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on Macroeconomics |
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Issue of 2017‒06‒04
95 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Ali Ozdagli; Michael Weber |
| Abstract: | Monetary policy shocks have a large impact on stock returns in narrow windows around press releases by the Federal Reserve. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct effect and an indirect (network) effect. We attribute 50%-85% of the overall effect to indirect effects. The decomposition is a robust feature of the data and we confirm large indirect effects in realized cash-flow fundamentals. A simple model with intermediate inputs guides our empirical strategy. Our findings indicate that production networks might be an important propagation mechanism of monetary policy to the real economy. |
| JEL: | E12 E31 E44 E52 G12 G14 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23424&r=mac |
| By: | Gorga, Carmine |
| Abstract: | If the Stock Market crashes, the Federal Reserve System (the Fed) ought to open the Discount Window to Main Street, by making 1. loans only for the creation of real wealth; 2. loans at cost; 3. loans to benefit as large a number of people as possible by issuing loans to individual entrepreneurs, cooperatives, corporations with ESOPs and/or CSOPs as well as to public agencies with taxing power to fund infrastructure projects. |
| Keywords: | D73, D78, E02, E32, E44, E52, E58, F53, G01, G18, G28, H12 |
| JEL: | D73 D78 E02 E32 E44 E52 E58 F53 G01 G18 G28 H12 |
| Date: | 2017–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79408&r=mac |
| By: | Gregory Levieuge; Yannick Lucotte; Florian Pradines-Jobet |
| Abstract: | According to "Schwartz’s conventional wisdom" and what has been called "divine coincidence", price stability should imply macroeconomic and financial stability. However, in light of the recent financial crisis, with monetary policy focused on price stability, scholars have held that banking and financial risks were largely unaddressed. According to this alternative view, the belief in divine coincidence turns out to be benign neglect. The objective of this paper is to test Schwartz’s hypothesis against the benign neglect hypothesis. The priority assigned to the inflation goal is proxied by the central banks’ conservatism (CBC) index proposed by Levieuge and Lucotte (2014b), here extended to a large sample of 73 countries from 1980 to 2012. Banking sector vulnerability is measured by six alternative indicators that are frequently employed in the literature on early warning systems. Our results indicate that differences in monetary policy preferences robustly explain cross-country differences in banking vulnerability and validate the benign neglect hypothesis, in that a higher level of CBC implies a more vulnerable banking sector |
| Keywords: | central banks preferences, inflation aversion, banking sector vulnerability, monetary policy |
| JEL: | E3 E44 E52 E58 |
| Date: | 2017–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2017-3&r=mac |
| By: | Davig, Troy A. (Federal Reserve Bank of Kansas City); Foerster, Andrew T. (Federal Reserve Bank of Kansas City) |
| Abstract: | Sixty-two countries around the world use some form of inflation targeting as their monetary policy framework, though none of these countries express explicit policy rules. In contrast, models of monetary policy typically assume policy is set through a rule such as a Taylor rule or optimal monetary policy formulation. Central banks often connect theory with their practice by publishing inflation forecasts that can, in principle, implicitly convey their reaction function. We return to this central idea to show how a central bank can achieve the gains of a rule-based policy without publicly stating a specific rule. {{p}} The approach requires central banks to specify an inflation target, tolerance bands, and provide economic projections. Thus, when inflation moves outside the band, inflation forecasts provide a time frame over which inflation will return to within the band. We show how this approach replicates and provides the same information as a rule-based policy. |
| JEL: | E4 E43 E5 E61 |
| Date: | 2017–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedkrw:rwp17-04&r=mac |
| By: | Takuji Kawamoto (Bank of Japan); Tatsuya Ozaki (Bank of Japan); Naoya Kato (Bank of Japan); Kohei Maehashi (Bank of Japan) |
| Abstract: | This paper explains the new methodology for calculating Japan's output gap and potential growth rate, both of which are regularly estimated and released by the Research and Statistics Department of the Bank of Japan. We have revised the estimation method given: (1) the retroactive revision of Japan's GDP statistics; (2) the newly available capital stock data which is in line with the new 2008SNA guidelines and adjusted for economic depreciation; and (3) recent structural changes in the factor markets for labor and capital that should be reflected in these estimated trends. Specifically, we have changed our estimation methodology in the following three ways: first, we have revised the estimation method of the "labor force participation rate gap," so as to reflect the recent sustained increase in the labor force participation rate starting around 2012 as a structural trend; second, we have revised the estimation method of the "hours worked gap," to identify the persistent decline in working hours over recent years as more of a structural development possibly due to changes in people's working styles; and third, we have revised the method for calculating the manufacturing "utilization gap," in order to reflect the economic depreciation of equipment and structures more appropriately. Taking a look at the revised output gap, we find that the overall picture for most of the recent period remains unchanged. Furthermore, it turns out that the inflation-prediction power of the revised output gap is almost unchanged from the previous version. Meanwhile, the resulting potential growth rate shows a significant upward revision for the last few years, mainly reflecting a rise in the TFP growth rate associated with the revision of the GDP statistics. As a result, the potential growth rate in recent years is estimated to be in the range of 0.5-1.0 percent, which is comparable to that of the first half of the 2000s, prior to the global financial crisis. |
| Keywords: | output gap; potential growth rate; GDP; phillips curve |
| JEL: | E23 E24 E31 E32 O47 |
| Date: | 2017–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojron:ron170531a&r=mac |
| By: | Wei Cui (Centre for Macroeconomics (CFM); University College London (UCL)); Leo Kaas (University of Konstanz) |
| Abstract: | Recessions are often accompanied by spikes of corporate default and prolonged declines of business credit. This paper argues that credit and default cycles are the outcomes of variations in self-fulfilling beliefs about credit market conditions. We develop a tractable macroeconomic model in which leverage ratios and interest spreads are determined in optimal credit contracts that reflect the expected default risk of borrowing firms. We calibrate the model to evaluate the impact of sunspots and fundamental shocks on the credit market and on output dynamics. Self-fulfilling changes in credit market expectations trigger sizable reactions in default rates and generate endogenously persistent credit and output cycles. All credit market shocks together account for about 50% of the variation of U.S. output growth during 1982-2015. |
| Keywords: | Firm default, Financing constraints, Credit spreads, Sunspots |
| JEL: | E22 E32 E44 G12 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1716&r=mac |
| By: | Vasilios Plakandaras (Department of Economics, Democritus University of Thrace, Komotini, Greece); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Periklis Gogas (Department of Economics, Democritus University of Thrace, Komotini, Greece); Theophilos Papadimitriou (Department of Economics, Democritus University of Thrace, Komotini, Greece) |
| Abstract: | In this paper, we evaluate the causal relationship between macroeconomic uncertainty indices, inflation and growth rate for 17 Eurozone countries on a county level examination. In performing a series of linear and non-linear causality tests we find little evidence of a causal relationship between uncertainty and macroeconomic variables. Thus, macroeconomic analysis based on uncertainty indices should be treated with caution. |
| Keywords: | Output growth, inflation, uncertainty, causality |
| JEL: | C32 E23 E27 E31 E37 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201737&r=mac |
| By: | Volker Hahn (Department of Economics, University of Konstanz, Germany) |
| Abstract: | We analyze a simple yet fully non-linear New Keynesian model with a central bank that pursues an inflation targeting strategy. Our analysis shows that expected adverse productivity shocks may drive the economy into a liquidity trap. As our model entails positive or moderately negative inflation in such a situation, it has the potential to explain the so-called “missing disinflation” in the Great Recession. In contrast with some previous papers, we find that the effects of fiscal policy in a liquidity trap are moderate and that reductions in labor income taxes are expansionary. We do not find support for higher inflation targets. Finally, we provide additional support for the view that the common practice of log-linearizing equilibrium relations can be potentially misleading in models with a lower bound on nominal interest rates. |
| Keywords: | Zero lower bound, missing disinflation, fiscal multiplier, liquidity trap, new Keynesian model, multiple equilibria, inflation target |
| JEL: | E52 E58 E62 |
| Date: | 2017–05–18 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1705&r=mac |
| By: | Salvatore Perdichizzi (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore) |
| Abstract: | During the sovereign debt crisis, all euro countries have deployed \aus- terity packages", believing that they could regain the path of growth im- plementing structural reforms and cutting government spending. Such policies should have led to an initial decline in GDP followed by recov- ery and a reduction of the debt to gdp ratio. A key issue is the size of scal multipliers when the economy is in recession. We estimate a non- linear model allowing variations based on the state of the economy and we control for the macroeconomic characteristics across the Euro Area. The empirical evidence suggests that, an increase in government spending will be particularly e ective to boost aggregate demand, increase private consumption and investment in the short-to-medium run, without raising the debt to gdp ratio but rather decreasing it. |
| Keywords: | Fiscal Multipliers, State-Dependent, Fiscal Policy, Public Finance. |
| JEL: | E32 E62 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie1:def058&r=mac |
| By: | Sohei Kaihatsu (Bank of Japan); Mitsuru Katagiri (Bank of Japan); Noriyuki Shiraki (Bank of Japan) |
| Abstract: | The relationship between the price-setting behaviors at the micro level and the inflation dynamics at the macro level is an underexplored research area. In this paper, we first document that (i) a remarkable shift in cross-sectional price-change distributions at the micro level and (ii) a flattening of Phillips curve at the macro level were simultaneously observed in Japan, from the high-inflation periods until the mid-1990s to the low-inflation periods afterward. We, then, empirically show that the menu-cost hypothesis fits the price-setting behavior in Japan and construct a multi-sector general equilibrium model with a higher menu cost in the services sector based on our empirical findings. The quantitative exercise using the model indicates that the above observations at the micro and macro level in Japan can be consistently replicated within a unified model under the declining average inflation and the increasing share of services in output. |
| Keywords: | Phillips curve; Price-change distribution; Menu cost; Service price rigidity; Deflation; Trend inflation |
| JEL: | E31 E32 E52 |
| Date: | 2017–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojwps:wp17e05&r=mac |
| By: | James Bishop (Reserve Bank of Australia); Peter Tulip (Reserve Bank of Australia) |
| Abstract: | Vector autoregression (VAR) models often find that inflation increases in response to a tightening in monetary policy, although standard macroeconomics predicts the opposite. This 'price puzzle' is commonly thought to reflect interest rates being tightened in anticipation of future inflation, reflecting information possessed by policymakers beyond that contained in the model. Romer and Romer (2004) and Cloyne and Hürtgen (2016) successfully remove the price puzzle from US and UK data, respectively, by purging the cash rate of systematic policy responses to central bank forecasts. We find that this approach does not work for Australia under a wide range of specifications. This suggests that VARs may not be the most reliable way to analyse monetary policy. |
| Keywords: | price puzzle; monetary policy; VARs |
| JEL: | E31 E52 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2017-02&r=mac |
| By: | Hawkins, Raymond J.; Nguyen, Chau N. |
| Abstract: | The authors solve the IS puzzle for the G7 countries. They find that five of the G7 countries have the expected significant negative relationship between the output gap and the realrate gap; the time series of the remaining two show material deviation from expected IScurve behavior. The authors show that the observed time dependence of the interaction between the output and real-rate gaps can be represented in a parsimonious and practical manner using the theory of anelasticity that unifies partial-adjustment specifications of the IS curve. |
| Keywords: | macroeconomics,IS curve,inflation,anelasticity |
| JEL: | C22 E3 E32 E52 E61 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201720&r=mac |
| By: | Juan Carlos Cuestas; Merike Kukk |
| Abstract: | This paper investigates the mutual dependence between housing prices and housing credit in Estonia, a country which experienced rapid debt accumulation during the 2000s and big swings in house prices during that period. We use Bayesian econometric methods on data spanning 2000–2015. The estimations show the interdependence between house prices and housing credit. More importantly, housing credit shocks had a stronger effect on house prices in the period of declining credit turnover. The asymmetry in the linkage between housing credit and house prices highlights important policy implications, in that if central banks increase capital buffers during good times, they can release credit conditions during hard times to alleviate the negative spillover into house prices and the real economy |
| Keywords: | house prices, housing credit, credit cycle, asymmetries, Bayesian |
| JEL: | E32 E44 E51 G21 R21 R31 |
| Date: | 2017–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2017-2&r=mac |
| By: | Martin Lukáèik (University of Economics in Bratislava, Dolnozemská cesta 1, Bratislava, Slovakia); Karol Szomolányi (University of Economics in Bratislava, Dolnozemská cesta 1, Bratislava, Slovakia); Adriana Lukáèiková (University of Economics in Bratislava, Dolnozemská cesta 1, Bratislava, Slovakia) |
| Abstract: | Research background: The value of the elasticity of the substitution has been a subject of the research around the world in last decades. It affects the qualitative and quantitative answers to a host of economic questions. Purpose of the article: We suggest the co-integration estimation form to estimate short-run elasticity of substitution. Using U.S. NIPA aggregate time series we estimate aggregate short-run elasticity of substitution. In comparison with estimations in economic literature, we confirm theoretical assumptions described in the research background. Methodology/methods: Different econometric estimation forms are used to estimate elasticity of the substitution coefficient. One possibility is a constant elasticity of substitution production function linearization. Others come from the first-order conditions of a representative firm expressing factor demand functions. Error correction models are natural and elegant way to estimate the forms with non-stationary data. However, the use of error correction models in the factor demand econometric forms is useless for estimating a long-run elasticity of substitution coefficient. The co-integration relationship is given by the theoretical assumption of the labour share constancy in the long-run or by other underlying processes. Though, we can use this co-integration relationship to correct error term in the short-run estimation form. To estimate the short-run elasticity of substitution, we use Stock and Watson’s estimation form. Stability, stationarity and serial correlation of residuals are tested by the relevant econometric tests. Findings: The value of aggregate short-run elasticity of substitution is closed to one. In comparison with other relevant theoretical and empirical papers, our results incline to the Cobb-Douglas aggregate production function in U.S. economy. |
| Keywords: | short-run and long-run elasticity of substitution, aggregate and sectoral estimations, vector error correction model, labour demand of the profit maximizing firm |
| JEL: | C13 E23 E24 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no63&r=mac |
| By: | Michaela Stanickova (VŠB-Technical University of Ostrava, Czech Republic) |
| Abstract: | Economic crisis hit all the European Union Member States hard, the impact of crisis varied considerably. The low growth performance in the EU has increased concerns regarding an increasing wage dispersion, income inequality at large, and social exclusion in line with poverty. Inequality should be seen as a cornerstone of both sustainable and inclusive growth under the Europe 2020 Strategy. Social inequality in the EU is a very real problem which hampers sustainable economic growth. The purpose of this study is to introduce evaluation of social development convergence and divergence trend between EU28 Member States in the context of the Europe 2020 Strategy. The study gives an outline of the issues of labour market and income disparities and poverty. Policy-makers must be clear about what social objectives they are aiming to achieve, therefore special attention is paid to headline national goals of the Europe 2020 Strategy. The main tasks of this study is to assess social dimension and inequalities problems in the EU27 by applying Data Envelopment Analysis method, resp. time-series dynamic efficiency analysis in the form of output-oriented Malmquist Productivity Index. This study contain changes of key social equality indicators related to the Europe 2020 Strategy and compares objectives and general outlines of period 2010-2015, as well as its impact on national economics and living conditions. Results contain elements of typology premises of the EU28 and point to a large diversity in inequality patterns, as author observe both increases and decreases in inequality at the EU level. Recent changes in social inequality have been associated with the business cycle, particularly with the accessibility of the labour market and, of course, with income inequality. Additionally the development challenges are discussed for improvement of the socioeconomic well-being of the EU27 and to avoid social disparities. |
| Keywords: | DEA Method, Economic Crisis, EU28, Europe 2020 Strategy, Social Inequality. |
| JEL: | C67 E24 E61 O52 P51 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no120&r=mac |
| By: | Zlatko J. Kovacic (The Open Polytechnic of New Zealand, New Zealand); Milos Vilotic (My Statistical Consultant Ltd.) |
| Abstract: | One of business cycles stylised facts is that contractions are shorter than expansions, but less persistent, more volatile and therefore asymmetric. Investigating existence and type of business cycles asymmetry is important for analysis of economic policy and statistical modeling. Economic implication of business cycles asymmetry is that economic policy should be different in period of contractions than expansion. Statistical implication is that linear models of business cycles cannot capture this stylised fact. The article has two objectives: extend the literature on the business cycles asymmetry by testing data from 36 European countries including countries never been analysed before and test robustness of the results to extraction methods and asymmetry tests used. Quarterly GDP series from Eurostat database covering period 2000q1-2016q3 were used. Series were prepared by removing seasonal component using X13-ARIMA procedure. To assess robustness of asymmetry tests results to alternative methods of detrending business cycles were extracted using two filters: Corbae-Ouliaris ideal band filter and double Hodrick-Prescott filter. For testing the deepness and steepness asymmetry three tests were used: Mills, Mira and Sichel tests. Weaker evidence of deepness asymmetry was found in Cyprus, Montenegro and Turkey cycles where all three tests statistics for both filters have negative sign. However, only for one of the tests in each country the result was statistically significant. For two other countries, Germany and Sweden, four of six tests indicated deepness asymmetry, but only one of these tests results was statistically significant. Most of the cycles show steepness asymmetry, with exception of Ireland business cycles and to certain extent cycles of Poland, Malta, Montenegro and Spain. |
| Keywords: | business cycle, asymmetry, Mills test, Mira test, Sichel test |
| JEL: | C12 C14 E32 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no48&r=mac |
| By: | Ndiaye, Ndeye Djiba; Masih, Mansur |
| Abstract: | This paper explores the appropriateness and consequently the feasibility of inflation targeting in an economy with a dual financial system. We take the case of Malaysia, an example of a successful coexistence of the conventional and Islamic systems. The study employs ARDL bounds testing approach to investigate the long run relationship between inflation rate, real effective exchange rate, statutory reserve rate, narrow money, Islamic interbank rate and the overnight policy of Malaysia, considering the major transmission mechanism channels in the conduct of monetary policy stance. An Error Correction Model (ECM) is used to capture the short run dynamics, and variance decomposition of forecast errors is used to determine the causality direction of the variables. The periods considered was monthly data from the June 2007 to February 2017. Our results show that there is a long and short term relationship between inflation, narrow money, statutory reserve rate, real effective exchange rate and the Islamic interbank rate. However, we suggest that Inflation targeting may not be ideal in a dual banking system, especially the case of Malaysia. Alternatively, interest rate targeting is found to be most effective. Additionally, it will give the central bank more control over the Islamic segment of the financial system. |
| Keywords: | Dual Banking, Islamic Banking, Interest rate, Inflation Targeting, Islamic Profit rate, Monetary Policy, ARDL |
| JEL: | C58 E44 G15 |
| Date: | 2017–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79420&r=mac |
| By: | Wei Dai (School of Economics, University of Adelaide); Mark Weder (School of Economics, University of Adelaide); Bo Zhang (School of Economics, University of Adelaide) |
| Abstract: | People's animal spirits are a significant driver behind the fluctuations of the U.S. business cycle. This insight is demonstrated within an estimated artificial economy with financial market frictions. Animal spirits shocks account for around 40 percent of output fluctuations over the period from 1955 to 2014. Financial friction and technology shocks are considerably less important with best point estimates for both near 20 percent. We also find that the Great Recession, for the most parts, was caused by adverse shocks to expectations. |
| Keywords: | Endogenous financial frictions, indeterminacy, animal spirits, business cycles, Bayesian estimation |
| JEL: | E32 E44 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2017-08&r=mac |
| By: | Michaud, Amanda M. (Federal Reserve Bank of Cleveland); Rothert, Jacek (United States Naval Academy) |
| Abstract: | Government expenditures are pro-cyclical in emerging markets and counter-cyclical in developed economies. We show this pattern is driven by differences in social transfers. Transfers are more counter-cyclical and comprise a larger portion of spending in developed economies compared to emerging. In contrast, government expenditures on goods and services are quite similar across the two. In a small open economy model, we find disparate social transfer policies can account for more than a half of the excess volatility of consumption relative to output in emerging economies. We analyze how differences in tax policy and the nature of underlying inequality amplify or mitigate this result. |
| Keywords: | Fiscal Policy; Open Economy Macroeconomics; Emerging Markets; Business Cycles; |
| JEL: | E3 E6 F4 |
| Date: | 2017–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1709&r=mac |
| By: | Michalis Nikiforos; Gennaro Zezza |
| Abstract: | The stock-flow consistent (SFC) modeling approach, grounded in the pioneering work of Wynne Godley and James Tobin in the 1970s, has been adopted by a growing number of researchers in macroeconomics, especially after the publication of Godley and Lavoie (2007), which provided a general framework for the analysis of whole economic systems, and the recognition that macroeconomic models integrating real markets with flow-of-funds analysis had been particularly successful in predicting the Great Recession of 2007-9. We introduce the general features of the SFC approach for a closed economy, showing how the core model has been extended to address issues such as financialization and income distribution. We next discuss the implications of the approach for models of open economies and compare the methodologies adopted in developing SFC empirical models for whole countries. We review the contributions where the SFC approach is being adopted as the macroeconomic closure of microeconomic agent-based models, and how the SFC approach is at the core of new research in ecological macroeconomics. Finally, we discuss the appropriateness of the name "stock-flow consistent" for the class of models we survey. |
| Keywords: | Macroeconomic Models; Stock-flow Consistency; Financial Models; Economic Policy |
| JEL: | E1 E17 E50 E60 F41 G00 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_891&r=mac |
| By: | Karolina Tura-Gawron (Gdansk University of Technology, Poland) |
| Abstract: | The Central Bank of Sweden declares the use of the Svensson’s concept of inflation forecast targeting (IFT). It means that the repo rate decision making process depends on the central banks’ forecasts. The concept evolved from the strict IFT with the decision making algorithm called the ‘rule of thumb’ to the flexible IFT which later includes the optimal monetary policy plan. The aim of the article is to: (1) analyse the influence of the inflation rate and GDP growth rate on the repo rate decisions, (2) analyse the influence of the inflation rate and GDP growth rate forecasts (in two year horizon) on the repo rate decisions in Sweden in years 1999-2006. The main research question is as follows: did the Monetary Policy Commitee in Sweden in years 1999-2006 made the decisions on the repo rates on the basis of forecast-based instrument rules and the rule of the thumb algorithm. The analysis encompasses the repo rates decisions, CPI inflation rate, GDP growth rate, central paths of CPI inflation forecasts and central paths of GDP growth rate forecasts in the two years horizon published by The Central Bank of Sweden in years 1999-2006. The studies are based on the Taylor-type instrument rule and forecast-based Taylor-type instrument rule. The methodology used is multiple linear regression models. The Central Bank of Sweden in years 1999-2006 implemented direct inflation forecast targeting (DIFT) rule. The decision making algorithm was based on the CPI inflation forecasts and rule of the thumb algorithm. The exact rule of the thumb was as follow: if the inflation forecast, in the two year forecast’s horizon exceeded the inflation target by 1 p.p., then the central bank raised the repo rate by 0.4 p.p; if is below , then the central bank reduced the repo rate by 0.4 p.p. If the inflation forecast was equal to the inflation target, then the repo rate remained unchanged. The historical repo rates differ from the theoretical estimated rule of the thumb’s repo rates by +/-0.28 p.p. |
| Keywords: | inflation targeting regime, decision making process, repo rates |
| JEL: | E52 E58 E61 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no135&r=mac |
| By: | Adrien Auclert |
| Abstract: | This paper evaluates the role of redistribution in the transmission mechanism of monetary policy to consumption. Three channels affect aggregate spending when winners and losers have different marginal propensities to consume: an earnings heterogeneity channel from unequal income gains, a Fisher channel from unexpected inflation, and an interest rate exposure channel from real interest rate changes. Sufficient statistics from Italian and U.S. data suggest that all three channels are likely to amplify the effects of monetary policy. A standard incomplete markets model can deliver the empirical magnitudes if assets have plausibly high durations but a counterfactual degree of inflation indexation. |
| JEL: | D31 D52 E21 E52 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23451&r=mac |
| By: | Enders, Zeno; Kleemann, Michael; Müller, Gernot J. |
| Abstract: | We assess whether "undue optimism" (Pigou) contributes to business cycle fluctuations. In our analysis, optimism (or pessimism) pertains to total factor productivity which determines economic activity in the long run. Optimism shocks are perceived changes in productivity which do not actually materialize. We develop a new strategy to identify optimism shocks in a VAR model. It is based on nowcast errors regarding current output growth, that is, the difference between actual growth and the real-time prediction of professional forecasters. We find that optimism shocks - in line with theory - generate a negative nowcast error, but simultaneously a positive short-run output response. |
| Keywords: | undue optimism,optimism shocks,noise shocks,animal spirits,business cycles,nowcast errors,VAR |
| JEL: | E32 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:112017&r=mac |
| By: | Mauro Pisu (OECD) |
| Abstract: | Boosting investment is key to supporting the nascent recovery and reviving stagnant productivity. Aggregate investment has declined markedly since the start of the global financial crisis, especially in services. Italy’s investment is so low that the capital stock is now declining, hurting potential output growth. Raising investment will hinge on improving insolvency procedures, enhancing business dynamism, strengthening the innovation system and targeting incentives toward start-ups and innovative SMEs, overcoming problems in the banking sector and restarting lending to firms in addition to diversifying sources of firms’ finance. |
| JEL: | E21 E22 G21 G23 G24 G28 H20 O16 |
| Date: | 2017–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1388-en&r=mac |
| By: | Isabelle Salle (Utrecht University, School of Economics); Pascal Seppecher (Centre d'Economie de l'Université de Paris Nord (CEPN)) |
| Abstract: | This paper analyzes a range of alternative specifications of the interest rate policy rule within a macroeconomic, stock-flow consistent, agent-based model. In this model, firms’ leverage strategies evolve under the selection pressure of market competition. The resulting process of collective adaptation generates endogenous booms and busts along credit cycles. As feedback loops on aggregate demand affect the goods and the labor markets, the real and the financial sides of the economy are closely interconnected. The baseline scenario is able to qualitatively reproduce a wide range of stylized facts, and to match quantitative orders of magnitude of the main economic indicators. We find that, despite the implementation of credit and balance sheet related prudential policies, the emerging dynamics feature strong instability. Targeting movements in the net worth of firms help dampen the credit cycles, and simultaneously reduce financial and macroeconomic volatility, but does not eliminate the occurrence of financial crises along with high costs in terms of unemployment. |
| Keywords: | Agent-based modeling, Credit cycles, Monetary and Macroprudential policies, Leaning against the wind |
| JEL: | C63 E03 E52 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:upn:wpaper:2017-07&r=mac |
| By: | Magdalena Szyszko (WSB University in Poznan, Poland); Aleksandra Rutkowska (Poznan University of Economics and Business, Poland) |
| Abstract: | Modern monetary policy should be expectations-oriented. The best way to influence expectations operationally is to use inflation forecasts. As different ways of revealing central bank’s intentions exist, a simple research question arises. Does the forward-looking (FL) component of consumers' expectations depend on the way in which the forecast is revealed and used by the central bank? The main purpose of the article is to address the mentioned above question. The research hypothesis assumes that the forecasting system which is more transparent together with a greater central banks’ consistency in inflation forecast targeting (IFT) result in more FL consumers' expectations. We quantified inflation expectations of consumers on the basis of survey responses (EC Business and Consumer Surveys) with Carlson and Parkin method. When it was needed we applied its version adjusted for deflation. Then, we checked the rationality of consumer expectations (tests for their unbiasedness and orthogonality) and the degree of their FL by means of regression models. Finally, we used the IFT index, which we have elaborated ourselves in order to assess the transparency of the forecasting system and the central banks’ commitment to IFT. The research covers Czechia, Hungary, Romania, Poland, Sweden and the UK and the time span of 2001-2016. For Poland, Sweden and the UK more IFT commitment and transparency was related to more consumers’ forward-lookingness. For Czechia we found low level of FL in expectations but high level of IFT commitment. We did not succeed in estimating the extent of FL for the two remaining countries due to structural breaks in their monetary policy. The following study contributes to the literature on inflation forecast targeting as it presents the novel empirical application of IFT index for the expectations analysis. |
| Keywords: | inflation forecast, inflation forecast targeting, consumers expectations, forward-lookingness of expectations. |
| JEL: | E58 E43 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no128&r=mac |
| By: | Gerba, Eddie; Żochowski, Dawid |
| Abstract: | The Great Recession has been characterised by the two stylized facts: the buildup of leverage in the household sector in the period preceding the recession and a protracted economic recovery that followed. We attempt to explain these two facts as an information friction, whereby agents are uncertain about a new state of the economy following a financial innovation. To this end, we extend Boz and Mendoza (2014) by explicitly modelling the credit markets and by modifying the learning to an adaptive set-up. In our model the build-up of leverage and the collateral price cycles takes longer than in a stylized DSGE model with financial frictions. The boom-bust cycles occur as rare events, with two systemic crises per century. Financial stability is achieved with an LTV-cap regulation which smooths the leverage cycles through quantity (higher equity participation requirement) and price (lower collateral value) effects, as well as by providing an anchor in the learning process of agents. JEL Classification: G14, G17, G21, G32, E44, E58 |
| Keywords: | deregulation, financial engineering, leverage forecasting, macroprudential policy, uncertainty |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172068&r=mac |
| By: | Citak, Yusuf Ensar; Masih, Mansur |
| Abstract: | The purpose of this study is to investigate the Granger-causal relationship between oil prices, exchange rates and inflation rates using Turkey as a case study. Revealing this relationship will give us a roadmap to cure fragile Turkish economy. Standard time-series approaches are used to investigate this relation. Our empirical findings tend to indicate that there is a long run relationship between these variables and that the CPI appears to be the variable leading exchange rate and oil prices. The results are plausible and have strong policy implications. |
| Keywords: | Oil Price, Exchange Rate, CPI, PPI, Turkey, cointegration, exogeneity, endogeneity |
| JEL: | C58 E44 G15 |
| Date: | 2017–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79453&r=mac |
| By: | Razak, Lutfi Abdul; Masih, Mansur |
| Abstract: | This paper revisits the Feldstein-Horioka puzzle – the mother of all puzzles – to uncover whether there exists a long-run relationship between domestic investment and domestic savings for the case of Malaysia. This is a long-standing empirical puzzle in macroeconomics which contradicts economic theory: for open economies, savings should be able to flow to where investment returns are most attractive, and hence there should be no correlation between investment and savings. One plausible reason put forth in the literature as an explanation for the puzzle is the reduction in trade frictions. As trade frictions are reduced, capital becomes more mobile, which in turn would mitigate the Feldstein-Horioka puzzle. Using an ARDL framework, we seek to investigate whether trade openness, as a proxy for reduced trade frictions, can help explain the long-run relationship between savings and investment. Although we discover mixed evidence with regards to the role of trade openness, we find that more importantly, the results tend to indicate the presence of possible structural break. Nevertheless, the results from our paper imply that policymakers can set the savings rate as an intermediate target to affect investment and real income. |
| Keywords: | Feldstein-Horioka puzzle, Malaysia, ARDL |
| JEL: | C58 E44 G15 |
| Date: | 2017–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79407&r=mac |
| By: | Fan, Ying; Yavas, Abdullah |
| Abstract: | The high growth rate of mortgage debt in various emerging and developed economies has captured headlines following the financial crisis. In this paper, we investigate how mortgage debt impacts household consumption behavior and various components of household consumption. Utilizing a comprehensive household survey data from China, we show that households with a mortgage consume a higher portion of their income than households without a mortgage. This is in line with the argument that having a mortgage reduces the uncertainty that the household faces regarding how much to save each month in order to be able to own a house, and this reduced uncertainty leads to lower monthly savings for the purpose of buying a house. We also find that among households with a mortgage, those who spend a larger share of their income on mortgage payments spend less of their income on consumption, reflecting the crowding out effect of mortgage payments on household consumption. Furthermore, we show that a government policy of decreasing the maximum loan-to-value ratio has a significant impact on the consumption behavior of households. The current paper offers the first evidence of the impact of growing mortgage debt on the consumption behavior of households. Our results will have implications for government policies that encourage mortgage borrowing. |
| Keywords: | Consumption, Mortgage Debt |
| JEL: | D14 E21 G21 |
| Date: | 2017–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79306&r=mac |
| By: | Roberto Marfè |
| Abstract: | This paper exploits information from the variance-ratios of macroeconomic variables to infer about the short and long-run components of dividend risk and ination risk. While labor rigidity shifts dividend risk towards the short horizon, it also reveals {by means of labor-share variation{ the component of ination risk which is correlated with fundamentals. A simple general equilibrium model with labor rigidity can explain how ination interacts with the real growth and the labor-share, as well as many patterns of the term-structures of real and nominal bond yields. The model is robust to many properties of equity returns. |
| Keywords: | labor rigidity, ination, term-structure, interest rates, equilibrium asset pricing |
| JEL: | D51 E21 G12 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:461&r=mac |
| By: | Paula Gil (Universidad Complutense de Madrid); Francisco Martí (Banco de España); Richard Morris (European Central Bank); Javier J. Pérez (Banco de España); Roberto Ramos (Banco de España) |
| Abstract: | This paper estimates the GDP impact of legislated tax changes in Spain using a newly constructed narrative record for the period 1986-2015. Our baseline estimates suggest that a 1% of GDP increase in exogenous taxes depresses output by around 1.3% after one year, this negative effect fading away at more distant horizons. We also find that the effect of changes in indirect taxes are larger and that, following a tax increase, investment reacts more than consumption. Overall, our set of estimates is consistent with negative output effects triggered by tax increases, yet the quantitative effects are subject to non-negligible uncertainty that is refected in wide confidence bands, in line with the extant literature for other countries. |
| Keywords: | tax shocks, narrative record, fiscal policy, GDP growth |
| JEL: | E32 E62 H20 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1721&r=mac |
| By: | Tomasz Piskorski; Alexei Tchistyi |
| Abstract: | We develop a tractable general equilibrium framework of housing and mortgage markets with aggregate and idiosyncratic risks, costly liquidity and strategic defaults, empirically relevant informational asymmetries, and endogenous mortgage design. We show that adverse selection plays an important role in shaping the form of an equilibrium contract. If borrowers' homeownership values are known, aggregate wages and house prices determine the optimal state-contingent mortgage payments, which efficiently reduces the costs of liquidity default. However, when lenders are uncertain about homeownership values, the equilibrium contract only depends on house prices and takes the form of a home equity insurance mortgage (HEIM) that eliminates the strategic default option and insures the borrower's equity position. Interestingly, we show that widespread adoption of such loans has ambiguous effects on the homeownership rate and household welfare. In economies in which recessions are expected to be severe, the HEIM equilibrium Pareto dominates the equilibrium with fixed-rate mortgages. However, if economic downturns are not severe, HEIMs can lower the homeownership rate and make some marginal home buyers worse-off. We also note that adjustable-rate mortgages (ARMs) may share some benefits with HEIMs, which may help justify a high concentration of ARMs among riskier borrowers. Finally, we find that unrestricted competition between lenders may lead to a non-existence of equilibrium. This suggests that government-sponsored enterprises may stabilize mortgage markets by subsidizing certain mortgage contracts. |
| JEL: | D1 D5 E44 G01 G21 G28 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23452&r=mac |
| By: | Roberto Marfè; Julien Penasse |
| Abstract: | While time-varying disasters can explain many characteristics of financial markets, their quantitative assessment is still missing. We propose a latent variable approach to estimate the time-varying probability of a macroeconomic disaster, using a dataset of 42 countries over more than 100 years. We find that disaster risk is volatile and persistent, strongly correlates with the dividend yield, and forecasts stock returns. A state-of-the-art model calibrated with our disaster risk estimates generates a large and volatile equity premium and a low risk free rate under standard assumptions. This evidence supports the idea that investors' fear of disasters drives equity premium dynamics. |
| Keywords: | rare disasters, equity premium, return predictability, state-space model |
| JEL: | E44 G12 G17 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:463&r=mac |
| By: | Luis J. Álvarez (Banco de España); Ana Gómez-Loscos (Banco de España) |
| Abstract: | This paper presents a survey of output gap modeling techniques, which are of special interest for policy making institutions. We distinguish between univariate -which estimate trend output on the basis of actual output, without taking into account the information contained in other variables–, and multivariate methods –which incorporate useful information on some other variables, based on economic theory. We present the main advantages and drawbacks of the different methods. |
| Keywords: | output gap, potential output, business cycle, trend output, survey |
| JEL: | E32 O4 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1720&r=mac |
| By: | srithilat, khaysy; Sun, Gang |
| Abstract: | This paper examines the impact of monetary policy on the economic development by using annual time series data from 1989-2016. The unit root testing result suggests that all variables are stationary at first difference; therefore, the Johansen Cointegration and Error Correction Model has been employed to analyze the association between variables. The finding shows that money supply, interest rate, and inflation rate negatively effect on the real GDP per capita in the long run and only the real exchange rate has a positive sign. The error correction model result indicates the existence of short-run causality between money supply, real exchange rate and real GDP per capita. |
| Keywords: | monetary policy, economic development, laos, VECM, cointegration. |
| JEL: | E52 |
| Date: | 2017–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79369&r=mac |
| By: | Christina Christou (Open University of Cyprus, School of Economics and Finance, Latsia, Cyprus); Ruthira Naraidoo (Department of Economics, University of Pretoria, Pretoria, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Won Joong Kim (Department of Economics, Konkuk University, Seoul, Republic of Korea) |
| Abstract: | The purpose of this study is to investigate how the four nations of Taiwan, India, China and Korea (i.e., the TICKs member states) set interest rates in the context of policy reaction functions. It adds to the previous literature in that the empirical estimates are conducted not only at the central mean of interest rate but we also take into account the response of interest rate to inflation, output and exchange rate at various points on the conditional distribution of interest rates, hence offering the possibility to test predictions of greater or lesser aggression at different bounds of interest rate. Our results indicate the tendency of a milder response to inflation at low interest rates and greater response at higher quantiles of interest rates, where inflation is presumably higher than desired for China and South Korea and hence offers evidence for nonlinearity. While the response to inflation over the quantiles is significant for India, yet the Taylor principle is less likely to hold. For Taiwan, the results imply that another instrument is employed to deal with its official managed floating currency. |
| Keywords: | Monetary policy; Taylor rule; Quantile regression; Emerging markets |
| JEL: | C21 C26 E52 E58 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201738&r=mac |
| By: | Knotek, Edward S. (Federal Reserve Bank of Cleveland); Garciga, Christian (Federal Reserve Bank of Cleveland) |
| Abstract: | Beyond GDP, which is measured using expenditure data, the U.S. national income and product accounts (NIPAs) provide an income-based measure of the economy (gross domestic income, or GDI), a measure that averages GDP and GDI, and various aggregates that include combinations of GDP components. This paper compiles real-time data on a variety of NIPA aggregates and uses these in simple time-series models to construct out-of-sample forecasts for GDP growth. Over short forecast horizons, NIPA aggregates—particularly consumption and GDP less inventories and trade—together with these simple time-series models have historically generated more accurate forecasts than a canonical AR(2) benchmark. This has been especially true during recessions, although we document modest gains during expansions as well. |
| Keywords: | forecasting; GDP; GDI; real-time data; consumption; |
| JEL: | C32 C53 E01 |
| Date: | 2017–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1708&r=mac |
| By: | Blazej Mazur (Cracow University of Economics, Poland) |
| Abstract: | Current approaches used in empirical macroeconomic analyses use the probabilistic setup and focus on evaluation of uncertainties and risks, also with respect to future business cycle fluctuations. Therefore, forecast-based business conditions indicators should be constructed using not just point forecasts, but rather density forecasts. The latter represent whole predictive distribution and provide relevant description of forecast uncertainty.We discuss a problem of model-based probabilistic inference on business cycle conditions in Poland. In particular we consider a model choice problem for density forecasts of Polish monthly industrial production index and its selected sub-indices. Based on the results we develop indicators of future economic conditions constructed using probabilistic information on future values of the index. In order to develop a relevant model class we make use of univariate Dynamic Conditional Score models with Bayesian inference methods. We assume that the conditional distribution is of the generalized t form in order to allow for heavy tails. Another group of models under consideration relies on the idea of business cycle modelling using the Flexible Fourier Form. We compare performance of alternative models based on ex-post evaluation of density forecasting accuracy using such criteria as Log-Predictive Score (LPS) and Continuous Ranked Probability Score (CRPS). The assessment of density forecasting performance for Polish industrial production index turns out to be difficult since it depends on the choice of verification window. The pre-2013 data supports the deterministic cycle model whereas more recent observations can be explained by a very simple mean-reverting Gaussian AR(4) process. This provides an indirect evidence indicating the change of pattern of Polish business cycle fluctuations after 2013. A probabilistic indicator of business conditions is also sensitive to details of its construction. The results suggest application of forecast pooling strategies as a goal for further research. |
| Keywords: | density forecasts; Bayesian inference; business cycle; Dynamic Conditional Score models; Generalized t distribution. |
| JEL: | E37 C53 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no75&r=mac |
| By: | Cantillo, Miguel |
| Abstract: | This paper develops an equilibrium asset pricing framework that allows for investor aggregation, and assumes a log-normally distributed aggregate endowment growth. This framework allows me to derive the equilibrium risk free rate, the expected market return, and expected returns for individual securities. To test how reasonable the results are, I use data of several developed economies from Campbell (2003, 2017) to find a median value of relative risk aversion of 1.57, and a time preference rate of 4.58%. The framework allows me to estimate a version of the CAPM and a multi-period pricing model. |
| Keywords: | Asset Pricing, General Equilibrium, CAPM, Equity Premium Puzzle |
| JEL: | D53 E21 G12 G13 G32 |
| Date: | 2017–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79357&r=mac |
| By: | Silva Lopes, Artur C.; Florin Zsurkis, Gabriel |
| Abstract: | We use first differenced logged quarterly series for the GDP of 29 countries and the euro area to assess the need to use nonlinear models to describe business cycle dynamic behaviour. Our approach is model (estimation)-free, based on testing only. We aim to maximize power to detect non-linearities and, simultaneously, we purport avoiding the pitfalls of data mining. The evidence we find does not support some descriptions because the presence of significant non-linearities is observed for 2/3 of the countries only. Linear models cannot be simply dismissed as they are frequently useful. Contrarily to common knowledge, nonlinear business cycle variation does not seem to be an universal, undisputable and clearly dominant stylized fact. This finding is particularly surprising for the U.S. case. Some support for nonlinear dynamics for some further countries is obtained indirectly, through unit root tests, but this is marginal to our study, based on indirectmethods only and can hardly be invoked to support nonlinearity in classical business cycles. |
| Keywords: | business cycles; nonlinear time series models; testing. |
| JEL: | C22 C51 E32 |
| Date: | 2017–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79413&r=mac |
| By: | Deicy Cristiano-Botia (Banco de la República de Colombia); Eliana González-Molano (Banco de la República de Colombia); Carlos Huertas-Campos (Banco de la República de Colombia) |
| Abstract: | Mediante técnicas econométricas se determina si las expectativas de la tasa de interés de política y los choques no anticipados de la misma afectan las tasas de interés de captación y crédito. Se encuentra evidencia empírica de que las sorpresas monetarias tienen poder explicativo en los movimientos de tasas de mercado para las captaciones y créditos comerciales. Así mismo, se encuentra que las entidades financieras tienen en cuenta las expectativas sobre la tasa de intervención para fijar su tasa de captación. Por otro lado, se encuentra que las entidades financieras se anticipan a los movimientos de tasa de política y modifican sus tasas de captación antes del anuncio del Banco Central, y que tanto el día del anuncio como posterior a este no se realizan ajustes significativos en las tasas de mercado. **** Alternative economic models are used to determine whether policy interest rate expectations and unanticipated changes in the reference interest rate affect saving and credit interest rates. We found empirical evidence that policy surprises have predict power over fixing passive and active interest rates. Similarly, results show that to fix their interest rate financial entities take into account their expectations about policy rate. On the other hand, we found evidence of changes in deposits rates in advance the announcement of the monetary authority and no significance change on the day of the announcement and the day after. Classification JEL: D84, E43, E52, E58 |
| Keywords: | Expectativas, política monetaria, tasas de interés, mecanismos de transmisión. **** Expectations, Monetary Policy, Interest Rates, Transmission Mechanism |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdr:borrec:988&r=mac |
| By: | R. Matthew Darst; Ehraz Refayet |
| Abstract: | This paper studies optimal debt maturity when firms must use collateral to back non-contingent claims. The optimal term structure of debt trades-off long-term borrowing costs and short-term refinancing costs because the price of risk is different across states and through time. Issuing both long- and short-term debt allows firms to cater risky promises across time to investors most willing to hold risk. Collateral frictions produce a rich term structure of debt that includes safe "money-like" debt, risky short- and long-term debt, and contrast existing theories predicated on information frictions or liquidity risk. Lastly, we show that "hard" secured debt covenants in long-term debt do not affect investment or credit spreads when collateral is scarce because they act as perfect substitutes for short-term debt. |
| Keywords: | Collateral ; Cost of capital ; Debt covenants ; Debt maturity ; Investment |
| JEL: | D92 G11 G12 G31 G32 E22 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-57&r=mac |
| By: | Grégory Claeys; Konstantinos Efstathiou |
| Abstract: | After reaching historically low levels in the first half of 2016, European long-term sovereign yields experienced a notable increase in the second half of 2016 and at the beginning of 2017, before stabilising in the last few months. The nominal long-term interest rate can be decomposed into the following components - a risk-free rate, various premia to compensate investors for future inflation and potential defaults, and a term premium. All of these components have been on a downward trend over the last few years. But some of these trends might have reversed in the second half of 2016, leading to an increase in long-term yields. Understanding the main factors driving interest rates higher in recent months is important. If the rise in interest rates is driven by good news for the economic outlook for the euro area, it would represent a welcome normalisation of the European situation. However, if higher rates are unjustified by economic fundamentals (ie higher growth and inflation expectations), it would represent an unwarranted tightening of financial conditions that could jeopardise the recovery. In fact, the recent movement in sovereign yields in the euro area has resulted from the combination of several factors - 1) a rise in country-specific risks arising mainly from political uncertainty in some euro-area countries; 2) a revision of market expectations for inflation, growth and the path of future interest rates because of good news about the recovery in the euro area; 3) spill-overs from increasing yields in the US coming from the normalisation of monetary policy by the Fed and a potential fiscal policy shift by the new administration; and 4) an increase in the term premium reflecting uncertainty around markets’ expectations. The recent rise is thus mainly driven by good news and does not represent a strong tightening of financial conditions for euro-area households and companies, nor does it currently endanger public finances. Moreover, from an historical perspective (especially when compared to the significant decline in yields over recent decades), the recent rise is of a relatively moderate magnitude and very much similar to previous benign episodes of yield increases (such as in early 2015). The ECB should monitor the situation carefully but it should not be a major concern for the moment. Nevertheless, if in the future sovereign yields from euro-area member states drift away from levels compatible with economic fundamentals, or threaten the European recovery and the return of inflation towards 2 percent (which is not the case at the moment) the EuropeanCentral Bank’s expanded toolbox should be sufficient to influence the yield curve. |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:bre:polcon:20686&r=mac |
| By: | Nor, Amirudin Mohd; Masih, Mansur |
| Abstract: | This paper explores the causal relationship between Islamic banks’ non-performing financing (NPF) and conventional banks’ non-performing loans (NPL) for the banking industry in Malaysia. To further understand these asset quality variables, we added domestic macroeconomic variables namely domestic credit, real lending rate and exchange rate for the period January 2007 to January 2017. Using time series cointegrating VAR models, coupled with the Long Run Structural Modelling (LRSM), Vector Error Correction Model (VECM) and Variance Decompositions (VDC), the results tend to suggest that NPF leads NPL. Contrary to expectation, the VDC results suggest that NPF and NPL variables are leading and lagging respectively. This unexpected result gives rise to many interesting arguments especially within the Islamic banking perspectives. Apart from providing important insights into the causality between NPF and NPL, our results contribute to the policy implications. Interest rate variable being the most leading variable may be used to affect both NPFs and NPLs. |
| Keywords: | non-performing financing, non-performing loans, causality, LRSM |
| JEL: | C58 E44 G21 |
| Date: | 2017–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79425&r=mac |
| By: | Wieslaw Matwiejczuk (Bialystok University of Technology); Mariusz Gorustowicz (Bialystok University of Technology) |
| Abstract: | Awareness and ability to possibly eliminate the potentially adverse consequences of economic fluctuations can constitute an extremely important factor of the financial condition and competitive position of the company as well as the entire construction sector. Especially in the construction sector creating a catalog of fac-tors affecting economic fluctuations is important from the point of view of not only the economy but also the company. The analysis carried out in this article of situation fluctuations in the construction industry in recent years allow to specify the factors that largely determine the conditions for construction enterprises devel-opment and shaping their competitiveness. Research background: The specifics and operation conditions of enterprises including the construction sector companies cause sensitivity to economic fluctua-tions manifested in the cyclical disorders of economic activity level (business cy-cles). Background research work is to determine the effect of internal and external environment on a range of determinants of the economic situation fluctuations potentially occurring in the sphere of the construction sector. Purpose of the article: The aim of this article is to present the main factors affect-ing economic condition fluctuations in the construction sector and their impact on company operation. Methodology/methods: The following research methods and tools are used in this work: analysis and critique of literature, examination of documents, analysis and synthesis, descriptive statistics. Findings: The result of the study and documents analysis will include identifica-tion of factors affecting to the highest degree the economic fluctuations in the construction sector. These factors will be specified from among the macro-economic environment but mainly from the internal environment of the company. Developed proposals will be useful in building the short- and long-term operation strategy for both the construction companies and the entire sphere of the construc-tion sector. |
| Keywords: | economic situation; determinants; factors; internal environment; the construction sector |
| JEL: | D24 E32 F60 L78 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no74&r=mac |
| By: | Roberto Marfè |
| Abstract: | This paper documents that (i) the labor-share is a strong predictor of both the value and duration premia, (ii) these premia are highly correlated, and (iii) the labor-share does not forecast the component of the value premium orthogonal to the duration premium. A simple equilibrium model with labor rigidity and heterogeneity in cash- flow durations rationalizes these stylized facts. The economic channel is a term-structure effect: labor rigidity boosts short-run dividend risk because wages are more responsive to permanent than transitory shocks. This leads to downward-sloping equity risk and to a cross-sectional duration premium. In turn, value firms earn a compensation over growth firms which is predicted by labor-share variation. |
| Keywords: | value premium, labor rigidity, term-structure, predictability, duration |
| JEL: | D51 E21 G12 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:460&r=mac |
| By: | Leslie G. Manison (Economist) |
| Abstract: | The results from the second wave of the Eurosysystem’s Household Finance and Consumption Survey (HFCS) indicate that Cyprus households experienced very large falls in their incomes and value of real assets between 2009/2010 and 2013/2014. However, despite their worsening financial situation households largely maintained their relatively high level of consumption during the crisis years from 2012 onward by taking on more debt and running down their financial assets. This relative failure of Cyprus households to adjust their expenditures and repair their balance sheets during recent years has resulted in huge debt problems for many households and their creditors. Indeed, HFCS estimates indicate that the ratio of required debt payments to income for Cyprus indebted households reached 35.7% in 2014 and was an overwhelming 64.1% for the least-wealthy bottom 20%. Policy recommendations for dealing with the serious financial difficulties of households are advanced including a program to write-off the debt of households which do not have the ability to repay. |
| Keywords: | household net wealth, household dissaving, household debt, middle-class squeeze, tax evasion, debt write-offs. |
| JEL: | D12 E21 E69 G29 H26 H31 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:qed:dpaper:307&r=mac |
| By: | Mariusz Zielinski (Opole University of Technology, Poland) |
| Abstract: | The Central and Eastern European countries suffered from a decrease in professional activity and increases in unemployment, income inequality, and underemployment. In most of the countries in the region, it was decided to increase labour market flexibility, adopting a Western European model of labour market functioning. The effects of deregulation (flexibility increase) for the labour market depend to a great extent on the economic situation. The paper attempts to answer the question of the degree to which changes in the employment level and structure can be explained by changes in the economic situation. The article verified two hypotheses: “the employment level reacts to changes in the economic situation; however, this reaction in the Central and Eastern European countries is more severe than the average reaction in the European Union” (H1) and “changes in the economic situation decide to a greater extent the employment level in the groups experiencing discrimination (women, youngest and oldest people) more than for employees in general” (H2). The research encompassed 11 Central and Eastern European countries (Bulgaria, the Czech Republic, Estonia, Croatia, Latvia, Lithuania, Hungary, Poland, Romania, Slovenia and Slovakia) on the basis of statistical data published by Eurostat for the period of 2004 to 2015. Data analysis was performed using the correlation coefficient and coefficient of determination. In the majority of the examined countries, a statistically significant correlation occurs between changes in GDP and total employment level; furthermore, the influence of changes in GDP on the employment level is greater than the European Union’s average. The data do not indicate discrimination against certain groups (women, young people, people in pre-retirement age), changes in the employment levels of the aforementioned groups are less dependent on the economic situation than the changes in total employment. |
| Keywords: | economic growth, employment, discrimination on the labor market, Central and Eastern European countries, European Union |
| JEL: | E24 E32 J16 J21 J70 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no147&r=mac |
| By: | Yosuke Jin (OECD); Aida Caldera Sánchez (OECD); Pilar Garcia Perea (OECD) |
| Abstract: | The Spanish economy is growing strongly, but there is a risk that many people are being left behind. Unemployment, especially among young people and the low-skilled, remains very high. About half of all the unemployed have been unemployed for over a year and one third for more than two years. A quarter of all those who are employed are on temporary jobs. Since the global economic crisis, poverty and inequality have increased. An immediate priority is to ensure adequate income support for those most in need. Getting more people into better jobs is crucial to raise living standards and to reduce poverty. In terms of structural policies, this requires continuing to improve activation policies, such as training and job placement, re-skilling and up-skilling the unemployed, preventing youth from leaving the education system under-qualified and better on-the-job-training. More can be done to foster the creation of better quality jobs by reducing barriers to hiring and addressing labour market duality. |
| Keywords: | education and skills,, income inequality, Job quality, labour market reform, poverty, social benefits |
| JEL: | E24 I20 I30 J30 J60 |
| Date: | 2017–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1386-en&r=mac |
| By: | Hodori, Arif; Masih, Mansur |
| Abstract: | Takaful or Islamic Insurance is a branch of Islamic Finance that is frequently overlooked, with a very few empirical studies done in the field. In Malaysia, Takaful’s asset base had grown from just RM$1.4 million in 1986 to RM$23 billion in 2014. Despite this significant growth, there has been very few empirical studies done in the field, especially on the determinants of Takaful operators’ profitability. Motivated by this, this paper aims to investigate the determinants of profitability of Takaful operators by using the dynamic GMM estimator. This study finds that Takaful operators’ size and age are significant determinants of its profitability. However, there are various limitations and challenges that this paper faced, especially on data availability which forced us to resort to manually extracting the data from the financial statements of the companies from their websites at a heavy cost of time and effort. This indicates the attention, work and effort that researchers in the field of Islamic Finance should give to this relatively unexplored field as deeper understanding of this field is crucial for supporting its growth and innovation. |
| Keywords: | Islamic insurance, profitability, Malaysia, dynamic GMM |
| JEL: | C58 E44 G15 |
| Date: | 2017–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79441&r=mac |
| By: | Georgiadis, Georgios (European Central Bank); Jancokova, Martina (European Central Bank) |
| Abstract: | Financial globalisation and spillovers have gained immense prominence over the last two decades. Yet, powerful cross-border financial spillover channels have not become a standard element of structural monetary models. Against this background, we hypothesise that New Keynesian DSGE models that do not feature powerful financial spillover channels confound the effects of domestic and foreign disturbances when confronted with the data. We derive predictions from this hypothesis and subject them to data on monetary policy shock estimates for 29 economies obtained from more than 280 monetary models in the literature. Consistent with the predictions from our hypothesis we find: Monetary policy shock estimates obtained from New Keynesian DSGE models that do not account for powerful financial spillover channels are contaminated by a common global component; the contamination is more severe for economies that are more susceptible to financial spillovers in the data; and the shock estimates imply implausibly similar estimates of the global output spillovers from monetary policy in the US and the euro area. None of these findings applies to monetary policy shock estimates obtained from VAR and other statistical models, financial market expectations and the narrative approach. |
| JEL: | C50 E52 F42 |
| Date: | 2017–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:314&r=mac |
| By: | Anna Horodecka (Warsaw School of Economics, Poland); Liudmyla Vozna (Independent researcher) |
| Abstract: | The authors’ researches in the field of economic equilibrium, labour market stability and working motivation; the synergetic paradigm; the research literature and statistical data dealing with wage inequality and unemployment. To present a dispersion (probabilistic) approach in using neoclassic demand and supply curves analysis and, thus, to propose a new definition of the equilibrium problem, which is closer to evolutionary paradigm; with help of the D-S curves, to prove the connection between degree of wage inequality and the general level of unemployment; to demonstrate two types of extreme macroeconomic instability in their relation with the character of wage inequality, and to regard them from the standpoint of the synergetic conception. Induction and deduction reasoning, analysis and synthesis, the method of analogy, content analysis of relevant literature, mathematical methods, interdisciplinary approach, the synthesis of orthodox (neoclassical) and heterodox (evolutionary) economics. Both situations – very low and very high wage inequality – are related with extreme macroeconomic instability. The first situation can be related not only with general poverty and homogenous, low skilled workforce, but, primarily, with absence of evolutionary change. A very high wage inequality can be related with inflexible labour markets, the relatively low level of social mobility and weak social cohesion. In the article, these two situations are compared with two types of disorder in the synergetic conception. With help of the curves of demand and supply, we demonstrate the action of macroeconomic synergistic effect, which is accompanied by economic growth, decreasing unemployment and the wage levelling. Our approach confirms that in a dynamic economy the actual level of employment is lower than potential one. Moreover, this approach can be used for diminishing the theoretical gap between such opposing interpretation of unemployment as neoclassical and Keynesian. |
| Keywords: | wage inequality, unemployment, instability, evolutionary economics, synergistic effect |
| JEL: | B4 D63 E24 J2 J31 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no37&r=mac |
| By: | Perevyshin, Yuri (Russian Presidential Academy of National Economy and Public Administration (RANEPA)) |
| Abstract: | The paper deals with the basic aspects of the interaction of fiscal and monetary policy. Analysis of theoretical studies allows to distinguish two main aspects of interaction: the choice between output and inflation, and the problem of sustainability of public debt and inflation. Using a model with Markov regime-switching, we assessed interaction of fiscal and monetary policy in the Russian economy in the period from 2006 to 2015. The analysis showed that the ongoing uncoordinated monetary and fiscal policy can lead to inflation acceleration. |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:wpaper:031711&r=mac |
| By: | Shaofeng Xu |
| Abstract: | This paper examines the effects of time-varying volatility on welfare. I construct a tractable endogenous growth model with recursive preferences, stochastic volatility, and capital adjustment costs. The model shows that a rise in volatility can decelerate growth in the absence of any level shocks. In contrast to level risk, which is always welfare reducing for a risk-averse household, volatility risk can increase or decrease welfare, depending on model parameters. When calibrated to U.S. data, the model finds that the welfare cost of volatility risk is largely negligible under plausible model parameterizations. |
| Keywords: | Business fluctuations and cycles, Economic models |
| JEL: | E2 E3 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:17-20&r=mac |
| By: | James D. Hamilton |
| Abstract: | Here's why. (1) The HP filter produces series with spurious dynamic relations that have no basis in the underlying data-generating process. (2) Filtered values at the end of the sample are very different from those in the middle, and are also characterized by spurious dynamics. (3) A statistical formalization of the problem typically produces values for the smoothing parameter vastly at odds with common practice, e.g., a value for λ far below 1600 for quarterly data. (4) There's a better alternative. A regression of the variable at date t+h on the four most recent values as of date t offers a robust approach to detrending that achieves all the objectives sought by users of the HP filter with none of its drawbacks. |
| JEL: | C22 E32 E47 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23429&r=mac |
| By: | Wasniewski, Krzysztof |
| Abstract: | This article explores the issue of observable instability in financial markets interpreted as a long-term process of adaptation to demand for money, which, in turn, is based on the expected depreciation of fixed assets. Exploration is based on verifying empirically the hypothesis that the velocity of money is significantly, negatively correlated with the pace of technological change. The purpose of exploration is to assess the well-founded of policies, which use financial and monetary tools, rather than the straightforwardly fiscal ones, to stimulate technological change. Empirical research suggests that aggregate depreciation of fixed assets is a significant factor inducing slower a circulation of money. |
| Keywords: | money, financial markets, technological change |
| JEL: | E1 E3 |
| Date: | 2017–05–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79426&r=mac |
| By: | Bakari, Sayef |
| Abstract: | This paper investigates the relationship between domestic investment and economic growth in Malaysia. In order to achieve this purpose, annual data for the periods between 1960 and 2015 was tested by using Correlation analysis, Johansen co-integration analysis of Vector Error Correction Model and the Granger-Causality tests. According to the result of the analysis, it was determined that there is a positive effect of domestic investment, exports and labors on economic growth in the long run term, however, there is no relationship between domestic investment and economic growth in the short run term. These results provide en evidence that domestic investment, exports and labors are seen as a source of economic growth in Malaysia |
| Keywords: | Domestic Investment, Economic Growth, Correlation, Cointegration, VECM and Causality, Malaysia. |
| JEL: | E2 E22 O47 |
| Date: | 2017–01–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79436&r=mac |
| By: | Francisco M. Gonzalez (Department of Economics, University of Waterloo); Yu Chen (University of Calgary); Matthew Doyle (Department of Economics, University of Waterloo) |
| JEL: | D8 C78 E24 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:wat:wpaper:1702&r=mac |
| By: | Luo, Yinghao |
| Abstract: | One of the most puzzling aspects about the functioning of the floating exchange rate regime of the 1980s has been that huge swings in exchange rate have had only muted effects on anything real. To understand this phenomenon, we study the relationship between communism and value neutrality and monetary neutrality. We find that the symmetry of communism is bound to lead to value neutrality. In the case of value neutrality, the economic man will certainly accept monetary neutrality. If money is neutral in the long run then even if purchasing power parity (PPP) is not valid in the short-run it will valid over the long run. However, without considering the time factor, communism is a kind of symmetry that is almost impossible to achieve. While considering the time factor, the symmetry of communism can be achieved in theory! |
| Keywords: | communism, symmetry, value neutrality, monetary neutrality, purchasing power parity |
| JEL: | A13 D24 D3 E5 F3 |
| Date: | 2017–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79367&r=mac |
| By: | Mallick, Debdulal |
| Abstract: | This paper revisits the empirical relationship between volatility and long-run growth, but the key contribution lies in decomposing growth volatility into its business-cycle and trend components. This volatility decomposition also accounts for enormous heterogeneity among countries in terms of their long-run growth trajectories. We identify a negative effect of trend volatility, which we refer to as long-run volatility, on growth, but no effect of business-cycle volatility. However, if long-run volatility is omitted, there would be a spurious (negative) effect of business-cycle volatility. Our results draw attention to a crucial question about different volatility measures and their implications in macroeconomic analyses. |
| Keywords: | Growth; Business cycles; Volatility; Volatility persistence; Frequency |
| JEL: | E32 F44 O11 O40 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79397&r=mac |
| By: | Anthony A. DeFusco; Charles G. Nathanson; Eric Zwick |
| Abstract: | We present a dynamic theory of prices and volume in asset bubbles. In our framework, predictable price increases endogenously attract short-term investors more strongly than long-term investors. Short-term investors amplify volume by selling more frequently, and they destabilize prices through positive feedback. Our model predicts a lead–lag relationship between volume and prices, which we confirm in the 2000–2011 US housing bubble. Using data on 50 million home sales from this episode, we document that much of the variation in volume arose from the rise and fall in short-term investment. |
| JEL: | E32 G02 G12 R3 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23449&r=mac |
| By: | de Groot, Oliver (University of St. Andrews); Richter, Alexander (Federal Reserve Bank of Dallas); Throckmorton, Nathaniel (College of William & Mary) |
| Keywords: | Stochastic Volatility; Epstein-Zin Preferences; Uncertainty; Economic Activity |
| JEL: | D81 E32 |
| Date: | 2017–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddwp:1706&r=mac |
| By: | Salvatore Perdichizzi (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore) |
| Abstract: | This paper investigates how conventional and unconventional monetary policies announcements a ect European banking indexes returns through an event-study analysis. We use data of 11 European banking indexes for the periods 1999-2015. We examine the state dependency of such e ects and focus on the surprise elements of policy changes derived from the Euribor futures market. Overall, we nd a positive relation between the unexpected changes in the ECBs reference rate and European banking indexes returns. We also discover that the e ect is stronger during the nancial crisis, especially during the sovereign debt crisis. Moreover, we identify a positive relation between the announcements of unconventional policies and the European banking indexes returns , particularly where the banking system was more risky such as Spain, France and Italy but with a low degree of magnitude than expected. Hence, the Euro banks reactions to monetary policies announcements seem to be more relevant through conventional measures with respect to non-conventional ones. |
| Keywords: | Banking,Conventional and Unconventional Monetary Policy, Interest rate, ECB. |
| JEL: | G01 E44 E52 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie1:def059&r=mac |
| By: | Quinn, Stephen F. (Texas Christian University); Roberds, William (Federal Reserve Bank of Atlanta) |
| Abstract: | We investigate a monetary regime with persistent, near-zero policy interest rates ("permazero" in the terminology of Bullard 2015). This regime was implemented in 1683 by a prominent early central bank called the Bank of Amsterdam ("Bank"). The Bank fixed its policy rate at one-half percent and held it unchanged for more than a century. Maintaining the rate helped stabilize the value of Bank money. We employ archival data to reconstruct the Bank's activities during a portion of that interval (1736–91) for which data are most readily available. The data suggest that "permazero" worked well for long periods because the Bank counteracted market swings with quantitative operations. These same data show how fiscal exploitation denied the Bank sufficient resources to stabilize large shocks, with adverse results. |
| Keywords: | central banks; monetary policy; zero lower bound |
| JEL: | E58 E65 N13 |
| Date: | 2017–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedawp:2017-05&r=mac |
| By: | Tanin, Tauhidul Islam; Masih, Mansur |
| Abstract: | Despite a drop of 0.2 points in 2015 in the Index of Economic Freedom, Bangladesh is awarded an upgraded economic status by the World Bank due to a consistent and boosted economic growth. However, there is a debate as to whether Economic Freedom leads or lags economic growth. Using ARDL approach and taking Bangladesh as a case study, this paper investigates whether economic freedom leads or lags economic growth in Bangladesh during the period 1995 - 2015. This study chooses Heritage Foundation's Index of Economic Freedom as it is widely accepted. The results tend to indicate that Economic Freedom does clearly lead and enhance economic growth in the context of Bangladesh during the period under review. |
| Keywords: | Economic Freedom, Economic Liberalization, Economic Growth, Bangladesh, ARDL |
| JEL: | C58 E44 G15 |
| Date: | 2017–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79446&r=mac |
| By: | Eleni Dalla (Department of Economics, University of Macedonia) |
| Abstract: | In this paper, we investigate the effectiveness of monetary policy, in the context of a theoretical model that captures both the banking and the firm behavior. Following the industrial organization approach to banking, the banking sector is described by a two-stage Cournot game with scope economies. On the other hand, the firm behavior concerns the investment decision which is explained using a second order accelerator model in discrete time. Considering the interbank rate and the reserve requirements as the instruments of monetary policy, it is demonstrated that its effectiveness depends on the type of scope economies in the oligopolistic banking sector.. |
| Keywords: | interbank rate, investment decision, reserve requirements, scope economies. |
| JEL: | G21 L13 D92 E52 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2017_05&r=mac |
| By: | Trunin, Pavel (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Sinelnikov-Murylev, Segei (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Perevyshin, Yuri (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Egorov, D.A. (Russian Presidential Academy of National Economy and Public Administration (RANEPA)) |
| Abstract: | The paper studied the factors of regional differentiation of price levels and inflation in the Russian regions. The law of one price for certain goods in the Russian regions is true for a group of products that can be called homogeneous: their quality and functional properties do not differ between regions. For 70% goods considered the hypothesis of one price was rejected. The extent of price differences in the Russian regions are declining, but still remain significant. In 2015, the cost of living in the cheapest and most expensive region differed 2.5 times. The reasons for price differences in the Russian regions include the level of per capita income and the degree of remoteness of the region from the rest. Domestic factors, determined on the basis of macroeconomic indicators, explained about 53% of the variation of the regional rate of inflation in 1996-2015. |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:wpaper:021708&r=mac |
| By: | Magdalena Cyrek (University of Rzeszow) |
| Abstract: | Research background: Regions that are able to use their resources in the most efficient way could be perceived as valuable benchmarks when shaping socio-economic policy. The efficiency, however, can be related not only to pure economic categories but to social goals as well. These two dimensions: economic and social overlap and often have some common stems, among which sectoral structure of employment seems to be an important one. Purpose of the article: The aim of the study was to compare thesocial efficiency of employment in three sectors in Polish voivodeships. Not only were we evaluating therelative performance of each region but we were also paying attention to theefficiency of engagement of human resources in agricultural, industrial and service sectors. Methodology/methods:We adopted DEA method to assess thesocial efficiency of Polish regions. We evaluated social cohesion concerning its two output dimensions: positive, that could be described by social activity and negative, that could be reflected in a form of social exclusion stemming from material sources. We took into account a level of employment in agricultural, industrial and service sectors as inputs in the model and thus focused our attention on thethreesectoral structure of regional economies. Our model assumed non-radial developmental paths and was input oriented (NR-CCR). Data were describing the 16 Polish voivodeships in the2015 year and were extracted from the Central Statistical Office of Poland’s databases. Findings& Value added:The conducted research indicate that Polish regions which were the most efficient in terms of social integration were simultaneously those with the best economic results in terms of GDP per capita. The highest social efficiency was characteristic for employment in theservice sector, while the lowest – for agriculture. Thus, structural development appears to be favourable for regional economies also in terms of social cohesion, which is often neglected in the literature. |
| Keywords: | social efficiency; employment; three sectors; regions |
| JEL: | D61 E24 I31 J21 O11 O15 R11 R15 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no21&r=mac |
| By: | Pleskachev, Yury (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Ponomarev, Yury (Russian Presidential Academy of National Economy and Public Administration (RANEPA)) |
| Abstract: | The main purpose of the research study is assessment of the degree of import price rigidity with respect to exchange rate fluctuations and importing firm characteristics in Russian economy. Exchange rate pass-through in economy starts with the import prices. Empirical results show significant difference in import price rigidity depending on firms and goods characteristics. Using micro data on import to Russia from 2002 to 2015 allowed obtaining estimates that were not reported in the previous literature. This paper documents dependence of import price rigidity with respect to the exchange rate fluctuations form the degree of processing and firm characteristics. Import price rigidity is higher for manufactured products elaborately transformed, for goods, denominated in home currency, for goods with lower frequency of price changes and for the firms with higher market share. Empirical estimates based on micro data also allowed to document the dependence of import price rigidity from the economic sector and compare results with international literature. |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:wpaper:031706&r=mac |
| By: | Wahab, Fatin Farhana; Masih, Mansur |
| Abstract: | In theory, historical volatility gauges the fluctuations of underlying assets or securities by monitoring changes in price over predetermined time period, while implied volatility looks into the future in its attempts to forecast the movement of the asset’s price based on current ones. Option trader tends to combine both volatilities with realized volatility serving as the baseline and implied volatility redefining the relative values of the options. Henceforth, the purpose of this study is twofold; first is to investigate the nature of lead-lag between the ‘fear index’ (VIX) and its corresponding realized volatility (RVI) of S&P 500 indices. Second, we examine the dynamic analysis of implied volatility transmission across inter-market correlation with newly adapted volatility indices from CBOE, VIX, OVX and GVZ to indicate which market is leading. Contrary to the popular perception, the paper finds that S&P 500 implied volatility is lagging its historical variance markedly, and surprisingly even its price index is leading the implied volatility as well. The study also concludes that Gold spearheads the market with stocks being the most sensitive to shocks. Our findings have clear policy implications for trading strategies and using volatilities in risk management. |
| Keywords: | implied volatility, realized volatility, inter-market correlation, VIX, OVX, GVZ |
| JEL: | C58 E44 G15 |
| Date: | 2017–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79433&r=mac |
| By: | Oliver de Groot (University of St Andrews); Alexander W. Richter (Federal Reserve Bank of Dallas); Nathaniel A. Throckmorton (College of William & Mary) |
| Abstract: | Basu and Bundick (2017) show a second moment intertemporal preference shock creates meaningful declines in output in a sticky price model with Epstein and Zin (1991) preferences. The result, however, rests on the way they model the shock. If a preference shock is included in Epstein-Zin preferences, the distributional weights on current and future utility must sum to 1, otherwise it creates an asymptote in the response to the shock with unit intertemporal elasticity of substitution. When we change the preferences so the weights sum to 1, the asymptote disappears as well as their main results—uncertainty shocks generate small increases in output and comovement with consumption and investment that is at odds with the data. We examine three changes to the model—recalibration, a risk-premium shock, and a disaster risk-type shock—to try and restore their results, but in all three cases the model is unable to match VAR evidence. |
| Keywords: | Stochastic Volatility, Epstein-Zin Preferences, Uncertainty, Economic Activity |
| JEL: | D81 E32 |
| Date: | 2017–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:san:wpecon:1710&r=mac |
| By: | Charles F. Manski |
| Abstract: | Economists commonly suppose that persons have probabilistic expectations for uncertain events, yet empirical research measuring expectations was long rare. The inhibition against collection of expectations data has gradually lessened, generating a substantial body of recent evidence on the expectations of broad populations. This paper first summarizes the history leading to development of the modern literature and overviews its main concerns. I then describe research on three subjects that should be of direct concern to macroeconomists: expectations of equity returns, inflation expectations, and professional macroeconomic forecasters. I also describe work that questions the assumption that persons have well-defined probabilistic expectations and communicate them accurately in surveys. Finally, I consider the evolution of thinking about expectations formation in macroeconomic policy analysis. I favorably observe the increasing willingness of theorists to study alternatives to rational expectations assumptions, but I express concern that models of expectations formation will proliferate in the absence of empirical research to discipline thinking. To make progress, I urge measurement and analysis of the revisions to expectations that agents make following occurrence of unanticipated shocks. |
| JEL: | D84 E03 E66 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23418&r=mac |
| By: | Oliver de Groot (University of St Andrews); Alexander W. Richter (Federal Reserve Bank of Dallas); Nathaniel A. Throckmorton (College of William & Mary) |
| Abstract: | Basu and Bundick (2017) show a second moment intertemporal preference shock creates meaningful declines in output in a sticky price model with Epstein and Zin (1991) preferences. The result, however, rests on the way they model the shock. If a preference shock is included in Epstein-Zin preferences, the distributional weights on current and future utility must sum to 1, otherwise it creates an asymptote in the response to the shock with unit intertemporal elasticity of substitution. When we change the preferences so the weights sum to 1, the asymptote disappears as well as their main results—uncertainty shocks generate small increases in output and comovement with consumption and investment that is at odds with the data. We examine three changes to the model—recalibration, a risk-premium shock, and a disaster risk-type shock—to try and restore their results, but in all three cases the model is unable to match VAR evidence. |
| Keywords: | Stochastic Volatility, Epstein-Zin Preferences, Uncertainty, Economic Activity |
| JEL: | D81 E32 |
| Date: | 2017–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:san:cdmawp:1703&r=mac |
| By: | Paul Mercier |
| Abstract: | The purchase of securities, and more specifically government bonds, belongs to the monetary policy implementation framework of many central banks, the Eurosystem being no exception for that matter. However, as for the euro zone, that tool remained unused until 2010, while present in the Eurosystem’s toolkit since its creation. Its implementation in times of crisis raised many debates, comments and even resorts to courts of justice. One of the central issues relates to the monetary financing of the public sector which in turn questions the relations between public debt, central banks and money. This paper does not aim at providing a definite answer to the many questions, or to offer an arbitrage between the different arguments and schools of thoughts. More simply, in view of the often confused state of discussions, it goes back to the basic concepts of money creation, more specifically to the one of money creation by central banks for the benefit of the public sector. Through a series of “typical cas es” of interactions between central banks, commercial banks, public sector and households, the paper favours a better understanding of the quite complex mechanic of money creation through the purchase of public bonds by central and commercial banks. It also addresses a connected topic, i.e. the article 123 of the treaty on the Functioning of the European Union that prohibits the direct purchase by central bank on the primary market of debt instruments issued by the public sector. |
| Keywords: | monetary policy implementation, central bank, money creation, monetary financing, public debt. |
| JEL: | E58 E59 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp108&r=mac |
| By: | Marcin Sitek (Czestochowa University of Technology) |
| Abstract: | Research background: In this paper a short overview of the types of innovations and their innovative forms of investing in the real estate market, such as reverse mortgage, flipping, building for rent, system condo and crowdfunding was presented. Purpose of the article: The aim of the paper is to present risk factors in innovative activities in the real estate market and evaluation of their activity in this market. The study proposed the hypothesis that a specific level of development in the real estate market corresponds to a certain level of investment risk reflected by the rate of return. Methodology/methods: The questionnaire survey in the local real estate market participants (investors, employees in enterprises that provide services for the real estate market, external appraisers, real estate brokers and counsellors) was conducted for the purposes of evaluation of risk factors in the investment innovative activities. Findings: Analysis of the results of questionnaire survey supported the following thesis: (1) as an effect of a strong inflow of capital and disturbed balance between demand and supply, return rates represent the reaction to the previous market behaviours, (2)decline in the rates of return points to the increase in the investment risk in the real estate market. It was found that the particularly high contribution to the risk level is from market risk, which is little transparent in Poland and is characterized by high variability of the conditions of operation. |
| Keywords: | risk; investment risk; innovations; risk management |
| JEL: | E32 E44 F63 O12 O31 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no159&r=mac |
| By: | Tairi Rõõm; Jaanika Meriküll |
| Abstract: | This paper analyses the financial fragility of the Estonian household sector using microdata from the Household Finance and Consumption Survey (HFCS). We use a stress-testing framework where the probability of default is evaluated on the basis of the financial margin (i.e. the ability to service debt from current income) and the availability of financial buffers. The HFCS data from household interviews are complemented with information from administrative registers. This lets us evaluate and compare measures of financial vulnerability that draw on data from different sources. We derive a set of indicators to identify households that are financially distressed and analyse the sensitivity of financial sector loan losses to adverse shocks. The stress-test elasticities are assessed separately for three standardised negative macroeconomic shocks: a rise in interest rates, an increase in the unemployment rate, and a fall in real estate prices. In addition, we evaluate the impact of a simultaneous shock mimicking the dynamics of these three variables during the Great Recession. It is found that: (1) despite there being a lot of households with financial difficulties, the risks for banks from the household sector are limited; (2) financial fragility is strongly negatively related to income; (3) the loan default rate of households is most sensitive to shocks to the unemployment rate and the interest rate, while the loan losses of banks are affected most by real estate price shocks; and (4) compared with the survey data, the information collected from administrative sources points to higher household default rates and larger bank losses. |
| Keywords: | household financial fragility, stress-testing, household finance and consumption survey, Estonia, measurement error in household surveys |
| JEL: | D14 E43 |
| Date: | 2017–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2017-4&r=mac |
| By: | Nazeer, Abdul Malik; Masih, Mansur |
| Abstract: | Based on many studies, economic theories and real life experiences, we can understand that political instability has been a harmful factor that would hinder the flow of FDI and the growth of an economy. In our study, we would like to focus on Malaysia, which had its fair share of political instability issues due to the differences and existence of various races. But based on recent studies, it is considered a politically stable economy. Despite everything, Malaysia has been able to achieve consistent economic growth, therefore we believe Malaysia is an interesting country to explore further. This paper aims to analyze the impact of political instability on foreign direct investment and on economic growth of Malaysia. This study employs autoregressive distributed lag (ARDL) approach to cointegration proposed by Pesaran et al. (2001). It is based on a time series data over the period of 30 years ranging from 1984 to 2013. There has been no studies identified yet to our knowledge which has investigated the causal relationships between political instability, FDI and economic growth for Malaysia. Our study aims to fill this gap in literature and would be of great use for the policy makers and key decision makers of the economy. The empirical results reveal that there are both long and short run relationship between political instability, FDI and economic growth in Malaysia, with economic growth being the strongest driver for political instability and FDI. These findings have clear policy implications in that the government of Malaysia can make use of it by targeting the growth in the economy to impact FDI and political instability. |
| Keywords: | political instability, foreign direct investment, economic growth, Malaysia, ARDL |
| JEL: | C58 E44 G15 |
| Date: | 2017–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79418&r=mac |
| By: | Santeramo, Fabio Gaetano; Lamonaca, Emilia; Contò, Francesco; Stasi, Antonio; Nardone, Gianluca |
| Abstract: | Understanding the determinants of price volatility is a key step to prevent potential negative consequences of to the uncertainty faced by farmers. Our critical provides a novel categorization of grain price volatility drivers. We distinguish endogenous and exogenous causes and conclude on the potential effects that each of identified factors may generate on price dynamics. In particular, we deepen on the contribution of endogenous factors such as spatial and temporal arbitrage, as well as drivers of shocks of demand and supply. |
| Keywords: | Grain, Price, Risk, Uncertainty, Volatility |
| JEL: | D81 E31 Q11 Q13 Q17 Q18 |
| Date: | 2017–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79427&r=mac |
| By: | Katarzyna Grotkiewicz (University of Agriculture in Krakow); Agnieszka Latawiec (International Institute for Sustainability, Department of Geography and the Environment, Pontificia Universidade Catolica); Maciej Kubon (University of Agriculture in Krakow); Anna Szelag-Sikora (University of Agriculture in Krakow); Marcin Niemiec (University of Agriculture in Krakow) |
| Abstract: | Research background: Analysis of economic and agricultural indicators are important tools to evaluate the performance of agriculture and describe scientific and technical progress (Agol et al., 2014, pp. 1-9; Archibugi and Coco, 2004, pp. 629–654). They also enable comparisons between the performances of different countries. In the comprehensive review by McConnell and Bockstael (2005, pp. 621-669), the measures of development show that competitiveness, both in the international and domestic arena, should be evaluated by two main indexes: the work productivity index and the land productivity index. Purpose of the article: The objective of this paper is to analyse social and economic factors that influence the efficiency of agriculture in three dissimilar countries: Poland, Unites States of America and China. The analysed countries have characteristic features that influence development of specific branches of agriculture including the level of social and economic growth, structural features of agriculture, agricultural policy, and market situations, thus shaping the level and structure of production. To our knowledge, this is the first study that discusses work and land productivity in these three countries. Methodology/methods: For calculation of final indexes of work and land productivity for the analysed countries, basic control and economic characteristics are necessary. These were calculated using the Eurostat database (2014) and the Yearbook of International Statistics CSO (2012; 2013a, 2013b) and include the area of agricultural land, number of farms and the average size of farms, the number of people active in agriculture, and gross national production in total and in agriculture. Findings & Value added: We found that Poland has not yet reached optimal land or work force productivity. The indicators suggest Poland is agriculturally closer to developing countries than developed. In particular, we indicate a low agricultural efficiency compared with Western countries. We conclude that to realise the full potential of Polish agriculture, considerable changes, such as farm consolidation and alternative employment options for farm workers, are necessary. According to the analysed data, Poland in comparison to China and the USA is at the last position in the ranking achieving 4% of the GNP in agriculture. Moreover, the structure of small farms in Poland with the average surface area of 10.38 is considerably lower than in the USA (190 ha) which causes that Poland is a less-competitive country. However, one should remember that not all experiences of leading countries may be directly translated into Polish conditions, where agriculture was shaping in completely different conditions and its present level has its historical preconditions. |
| Keywords: | agriculture, agri-economic indicators, work performance, land efficiency, metod |
| JEL: | B41 E24 O17 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pes:wpaper:2017:no30&r=mac |
| By: | Williams, John C. (Federal Reserve Bank of San Francisco) |
| Abstract: | Presentation to the Symposium on Asian Banking and Finance, Singapore, Singapore , by John C. Williams, President and CEO, Federal Reserve Bank of San Francisco, May 29, 2017. |
| Date: | 2017–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfsp:177&r=mac |
| By: | Isaev, Mirolim; Masih, Mansur |
| Abstract: | There is little empirical evidence from the econometric analysis of the relationship between private sector’s foreign debt servicing and social development in open economies. This paper examines the relationship between private sector share of foreign debt, the unemployment rate and trade openness with Australia as a case study over the period 1988Q4-2016Q4. We employ Autoregressive Distributed Lag (ARDL) cointegration technique to explore the presence of theoretical long-run relationship among these variables. Our empirical findings indicate the presence of long-run equilibrium among variables. Moreover, the empirical results tend to reveal that the accumulation of private sector share of foreign debt is associated with the growth in Australia’s unemployment rate. We suggest for the policy makers that improvement of the private sector’s foreign debt is likely to reduce the unemployment rate. |
| Keywords: | private sector foreign debt, unemployment, trade openness, ARDL, variance decompositions |
| JEL: | C58 E44 G15 |
| Date: | 2017–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79423&r=mac |
| By: | Bellino, Enrico; Serrano, Franklin |
| Abstract: | The gravitation process of market prices towards production prices is here presented by means of an analytical framework where the classical capital mobility principle is coupled with a determination of the deviation of market from normal (natural) prices which closely follows the description provided by Adam Smith: each period the level of the market price of a commodity will be higher (lower) than its production price if the quantity brought to the market falls short (exceeds) the level of effectual demand. This approach also simplifies the results with respect to those obtained in cross-dual literature. At the same time, anchoring market prices to effectual demands and quantities brought to the markets requires a careful study of the dynamics of the ‘dimensions’ along with that of the 'proportions' of the system. Three different versions of the model are thus proposed, to study the gravitation process: i) assuming a given level of aggregate employment; ii) assuming a sort of Say's law; iii) and on the basis of an explicit adjustment of actual outputs to effectual demands. All these cases describe dynamics in which market prices can converge asymptotically towards production prices. |
| Keywords: | Market prices, normal prices, Classical competition, gravitation, effectual demand |
| JEL: | B12 D20 E11 E30 |
| Date: | 2017–05–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79297&r=mac |
| By: | Dobronravova, Elizaveta (Russian Presidential Academy of National Economy and Public Administration (RANEPA)) |
| Abstract: | On 1 January 2015, the Treaty on the Eurasian Economic Union between the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation entered into force. Since January 2, 2015, the Treaty on the Accession of the Republic of Armenia to the Treaty on the Eurasian Economic Union has entered into force, and since August 6, 2015 - the Agreement on Accession of the Kyrgyz Republic to the Treaty on the Eurasian Economic Union. The contract implies the creation of an economic union, within the framework of which it is ensured the creation of unified markets for goods and services, common markets for factors of production, as well as the implementation by member countries of agreements on harmonization of monetary, fiscal and monetary policies. Objective of this work is to analyze the factors affecting well-being of Russia and Countries of the EEA in the processes of economic integration. |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:rnp:wpaper:031710&r=mac |
| By: | Funke, Michael; Kirkby, Robert; Mihaylovski, Petar |
| Abstract: | We analyse the effects of macroprudential and monetary policies and their interactions using an estimated dynamic stochastic general equilibrium (DSGE) model tailored to New Zealand. We find that the main historical drivers of house prices are shocks specific to the housing sector. While our estimates show that monetary policy has large spillover effects on house prices, it does not appear to have been a major driver of house prices in New Zealand. We consider macroprudential policies, including the loan-to-value restrictions that have been implemented in New Zealand. We find that loan-to-value restrictions reduce house prices with negligible effects on consumer prices, suggesting that they can be used without derailing monetary policy. We estimate that the loan-to-value restrictions imposed in New Zealand in 2013 reduced house prices by 3.8 per cent and that greater forward guidance on their duration would have made them more effective. |
| Keywords: | Macroprudential policies, Housing, DSGE, Bayesian estimation, New Zealand, |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:vuw:vuwecf:6354&r=mac |
| By: | David Haugh (OECD); Muge Adalet McGowan (OECD); Dan Andrews (OECD); Aida Caldera Sánchez (OECD); Gabor Fulop (OECD); Pilar Garcia Perea (OECD) |
| Abstract: | Spain has chronically low productivity growth, which undermines its ability to generate higher living standards. Important contributors to low productivity growth are the misallocation of capital to low productivity firms and under-investment in knowledge-based capital. To foster a better allocation of capital a first priority is to better tune bank, capital market and government financing to the needs of new innovative firms. This could be done through better small and medium-sized enterprises (SMEs) bond and loan securitisation tools, reallocating public financing to early stage finance and making it easier for firms to access public innovation funding by shifting some funding from loans to grants for research and development (R&D) projects. Attracting more foreign capital and improving the regulatory framework to increase the return on investment would also help. This could be done by reducing regulatory barriers that hold back competition, improving the neutrality of the tax system, improving pricing signals and reforming insolvency laws. |
| JEL: | E22 G24 G28 O16 O38 O44 O47 O5 |
| Date: | 2017–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1387-en&r=mac |
| By: | Maryam Farboodi; Laura Veldkamp |
| Abstract: | In most sectors, technological progress boosts efficiency. But financial technology and the associated data-intensive trading strategies have been blamed for market inefficiency. A key cause for concern is that better technology might induce traders to extract other's information from order flow data mining, rather than produce information themselves. Defenders of these new trading strategies argue that they provide liquidity by identifying uninformed orders and taking the other side of their trades. We adopt the lens of long-run growth to understand how improvements in financial technology shape information choices, trading strategies and market efficiency, as measured by price informativeness and market liquidity. We find that unbiased technological change can explain a market-wide shift in data collection and trading strategies. But our findings also cast doubt on common wisdom. First, although extracting information from order flow does crowd out production of fundamental information, this does not compromise price informativeness. Second, although taking the opposite side of uninformed trades is typically called "providing liquidity," the rise of such trading strategies does not necessarily improve liquidity in the market as a whole. |
| JEL: | E2 G14 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23457&r=mac |
| By: | Luca Pensieroso (Université Catholique de Louvain); Alessandro Sommacal (Department of Economics (University of Verona)) |
| Abstract: | We show that the structural change of the economy from agriculture to industry was a major determinant of the observed shift in intergenerational coresidence. We build a two-sector overlapping generation model of the structural change out of agriculture, in which the coresidence choice is endogenous. We calibrate the model on US data and simulate it. The model can match well the decline in US intergenerational coresidence between 1870 and 1940. |
| Keywords: | living arrangements, family economics, structural change, economic development, unified growth theory |
| JEL: | O40 O11 O33 J10 E13 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:10/2017&r=mac |
| By: | Luca Pensieroso (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Alessandro Sommacal (University of Verona, Department of Economics; Bocconi University, Dondena Centre (Welfare State and Taxation Unit)) |
| Abstract: | We show that the structural change of the economy from agriculture to industry was a major determinant of the observed shift in intergenerational coresidence. We build a two-sector overlapping generation model of the structural change out of agriculture, in which the coresidence choice is endogenous. We calibrate the model on US data and simulate it. The model can match well the decline in US intergenerational coresidence between 1870 and 1940. |
| Keywords: | living arrangements, family economics, structural change, economic development, unified growth theory |
| JEL: | O40 O11 O33 J10 E13 |
| Date: | 2017–05–23 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2017007&r=mac |
| By: | Ahmed, Azleen Rosemy; Masih, Mansur |
| Abstract: | This paper studies the long run relationship between financial development and income inequality in Malaysia over the period of 1970-2007. For the last 45 years, Malaysian income inequality has been decreasing from a height of 0.56 (Gini coefficient) in 1976 to 0.4 in 2014 while its economy and financial sector especially the banking industry has been expanding. The issue of importance is to investigate whether in a developing economy, the financial sector plays a role in reducing income inequality by mobilising and allocating savings into productive investments. We have employed the auto regressive distributed lag (ARDL) bound testing approach and the error correction mechanism to examine the existence of long run relationship, while variance decomposition (VDC) technique is used to provide Granger causal relationship between the variables. The cointegration tests show that there is a long run relationship between financial development, economic growth, trade openness and income inequality in Malaysia. However, financial development itself is found to be not statistically significant in influencing income inequality during the sample period. This finding is similar to Law & Tan’s (2009) findings over a shorter period 1980-2000. However, the VDC finds that financial development can be a tool for the government to employ to reduce income inequality. This paper also provides evidence that trade openness helps reduce income inequality. In terms of policy, enhancing financial access that would steer the development of financial system towards a pro-growth and pro-poor direction is needed to ensure that financial development fully supports the reduction of income inequality in Malaysia. |
| Keywords: | Financial development, income inequality, Malaysia, ARDL |
| JEL: | C58 E44 G15 |
| Date: | 2017–05–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79416&r=mac |
| By: | Edward Herbst; Frank Schorfheide |
| Abstract: | The accuracy of particle filters for nonlinear state-space models crucially depends on the proposal distribution that mutates time t-1 particle values into time t values. In the widely-used bootstrap particle filter, this distribution is generated by the state-transition equation. While straightforward to implement, the practical performance is often poor. We develop a self-tuning particle filter in which the proposal distribution is constructed adaptively through a sequence of Monte Carlo steps. Intuitively, we start from a measurement error distribution with an inflated variance, and then gradually reduce the variance to its nominal level in a sequence of tempering steps. We show that the filter generates an unbiased and consistent approximation of the likelihood function. Holding the run time fixed, our filter is substantially more accurate in two DSGE model applications than the bootstrap particle filter. |
| JEL: | C11 C32 E32 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23448&r=mac |
| By: | Möhlmann, Axel |
| Abstract: | Life insurers are exposed to interest rate risk, and their liability side is typically more sensitive to interest rate changes than their asset side. This paper develops an accounting-based measure of interest rate sensitivity. My approach uses the coexistence of historical cost and market value accounting, which permits the observation of valuations for different discount rates. Using microdata, I show that German life insurers have a significant exposure to interest rate risk. However, there is a wide dispersion across the sector. I find that insurers' size, growth and solvency are negatively correlated with interest rate risk. The heterogeneity suggests that insurers would behave differently during times of stress, which has important implications for understanding the macroprudential risks to which the sector is exposed. |
| Keywords: | life insurance,interest rate risk,asset liability management,duration gap |
| JEL: | E43 G11 G22 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:102017&r=mac |
| By: | Kebalo, Léleng |
| Abstract: | This paper analyzes the effects of the high economic openness of West African economies coupled with liability dollarization, on their economic activities. By using a dynamic stochastic general equilibrium model in a small open economy framework, and performing an experiment based on a case of moderate economic openness and another case on the high economic openness, we find that the high economic openness of west african economies constitutes a brake for their economic progress. This external constraint annihilates the effects of the economic policies implemented to stimulate economic growth, and consequently create macroeconomic imbalances. For small countries like those in West Africa, a moderate economic openness would be advantageous because it would allow them to develop a domestic market that presents many economic advantages and above all, to protect it from foreign competition. It is necessary to decrease now this dependency in order to avoid a polarization of economic blocks after the creation of a Currency Union in West Africa. |
| Keywords: | Economic openness, Financial liberalization, economic growth, Economic integration, Financial accelerator, DSGE model |
| JEL: | E32 E66 F34 F41 F43 F44 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79442&r=mac |
| By: | Psofogiorgos, Nikolaos - Alexandros; Metaxas, Theodore |
| Abstract: | IMF was established as a financial institution for the promotion of world trade and international financial stability of members. However, IMF focused on assistance to developing countries and transition economies and as a result seems to have political implications. Many studies suggest that IMF lending programs undermine the quality of democracy in the countries which make use of the institution's resources. This conventional idea is rooted in two basic assumptions: First, when negotiations are made, the doors are closed. Secondly, the IMF programs impose strict limits on political power of borrowers that may result in power distribution consequences. Other studies result in a positive relationship between IMF programs and democracy. Maybe the presence of an IMF loan itself doesn’t affect the democracy, but high loan reforms required have negative impact on democratic practices. This effect depends on the type of reforms that are required by the loan. |
| Keywords: | IMF, democracy, reforms, political implications |
| JEL: | E02 F33 G01 O43 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79403&r=mac |
| By: | Rohit Azad (Department of Economics, New School for Social Research) |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1719&r=mac |