nep-mac New Economics Papers
on Macroeconomics
Issue of 2017‒06‒18
78 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  2. Macroeconomic Implications of Oil Price Fluctuations : A Regime-Switching Framework for the Euro Area By Fédéric Holm-Hadulla; Kirstin Hubrich
  3. What Explains Month-End Funding Pressure in Canada? By Christopher S. Sutherland
  4. Monetary policy and wandering overinvestment cycles in East Asia and Europe By Schnabl, Gunther
  5. Nonneutrality of Money in Dispersion: Hume Revisited By Jin, Gu; Zhu, Tao
  6. Revisiting the macroeconomic effects of labor reallocation By Emmanouil Gkiourkas; Theodore Panagiotidis; Gianluigi Pelloni
  7. Monetary Polica and Currency Returns: the Foresight Saga By Borisenko, Dmitry; Pozdeev, Igor
  8. The financial stability dark side of monetary policy By Piergiorgio Alessandri; Antonio Maria Conti; Fabrizio Venditti
  9. Monetary-fiscal interactions and the euro area's malaise By Jarociński, Marek; Maćkowiak, Bartosz
  10. Cyclical Job Ladders by Firm Size and Firm Wage By John Haltiwanger; Henry Hyatt; Lisa B. Kahn; Erika McEntarfer
  11. International spillovers in global asset markets By Ansgar Belke; Irina Dubova
  12. International spillovers in global asset markets By Belke, Ansgar; Dubova, Irina
  13. Wirtschaftsethische Überlegungen zur Finanz- und Eurokrise By Dilger, Alexander
  14. Government spending, GDP and exchange rate in Zero Lower Bound: measuring causality at multiple horizons By MAO TAKONGMO, Charles Olivier
  15. The interbank network across the global financial crisis: evidence from Italy By Massimiliano Affinito; Alberto Franco Pozzolo
  16. Illiquid Collateral and Bank Lending during the European Sovereign Debt Crisis By J. Barthélemy; V. Bignon; B. Nguyen
  17. Financial Development and Monetary Policy Effectiveness in Africa By Effiong, Ekpeno; Esu, Godwin; Chuku, Chuku
  18. Nominal exchange rate shocks and inflation in an open economy: towards a structuralist inflation targeting agenda By Eduardo F. Bastian; Mark Setterfield
  19. The international dimensions of macroprudential policies By Pierre-Richard Agénor; Enisse Kharroubi; Leonardo Gambacorta; Giovanni Lombardo; Luiz Awazu Pereira da Silva
  20. Association between inflation rates and inflation uncertainty in quantile regression By Alimi, R. Santos
  21. The impact of uncertainty on macro variables - An SVAR-based empirical analysis for EU countries By Ansgar Belke; Dominik Kronen
  22. Uncertainty and the Great Recession By Born, Benjamin; Breuer, Sebastian; Elstner, Steffen
  23. When Inequality Matters for Macro and Macro Matters for Inequality By SeHyoun Ahn; Greg Kaplan; Benjamin Moll; Thomas Winberry; Christian Wolf
  24. Total Factor Productivity Convergence in German States since Reunification: Evidence and Explanations By Burda, Michael C; Severgnini, Battista
  25. Fiscal Policy and Aggregate Demand in the U.S. Before, During and Following the Great Recession By David B. Cashin; Jamie Lenney; Byron F. Lutz; William B. Peterman
  26. A re-examination of growth and growth uncertainty relationship in a stochastic volatility in mean model with time-varying parameters By Mehmet Balcilar; Zeynel Abidin Ozdemir
  27. The collateral channel of unconventional monetary policy By Giuseppe Ferrero; Michele Loberto; Marcello Miccoli
  28. Three essays in applied macroeconomics and time series analysis By Abi Morshed, Alaa
  29. What Role Did Rising Demand Play in Driving Food Prices Up? By Sen Gupta, Abhijit; Bhattacharya, Rudrani
  30. Did quantitative easing boost bank lending? The Slovak experience. By Lojschova, Adriana
  31. Fiscal Options for Absorbing a Windfall of Natural Resource Revenues – A CGE Model of Oil Discovery in Uganda By Thomas McGregor
  32. Monetary and Fiscal Policy in England during the French Wars (1793-1821) By P. Antipa; C. Chamley
  33. Macroprudential Policy Coordination in a Currency Union' By Pierre-Richard Agénor; Pengfei Jia
  34. Credit imperfections, labor market frictions and unemployment: a DSGE approach By Imen Ben Mohamed; Marine Salès
  35. Hungary; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Hungary By International Monetary Fund
  36. The shifting drivers of global liquidity By Stefan Avdjiev; Leonardo Gambacorta; Linda Goldberg; Stefano Schiaffi
  37. The Private Production of Safe Assets By Kacperczyk, Marcin; Perignon, Christophe; Vuillemey, Guillaume
  38. Sorting when firms have size By GORYUNOV, Maxim
  39. Irrungen und Wirrungen im Umfeld der Geldtheorie: Wohin einseitige Darstellungen der Zentralbanken führen By Quaas, Georg
  40. Non-Work at Work, Unemployment and Labor Productivity By Burda, Michael C; Genadek, Katie R.; Hamermesh, Daniel S.
  41. The exchange rate susceptibility of European core industries, 1995-2010 By Leuwer, David; Süßmuth, Bernd
  42. Disinflation, External Vulnerability, and Fiscal Intransigence; Some Unpleasant Mundellian Arithmetic By Evan C Tanner
  43. Mongolia; 2017 Article IV Consultation and Request for an Extended Arrangement Under the Extended Fund Facility-Press Release: Staff Report; and Statement by the Executive Director for Mongolia By International Monetary Fund
  44. Is the Effect of Income on Democracy Heterogeneous? By Hugo J. Faria; Hugo M. Montesinos-Yufa
  45. Shale and the US Economy: Three Counterfactuals By Arora, Vipin
  46. Follow the money: Does the financial sector intermediate natural resources windfalls? By Thorsten Beck; Steven Poelhekke
  47. Romania; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Romania By International Monetary Fund
  48. How multiplicative uncertainty affects the tradeoff between information disclosure and stabilisation policy? By Meixing Dai; Moïse Sidiropoulos
  49. Estimating the Threshold Level of Inflation for Thailand By Jiranyakul, Komain
  50. Greece and the Troika: Lessons from international best practice cases of successful price (and wage) adjustment By Belke, Ansgar; Gros, Daniel
  51. The Matching Degree between Financial Structure and Technical Level and Economic Development By Ye, Dezhu; Deng, Jie; Zeng, Fanqing
  52. Samoa; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Samoa By International Monetary Fund
  53. Greece and the Troika – Lessons from international best practice cases of successful price (and wage) adjustment By Ansgar Belke; Daniel Gros
  54. Household spending out of a tax rebate: Italian “€80 tax bonus” By Andrea Neri; Concetta Rondinelli; Filippo Scoccianti
  55. 資本財の異質性と取得形態別投資行動-新設,中古,大規模修繕- By 外木, 好美; 中村, 純一; 浅子, 和美
  56. Sorting Between and Within Industries: A Testable Model of Assortative Matching By John M. Abowd; Francis Kramarz; Sebastien Perez-Duarte; Ian M. Schmutte
  57. Volume of the steady-state space of financial flows in a monetary stock-flow-consistent model By Aurélien Hazan
  58. "Seeking price and macroeconomic stabilisation in the euro area: The role of house prices and stock prices" By Imran Hussain Shah; Simón Sosvilla-Rivero
  59. "Countercyclical Labor Productivity: The Spanish Anomaly" By Borja Jalón; Simón Sosvilla-Rivero; José A. Herce
  60. New Zealand: Financial Sector Assessment Program; Technical Note-Macroprudential Institutional Framework and Policies By International Monetary Fund
  61. A study of long- run theoretical relationship between ASEAN stock market indices and developed stock market indices of US and Japan By Majeed, Ayesha; Masih, Mansur
  62. Does Inflation Cause Gold Prices? Evidence from G7 Countries By Mehmet Balcilar; Zeynel Abidin Ozdemir; Muhammad Shahbaz; Serkan Gunes
  63. Risks and opportunities of establishing a European Monetary Fund based on the European Stability Mechanism By Matthes, Jürgen
  64. Why Have Interest Rates Fallen far Below the Return on Capital By M. Marx; B. Mojon; F. Velde
  65. UK Infrastructure Investment and Finance from a European and Global Perspective By Inderst, Georg
  66. Monthly Report No. 12/2016 By Vasily Astrov; Rumen Dobrinsky; Julia Grübler; Leon Podkaminer
  67. Kyrgyz Republic; Third Review Under the Three-Year Arrangement Under the Extended Credit Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report By International Monetary Fund
  68. How Have the Fed's Three Rate Hikes Passed Through to Selected Short-term Interest Rates? By Alyssa G. Anderson; Jane E. Ihrig; Mary-Frances Styczynski; Gretchen C. Weinbach
  69. Policy Uncertainty in Japan By Elif C Arbatli; Steven J Davis; Arata Ito; Naoko Miake; Ikuo Saito
  70. Monetary Policy Transmission in a Macroeconomic Agent-Based Model By Schasfoort, Joeri; Godin, Antoine; Bezemer, Dirk; Caiani, Alessandro; Kinsella, Stephen
  71. The nexus between the oil price and its volatility in a stochastic volatility in mean model with time-varying parameters By Mehmet Balcilar; Zeynel Abidin Ozdemir
  72. Approximating Multisector New Keynesian Models By Carvalho, Carlos; Nechio, Fernanda
  73. Togo; 2016 Article IV Consultation and Request for a Three-Year Arrangement Under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Togo By International Monetary Fund
  74. The Algebraic Galaxy of Simple Macroeconomic Models; A Hitchhiker’s Guide By Evan C Tanner
  75. Thailand; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Thailand By International Monetary Fund
  76. The Impact of Lead Time on Capital Investments By Talat S. Genc
  77. Algeria; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Algeria By International Monetary Fund
  78. Does Partisan Conflict Predict a Reduction in US Stock Market (Realized) Volatility? Evidence from a Quantile-on-Quantile Regression Model By Rangan Gupta; Christian Pierdzioch; Refk Selmi; Mark E. Wohar

  1. By: Ahmet F. Aysan; Mustafa Disli; Huseyin Ozturk (-)
    Abstract: We examine the interest rate sensitivity of both deposits and credits at Islamic and con- ventional banks in Turkey. We find that the bank lending channel is especially operative for Islamic banks. Impulse responses for conventional and Islamic banks reveal that Islamic bank depositors’ sensitivity to policy rate changes are substantially larger than that of con- ventional bank depositors. Next to heavily dependence on deposit funding, we consider that inertia in Islamic bank deposit rates impedes these banks to keep those depositors who con- sider the opportunity cost of monetary policy rates is unbearable. At the lending side, we obtain similar results, implying that tight monetary policy leads to a larger contraction in Islamic bank credits. This finding is a reflection of the favorable attitude of Islamic banks towards SME financing. When similar relationships are analysed for currency and inflation shocks, we again find larger responses for Islamic banks showing the cyclical nature of SME credits.
    Keywords: Lending channel, Monetary transmission, Islamic banks, SMEs
    JEL: E44 E51 E52 G21
    Date: 2017–05
  2. By: Fédéric Holm-Hadulla; Kirstin Hubrich
    Abstract: We investigate whether the response of the macro-economy to oil price shocks undergoes episodic changes. Employing a regime-switching vector autoregressive model we identify two regimes that are characterized by qualitatively different patterns in economic activity and inflation following oil price shocks in the euro area. In the 'normal regime', oil price shocks trigger only limited and short-lived adjustments in these variables. In the 'adverse regime', by contrast, oil price shocks are followed by sizeable and sustained macroeconomic fluctuations, with inflation and economic activity moving in the same direction as the oil price. The responses of inflation expectations and wage growth point to second-round effects as a potential driver of the dynamics characterizing the adverse regime. The systematic response of monetary policy works against such second-round effects in the 'adverse regime' but is insufficient to fully offset them. The model also delivers (conditional) probabilities for being (staying) in either regime, which may help interpret oil price fluctuations -- and inform deliberations on the adequate policy response -- in real-time.
    Keywords: Regime Switching models ; Inflation ; Inflation expectations ; Oil prices ; Time-varying transition probabilities
    JEL: E31 E52 C32
    Date: 2017–06
  3. By: Christopher S. Sutherland
    Abstract: The Canadian overnight repo market persistently shows signs of latent funding pressure around month-end periods. Both the overnight repo rate and Bank of Canada liquidity provision tend to rise in these windows. This paper proposes three non-mutually exclusive hypotheses to explain this phenomenon. First, month-end funding pressure may be caused by search frictions. Market participants place a premium on liquidity around month-end periods because of the confluence of a generalized liquidity preference, heightened month-end forecast uncertainty, and resultant search frictions in the repo market. Second, this funding pressure could be attributed to spillovers from the US overnight repo market. Third, month-end funding pressure might be associated with large Canadian banks’ end-of-month repo adjustments. By combining market, central-bank and payments data, this paper provides evidence that the first hypothesis explains the latent funding pressure observed on the first day of the month. Using market and non-public regulatory data, this paper further argues that the second and third hypotheses are much less plausible.
    Keywords: Financial markets, Interest rates, Monetary policy framework, Monetary policy implementation, Transmission of monetary policy
    JEL: E41 E43 E52 E58 F36 G15 G14 G21
    Date: 2017
  4. By: Schnabl, Gunther
    Abstract: The paper analyses the role of monetary policy for cyclical movements of investment and asset markets in East Asia and Europe based on a Mises-Hayek overinvestment framework. It is shown how the gradual global decline of interest rates has triggered wandering overinvestment cycles in Japan, Southeast Asia and China. Similarly, it is shown how a one-size monetary policy within the European Monetary Union has not preserved the European Monetary Union from idiosyncratic economic development and crisis because of uncoordinated fiscal policies. With monetary policy crisis management being argued to impede financial and economic restructuring, a timely exit from ultra-expansionary monetary policies is recommended for both East Asia and Europe to reconstitute economic stability and growth.
    Keywords: Hayek,Mises,East Asia,European Monetary Union,monetary overinvestment theory,fiscal policy,asymmetric shocks,secular stagnation
    JEL: E52 E58 F42 E63
    Date: 2017
  5. By: Jin, Gu; Zhu, Tao
    Abstract: For a class of standard and widely-used preferences, a one-shot money injection in a standard matching model can induce a significant and persistent output response by dispersing the distribution of wealth. Decentralized trade matters for both persistence and significance. In the presence of government bonds the injection has a liquidity effect and the inflation rate right following the injection may be below the steady-state rate level.
    Keywords: Nonneutrality, Money Injection, Phillips Curve, Nominal Rigidity
    JEL: E31 E40 E5 E50
    Date: 2017–06–05
  6. By: Emmanouil Gkiourkas (Department of Economics, University of Macedonia, Greece); Theodore Panagiotidis (Department of Economics, University of Macedonia, Greece; The Rimini Centre for Economic Analysis); Gianluigi Pelloni (The Rimini Centre for Economic Analysis; Department of Economics, Wilfrid Laurier University, Canada; Department of Economics, University of Bologna, Italy)
    Abstract: We revisit the macroeconomic effects of labor reallocation within the framework of Campbell and Kuttner (1996). We re-estimate their model, update the sample, and employ generalized and local impulse response functions. We confirm that total employment responses to reallocation shocks remain significant.
    Keywords: labor reallocation, unemployment, sectoral shifts
    JEL: C32 C50 E24
    Date: 2017–06
  7. By: Borisenko, Dmitry; Pozdeev, Igor
    Abstract: We document a drift in exchange rates before monetary policy changes across major economies. Currencies tend to depreciate by 0.7 percent over ten days before policy rate cuts and appreciate by 0.5 percent before policy rate increases. We show that available fixed income instruments allow to accurately forecast monetary policy decisions and thus that the drift is foreseeable and exploitable by investors. A simple trading strategy buying currencies against USD ten days ahead of predicted local interest rate hikes and selling currencies before predicted cuts earns on average a statistically significant return of 42 basis points per ten-day period. We further demonstrate that this return is robust to the choice of holding horizon and monetary policy forecast rule. Our results thus pose a major challenge for the risk-based explanations of the exchange rate dynamics.
    Keywords: Monetary Policy, Policy Expectations, Predictability, Overnight Index Swap, Foreign Exchange
    JEL: E43 E52 E58 F31 G12
    Date: 2017–05
  8. By: Piergiorgio Alessandri (Bank of Italy); Antonio Maria Conti (Bank of Italy); Fabrizio Venditti (Bank of Italy)
    Abstract: Since monetary policy affects risk premiums, and these appear to have a stronger influence on economic activity when they rise than when they fall, temporary monetary expansions may both stimulate the economy and sow the seeds of damaging financial market corrections in the future. We investigate this possibility by using local projection methods to examine the propagation of monetary shocks through US corporate bond markets. We find that, while the transmission of monetary shocks is symmetric, the impact of macroeconomic data releases is asymmetric: spreads are more responsive to bad news. Crucially, these responses precede economic slowdowns rather than directly cause them.
    Keywords: monetary policy, financial stability, risk premia, macro news, local projections
    JEL: C32 E32 F34
    Date: 2017–06
  9. By: Jarociński, Marek; Maćkowiak, Bartosz
    Abstract: When monetary and fiscal policy are conducted as in the euro area, output, inflation, and government bond default premia are indeterminate according to a standard general equilibrium model with sticky prices extended to include defaultable public debt. With sunspots, the model mimics the recent euro area data. We specify an alternative configuration of monetary and fiscal policy, with a non-defaultable eurobond. If this policy arrangement had been in place since the onset of the Great Recession, output could have been much higher than in the data with inflation in line with the ECB’s objective. JEL Classification: E31, E32, E63
    Keywords: eurobond, fiscal theory of the price level, self-fulfilling expectations, zero lower bound
    Date: 2017–06
  10. By: John Haltiwanger; Henry Hyatt; Lisa B. Kahn; Erika McEntarfer
    Abstract: We study whether workers progress up firm wage and size job ladders, and the cyclicality of this movement. Search theory predicts that workers should flow towards larger, higher paying firms. However, we see little evidence of a firm size ladder, partly because small, young firms poach workers from all other businesses. In contrast, we find strong evidence of a firm wage ladder that is highly procyclical. During the Great Recession, this firm wage ladder collapsed, with net worker reallocation to higher wage firms falling to zero. The earnings consequences from this lack of upward progression are sizable.
    JEL: E24 E32 J63
    Date: 2017–06
  11. By: Ansgar Belke; Irina Dubova
    Abstract: The paper empirically estimates the financial transmission between bond and equity markets within and across the four largest global financial markets - the United States, the Euro area, Japan, and the United Kingdom. We argue that international bond and equity markets are highly connected both within and across asset classes in a globalized world, where the complex transmission process across various financial assets is not restricted to just the domestic market. This paper employs identification through generalized forecast error variance decompositions to estimate spillovers across four systemic markets in a Vector Autoregression (VAR) framework. We find that asset prices react strongest to international shocks within the same asset class, but that there are also substantial international spillovers across asset classes. Rolling estimations analysis provides evidence that global asset markets have become more integrated and the bilateral relationships change over time. Our results are robust to specifications which take into account the monetary policy stance and include foreign exchange markets.
    Keywords: asset markets, financial transmission, financial market integration, rolling estimations, spillovers, Vector Autoregression
    JEL: E52 E58 F42
    Date: 2017–09
  12. By: Belke, Ansgar; Dubova, Irina
    Abstract: The paper empirically estimates the financial transmission between bond and equity markets within and across the four largest global financial markets - the United States, the Euro area, Japan, and the United Kingdom. We argue that international bond and equity markets are highly connected both within and across asset classes in a globalized world, where the complex transmission process across various financial assets is not restricted to just the domestic market. This paper employs identification through generalized forecast error variance decompositions to estimate spillovers across four systemic markets in a Vector Autoregression (VAR) framework. We find that asset prices react strongest to international shocks within the same asset class, but that there are also substantial international spillovers across asset classes. Rolling estimations analysis provides evidence that global asset markets have become more integrated and the bilateral relationships change over time. Our results are robust to specifications which take into account the monetary policy stance and include foreign exchange markets.
    Keywords: asset markets,financial transmission,financial market integration,rolling estimations,spillovers,vector autoregression
    JEL: E52 E58 F42
    Date: 2017
  13. By: Dilger, Alexander
    Abstract: Die Finanz- und Eurokrise sind das gegenwärtig wichtigste wirtschaftliche und wirtschaftspolitische Thema, welches auch wirtschaftswissenschaftlich noch stärker untersucht und diskutiert werden sollte. Etliche Akteure haben zu diesen Krisen beigetragen, darunter auch Wirtschaftswissenschaftler. Es werden Möglichkeiten vorgestellt, wie sich die immer noch anhaltenden Eurokrise beenden und eine Wiederholung verhindern lässt.
    JEL: A11 E42 E58 E61 F33 F34 F45 G01 H63
    Date: 2017
  14. By: MAO TAKONGMO, Charles Olivier
    Abstract: This paper assesses the causality between government spending and gross domestic product in the United States at multiple horizons. We compare the Granger causality for normal periods (1959Q1 to 2006 Q4) with the causality for the ZLB period (2007Q1 to 2015Q4). We show that the Granger causality measures between government spending and GDP are very high and persistent in the ZLB period, but only if the exchange rate is not taken into account. When the exchange rate is taken into account, the Granger causality between government spending and GDP becomes very small and non-persistent.
    Keywords: Zero Lower Bound; Causality Measures
    JEL: C01 C3 C32 E6 E62
    Date: 2016–07–01
  15. By: Massimiliano Affinito (Bank of Italy); Alberto Franco Pozzolo (Università degli Studi del Molise)
    Abstract: This study examines the effects of the global financial crisis (GFC) on interbank market connectivity using network analysis. More specifically, using data on Italian banks’ bilateral interbank positions between 1998 and 2013, we analyze the impact of the following events on each bank’s network centrality: the liquidity crisis in August 2007, the collapse of Lehman Brothers in September 2008, Eurosystem’s long term refinancing operations (LTROs) between 2009 and 2012, the sovereign debt crisis in July 2011, and the announcement of Outright Monetary Transactions (OMT) in 2012. The results show that the 2007 liquidity crisis and especially the collapse of Lehman Brothers are associated with a marked reduction of the relative interconnectedness of the Italian banking sector (i.e., a shift in the distribution of banks’ centrality to the left, away from the most connected bank). In the following years, the system progressively recovered its initial patterns of integration among banks, which coincided wih the main Eurosystem’s monetary policy interventions. However, the average outcome conceals different results across banks, depending on their characteristics and initial positions within the system.
    Keywords: global financial crisis, interbank markets, networks, central bank operations
    JEL: E52 E58 G21
    Date: 2017–06
  16. By: J. Barthélemy; V. Bignon; B. Nguyen
    Abstract: We assess the effect of accepting illiquid assets as collateral at the central bank on banks’ lending activity. We study the lending activity of the 177 largest banks in the Euro area between 2011m1 and 2014m12 and the composition of their pool of collateral pledged with the Eurosystem. Panel regression estimates show that the banks that pledged more illiquid collateral with the Eurosystem increased their lending to non-financial firms and households: a one standard deviation increase in the volume of illiquid collateral increase lending by 0.6%..
    Keywords: collateral, loans, central bank, euro crisis.
    JEL: E52 E58 G01 G21
    Date: 2017
  17. By: Effiong, Ekpeno; Esu, Godwin; Chuku, Chuku
    Abstract: As African countries await the birth of her monetary union, the link between economic policies and the real economy will continue to dominate policy debate. This paper investigates whether financial development influences the effectiveness of monetary policy on output and inflation in Africa. We apply standard panel data techniques to annual data from 1990--2015 for a panel of 39 African countries, and find a weak relationship between financial development and monetary policy effectiveness in Africa. The results show no statistical evidence of the relationship for output growth, whereas a negative relationship exist in the case of inflation, but only at their contemporaneous levels. Thus, there is need to strengthen the monetary transmission mechanism in African countries through deliberate efforts to deepen financial sector development.
    Keywords: Financial Development; Monetary Policy; Africa.
    JEL: C33 E52 G21 O55
    Date: 2017–05–31
  18. By: Eduardo F. Bastian (Institute of Economics, Federal University of Rio de Janeiro (IE-UFRJ)); Mark Setterfield
    Abstract: This paper develops a model of inflation in an open economy. The model permits analysis of the susceptibility of open economies to permanent inflationary consequences arising from transitory foreign exchange shocks. Sources of structural vulnerability to such events are identified, and means of addressing these structural vulnerabilities are discussed. Ultimately, the paper arrives at a “structuralist inflation targeting agenda”. Based on a proper conception of inflation dynamics, this involves “getting inflation targeting right” rather than either accepting mainstream inflation targeting prescriptions or simply neglecting inflation altogether.
    Keywords: Inflation, strato-inflation, nominal exchange rate shocks, conflicting claims, hysteresis, capital controls, industrial policy
    JEL: E12 E31 F31 F41
    Date: 2017–06
  19. By: Pierre-Richard Agénor; Enisse Kharroubi; Leonardo Gambacorta; Giovanni Lombardo; Luiz Awazu Pereira da Silva
    Abstract: The large economic costs associated with the Global Financial Crisis have generated renewed interest in macroprudential policies and their international coordination. Based on a core-periphery model that emphasizes the role of international financial centers, we study the effects of coordinated and non-coordinated macroprudential policies when financial intermediation is subject to frictions. We find that even when the only frictions in the economy consist of financial frictions and financial dependency of periphery banks, the policy prescriptions under international policy coordination can differ quite markedly from those emerging from self-oriented policy decisions. Optimal macroprudential policies must address both short run and long run inefficiencies. In the short run, the policy instruments need to be adjusted to mitigate the adverse consequences of the financial accelerator, and its cross-country spillovers. In the long run, policymakers need to take into account the effects of the higher cost of capital, due to the presence of financial frictions. The gains from cooperation appear to be sizable. Nevertheless, their magnitude could be asymmetric, pointing to potential political-economy obstacles to the implementation of cooperative measures.
    Keywords: Macroprudential policies, international spillovers, financial frictions, international cooperation
    JEL: E3 E5 F3 F5 G1
    Date: 2017–06
  20. By: Alimi, R. Santos
    Abstract: Inflation and its associated uncertainty impose costs on real economic output in every economy. In developing economies, this welfare cost is higher than those obtainable in developed countries because inflation rate is still higher than desired, mostly double-digit in Africa. In contrast to conventional conditional mean approaches, this study employed quantile regressions and cross-sectional data from 44 African countries for the period 1986 to 2015 to examine the relationship between the level of inflation and inflation uncertainty. This study considers two measures of inflation – Inflation rate and mean inflation, and three different measures of inflation uncertainty – standard deviation, relative variation and median deviation of the inflation rate. The study found evidence of positive and significant association between inflation and its uncertainty across quantiles. It also found that higher inflation brings about more inflation variability, thereby supporting the Friedman-Ball hypothesis and on the other hand high inflation uncertainty prompts rises in inflation, confirming the Cukierman-Meltzer hypothesis. The study therefore recommend that policy makers should target low average inflation rates in order to reduce the negative consequences of inflation uncertainty, which in turn can improve economic performance in Africa.
    Keywords: Inflation, inflation uncertainty, inflation taergeting, quantile regression
    JEL: E3 E31 P44
    Date: 2017–06–12
  21. By: Ansgar Belke; Dominik Kronen
    Abstract: In light of the rising political and economic uncertainty in Europe, we aim to provide a basic understanding of the impact of economic policy uncertainty and financial market uncertainty on a set of macroeconomic variables such as production, consumption and investment. In this paper, we apply a structural vector autoregressive (SVAR) model to gain first insights that may help to identify avenues for further research based on non-linear processes. We find that stock market uncertainty shows a fairly consistently negative effect on the real economy in Europe. However, the implications of economic policy uncertainty for Europe and the Euro area in particular are not so straightforward. It seems as if policy uncertainty raises general investment and consumption of long-lived goods in the EMU core countries in order to be prepared to react on different states of the world in the future. What is more, shifts of invest-ment from peripheral to core EMU member countries as safe havens in uncertain times may produce the same empirical pattern.
    Keywords: hysteresis, investment-type decisions, macroeconomic performance under uncertainty, eco-nomic policy uncertainty, financial uncertainty, option value of waiting, SVAR
    JEL: C32 E20 E60
    Date: 2017–08
  22. By: Born, Benjamin; Breuer, Sebastian; Elstner, Steffen
    Abstract: Has heightened uncertainty been a major contributor to the Great Recession and the slow recovery in the U.S.? To answer this question, we identify exogenous changes in six uncertainty proxies and quantify their contributions to GDP growth and the unemployment rate. The answer is no. In total we find that increased macroeconomic and financial uncertainty can explain up to 10 percent of the drop in GDP at the height of the recession and up to 0.7 percentage points of the increased unemployment rates in 2009 through 2011. Our calculations further suggest that only a minor part of the rise in popular uncertainty measures during the Great Recession was driven by exogenous uncertainty shocks.
    Keywords: great recession; Uncertainty shocks
    JEL: C32 E32
    Date: 2017–06
  23. By: SeHyoun Ahn; Greg Kaplan; Benjamin Moll; Thomas Winberry; Christian Wolf
    Abstract: We develop an efficient and easy-to-use computational method for solving a wide class of general equilibrium heterogeneous agent models with aggregate shocks, together with an open source suite of codes that implement our algorithms in an easy-to-use toolbox. Our method extends standard linearization techniques and is designed to work in cases when inequality matters for the dynamics of macroeconomic aggregates. We present two applications that analyze a two-asset incomplete markets model parameterized to match the distribution of income, wealth, and marginal propensities to consume. First, we show that our model is consistent with two key features of aggregate consumption dynamics that are difficult to match with representative agent models: (i) the sensitivity of aggregate consumption to predictable changes in aggregate income and (ii) the relative smoothness of aggregate consumption. Second, we extend the model to feature capital-skill complementarity and show how factor-specific productivity shocks shape dynamics of income and consumption inequality.
    JEL: A0 C0 E0 F0 G0 J0
    Date: 2017–06
  24. By: Burda, Michael C; Severgnini, Battista
    Abstract: A quarter-century after reunification, labor productivity in the states of eastern Germany continues to lag systematically behind the West. Persistent gaps in total factor productivity (TFP) are the proximate cause; conventional and capital-free measurements confirm a sharp slowdown in TFP growth after 1995. Strikingly, eastern capital intensity, especially in industry, exceeds values in the West, casting doubt on the embodied technology hypothesis. TFP growth is negatively associated with rates of investment expenditures. The stubborn East-West TFP gap is best explained by low concentration of managers, low startup intensity and the distribution of firm size in the East rather than R&D activities.
    Keywords: Development accounting; German reunification; productivity; regional convergence
    JEL: D24 E01 E22 O33 O47
    Date: 2017–06
  25. By: David B. Cashin; Jamie Lenney; Byron F. Lutz; William B. Peterman
    Abstract: We examine the effect of federal and subnational fiscal policy on aggregate demand in the U.S. by introducing the fiscal effect (FE) measure. FE can be decomposed into three components. Discretionary FE quantifies the effect of discretionary or legislated policy changes on aggregate demand. Cyclical FE captures the effect of the automatic stabilizers--changes in government taxes and spending arising from the business cycle. Residual FE measures the effect of all changes in government revenues and outlays which cannot be categorized as either discretionary or cyclical; for example, it captures the effect of the secular increase in entitlement program spending due to the aging of the population. We use FE to examine the contribution of fiscal policy to growth in real GDP over the course of the Great Recession and current expansion. We compare this contribution to the contributions to growth in aggregate demand made by fiscal policy over past business cycles. In doing so, we highlight that the relatively strong support of government policy to GDP growth during the Great Recession was followed by a historically weak contribution over the course of the current expansion.
    Keywords: Fiscal policy ; Great Recession ; Multipliers ; Public debt and national budget ; Public economics ; Taxation ; Automatic stabilizers
    Date: 2017–06
  26. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Zeynel Abidin Ozdemir (Gazi University, Ankara, Turkey)
    Abstract: By means of stochastic volatility in mean model to allow for time-varying parameters in the conditional mean and monthly data for G-7 countries, we examine the variability of the business cycle and the economic growth. The results show that the impact of output uncertainty on growth is substantially time-varying and positive with frequent breaks, except for Italy. Besides, the effect of growth on uncertainty is insignificant except for UK.
    Keywords: Output Growth; Output Growth Uncertainty; Nonlinearity; State–space.
    JEL: C22 E32
    Date: 2017
  27. By: Giuseppe Ferrero (Bank of Italy); Michele Loberto (Bank of Italy); Marcello Miccoli (Bank of Italy)
    Abstract: We build a general equilibrium model - along the lines of Williamson (2012) - where financial assets can be used as collateral in secured interbank markets to obtain reserves (central bank money). In this framework, frictions in the exchange process give rise to a liquidity premium for assets. An open market operation that provides reserves in exchange for assets decreases the availability of collateral by increasing its liquidity premium (and decreasing its return). The magnitude of the effect depends on assets' pledgeability properties (haircuts). We explore the positive implications of the model shown in the data. Focusing on the period 2009-2014, we analyse the relationship between yields of euro-area government bonds and the relative amount of bonds and central bank reserves held by the euro-area banking sector. We find evidence consistent with our model: yields decrease when reserves increase relative to bonds, with the effect being stronger at lower levels of haircuts. The results are confirmed after several robustness checks.
    Keywords: unconventional monetary policy, secured interbank market, asset prices
    JEL: E43 E58 G12
    Date: 2017–06
  28. By: Abi Morshed, Alaa (Tilburg University, School of Economics and Management)
    Abstract: This dissertation revolves around topics in Applied Macroeconomics and Time series analysis. Generally speaking, we explore different forms of instability ranging from discrete sudden breaks to time varying parameter (TVP) models. In the second chapter, we study the time-varying impact of disagreement and forecast uncertainty about economic fundamentals on nominal yields, treasury-inflation protected securities and market-based inflation expectations. In the third chapter, we employ TVP news regressions to answer a relevant and pressing policy question: whether US long-run inflation expectations have become more firmly anchored in the aftermath of the crisis. In the fourth chapter, we enrich the toolkit of econometricians with structural break tests that are robust to regression misspecification.
    Date: 2017
  29. By: Sen Gupta, Abhijit; Bhattacharya, Rudrani
    Abstract: Average food inflation in India during the period 2006-2013 was one of the highest among emerging market economies, and nearly double the inflation witnessed in India during the previous decade. An often cited hypothesis argues that the surge in food inflation during this period was driven by rising demand for high-value food products due to higher per capita income and diversification of Indian diets. In this paper we test the validity of this hypothesis by estimating the expenditure elasticity and then calculating the aggregate demand using data from household survey conducted by the National Sample Survey Organisation (NSSO). Our results show that in recent years estimated demand has exceeded supply of all major food products, barring fruits. Moreover, empirical estimates indicate that the demand supply gap is an important driver of rise in food prices, along with other factors such as minimum support prices, global prices, fiscal deficit and agricultural wages.
    Keywords: Food Inflation, Engel Curves, QUAIDS Model, India
    JEL: E31 E37 Q11
    Date: 2016
  30. By: Lojschova, Adriana
    Abstract: We find evidence that households in Slovakia do benefit from the ECB asset purchase programme. On the individual bank-level data of 26 financial institutions (full representation of the banking sector) we establish and confirm a traditional relationship between bank lending and changes to deposit ratio. We find the long-run relationship to be twice as strong in the household sector as in the sector of non-financial corporations. Controlling for interest rate changes and other factors, we also introduce asset purchases into the model. We document some, although limited, evidence of the presence of the bank lending channel of asset purchases in the household sector.
    Keywords: Bank lending channel, quantitative easing, panel data
    JEL: E52 G21
    Date: 2017–05
  31. By: Thomas McGregor
    Abstract: The current debate about the optimal management of foreign exchange windfalls is highly relevant to low income countries such as Uganda, having recently discovered vast hydrocarbon reserves. Using a Computable General Equilibrium (CGE) model for Uganda this paper analyses three broad policy options for the use of oil revenues, increasing i) private consumption, ii) private investment, and iii) public infrastructure investment. The model allows for learning-by-doing in tradables, increasing returns to public infrastructure and the use of an Oil Fund held abroad. The fund allows government to smooth expenditure programs over the medium-term. When public infrastructure is biased towards tradables, a smooth expenditure profile yields higher economic growth than high expenditure skewed to the present. The government’s discount rate plays a key role in determining the optimal use and management of oil revenues. More impatient governments will be inclined to increase current expenditure at the cost of future generations’ welfare and negative distributional implications for poor households. Lower discount rates align the political incentives with respect to inter-temporal welfare and the long-run growth path of the economy.
    Keywords: Fiscal Policy, natural resources, economic development, Dutch-disease, CGE model, Uganda
    JEL: E62 O11 O13 O23 Q32
    Date: 2017
  32. By: P. Antipa; C. Chamley
    Abstract: The French Wars (1793-1815) exerted unprecedented pressures on Britain's fiscal and monetary policy settings. Policy makers had to constantly adjust the policy mix as events unfolded. This meant implementing monetary and fiscal policy innovations, such as the suspension of the gold standard and the instauration of Britain's first income tax. These adjustments signalled the government's commitment to undertake the necessary to win the war, without jeopardizing fiscal sustainability. Drawing on new hand-collected data, we also show that the Bank of England played an essential role in two successive phases of the war. The Bank granted ample liquidity to the domestic payment system, by discounting large amounts of private bills. It also financed the decisive phase of the wars by purchasing large amounts of public debt. The successful winding down of the balance sheet and the resumption of the gold standard influenced the Bank's policies and shaped the political and financial landscape for the century to come.
    Keywords: Interactions between monetary and fiscal policies, central bank balance sheet, unconventional monetary policy, open market operations.
    JEL: N13 H63 E58 E62
    Date: 2017
  33. By: Pierre-Richard Agénor; Pengfei Jia
    Abstract: This paper evaluates, using a game-theoretic approach, the benefits of coordinating macroprudential policy (in the form of reserve requirements) in a two-country model of a currency union with credit market imperfections. Financial stability is first defined in terms of the volatility of the credit-to-output ratio. The gains from coordination are measured by comparing outcomes under a centralized regime, where a common regulator sets the required reserve ratio to minimize union-wide financial volatility, and a decentralized (Nash) regime, where each country regulator sets that ratio to minimize its own policy loss. Experiments show that, under asymmetric real and financial shocks, the gains from coordination are significant at the union level. Moreover, these gains are higher when the common and national regulators have asymmetric preferences with respect to output stability, when financial markets are more integrated, and when the degree of asymmetry in credit markets between members is larger. Implications of the analysis for macroprudential policy coordination in the euro area are also discussed.
    Date: 2017
  34. By: Imen Ben Mohamed (PSE - Paris School of Economics); Marine Salès (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper investigates the impact of credit market imperfections on unemployment, vacancy posting and wages. We develop and simulate a new-Keynesian DSGE model, integrating sticky prices in goods market and frictions in labor and credit markets. A search and matching process in the labor market and a costly state verification framework in the credit market are introduced. Capital spending, vacancies costs and wage bill need to be paid in advance of production and thus require external financing in a frictional credit market. The theoretical model demonstrates how the procyclicality of the risk premium impacts the vacancy posting decisions, the wage and unemployment levels in the economy. Higher credit market frictions are the source of lower posting vacancies and higher unemployment level. Asymmetric information in the signing of a loan pushes up wholesale firms' marginal costs, as well as hiring costs by a financial mark-up charged by financial intermediaries. This financial mark-up is then transmitted by these firms on prices. Thus, it affects their hiring behavior, the wage and employment levels, as well as inflation in the economy. Then, the theoretical model is simulated by using quarterly United-States (US) data for the sample period 1960:Q1 to 2007:Q4. We find that employment rates and vacancy posting increase following positive credit, net worth and uncertainty shocks. Different channels of propagation from the financial sphere of the economy to the labor market are investigated and the results appear to be consistent with our theoretical model.
    Keywords: new-Keynesian model,labor and credit market frictions,vacancies and unemployment dynamics,intensive and extensive margins,credit shocks
    Date: 2015–10–13
  35. By: International Monetary Fund
    Abstract: Hungary has succeeded in achieving several years of high economic growth as well as reduction of debt and other vulnerabilities. However, external and public debt remain high. Growth decelerated in 2016 partly due to slower absorption of EU funds and related investment. The output gap is closing, unemployment has declined to about 4½ percent––partly reflecting a still appreciable public employment scheme, and reflation is gaining traction.
    Keywords: Europe;Hungary;
    Date: 2017–05–12
  36. By: Stefan Avdjiev; Leonardo Gambacorta; Linda Goldberg; Stefano Schiaffi
    Abstract: The post-crisis period has seen a considerable shift in the composition and drivers of international bank lending and international bond issuance, the two main components of global liquidity. The sensitivity of both types of flow to US monetary policy rose substantially in the immediate aftermath of the Global Financial Crisis, peaked around the time of the 2013 Fed "taper tantrum", and then partially reverted towards pre-crisis levels. Conversely, the responsiveness of international bank lending to global risk conditions declined considerably post-crisis and became similar to that of international debt securities. The increased sensitivity of international bank flows to US monetary policy has been driven mainly by post-crisis changes in the behaviour of national lending banking systems, especially those that ex ante had less well capitalized banks. By contrast, the post-crisis fall in the sensitivity of international bank lending to global risk was mainly due to a compositional effect, driven by increases in the lending market shares of better-capitalized national banking systems. The post-2013 reversal in the sensitivities to US monetary policy partially reflects the expected divergence of the monetary policy of the US and other advanced economies, highlighting the sensitivity of capital flows to the degree of commonality of cycles and the stance of policy. Moreover, global liquidity fluctuations have largely been driven by policy initiatives in creditor countries. Policies and prudential instruments that reinforced lending banks' capitalization and stable funding levels reduced the volatility of international lending flows.
    Keywords: Keywords: Global liquidity, international bank lending, international bond flows, capital flows
    JEL: G10 F34 G21
    Date: 2017–06
  37. By: Kacperczyk, Marcin; Perignon, Christophe; Vuillemey, Guillaume
    Abstract: Do claims on the private sector serve the role of safe assets? We answer this question using high-frequency panel data on prices and quantities of certificates of deposit (CD) and commercial paper (CP) issued in Europe. We show that only very short-term private securities benefit from a premium for safety. We then use several sources of variation to show that the issuance of short-term CDs strongly responds to measures of safety demand. The private production of safe assets is stronger for issuers with high credit worthiness, and breaks down during episodes of market stress. We conclude that even very short-term private assets are sensitive to changes in the information environment and should not be treated as equally safe at all times.
    Keywords: Collateral; safe assets; Short-term debt; Treasuries
    JEL: E44 G21
    Date: 2017–06
  38. By: GORYUNOV, Maxim
    Abstract: In this paper, I study the sorting of workers to firms, when firm size is explicitly taken into account. I develop a method to non-parametrically identify the match production function from data on workers' wages and firms' revenues and posted job vacancies. Under the proposed identification procedure, ordering of workers and firms is identified independently, and can therefore be achieved using potentially different data sets. The model sheds light on the question of the exporter wage premium: exporters pay higher wages because they are larger, and higher wages are required to support a larger firm size.
    Keywords: Matching, Sorting, Wage determination, Firm size
    JEL: C78 E24 J31 L11
    Date: 2017
  39. By: Quaas, Georg
    Abstract: This article is the long-version of a discussion paper published on „Ökonomenstimme“ at June-15-2017. Both papers defend essential parts of the macro-economic theory of the modern banking system. The discussion was triggered by Dirk Ehnts who argued that bank deposits are created out of nothing. According to his view, the Bank of England and the European Central Bank (including the Deutsche Bundesbank) are about to revise the macro-economic theory of money. In this article it is shown that Ehnt’s position cannot be based on publications recently made by those central banks. The banking authorities reject the deterministic interpretation of the money-multiplier theory. Their criticism is based on the fact that the multiplier proves empirically not to be a constant parameter. Without this acceptable critique and not regarding a few misleading formulations, the authors of the central banks’ publications cling to the modern theory of money in all remaining aspects.
    Keywords: money creation by banks, broad money and monetary base, money multiplier approach
    JEL: A20 G17 G21
    Date: 2017–06–16
  40. By: Burda, Michael C; Genadek, Katie R.; Hamermesh, Daniel S.
    Abstract: We use the American Time Use Survey (ATUS) 2003-2012 to estimate time spent in non-work on the job. Non-work is substantial and varies positively with local unemployment. Time spent in non-work conditional on any positive amount rises, while the fraction of workers reporting positive values declines with unemployment. Both effects are economically important, and are consistent with a model in which heterogeneous workers are paid efficiency wages. That model correctly predicts the relationship between the incidence of non-work and unemployment benefits in state data linked to the ATUS, and is consistent with estimated occupational differences in non-work incidence and intensity, as well as the cyclical behavior of aggregate labor productivity.
    Keywords: efficiency wages; labor productivity; non-work; time use
    JEL: E24 J22
    Date: 2017–06
  41. By: Leuwer, David; Süßmuth, Bernd
    Abstract: This study investigates reactions to real exchange rate changes in the German, French and UK automobile and mechanical engineering sectors using monthly data from 1995 to 2010. Our findings indicate that EUR/USD appreciations hamper exports, but do not necessarily imply an aggravated business climate or export order-book assessment. This does not apply to the GBP/USD and corresponding time series for the UK. First and foremost, our fixed coefficient and time varying parameter VAR model estimates confirm the extraordinary role of the German key sectors, while currency union membership seems to play a minor role at best. Overall, the exchange rate susceptibility is less profound than claimed by lobbies and held as popular belief.
    Keywords: exporting sectors,confidence indicators,structural VAR
    JEL: C30 E42 F41
    Date: 2017
  42. By: Evan C Tanner
    Abstract: This paper examines the policy challenges a country faces when it wants to both reduce inflation and maintain a sustainable external position. Mundell’s (1962) policy assignment framework suggests that these two goals may be mutually incompatible unless monetary and fiscal policies are properly coordinated. Unfortunately, if the fiscal authority is unwilling to cooperate—a case of fiscal intransigence—central banks that pursue a disinflation on a ‘go it alone’ basis will cause the country’s external position to further deteriorate. A dynamic analysis shows that if the central bank itself lacks credibility in its inflation goal, it must rely even more on cooperation from the fiscal authority than otherwise. Echoing Sargent and Wallace’s (1981) ‘unpleasant monetarist arithmetic,’ in these circumstances, a ‘go it alone’ policy may successfully stabilize prices and output, but only on a short-term basis.
    Keywords: Risk premium;External Vulnerability, Assignment Problem, General, Open Economy Macroeconomics, International Policy Coordination and Transmission
    Date: 2017–05–22
  43. By: International Monetary Fund
    Abstract: Mongolia’s longer-term prospects are promising given its large natural resources. In recent years, however, the economy has faced substantial challenges, as external shocks and policy errors have compounded structural weaknesses. The new government that took office in 2016 has expressed a strong commitment to strengthen macro policies and implement structural reforms, so as to stabilize the economy and lay the foundation for sustainable, inclusive growth in the future.
    Date: 2017–05–31
  44. By: Hugo J. Faria (University of Miami); Hugo M. Montesinos-Yufa (Florida State University & IESA)
    Abstract: Cervellati, Jung, Sunde and Vischer (2014) find heterogeneous effects of income on democracy: negative for colonies and positive for non-colonies. They report different effects of income on democracy within colonies, depending on the quality of early institutions. In this paper, using the same data set as Cervellati et al. (2014) but applying the System GMM estimator, we find a strong, positive, significant and robust effect of income on democracy, both in the full sample of countries and the subsamples of colonies and non-colonies.
    Keywords: Democracy, Income, Weak Identification, System GMM Estimation Publication Status: Under Review
    JEL: D72 E21 O10
    Date: 2017–04–13
  45. By: Arora, Vipin
    Abstract: I use three different—and simple—counterfactuals to approximate the real GDP and employment effects of US oil and gas production from shale over the 2011 to 2015 period. Real GDP growth would have been 0.7 to 0.2 percentage points lower on average each year over that period without such increases; employment growth 0.5 to 0.1 percentage points lower.
    Keywords: economic activity; shale; oil and gas; counterfactual
    JEL: E00 Q43
    Date: 2017–06–12
  46. By: Thorsten Beck; Steven Poelhekke
    Abstract: The need to absorb windfalls gains and manage them appropriately has been discussed extensively by academics and policy makers alike. We explore the role of the financial sector in intermediating these windfalls. Controlling for the level of financial development, inflation, GDP growth and country fixed-effects, we find a relative decline in financial sector deposits in countries that experience an unexpected natural resource windfall as measured by shocks to exogenous world prices. Moreover, we find a similar relative decline in lending, which is mostly due to the decrease in deposits. The smaller role for the financial sector in intermediating resource booms is accompanied by a stronger role of governments in channeling resources into the economy, mostly through higher government consumption.
    Keywords: natural resources, financial development, banking
    JEL: E20 F41 G20 O10 Q32 Q33
    Date: 2017
  47. By: International Monetary Fund
    Abstract: Romania strengthened its economy considerably after the global financial crisis. Growth has been solid and unemployment low. Public debt and fiscal and current account imbalances are moderate compared to many emerging markets. Notwithstanding this progress, significant challenges remain and the momentum of progress in policies has waned. Income convergence with the EU has slowed and poverty is among the highest in the EU. Successive tax cuts and wage increases in excess of productivity gains have supported consumption, but investment remains weak. A reorientation of policies to prioritize investment will more sustainably achieve the authorities’ objective of bringing more Romanians into the middle class.
    Keywords: Europe;Romania;
    Date: 2017–05–25
  48. By: Meixing Dai; Moïse Sidiropoulos
    Abstract: In an economy characterised by Keynes’ “beauty contest”, policymakers can either disseminate their own information and abstain from stabilisation policy, or use an informational advantage to undertake active policy intervention. The contribution of this paper is to analyse how such a trade-off is affected by Brainard’s conservatism principle. We show that multiplicative uncertainty reduces the incentive for policy activism and weakens the argument for imperfect disclosure of the policymaker’s private information. Notably, a sufficient high degree of multiplicative uncertainty in the transmission of policy intervention would call for full disclosure of public information in the presence of stabilisation policy.
    Keywords: Multiplicative uncertainty; heterogeneous private information; optimal information disclosure; policy intervention; strategic complementarities.
    JEL: C72 D62 D82 E58
    Date: 2017
  49. By: Jiranyakul, Komain
    Abstract: This paper analyzes the relationship between inflation and economic growth in Thailand using annual dataset during 1990 and 2015. The threshold model is estimated for different levels of threshold inflation rate. The results suggest that the threshold level of inflation above which inflation significantly slow growth is estimated at 3 percent. The negative relationship between inflation and growth is apparent above this threshold level of inflation. In other words, the inflation rate that is higher than this threshold level can jeopardize the growth rate of the country.
    Keywords: Inflation, growth, threshold model
    JEL: C13 E31
    Date: 2017–06
  50. By: Belke, Ansgar; Gros, Daniel
    Abstract: This paper reviews cases of successful price and wage adjustment, which are often regarded as constituting best practice, Australia, Latvia and the newly-formed German states and contrasts them with the Greek experience under the Troika Program. Latvia stands out as having had the quickest adjustment in wages. By contrast, before the crisis, Greek wages appeared to have been largely insensitive to labour market conditions but this changed with the program. We find that the reaction of wages to unemployment in Greece under the program was increasingly similar to that observed in Germany and Portugal (a case which has attracted less attention). A priori it is likely that the change in wage behaviour in Greece was due to the labour market reforms imposed under the program. But this cannot be proven beyond doubt.
    Keywords: Phillips Curves,price and wage adjustment,internal devaluation,Australia,Greece,Latvia,Portugal,West vs. East Germany
    JEL: E31 F49
    Date: 2017
  51. By: Ye, Dezhu (Jinan University); Deng, Jie (Jinan University); Zeng, Fanqing (Jinan University)
    Abstract: New Structural Economics suggests that there is no universally optimal financial structure for all countries,only when the financial structure match well with the technical level, it can effectively promote economic growth. Following corporate finance literatures, we try to discuss the measurement of regression residual on the abnormal level of the explained variables, regard the residual after the regression of each country’s financial structure on technical level as the main substitute variable, and then test the issue. The empirical results show that the matching degree between financial structure and technical level is significantly positively correlated to economic development, and the effect tends to be more obvious in developing countries. This paper also uses the alternative measure financial structure, the sociology’s hierarchical matching method to measure the matching degree between financial structure and technical level,and the instrumental variables method to deal with the possible endogenous problems, all empirical results supportthe same conclusions. To make a comparison, we add the gap variables of the optimal financial structure which regards OECD countries as the optimal criterion into our regression equation, the results indicate that our coordination variables are more significant and have stronger explanatory power on economic growth.Further research finds that promoting the growth of TFP is the mechanism through which the matching relationship affects economic development.
    Keywords: New Structural Economics, the Optimal Financial Structure, the Matching Degree of Financial Structure—Technical Level, Economic Development
    JEL: E44 G00 O16
    Date: 2017–06–13
  52. By: International Monetary Fund
    Abstract: The Samoan economy is performing well: growth is strong while inflation remains subdued. Nevertheless, there are sizeable downside risks to the outlook. Samoa is vulnerable to natural disasters, which has led to elevated public debt and financial sector vulnerabilities, including from public financial institutions (PFIs). High levels of remittances expose Samoa to spillovers from the withdrawal of correspondent banking services.
    Keywords: Asia and Pacific;Samoa;
    Date: 2017–05–15
  53. By: Ansgar Belke; Daniel Gros
    Abstract: This paper reviews cases of successful price and wage adjustment, which are often regarded as constituting best practice, – Australia, Latvia and the German new states and contrasts them with the Greek experience under the Troika Programs. Latvia stands out as having had the quickest adjustment in wages. By contrast, before the crisis, Greek wages appeared to have been largely insensitive to labour market conditions but this changed with the program. We find that the reaction of wages to unemployment in Greece was under the program similar to that observed in Germany and Portugal (a case, which has attracted less attention). A priori it is likely that the change in wage behaviour in Greece was due to the labour market reforms imposed under the program. But this cannot be proven beyond doubt.
    Keywords: Phillips curves, price and wage adjustment, internal devaluation, Australia, Greece, Latvia, Portugal, West vs. East Germany
    JEL: E31 F49
    Date: 2017–07
  54. By: Andrea Neri (Bank of Italy); Concetta Rondinelli (Bank of Italy); Filippo Scoccianti (Bank of Italy)
    Abstract: We estimate the consumption response of Italian households to the “€80 tax bonus” introduced in 2014, using the panel component on the Survey of Household Income and Wealth. We find that households that received the tax rebate increased their monthly consumption of food and means of transportation by about €20 and €30, respectively, about 50-60 per cent of the total bonus. There was a larger increase for households with low liquid wealth or low income. Our estimates are quite robust to different model specifications and are broadly in line with the evidence available from similar tax rebates in other countries but, due to the small sample size, are not always statistically significant. To understand the mechanism behind our results we then simulate an overlapping generations model of household consumption: the marginal propensity to consume generated by the structural model is in line with our empirical estimates.
    Keywords: fiscal stimulus, marginal propensity to consume, consumer behaviour
    JEL: D12 E21
    Date: 2017–06
  55. By: 外木, 好美; 中村, 純一; 浅子, 和美
    Abstract: 本論文は,内閣府の『民間企業投資・除却調査』と日本政策投資銀行の『企業財務データバンク』のマイクロデータを相互接続することで,資本財による異質性に加えて,取得形態別の投資行動の異質性も含めて検証したものである.建物・構築物,機械装置,輸送機械,土地の4種類の資本財それぞれについて,新設,中古,大規模修繕の3種類の取得形態による,計12セグメントの投資率を計測し,Tobinのq理論が想定する凸型の調整費用関数を前提としたMultiple qの投資関数の推定と,非凸型の調整費用関数の可能性も想定した因子分析の2つのアプローチで分析を行った.因子分析の結果,資本財の種類に関わらず,新設,中古,大規模修繕といった取得形態が共通するセグメントの中で因子負荷が近く,投資の調整費用のパラメータの値は資本財の種類よりも,取得形態の違いに左右される部分が大きいことがわかった.この結果とMultiple qによる投資関数の推計結果を総合すると,新設の投資行動はTobinのq理論が想定 する凸型の調整費用関数である程度説明できるが,中古と大規模修繕については非凸型の 調整費用関数の存在が示唆された.また,更新投資割合(あるいは企業成長)と深い関係 を持つのは新設の因子であることが示唆された.
    Keywords: 設備投資, 資本財の異質性, Multiple q
    JEL: D22 D92 E22 G31
    Date: 2017–05
  56. By: John M. Abowd; Francis Kramarz; Sebastien Perez-Duarte; Ian M. Schmutte
    Abstract: We test Shimer's (2005) theory of the sorting of workers between and within industrial sectors based on directed search with coordination frictions, deliberately maintaining its static general equilibrium framework. We fit the model to sector-specific wage, vacancy and output data, including publicly-available statistics that characterize the distribution of worker and employer wage heterogeneity across sectors. Our empirical method is general and can be applied to a broad class of assignment models. The results indicate that industries are the loci of sorting-more productive workers are employed in more productive industries. The evidence confirm that strong assortative matching can be present even when worker and employer components of wage heterogeneity are weakly correlated.
    Keywords: Wage Differentials, Human Capital, Skills, Job Matching, Simulation Methods
    JEL: J31 J24 E24
    Date: 2017–01
  57. By: Aurélien Hazan (Synapse - LISSI - Laboratoire Images, Signaux et Systèmes Intelligents - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12)
    Abstract: We show that a steady-state stock-flow consistent macro-economic model can be represented as a Constraint Satisfaction Problem (CSP). The set of solutions is a polytope, which volume depends on the constraints applied and reveals the potential fragility of the economic circuit, with no need to study the dynamics. Several methods to compute the volume are compared, inspired by operations research methods and the analysis of metabolic networks, both exact and approximate. We also introduce a random transaction matrix, and study the particular case of linear flows with respect to money stocks.
    Keywords: constraint satisfaction,finance,monte-carlo,convex polytope,physics and society,random network,economics
    Date: 2017–05–01
  58. By: Imran Hussain Shah (Faculty of Humanities & Social Sciences, University of Bath); Simón Sosvilla-Rivero (Complutense Institute for International Studies, Universidad Complutense de Madrid; 28223 Madrid, Spain.)
    Abstract: We propose an Economic Stability Index (ESI) incorporating house prices and stock prices as components of the measure of the inflation rate in order to allow the European Central Bank (ECB) to achieve both price and macroeconomic stability. We use an optimisation approach to estimate target weights for different sectoral prices in the broader price index, which depend on sectoral parameters other than those used to compute the Harmonised Index of Consumer Prices applied by the ECB to gauge price stability in the euro area (EA). Our results suggest that if the ECB had targeted the ESI, it would have implemented a different monetary policy which would had increased stability in the EA’s economic activity and would have helped to create adequate preconditions for sustainable economic growth and job creation.
    Keywords: Stock prices; House prices; Inflation targeting; Macroeconomic stabilization; Euro area. JEL classification:C32, D53, E31, E52, E58, G12, 052, R31.
    Date: 2017–05
  59. By: Borja Jalón (University Complutense of Madrid); Simón Sosvilla-Rivero (Complutense Institute for International Studies, Universidad Complutense de Madrid; 28223 Madrid, Spain.); José A. Herce (University Complutense of Madrid and International Financial Analysts (AFI).)
    Abstract: The cyclical pattern of labor productivity has been a subject of discussion in the economic literature for long time with important theoretical implications. Many authors point out the role of labor market institutions as determinants of the cyclical pattern. For these authors, the loss of procyclicality experimented in the United States since the mid-1980s could be explained by decrease of rigidities in labor market. Following the literature, this paper explores the role of labor regulation by analyzing the case of Spain, which has gone in a few years from a strongly procyclical pattern to a counterciclycal one. Our results suggest that the high rigidity in wages and the great flexibility in labor, related to the temporary workers after the 1984 legislative reform, is the main cause of the countercyclical pattern of the Spanish labor productivity. Our findings are in line with previous papers highlighting the crucial influence of labor market institutions over the cyclical pattern.
    Keywords: Business cycle, labor productivity, labor regulation, multifactor productivity. JEL classification:E32, J30, K31, O47.
    Date: 2017–06
  60. By: International Monetary Fund
    Abstract: New Zealand has a strong institutional framework for macroprudential policy. This framework is based on a clear mandate for financial stability operationally clarified by a Memorandum of Understanding (MoU). The Reserve Bank of New Zealand (RBNZ) is the single prudential regulator with responsibilities and powers for the supervision of financial institutions and macroprudential policies. The MoU on macroprudential policy signed between the RBNZ and the Minister of Finance legitimized the macroprudential use of the existing prudential instruments and further strengthened the responsibility of the RBNZ on macroprudential policy by providing additional clarity around the broad parameters of the policy, such as the objectives, governance and instruments. The clear mandate for financial stability, independent decision making, transparent communication and external accountability form the basis of the strong framework put in place.
    Keywords: New Zealand;Asia and Pacific;
    Date: 2017–05–10
  61. By: Majeed, Ayesha; Masih, Mansur
    Abstract: Over time the current world financial markets have become more closely correlated and interdependent due to increased market integration. One of the important outcomes of globalization has been economic cross-linkages and the increased co-movement of asset prices across international markets. This paper studies the long run relationship of five founding members of ASEAN-5, namely Malaysia, Singapore, Indonesia, Philippines & Thailand (referred to as ASEAN-5) and developed stock market indices of US and Japan. After the 1997 Asian Financial crisis, the stock markets in this region are expected to open up and become more interdependent. An Autoregressive Distributed Lag Model (ARDL) has been used to empirically test if a long run relationship exists among these indices. Our study finds that the ASEAN-5 stock markets are co-integrated along with developed stock markets of US and Japan which is in line with many studies.
    Keywords: ASEAN-5, ARDL, Co-integration, Granger-causality
    JEL: C58 E44 G15
    Date: 2016–12–20
  62. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Zeynel Abidin Ozdemir (Gazi University, Ankara, Turkey); Muhammad Shahbaz (Montpellier Business School, Montpelier, France); Serkan Gunes (Gazi University, Ankara, Turkey)
    Abstract: This paper utilises the newly proposed nonparametric causality-in-quantiles test to examine the predictability of returns and the volatility of gold based on inflation for G7 countries. The causality-in-quantiles approach permits us to test for not only causality in mean but also causality in variance. We start our investigation by utilising tests for nonlinearity. These tests identify nonlinearity, as the linear Granger causality tests are subject to misspecification error. Unlike tests of misspecified linear models, our nonparametric causality-in-quantiles tests find causality in mean and variance from inflation to gold returns via quantiles 0.20 to 0.70, implying that very low- and high-return movements in gold markets are not related to inflation. These changes in low- and high-level gold returns should be related to other sources, such as financial shocks and exchange market shocks. We find support that gold serves as a hedge against inflation, but only in the mid-quantile ranges, i.e., quantiles 0.20 to 0.70. Our results show that gold does not serve as a hedge against inflation during periods when gold returns are very low or very high, which are respectively quiet and highly volatile periods.
    Keywords: Gold, Inflation, Spot and futures markets; Quantile causality
    JEL: C22 Q02 E31
    Date: 2017
  63. By: Matthes, Jürgen
    Abstract: The French presidential elections could lead to more fiscal integration in the euro area. The proposal to establish a European Monetary Fund (EMF) based on the European Stability Mechanism (ESM), which would probably be possible without treaty changes, is evaluated in this paper. Potential EMF instruments are divided into two categories. Firstly, to strengthen the rules-based EMU framework the EMF could not only replace the IMF in crisis programmes, but could also monitor the implemen-tation of EMU rules by the EU Commission. However, problematic implementation issues could arise. Moreover, in order to strengthen financial market discipline, the EMF could become both platform and agent for an effective and reliable sovereign debt restructuring mechanism. However, as this idea will meet with considerable political resistance, it could probably be only a part of a larger political compromise. [...]
    Date: 2017
  64. By: M. Marx; B. Mojon; F. Velde
    Abstract: Risk-free rates have been falling since the 1980s. The return on capital, defined here as the profits over the stock of capital, has not. We analyze these trends in a calibrated OLG model designed to encompass many of the "usual suspects" cited in the debate on secular stagnation. Declining labor force and productivity growth imply a limited decline in real interest rates and deleveraging cannot account for the joint decline in the risk free rate and increase in the risk premium. If we allow for a change in the (perceived) risk to productivity growth to fit the data, we find that the decline in the risk-free rate requires an increase in the borrowing capacity of the indebted agents in the model, consistent with the increase in the sum of public and private debt since the crisis but at odds with a deleveraging-based explanation put forth in Eggertsson and Krugman (2012).
    Keywords: secular stagnation, interest rates, risk, return on capital.
    JEL: E00 E40
    Date: 2017
  65. By: Inderst, Georg
    Abstract: This study provides an overview of UK infrastructure investment and finance in an international context, yielding interesting facts and insights for both investors and policy makers worldwide. The UK is one of the leading countries in terms of private sector involvement in infrastructure, with several decades’ experience in regulating privatized utilities and in developing public-private partnerships (PPP). It has attracted substantial European and global capital, and London is a major market place for the infrastructure and green business. However, the UK has also seen decades of weak spending by the state (and taxpayers) on infrastructure. The country needs more investment when public budgets are already stretched. The question is whether private capital will be so easily available in future, especially from institutional and foreign investors.
    Keywords: infrastructure investment, infrastructure finance, project finance, public-private partnerships, institutional investors, pension funds, infrastructure policy
    JEL: E22 F21 G15 G18 G22 G23 G28 H54 L9 O16
    Date: 2017–05
  66. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Julia Grübler (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Graph of the month Gross domestic product per capita at purchasing power parities, 2015 (p. 1) Opinion corner What has triggered the current political turbulence in Bulgaria and will that have economic consequences? (by Rumen Dobrinsky; pp. 2-3) Policy dilemmas for the Russian economy (by Vasily Astrov; pp. 4-8) The role of price sensitivity in evaluating the effects of trade policy instruments (by Julia Grübler; pp. 9-14) Inflation and unit labour costs in Central and East European EU Member States (by Leon Podkaminer; pp. 15-20) Recommended reading (p. 21) Statistical Annex Monthly and quarterly statistics for Central, East and Southeast Europe (pp. 22-43)
    Keywords: GDP at PPP, convergence, Bulgaria, elections, Russia, economic policy, Putin, price sensitivity, effects of trade policy instruments, inflation, unit labour costs, CEE
    Date: 2016–12
  67. By: International Monetary Fund
    Abstract: After a difficult start of the year, pressures on the economy are moderating, helped by a stabilizing regional context. Growth, however, is expected to remain lower for longer, making adjustment policies even more important. While the appreciation of the exchange rate, together with the Public Investment Projects rescheduling, has reduced debt vulnerabilities, risks to the debt outlook persist. The authorities are taking additional efforts to adhere to the 2016 fiscal targets, but are asking for a relaxation of the 2017 targets given an improved debt outlook and a still weak economy. Despite declining dollarization, financial sector vulnerabilities remain high.
    Date: 2017–06–02
  68. By: Alyssa G. Anderson; Jane E. Ihrig; Mary-Frances Styczynski; Gretchen C. Weinbach
    Abstract: Since December 2015, the Federal Open Market Committee (FOMC) has increased the target range for the federal funds rate by 25 basis points three times, bringing the target range from 0 to 25 basis points in late 2015 to 75 to 100 basis points in March 2017. This Note examines how this cumulative 75 basis point increase in the target range for the Fed's policy rate has transmitted to other short-term interest rates.
    Date: 2017–06–02
  69. By: Elif C Arbatli; Steven J Davis; Arata Ito; Naoko Miake; Ikuo Saito
    Abstract: We develop new economic policy uncertainty (EPU) indices for Japan from January 1987 onwards building on the approach of Baker, Bloom and Davis (2016). Each index reflects the frequency of newspaper articles that contain certain terms pertaining to the economy, policy matters and uncertainty. Our overall EPU index co-varies positively with implied volatilities for Japanese equities, exchange rates and interest rates and with a survey-based measure of political uncertainty. The EPU index rises around contested national elections and major leadership transitions in Japan, during the Asian Financial Crisis and in reaction to the Lehman Brothers failure, U.S. debt downgrade in 2011, Brexit referendum, and Japan’s recent decision to defer a consumption tax hike. Our uncertainty indices for fiscal, monetary, trade and exchange rate policy co-vary positively but also display distinct dynamics. VAR models imply that upward EPU innovations foreshadow deteriorations in Japan’s macroeconomic performance, as reflected by impulse response functions for investment, employment and output. Our study adds to evidence that credible policy plans and strong policy frameworks can favorably influence macroeconomic performance by, in part, reducing policy uncertainty.
    Date: 2017–05–30
  70. By: Schasfoort, Joeri; Godin, Antoine; Bezemer, Dirk; Caiani, Alessandro; Kinsella, Stephen (Groningen University)
    Date: 2017
  71. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Zeynel Abidin Ozdemir (Gazi University, Ankara, Turkey)
    Abstract: This study investigates the dynamic nexus between oil price and its volatility for oil spot and futures markets by means of stochastic volatility in mean model with time-varying parameters in the conditional mean. The study finds substantial time-variation about the impact of oil price volatility on oil price return in both spot and 1-month to 10-month futures markets. The oil price return volatility has positive impact on oil price return series over the sample period form the mid-1980s to 2017s except for four very short time periods, which correspond to collapse of OPEC in 1986, invasion of Kuwait in 1990/91, Asian crisis in 1997/2000 and the Global Financial Crisis in 2008. While the oil price return volatility has positive impact on oil prices, it has limited negative impact on oil prices during periods corresponding to these historical events. Moreover, the findings from this study point out to the existence of a negative and small effect of the lagged oil return series on its volatility for both the spot and futures markets.
    Keywords: Oil price; Oil price uncertainty; Spot and futures markets; Nonlinearity; Stochastic volatility; State–space.
    JEL: C22 E32
    Date: 2017
  72. By: Carvalho, Carlos (Central Bank of Brazil); Nechio, Fernanda (Federal Reserve Bank of San Francisco)
    Abstract: We show that a calibrated three-sector model with a suitably chosen distribution of price stickiness can closely approximate the dynamic properties of New Keynesian models with a much larger number of sectors. The parameters of the approximate three-sector distribution are such that both the approximate and the original distributions share the same (i) average frequency of price changes, (ii) cross-sectional average of durations of price spells, (iii) cross-sectional standard deviation of durations of price spells, (iv) the cross-sectional skewness of durations of price spells, and (v) cross-sectional kurtosis of durations of price spells. These results provide the tools for a growing literature that tries to estimate empirically-relevant multisector models with much reduced computational costs.
    Date: 2017–06–08
  73. By: International Monetary Fund
    Abstract: Togo has undertaken large public infrastructure projects in recent years. While these investments addressed the deficiencies in the transport infrastructure, the fast pace of investment has contributed to a pronounced increase in public debt and the current account deficit. The current government is committed to reducing the public debt and refocusing its policies on sustainable and inclusive growth.
    Keywords: Sub-Saharan Africa;Togo;
    Date: 2017–05–17
  74. By: Evan C Tanner
    Abstract: Simple macroeconomic frameworks like the IS/LM have survived because they help us conceptualize complex problems while also providing ‘back of the envelope’ estimates of macroeconomic outcomes. Herein, a bare-bones New Keynesian extension of the IS/LM model yields solutions for core macro variables (output gap, inflation, interest rate, real exchange rate misvaluation)—expressed in percent. We then extend that standard model to also generate a corresponding set of demand-side elements—expressed in currency units. A key aim of the paper is to reconcile these two metrics in ways that also aid communication and intuition—including through IS/LM-style graphs.
    Date: 2017–05–24
  75. By: International Monetary Fund
    Abstract: The recovery is expected to advance at a moderate pace, but large uncertainty and downside risks cloud the outlook. GDP growth is projected to reach 3.2 percent in 2017 and 3.3 percent in 2018, with inflation at the low end of the tolerance band (2.5±1.5 percent). Headwinds arise from further weakness and volatility in the external environment, as well as from domestic political uncertainty and structural bottlenecks.
    Date: 2017–05–31
  76. By: Talat S. Genc (Department of Economics, University of Guelph, Guelph ON Canada)
    Abstract: We study equilibrium investment strategies of firms competing in stochastic dynamic market settings and facing two types of investment structures: investment with significant lead time (or time-to-build) and investment without (or minor) lead time. We investigate how investment behavior changes when investment is subject to time-to-build versus when it is not. We characterize equilibrium investment strategies under several information structures and compare results to the social optimum. We offer some new results. The model predicts that, controlling for demand, and production and investment costs, investments and outputs can be higher in progressive industries (which often exhibit time-to-build) than in fast-paced industries (where time-to-build is insignificant). Furthermore, for both investment types (investment with or without time-to-build) we offer a novel equilibrium in which firms incrementally invest. This behavior is driven by demand uncertainty and capacity constraints. Also, expected outputs are lower than Cournot outputs as firms face uncertainty. Moreover, the amount of uncertainty has different effects over investment types.
    Keywords: Capacity Investment, Capacity Constraints, Progressive Industry, Fast-paced Industry, Demand uncertainty, Time-to-build, Markov perfect Equilibrium, Open-loop Equilibrium
    JEL: C73 D92 E22 G31
    Date: 2017
  77. By: International Monetary Fund
    Abstract: Algeria continues to deal with the implications of lower oil prices for an economy that is highly dependent on hydrocarbons. Lower hydrocarbon revenues have led to large current account and fiscal deficits, a steep decline in international reserves (although they remain high), and a near depletion of fiscal savings in the oil stabilization fund. After a timid start, reform momentum is building. Last year, the authorities achieved a sizeable reduction in the fiscal deficit. They have adopted, for the first time, a medium-term budget framework that envisages ambitious fiscal consolidation. They have implemented some structural reforms and are working on a long-term strategy to reshape the country’s growth model. The central bank is adapting to changing liquidity conditions by reintroducing refinancing instruments.
    Date: 2017–06–01
  78. By: Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Christian Pierdzioch (Department of Economics, Helmut Schmidt University, Hamburg, Germany); Refk Selmi (University of Tunis, Campus Universitaire, Tunis, Tunisia and University of Pau, France); 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: Theory suggests that partisan conflict negatively affects the possibility of economic policy change, implying that financial markets tend to operate under lower policy risk. Given that stock-return volatility measures risk, if the gridlock argument holds, stock–market volatility should be lower under divided than under a unified government. Using a partisan conflict index (PCI), we empirically confirm this theoretical argument for the U.S. stock market based on quantiles-based regressions. In particular, quantile-on-quantile regressions show that PCI tends to predict reduced volatility, with the effect being stronger at levels of volatility that are moderately high (i.e., beyond the median, but not at its extreme) for an increase in the predictor, especially with lower initial values (i.e., when PCI is at its lower quantiles).
    Keywords: Partisan Conflict, Realized Volatility, Quantile Regressions
    JEL: C22 E60 G15
    Date: 2017–06

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