nep-mac New Economics Papers
on Macroeconomics
Issue of 2017‒06‒11
67 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Macro Risks and the Term Structure of Interest Rates By Geert Bekaert; Eric Engstrom; Andrey Ermolov
  2. The eurozone (expected) inflation: an option’s eyes view. By Ricardo Gimeno; Alfredo Ibáñez
  3. Unconventional Taxation Policy, Financial Frictions and Liquidity Traps By William John Tayler; Roy Zilberman
  4. An agent based Keynesian model with credit cycles and countercyclical capital buffer By Zsuzsanna Hosszú; Bence Mérõ
  5. The dynamic impact of macroeconomic news on long-term inflation expectations By Hachula, Michael; Nautz, Dieter
  6. Taper Tantrums: QE, its Aftermath and Emerging Market Capital Flows By Anusha Chari; Karlye Dilts Stedman; Christian Lundblad
  7. Did Negative Interest Rates Impact Bank Lending? By Phil Molyneux; Rue Xie; John Thornton; Alessio Reghezza
  8. Wage Formation, Unemployment and Business Cycle in Latvia By Ginters Buss
  9. Heterogeneity in Monthly Inflation Expectations in Brazil: Evidence with Aggregate Data from the Focus Survey By Roberto Meurer; Gilberto Tadeu Lima
  10. Implications for Aggregate Inflation of Sectoral Asymmetries : Generalizing Woodford By Koskinen Hannu; Vilmunen Jouko
  11. Wavelet decomposition of the financial cycle : An early warning system for financial tsunamis By Voutilainen, Ville
  12. U.S. monetary-fiscal regime changes in the presence of endogenous feedback in policy rules By Chang, Yoosoon; Kwak, Boreum
  13. The Federal Reserve’s implicit inflation target and Macroeconomic dynamics. A SVAR analysis. By Haroon Mumtaz; Konstantinos Theodoridis
  14. Money-Financed Fiscal Programs : A Cautionary Tale By William B. English; Christopher J. Erceg; J. David Lopez-Salido
  15. The effects of monetary policy shocks on inequality in Japan By Masayuki Inui; Nao Sudo; Tomoaki Yamada
  16. This paper aims to enhance the understanding of China's monetary policy rule since the mid-1990s, focusing on the role of inflation. It investigates the rule followed by the People's Bank of China (PBoC) by considering both the structural economic transformation of China and its evolving monetary policy framework. Our newly constructed monthly composite discrete monetary policy index (MPI), which combines price, quantity and administrative instruments, shows a change in style towards smoother but more contractionary policy moves from 2002 onwards. The estimation of a dynamic discrete-choice model à la Monokroussos (2011) implies that, from this point onwards, the conduct of monetary policy has been characterised by implicit inflation targeting. While the PBoC's behaviour up to 2001 was reminiscent of that in the inflation-accommodating G3 economies of the United States, euro area and Japan up to 1979, it has been characterized since 2002 by a policy rule similar to the post-1979 anti-inflation (forward-looking) policy of the G3. An accurate estimation of the monetary policy rule from 2002 needs to consider China as an open economy, as a result of its rapid liberalisation of trade and finance after its WTO accession. As such, the influence of US interest rates has become increasingly significant for Chinese monetary policy. By Eric Girardin; Sandrine Lunven; Guonan Ma
  17. Stock Market Dynamics and the Central Bank in a General Equilibrium Model By Ilomaki Jukka; Laurila Hannu
  18. Secular stagnation and concentration of corporate power By Joan R. Rovira
  19. Monetary Neutrality with Sticky Prices and Free Entry By Bilbiie, Florin Ovidiu
  20. The impact of news on US household inflation expectations By Wolfgang Karl Härdle; Shih-Kang Chao; Jeffrey Sheen; Stefan Trück; Ben Zhe Wang
  21. Measuring the Natural Rate of Interest : Alternative Specifications By Kurt F. Lewis; Francisco Vazquez-Grande
  22. Catallactics misapplication: it impact on Africa’s economy By Tweneboah Senzu, Emmanuel
  23. Alternative User Costs, Productivity and Inequality in US Business Sectors By W. Erwin Diewert; Kevin J. Fox
  24. Guiding the Economy Toward the Target Inflation Rate: An Evolutionary Game Theory Approach By Yasushi Asako; Tatsushi Okuda
  25. The Zero Lower Bound and Market Spillovers: Evidence from the G7 and Norway By Kyritsis, Evangelos; Serletis, Apostolos
  26. Structural Change and the China Syndrome: Baumol vs Trade Effects By Coricelli, Fabrizio; Ravasan, Farshad R
  27. Working paper SiteCore Integration Test AA July 28 - Update By Susan Creane; Enzo Croce
  28. Macroeconomic factors behind financial instability By Jan Behringer; Sabine Stephan; Thomas Theobald
  29. Should Central Banks Worry About Nonlinearities of their Large-Scale Macroeconomic Models? By Vadym Lepetyuk, Lilia Maliar, Serguei Maliar
  30. Corporate Investment in Hungary – Stylised Facts on Micro Data By Péter Bauer; Marianna Endrész
  31. When and why do countries break their national fiscal rules? By Reuter, Wolf Heinrich
  32. Fiscal Multipliers and Monetary Policy: Reconciling Theory and Evidence By Christian Bredemeier; Falko Juessen; Andreas Schabert
  33. International Monetary Relations: Taking Finance Seriously By Maurice Obstfeld; Alan M. Taylor
  34. Yields on sovereign debt, fragmentation and monetary policy transmission in the euro area: A GVAR approach By Victor Echevarria-Icaza; Simón Sosvilla-Rivero
  35. Monetary policy in an oil-dependent economy in the presence of multiple shocks By Drygalla, Andrej
  36. Home biased expectations and macroeconomic imbalances in a monetary union By Dennis Bonam; Gavin Goy
  37. Stabilizing an Unstable Complex Economy By Isabelle Salle; Pascal Seppecher
  38. Monetary Inflation Mechanism. An Empirical View By Liviu C. Andrei; Dalina Andrei
  39. Mortality and the Business Cycle: Evidence from Individual and Aggregated Data By van den Berg, Gerard J.; Gerdtham, Ulf-G.; von Hinke Kessler Scholder, Stephanie; Lindeboom, Maarten; Lissdaniels, Johannes; Sundquist, Jan; Sundquist, Kristina
  40. Fiscal policy, Monetary policy and External imbalances: Cross-country evidence from Africa’s three largest economies (Nigeria, South Africa and Egypt) By Bonga-Bonga, Lumengo
  41. Reviving Private Investment in India: Determinants and Policy Levers By Ajay Chhibber; Akshata Kalloor
  42. The effects of tax coordination on the tax revenue mobilization in West African Economic and Monetary Union (WAEMU) By Maïmouna DIAKITE; Jean-François BRUN; Souleymane DIARRA; Nasser ARY TANIMOUNE
  43. Financial liberalization and long-run stability of money demand in Nigeria By Oludele E. Folarin; Simplice Asongu
  44. U.S. Fiscal Policy and Asset Prices: The Role of Partisan Conflict By Rangan Gupta; Chi Keung Marco Lau; Stephen M. Miller; Mark E. Wohar
  45. Comparative Study on the Sustainable Economic Growth of European Union Countries By Carmen Uzlau; Cristina Burghelea; Corina-Maria Ene
  46. Flexibility of Adjustment to Shocks: Economic Growth and Volatility of Middle-Income Countries Before and After the Global Financial Crisis of 2008 By Joshua Aizenman; Yothin Jinjarak; Gemma Estrada; Shu Tian
  47. Impact of public debt (un)sustainability on fiscal policy effectiveness in Croatia By Hrvoje Šimović
  48. Long-term effects of fiscal stimulus and austerity in Europe By Sebastian Gechert; Gustav A. Horn; Christoph Paetz
  49. Can Italy Grow Out of Its NPL Overhang? A Panel Threshold Analysis By Mohaddes, K.; Raissi, M.; Weber, A.
  50. Mergerwellen in Deutschland: Eine zeitreihenanalytische Untersuchung By Meier, Jan-Hendrik; Boysen-Hogrefe, Jens; Spoida, Verena K.
  51. Interest premium and economic growth: the case of CEE By Daniel Baksa; István Konya
  52. Angus Deaton, prix à la mémoire d'Alfred Nobel 2015 : un maître de l'économie appliquée By François Gardes
  53. Navigating through torpedo attacks and enemy raiders: Merchant shipping and freight rates during World War I By Klovland, Jan Tore
  54. Internal devaluation in a wage-led economy. The case of Spain By Ignacio Álvarez; Jorge Uxó; Eladio Febrero
  55. Estimating Mark-ups and the Effect of Product Market Regulations in Selected Professional Services Sectors: A Firm-level Analysis By Anna Thum-Thysen; Erik Canton
  56. Bayesian Forecast Intervals for Inflation and Unemployment Rate in Romania By Mihaela Simionescu
  57. Regulation, institutions and aggregate investment: New evidence from OECD countries By Balázs Égert
  58. Blockchain and the Economics of Crypto-tokens and Initial Coin Offerings By John P. Conley
  59. On the seemingly incompleteness of exchange rate pass-through to import prices: Do globalization and/or regional trade matter? By Antonia Lopez-Villavicencio; Valérie Mignon
  60. Country Report Workflow Test - Update 122 By Renee A-Jaoudi; Richard K. Abrams
  61. Econophysics of Macro-Finance: Local Multi-fluid Models and Surface-like Waves of Financial Variables By Victor Olkhov
  62. Blockchain Cryptocurrency Backed with Full Faith and Credit By John P. Conley
  63. Assessing News Contagion in Finance By Paola Cerchiello; Giancarlo Nicola
  64. A Path Integral Approach to Interacting Economic Systems with Multiple Heterogeneous Agents By Gosselin, Pierre; Lotz, Aïleen; Wambst, Marc
  65. Stability and welfare effects of profit taxes within an evolutionary market interaction model By Schmitt, Noemi; Tuinstra, Jan; Westerhoff, Frank
  66. Technology Adoption, Capital Deepening, and International Productivity Differences By Chaoran Chen
  67. The Interplay between Εx-post Credit Risk and the Cycles: Evidence from the Italian banks By Anastasiou, Dimitrios

  1. By: Geert Bekaert; Eric Engstrom; Andrey Ermolov
    Abstract: We use non-Gaussian features in U.S. macroeconomic data to identify aggregate supply and demand shocks while imposing minimal economic assumptions. Recessions in the 1970s and 1980s were driven primarily by supply shocks, later recessions were driven primarily by demand shocks, and the Great Recession exhibited large negative shocks to both demand and supply. We estimate "macro risk factors" that drive "bad" (negatively skewed) and "good" (positively skewed) variation for supply and demand shocks. The Great Moderation is mostly accounted for by a reduction in good variance. In contrast, bad variances for both supply and demand shocks, which account for most recessions, shows no secular decline. We document that macro risks significantly contribute to the variation yields, risk premiums and return variances for nominal bonds. While overall bond risk premiums are counter-cyclical, an increase in demand variance lowers risk premiums.
    Keywords: Bond return predictability ; Business cycle ; Great moderation ; Macroeconomic volatility ; Term premium
    JEL: E31 E32 E43 E44 G12 G13
    Date: 2017–06
  2. By: Ricardo Gimeno (Banco de España); Alfredo Ibáñez (Instituto tecnológico autónomo de Mexico)
    Abstract: We estimate inflation risk-neutral densities (RNDs) in the Euro area since 2009. We use Euro inflation swaps and caps/floors options, and introduce a simple and parsimonious approach to jointly estimate the RNDs across horizons. This way, we obtain the implicit RND for forward measures, like the five-on-five years inflation rate, which, although it is not directly traded in the market, it is a key rate for monetary policy. Then, we discuss several indicators derived from the information content of the historical RNDs that are useful for monetary policy and compare them in the light of the ECB’s decisions and communication over the last few years. Specically, the evolution of tails risks (associated with deflation and high inflation); the balance of inflation risks; measures of risk aversion from the ECB’s Survey of Professional Forecasters (SPF); and how forward inflation rates react to the ECB’s non-conventional monetary policies (Longer Term Renancing Operations, LTRO, Securities Market Programme, SMP, Asset Purchase Programme, APP, and its variants and extensions)
    Keywords: inflation compensation, inflation options, risk-neutral densities, inflation risk aversion, balance of inflation risks
    JEL: E31 E44 G13
    Date: 2017–06
  3. By: William John Tayler; Roy Zilberman
    Abstract: This paper studies the cyclical properties of private asset income taxation in a New Keynesian model with financial frictions. We argue that optimal state-contingent variations in asset income taxation increase welfare, alter the monetary policy transmission mechanism and insure against liquidity traps. These findings are explained by an endogenous association amongst taxation, the effective rate of return on assets, the inflationary output gap and credit spreads. Such unique link operates via a working-capital cost channel, and affords the policy maker an additional degree of freedom in stabilizing the economy. Optimal policy calls for lowering (increasing) asset income taxation following financial (demand) shocks.
    Keywords: Asset Taxation, Optimal Policy, Risk Premium, Credit Cost Channel, Zero Lower Bound
    JEL: E32 E44 E52 E58 E62 E63
    Date: 2017
  4. By: Zsuzsanna Hosszú (Magyar Nemzeti Bank (Central Bank of Hungary)); Bence Mérõ (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: In this paper, we have developed an agent-based Keynesian macro model that features a detailed representation of a banking system, besides households and firms, and in which fiscal, monetary and macroprudential policy regulators also operate. The banking system generates longer credit cycles on the time series compared to the business cycle, and also fosters growth through lending, but deepens the recession during crises by decreasing credit supply. Macroprudential authority uses countercyclical capital buffer requirements to decrease the procyclicality of the banking system. According to our results, this policy instrument is effective in enhancing financial stability, while in recessions, the decrease in GDP is less with countercyclical capital buffer requirements than without any macroprudential rule. However, there is a trade-off between financial stability and economic growth.
    Keywords: agent based model, credit cycle, business cycle, countercyclical capital buffer
    JEL: E12 E32 E44 G18 G21
    Date: 2017
  5. By: Hachula, Michael; Nautz, Dieter
    Abstract: Well-anchored inflation expectations should not react to short-term oriented macroeconomic news. This paper analyzes the dynamic response of inflation expectations to macro news shocks in a structural VAR model. As identification of structural macro news shocks is controversial, we use a proxy SVAR model where, by construction, unobservable macro news shocks correlate with observable surprises from macroeconomic news announcements. Our results confirm that macro news shocks have no impact on U.S. long-term inflation expectations in the long run. In the short run, however, the degree of expectations de-anchoring is non-negligible.
    Keywords: dynamics of inflation expectations,expectations anchoring,macroeconomic news,proxy SVAR
    JEL: E31 E52 C32
    Date: 2017
  6. By: Anusha Chari; Karlye Dilts Stedman; Christian Lundblad
    Abstract: This paper provides a novel perspective on the impact of U.S. unconventional monetary policy (UMP) on emerging market capital flows and asset prices. Using high-frequency Treasury futures data to identify U.S. monetary policy shocks, we find, through the lens of an affine term structure model, that these shocks represent revisions to both the expected path of short-term interest rates and required risk compensation. The risk compensation component is especially important during the UMP periods. Further, we find that these high-frequency policy shocks do exhibit sizable effects on U.S. holdings of emerging market assets and their valuations. We also document that the relative effects of U.S. monetary policy shocks are larger for emerging asset returns relative to physical capital flows, and they are largest for emerging equity markets relative to fixed income markets. Last, these effects are largest when the Federal Reserve is engaged in “tapering” its large-scale asset purchase program.
    JEL: E5 E52 E58 E65 F3 F32 F42 G11 G12 G13
    Date: 2017–06
  7. By: Phil Molyneux (Bangor University); Rue Xie (Bangor University); John Thornton (Bangor University); Alessio Reghezza (Bangor University)
    Abstract: Since 2012 several central banks have introduced a negative interest rate policy (NIRP) aimed at boosting real spending by facilitating an increase in the supply and demand for bank loans. We employ a bank-level dataset comprising 16,675 banks from 33 OECD member countries over 2012-2016 and a difference-in-differences methodology to analyze whether NIRP resulted in a change in bank lending in NIRP-adopter countries compared to those that did not adopt the policy. Our results suggest that following the introduction of negative interest rates, bank lending was weaker in NIRP-adopter countries than in countries that did not adopt the policy. The result is robust to a wide range of checks. This adverse NIRP effect appears to have been stronger for banks that were smaller, more dependent on retail deposit funding, less well capitalized, had business models reliant on interest income, and operate in more competitive markets. NIRP also appears to have canceled out the stimulus impact of other forms of unconventional monetary policy
    Keywords: Negative interest rates, monetary policy transmission, bank lending, difference in differences estimation
    JEL: E43 E44 E52 G21 F34
    Date: 2017–05
  8. By: Ginters Buss (Bank of Latvia)
    Abstract: This paper integrates the alternating-offer wage bargaining (AOB) in a fully-fledged New Keynesian open economy model, and estimates it to the Latvian data. Further on, the paper studies the model's properties and compares them to alternative specifications for labour market modelling, i.e. the Nash wage bargaining with both Taylor-type wage rigidity and without exogenously imposed wage inertia, a reduced-form sharing rule, and a reduced-form wage rule. The goal of the paper is to choose a labour market modelling specification that suits best the needs of the central bank of Latvia in terms of macroeconomic modelling and forecasting. The results indicate that the AOB model suits the Latvian labour market well. The paper concludes with a simulation of economic effects from a permanent increase in the minimum-to-average wage ratio, as observed in Latvia, and finds potentially large losses of employment and output.
    Keywords: alternating-offer bargaining, DSGE model, forecasting, minimum wage
    JEL: E0 E2 E3 F4
    Date: 2017–05–25
  9. By: Roberto Meurer; Gilberto Tadeu Lima
    Abstract: In this paper the heterogeneity in the inflation expectations gathered by the Central Bank of Brazil is analyzed through descriptive statistics and econometric estimations for the median, dispersion, amplitude and recurrence of the presence of institutions in the Top 5 group, which includes those survey participants with the highest level of accuracy in inflation forecasting. Aggregate expectations for the IPCA consumer price index from January 2003 to August 2016 are employed. Our results include an almost perfect correlation between the forecasts of the set of all survey participants and the forecasts made by the Top 5, a gradual adjustment of expectations, the significance of the reference day for the selection for the Top 5, and a positive relation between changes in the median and its dispersion. For the set of all survey participants there is a positive relation between changes in the median and its dispersion and a negative one with the inflation rate in the previous month. This relationship was not found for the Top 5. Recurrence of a given institution in the Top 5 for two consecutive months is a condition positively related with the dispersion of expectations over the month and negatively related with the forecast errors in the previous month. These results indicate that the Top 5 reward system seems to induce a relevant proportion of the survey participants to keep their forecasts updated.
    Keywords: Inflation expectations; heterogeneity; Central Bank of Brazil
    JEL: E31 E37 E58
    Date: 2017–06–01
  10. By: Koskinen Hannu; Vilmunen Jouko (Faculty of Management, University of Tampere)
    Abstract: This paper develops and simulates a simple two sector DSGE model for studying aggregate inflation and output dynamics under sectoral adjustment asymmetries. The CES aggregate consumption bundle consists of two different groups of goods with imperfect substitutability between as well as within the groups. Allowing for different within group CES aggregators implies that the degree of substitutability between goods in a group is group-specific. To generate sector-specific price rigidities the model assumes sector-specific Calvo pricing. The paper focuses on potential post-shock divergences across sectors as well as on the implications for aggregate inflation and output of the sectoral asymmetries and identifies an important role for the sectoral relative price for aggregate dynamics. More specifically, the paper generalizes Woodford (2003), which only allows for the price rigidity to differ across sectors. Incorporating sector-specific price elasticities is important and well in line with the micro-level evidence on individual as well as sectoral prices. From the point of view of allocational efficiency and welfare, relative price movements occupy a central role in models incorporating Calvo pricing. This particular feature underscores the perceived macroeconomic benefits of low and stable inflation. This paper takes this logic a step further by incorporating movements both in individual and sectoral relative prices.
    JEL: E12 E17 D52
    Date: 2017–05
  11. By: Voutilainen, Ville
    Abstract: We propose a wavelet-based approach for construction of a financial cycle proxy. Specifically, we decompose three key macro-financial variables – private credit, house prices, and stock prices – on a frequency-scale basis using wavelet multiresolution analysis. The resulting “wavelet-based” sub-series are aggregated into a composite index representing our cycle proxy. Selection of the sub-series deemed most relevant is done by emphasizing early warning properties. The wavelet-based financial cycle proxy is shown to perform well in detecting banking crises in out-of-sample exercises, outperforming the credit-to-GDP gap and a financial cycle proxy derived using the approach of Schüler et al. (2015).
    JEL: C49 E32 E44
    Date: 2017–05–31
  12. By: Chang, Yoosoon; Kwak, Boreum
    Abstract: We investigate U.S. monetary and fiscal policy regime interactions in a model, where regimes are determined by latent autoregressive policy factors with endogenous feedback. Policy regimes interact strongly: Shocks that switch one policy from active to passive tend to induce the other policy to switch from passive to active, consistently with existence of a unique equilibrium, though both policies are active and government debt grows rapidly in some periods. We observe relatively strong interactions between monetary and fiscal policy regimes after the recent financial crisis. Finally, latent policy regime factors exhibit patterns of correlation with macroeconomic time series, suggesting that policy regime change is endogenous.
    Keywords: monetary and fiscal policy interactions,endogenous regime switching,adaptive LASSO,time-varying coefficient VAR,factor augmented VAR
    JEL: C13 C32 C38 E52 E58 E63
    Date: 2017
  13. By: Haroon Mumtaz; Konstantinos Theodoridis
    Abstract: This paper identifies shocks to the Federal Reserve's inflation target as VAR innovations that make the largest contribution to future movements in long-horizon inflation expectations. The effectiveness of this scheme is documented via Monte-Carlo experiments. The estimated impulse responses indicate that a positive shock to the target is associated with a large increase in inflation, GDP growth and long-term interest rates. Target shocks are estimated to be a vital factor behind the increase in inflation during the pre-1980 period and are an important driver of the decline in long-term interest rates over the last two decades.
    Keywords: SVAR, DSGE model, inflation target
    JEL: C5 E1 E5 E6
    Date: 2017
  14. By: William B. English; Christopher J. Erceg; J. David Lopez-Salido
    Abstract: A number of prominent economists and policymakers have argued that money-financed fiscal programs (helicopter drops) could be efficacious in boosting output and inflation in economies facing persistent economic weakness, very low inflation, and significant fiscal strains. We employ a fairly conventional macroeconomic model to explore the possible effects of such policies. While we do find that money-financed fiscal programs, if communicated successfully and seen as credible by the public, could provide significant stimulus, we underscore the risks that would be associated with such a program. These risks include persistently high inflation if the central bank fully adhered to the program; or alternatively, that such a program would be ineffective in providing stimulus if the public doubted the central bank’s commitment to such an extreme strategy. We also highlight how more limited forms of monetary and fiscal cooperation – such as a promise by the central bank to be more accommodative than usual in response to fiscal stimulus – may be more credible and easier to communicate, and ultimately more effective in providing economic stimulus.
    Keywords: DSGE Model ; Fiscal policy ; Liquidity Trap ; Monetary policy ; Currency union
    JEL: E52 E58
    Date: 2017–06
  15. By: Masayuki Inui; Nao Sudo; Tomoaki Yamada
    Abstract: The impacts of monetary easing on inequality have been attracting increasing attention recently. In this paper, we use the micro-level data on Japanese households to study the distributional effects of monetary policy. We construct quarterly series of income and consumption inequality measures from 1981 to 2008, and estimate their response to a monetary policy shock. We find that monetary policy shocks do not have a statistically significant impact on inequality across Japanese households in a stable manner. When considering inequality across households whose head is employed, we find evidence that, before the 2000s, an expansionary monetary policy shock increased income inequality through a rise in earnings inequality. Such procyclical responses are, however, scarcely observed when the current data are included in the sample period, or when earnings inequality across all households is considered. We also find that transmission of income inequality to consumption inequality is minor, including during the period when procyclicality of income inequality was pronounced. Using a two-sector dynamic general equilibrium model with attached labor inputs, we show that labor market flexibility is central to the dynamics of income inequality after monetary policy shocks. We also use the micro-level data on households' balance sheets and show that distributions of households' financial assets and liabilities do not play a significant role in the distributional effects of monetary policy.
    Keywords: Monetary policy, income, consumption, wealth inequality
    JEL: E3 E4 E5
    Date: 2017–06
  16. By: Eric Girardin; Sandrine Lunven; Guonan Ma
    Keywords: monetary policy in China, People's Bank of China, Taylor rule, inflation targeting, discrete-choice model, open-economy model
    JEL: E52 E58 O11 O52
    Date: 2017–06
  17. By: Ilomaki Jukka; Laurila Hannu (Faculty of Management, University of Tampere)
    Abstract: We introduce a general equilibrium model with potentially inefficient stock markets consisting of asymmetrically informed investors. Prices are sticky in the goods market, but the labor market adjusts perfectly. The central bank aims to maximize the life-time wealth of the households in every period by keeping inflation in the steady state and stock markets in the fair value by adjusting the rate of return on risk-free investments. We find that the “leaning against the wind” policy works, which means that positive stock market bubbles can be eliminated by raising the risk-free rate.
    Keywords: interest rate; monetary policy; portfolio choice
    JEL: E44 E52 G11
    Date: 2017–05
  18. By: Joan R. Rovira (Economic Studies Office, Barcelona Chamber of Commerce (ES))
    Abstract: We identify a set of key stylised facts characterising the evolution of the seven largest advanced economies from the 1960s to 2015 and develop a small one-sector model of growth and distribution broadly consistent with these facts. The model is used to explore the relationship between falling trend growth, the re-distribution of aggregate income towards profits and the concentration of corporate power and wealth. Theory is confronted with history to illustrate how changes in social structure can affect economic behaviour and performance. We argue that finance-led corporate restructuring, involving debt-financed corporate transactions, may have played a crucial role in shaping long-term patterns of growth and distribution.
    Keywords: Stagnation, Distribution, Growth, Financialisation, Heterodox Economics
    JEL: B22 E11 E12 E44 E65 G01 O11
    Date: 2017–05
  19. By: Bilbiie, Florin Ovidiu
    Abstract: Monetary policy is neutral even with fixed prices, if there is free entry and variety is determined optimally as in Dixit and Stiglitz (1977). When individual prices are sticky, entry substitutes for price flexibility in the welfare-based price index. In response to aggregate demand expansions, the intensive (quantity produced of each good) and extensive (number of goods being produced) margins move in offsetting ways, leaving aggregate production unchanged. Deviations from neutrality thus occur only when variety is not optimally determined (preferences are not Dixit-Stiglitz) or when entry is subject to frictions.
    Keywords: Dixit-Stiglitz; Entry; monetary policy; monopolistic competition; neutrality; product variety; sticky prices; sunk costs
    JEL: D42 E52 E58 L16
    Date: 2017–05
  20. By: Wolfgang Karl Härdle; Shih-Kang Chao; Jeffrey Sheen; Stefan Trück; Ben Zhe Wang
    Abstract: Analysis of monthly disaggregated data from 1978 to 2016 on US household in ation expectations reveals that exposure to news on in ation and monetary policy helps to explain in ation expectations. This remains true when controlling for household personal characteristics, their perceptions of the e ectiveness of government policies, their expectations of future interest rates and unemployment, and their sentiment levels. We nd evidence of an asymmetric impact of news on in ation expectations particularly after 1983, with news on rising in ation and easier monetary policy having a stronger e ect in comparison to news on lowering in ation and tightening monetary policy.
    Keywords: In ation expectations, news impact, forecast disagreement
    JEL: D83 D84 E31
    Date: 2017–04
  21. By: Kurt F. Lewis; Francisco Vazquez-Grande
    Abstract: We build on the work of Laubach and Williams (2003) and subsequent studies by analyzing the effect on the estimates of the natural rate of interest ($r^*$) of accounting for full parameter uncertainty and alternative specifications for the underlying components of the natural rate. Our estimation technique delivers richer time-series dynamics for the median estimate of $r^*$ within the Laubach and Williams model. Additionally, we find that models with transitory shocks to the non-growth component of the natural rate have a higher marginal likelihood and produce an upward-sloping post-crisis trajectory of the $r^*$ path and thus a higher recent median point estimate (1.8\% in 2016:Q3).
    Keywords: Kalman filter ; Monetary policy ; Natural rate of interest ; Trend growth
    JEL: C32 E43 E52 O40
    Date: 2017–06
  22. By: Tweneboah Senzu, Emmanuel
    Abstract: The paper seeks to solve the macroeconomic error that emerged from the dispensing of the monetary policy by the Central Banks of Africa. These monetary policies have refused to address the desired economic growth expected by individual developing and underdeveloped countries. It conclusively present a new mathematical model to determine the exact health status of an economy in developing and underdeveloped countries in Africa.
    Keywords: Monetary Economics, Monetary Policy, Fiscal Policy, Macroeconomics, Developmental Economics
    JEL: E5 E52 E58
    Date: 2015–07–20
  23. By: W. Erwin Diewert (Vancouver School of Economics, University of British Columbia, and School of Economics, UNSW); Kevin J. Fox (School of Economics and CAER, UNSW)
    Abstract: Using the new Bureau of Economic Analysis (BEA) Integrated Macroeconomic Accounts as well as other BEA data, we construct productivity accounts for two key sectors of the US economy: the Corporate Nonfinancial Sector (Sector 1) and the Noncorporate Nonfinancial Sector (Sector 2). Calculating user costs of capital based on, alternatively, ex post and predicted asset price inflation rates, we provide alternative estimates for capital services and Total Factor Productivity growth for the two sectors. Rates of return on assets employed are also reported for both sectors. In addition, we compare rates of return on assets employed and TFP growth rates when the land and inventory components are withdrawn from the asset base. Finally, implications for labour and capital shares from using alternative income concepts are explored.
    Keywords: User cost of capital, Total Factor Productivity, rate of return on assets, Integrated Macroeconomic Accounts, Bureau of Economic Analysis, ex post and ex ante asset inflation rates, US Nonfinancial Sector, Austrian model of production, balancing rates of return, inequality.
    JEL: B25 C43 C82 D24 E22 E43
    Date: 2017–05
  24. By: Yasushi Asako (Associate Professor, Faculty of Political Science and Economics, Waseda University (E-mail:; Tatsushi Okuda (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: Under what condition is the target inflation rate attainable even after the monetary policy rate hits its lower bound? This study examines the question using a dynamic model based on evolutionary game theory. In the model, entrepreneurs and workers iteratively play a stage game to make investment decisions. In the presence of complementarity between entrepreneurs f and workers f investments, two long-run equilibria exist: all players invest or no player invests. The study shows two conditions for successfully guiding the economy toward the long-run equilibrium that all players invest at the target inflation rate. First, the type of entrepreneurs f investments needs to be demand- creating innovation rather than cost-reducing innovation. Second, the proportions of entrepreneurs and workers currently investing must be sufficiently large.
    Keywords: Target inflation rate, Evolutionary game, Best-response dynamics, Perfect-foresight dynamics, Multiple long-run equilibria, Capital-skill complementarity, Demand-creating innovation
    JEL: C72 C73 E31 E52
    Date: 2017–05
  25. By: Kyritsis, Evangelos (Dept. of Business and Management Science, Norwegian School of Economics); Serletis, Apostolos (Dept. of Economics, University of Calgary)
    Abstract: This paper investigates mean and volatility spillovers between the crude oil market and three financial markets, namely the debt, stock, and foreign exchange markets, while providing international evidence from each of the seven major advanced economies (G7), and the small open oil-exporting economy of Norway. Using monthly data for the period from May 1987 to March 2016, and a four-variable VARMA-GARCH model with a BEKK variance specification, we find significant spillovers and interactions among the markets, but also absence of a hierarchy of influence from one specific market to the others. We further incorporate a structural break to examine the possible effects of the prolonged episode of zero lower bound in the aftermath of the global financial crisis, and provide evidence of strengthened linkages from all the eight international economies.
    Keywords: Crude oil; Financial markets; Mean and volatility spillovers; Structural breaks; VARMA-BEKK model
    JEL: C32 E32 E52 G15
    Date: 2017–05–31
  26. By: Coricelli, Fabrizio; Ravasan, Farshad R
    Abstract: In the process of economic development, the share of manufacturing in total employment first increases and then declines after incomes per capita have passed a given threshold. Advanced economies are all beyond that threshold and thus experience a secular decline in the share of manufacturing. Baumol explained such a process of deindustrialization as resulting from faster productivity growth in manufacturing relative to services. More recently, trade with emerging economies, especially with China, is often identified as the main determinant of deindustrialization in advanced economies. Disentangling the trade channel from the traditional productivity channel is a complicated task. In this paper, we develop a simple model of structural change in an open economy to derive empirical implications, which we analyze for a sample of OECD countries. The model is based on trade between advanced and emerging economies. In a closed economy framework, faster productivity in manufacturing induces a fall in the share of manufacturing in total employment but not in total value added. By contrast, in open economies, what matters is not only the relative growth of productivity in manufacturing versus domestic services, but also relative productivity growth of domestic versus foreign manufacturing. When productivity growth of domestic manufacturing is faster than that of services but slower than that of foreign manufacturing, the share of manufacturing in advanced economies may fall, both in terms of value added and of employment. We call this phenomenon "twin deindustrialization." We exploit the comparison between estimates for the employment and value added shares to identify the relevance of the trade channel relative to the pure productivity channel. We find significant and quantitatively relevant effects of trade on structural change in advanced economies. Furthermore, we show that the strength of the trade effect depends on the nature of technological progress occurring in emerging economies.
    Keywords: deindustrialization; open economies; structural change
    JEL: E21 E22 F31 F41 O40
    Date: 2017–05
  27. By: Susan Creane; Enzo Croce
    Abstract: WP This 2014 Article IV Consultation highlights that the euro area recovery is taking hold. Real output has expanded for four consecutive quarters, and financial market sentiment has improved markedly. Complementary policy actions have supported demand, boosted investor confidence, and eased financial conditions. At the national level, governments have made further progress repairing sovereign and bank balance sheets and implementing structure reforms to restore competitiveness. At the area-wide level, the ECB has taken a wider range of measures to support demand and address fragmentation. Over the medium term, there is a risk of stagnation, which could result from persistently depressed domestic demand owing to deleveraging, insufficient policy action, and stalled structural reforms.
    Keywords: Export fluctuations;Telephone systems;keyword wp12, keyword wp15
    Date: 2016–07–28
  28. By: Jan Behringer; Sabine Stephan; Thomas Theobald
    Abstract: We investigate the interaction between inequality, leverage and financial crises using bivariate Granger causality tests for a sample of 13 European countries and the United States over the period 1975-2013. We also examine the relevance of other determinants of expansions in credit to income and test whether the causal relationships are sensitive to different measures of credit. We find that top income shares significantly affect future credit to income of the private household sector. The test statistics reveal that the effect of top income shares is weaker for bank credit to the private non-financial sector. This is broadly consistent with the notion, that rising (top-end) personal inequality may lead to an increase in demand for credit by low and middle income households in order to maintain their relative standards of consumption. While results suggest no robust causality relationship from the Gini coefficient to credit, there is evidence for feedback effects from credit to the income distribution. Moreover, we find bidirectional causality relationships between economic activity and credit on the one hand and asset prices and credit on the other which may give rise to mutually reinforcing boom-bust cycles. The monetary policy stance does not seem to be a strong driver of the expansion in credit to income and financial deregulation affects the expansion in credit to income only at the individual country level.
    Keywords: income distribution, credit, financial crises, Granger causality tests
    JEL: C32 C33 E51 G01
    Date: 2017
  29. By: Vadym Lepetyuk, Lilia Maliar, Serguei Maliar
    Abstract: How wrong could policymakers be when using linearized solutions to their macroeconomic models instead of nonlinear global solutions? This question became of much practical interest during the Great Recession and the recent zero lower bound crisis. We assess the importance of nonlinearities in a scaled-down version of the Terms of Trade Economic Model (ToTEM), the main projection and policy analysis model of the Bank of Canada. In a meticulously calibrated “baby” ToTEM model with 21 state variables, we find that local and global solutions have similar qualitative implications in the context of the recent episode of the effective lower bound on nominal interest rates in Canada. We conclude that the Bank of Canada’s analysis would not improve significantly by using global nonlinear methods instead of a simple linearization method augmented to include occasionally binding constraints. However, we also find that even minor modifications in the model's assumptions, such as a variation in the closing condition, can make nonlinearities quantitatively important.
    Keywords: Business fluctuations and cycles, Econometric and statistical methods, Economic models
    JEL: C61 C63 C68 E31 E52
    Date: 2017
  30. By: Péter Bauer (Magyar Nemzeti Bank (Central Bank of Hungary)); Marianna Endrész (Magyar Nemzeti Bank (Central Bank of Hungary))
    Abstract: This paper investigates corporate fixed investment in Hungary between 2001 and 2014 using firm-level data. We analyse the composition, heterogeneity and the drivers of corporate investment. Investments in Hungary are highly concentrated and dominated by large and foreign-owned companies. The period investigated can be split into three parts: the 2000s with moderate performance, the crisis period, and the period of weak recovery in 2013-2014. We find that structural problems were already seen before the crisis: the investment rate was stagnant and investment activity declined. However, the performance of firms was heterogeneous, as smaller and middle-aged firms became less active and dynamic. During the crisis, investment performance markedly deteriorated. Signs of recovery were seen in 2013 and 2014, but the investment rate remained subdued. We show that the ageing of the group of smaller firms played an important role in their weak investment performance, while the lack of new entrants contributed to the sluggishness of the recovery. We did not find any evidence that changes in individual sectors’ weight in the economy contributed to the low corporate investment rate or the weakening activity.
    Keywords: corporate investment, micro data
    JEL: D22 E22 G31
    Date: 2017
  31. By: Reuter, Wolf Heinrich
    Abstract: This paper identifies determinants of compliance with various types of national numerical fiscal rules. Based on 51 fiscal rules in 20 EU member states from 1995 to 2015, the analysis identifies determinants among specific rule characteristics and their fiscal frameworks, as well as their political, (socio-)economic and supranational environments. While the average compliance across all rules and countries is around 50%, compliance with rules constraining stock (rather than flow) variables, set out in coalitional agreements, as well as rules covering larger parts of general government finances is significantly higher. Furthermore, independent monitoring and enforcement bodies (issuing real-time alerts) turn out to be significantly associated with a higher probability of compliance. Several theories of the deficit bias of governments due to government fragmentation, decentralization and political budget cycles are also significant with regards to compliance with fiscal rules. However, neither the economic environment or business cycle, nor forecast errors (except for an unexpectedly higher primary balance) on average seem to play a significant role.
    Keywords: National Numerical Fiscal Rules,Compliance,Fiscal institutions,Deficit Bias
    JEL: E62 H60 H11
    Date: 2017
  32. By: Christian Bredemeier; Falko Juessen; Andreas Schabert
    Abstract: Fiscal multipliers are typically observed to be moderate, which should, according to standard macroeconomic theory, be associated with real interest rates increasing with government spending. However, monetary policy rates have been found to decrease, which should – in theory – lead to large multipliers. In this paper, we rationalize these puzzling observations by accounting for responses of interest rates that are more relevant for private sector transactions than the monetary policy rate. We provide evidence that real interest rates on relatively illiquid assets and interest rate spreads which measure liquidity premia tend to increase after a government spending hike. We show that an otherwise standard macro model can explain diverging interest rate responses and moderate fiscal multipliers consistent with the data by accounting for an interest rate spread that decreases with the relative demand for less liquid assets. Our analysis indicates that neither a policy rate reduction nor a fixation at the zero lower bound are sufficient to induce large fiscal multipliers.
    Date: 2017–06–02
  33. By: Maurice Obstfeld; Alan M. Taylor
    Abstract: In our book, Global Capital Markets: Integration, Crisis, and Growth, we traced out the evolution of the international monetary system using the framework of the “international monetary trilemma”: countries can enjoy at most two from the set {exchange-rate stability, open capital markets, and domestic monetary autonomy}. The events of the past decade or more highlight the further complications for this framework posed by financial stability issues. Here we update and qualify our prior analysis, drawing on recent experience and research. Under the classical gold standard, scant attention was paid to macro management, either to stabilize output and employment or to ensure financial stability. The interwar years highlighted the changing demands for modern central bank interventions in the economy. Financial instability, followed by WWII, left a world with sharply constricted financial markets and little private cross-border capital mobility. Due to this historical accident, the Bretton Woods system agreed in 1944 focused not at all on financial stability, and focused on issues like adjustment, exchange rate misalignment, and international liquidity (defined in terms of official, not private, capital-account transactions). Post 1970s floating rates permitted, but did not require, liberalization of the capital account. But the political equilibrium had shifted in favor of financial interests, signaled by the push toward European integration and the later reform process in emerging markets starting in the 1990s. This development, however, opened the door once again to domestic financial crises and their international transmission. Countries now become more susceptible to a new species of “capital account crises,” fueled by bank and bond lending, and its sudden withdrawal. These developments, in fact, made evident a different, “financial trilemma”: countries can pick at most two from {financial stability, open capital markets, and autonomy over domestic financial policy}. We distill the main lessons as to the interactions between the monetary and financial trilemmas, and policies that could best address the resulting weaknesses.
    JEL: B1 E44 E50 E60 F30 F40 F62 F65 G01 N10 N20
    Date: 2017–05
  34. By: Victor Echevarria-Icaza (Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.); Simón Sosvilla-Rivero (Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.)
    Abstract: The divergence in sovereign yields has been presented as a reason for the lack of traction of monetary policy. We use a GVAR framework to assess the transmission of monetary policy in the period 2005-2016. We identify sovereign yield divergence as a key mechanism by which the leverage channel of monetary policy worked. Unconventional monetary policy was successful in mitigating this effect. When exploring the channels through which yields may affect the heterogeneous transmission of monetary policy, we find that the reaction of bank leverage depended substantially on where the sovereign yield originated, thus providing a mechanism that explains this heterogeneity. Second, large spillover effects meant that yield divergence decreased the traction of monetary policy even in anchor countries. Third, the heterogeneity in the transmission mechanism can be in part attributed to contagion from euro area wide sovereign stress. Fiscal credibility, therefore, may be an appropriate tool to enhance the output effect of monetary policy. Given the importance of spillovers, this credibility may be achieved by changes in the institutional make up and policies in the euro area.
    Keywords: Monetary policy; Spillovers; Euro area crisis.
    Date: 2017
  35. By: Drygalla, Andrej
    Abstract: Russian monetary policy has been challenged by large and continuous private capital outflows and a sharp drop in oil prices during 2014, with both ongoings having put a significant depreciation pressure on the ruble and having led the central bank to eventually give up its exchange rate management strategy. Against this background, this paper estimates a small open economy model for Russia, featuring an oil price sector and extended by a specification of the foreign exchange market to correctly account for systematic central bank interventions. We find that shocks to the oil price and private capital flows substantially affect domestic variables such as inflation, output and the exchange rate. Simulations of the model for the estimated actual strategy and five alternative regimes suggest that the vulnerability of the Russian economy to external shocks can substantially be lowered by adopting some form of an inflation targeting strategy. Foreign exchange intervention-based policy strategies to target the nominal exchange rate or the ruble price of oil, on the other hand, prove inferior to the policy in place.
    Keywords: monetary policy,exchange rate interventions,oil price,capital flows
    JEL: E52 F31 F41 G15
    Date: 2017
  36. By: Dennis Bonam; Gavin Goy
    Abstract: Under monetary union, economic dynamics may diverge across countries due to regional inflation differentials and a pro-cyclical real interest rate channel, yet stability is generally ensured through endogenous adjustment of the real exchange rate. The speed of adjustment depends, inter alia, on the way agents form expectations. We propose a model in which agents' expectations are largely based on domestic variables, and less so on foreign variables. We show that such home bias in expectations strengthens the real interest rate channel and causes country-specific shocks to generate larger and more prolonged macroeconomic imbalances.
    Keywords: monetary union; macroeconomic imbalances; home biased expectations; E-stability
    JEL: E03 F44 F45
    Date: 2017–05
  37. By: Isabelle Salle (Utrecht School of Economics - Utrecht University [Utrecht]); Pascal Seppecher (CEPN - Centre d'Economie de l'Université Paris Nord - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)
    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
    Date: 2017–05–25
  38. By: Liviu C. Andrei (National University of Political and Administration Sciences Bucharest, Faculty of Public Administration); Dalina Andrei (Economic Forecasting Institute, Romanian Academy)
    Abstract: We prefer to reconsider once again our larger paper published earlier, as we did it already for at least three of its revealed correlations: between nominal GDP and both monetary reserves and money supply (Andrei & Andrei 2014a, b) and between money multiplier and velocity (Andrei 2014), this time for something within our database (i.e. the Federal Reserves of Saint Lois State/FRED) that regards the inflation rate from nearby. Following our basic paper reference’s basics, inflation might be proper to both representative and fiat monies, but more deeply to the latter, although both monies again keep either the money supply and reserves as components. On the other hand, the same inflation is a so reach topic for theorists of all groups of thinking, e.g. there are some that identify it out of just money origins. This paper below tries to explain a monetary inflation mechanism in normal (out of crisis) environment.
    Keywords: inflation (rate), (required & excess) monetary reserves, Fed, cointegration, fiat money, money supply
    JEL: B1 C5 E5
    Date: 2017–01
  39. By: van den Berg, Gerard J. (University of Bristol); Gerdtham, Ulf-G. (Lund University); von Hinke Kessler Scholder, Stephanie (University of Bristol); Lindeboom, Maarten (Vrije Universiteit Amsterdam); Lissdaniels, Johannes (Lund University); Sundquist, Jan (Lund University); Sundquist, Kristina (Lund University)
    Abstract: There has been much interest recently in the relationship between economic conditions and mortality, with some studies showing that mortality is pro-cyclical whereas others find the opposite. Some sug-gest that the aggregation level of analysis (e.g. individual vs. regional) matters. We use both individual and aggregated data on a sample of 20-64 year-old Swedish men from 1993 to 2007. Our results show that the association between the business cycle and mortality does not depend on the level of analysis: the sign and magnitude of the parameter estimates are similar at the individual level and the aggregate (county) level; both showing pro-cyclical mortality.
    Keywords: unemployment, health, recession, death, income, aggregation
    JEL: E3 I1 I12
    Date: 2017–05
  40. By: Bonga-Bonga, Lumengo
    Abstract: This paper assesses which of the policy between fiscal, monetary and exchange rate policies can redress external imbalances in the three largest African countries, namely Nigeria, South Africa and Egypt. To this end, use is made of the panel vector autoregressive (PVAR) model to assess the dynamic effects of fiscal, monetary and exchange rate shocks mainly on the current account balances. The findings of the paper indicate that contrary to many emerging and developed economies the current account reacts to fiscal, monetary and exchange rate shocks in the three largest economies in Africa. More particular, the results of the empirical analysis show that the appreciation of the currency in the three economies lead to current account surplus. This is mainly attributed to the fact that most African economies have a high propensity to import with limited productive capacity for exports.
    Keywords: African economies, external imbalances, PVAR, macroeconomic policies
    JEL: C5 E60
    Date: 2017–05–29
  41. By: Ajay Chhibber (George Washington University); Akshata Kalloor (National Institute of Public Finance and Policy, New Delhi)
    Abstract: Private investment has slumped in India and its revival is vital for accelerating India’s growth rate on a sustained basis. This paper analyzes the determinants of aggregate private investment and its components corporate and non-corporate private investment for the period 1980-81 to 2013- 14. This paper finds that the key determinants of private investment are the size of the public sector capital stock, the real effective exchange rate, the output gap and the availability of credit to the private sector. So, higher public investment would crowd-in more private investment. When we break it down further private corporate investment is significantly explained by the real exchange rate and the availability of credit to the private sector whereas for non-corporate investment public capital stock is the most significant variable- as it crowds in private investment. Real interest rate has no significant effects on investment.
    Keywords: Private Investment, GDP growth, Public investment, Real Exchange rate, Credit to Private Sector, Non-performing loans (NPL’s), Fiscal Deficit, Public Sector Borrowing Requirement
    JEL: C32 E22 E27 H54
  42. By: Maïmouna DIAKITE; Jean-François BRUN (Centre d'Etudes et de Recherches sur le Développement International(CERDI)); Souleymane DIARRA; Nasser ARY TANIMOUNE
    Abstract: A main objective of the regional integration in West African Economic and Monetary Union (WAEMU) is the effective harmonization of national legislations at Community level notably tax legislation. To coordinate taxation in the zone, WAEMU Commission translates into Directives the Decisions taken by the Council of Ministers of the member states. The implementation of the Community acts by countries through tax reforms may impact on their revenue performance. This paper evaluates the impact of the Directives both in terms of coordination and revenue mobilization. It relies on a comparative case study using the synthetic control method developed by Abadie and Gardeazabal (2003) and extended by Abadie, Diamond, and Hainmueller (2010 & 2015). The main results are that the tax coordination affected the revenue mobilization in the Union but the impact is different across countries.
    Keywords: Tax, Tax coordination\harmonization, Tax reform, Synthetic control method, WAEMU.
    JEL: N21 E61 C02
    Date: 2017–06
  43. By: Oludele E. Folarin (Ibadan, Nigeria); Simplice Asongu (Yaoundé/Cameroun)
    Abstract: A stable money demand function is essential when using monetary aggregate as a monetary policy. Thus, there is need to examine the stability of the money demand function in Nigeria after the deregulation of the financial sector. To achieve this, the study employed CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests after using autoregressive distributive lag bounds test to determine the existence of a long run relationship between monetary aggregate and its determinant. Results of the study show that a long-run relationship holds and that the demand for money is stable in Nigeria. In addition, the inflation rate is found to be a better proxy for an opportunity variable when compared to interest rate. The main implication of the study is that interest rate is ineffective as a monetary policy instrument in Nigeria.
    Keywords: Stable; demand for money; bounds test
    JEL: E41 C22
    Date: 2017–06
  44. By: Rangan Gupta (University of Pretoria, Pretoria, South Africa); Chi Keung Marco Lau (Newcastle Business School, Northumbria University, Newcastle upon Tyne, UK); Stephen M. Miller (University of Nevada, Las Vegas, Las Vegas, Nevada, USA); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha, Omaha, USA and School of Business and Economics, Loughborough University, Leicestershire, UK)
    Abstract: Fiscal policy shocks exert wide-reaching effects, including movements in asset markets. U.S. politics have been characterized historically by a high degree of partisan conflict. The combination of increasing polarization and divided government leads not only to significant Congressional gridlock, but also to spells of high fiscal policy uncertainty. This paper adds to the literature on the relationships between fiscal policy and asset prices in the U.S. economy, conditional on the degree of partisan conflict. We analyze whether a higher degree of partisan conflict (legislative gridlock) reduces the efficacy of the effect and response of fiscal policy on and to asset price movements, respectively. We find that partisan conflict does not significantly affect the relationships between the fiscal surplus to GDP and housing and equity returns. Rather, if important, partisan conflict affects the actual implementation of fiscal policy actions.
    Keywords: Quantile structural VAR, fiscal policy, stock prices, house prices, partisan conflict
    JEL: C32 E62 G10 H30 R30
    Date: 2017–06
  45. By: Carmen Uzlau (Hyperion University, 169 Calea Calarasi, District 3, Bucharest, Romania); Cristina Burghelea (Hyperion University, 169 Calea Calarasi, District 3, Bucharest, Romania); Corina-Maria Ene (Hyperion University, 169 Calea Calarasi, District 3, Bucharest, Romania)
    Abstract: This article expose statistical lawfulness which is formed between gross domestic product growth based on the value of tangible assets (fixed) and the number of persons employed in the economy for 10 countries in Western and Central European Community. To achieve this knowledge we used econometric analysis methodology, identifies form and check equation model based on sustainability criteria aimed intensity correlation significance and residual variable parameter estimators. The study is customized for a number of 9 values which covers the period 2006-2014 and underlying multifactorial development of econometric models for each of the 10 individual states. The research also highlights the importance of gross domestic product as synthetic macroeconomic indicator dynamics registered in the time interval of two exogenous variables and influence the dynamics that shape distinctly for each state a certain tendency of growth.
    Keywords: gross domestic product, tangible assets (fixed), employment, econometric model
    JEL: E24 F22
    Date: 2017–01
  46. By: Joshua Aizenman; Yothin Jinjarak; Gemma Estrada; Shu Tian
    Abstract: The pronounced and persistent impact of the global financial crisis of 2008 motivates our empirical analysis of the role of institutions and macroeconomic fundamentals on countries’ adjustment to shocks. Our empirical analysis shows that the associations of growth level, growth volatility, shocks, institutions, and macroeconomic fundamentals have changed in important ways after the crisis. GDP growth across countries has become more dependent on external factors, including global growth, global oil prices, and global financial volatility. After accounting for the effects global shocks, we find that several factors facilitate adjustment to shocks in middle income countries. Education attainment, share of manufacturing output in GDP, and exchange rate stability increase the level of economic growth, while exchange rate flexibility, education attainment, and lack of political polarization reduce the volatility of economic growth. Countries cope with shocks better in the short to medium term by using appropriate policy tools and having good long-term fundamentals.
    JEL: E02 F43
    Date: 2017–06
  47. By: Hrvoje Šimović (Faculty of Economics and Business, University of Zagreb)
    Abstract: This paper analyses the impact of public debt level and (un)sustainability on fiscal spending effectiveness in Croatia. Public debt sustainability is analyzed using standard indicators of fiscal vulnerability and fiscal stability, accompanied with identification of regime changes in the public debt trajectory. Public debt sustainability analysis is used to analyze trends and tendencies, as well as to indicate periods of fiscal unsustainability in Croatia in period from 2001 to 2015. Using switching regression and SVAR approach it is also empirically tested how public debt level affects the effectiveness of fiscal policy in Croatia in the same period. Results show a negative impact of recession on public debt sustainability and confirm the main thesis that public debt level significantly affects and reduces the effectiveness of fiscal policy in Croatia.
    Keywords: public debt, fiscal policy, Croatia
    JEL: H68 H50 E62
    Date: 2017–05–30
  48. By: Sebastian Gechert; Gustav A. Horn; Christoph Paetz
    Abstract: We analyze whether there are negative (positive) long-term effects of austerity measures (stimulus measures) on potential output growth. Based on the approach of Blanchard and Leigh (2013) and Fatás and Summers (2016) and using a novel dataset of narratively identified fiscal policy shocks, we estimate the impact of these shocks on potential output. We robustly find strong and persistent long-run multiplier effects for most European Countries in the early years after the financial crisis and subsequent Euro Area crisis. We conclude that early stimulus was beneficial even in the long-run, while the subsequent turn to austerity was badly timed and thus not only deepened the crisis but caused evitable hysteresis effects.
    Keywords: Fiscal Consolidation; Fiscal Multipliers; Forecast Errors; Hysteresis
    JEL: E62 H68
    Date: 2017
  49. By: Mohaddes, K.; Raissi, M.; Weber, A.
    Abstract: This paper examines whether a tipping point exists for real GDP growth in Italy above which the ratio of non-performing loans (NPLs) to total loans falls significantly. Estimating a heterogeneous dynamic panel-threshold model with data on 17 Italian regions over the period 1997.2014, we provide evidence for the presence of growth-threshold effects on the NPL ratio in Italy. More specifically, we and that real GDP growth above 1.2 percent, if sustained for a number of years, is associated with a significant decline in the NPLs ratio. Achieving such growth rates requires decisively tackling long-standing structural rigidities and improving the quality of fiscal policy. Given the modest potential growth outlook, however, under which banks are likely to struggle to grow out of their NPL overhang, further policy measures are needed to put the NPL ratio on a firm downward path over the medium term.
    Keywords: Italy, non-performing loans, real output growth, panel tests of threshold effects.
    JEL: C23 E44 G33
    Date: 2017–06–17
  50. By: Meier, Jan-Hendrik; Boysen-Hogrefe, Jens; Spoida, Verena K.
    Abstract: Der vorliegende Beitrag untersucht makroökonomische Determinanten von Mergerwellen in Deutschland und dient damit u.a. der Identifikation von Spekulationsblasen. Verschiedene Einflussgrößen werden mittels Vektorautoregression überprüft und die Gültigkeit vorherrschender Theorien für Deutschland verifiziert. Die Entwicklung des DAX und des Zinsniveaus haben einen signifikanten Einfluss auf die Transaktionsanzahl. Weiterhin können Herdenverhalten und Übertreibungen nach Schockereignissen gezeigt werden.
    Keywords: M&A-Wellen,Vektorautoregression,Zins,Bruttoinlandsprodukt
    JEL: E44 G34
    Date: 2017
  51. By: Daniel Baksa (Institute of Economics, Research Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Central European University); István Konya (Institute of Economics - Centre for Economic and Regional Studies, Hungarian Academy of Sciences and Central European University)
    Abstract: This paper views the growth and convergence process of the four Visegrad economies - the Czech Republic, Hungary, Poland and Slovakia - through the lens of the open economy, stochastic neoclassical growth model. We use a unified framework to understand both the long-run convergence path and fluctuations around it. Our empirical exercise highlights both the role of initial conditions such as indebtedness and capital intensity, and random shocks in the growth process. In particular, we explore the importance of the external interest rate premium, and its role in driving investment and the trade balance.
    Keywords: stochastic growth, technology shocks, interest premium, small open economy, Bayesian estimation
    JEL: E13 O11 O41 O47
    Date: 2017–04
  52. By: François Gardes (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: The Nobel prize which has been awarded to Angus Deaton in 1995 proved his exceptional contribution to applied microeconomics, microeconometric methods and development studies. The four books he published offer a large view on these domains and prove the importance taken vy new statistical methods and data in applied micro- and macroeconomics
    Keywords: consumption; microeconomics; microeconometrics; permanent income; saving; inequality; development; pseudo panel; time-series of cross-sections
    JEL: A13 C01 C21 C55 C81 D11 D14 D31 E31 H31 I15 I31 I32 N30 O12
    Date: 2017–05
  53. By: Klovland, Jan Tore (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: During World War I ocean freight rates rose to extraordinary levels. Using a new monthly dataset it is shown that freight rates can be well explained by economic activity, commodity prices, war risk and world tonnage in the period 1912 to 1916. In the first two years of the war part of the British merchant fleet was directly controlled by the Government but neutral shipping was basically free to operate as normal. In this period neutral shipping accounted for about one third of British imports. In the final two years of the war a much stricter regime of freight control was introduced that resulted in the withdrawal of a large proportion of neutral shipowners from British and Allied trade. Together with the mounting losses of tonnage due to the German submarine campaign this created an acute shortage of carrying capacity and reduced imports. It is argued that the policy of freight control may have rested on a misconception of the role of freight rates as a source of the high wartime in ation.
    Keywords: Freight; rates
    JEL: E31 N14 N74
    Date: 2017–05–25
  54. By: Ignacio Álvarez (Departamento de Estructura Económica y Economía del Desarrollo, Universidad Autónoma de Madrid. Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.); Jorge Uxó (Departamento de Análisis Económico y Finanzas, Universidad de Castilla – La Mancha. Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.); Eladio Febrero (Departamento de Análisis Económico y Finanzas, Universidad de Castilla – La Mancha. Instituto Complutense de Estudios Internacionales (ICEI). Universidad Complutense de Madrid.)
    Abstract: The aim of this paper is to use the theoretical distinction between wage-led and profit-led economies to consider the impact of internal devaluation policy on GDP growth for the case of Spain. We assess to what extent wage devaluation in Spain has proven useful vis-à-vis triggering an exportled strategy, boosting aggregate demand and overcoming the crisis. For said purpose, we estimate a Bhaduri-Marglin model drawing on quarterly data from Eurostat, and we expand the traditional model to take into account the effect of private debt on consumption and investment. Our main conclusion is that the Spanish economy can be characterized as a wage-led economy, and that therefore a wage share decrease proves counterproductive to growth. According to our calculations, internal devaluation policy detracted an average of 0.3 percentage points of annual economic growth during the period 2010-2016.
    Keywords: Distribution; Demand; Wage share; Bhaduri-Marglin model; Debt
    Date: 2017
  55. By: Anna Thum-Thysen; Erik Canton
    Abstract: In this paper we estimate mark-ups and their association with product market regulations (PMR) in professional services sectors using the Orbis firm-level database for 13 EU member states. We will concentrate on engineering and accounting. Results indicate a significant effect of PMR on mark-ups, which confirms findings based on sectoral data (cf. Thum-Thysen and Canton, 2015) but a more granular analysis on the firm level gives additional insights. Compared to estimates of mark-ups based on sectoral data, the mark-up levels in the two analysed sectors using firm-level data are found to be higher. This may be due to a more granular sectoral definition, only covering regulated professions, where firms can gain market power and charge higher mark-ups. The new empirical findings could be useful for the analytical work on estimating the impact of structural reforms.
    JEL: D40 E31 L51
    Date: 2017–05
  56. By: Mihaela Simionescu (Institute for Economic Forecasting of the Romanian Academy)
    Abstract: This paper brings as novelty for the Romanian literature the construction of Bayesian forecast intervals for inflation and unemployment rate in the period 2004-2017. Only few intervals included the registered values on the variables, but in the last stage when all the prior information has been used, the forecast intervals are very short. On the other hand, a novelty for the international literature is brought in this research by proposing a Bayesian technique for assessing prediction intervals in a better way than in the traditional approach that uses statistic tests.
    Keywords: forecast interval, Bayesian interval, inflation, unemployment
    JEL: C11 C13 C53 E37
    Date: 2017–05
  57. By: Balázs Égert (OECD)
    Abstract: This paper investigates the relationship linking investment (capital stock) and structural policies. Using a panel of 32 OECD countries from 1985 to 2013, we show that more stringent product and labour market regulations are associated with less investment (lower capital stock). The paper also sheds light on the existence of non-linear effects of product and labour market regulation on the capital stock. Several alternative testing methods show that the negative influence of product and labour market regulation is considerably stronger at higher levels. The paper uncovers important policy interactions between product and labour market policies. Higher levels of product market regulations (covering state control, barriers to entrepreneurship and barriers to trade and investment) tend to amplify the negative relationships between product and labour market regulations and the capital stock. Equally important is the finding that the rule of law and the quality of (legal) institutions alters the overall impact of regulations on capital deepening: better institutions reduce the negative effect of more stringent product and labour market regulations on the capital stock, possibly through the reduction of uncertainty as regards the protection of property rights.
    Keywords: aggregate investment, capital deepening, labour market regulation, product market regulation, structural policy
    JEL: A23 C13 C51 E24 L43 L51
    Date: 2017–06–08
  58. By: John P. Conley (Vanderbilt University)
    Abstract: Blockchain startups have embraced initial coin offerings (ICOs) as a vehicle to raise early capital. The crypto-tokens offered in these sales are intended to fill a widely varied set of roles on different platforms. Some tokens are similar to currencies, others are more like securities, and others have properties that are entirely new. Each company's technological vision calls for a token with unique properties and uses. The main point of this paper is that designing a successful token must take into account certain aspects of monetary theory, financial economics, and game theory. Failing to do so can put an otherwise excellent project at risk. We also explore what economics tells us about how to assess the value of tokens offered for sale, how startups should structure their ICOs, and what the implications of assigning various roles to tokens on a platform might be.
    Keywords: Blockchain, Crypto-tokens, Cryptocurrency, Initial Coin Offering, Bitcoin, KYC, AML, ICO
    JEL: E5 G1
    Date: 2017–06–06
  59. By: Antonia Lopez-Villavicencio; Valérie Mignon
    Abstract: This paper assesses the impact of globalization on exchange rate pass-through (ERPT) into import prices in three core eurozone countries. To this end, we consider various indicators of globalization and rely on both aggregated (i.e., country level) and disaggregated (i.e., good level) data. Using quarterly data since 1992, we do not find compelling evidence that global factors cause a structural change in the degree of exchange rate pass-through. Indeed, increased trade openness or lower trade tariffs push up ERPT in some sectors, though results are quite sparse. However, regionalization, defined as a higher proportion of intra-EU imports' share in total imports, reduces the pass-through in a more generalized way. Most importantly, we show that ERPT incompleteness generally observed in the literature is in appearance only and not at play when intra-EU trade is controlled for. Overall, our findings show that ERPT is complete and significant in numerous sectors, meaning that exchange rate changes still exert important pressure on domestic prices.
    Keywords: Exchange rate pass-through;Import prices;Globalization;Eurozone
    JEL: E31 F31 F4 C22
    Date: 2017–06
  60. By: Renee A-Jaoudi; Richard K. Abrams
    Abstract: Summary
    Keywords: A to E staff;
    Date: 2016–08–31
  61. By: Victor Olkhov
    Abstract: This paper models macro financial variables alike to financial fluids with local interactions and describes surface-like waves of Investment and Profits. We regard macro-finance as ensemble of economic agents and use their risk ratings as coordinates on economic space. Aggregations of agent's financial variables with risk coordinates x on economic space define macro financial variables as function of x. We describe evolution and interactions between macro financial variables alike to financial fluids by hydrodynamic-like equations. Minimum and maximum risk grades define most secure and most risky agents respectively. That determines borders of macro-finance domain that is filled by economic agents. Perturbations of agent's risk coordinates near risk borders of macro domain cause disturbances of macro financial variables like Investment and Profits. Such disturbances can generate waves that propagate along risk borders. These waves may exponentially amplify perturbations inside of macro domain and impact financial sustainability. We study simple model Investment and Profits and describe linear approximation of steady state distributions of Investment and Profits on macro-finance domain that fulfill dreams of Investors: "more risks-more Profits". We describe Investment and Profits waves on risk border of economic space alike to surface waves in fluids. We present simple examples that specify waves as possible origin of time fluctuations of macro financial variables. Description of possible steady state distributions of macro financial variables and financial risk waves on economic space could help for better policy-making and managing sustainable macro-finance.
    Date: 2017–05
  62. By: John P. Conley (Vanderbilt University)
    Abstract: The major advantages of blockchain based cryptocurrencies are the independent verifiability of transactions and the anonymity that they allow. Blockchains can also process transactions at much lower cost than banks and credit card companies. On the other hand, the value of cryptocurrencies is quite volatile. In addition, the crypto-ecosystem is not easy to access for many less technologically savvy consumers and it is especially difficult to make financial connections to the outside world. These factors limit the utility of cryptocurrencies as a store of value and a medium of exchange, respectively. This paper proposes the creation of CryptoBucks, a cryptocurrency backed 100% by dollars. CryptoBucks solve the problem of volatility and offer various levels of privacy and anonymity depending on how the system is implemented.
    Keywords: Blockchain, Cryptocurrency, Tokenization, Fiat Currency, AML, KYC, PPK, PKI, Encryption, Bitcoin
    JEL: E5 G1
    Date: 2017–06–06
  63. By: Paola Cerchiello (Department of Economics and Management, University of Pavia); Giancarlo Nicola (Department of Economics and Management, University of Pavia)
    Abstract: The analysis of news data in the financial context has gained a prominent interest in the last years. This because of the possible predictive power of such content especially in terms of associated sentiment/mood. In this paper we focus on a specific aspect of financial news analysis: how the covered topics modify according to space and time dimensions. To this purpose, we employ a modified version of topic model LDA, the so called Structural Topic Model (STM), that takes into account covariates as well. Our aim is to study the possible evolution of topics extracted from two well known news archive - Reuters and Bloomberg - and to investigate a causal effect in the diffusion of the news by means of a Granger causality test. Our results show that both the temporal dynamics and the spatial differentiation matter in the news contagion.
    Keywords: behavioural finance, financial news, structural topic model, Granger causality.
    JEL: C83 C12 E58 E61 G02 G14
    Date: 2017–05
  64. By: Gosselin, Pierre; Lotz, Aïleen; Wambst, Marc
    Abstract: This paper presents an analytical treatment of economic systems with an arbitrary number of agents that keeps track of the systems’ interactions and complexity. The formalism does not seek to aggregate agents: it rather replaces the standard optimization approach by a probabilistic description of the agent’s behavior. This is done in two distinct steps. A first step considers an interaction system involving an arbitrary number of agents, where each agent's utility function is subject to unpredictable shocks. In such a setting, individual optimization problems need not be resolved. Each agent is described by a time-dependent probability distribution centered around its utility optimum. The whole system of agents is thus defined by a composite probability depending on time, agents' interactions, relations of strategic dominations, agents' information sets and expectations. This setting allows for heterogeneous agents with different utility functions, strategic domination relations, heterogeneity of information, etc. This dynamic system is described by a path integral formalism in an abstract space -- the space of the agents' actions -- and is very similar to a statistical physics or quantum mechanics system. We show that this description, applied to the space of agents' actions, reduces to the usual optimization results in simple cases. Compared to the standard optimization, such a description markedly eases the treatment of a system with a small number of agents. It becomes however useless for a large number of agents. In a second step therefore, we show that, for a large number of agents, the previous description is equivalent to a more compact description in terms of field theory. This yields an analytical, although approximate, treatment of the system. This field theory does not model an aggregation of microeconomic systems in the usual sense, but rather describes an environment of a large number of interacting agents. From this description, various phases or equilibria may be retrieved, as well as the individual agents’ behaviors, along with their interaction with the environment. This environment does not necessarily have a unique or stable equilibrium and allows to reconstruct aggregate quantities without reducing the system to mere relations between aggregates. For illustrative purposes, this paper studies several economic models with a large number of agents, some presenting various phases. These are models of consumer/producer agents facing binding constraints, business cycle models, and psycho-economic models of interacting and possibly strategic agents.
    Keywords: path integrals; statistical field theory; phase transition; non trivial vacuum; effective action; Green function; correlation functions; business cycle; budget constraint; aggregation; forward-looking behavior; heterogeneous agents; multi-agent model; strategical advantage; interacting agents; psycho-economic models; integrated structures; emergence.
    JEL: C02 C60 E00 E1
    Date: 2017–05–31
  65. By: Schmitt, Noemi; Tuinstra, Jan; Westerhoff, Frank
    Abstract: We develop a partial equilibrium model in which firms can locate in two separate regions. A firm's decision where to locate in a given period depends on the regions' relative profitability. If firms react strongly to the regions' relative profitability, their market switching behavior generates unstable dynamics. If the goal of policy makers is to stabilize these dynamics they can do so by introducing profit taxes that reduce the regions' relative profitability. While stability can already be obtained by imposing profit taxes in one of the two regions, total welfare is maximized if policy makers coordinate their tax setting behavior across regions. However, policy makers only interested in welfare in their own region may have the incentive to decrease their profit tax below this level, thereby attracting more firms and increasing tax revenues, at the cost of instability in both regions.
    Keywords: market interactions,evolutionary dynamics,profit taxes,policy coordination,welfare effects,stability analysis
    JEL: D83 E30 H20
    Date: 2017
  66. By: Chaoran Chen
    Abstract: Cross-country differences in capital intensity are larger in agriculture than in the non-agricultural sector. I build a two-sector model featuring technology adoption in agriculture. As the economy develops, farmers gradually adopt modern capital-intensive technologies to replace traditional labor-intensive technologies, as is observed in the U.S. historical data. Using this model, I find that technology adoption is key to explaining lower agricultural capital intensity and labor productivity in poor countries. By allowing for technology adoption, my model can explain 1.56-fold more in rich-poor agricultural productivity differences. I further show that land misallocation impedes technology adoption and magnifies productivity differences.
    Keywords: Agricultural Productivity, Technology Adoption, Capital Intensity, Misallocation.
    JEL: E13 O41 Q12 Q16
    Date: 2017–06–05
  67. By: Anastasiou, Dimitrios
    Abstract: The objective of this research is to empirically examine if both credit and business cycle affect the ex-post credit risk (i.e. non-performing loans) in the banking system of Italy. My sample includes 47 Italian banks for the period 1995Q1-2015Q1. The increase in NPLs post-2008 has put into question the robustness of many European banks and the stability of the whole sector. It still remains a serious challenge, especially in Italy which is one of the countries that has been hit by the financial crisis more than other economies. By employing Fixed Effects, Random Effects and GMM as econometric methodologies I find a positive (negative) association between credit cycle (business cycle) and NPLs. Higher NPLs in Italy are due to adverse macroeconomic conditions (i.e. downward phase of the business cycle) and due to excess credit (i.e. upward phase of the credit cycle). Another important finding is that the Italian NPLs have a symmetric sensitivity between both business and credit cycle. Such findings may be helpful for both senior bank loan officers and policy makers when designing macro-prudential as well as NPL resolution policies.
    Keywords: Non-performing loans; Ex-post credit risk; Business cycle; Credit cycle; Macro-prudential policy; Italian Banks.
    JEL: C23 C51 E3 G0 G1 G2
    Date: 2017–05

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