neben einer verbesserten Prognosegüte ebenfalls eine dezidierte Interpretation des wirtschaftlichen Geschehens möglich. Das vorgestellte Prognosemodell zeigt in einem Pseudo Out of Sample Test eine gute Prognoseleistung im Vergleich zu Benchmark-Modellen und kann insbesondere in Krisenzeiten mit geringen Prognosefehlern überzeugen.
    Keywords: Nowcasting,Bruttoinlandsprodukt,kurzfristige Konjunkturprognose,Wachstum,Bottom-up,Brückengleichungen,Deutschland
    JEL: E32 E37 C51 C52 C53
    Date: 2017
  33. By: Toda, Alexis Akira
    Abstract: The cross-sectional distribution of consumption is commonly approximated by the lognormal distribution. This note shows that consumption is better described by the double Pareto-lognormal distribution (dPlN), which has a lognormal body with two Pareto tails and arises as the stationary distribution in recently proposed dynamic general equilibrium models. dPlN outperforms other parametric distributions and is often not rejected by goodness-of-fit tests. The analytical tractability and parsimony of dPlN may be convenient for various economic applications.
    Keywords: Gibrat's law, multiplicative idiosyncratic risk, inequality, power law
    JEL: D31 E21 G12
    Date: 2015–10–29
  34. By: Xiong, Qizhou
    Abstract: The persistent premium of government debt attributes to two main reasons: absolute nominal safety and liquidity. This paper employs two types of measures of government debt supply to disentangle the safety and liquidity part of the premium. The empirical evidence shows that, after controlling for the opportunity cost of money, the quantitative impact of total government debt-to-GDP ratio is still significant and negative, which is consistent with the theoretical predictions of the CAPM with utility surplus of holding convenience assets. The relative availability measure, the ratio of total government liability to all sector total liability, separates the liquidity premium from the safety premium and has a negative impact too. Both theoretical and empirical results suggest that the substitutability between government debt and private safe assets dictates the quantitative impact of the government debt supply.
    Keywords: safe asset,government debt,liquidity premium,safety premium
    JEL: E41 E43 G12
    Date: 2017
  35. By: Ashraf Khan
    Abstract: Drawing on the 2016 update of the IMF’s Central Bank Legislation Database, this paper examines differences in central bank legal frameworks before and after the Global Financial Crisis. Examples from select countries show that many central bank laws have undergone changes in objectives, decision-making, accountability, and data collection. A wider cross-country survey illustrates the common occurrence of price stability in central bank objectives, and varying practices in defining financial stability, “independence†versus “autonomy,†and who within a central bank determines monetary policy. The highlighted facts illustrate the uses of the database and could be a starting point for further analyses.
    Date: 2017–05–01
  36. By: Kota Watanabe (Canon Institute for Global Studies (CIGS) and University of Tokyo); Tsutomu Watanabe (Graduate School of Economics, University of Tokyo)
    Abstract: A notable characteristic of Japan's deflation since the mid-1990s is the mild pace of price decline, with the CPI falling at an annual rate of only around 1 percent. Moreover, even though unemployment increased, prices hardly reacted, giving rise to a flattening of the Phillips curve. In this paper, we address why deflation was so mild and why the Phillips curve flattened, focusing on changes in price stickiness. Our first finding is that, for the majority of the 588 items constituting the CPI, making up about 50 percent of the CPI in terms of weight, the year-on-year rate of price change was near-zero, indicating the presence of very high price stickiness. This situation started during the onset of deflation in the second half of the 1990s and continued even after the CPI inflation rate turned positive in spring 2013. Second, we find that there is a negative correlation between trend inflation and the share of items whose rate of price change is near zero, which is consistent with Ball and Mankiw's (1994) argument based on the menu cost model that the opportunity cost of leaving prices unchanged decreases as trend inflation approaches zero. This result suggests that the price stickiness observed over the last two decades arose endogenously as a result of the decline in inflation. Third and finally, a cross-country comparison of the price change distribution reveals that Japan differs significantly from other countries in that the mode of the distribution is very close to zero for Japan, while it is near 2 percent for other countries including the United States. Japan continues to be an "outlier" even if we look at the mode of the distribution conditional on the rate of inflation. This suggests that whereas in the United States and other countries the "default" is for firms to raise prices by about 2 percent each year, in Japan the default is that, as a result of prolonged deflation, firms keep prices unchanged.
    Date: 2017–03
  37. By: Maria Chiara Cavalleri; Yvan Guillemette
    Abstract: The paper describes revisions to the trend employment component of the production function underpinning long-term economic scenarios. Starting with historical age and sex-specific employment rates, a novel approach is developed to correct for cyclical effects using the country-level employment gap while allowing the different sex and age groups to exhibit different sensitivities to the economic cycle. From the resulting cyclically adjusted age/sex-specific employment rates, trend entry and exit rates into/out of employment are computed using the traditional cohort approach. The different employment propensities of existing cohorts are then used to project future employment rates, with entry and exit rates of new cohorts assumed to mimic the most recent ones. To construct scenarios, the model allows a number of policy settings to influence employment rate projections, notably the legal retirement age, tax wedges, family benefits, etc. The sizes of these effects are sourced from recent OECD work on the quantification of structural reforms, and are also specific to sex and age groups. The trend total employment projection is obtained by aggregating age/sex-specific employment rate projections using external demographic projections.
    Keywords: cohort model, cyclical adjustment, employment gap, long-term model, long-term scenarios, potential employment, projections, Trend employment
    JEL: C53 E24 E27 J21
    Date: 2017–05–18
  38. By: Richter, Alexander (Federal Reserve Bank of Dallas); Throckmorton, Nathaniel (College of William & Mary)
    Abstract: This paper develops a new method to quantify the effects of uncertainty using estimates from a nonlinear New Keynesian model. The model includes an occasionally binding zero lower bound constraint on the nominal interest rate, which creates time-varying endogenous uncertainty, and two exogenous types of time-varying uncertainty—a volatility shock to technology growth and a volatility shock to the risk premium. A filtered third-order approximation of the Euler equation shows consumption uncertainty on average reduced consumption by about 0.06% and the peak effect was 0.15% during the Great Recession. Other higher-order moments such as inflation uncertainty, technology growth uncertainty, consumption skewness, and inflation skewness had smaller
    Keywords: Baysian estimation; uncertainty; stochastic volatility; zero lower bound
    JEL: C11 D81 E32 E58
    Date: 2017–05–04
  39. By: Solis-Garcia, Mario; Xie, Yingtong
    Abstract: Why is GDP more volatile in developing countries? In this paper we propose an explanation that can account for the substantial differences in the volatility of measured real GDP per capita between developing and developed countries. Our explanation involves the often overlooked fact that developing economies have a sizable shadow economy. We build a two-sector model that distinguishes between measured (formal) and total (formal and shadow) outputs; using data from Latin America, our model results suggest that developing and developed economies are fairly similar in terms of the volatility of total real GDP. We also document an apparent puzzle, in that the model suggests that the volatility of the size of the shadow economy should be substantially larger than what is observed in the real world. We believe that this may be indicative of frictions that prevent agents from optimally moving between the formal and shadow economies.
    Keywords: shadow economy, business cycles, DSGE models, Bayesian estimation
    JEL: E26 E32 O17
    Date: 2017–03–30
  40. By: Piergiorgio Alessandri (Bank of Italy); Margherita Bottero (Bank of Italy)
    Abstract: We study the impact of economic uncertainty on the supply of bank credit using a monthly dataset that includes all loan applications submitted by a sample of 650,000 Italian firms between 2003 and 2012. We find that an increase in aggregate uncertainty has three effects. First, it reduces banks' likelihood to accept new credit applications. Second, it lengthens the time firms have to wait for their loans to be released. Third, it makes banks less responsive to fluctuations in short-term interest rates, weakening the bank lending channel of monetary policy. The influence of uncertainty is relatively stronger for poorly capitalized lenders and geographically distant borrowers.
    Keywords: uncertainty, credit supply, bank lending channel, loan applications
    JEL: E51 G20
    Date: 2017–04
  41. By: Riedler, Jesper; Brueckbauer, Frank
    Abstract: We develop a general model of the financial system that allows for the evaluation of bank regulation. Our framework comprises the agents and institutions that have proved crucial in the propagation of the subprime mortgage shock in the U.S. into a global financial crisis: Commercial banks and investment banks, which can also be interpreted as shadow banks, interact on wholesale debt markets. Beside a market for short term interbank loans and long term bank bonds, other funding sources include insured customer deposits, uninsured investor deposits and repos. While credit to the real sector is the principal asset of commercial banks, investment banks specialize in trading securities, which may differ according to risk, maturity and liquidity. As a first application of the model we implement the liquidity coverage ratio (LCR) regulation and analyze its impact on bank balance sheets, interest rates, the transmission of monetary policy and the stability of bank lending in the face of shocks. We find that the LCR regulation reduces the supply of loans to the real sector, increases the maturity and interest rate of long term wholesale debt, and strongly diminishes the role of the overnight interbank market as a funding source. Our simulations suggest that the transmission of changes to short term monetary policy rates is severely impaired when the LCR regulation is binding. Furthermore, we find that a strong confidence shock can lead to a protracted credit crunch under the liquidity regulation.
    Keywords: financial system,agent-based model,liquidity coverage ratio
    Date: 2017
  42. By: Christelis, Dimitris; Georgarakos, Dimitris; Jappelli, Tullio; Pistaferri, Luigi; Van Rooij, Maarten
    Abstract: We use the responses of a representative sample of Dutch households to survey questions that ask how much they would consume of an unexpected, transitory, and positive income change, and by how much they would reduce their consumption in response to an unexpected, transitory, and negative income change. The questionnaire distinguishes between relatively small income changes (a one-month increase or drop in income), and relatively larger ones (equal to three months of income). The results are broadly in line with models of intertemporal choice with precautionary saving, borrowing constraints, and finite horizons.
    Keywords: Transitory Income Shocks; Positive and Negative Income Shocks; Marginal Propensity
    JEL: D12 D14 E21
    Date: 2017–05
  43. By: Denis Gorea; Virgiliu Midrigan
    Abstract: We study the severity of liquidity constraints in the U.S. housing market using a life-cycle model with uninsurable idiosyncratic risks in which houses are illiquid, but agents have the option to refinance their long-term mortgages or obtain home equity loans. The model reproduces well the distribution of individual-level balance sheets – the fraction of housing, mortgage debt and liquid assets in households' wealth, the fraction of hand-to-mouth homeowners (Kaplan and Violante, 2014), as well as the frequency of housing turnover and home equity extraction in the 2001 data. The model implies that 75% of homeowners are liquidity constrained and willing to pay an average of 8 cents to extract an additional dollar of liquidity from their home. Liquidity constraints imply sizable welfare losses equivalent to a 1.2% permanent reduction in consumption.
    JEL: E21 E30
    Date: 2017–04
  44. By: Olivier Coibion; Yuriy Gorodnichenko; Dmitri Koustas
    Abstract: We document a decline in the frequency of shopping trips in the U.S. since 1980 and consider its implications for the measurement of consumption inequality. A decline in shopping frequency as households stock up on storable goods (i.e. inventory behavior) will lead to a rise in expenditure inequality when the latter is measured at high frequency, even when underlying consumption inequality is unchanged. We find that most of the recently documented rise in expenditure inequality in the U.S. since the 1980s can be accounted for by this phenomenon. Using detailed micro data on spending which we link to data on club/warehouse store openings, we directly attribute much of the reduced frequency of shopping trips to the rise in club/warehouse stores.
    JEL: D31 D63 E21
    Date: 2017–04
  45. By: Sanvi Avouyi-Dovi (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Guillaume Horny (Banque de France); Patrick Sevestre (Autre - non renseigné)
    Abstract: We analyse the dynamics of the pass through of banks’ marginal cost to bank lending rates over the 2008 crisis and the euro area sovereign debt crisis in France, Germany, Greece, Italy, Portugal and Spain . We measure banks’ marginal cost by their rate on new deposits, contrary to the literature that focuses on money market rates. This allows us to account for banks’ risks. We focus on the interest rate on new short term loans granted to non financial corporations in these countries Our analysis is based on an error correction approach that we extend to handle the time varying long run relationship between banks’ lending rates and banks’ marginal cost, as well as stochastic volatility. Our empirical results are based on a harmonised monthly database from January 2003 to October 2014 . We estimate the model within a Bayesian framework, using Markov Chain Monte Carlo methods (MCMC). We reject the view that the transmission mechanism is time invariant. The long run relationship moved with the sovereign debt crises to a new one, with a slower pass through and higher bank lending rates. Its developments are heterogeneous from one country to the other. Impediments to the transmission of monetary rates depend on the heterogeneity in banks marginal costs and therefore, its risks. We also find that rates to small firms increase compared to large firms in a few countries. Using a VAR model, we show that overall, the effect of a shock on the rate of new deposits on the unexpected variances of new loans has been less important since 2010. These results confirm the slowdown in the transmission mechanism.
    Abstract: Nous étudions la dynamique de la transmission du coût marginal des banques aux taux à court terme des nouveaux crédits bancaires accordés aux sociétés non financières, en Allemagne, Espagne, France, Grèce, Italie et Portugal, au cours de la crise financière de 2008 et de celle des dettes souveraines. Nous mesurons le coût marginal des banques par les taux des nouveaux dépôts alors que l'accent est mis sur les taux du marché monétaire dans la littérature. Cela nous permet de différencier le risque auquel font face les banques dans les différents pays. Nous spécifions un modèle à correction d'erreur que nous généralisons, d’une part, pour permettre à la relation de long terme liant le taux des crédits bancaires au coût marginal des banques de changer dans le temps, et, d’autre part, pour introduire une volatilité stochastique. Le modèle est estimé avec des données, harmonisées entre les pays étudiés, et couvrant la période allant de Janvier 2003 à Octobre 2014. Nous utilisons une approche bayésienne, basée sur des méthodes de Monte Carlo par Chaînes de Markov (MCCM). Nos résultats rejettent l'hypothèse selon laquelle le coût marginal des banques se transmet aux taux des nouveaux crédits de manière constante dans le temps. La relation de long terme qui unit ces variables, s’est modifiée avec la crise de la dette souveraine ; elle est devenue une relation dans laquelle les variations de coût marginal se transmette nt plus lentement et où les taux des prêts bancaires sont plus élevés. Ces évolutions diffèrent d'un pays à l'autre. En effet, les freins à la transmission des taux monétaires dépendent de l'hétérogénéité des coûts marginaux des banques, et donc de leurs risques. Nous constatons également que dans certains pays, les taux accordés aux petites entreprises augmentent par rapport à ceux octroyés aux grandes entreprises durant la crise. Enfin, avec un modèle VAR, nous montrons que, globalement, un choc sur les taux des nouveaux dépôts à moins d’effet sur l’évolution des taux des nouveaux prêts depuis 2010. Ces résultats confirment le ralentissement dans la transmission.
    Keywords: Bank interest rates,error-correction model,structural breaks,stochastic volatility,Bayesian econometrics,ruptures structurelles,Taux bancaires,modèle à correction d’erreur,volatilité stochastique,économétrie bayésienne
    Date: 2017–04–21
  46. By: International Monetary Fund.
    Abstract: Although real GDP growth has slowed down, Malaysia is still among the fastest growing economies at its income level. The economy’s resilience, amidst global commodity price and financial market volatility, reflected a diversified production and export base; strong balance sheet positions; a flexible exchange rate; responsive macroeconomic policies; and deep financial markets. However, the authorities continue to face a challenging environment, given continued global uncertainty, which complicates the calibration of near-term macroeconomic policies.
    Keywords: Asia and Pacific;Malaysia;
    Date: 2017–04–28
  47. By: International Monetary Fund.
    Abstract: Significant fiscal slippages in late 2015 and early 2016, compounded by negative spillovers from Nigeria, led to a deterioration of the macroeconomic situation. The election in March 2016 of a new president who campaigned for a clear break with past policies offers an opportunity to implement sensible policies to promote inclusive and sustainable growth and reduce poverty. The authorities have launched an ambitious reform agenda and reaffirmed their commitment to preserving macroeconomic stability and medium-term debt sustainability.
    Keywords: Benin;Sub-Saharan Africa;
    Date: 2017–04–26
  48. By: International Monetary Fund.
    Abstract: Economic growth moderated to 4.9 percent in 2016 amid external headwinds, but remains among the strongest in the region. Inflation and unemployment remain subdued, although have edged up. Fiscal consolidation continues in line with the fiscal rule targets and public debt is sustainable. The current account deficit continued to narrow to 5.6 percent of GDP, primarily due to lower investment-related imports and weak fuel prices. Credit growth remains robust, though has begun to decelerate. The Financial Action Task Force (FATF) removed Panama from its gray list in February 2016.
    Date: 2017–05–04
  49. By: Kenza Benhima (DEEP-HEC - HEC Lausanne - Université de Lausanne, CEPR - Center for Economic Policy Research - CEPR); Céline Poilly (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique - ECM - Ecole Centrale de Marseille)
    Abstract: We assess theoretically and empirically the consequences of demand misperceptions. In a New Keynesian model with dispersed information, agents receive noisy signals about both supply and demand. Firms and consumers have an asymmetric access to information, so aggregate misperceptions of demand by the supply side can drive economic fluctuations. The model’s predictions are used to identify empirically fundamental and noise shocks on supply and demand. We exploit survey nowcast errors on both GDP growth and inflation, fundamental and noise shocks affecting the errors with opposite signs. We show that demand-related noise shocks have a negative effect on output and contribute substantially to business cycles. Additionally, monetary policy plays a key role in the transmission of demand noise.
    Keywords: business cycles,information frictions,noise shocks,SVARs with sign restrictions
    Date: 2017–05
  50. By: Schmidt, Lawrence; Toda, Alexis Akira
    Abstract: We define the elasticity of intertemporal substitution (EIS) for general recursive preferences and identify a sharp comparative static from a general dynamic portfolio choice problem. In the homothetic case, if the EIS is smaller (larger) than 1, an investor will increase (decrease) current consumption in response to bad news about the future. Examples of bad news include if (i) she becomes more risk averse, (ii) investment opportunities shrink, (iii) investment returns become riskier, or (iv) she becomes more uncertain about the distribution of returns. Bad news effectively raises the price of future continuation utility, which produces the same qualitative changes in savings rates as lowering the interest rate.
    Keywords: elasticity of intertemporal substitution, optimal portfolio problem, recursive preference
    JEL: D91 E21 G11
    Date: 2015–05–26
  51. By: José Ronaldo de Castro Souza Júnior; Francisco E. de Luna; Almeida Santos
    Abstract: Os resultados apresentados no texto mostram que, ao frear o crescimento das despesas primárias, a Emenda Constitucional (EC) no 95 tem o potencial de estabilizar e reduzir a dívida bruta do governo geral, garantindo, assim, a sustentabilidade da dívida pública brasileira. Os efeitos positivos da maior credibilidade da política fiscal podem extrapolar a questão puramente fiscal e se espalhar para a economia real por meio de um aumento da segurança para consumidores e investidores quanto ao futuro da economia brasileira. O novo regime fiscal é claramente uma estratégia gradualista para lidar com o grave problema atual das contas públicas brasileiras. O prazo de vinte anos, com a possibilidade de alteração na metade do período, também parece ser adequado. Dependendo do desempenho da economia nos próximos dez anos, pode ser possível adotar uma regra mais branda a partir de 2027. O horizonte de duas décadas, contudo, é indicado para dar mais credibilidade a esse tipo de estratégia porque, caso o crescimento do produto interno bruto (PIB) seja menor, o ajuste fiscal seria ainda mais gradual. The results presented in the text show that, by curbing the growth of primary expenditures, Constitutional Amendment 95 has the potential to stabilize and to reduce general government gross debt, thus guaranteeing the sustainability of the Brazilian public debt. The positive effects of a greater fiscal policy credibility can extrapolate the purely fiscal issue and spread to the real economy through improving economic agents’ confidence. The new fiscal regime is clearly a gradualist strategy to deal with the current serious problem of the Brazilian public accounts. The 20-year term – with the possibility of change in the mid-term – also appears to be adequate. Depending on the economic performance over the next ten years, it may be possible to adopt a softer rule after 2027. However, the two-decade horizon gives more credibility to this type of strategy.
    Date: 2017–04
  52. By: International Monetary Fund
    Abstract: Kazakhstan continues to withstand challenges from lower oil prices and slower growth in Russia, China, and Europe. While buffers are strong, the shocks exposed vulnerabilities, including dependence on oil and other commodities; gaps in public administration, the business environment, and competitiveness; and long-standing banking weaknesses. The authorities’ response—targeted fiscal support, exchange rate (ER) adjustment, enhanced monetary policy management, and structural reforms focusing on the business climate and the public sector—has stabilized conditions. Growth in 2016 was positive, and a pickup is expected in 2017. Medium-term prospects are subdued, due to continued lower oil prices and conditions in key trading partners. Growth is projected to reach 2.5 percent in 2017 and non-oil growth should reach 4 percent by 2021. This will reflect the implementation of announced reforms, unlocking of bank lending, and a further increase in oil production. Uncertainty is high, given exposure to commodity price developments.
  53. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: Speaking in Vermont, Boston Fed President Eric Rosengren said he expects the economy to remain on solid footing, and said conditions justify continuing a gradual increase in the federal funds rate and also beginning to reduce gradually the assets on the Federal Reserve's balance sheet.
    Date: 2017–05–10
  54. By: Guney, Ibrahim Ethem (Central Bank of Turkey); Hacihasanoglu, Yavuz Selim (Central Bank of Turkey); Tumen, Semih (Central Bank of Turkey)
    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: 2017–04
  55. By: Daniel P. Monteiro; Romanos Priftis
    Abstract: This paper constructs stylized scenarios to assess the lending constraints faced by the banking sectors of euro area Member States arising from a combination of low profitability, adverse bank equity markets and the phase in of new capital requirements. In this connection, it also presents a comprehensive review of the potential sources of increases in minimum bank capital requirements, providing projections for their evolution at Member State level. The combination of the aforementioned factors is seen to carry the potential to significantly constrain bank lending over the period of transition to higher capital ratios which, according to DSGE model simulations, can noticeably impair growth and investment levels in the short run.
    JEL: G21 G28 E22 E27
    Date: 2017–02
  56. By: Siklos, Pierre (Wilfrid Laurier University)
    JEL: E42
    Date: 2017–04–01
  57. By: Clemens Struck (University College Dublin); Adnan Velic (Dublin Institute of Technology)
    Abstract: This paper provides a microfoundation of the neoclassical growth theory. To rationalize a substantial share of labor in income despite ongoing automation of tasks, we present a simple model in which demand shifts toward goods of increasing sophistication along a vertically differentiated production structure. Automation of more advanced goods requires increasingly sophisticated capital which remains scarce along the growth path. This is why labor maintains a substantial share in income independent of core parameter assumptions. While our model features an entirely different mechanism, we show that its aggregate representation is the one of a neoclassical model with labor-augmenting technical change.
    Keywords: Uzawa’s theorem, automation, goods quality, structural change, reallocations, growth, non-homothetic preferences, hierarchical demand
    JEL: E23 E25 J24 O14 O33
    Date: 2017–05
  58. By: Fabio Petri
    Abstract: With the shift from traditional analyses where capital is a single value factor of variable ‘form’ to the neo-Walrasian versions, general equilibrium theory has encountered new problems pointed out by P. Garegnani (1976, 1990): impermanence problem, price-change problem, substitutability problem radically question the right to consider neo-Walrasian equilibria as approximating the actual path of real economies. The paper briefly summarizes these problems and then concentrates on a fourth problem, the savings-investment problem, arguing that neo-Walrasian general equilibrium models assume that investment is adjusted to full-employment savings but cannot justify this assumption. The treatment of investment in intertemporal general equilibrium is subjected to a new criticism: it is shown that the tâtonnement assumes Says’ Law all along the adjustments, and determines investment in a way that would crumble if it were not assumed that consumers determine their demands for consumption goods on the basis of an assumption of full employment incomes, which is not justified outside equilibrium, and was not assumed in traditional analyses. This reinforces the absence of reasons to view neo-Walrasian equilibrium paths as sufficiently approaching actual paths. It is concluded that behind the reference to intertemporal equilibrium as the microfoundation of macro analyses there is a continuing faith in traditional neoclassical time-consuming adjustment mechanisms, based on the old and untenable conception of capital that the shift to neo-Walrasian equilibria intended to do without.
    Keywords: investment, intertemporal general equilibrium, capital, Garegnani
    JEL: D50 E22 B21
  59. By: Buchholz, Manuel; Schmidt, Kirsten; Tonzer, Lena
    Abstract: This paper investigates how declines in the deposit facility rate set by the European Central Bank (ECB) affect bank behavior. The ECB aims to reduce banks' incentives to hold reserves at the central bank and thus to encourage loan supply. However, given depressed margins in a low interest environment, banks might reallocate their liquidity toward more profitable liquid assets other than traditional loans. Our analysis is based on a sample of euro area banks for the period from 2009 to 2014. Three key findings arise. First, banks reduce their reserve holdings following declines in the deposit facility rate. Second, this effect is heterogeneous across banks depending on their business model. Banks with a more interest-sensitive business model are more responsive to changes in the deposit facility rate. Third, there is evidence of a reallocation of liquidity toward loans but not toward other liquid assets. This result is most pronounced for non-GIIPS countries of the euro area.
    Keywords: bank portfolio,central bank reserves,monetary policy
    JEL: E52 G11 G21
    Date: 2017
  60. By: Dino Pinelli; István P. Székely; János Varga
    Abstract: Since the mid-1990s, Italy’s economic growth faltered, primarily due to sluggish productivity growth. This article investigates the root causes of the slow growth. Firstly, it benchmarks Italy over time visà-vis euro area and OECD countries in the area of human capital, product market regulation, taxation structure and innovation. The analysis shows that Italy's gaps in these areas have grown over the last 15 years and are particularly large for human capital. Secondly, it uses a set of stylized simulations in QUEST R&D model of the European Commission to assess the potential impact of a package of growth-enhancing reforms in these areas. The simulations show that structural reforms could boost productivity and GDP growth significantly. Important reforms are ongoing. Given the very nature and the size of the gaps, it is important that the reform momentum is maintained.
    JEL: E17 E60 O11 O41 O47
    Date: 2016–12
  61. By: Fernandez Sierra, Manuel (University of Oxford); Messina, Julián (Inter-American Development Bank)
    Abstract: Earnings inequality declined rapidly in Argentina, Brazil and Chile during the 2000s. A reduction in the experience premium is a fundamental driver of declines in upper-tail (90/50) inequality, while a decline in the education premium is the primary determinant of the evolution of lower-tail (50/10) inequality. Relative labor supply is important for explaining changes in the skill premiums. Relative demand trends favored high-skilled workers during the 1990s, shifting in favor of low-skilled workers during the 2000s. Changes in the minimum wage, and more importantly, commodity-led terms of trade improvements are key factors behind these relative skill demand trends.
    Keywords: earnings inequality, unconditional quantile regressions, supply-demand framework, human capital
    JEL: E24 J20 J31
    Date: 2017–04
  62. By: Burnett-Isaacs,, Kate; Diewert, Erwin; Huang, Ning
    Abstract: The use of hedonic regression models on the sales of detached housing units is widespread in the real estate literature. However, these models do not address the need to decompose the sale price into structure and land components. In the international System of National Accounts, it is necessary to obtain separate estimates for the price and quantity of housing structures and the land that these structures sit on. The builder’s model accomplishes this decomposition but it has only been applied to Dutch and Japanese data. The paper will apply the builder’s model to data on sales of detached houses in Richmond, British Columbia to test the robustness of the model. The property price indexes generated by the builder’s model are also compared to the corresponding indexes generated by a traditional time product dummy hedonic regression model. The implied structure depreciation rates generated by both models are also compared. We find that if a sufficient number of housing characteristics are included in the hedonic regressions, the two approaches generate similar overall property price indexes and similar geometric depreciation rates. However, the two approaches do not generate similar land and structure subindexes.
    Keywords: House price indexes, land and structure price indexes, hedonic regressions, net depreciation rates, System of National Accounts, the Builder’s Model
    JEL: C2 C23 C43 E31 R21
    Date: 2017–05–08
  63. By: Asongu, Simplice
    Abstract: The survey puts some structure on recent empirical studies from the African Governance and Development institute (AGDI) on inclusive development published between 2016 and 2017 for the most part. The emphasis is exclusively on the inequality adjusted human development index (IHDI) because of the sparse scholarly literature on the indicator which was first published in 2010. The review provides relationships between the IHDI and inter alia: foreign aid, globalisation, information and communication technology, business dynamics and knowledge economy, software piracy, finance, health worker migration and the feasibility of common cross-country policies aimed at improving the IHDI. The survey is of policy relevance because inclusive human development is fundamental to Africa’s growth agenda in the post-2015 sustainable development era.
    Keywords: Inclusive human development; Africa
    JEL: D60 E60 F40 F59 O55
    Date: 2017–03
  64. By: Philippe Aghion; Nicholas Bloom; Brian Lucking; Raffaella Sadun; John Van Reenen
    Abstract: What is the optimal form of firm organization during “bad times”? Using two large micro datasets on firm decentralization from US administrative data and 10 OECD countries, we find that firms that delegated more power from the Central Headquarters to local plant managers prior to the Great Recession out-performed their centralized counterparts in sectors that were hardest hit by the subsequent crisis. We present a model where higher turbulence benefits decentralized firms because the value of local information and urgent action increases. Since turbulence rises in severe downturns, decentralized firms do relatively better. We show that the data support our model over alternative explanations such as recession-induced reduction in agency costs (due to managerial fears of bankruptcy) and changing coordination costs. Countries with more decentralized firms (like the US) weathered the 2008-09 Great Recession better: these organizational differences could account for about 16% of international differences in post-crisis GDP growth.
    JEL: E0
    Date: 2017–04
  65. By: Paul, Pascal (Federal Reserve Bank of San Francisco)
    Abstract: This paper estimates the time-varying responses of stock and house prices to changes in monetary policy in the United States. To this end, I augment a time-varying vector autoregressive model (VAR) with a series of monetary policy surprises obtained from federal funds futures, as a proxy for structural monetary policy shocks. The series of surprises enters the model as an exogenous variable and I show analytically that this approach gives identical relative impulse responses compared with an identification that uses the proxy as an external instrument within a constant parameter VAR. However, the exogenous variable approach allows for a convenient and tractable extension to a time-varying parameter VAR that is estimated with standard Bayesian methods. The results show that stock and house prices have been less responsive to monetary policy shocks during periods of high and rising asset prices. Moreover, I find that attempts by the Federal Reserve to lean against the house price boom before the Great Recession would have come with the risk of large deviations from its output target.
    Date: 2017–05–08
  66. By: Toda, Alexis Akira
    Abstract: I obtain a closed-form solution to a Huggett economy with CARA utility when the vector of individual state variables follows a VAR(1) process with an arbitrary shock distribution. The stationary equilibrium is unique if the income process is AR(1), but not necessarily so otherwise. With Gaussian shocks, I provide general sufficient conditions for the existence of at least three equilibria when the income process is either ARMA(1,1), AR(2), or has a persistent-transitory (PT) representation with negatively correlated shocks. The possibility of multiple equilibria calls for caution in comparative statics exercises and policy analyses using heterogeneous-agent models.
    Keywords: CARA utility, income fluctuation problem, persistent-transitory representation
    JEL: C62 D52 D58 E21
    Date: 2017–03–13
  67. By: Tomoyuki Nakajima (Institute of Economic Research, Kyoto University); Shuhei Takahashi (Institute of Economic Research, Kyoto University)
    Abstract: We quantitatively evaluate the effectiveness of a consumption tax and transfer pro- gram as insurance against idiosyncratic earnings risk. Our framework is a heterogeneous- agent, incomplete-market model with idiosyncratic wage risk and indivisible labor. The model is calibrated to the U.S. economy. We find a weak insurance effect of the transfer program. Extending the transfer system from the current scale raises consumption un- certainty, which increases aggregate savings and reduces the interest rate. Furthermore, consumption inequality shows a small decrease.
    Keywords: Consumption taxes; Transfers; Risk sharing; Consumption inequality; Indivisible labor; Incomplete markets
    JEL: E62 D31 J22 C68
    Date: 2017–03
  68. By: -
    Abstract: The U.S labor market is tight and is expected to return to full employment in 2017. However, productivity has risen less than 1% for six consecutive years. Sluggish productivity has implications for wage growth, which has been low by historical standards during this economic recovery. Wage growth seems to be already picking up, though, as the economy continues to advance. Average hourly earnings for private-sector workers rose 2.9% in December 2016 from a year earlier. That was the strongest growth of the current expansion. Inflation has been low for the past four years. However, as the expansion advances, unemployment recedes and wage growth begins to accelerate, a four-year stretch of historically low inflation could be coming to an end. A cautious and highly accommodative monetary policy has supported the current economic expansion, but tightening is already under way. The Federal Reserve has increased interest rates by 25 basis points three times in this expansion: in December of 2015, December of 2016, and March 2017.
    Date: 2017–04
  69. By: International Monetary Fund.
    Abstract: The high cost of the crisis demonstrated the importance of a strong macroprudential policy framework to support financial stability. A strong policy framework is particularly important in currency unions, such as the euro area (EA), where a central monetary policy stance may give rise to diverging credit developments across Member States, that require macroprudential policy action at the national level.
    Keywords: Netherlands;Europe;
    Date: 2017–04–13
  70. By: Oleg Itskhoki; Dmitry Mukhin
    Abstract: We propose a dynamic general equilibrium model of exchange rate determination, which simultaneously accounts for all major puzzles associated with nominal and real exchange rates. This includes the Meese-Rogoff disconnect puzzle, the PPP puzzle, the terms-of-trade puzzle, the Backus- Smith puzzle, and the UIP puzzle. The model has two main building blocks — the driving force (or the exogenous shock process) and the transmission mechanism — both crucial for the quantitative success of the model. The transmission mechanism — which relies on strategic complementarities in price setting, weak substitutability between domestic and foreign goods, and home bias in consumption — is tightly disciplined by the micro-level empirical estimates in the recent international macroeconomics literature. The driving force is an exogenous small but persistent shock to international asset demand, which we prove is the only type of shock that can generate the exchange rate disconnect properties. We then show that a model with this financial shock alone is quantitatively consistent with the moments describing the dynamic comovement between exchange rates and macro variables. Nominal rigidities improve on the margin the quantitative performance of the model, but are not necessary for exchange rate disconnect, as the driving force does not rely on the monetary shocks. We extend the analysis to multiple shocks and an explicit model of the financial sector to address the additional Mussa puzzle and Engel’s risk premium puzzle.
    JEL: E30 F30 F4
    Date: 2017–05
  71. By: Guglielmo Maria Caporale; Luis A. Gil-Alana
    Abstract: This paper revisits the Fisher hypothesis by estimating fractional integration and cointegration models that are more general than the standard ones based on the classical I(0)/I(1) dichotomy. Two sets of results are obtained under the alternative assumptions of white noise and Bloomfield (1973) autocorrelated errors respectively. The univariate analysis suggests than the differencing parameter is higher than 1 for most series in the former case, whilst the unit root null cannot be rejected for the majority of them in the latter case. The multivariate results imply that there exists a positive relationship, linking nominal interest rates to inflation; however, there is no evidence of the full adjustment of the former to the latter required by the Fisher hypothesis.
    Keywords: Fisher effect, fractional integration, long memory, G7 countries
    JEL: C22 C32 E43
    Date: 2017
  72. By: Hippolyte d'Albis; Ekrame Boubtane; Dramane Coulibaly
    Abstract: This article examines the causal relations between immigration and the characteristics of the housing market in host regions. We constructed a unique database from administrative records and used it to assess annual migration ows into France's 22 administrative regions from 1990 to 2013. We then estimated various panel VAR models,taking into account GDP per capita and the unemployment rate as the main regional economic indicators. We find that immigration has no significant effect on property prices, but that higher property prices significantly reduce immigration rates. We also find no significant relationship between immigration and social housing supply.
    Keywords: Immigration, Property Prices, Social Housing, Panel VAR.
    JEL: E20 F22 J61
    Date: 2017
  73. By: Kei Ehara (Faculty of Economics, University of Tokyo)
    Abstract: El objetivo de este documento es hacer una descripción del ajuste que adelantaron las economías de Brasil, Chile, Perú, México y Colombia en el período 2013-2016, por efecto de los grandes cambios en los balances macroeconómicos que se produjeron en estas economías con la caída en los términos de intercambio. El documento se divide en nueve secciones. La primera de ellas describe la caída en los términos de intercambio; la segunda habla del ajuste en el tipo de cambio; el impacto en el crecimiento económico de estas economías se describe en la tercera; mientras que el impacto en la inversión es tratado en la cuarta; la quinta sección muestra las diferencias en el proceso de ajuste de la cuenta corriente; mientras la sexta describe los niveles de reservas internacionales; la séptima sección trata los flujos de ahorro e inversión; la octava analiza la respuesta de política y finalmente, la novena, analiza la calidad del ajuste fiscal.
    Keywords: términos de intercambio; tipo de cambio; crecimiento económico; inversión; cuenta corriente; reservas internacionales; flujos de ahorro e inversión; ajuste fiscal.
    JEL: F2 F31 F32 F43 E62
    Date: 2017–05–12
  75. By: Anne-Marie Rieu-Foucault
    Abstract: This paper link the theory and practice of providing public liquidity. Starting from the theory of insurance as a justification for the provision of public liquidity, it shows that in practice the response to the financial crisis has been made to curb contagion and amplification and that liquidity storage can intervene for strategic reasons. Central banks through liquidity allocations and macroprudential measures respond collectively to the phenomena of the crisis. The reactions are innovative in the form of a systemic lender of last resort and large-scale interventions but do not use the theory of systemic liquidity insurance.
    Keywords: Liquidity – financial crisis – Lender of last resort – Macroprudential.
    JEL: D78 E58 G01
    Date: 2017
  76. By: Gilles Mourre; Adriana Reut
    Abstract: This paper examines the characteristics of government non-tax revenue in the European Union. Nontax revenue includes a large number of diverse income sources, such as fees charged for the provision of public services, income from financial assets and government property, and EU funds. Receipts from sources other than taxes account for slightly more than one-tenth of total revenue, but the fiscal risk stemming from the volatility of non-tax revenue is three times higher than that from the volatility of tax revenue. We present measurements of volatility in non-tax receipts in the Member States that can help identify the uncertainty around annual projections of revenue. Panel data analysis is used to examine whether macroeconomic and fiscal variables can explain the differences in non-tax revenue among Members States. Government spending, tax receipts and the size of financial assets held by government are found to explain close to a third of the cross-sectional variation in non-tax revenue. Granger causality tests are used to examine the direction of causality across Member States between non-tax revenue, tax receipts, and government spending.
    JEL: E62 H27
    Date: 2017–02
  77. By: Rodolfo Arioli; Colm Bates; Heinz Dieden; Ioana Duca; Roberta Friz; Christian Gayer; Geoff Kenny; Aidan Meyler; Iskra Pavlova
    Abstract: This report updates and extends earlier assessments of quantitative inflation perceptions and expectations of consumers in the euro area and the EU, using an anonymised micro data set collected by the European Commission in the context of the Harmonised EU Programme of Business and Consumer Surveys. Confirming earlier findings, consumers' quantitative estimates of inflation are found to be higher than actual HICP (Harmonised Index of Consumer Prices) inflation over the entire sample period (2004-2015). The analysis shows that European consumers hold different opinions of inflation depending on their income, age, education and gender. Although many of the features highlighted for the EU and the euro area aggregates are valid across individual Member States, differences exist also at the country level. Despite the higher inflation estimates, there is a high level of co-movement between measured and estimated (perceived/expected) inflation. Even respondents providing estimates largely above actual HICP inflation, demonstrate understanding of the relative level of inflation during both high and low inflation periods. Based on these economically plausible results, the report concludes that further work should be devoted to defining concrete aggregate indicators of consumers' quantitative inflation perceptions and expectations on the basis of the dataset used in this study. Moreover, it outlines a number of future research topics that can be addressed by exploiting the enormous potential of the data set.
    JEL: D8 D12 E31
    Date: 2016–11
  78. By: Ambrocio, Gene; Jokivuolle, Esa
    Abstract: We consider optimal capital requirements for banks' lending activities when the potential trade-off between financial stability and economic (productivity) growth is taken into account. Both sides of the trade-off are affected by banks' credit allocation, which in turn is affected by the risk weights used to set capital requirements on bank loans. We find that when firms are credit constrained, the optimal risk weights are flatter than those that are only set to safeguard against bank failures and their social costs. This provides an additional rationale for capital requirements to be less 'risk-sensitive'. Differences in company productivity have a further effect on the profile of optimal risk weights, and may amplify the ‘flattening’ effect.
    JEL: E44 G21 G28
    Date: 2017–05–15
  79. By: Gérard CHARREAUX (IAE DIJON - Université de Bourgogne (CREGO))
    Abstract: (VF) Aux États-Unis, les performances boursières semblent significativement plus élevées lorsque les Démocrates sont au pouvoir. Bien que les tests soient plus rares, il semble qu’une telle prime partisane existe également en France sous la Gauche. L’objectif de cet article est de vérifier si l’existence d’une telle prime se confirme sur la période 1981-2016, en particulier, lorsqu’on recourt à une méthode permettant de neutraliser l’incidence de la conjoncture internationale. Le point de vue considéré est alors celui d’un investisseur américain qui gère un portefeuille diversifié internationalement. Les résultats confirment l’existence d’une prime partisane en faveur de la Gauche. (VA) In the United States, stock market performance seems to be significantly higher when the President is a Democrat. Although tests are rarer, it seems that such a presidential premium also exists in France under the Left. The objective of this article is to verify whether the existence of such a premium is confirmed over the period 1981-2016, especially, when the method used allows neutralizing the impact of the international conjuncture. The point of view is that of a US investor who manages an internationally diversified portfolio. The results confirm the existence of a presidential premium in favor of the Left.
    Keywords: gestion de portefeuille, prime partisane, politique;portfolio management, presidential premium, politics, French financial market
    JEL: E44 G11 G12 G15
    Date: 2017–02
  80. By: Anja Baum; Andrew Hodge; Aiko Mineshima; Marialuz Moreno Badia; Rene Tapsoba
    Abstract: According to U.N. estimates, low-income countries will have to increase their annual public spending by up to 30 percent of GDP to achieve the Sustainable Development Goals (SDGs), raising the question of whether they can do it all. This paper develops a new metric of fiscal space in low-income countries that accounts for macroeconomic uncertainty, allowing us to assess whether those spending needs can be accommodated. Illustrative simulations based on this methodology imply that, even under benign conditions, the fiscal space available in lowincome countries is likely insufficient to undertake the spending needed to achieve the SDGs. Improving public investment efficiency and domestic revenue mobilization can somewhat narrow the gap but it will require major efforts relative to recent trends.
    Date: 2017–05–05
  81. By: Beyer, Andreas; Nicoletti, Giulio; Papadopoulou, Niki; Papsdorf, Patrick; Rünstler, Gerhard; Schwarz, Claudia; Sousa, João; Vergote, Olivier
    Abstract: This paper investigates the interrelations between monetary macro- and microprudential policies. It first provides an overview of the three policies, starting with their main instruments and objectives. Monetary policy aims at maintaining price stability and promoting balanced economic growth, macroprudential policies aim at safeguarding the stability of the overall financial system, while microprudential policies contribute to the safety and soundness of individual entities. Subsequently, the paper provides a simplified description of their respective transmission mechanisms and analyses the interactions between them. A conceptual framework is first presented on the basis of which the analysis of the interactions across the different policies can be demonstrated in a stylised manner. These stylised descriptions are then further complemented by model-based simulations illustrating the significant complementarities and interactions between them. Finally, the paper concludes that from a conceptual point of view there are numerous areas of interaction between the policies. These create scope for synergies, which can be reaped by sharing information and expertise across the various policy areas. JEL Classification: E58, G28
    Keywords: banking, central bank policies, DSGE models, financial regulation, non-standard measures
    Date: 2017–05
  82. By: International Monetary Fund.
    Abstract: Georgia is recovering from an adverse external shock (a decline in trading partners’ growth since late 2014), although at a slower pace than previously envisaged. The economy has shown resilience to the external shock, with real GDP growth averaging 2.8 percent in 2015–16, the highest among its main trading partners, except for China and Turkey. The exchange rate was allowed to adjust, and the dollarized banking sector has weathered the significant depreciation vis-Ã -vis the dollar. With depreciation of major trading partner currencies, external competitiveness has not improved, however. Hence, external imbalances remain elevated and reserves below adequate levels. Following the October 2016 parliamentary elections that gave the ruling party a constitutional majority, the new government has united around a policy agenda centered on bolstering growth.
    Keywords: Georgia;Middle East;
    Date: 2017–04–13
  83. By: Huidrom, Raju; Kose, Ayhan; Ohnsorge, Franziska
    Abstract: The seven largest emerging market economiess - China, India, Brazil, Russia, Mexico, Indonesia, and Turkey - constituted more than one-quarter of global output and more than half of global output growth during 2010-15. These emerging markets, which we call EM7, are also closely integrated with other countries, especially with other emerging and frontier markets. Given their size and integration, growth in EM7 could have significant cross-border spillovers. We provide empirical estimates of these spillovers using a Bayesian vector autoregression model. We report three main results. First, spillovers from EM7 are sizeable: a 1 percentage point increase in EM7 growth is associated with a 0.9 percentage point increase in growth in other emerging and frontier markets and a 0.6 percentage point increase in world growth at the end of three years. Second, sizeable as they are, spillovers from EM7 are still smaller than those from G7 countries (Group of Seven of advanced economies). Specifically, growth in other emerging and frontier markets, and the global economy would increase by one-half to three times more due to a similarly sized increase in G7 growth. Third, among the EM7, spillovers from China are the largest and permeate globally.
    Keywords: Business Cycles; China; EM7; external shocks; G7; Spillovers
    JEL: E32 F20 F42
    Date: 2017–05
  84. By: Diego Restuccia; Richard Rogerson
    Abstract: Why do living standards differ so much across countries? A consensus in the development literature is that differences in productivity are a dominant source of these differences. But what accounts for productivity differences across countries? One explanation is that frontier technologies and best practice methods are slow to diffuse to low income countries. The recent literature on misallocation offers a distinct but complementary explanation: low income countries are not as effective in allocating their factors of production to their most efficient use. We provide our perspective on three key questions. First, how important is misallocation? Second, what are the causes of misallocation? And third, beyond the direct cost of lower contemporaneous output, are there additional costs associated with misallocation? A summary of our answers is as follows. Misallocation appears to be a substantial channel in accounting for productivity differences across countries, but the measured magnitude of the effects depends on the approach and context. Researchers have not yet found a dominant source of misallocation; instead, many specific factors seem to contribute a small part of the overall effect. Beyond the static cost of misallocation, we believe that the dynamic effects of misallocation on productivity growth are significant and deserve much more attention going forward.
    Keywords: misallocation, productivity, distortions, establishments, heterogeneity.
    JEL: O1 O4 O5 E0 E1
    Date: 2017–05–10
  85. By: Alexandre Xavier Ywata de Carvalho; Pedro Henrique Melo Albuquerque; Camilo Rey Laureto; Guilherme Costa Chadud Moreira; Gustavo Gomes Basso; Luiz Felipe Dantas Guimarães; Marina Garcia Pena
    Abstract: Este trabalho apresenta uma análise de clusterização de áreas mínimas comparáveis (AMCs) para traçar um mapa de agrupamentos homogêneos a partir de uma combinação de variáveis climáticas, de características do solo e de produção agropecuária. A metodologia permite a visualização de interações entre as diversas variáveis utilizadas, identificando, por exemplo, padrões de coexistência, no nível municipal, de diferentes culturas agrícolas. A discussão apresenta os algoritmos tradicionais sem contiguidade (aglomerativo hierárquico e k-means) e o algoritmo aglomerativo hierárquico com imposição de contiguidade. Busca-se, dessa forma, explorar diferenças entre as tipologias construídas com diferentes abordagens, além de prover configurações alternativas de agrupamentos. As metodologias discutidas permitem ainda a incorporação de critérios tradicionais de escolha do número de clusters, tais como estatísticas CCC, pseudo-F e pseudo-t2.
    Date: 2017–03
  86. By: Andrés Alegría; Rodrigo Alfaro; Felipe Córdova
    Abstract: This paper shows how central bank communications can play a role in macroprudential supervision. We document how specific warnings about real estate markets, published in the Central Bank of Chile's Financial Stability Reports of 2012, affected bank lending policies. We provide empirical evidence of a rebalancing in the characteristics of mortgage loans granted, with a reduction in the number of mortgage loans with high loan-to-value ratios (LTV), along with an increase in loans with lower LTV ratios.
    Keywords: macroprudential policy, LTV ratios, central bank communications
    Date: 2017–05
  87. Assessing the Euro Area’s Shock-Absorption Capacity - Risk sharing, consumption smoothing and fiscal policyAbstract: Based on a combination of quantitative analysis and a qualitative forward-looking approach, this paper assesses both the state of play and the future capacity of the EMU to respond and adapt to asymmetric shocks. The objective is to provide a basis upon which to gauge the potential value added of a European Unemployment Benefit Scheme (EUBS), against the background of the recent plans for the Banking Union, the Capital Markets Union and the reform of the fiscal governance framework. We find that the capacity of the system to deal with asymmetric shocks (and in principle reduce their occurrence) is likely to increase due to these changes; but it will remain limited in the medium term and certainly lower than in the US. We also argue that given the broad pro-cyclicality of fiscal policy, the idea that national policies alone can deal alone with asymmetric shocks is not realistic. Lastly, we maintain that an ex-ante fiscal insurance mechanism can provide some degree of income smoothing and is likely to catalyse market insurance. Fiscal and market insurance can reduce the role of credit and borrowing, which until now has been the main channel for shock absorption in the euro area but also the least effective in times of crisis. We conclude that, from a macroeconomic point of view, an EUBS is a useful tool to improve shock absorption capacity and is not mutually exclusive with market risk sharing. This report was prepared in the context of a research project on “The Feasibility and Added Value of a European Unemployment Benefits Scheme”, commissioned by DG EMPL of the European Commission and carried out by a consortium of researchers led by CEPS. It is published by CEPS with the kind permission of the European Commission.
    By: Alcidi, Cinzia; Thirion, Gilles
    Date: 2016–09
  88. By: Belke, Ansgar; Osowski, Thomas
    Abstract: This paper empirically identifies and measures fiscal spillovers in the EU countries using a global vector autoregression (GVAR) model. Our aim is to look at the sign and the absolute values of fiscal spillovers in a country-wise perspective and at the time profile (impulse response) of the impacts of fiscal shocks. We find moderate spillover effects of fiscal policy shocks originating in Germany and France. However, there is significant variation regarding the magnitude of the spillovers among destination countries and country clusters. Furthermore, we find some evidence that spillovers generated by German or French fiscal spillovers are stronger for EMU than non-EMU countries in Europe.
    Date: 2016–12
  89. By: Sebastian Deininger; Dietmar Maringer (University of Basel)
    Abstract: This paper identifies endogenous and exogenous indicators of firms' investment activity, and examine, in particular, the effect that these variables have in co-determining firms' investment decisions. Two channels of spillovers from sovereign risk to firms' capital expenditures are defined. The first channel, the "direct channel", describes responses in capital expenditures from an innovation in sovereign risk. The second channel, the "indirect channel", is a transmission mechanism in which spillovers from changes in sovereign risk indirectly affect a firm's capital expenditures via its capital market risk and profitability. While we observe that the direct risk channel is of major importance in Emerging and Developing Economies, it is comparatively small in Advanced Economies. In the case of the latter, contagion from changes in sovereign risk on firms' capital market risk plays a much more important role.
    Keywords: Capital expenditures, Risk spillovers, Panel VARX, Differential Evolution
    JEL: C63 D81 E22 G31
    Date: 2017
  90. By: Diego A. Cerdeiro; Dmitry Plotnikov
    Abstract: The effect that the recent decline in the price of oil has had on growth is far from clear, with many observers at odds to explain why it does not seem to have provided a significant boost to the world economy. This paper aims to address this puzzle by providing a systematic analysis of the effect of oil price shocks on growth for 72 countries comprising 92.8% of world GDP. We find that, on net, shocks driving the oil price in 2015 shaved off 0.2 percentage points of growth for the median country in our sample, and 0.17 percentage points in GDP-weighted terms. While increases in oil supply and shocks to oil-specific demand actually boosted growth in 2015 (by about 0.2 and 0.4 percentage points, respectively), weak global demand more than offset these gains, reducing growth by 0.8 percentage points. Counterfactual simulations for the 72 countries in our sample underscore the importance of diversification, rather than low levels of openness, in shielding against negative shocks to the world economy.
    Date: 2017–05–04
  91. By: International Monetary Fund.
    Abstract: Following the political and economic turmoil of recent years, the Moldovan economy has started to recover. Economic growth in 2016 was stronger than originally projected benefiting from solid agricultural performance and better-than-expected exports; and the outlook for 2017 has been marked up. Inflation decelerated sharply from the high levels of 2015, but has returned to the target range.
    Date: 2017–05–01
  92. By: Domenico Lombardi, Pierre Siklos, Samantha St.Amand (Wilfrid Laurier University)
    JEL: E42
    Date: 2017–04–01
  93. By: K.E. McConnell; Juha V. Siikamäki; V. Kerry Smith
    Abstract: Information frictions imply it is reasonable to expect the same commodity, in a given location, to sell for different prices at the same time. Aguiar and Hurst (AH) [2007] demonstrate how the search behavior implied by these price differences can be used estimate the opportunity cost of time. Their important insight allows the estimation of time prices over the lifecycle and the evaluation of the impacts of macro shocks on them. We provide the first assessment of the plausibility of this type of search behavior as a window on time prices. AH’s measures of the opportunity cost of time are shadow values that are jointly determined with individuals’ decision to search for bargains. Our analysis overcomes the challenges posed by this endogeneity by exploiting the complementarity between time and some types of market goods and services. We use changes in the expenditures for these goods in response to macro shocks as a basis for evaluating the AH choice margin. Using three different data sources we find that changes in expenditures on recreation related goods and services and time spent recreating are consistent with the AH framework’s assessment of the impact of the Great Recession for the opportunity cost of time.
    JEL: D13 D61 D83 E32
    Date: 2017–04
  94. By: Bindseil, Ulrich; Corsi, Marco; Sahel, Benjamin; Visser, Ad
    Abstract: The Eurosystem collateral framework ESCF) has played a key role in the ECB monetary policy implementation since 1999. Moreover, the financial and sovereign debt crisis and with it the increased reliance of banks on central bank credit have underlined the importance of central bank collateral frameworks. Broad collateral frameworks have helped prevent large-scale liquidity-driven defaults of financial institutions in all major advanced economies. More recently, they have allowed central banks to provide a large amount of – at times targeted – longer-term credit. Nevertheless, a number of authors have argued that the ESCF is too forthcoming or broad and that it does not afford the central bank sufficient protection. This paper first explains and justifies the logic of collateral frameworks in general and that of the ESCF in particular. It then reviews the main critical comments. It concludes that the ESCF has been effective (i) in providing an adequate level of elasticity for Eurosystem credit, and (ii) in protecting the Eurosystem from financial losses despite the severity of the financial and sovereign debt crisis and the large amounts of longer-term credit provided by the Eurosystem. JEL Classification: E58
    Keywords: central banking, collateral, ECB, Eurosystem, lender of last resort, operations
    Date: 2017–05
  95. By: Varma, Vijaya Krushna Varma
    Abstract: The cashless economy should be achieved in the phased manner and step by step process instead of forcing it on people overnight without expanding/providing banking infrastructure to every nook and corner of the country, internet connectivity with high speed at cheap rate and unbroken power supply. The government should continue the demonetisation program of high valued notes one by one along with making the cashless transactions step by step and from top to bottom i.e; from the super-rich to rich; from the rich to middle class; from high valued goods to low valued goods; from luxury items to essential commodities
    Keywords: cashless economy
    JEL: E5 O2
    Date: 2016–11–09
  96. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: As everyone in this room knows, economic forecasting is both science and art. Today, I will discuss my outlook for the economy and my views on monetary policy. Of course, these are my own views and not necessarily those of the Federal Reserve System or my colleagues on the Federal Open Market Committee. The economic expansion turns eight years old next month. It got off to a slow start from a very weak place, but now this expansion is one of the longest on record. While the quarterly pattern has had its share of ups and downs, output growth has maintained a moderate pace of a bit more than 2 percent, on average, over the expansion. The sustainability of the expansion through various economic shocks is a testament to the U.S. economy’s resiliency. While some of the recent readings on real activity have been soft, it is normal to see variability in the monthly and quarterly data. In my view, the underlying fundamentals supporting continued expansion remain sound.
    Keywords: Economic growth; forecasting;
    Date: 2017–05–08
  97. By: Kim , Sujin (Korea Institute for International Economic Policy)
    Abstract: Even at near-zero interest rates for a prolonged period since the financial crisis, why has business investment in advanced economies remained persistently below its pre-crisis level? This paper investigates empirically the roots of this investment puzzle from the global megatrend perspective. The empirical model of this study augmented the uncertainty-finance accelerator investment model with megatrend variables of a transition to service industry, ageing population and a rise in income inequality. The main estimation results show that they have affected negatively the business investment over the period 1980-2014. The shift-to-service driven investment fall is the price-dominant effect during the transition, which is not necessarily pessimistic news, while the suppressing effects from ageing and a rise in income inequality require adequate policy reactions. In addition, the analysis finds significant negative spillover effects of trade partners’ ageing and income inequality on a country’s own private investment. Based on the empirical results, I expect that the G20’s efforts in inclusiveness with structural reforms will stimulate global business investment.
    Keywords: Investment; Megatrends; Aggregate Demand; Uncertainty; G20; Inclusiveness
    JEL: E20 F41 F42
    Date: 2017–05–04
  98. By: UNAYAMA Takashi; OHNO Taro
    Abstract: We have constructed household savings rate data that are consistent with the macro data, or National Accounts, yet are based on the micro data of the National Survey of Family Income and Expenditure (NSFIE). Unlike the official NSFIE data, we calculate the savings rate for all households including the self-employed. In addition, on the consumption side, we address the underreporting problem in large expenditures such as durables as pointed out in previous studies by exploiting information from the Survey of Household Economy. According to the data constructed here, the decreasing trend in the savings rate can hardly be explained with the aging population, while the life-cycle hypothesis predicts that aging should be the main cause of the lower savings rate.
    Date: 2017–04
  99. By: Gilles Mourre; Caterina Astarita; Anamaria Maftei
    Abstract: This paper provides an assessment of the uncertainty surrounding revenue predictions, through an ex post analysis of European Commission’s forecasts over the last 15 years. It estimates the forecast errors affecting revenue for all 28 Member States, using the different vintages of the autumn and spring Commission forecasts. It analyses both the direction and magnitude of errors, using standard summary statistics. The paper looks into the various components of forecast errors to better understand their drivers (forecasting error related to real GDP, inflation or revenue-to-GDP ratio) and which types of revenues (direct tax, indirect tax or social security contributions) are particularly affected. The paper also examines the pattern of revenue errors over time and in particular how revenue forecasts perform before, during and after the crisis. To further deepen the analysis, a set of tests are carried out on the quality of the prediction (serial correlation, unbiasedness, weak and informational efficiency). The estimator-based tests confirm the sound track record of the European Commission’s forecasts. This is also shown by a comparison with the OECD’s revenue forecasts. Lastly, the paper reviews various possible determinants of forecast errors and examines their significance by means of a pooled time series technique. The econometric study allows for the identification of factors which increase or reduce the risk of over-forecasting revenue.
    JEL: C1 E60 E66
    Date: 2016–12
  100. By: Jason Allen; Timothy Grieder; Tom Roberts; Brian Peterson
    Abstract: This paper combines loan-level administrative data with household-level survey data to analyze the impact of recent macroprudential policy changes in Canada using a microsimulation model of mortgage demand of first-time homebuyers. Policies targeting the loan-to-value ratio are found to have a larger impact on demand than policies targeting the debt-service ratio, such as amortization. In addition, we show that loan-to-value policies have a larger role to play in reducing default than income-based policies.
    Keywords: macroprudential policy, household finnance, microsimulation models
    Date: 2017–05
  101. By: R. Tamara Konetzka; Karen B. Lasater; Edward C. Norton; Rachel M. Werner
    Abstract: The quality and cost of care in nursing homes depend critically on the number and types of nurses. Recent research suggests that the nursing supply adjusts to macroeconomic conditions. However, prior work has failed to consider the effect of macroeconomic conditions on demand for nurses through the effect on revenues. We test how county-level unemployment rates affect direct-care staffing rates in nursing homes using California data. We exploit the wide variation in the unemployment rates across counties and over time in 2005–2012. We also test whether there are heterogeneous effects of unemployment rates by facility size, staffing level, and profit status. We find that as unemployment rates increase, staffing by registered nurses (RNs) decreases but staffing by licensed practical nurses (LPNs) increases. The increase in LPNs is larger in large nursing homes, nursing homes with higher staffing levels, and in for-profit nursing homes. We also find that as unemployment rates increase, nursing home revenue decreases. While the effect of macroeconomic conditions on nursing supply may be important for cost and quality of care, the mechanism is not simple, direct, or homogeneous for all types of nurses and nursing homes.
    JEL: E32 I11 J44 L84
    Date: 2017–05
  102. By: Pascal Belan (THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique); Clément Carbonnier (THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique); Martine Carré (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    Abstract: Several European countries have recently envisaged to implement fiscal policies that constitute alternatives to monetary devaluation in the context of a monetary union. Social value-added tax is one of these alternatives: it consists to shift fiscal revenue from payroll tax to value-added tax, with the objective to address simultaneously competitiveness and employment problems. We analyze the consequence of such a policy in a model of international trade with heterogeneous firm à la Melitz. We depart from the CES case for taking account of the way changes in the tax rates may mo dify competition between producers, their margins, and the way these changes are refefected in prices. We first show that social VAT is neutral for zero trade balances. Then, in a two-country model, we show that, after the introduction of the social VAT, intensive and extensive margins increase in the net importing country regardless of the country that implements the policy. Both margins decrease in the net exporting country. Considering non-CES utility functions, the effects of social VAT are attenuated (amplified) if love for variety increases (decreases) with quantities
    Keywords: Fiscal devaluation,social VAT,tax reform,international trade
    Date: 2017–04–28
  103. By: Asongu, Simplice; Efobi, Uchenna; Tanankem, Belmondo
    Abstract: This study assesses the relationship between globalisation and the economic participation of women (EPW) in 47 Sub-Saharan African countries for the period 1990-2013. Two indicators are used to measure EPW, namely, the: female labour force participation and employment rates. The empirical evidence is based on Panel-corrected Standard Errors and Fixed Effects regressions. The findings show that the positive effect of the overall globalisation index on EPW is dampened by its political component and driven by its economic and social components, with a higher positive magnitude from the former or economic globalisation. For the most part, the findings are robust to the control for several structural and institutional characteristics: varying conditioning information sets, changes in the growth of urban population, government consumption, legal systems, resource wealth, health, technological advancement, political strife and conflicts, income levels and levels of industrialisation. An extended analysis by unbundling globalisation shows that the positive incidence of social globalisation is driven by information flow (compared to personal contact and cultural proximity) while the positive effect of economic globalisation is driven by actual flows (relative to restrictions). Policy implications are discussed.
    Keywords: Globalisation; inequality; inclusive development; Africa
    JEL: D60 E60 F40 F59 O55
    Date: 2017–01–01

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