nep-mac New Economics Papers
on Macroeconomics
Issue of 2017‒07‒02
95 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Large Firm Dynamics and Secular Stagnation: Evidence from Japan and the U.S. By Yoshihiko Hogen; Ko Miura; Koji Takahashi
  2. Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies By Carrillo Julio A.; Mendoza Enrique G.; Nuguer Victoria; Roldán-Peña Jessica
  3. Stagnation policy in the Eurozone and economic policy alternatives: A Steindlian/neo-Kaleckian perspective By Eckhard Hein
  4. Macroeconomic and stock market interactions with endogenous aggregate sentiment dynamics By Flaschel, Peter; Charpe, Matthieu; Galanis, Giorgos; Proaño Acosta, Christian; Veneziani, Roberto
  5. The welfare cost of macro-prudential policy in a two-country DSGE model By Hilary Patroba
  6. POSITIVE TREND INFLATION AND DETERMINACY IN A MEDIUM-SIZED NEW KEYNESIAN MODEL By Arias, Jonas E.; Ascari, Guido; Branzoli, Nicola; Castelnuovo, Efrem
  7. The Disappointing Recovery of Output after 2009 By John G. Fernald; Robert E. Hall; James H. Stock; Mark W. Watson
  8. Time Varying VAR Analysis for Disaggregated Exchange Rate Pass-through in Tunisia By Dahem, Ahlem; Skander, Slim; Fatma, Siala Guermazi
  9. Firms' Dynamics and Business Cycle: New Disaggregated Data By Lorenza Rossi; Emilio Zanetti Chini
  10. Understanding the Aggregate Effects of Credit Frictions and Uncertainty By Balke, Nathan S.; Martinez-Garcia, Enrique; Zeng, Zheng
  11. Excess saving and low interest rates: Theory and empirical evidence By Bofinger, Peter; Ries, Mathias
  12. Political Power, Resistance to Technological Change and Economic Development: Evidence from the 19th century Sweden By Tyrefors Hinnerich, Björn; Lindgren, Erik; Pettersson-Lidbom, Per
  13. Political Power, Resistance to Technological Change and Economic Development: Evidence from the 19th century Sweden By Tyrefors Hinnerich, Bjorn; Lindgren, Erik; Pettersson-Lidbom, Per
  14. Estimating the Natural Rate of Interest in an Open Economy By Wynne, Mark A.; Zhang, Ren
  15. Modern (American) Capitalism: A Three Act Tragedy By Mark Setterfield
  16. Japanese and U.S. Inflation Dynamics in the 21st Century By Jeff Fuhrer
  17. The fall in real long-term government bond yields: Disentangling different drivers By Łukasz Rawdanowicz; Mohamed Hammouch; Makoto Kasai
  18. Measuring the World Natural Rate of Interest By Wynne, Mark A.; Zhang, Ren
  19. Social Security Contributions and the Business Cycle By Almosova, Anna; Burda, Michael C; Voigts, Simon
  20. The evolution of inflation expectations in Japan By Masazumi Hattori; James Yetman
  21. The Effect of Cash Injections: Evidence from the 1980s Farm Debt Crisis By Nittai K. Bergman; Rajkamal Iyer; Richard T. Thakor
  22. Functional “reversal” and dimensional “decoupling” of “finance” and “the real economy”: a reflection on the “Kaleckian” and “Minskian” limits to over-financialization. By Paolo Piacentini
  23. Monetary Policy According to HANK By Greg Kaplan; Benjamin Moll; Giovanni L. Violante
  24. Measuring consumer expenditures with payment diaries By Schuh, Scott
  25. Central Bank Balance Sheet Analysis By Bagus, Philipp; Howden, David
  26. Uncertainty and the Cost of Bank vs. Bond Finance By Grimme, Christian
  27. Big Data and Unemployment Analysis By Simionescu, Mihaela; Zimmermann, Klaus F.
  28. Macroprudential policy and bank risk By Yener Altunbas; Mahir Binici; Leonardo Gambacorta
  29. The shift in bank credit allocation: new data and new findings By Dirk Bezemer; Anna Samarina; Lu Zhang
  30. Sparen in der "Nullzinsphase". Privatanleger und der Kapitalmarkt in Deutschland im Ersten Weltkrieg By Hardach, Gerd
  31. Identifying Dornbusch's Exchange Rate Overshooting with Structural VECs: Evidence from Mexico By Capistrán Carlos; Chiquiar Daniel; Hernández Juan R.
  32. Understanding the Cross-Country Effects of US Technology Shocks By Wataru Miyamoto; Thuy Lan Nguyen
  33. Risk indicators for financial market infrastructure: from high frequency transaction data to a traffic light signal By Ron Berndsen; Ronald Heijmans
  34. Welfare analysis of bank capital requirements with endogenous default By Fernando Garcia-Barragan; Guangling Liu
  35. Subprime Mortgages and Banking in a DSGE Model By Martino, Ricci; Patrizio, Tirelli
  36. Communication of monetary policy in unconventional times By Coenen, Günter; Ehrmann, Michael; Gaballoz, Gaetano; Hoffmann, Peter; Nakov, Anton; Nardelli, Stefano; Persson, Eric; Strasser, Georg
  37. Measuring International Uncertainty : The Case of Korea By Minchul Shin; Boyuan Zhang; Molin Zhong; Dong Jin Lee
  38. Cyclical patterns in risk indicators based on financial market infrastructure transaction data By Monique Timmermans; Ronald Heijmans; Hennie Daniels
  39. The International Dimensions of Macroprudential Policies By Agénor, Pierre-Richard; Gambacorta, Leonardo; Kharroubi, Enisse; Lombardo, Giovanni; Pereira da Silva, Luiz A.
  40. Minsky models. A structured survey By Nikolaidi, Maria; Stockhammer, Engelbert
  41. Accounting for debt service: the painful legacy of credit booms By Mathias Drehmann; Mikael Juselius; Anton Korinek
  42. The impact of uncertainty on macro variables: An SVAR-based empirical analysis for EU countries By Belke, Ansgar; Kronen, Dominik
  43. Factor Models for Non-Stationary Series: Estimates of Monthly U.S. GDP By Martina Hengge; Seton Leonard
  44. Effects of Fiscal Policy Shocks in CE3 Countries (TVAR Approach) By Mirdala, Rajmund; Kameník, Martin
  45. Modeling U.S. Historical Time-Series Prices and Inflation Using Various Linear and Nonlinear Long-Memory Approaches By Giorgio Canarella; Luis A. Gil-Alaña; Rangan Gupta; Stephen M. Miller
  46. A comment on Wu and Xia (2016) from a macroeconomic perspective By Leo Krippner
  47. Volatility and Growth: A not so straightforward relationship By Dimitrios Bakas; Georgios Chortareas; Georgios Magkonis
  48. Factor-specific technology choice By Jakub Growiec
  49. World steel production: A new monthly indicator of global real economic activity By Francesco Ravazzolo; Joaquin Vespignani
  50. Financialisation and tendencies towards stagnation: The role of macroeconomic regime changes in the course of and after the financial and economic crisis 2007-9 By Hein, Eckhard
  51. Product Market Competition and Financial Market Screening By Yuichiro Matsumoto
  52. Effects of Fiscal Policy Shocks in the Euro Area (Lessons Learned from Fiscal Consolidation) By Mirdala, Rajmund
  53. The Knotty Interplay Between Credit and Housing By Mihnea Constantinescu; Povilas Lastauskas
  54. Effects of Macroeconomic Uncertainty and Labor Demand Shocks on the Housing Market By Gabriel Lee; Binh Nguyen Thanh; Johannes Strobel
  55. Financial globalisation, monetary policy spillovers and macro-modelling: tales from 1001 shocks By Georgiadis, Georgios; Jančoková, Martina
  56. The Path Forward for U.S. Monetary Policy : a presentation at Illinois Bankers Association Annual Conference, Nashville, Tenn. June 23, 2017. By Bullard, James B.
  57. The Relationship between the Inflation Rate and Inequality across U.S. States: A Semiparametric Approach By Mehmet Balcilar; Shinhye Chang; Rangan Gupta; Stephen M. Miller
  58. China’s Household Balance Sheet: Accounting Issues, Wealth Accumulation, and Risk Diagnosis By Li, Cheng
  59. 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
  60. Boom, Slump, Sudden stops, Recovery, and Policy Options. Portugal and the Euro. By Olivier Blanchard; Pedro Portugal
  61. Bank Stability and Competition: Evidence from Albanian Banking Market By Shijaku, Gerti
  62. Infrastructure Investment, Labor Productivity, and International Competitiveness: The Case of Portugal By Alfredo Marvão Pereira; Rui Manuel Pereira
  63. Food Price Shocks and Government Expenditure Composition: Evidence from African Countries By Carine MEYIMDJUI
  64. Are the Islamic and conventional money markets really highly correlated ? MGARCH-DCC and Wavelet approaches By Chen, Bai; Masih, Mansur
  65. The Impact of the Monetary Policy Interventions on the Insurance Industry By Loriana Pelizzon; Matteo Sottocornola
  66. Banks' search for yield in the low interest rate environment: a tale of regulatory adaptation By Wang, J. Christina
  67. Prediction intervals for inflation and unemployment rate in Romania. A Bayesian approach By Simionescu, Mihaela
  68. The Rise and Fall of the Subsistence Fund as a Resource Constraint in Austrian Business Cycle Theory By Braun, Eduard; Howden, David
  69. Interest premium and economic growth: the case of CEE By Dániel Baksa; István Kónya
  70. Financial Literacy Externalities By Haliassos, Michael; Jansson, Thomas; Karabulut, Yigitcan
  71. Static and Dynamic Indicators in the Analysis of Internal Sources of Companies’ Investments Financing By Bukvić, Rajko; Pavlović, Radica; Gajić, Aleksandar
  72. Scenario Analysis of the Impact of Reducing the Export Duty on Oil on the Russian Economy within the Framework of the General Equilibrium Model By Zubarev, Andrey; Polbin, Andrey
  73. 22 Years of inflation assessment and forecasting experience at the bulletin of EU & US inflation and macroeconomic analysis By Senra, Eva; Espasa Terrades, Antoni
  74. Updating the Long Term Rate in Time: A Possible Approach By Petr Jakubik; Diana Zigraiova
  75. Does Social Security crowd out Private Savings? The Case of Bismarck’s System of Social Insurance By Lehmann-Hasemeyer, Sibylle; Streb, Jochen
  76. Mortgage Default in an Estimated Model of the U.S. Housing Market By Lambertini Luisa; Nuguer Victoria; Uysal Pinar
  77. Narrow Banking with Modern Depository Institutions: Is there a Reason to Panic? By Hugo Rodríguez Mendizábal
  78. The Interest Rate and the Length of Production: A Comment By Howden, David
  79. Geopolitical Tensions, OPEC News, and Oil Price: A Granger Causality Analysis. By Carlos Medel
  80. Having It All? Employment, Earnings and Children By Laun, Tobias; Wallenius, Johanna
  81. Prévision du coefficient de la réserve obligatoire de la Banque centrale du Congo. By Pinshi, Christian; Mukendi, Christian; Ndombe, Patrick
  82. Public debt in India: Moving towards a prudent level? By Isabelle Joumard; Peter Hoeller; Jean-Marc Fournier; Hermes Morgavi
  83. Non-Local Macroeconomic Transactions and Credits-Loans Surface-Like Waves By Victor Olkhov
  84. It Sucks to Be Single! Marital Status and Redistribution of Social Security By Groneck, Max; Wallenius, Johanna
  85. Detecting Scapegoat Effects in the Relationship Between Exchange Rates and Macroeconomic Fundamentals By Lorenzo Pozzi; Barbara Sadaba
  86. Smoothing Algorithms by Constrained Maximum Likelihood By Yang, Bill Huajian
  87. The Determinants of Consumer Price Dispersion: Evidence from French Supermarkets By N. Berardi; P. Sevestre; J. Thébault
  88. Evaluating Investments in Portability and Interoperability between Software Service Platforms By Netsanet Haile; Jörn Altmann
  89. Age and Gender Group Differences in Employment Responses to Monetary Policy Shock in a Small Open Economy: The Case of Korea By Sungyup Chung
  90. Analysis of tax harmonisation in the SADC By Michael Ade; Jannie Rossouw; Tendai Gwatidzo
  91. The Walking Dead?: Zombie Firms and Productivity Performance in OECD Countries By Muge Adalet McGowan; Dan Andrews; Valentine Millot
  93. Auto Financing during and after the Great Recession By Ralf R. Meisenzahl
  94. The effects of an increase of the energy price on macroeconomic activity: a comparative static approach By Chen, John-ren
  95. Impact of Mergers and Acquisitions on European Insurers: Evidence from Equity Markets By Petr Jakubik; Dimitris Zafeiris

  1. By: Yoshihiko Hogen (Bank of Japan); Ko Miura (Bank of Japan); Koji Takahashi (Bank of Japan)
    Abstract: Focusing on the recent secular stagnation debate, this paper examines the role of large firm dynamics as determinants of productivity fluctuations. We first show that idiosyncratic shocks to large firms as well as entry, exit, and reallocation effects account for 30 to 40 percent of productivity fluctuations in Japan and the U.S. Second, since the mid-2000s, the slowdown in large foreign firm entry into the U.S. has led to a decline in business dynamics and downward pressures on productivity growth. Third, we identify demand and supply shocks by matching idiosyncratic large-firm shocks in the granular residual (Gabaix, 2011) and changes in sectoral inflation rates and show that the prolonged slowdown in productivity growth in Japan and the U.S. was mostly driven by supply shocks. Overall, our results support the supply-side views of Gordon (2012, 2015, 2016) in the secular stagnation debate.
    Keywords: Granular Hypothesis; Entry-Exit; Productivity Growth; Secular Stagnation
    JEL: E13 E23 E32 D21
    Date: 2017–06–21
  2. By: Carrillo Julio A.; Mendoza Enrique G.; Nuguer Victoria; Roldán-Peña Jessica
    Abstract: In a New Keynesian model with the BGG accelerator and risk shocks, we show that violations of Tinbergen's Rule and strategic interaction between economic authorities undermine the effectiveness of monetary and financial policies. Separate monetary and financial policy rules produce higher welfare than a monetary rule augmented with credit spreads. The latter yields a tight money-tight credit regime in which the interest rate responds too much to inflation and not enough to credit. Reaction curves for the policy-rule elasticities are nonlinear, which reflects shifts in these elasticities from strategic substitutes to complements. The Nash equilibrium is inferior to the Cooperative equilibrium, both are inferior to a first-best outcome, and both might produce tight money-tight credit regimes.
    Keywords: Financial Frictions;Monetary Policy;Financial Policy
    JEL: E44 E52 E58
    Date: 2017–06
  3. By: Eckhard Hein (Berlin School of Economics and Law, Berlin (GE))
    Abstract: Empirically, the macroeconomic institutions and the macroeconomic policy approach in the Eurozone have failed badly, both in terms of preventing the global financial and economic crisis from becoming a euro crisis and in generating a rapid recovery from the crisis, in particular. In this paper I will argue that the dominating macroeconomic policy regime in the Eurozone can be seen as a version of what Steindl (1979) had called ‘stagnation policy’. To underline this argument, I will provide a simple Steindlian distribution and growth model in order to identify the main channels through which stagnation policy affects accumulation and productivity growth. This will also provide a set of elements of a Steindlian anti-stagnation policy. Against this theoretical background I will then examine the macroeconomic institutions and the macroeconomic policy approach of the Eurozone which has been based on the New Consensus Macroeconomics (NCM) and I will highlight its main deficiencies. This will then provide the grounds for an outline of an alternative macroeconomic policy approach for the specific institutional setup of the Eurozone based on a post-Keynesian/Steindlian/neo-Kaleckian approach.
    Keywords: Stagnation, stagnation policy, Eurozone, policy alternatives, Steindl.
    JEL: E02 E11 E12 E61 E63 E64 E65 F45
    Date: 2017–06
  4. By: Flaschel, Peter; Charpe, Matthieu; Galanis, Giorgos; Proaño Acosta, Christian; Veneziani, Roberto
    Abstract: This paper studies the implications of heterogeneous capital gain expectations on output and asset prices. We consider a disequilibrium macroeconomic model where agents' expectations on future capital gains affect aggregate demand. Agents' beliefs take two forms - fundamentalist and chartist - and the relative weight of the two types of agents is endogenously determined. We show that there are two sources of instability arising from the interaction of the financial with the real part of the economy, and from the heterogeneous opinion dynamics. Two main conclusions are derived. On the one hand, perhaps surprisingly, the non-linearity embedded in the opinion dynamics far from the steady state can play a stabilizing role by preventing the economy from moving towards an explosive path. On the other hand, however, real-financial interactions and sentiment dynamics do amplify exogenous shocks and tend to generate persistent fluctuations and the associated welfare losses. We consider alternative policies to mitigate these effects.
    Keywords: real-financial interactions,heterogeneous expectations,,aggregate sentiment dynamics,macro-financial instability
    JEL: E12 E24 E32 E44
    Date: 2017
  5. By: Hilary Patroba
    Abstract: This paper builds a two-country DSGE model with financial frictions and investigates the welfare cost of macro-prudential policy and its impact on financial stability. The two countries in question are the U.S. and South Africa. The results show that macro-prudential policy results in a welfare trade-off between patient and impatient households. The impact of macro-prudential policy tends to benefit patient households more than impatient households. By decreasing the volatility of loans uptake and output growth, macro-prudential policy could helps to achieve financial stability in South Africa.
    Keywords: welfare cost, credit growth, macro-prudential policy, Financial Stability, two-country, DSGE model
    JEL: E32 E44 E52 E58
    Date: 2017–05
  6. By: Arias, Jonas E. (Federal Reserve Bank of Philadelphia); Ascari, Guido (University of Oxford, University of Pavia, and Bank of Finland); Branzoli, Nicola (Bank of Italy); Castelnuovo, Efrem (University of Melbourne and University of Padova)
    Abstract: This paper studies the challenge that increasing the inflation target poses to equilibrium determinacy in a medium-sized New Keynesian model without indexation fitted to the Great Moderation era. For moderate targets of the inflation rate, such as 2 or 4 percent, the probability of determinacy is near one conditional on the monetary policy rule of the estimated model. However, this probability drops significantly conditional on model-free estimates of the monetary policy rule based on real-time data. The difference is driven by the larger response of the federal funds rate to the output gap associated with the latter estimates.
    Keywords: trend inflation; determinacy; monetary policy
    JEL: C22 E3 E52
    Date: 2017–06–21
  7. By: John G. Fernald; Robert E. Hall; James H. Stock; Mark W. Watson
    Abstract: U.S. output has expanded only slowly since the recession trough in 2009, even though the unemployment rate has essentially returned to a pre-crisis, normal level. We use a growth-accounting decomposition to explore explanations for the output shortfall, giving full treatment to cyclical effects that, given the depth of the recession, should have implied unusually fast growth. We find that the growth shortfall has almost entirely reflected two factors: the slow growth of total factor productivity, and the decline in labor force participation. Both factors reflect powerful adverse forces that are largely unrelated to the financial crisis and recession—and that were in play before the recession.
    JEL: E22 E24 E32 J21
    Date: 2017–06
  8. By: Dahem, Ahlem; Skander, Slim; Fatma, Siala Guermazi
    Abstract: Our paper follows the "Time Varying Parameter VAR with Stochastic Volatility" (TVP VAR) approach developed by Primiceri (2005): Bayesian estimation with time varying coefficients and stochastic volatility. Our paper contributes to the literature by examining if the impact of monetary and exchange rate shocks have varied over time in Tunisia through a disaggregated analysis of exchange rate pass-through by introducing time variability in two ways; firstly, by assuming That all the coefficients of the VAR model are variant in time, and secondly, in the temporal variance-covariance matrix, that is the error term’s volatility of the VAR model. The multivariate stochastic volatility aims at capturing the heteroskedasticity of shocks and non linearities in the simultaneous relationships between the variables of the model. In fact, it allows us to capture abrupt and progressive changes in state variables. Given the structural and institutional changes in the Tunisian economy over the last few decades, it is important to emphasize the possibility of such a temporal variation in the empirical methodology. To the best of our knowledge, this work is among the first to apply the TVP-VAR approach with stochastic volatility to the shocks of monetary and exchange rate policies in Tunisia. Overall, the findings confirm that the modeling approch; i.e the TVP-VAR, is the best tool to analyze the impact of these shocks in Tunisia. The results of the study can help the short- and long-term decision-makers in Tunisia to adopt appropriate strategies for conducting monetary policy as well as containing inflation.
    Keywords: TVP VAR approach – Bayesian estimation – Disaggregate Analysis – Exchange rate Pass-through – Monetary policy – Tunisia
    JEL: C11 C32 E31 E42 E52 E61 F31 F41 O55
    Date: 2017
  9. By: Lorenza Rossi (Department of Economics and Management, University of Pavia); Emilio Zanetti Chini (Department of Economics and Management, University of Pavia)
    Abstract: We provide stylized facts on firms dynamics by disaggregating U.S. yearly data from 1977 to 2013. To this aim, we use an unobserved component-based method, encompassing several classical regression-based techniques currently in use. Our new time series of entry and exit of firms at establishment level are feasible proxies of business cycle. Exit is a leading and countercyclical indicator, while entry is lagging and procyclical. A structural econometric analysis supports the findings of the most recent theoretical literature on firms dynamics. Standard macroeconometric models estimated from our data outperform their equivalents estimated using the existing series.
    Keywords: Entry and Exit, State Space, Business Cycle, Disaggregation, SVAR.
    JEL: C13 C32 C40 E30 E32
    Date: 2017–06
  10. By: Balke, Nathan S. (Southern Methodist University); Martinez-Garcia, Enrique (Federal Reserve Bank of Dallas); Zeng, Zheng (Bowling Green State University)
    Abstract: This paper integrates a financial accelerator mechanism à la Bernanke et al. (1999) and timevarying uncertainty into a Dynamic New Keynesian model. We examine the extent to which uncertainty and credit conditions interact with one another. The idea is that uncertainty aggravates the information asymmetry between lenders and borrowers, and worsens credit conditions. Already poor credit conditions amplify the effect of shocks (to both the mean and variance) on the aggregate economy. In our model, uncertainty modelled as time-varying stochastic volatility emerges from monetary policy (policy uncertainty), financial risks (microuncertainty), and the aggregate state of the economy (macro-uncertainty). Using a third order approximation, we find that micro-uncertainty has first order effects on economic activity through its direct impact on credit conditions. We also find that if credit conditions (as measured by the endogenous risk spread) are already poor, then additional micro-uncertainty shocks have even larger real effects. In turn, shocks to aggregate uncertainty (macro- and policy-uncertainty) have relatively small direct effects on aggregate economic activity.
    JEL: C32 D8 E32 E44
    Date: 2017–06–20
  11. By: Bofinger, Peter; Ries, Mathias
    Abstract: The debate on low real long-term interest rates is dominated by the loanable funds theory (LFT). 'Excess saving' above all due to demographic factors, is regarded as a main cause of low rates. We show that LFT is not a useful theoretical framework. It is based on a commodity paradigm ('real analysis') which cannot represent a financial system with flow of funds consisting of money. In a 'monetary analysis' saving is disconnected from the supply of funds. Funds are provided by banks which create money and investors that are willing to give up liquidity. A simple model which is based on the 'monetary analysis' is the IS/LM-model. In this model even at the zero lower bound 'excess saving' is not possible. The empirical evidence for 'excess saving' is weak. At the global level and for the United States the net saving rate and the gross household saving rate have declined significantly since the 1980s. For the United States in line with the monetary analysis a 'financing glut' can be identified for the period preceding the Great Recession. It was followed by a 'borrowing dearth'. For the postwar period, the real rates of the early 1980s can be identified as an outlier so that the trend decline since this period can be regarded as a reversion to the mean.
    Keywords: Flow of Funds; interest rates; monetary policy
    JEL: E43 E50 E52
    Date: 2017–06
  12. By: Tyrefors Hinnerich, Björn (Research Institute of Industrial Economics (IFN)); Lindgren, Erik (Department of Economics, Stockholm University); Pettersson-Lidbom, Per (Research Institute of Industrial Economics (IFN))
    Abstract: This paper empirically tests the hypothesis that landed elites may block technological change and economic development if they fear that they will lose future political power (Acemoglu and Robinson (2002, 2006, and 2012). It exploits a plausible exogenous change in the distribution of political power of the landed elites, i.e., a Swedish suffrage reform in 1862 which extended the voting rights to industrialists at the local level. Importantly, the votes were also weighted according to taxes paid. Thus, the higher taxes paid the more votes received. As a result, the landed elites had an incentive to block industrialization and technological progress since they otherwise would be “political losers”. We find that the change in political power from the landed elites to industrialists, through the extension of suffrage rights, lead to more investments in railways, faster structural change, and higher firm productivity. We also find that the change of political power affected both labor coercion and the adaption of labor-saving technologies within the agriculture sector along the lines suggested by Acemoglu and Wolitzky (2011) and Acemoglu (2010). Specifically, we find that is more labor coercion and less investments in labor-saving technologies in areas were landowners have more political power. We also provide evidence that many demographic outcomes were affected by the change in political power. Moreover, we find strong evidence of persistence in both extractive economic and political institutions even after the weighted voting system was abolished and universal suffrage introduced in 1919. Specifically, local governments that were previously political controlled by the landed elites were still using both extractive economic and political institutions (Acemoglu and Robinson (2008)).
    Keywords: Economic development and growth; Political institutions; Technological change; Industrialization; Labor coercion; Labor-saving technologies; Persistence of extractive economic and political institutions
    JEL: E22 E23 E24 E62 F15 H41 H52 H53 H70 J10 J21 J22 J23 J24 J31 J32 J41 J43 J47 N10 N33 N53 N63 N73 N93 O10 O14 O15 O18 O33 O40 O52 R10 R42
    Date: 2017–06–21
  13. By: Tyrefors Hinnerich, Bjorn (Dept. of Economics, Stockholm University); Lindgren, Erik (Dept. of Economics, Stockholm University); Pettersson-Lidbom, Per (Dept. of Economics, Stockholm University)
    Abstract: This paper empirically tests the hypothesis that landed elites may block technological change and economic development if they fear that they will lose future political power (Acemoglu and Robinson (2002, 2006, and 2012). It exploits a plausible exogenous change in the distribution of political power of the landed elites, i.e., a Swedish suffrage reform in 1862 which extended the voting rights to industrialists at the local level. Importantly, the votes were also weighted according to taxes paid. Thus, the higher taxes paid the more votes received. As a result, the landed elites had an incentive to block industrialization and technological progress since they otherwise would be “political losers”. We find that the change in political power from the landed elites to industrialists, through the extension of suffrage rights, lead to more investments in railways, faster structural change, and higher firm productivity. We also find that the change of political power affected both labor coercion and the adaption of labor-saving technologies within the agriculture sector along the lines suggested by Acemoglu and Wolitzky (2011) and Acemoglu (2010). Specifically, we find that is more labor coercion and less investments in labor-saving technologies in areas were landowners have more political power. We also provide evidence that many demographic outcomes were affected by the change in political power. Moreover, we find strong evidence of persistence in both extractive economic and political institutions even after the weighted voting system was abolished and universal suffrage introduced in 1919. Specifically, local governments that were previously political controlled by the landed elites were still using both extractive economic and political institutions (Acemoglu and Robinson (2008)).
    Keywords: Economic development and growth; Political institutions; Technological change; Industrialization; Labor coercion; Labor-saving technologies; Persistence of extractive economic and political institutions
    JEL: E22 E23 E24 E62 F15 H41 H52 H53 H70 J10 J21 J22 J23 J24 J31 J32 J41 J43 J47 N10 N33 N53 N63 N73 N93 O10 O14 O15 O18 O33 O40 O52 R10 R42
    Date: 2017–06–26
  14. By: Wynne, Mark A. (Federal Reserve Bank of Dallas); Zhang, Ren (Bowling Green State University)
    Abstract: The concept of the natural or equilibrium rate of interest has attracted a lot of attention from monetary policymakers in recent years. Most attempts to estimate the natural rate use a closed economy framework. We argue that in the face of greater integration of global product and capital markets, an open economy framework is more appropriate. We provide some initial estimates of the natural rate for the United States and Japan in a two-country framework. Our identifying assumptions include a close relationship between the time-varying natural rate of interest and the low-frequency fluctuations of potential output growth in both the home country and the foreign country. Our results suggest that the natural rates in both countries are mainly determined by their own trend growth rates of potential output. Nevertheless, the other country's trend growth plays an important role in several specific periods. The gap between the actual real interest rate and our estimated natural rate offers valuable insights into the recent stance of monetary policy in both of these two countries.
    JEL: C32 E32 E4 E52
    Date: 2017–06–20
  15. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: This paper examines the process of demand formation in capitalist economies characterized by high levels of household indebtedness, with a particular focus on contemporary developments and their sustainability. The thesis developed is that over the past 35 years, supply-side economics hollowed out the core of the demand-generating mechanism in US capitalism, with disastrous consequences. Particular attention is focused on the interplay of growing inequality, emulation effects, the erosion of social provision, household debt accumulation, and the evolution of consumption spending. The unsustainability of these processes gives rise to a discussion of initiatives that might alter the process of demand-formation so as to make it both more equitable and more sustainable.
    Keywords: Neoliberalism, supply-side economics, zapping labor, incomes policy based on fear, household debt, financial fragility
    JEL: E12 E21 E24 E25 E61 E64
    Date: 2017–06
  16. By: Jeff Fuhrer (Federal Reserve Bank of Boston (E-mail: jeff.
    Abstract: This paper examines the behavior of inflation in the U.S. and Japan over the past twenty-five years. The paper estimates structural models of inflation dynamics for both countries, relying on survey measures as proxies for expectations. The results suggest some promising directions for inflation modeling in both countries. First, the use of survey expectations as proxies for the expectations in conventional models appears to be helpful, aiding in identification of the inflation process in both countries. Second, methods for endogenizing such expectations are tractable and replicable. They require the measurement of longer-term expectations, but such data are available for many key variables in many developed economies. Third, models that incorporate such expectations identify a rationale for the behavior of US and Japanese inflation: a. Long-run expectations anchor the process, although long-run expectations can be influenced over time by persistent deviations of inflation (or output) from their long-run equilibria; b. Short-run expectations are tied to their long-run counterparts, but they can deviate quite persistently from long-run expectations, due to persistent deviations of output from potential, and due to intrinsic persistence in the expectations; c. Inflation appears well-explained by short-run expectations and a traditional output gap; Fourth, the balance sheet actions in Japan appear to have boosted short-run inflation expectations, compared to where they would have been without such actions. The estimates in this paper suggest that this in turn has helped to raise realized inflation by about one-half percentage point.
    Keywords: Inflation dynamics, Intrinsic Persistence, Survey expectations
    JEL: E31 E32 E52 D84
    Date: 2017–06
  17. By: Łukasz Rawdanowicz (OECD); Mohamed Hammouch; Makoto Kasai (OECD)
    Abstract: This paper contributes to the empirical literature investigating reasons for the fall in real interest rates in advanced economies. It focuses on selected drivers from three broad categories: demographic changes; imbalances between supply of and demand for safe assets; and monetary policy at home and abroad. Several country-specific error-correction models are estimated for the G7 countries, starting in the early 1970s. Results support the expected relationship with demographic variables. However, this is not corroborated by models with household saving, raising questions about transmission mechanisms of demography. For most countries, there is little robust evidence about the role of proxies of the supply of and demand for government bonds. However, real long-term government bond yields are closely linked with real policy interest rates, with little evidence that real policy interest rates followed secular declines in real potential GDP growth – a proxy of a neutral interest rate. Domestic real yields are also affected by foreign real rates, indicating the role of spillovers and common global trends.
    Keywords: Demand for safe assets, Demographic transition, Monetary policy, Real interest rate, Saving rate
    JEL: C22 E43 E52 E58 F31 J11
    Date: 2017–06–30
  18. By: Wynne, Mark A. (Federal Reserve Bank of Dallas); Zhang, Ren (Bowling Green State University)
    Abstract: This paper makes the first attempt to estimate the time-varying natural rate jointly with the output gap and trend potential output growth for the world as a whole using a simple unobserved components model broadly following the methodology developed by Laubach and Williams (2003). We find that the world natural rate has been trending down for the past few decades. Nearly half of the variation in the natural rate is accounted for by the trend potential output growth rate. However, the relationship between the world natural interest rate and the world trend growth is modest and not statistically significant.
    JEL: C32 E32 E4 E52
    Date: 2017–06–01
  19. By: Almosova, Anna; Burda, Michael C; Voigts, Simon
    Abstract: This paper examines magnitudes and business cycle dynamics of social security contributions (SSC). In most OECD countries studied, we document a negative covariation of payroll tax burdens with GDP and GDP growth at business cycle and lower frequencies. We assess the overall magnitude of the distortion following Barro and Redlick (2011). For most countries, average marginal SSC tax rates exceed average rates, but the latter tracks the former tightly. Changes in average payroll tax burdens are mostly accounted for by changes in tax schedules rather than shifts in the earnings distribution over time. For many countries, SSC rates behave like estimated values of the "labor wedge" (Chari et al. 2007, Brinca et al., 2016).
    Keywords: Business cycle; labor wedge; payroll tax; social security contributions
    JEL: E24 E32 H55 J32
    Date: 2017–06
  20. By: Masazumi Hattori; James Yetman
    Abstract: We model inflation forecasts as monotonically diverging from an estimated long-run anchor point towards actual inflation as the forecast horizon shortens. Fitting the model with forecaster-level data for Japan, we find that the estimated anchors across forecasters have tended to rise in recent years, along with the dispersion in estimates across forecasters. Further, the degree to which these anchors pin down inflation expectations at longer horizons has increased, but remains considerably lower than found in a similar study of Canadian and US forecasters. Finally, the wide dispersion in estimated decay paths across forecasters points to a diverse set of views across forecasters about the inflation process in Japan.
    Keywords: Inflation expectations, decay function, inflation targeting, deflation
    JEL: E31 E58
    Date: 2017–06
  21. By: Nittai K. Bergman; Rajkamal Iyer; Richard T. Thakor
    Abstract: What is the effect of cash injections during financial crises? Exploiting county-level variation arising from random weather shocks during the 1980s Farm Debt Crisis, we analyze and measure the effect of local cash flow shocks on the real and financial sector. We show that such cash flow shocks have significant impact on a host of economic outcomes, including land values, loan delinquency rates, the probability of bank failure, employment, and wages. Estimates of the effect of local cash flow shocks on county income levels during the financial crisis yield a multiplier of 1.63.
    JEL: D22 D24 D31 E23 E24 E51 G01 G21
    Date: 2017–06
  22. By: Paolo Piacentini (Department of Social Sciences and Economics - Sapienza University of Rome (Italy))
    Abstract: The predominance of “financial” interests in the operation of present-day capitalism is very much at the centre of the research agenda within the “Post-Keynesian” field. Two “schools”, firmly established in this tradition, and talented scholars, have provided advances for the understanding of the implications and risks of “financialization”. I refer to the schools, intuitively, as the “Kaleckian” and the “Minskian” schools. “Neo-Kaleckians” stress the medium-term implications for growth performance and distributive trends in the real economy; “Minskians” have recently insisted that innovative practices of modern finance such as shadow banking, securitization, etc., will eventually increase the fundamental “fragility” of capitalism, as in Minsky’s seminal intuition. Although extensive literature has produced important results in recent years, there is still ground for further, “comprehensive”, reflection upon the interaction between “finance” and “the real economy”. This contribution is targeted in that direction. Two phenomena are described as “fundamentals”, giving rise to further consequences. The first is reversal: the relationship between the financial and the real spheres of the economy is now “inverted” with respect to the conventional wisdom of economists, which holds that “finance” services the “real economy”, turning savings into investments. With the reversal, it is now the real economy that services finance, as the originator of debt obligations, upon which assets and trading on the financial markets are established. The second is decoupling: this is understood as the dilatation of the value of financial wealth, relative to real output levels and growth. One important piece of evidence for this notion is the decline in investment to profit ratios in mature economies. Can actual trends in real growth “sustain”, for evermore, a disproportional inflation of financial values? Might the ratio to GDP of the value of the “patrimoines”, by which I mean the aggregation of all riches (Piketty) steadily increase? If the valuation of financial assets is essentially founded upon the servicing of debt obligations out of the proceeds of real activities, more and more “decoupling” might imply that there is a risk that capitalism may engage in a global “Ponzi” scheme.
    Keywords: Financialisation; Wealth; Real Investment.
    JEL: E44 E21
    Date: 2017–06
  23. By: Greg Kaplan (University of Chicago and NBER (E-mail: gkaplan@; Benjamin Moll (Princeton University and NBER (E-mail:; Giovanni L. Violante (Princeton University, CEPR and NBER (E-mail:
    Abstract: We revisit the transmission mechanism of monetary policy for household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of wealth and marginal propensities to consume because of two features: uninsurable income shocks and multiple assets with different degrees of liquidity and different returns. In this environment, the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution. This finding is in stark contrast to small- and medium-scale Representative Agent New Keynesian (RANK) economies, where the substitution channel drives virtually all of the transmission from interest rates to consumption. Failure of Ricardian equivalence implies that, in HANK models, the fiscal reaction to the monetary expansion is a key determinant of the overall size of the macroeconomic response.
    Keywords: Monetary Policy, Heterogeneous Agents, New Keynesian, Consumption, Liquidity, Inequality
    JEL: D14 D31 E21 E52
    Date: 2017–06
  24. By: Schuh, Scott (Federal Reserve Bank of Boston)
    Abstract: As the 2012 Diary of Consumer Payment Choice (DCPC) illustrates, there are advantages to measuring consumer expenditures by tracking the authorization of payments by instrument type (cash, check, debit or credit card, etc.). The main advantages of payment diaries appear to be the following: 1) the ability to measure expenditures by payment instrument aggregated into lumpy purchases (“shopping baskets”), 2) relatively low respondent burden, and 3) effective random sampling. Three notable results emerge from comparing the 2012 DCPC estimates with estimates from other reputable estimates of the current value of consumer expenditures: 1) DCPC payments estimates are 75 percent higher than Consumer Expenditure Survey estimates; 2) DCPC consumption estimates are 17 percent higher than personal consumption expenditures estimates in comparable expenditure categories (about half of the categories are comparable); and 3) DCPC payments roughly equal comparably adjusted national income and product accounts disposable income.
    Keywords: payments; consumer expenditures; consumption; income; diary survey
    JEL: D12 D14 E21
    Date: 2017–01–20
  25. By: Bagus, Philipp; Howden, David
    Abstract: Balance sheet analysis is standard practice for assessing private sector businesses. No such analysis has been applied to central banks previously. We provide the theoretical foundation and rationale for such analysis. This foundation is rooted in the quality theory of money which places special emphasis on subjective factors as a complement to the more conventional quantitative factors that determine money’s purchasing power. The balance sheet of a central bank reveals the quality of the assets backing a currency and serves as an indicator of future monetary policy. Several accounting ratios proxy the quality of money in terms of assets held by the central bank, alluding to potential shifts in its purchasing power. These ratios can also be used to estimate the scope of future monetary policies that are feasible by the central bank.
    Keywords: Central Bank Balance Sheet, Quality of Money, Balance sheet analysis, Monetary Policy, Inflation
    JEL: E31 E52 E58 E59 M4 M40
    Date: 2016
  26. By: Grimme, Christian
    Abstract: How does heightened uncertainty affect the costs of raising finance through the bond market and through bank loans? Empirically, I find that a rise in uncertainty is accompanied by an increase in corporate bond yields and a decrease in bank lending rates. This new stylized fact can be explained in a model with costly state verification and a special informational role for banks. In contrast to bond investors, banks acquire additional costly information about borrowers in times of uncertainty in order to reduce uncertainty. Having this information, the lending relationship becomes more valuable to the bank, resulting in a lower lending rate so that the relationship is not put at risk. The cost of bond finance increases because bond investors demand to be compensated for the increased risk of firm default. These findings suggest that the adverse effects of uncertainty are mitigated for firms that rely on bank finance as long as banks are highly capitalized.
    Keywords: Uncertainty Shocks, Financial Frictions, Relationship Banking, Bank Loan Rate Setting, Information Acquisition
    JEL: E32 E43 E44 G21
    Date: 2017–06–23
  27. By: Simionescu, Mihaela; Zimmermann, Klaus F.
    Abstract: Internet or "big" data are increasingly measuring the relevant activities of individuals, households, firms and public agents in a timely way. The information set involves large numbers of observations and embraces flexible conceptual forms and experimental settings. Therefore, internet data are extremely useful to study a wide variety of human resource issues including forecasting, nowcasting, detecting health issues and well-being, capturing the matching process in various parts of individual life, and measuring complex processes where traditional data have known deficits. We focus here on the analysis of unemployment by means of internet activity data, a literature starting with the seminal article of Askitas and Zimmermann (2009a). The article provides insights and a brief overview of the current state of research.
    Keywords: big data,unemployment,internet,Google,internet penetration rate
    JEL: C22 C82 E17 E24 E37
    Date: 2017
  28. By: Yener Altunbas; Mahir Binici; Leonardo Gambacorta
    Abstract: This paper investigates the effects of macroprudential policies on bank risk through a large panel of banks operating in 61 advanced and emerging market economies. There are three main findings. First, there is evidence suggesting that macroprudential tools have a significant impact on bank risk. Second, the responses to changes in macroprudential tools differ among banks, depending on their specific balance sheet characteristics. In particular, banks that are small, weakly capitalised and with a higher share of wholesale funding react more strongly to changes in macroprudential tools. Third, controlling for bank-specific characteristics, macroprudential policies are more effective in a tightening than in an easing episode.
    Keywords: Macroprudential policies, effectiveness, bank risk
    JEL: E43 E58 G18 G28
    Date: 2017–06
  29. By: Dirk Bezemer; Anna Samarina; Lu Zhang
    Abstract: In this paper we present a new data set on bank credit in four categories: home mortgages, consumer credit, bank loans to non-bank financials, and loans to non- financial business, for 74 economies over 1990-2013. We offer a full description of sources and methods of data collection and construction and comparisons with adjacent data sets. We document key trends including the shift in bank credit allocation away from traditional business lending. The literature suggests substantial consequences of this 'debt shift' for growth, income distribution and macroeconomic resilience, which motivated this data construction. A second contribution is to analyze drivers of debt shift in fixed-effects and system-GMM regressions for the full sample and separately for advanced and emerging economies. We find that debt shift is larger in advanced economies with a stronger presence of foreign banks and higher trade. Financial deregulation strongly correlates with debt shift.
    Keywords: credit allocation; business lending; household mortgage
    JEL: E44 E51 G21
    Date: 2017–06
  30. By: Hardach, Gerd
    Abstract: Saving in the "Zero Interest Period". Private Investors and the Capital Market in Germany in the First World War: This paper offers a look back at the period of zero interest and even negative interest during the First World War. In contrast to the current period of low interest rates, during the war there was an illusion of interest: while savers did receive nominal interest on their deposits, however, the savings deposits lost value due to the war inflation such that it was effectively negative interest. Even at the end of the war only very few savers were aware that they had experienced a period of declining interest. Rather, they assumed that the purchasing power of the mark and the exchange rate would soon settle down at the pre-war level. The full scope of the dilemma for private investors during the zero interest period became apparent only in the post-war inflation. Although various options between inflation and deflation were still discussed during the revolution and at the beginning of the Weimar Republic, the monetary and fiscal path subsequently taken resulted in the uncontrolled inflation that had significantly greater effects on private investors and the capital market than the war inflation that directly preceded it.
    JEL: E43 E58 G21 N24 N34
    Date: 2017
  31. By: Capistrán Carlos; Chiquiar Daniel; Hernández Juan R.
    Abstract: In this paper we use data from Mexico to identify Dornbusch's (1976) exchange rate overshooting hypothesis. We specify and estimate a structural cointegrated VAR that considers explicitly the presence of a set of long-run theoretical relations on macroeconomic variables (a purchasing power parity, an uncovered interest parity, a money demand, and a relation between domestic and U.S. output levels). We then impose a recursiveness assumption to identify the response of domestic variables to a monetary policy shock. The long-run restrictions embedded in the model are themselves identified, estimated, and tested using an ARDL methodology that is robust to the degree of persistence of the time series and, in particular, to whether they are trend- or first-difference stationary. With this approach, we are able to find that the response of the exchange rate to monetary policy shocks is consistent with Dornbusch's model.
    Keywords: Vector error correction models;exchange rate overshooting;monetary policy shock
    JEL: C32 C51 E10 E17
    Date: 2017–06
  32. By: Wataru Miyamoto; Thuy Lan Nguyen
    Abstract: Business cycles are substantially correlated across countries. Yet most existing models are not able to generate substantial transmission through international trade. We show that the nature of such transmission depends fundamentally on the features determining the responsiveness of labor supply and labor demand to international relative prices. We augment a standard international macroeconomic model to incorporate three key features: a weak short-run wealth effect on labor supply, variable capital utilization, and imported intermediate inputs for production. This model can generate large and significant endogenous transmission of technology shocks through international trade. We demonstrate this by estimating the model using data for Canada and the United States with limited-information Bayesian methods. We find that this model can account for the substantial transmission of permanent US technology shocks to Canadian aggregate variables such as output and hours, documented in a structural vector autoregression. Transmission through international trade is found to explain the majority of the business cycle co-movement between the United States and Canada.
    Keywords: Business fluctuations and cycles, Economic models, International topics
    JEL: F41 F44 F62 E30
    Date: 2017
  33. By: Ron Berndsen; Ronald Heijmans
    Abstract: This paper identifies quantitative risks in financial market infrastructures (FMIs), which are inspired by the Principles for Financial Market Infrastructures. We convert transaction level data into indicators that provide information on operational risk, changes in the network structure and interdependencies. As a proof of concept we use TARGET2 level data. The indicators are based on legislation, guidelines and their own history. Indicators that are based on their own history are corrected for cyclical patterns. We also define a method for setting the signaling threshold of relevant changes. For the signaling, we opt for a traffic light approach: a green, yellow or red light for a small, moderate or substantial change in the indicator, respectively. The indicators developed in this paper can be used by overseers and operators of FMIs and by financial stability experts.
    Keywords: risk indicator; central bank; granular data; TARGET2; oversight; financial stability; forecasting
    JEL: E42 E50 E58 E59
    Date: 2017–06
  34. By: Fernando Garcia-Barragan; Guangling Liu
    Abstract: This paper presents a tractable framework with endogenous default and evaluates the welfare implication of bank capital requirements. We analyze the response of social welfare to a negative technology shock under different capital requirement regimes with and without default. We show that including default as an additional indicator of capital requirements is welfare improving. When implementing capital requirements, a more aggressive reaction to the default rate is more effective for weakening the negative effect of the shock on welfare. Compared with output gap, the credit-to-output gap is a better indicator for implementing the countercyclical capital buffer.
    Keywords: Bank capital requirement, Default, Welfare, DSGE
    JEL: E44 E47 E58 G28
    Date: 2017–06
  35. By: Martino, Ricci; Patrizio, Tirelli
    Abstract: Can a DSGE model replicate the financial crisis effects without assuming unprecedented and implausibly large shocks? Starting from the assumption that the subprime crisis triggered the financial crisis, we introduce balance-sheet effects for housing market borrowers and for commercial banks in an otherwise standard DSGE model. Our crisis experiment is initiated by a shock to subprime lending risk, which is calibrated to match the observed increase in subprime delinquency rates. Due to contagion of prime borrowers and to the ensuing adverse effect on banks balance sheets, this apparently small shock is sufficient to trigger a decline in housing investment comparable to what was observed during the financial crisis. The adverse effect of subprimers risk on commercial banks' agency problem is a crucial driver of our results.
    Keywords: Housing, Mortgage default, subprime risk, DSGE
    JEL: E32 E44 G01 R31
    Date: 2017–06–22
  36. By: Coenen, Günter; Ehrmann, Michael; Gaballoz, Gaetano; Hoffmann, Peter; Nakov, Anton; Nardelli, Stefano; Persson, Eric; Strasser, Georg
    Abstract: Monetary policy communication is particularly important during unconventional times because high uncertainty about the economy, the introduction of new policy tools and possible limits to the central bank’s toolkit could hamper the predictability of policy actions. We study how monetary policy communication should and has worked under such circumstances. Our main results relate to announcements of asset purchase programmes and the use of forward guidance. We show that announcements of asset purchase programmes have lowered market uncertainty, particularly when accompanied by a contextual release of implementation details such as the envisaged size of the programme. We also show that forward guidance reduces uncertainty more effectively when it is state‐contingent or when it provides guidance about a long horizon than when it is open‐ended or covers only a short horizon, and that the credibility of forward guidance is strengthened if the central bank also has embarked on an asset purchase programme. JEL Classification: E43, E52, E58
    Keywords: asset purchase programme, central bank communication, forward guidance, unconventional monetary policy
    Date: 2017–06
  37. By: Minchul Shin; Boyuan Zhang; Molin Zhong; Dong Jin Lee
    Abstract: We leverage a data rich environment to construct and study a measure of macroeconomic uncertainty for the Korean economy. We provide several stylized facts about uncertainty in Korea from 1991M10-2016M5. We compare and contrast this measure of uncertainty with two other popular uncertainty proxies, financial and policy uncertainty proxies, as well as the U.S. measure constructed by Jurado et. al. (2015).
    Keywords: Business cycle ; Data rich environment ; Korean economy ; Stochastic volatility ; Uncertainty
    JEL: C11 C32 E32
    Date: 2017–06–20
  38. By: Monique Timmermans; Ronald Heijmans; Hennie Daniels
    Abstract: This paper studies cyclical patterns in risk indicators based on TARGET2 transaction data. These indicators provide information on network properties, operational aspects and links to ancillary systems. We compare the performance of two different ARIMA dummy models to the TBATS state space model. The results show that the forecasts of the ARIMA dummy models perform better than the TBATS model. We also find that there is no clear difference between the performances of the two ARIMA dummy models. The model with the fewest explanatory variables is therefore preferred.
    Keywords: ARIMA; TBATS; Time Series; TARGET2; Cyclical Patterns
    JEL: E42 E50 E58 E59
    Date: 2017–06
  39. By: Agénor, Pierre-Richard; Gambacorta, Leonardo; Kharroubi, Enisse; Lombardo, Giovanni; Pereira da Silva, Luiz A.
    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: Financial Frictions; international cooperation; International spillovers; macroprudential policies
    JEL: E3 E5 F3 F5 G1
    Date: 2017–06
  40. By: Nikolaidi, Maria; Stockhammer, Engelbert
    Abstract: Minsky’s ideas have recently gained prominence in the mainstream as well as in the heterodox literature. However, there exists no agreement upon the formal presentation of Minsky’s insights. The aim of this paper is to survey the literature and identify differences and similarities in the ways through which Minskyan ideas have been formalised. We distinguish between the models that focus on the dynamics of debt or interest, with no or a secondary role for asset prices, and the models in which asset prices play a key role in the dynamic behaviour of the economy. Within the first category of models we make a classification between (i) the Kalecki-Minsky models, (ii) the Kaldor-Minsky models, (iii) the Goodwin-Minsky models, (iv) the credit rationing Minsky models, (v) the endogenous target debt ratio models and (vi) the Minsky-Veblen models. Within the second category of models, we distinguish between (i) the equity price Minsky models and (ii) the real estate price Minsky models. Key limitations of the models and directions for future research are outlined.
    Keywords: business cycles; financial instability; post-Keynesian economics; debt cycles;
    JEL: B50 E32 G01
    Date: 2017–06–26
  41. By: Mathias Drehmann; Mikael Juselius; Anton Korinek
    Abstract: When taking on new debt, borrowers commit to a pre-specified path of future debt service. This implies a predictable lag between credit booms and peaks in debt service which, in a panel of household debt in 17 countries, is four years on average. The lag is driven by two key features of the data: (i) new borrowing is strongly auto-correlated and (ii) debt contracts are long term. The delayed increase in debt service following an impulse to new borrowing largely explains why credit booms are associated with lower future output growth and higher probability of crisis. This provides a systematic transmission channel whereby credit expansions can have long-lasting adverse real effects.
    Keywords: new borrowing, debt service, financial cycle, real-financial linkages
    JEL: E17 E44 G01 D14
    Date: 2017–06
  42. By: Belke, Ansgar; Kronen, Dominik
    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 longlived 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 investment 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,economic policy uncertainty,financial uncertainty,option value of waiting,SVAR
    JEL: C32 E20 E60
    Date: 2017
  43. By: Martina Hengge (IHEID, The Graduate Institute of International and Development Studies, Geneva); Seton Leonard (IHEID, The Graduate Institute of International and Development Studies, Geneva)
    Abstract: This paper presents a novel dynamic factor model for non-stationary data. We begin by constructing a simple dynamic stochastic general equilibrium growth model and show that we can represent and estimate the model using a simple linear-Gaussian (Kalman) filter. Crucially, consistent estimation does not require differencing the data despite it being cointegrated of order 1. We then apply our approach to a mixed frequency model which we use to estimate monthly U.S. GDP from May 1969 to January 2017 using 171 series with an emphasis on housing related data. We suggest our estimates may, at a quarterly rate, in fact be more accurate than measurement error prone observations. Finally, we use our model to construct pseudo real-time GDP nowcasts over the 2007 to 2009 financial crisis. This last exercise shows that a GDP index, as opposed to real time estimates of GDP itself, may be more helpful in highlighting changes in the state of the macroeconomy.
    Keywords: Forecasting; Factor model: Large data sets; Mixed frequency data; Nowcasting; Non-stationarity; Real-time data
    JEL: E27 E52 C53 C33
    Date: 2017–06–10
  44. By: Mirdala, Rajmund; Kameník, Martin
    Abstract: The real output deterioration, high fiscal deficits and increased sovereign debt burden represents key phenomena that affected the maneuverability of fiscal authorities in the early crisis years. Controversy between fiscal sustainability and fiscally driven economic recovery fueled a large number of academic and policy discussions about the appropriate response of governments to the crisis challenges. Empirical literature provides mixed evidence about the effects of fiscal policy adjustments on the macroeconomic performance. Moreover, pro-cyclical patterns in fiscal policies of many countries during the pre-crisis period did not reveal clear lessons learned that would be beneficial for fiscal authorities during the crisis years. In the paper we examine effects of the fiscal policy shocks in CE3 (the Slovak Republic, the Czech Republic and Hungary) within different stages of the business cycle by employing threshold vector autoregression (TVAR) model. We calculate fiscal multipliers and generalized impulse-response functions to assess the responsiveness of the real output to the fiscal policy adjustments. The main objective is to determine whether effects of the fiscal policy shocks differ during expansion and recession. Our results indicate that the size of fiscal multipliers and responsiveness of the real output are generally higher for spending fiscal shocks while effects of revenue fiscal shocks are much less dynamic in all three countries. Moreover, results differs between upper (expansion) and lower (recession) regime as well as for the per-crisis and crisis periods.
    Keywords: fiscal policy, threshold VAR, structural shocks, fiscal multipliers, generalized impulse-response function
    JEL: C32 E62 H60
    Date: 2017–06–25
  45. By: Giorgio Canarella (University of Nevada, Las Vegas); Luis A. Gil-Alaña (University of Navarra); Rangan Gupta (University of Pretoria); Stephen M. Miller (University of Nevada, Las Vegas)
    Abstract: This paper estimates the complete historical US price data by employing a relatively new statistical methodology based on long memory. We consider, in addition to the standard case, the possibility of nonlinearities in the form of nonlinear deterministic trends as well as the possibility that persistence exists at both the zero frequency and a frequencies away from zero. We model the fractional nonlinear case using Chebyshev polynomials and model the fractional cyclical structures as a Gegenbauer process. We find in the latter case that that secular (i.e., long-run) persistence and cyclical persistence matter in the behavior of prices, producing long-memory effects that imply mean reversion at both the long-run and cyclical frequencies.
    Keywords: Persistence, Cyclicality, Chebyshev polynomials, Gegenbauer processes
    JEL: C22 E3
    Date: 2017–06
  46. By: Leo Krippner
    Abstract: Counter to the comments in Wu and Xia (2016), I show that the results from macroeconomic models are sensitive to the Shadow Short Rate (SSR) series used. That is, using a standard small macroeconomic vector autorregression model with a range of estimated SSR series obtains counterfactuals for unemployment ranging from 0.4 to 1.8 percentage points, if the Federal Funds Rate rather than the SSR series had been applied in the lower bound period. The counterfactuals for inflation range from -0.2 to -2.2 percentage points. Vetting the various SSR series from several perspectives indicates that some are more preferable than others, but there are reasons to remain cautious on the associated results.
    Keywords: shadow rates, lower bound, term structure models, unconventional monetary policy
    JEL: E43 G12 G13
    Date: 2017–06
  47. By: Dimitrios Bakas (Nottingham Business School, Nottingham Trent University, UK; The Rimini Centre for Economic Analysis); Georgios Chortareas (School of Management and Business, King's College London, UK; Department of Economics, University of Athens, Greece); Georgios Magkonis (School of Management, University of Bradford, UK)
    Abstract: This paper is motivated by the conflicting theories and empirical evidence regarding the relationship between business cycle volatility and economic growth. The average reported effect of volatility on growth is negative, but the empirical estimates vary substantially across studies. We identify the factors that explain the heterogeneity of the estimates by conducting a meta-analysis. Our evidence suggests that researchers' choices regarding the measure of volatility, the control set of the estimated equation, the estimation methods, and the data characteristics play a significant role in the total outcome. Finally, the literature is found to be free of publication bias.
    Keywords: Economic Growth, Volatility, Business Cycles, Meta-Analysis, Bayesian Model Averaging
    JEL: C83 E32 O40
    Date: 2017–06
  48. By: Jakub Growiec (Narodowy Bank Polski and SGH Warsaw School of Economics)
    Abstract: We analyze the properties of a two-dimensional problem of factor-specific technology choice subject to a technology menu – understood as the choice of the degree of factor augmentation by a producing firm or the choice of quality of goods demanded by a consumer. By considering the problem in its generality, we are able to reach beyond the known results for Cobb–Douglas, CES, Leontief (minimum) and maximum functions. We demonstrate that the technology menu and the global function (envelope of local functions) are dual objects, in a well-defined generalized sense of duality. In the optimum, partial elasticities of (i) the local function, (ii) the technology menu and (iii) the global function are all equal and there exists a clear-cut, economically interpretable relationship between their curvatures. Invoking Bergson’s theorem, we also comment on the consequences of assuming homotheticity of the three objects, with a particular focus on technology menus constructed as level curves of idea (unit factor productivity) distributions.
    Keywords: technology choice, technology menu, production function, utility function, duality, envelope, homotheticity.
    JEL: C62 D11 D21 E21 E23 O47
    Date: 2017
  49. By: Francesco Ravazzolo; Joaquin Vespignani
    Abstract: In this paper we propose a new indicator of monthly global real economic activity, named world steel production. We use world steel production, OECD industrial production index and Kilian’s rea index to forecast world real GDP, and key commodity prices. We find that world steel production generates large statistically significant gains in forecasting world real GDP and oil prices, relative to an autoregressive benchmark. A forecast combination of the three indices produces statistically significant gains in forecasting world real GDP, oil, natural gas, gold and fertilizer prices, relative to an autoregressive benchmark.
    Keywords: Global real economic activity, World steel production, Forecasting
    JEL: E1 E3 C1 C5 C8
    Date: 2017–06
  50. By: Hein, Eckhard
    Abstract: This paper argues that the re-emergence of stagnation tendencies in modern capitalism can be related to financialisation and its macroeconomic failures leading to the recent crises, and in particular to the macroeconomic responses towards the crisis and the respective regime shifts in mature capitalist economies. The focus of the paper is on the latter, and it examines the regime changes for six mature capitalist economies, the two liberal Anglo-Saxon economies of the US and the UK, a representative country from the Nordic welfare states, Sweden, the three important Eurozone countries France, Germany and Spain, as well as the core Eurozone (EA-12) as a whole. The concept of macroeconomic regimes under the conditions of financialisation is recapitulated, applied to the period before the crisis, and finally the regime changes during and after the crisis are examined. It is shown that a dominant tendency towards export-led mercantilism, in particular in the Eurozone and its main member countries, imposes an aggregation problem on the global economy and thus contributes to stagnation and rising global macroeconomic risks. Finally, short- and long-run alternative policies to deal with these problems are suggested.
    Keywords: financialisation,stagnation,macroeconomic regimes,policy alternatives
    JEL: E02 E60 E61 F62 G38
    Date: 2017
  51. By: Yuichiro Matsumoto (Graduate School of Economics, Osaka University)
    Abstract: How are the financial market and the product market interrelated? Product market selection affects the default rate and screening incentive of financial intermediaries. In contrast to previous studies, bad screening technology implies a low interest rate and a low default rate: i.e. intermediaries are successfully repaid more often when the country has a bad screening technology. When a country has an underdeveloped financial market, then the product market is also inefficient. This product market inefficiency means that the selection effect of the market is weak. In this case, many entrepreneurs successfully enter the market. Financially underdeveloped countries suffer from low productivity not only for inefficient screening technology but also for weak product market selection. Many firms in financially developed countries tend to choose exports, merely because firms in such countries are more productive. Financially developed countries have a comparative advantage in a financially dependent sector.
    Keywords: Financial Development; Default Rate; Firm Heterogeneity; Selection; International Trade
    JEL: E22 E44 F12 O11 O16 O31
    Date: 2017–06
  52. By: Mirdala, Rajmund
    Abstract: European Union member countries are currently exposed to negative implications of the economic and debt crisis. Questions associated with disputable implications of fiscal incentives seem to be contrary to the crucial need of the effective fiscal consolidation that is necessary to reduce excessive fiscal deficits and high sovereign debts. While challenges addressed to the fiscal policy and its anti-cyclical potential rose steadily but not desperately since the beginning of the economic crisis, the call for fiscal consolidation became urgent almost immediately and this need significantly strengthen after the debt crisis contagion flooded Europe. In the paper we provide an overview of main trends in public budgets and sovereign debts in the Euro Area member countries during last two decades. We identify episodes of successful and unsuccessful (cold showers versus gradual) fiscal (expenditure versus revenue based) consolidations by analyzing effects of improvements in cyclically adjusted primary balance on the sovereign debt ratio reduction. We also estimate VAR model to analyze effects of fiscal shocks (based on one standard deviation in total expenditure, direct and indirect taxes) to real output. It is expected that responses of real output to different types of (consolidating) fiscal shocks may vary and thus provide more precise ideas about a feasibility (i.e. side effects on the macroeconomic performance) of expenditure versus revenue based fiscal consolidation episodes. Economic effects of fiscal consolidating adjustments are evaluated for two periods (pre-crisis and extended) to reveal crisis effects on fiscal consolidation efforts.
    Keywords: fiscal adjustments, fiscal consolidation, cyclically adjusted primary balance, government expenditures, tax revenues, unrestricted VAR, Cholesky decomposition, SVAR, structural shocks, impulse-response function
    JEL: C32 E62 H20 H50 H60
    Date: 2016–12
  53. By: Mihnea Constantinescu (Bank of Lithuania); Povilas Lastauskas (Bank of Lithuania and Faculty of Economics, Vilnius University)
    Abstract: We employ the recent Jord? et al. (2016) and Knoll et al. (2017) datasets to investigate the long-run relationship between house prices and credit volume, allowing for interest rate, real exchange rate and real gross domestic product (GDP). We refine the analysis using more recent data at the quarterly-level to define relevant co-integrating relationships across a number of European economies. Housing, GDP and credit cross-sectional averages are included in the analysis to detect potential spill-over effects. Empirical results indicate cross-country heterogeneities and an uneven feedback mechanism between credit and housing – the full loop is established only for several countries in the dataset. Important results relate to the statistical properties of the housing time series. Grouping countries for panel-like econometric exercises may lead to spurious regression results, poor inference and misleading policy implications. Short-run dynamics, compared to the long-run may often lead to contradicting policy advice if the order of integration of the house price series is not properly accounted for. Accounting for spatial patterns of house prices which cannot be attributed to global output shocks may provide useful insights into policy making.
    Keywords: house prices, credit, exogeneity and long-run relationships, policy, spill-overs
    JEL: C21 E51 O18 R31
    Date: 2017–06–23
  54. By: Gabriel Lee; Binh Nguyen Thanh; Johannes Strobel
    Abstract: This paper shows that macroeconomic uncertainty affects the housing market in two signi?ficant ways. First, uncertainty shocks adversely affect housing prices but not the quantities that are traded. Controlling for a broad set of variables in fi?xed-effects regressions, we ?find that uncertainty shocks reduce both housing prices and median sales prices in the amount of 1.4% and 1.8%, respectively, but the effect is not statistically signi?cant for the percentage changes of all homes sold. Second, when both uncertainty and local demand shocks are introduced, the effects of uncertainty on the housing market dominate that of local labor demand shocks on housing prices, median sell prices, the share of houses selling for loss, and transactions. The aforementioned effects are largest for the states that exhibit relatively high housing price volatilities, suggesting real options effects in the housing market during the times of high uncertainty.
    Keywords: Bartik labor demand shocks, time-varying uncertainty shocks, real options effects, housing market
    JEL: E4 E5 E2 R2 R3
    Date: 2017–06
  55. By: Georgiadis, Georgios; Jančoková, Martina
    Abstract: Financial globalisation and spillovers have gained immense prominence over the last two decades. Yet, powerful cross-border financial spillover channels have not become a standard element of structural monetary models. Against this background, we hypothesise that New Keynesian DSGE models that do not feature powerful financial spillover channels confound the effects of domestic and foreign disturbances when confronted with the data. We derive predictions from this hypothesis and subject them to data on monetary policy shock estimates for 29 economies obtained from more than 280 monetary models in the literature. Consistent with the predictions from our hypothesis we find: Monetary policy shock estimates obtained from New Keynesian DSGE models that do not account for powerful financial spillover channels are contaminated by a common global component; the contamination is more severe for economies that are more susceptible to financial spillovers in the data; and the shock estimates imply implausibly similar estimates of the global output spillovers from monetary policy in the US and the euro area. None of these findings applies to monetary policy shock estimates obtained from VAR and other statistical models, financial market expectations and the narrative approach. JEL Classification: F42, E52, C50
    Keywords: financial globalisation, monetary policy shocks, New Keynesian DSGE models, spillovers
    Date: 2017–06
  56. By: Bullard, James B. (Federal Reserve Bank of St. Louis)
    Abstract: In Nashville, Tenn., St. Louis Fed President James Bullard said the Fed can wait and see how the economy develops before making any further adjustments to the policy rate. He noted that the U.S. effective federal funds rate has been rising while key policy rates abroad have remained fixed. The global growth outlook has improved since last year, he said, but upgrades to the outlooks in key countries “are too small and too uncertain” to meaningfully impact the U.S. He said the domestic economy remains in a “regime” of low growth, low inflation and low interest rates. Bullard spoke at the annual conference of the Illinois Bankers Association.
    Date: 2017–06–23
  57. By: Mehmet Balcilar (Eastern Mediterranean University); Shinhye Chang (University of Pretoria); Rangan Gupta (University of Pretoria); Stephen M. Miller (University of Nevada, Las Vegas)
    Abstract: This paper uses a cross-state panel for the United States over the 1976 to 2007 period to assess the relationship between income inequality and the inflation rate. Employing a semiparametric instrument variable (IV) estimator, we find that the relationship depends on the level of the inflation rate. A positive relationship occurs only if the states exceed a threshold level of inflation rate. Below this value, inflation rate lowers income inequality. The results suggest that a nonlinear relationship exists between income inequality and the inflation rate.
    Keywords: Income inequality, Inflation rate, Semiparametric instrumental variable estimator
    JEL: E31 D31 C14
    Date: 2017–06
  58. By: Li, Cheng
    Abstract: In this paper, we compile China’s household balance sheet and apply this perspective to the analysis of household financial conditions. Specifically, we first address some technical issues on the balance sheet accounts, and detail the estimations of two important asset items, “dwellings” and “automobiles.” Next, through reading the sheets, we provide an international comparative analysis, and show: (1) China’s households are still on their early stage of wealth accumulation, and this trend is associated with a changing structure in favour of financial assets. (2) Although being subject to relatively low insolvency and liquidity risks, the sector has experienced, generally contrary to major developed countries, a climbing leverage cycle since the global financial crisis. These findings imply that China’s policymakers should, on the one hand, make further efforts to help households accumulate wealth with an improved structure in terms of liquidity and risk diversification, and on the other hand need to pay high attention to the increasing household financial stress and the potential risk contagion.
    Keywords: Balance sheet; Household sector; Wealth accumulation; Debt risks; Financial deepening
    JEL: E01 E21 O57
    Date: 2017–06–26
  59. By: Rangan Gupta (University of Pretoria); Chi Keung Marco Lau (University of Northumbria); Stephen M. Miller (University of Nevada, Las Vegas); Mark E. Wohar (University of Nebraska at Omaha)
    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
  60. By: Olivier Blanchard (Peterson Institute for International Economics and MIT); Pedro Portugal (Bank of Portugal)
    Abstract: Over the past 20 years, Portugal has gone through a boom, a slump, a sudden stop, and now a timid recovery. Unemployment has decreased, but remains high, and output is still far below potential. Competitiveness has improved, but more is needed to keep the current account in check as the economy recovers. Private and public debt are high, both legacies of the boom, the slump and the sudden stop. Productivity growth remains low. Because of high debt and low growth, the recovery remains fragile. We review the history and the main mechanisms at work. We then review a number of policy options, from fiscal consolidation to fiscal expansion, cleaning up of non-performing loans, labor market reforms, product market reforms, and euro exit. We argue that at this point, the main focus of macroeconomic policy should be twofold. The first is the treatment of non-performing loans, which would allow for an increase in demand in the short run and an increase in supply in the medium run. We argue that, to the extent that such treatment requires recapitalization, it may make sense to finance it through an increased fiscal deficit, even in the face of high public debt. The second is product market reforms, and reforms aimed at increasing micro-flexibility in the labor market. Symmetrically, we also argue that at this point, some policies would be un¬desirable, among them faster fiscal consolidation, measures aimed at decreasing nominal wages and prices, and euro exit.
    Keywords: Portugal
    Date: 2017–06
  61. By: Shijaku, Gerti
    Abstract: This paper analyses the inter-temporal competition – stability nexus after the global financial crises. For this reason, the empirical estimation approach follows a five – step procedure. First, we utilise quarterly macroeconomic and balance sheet and income statement data for 16 banks operating in the Albanian banking sector over the period 2008 – 2015. Second, we calculate a new composite index as a measure of bank stability conditions, which includes a wide set of information rather than focusing only on one aspect of risk. Then, we construct a proxy for bank competition such as the Boone indicator. Empirical estimations are based on the General Method of Moments approach. A set of robustness checks include also the use of other alternative proxy of competition such as the Lerner index and the efficient-adjusted Lerner index, profit elasticity and the Herfindahl index. Empirical results strongly support the “competition – stability” view after the global financial crises - that higher degree of competition boosts further bank stability conditions. Results further indicate that greater concentration has also a negative impact on bank stability. Results imply also that bank stability is positively linked with macroeconomic conditions and capital ratio and inverse with operational efficiency. Finally, we do not find a non-linear relationship between competition and stability.
    Keywords: Bank stability, Competition, Boone indicator, Panel Data, GMM.
    JEL: C26 E32 E43 G21
    Date: 2017–06
  62. By: Alfredo Marvão Pereira; Rui Manuel Pereira (Department of Economics, The College of William and Mary, Williamsburg VA 23187)
    Abstract: This study analyzes the effects of infrastructure investment on labor productivity at the industry level using a newly developed data set for infrastructure investments in Portugal. We consider twenty-two sectors and twelve infrastructure assets. We focus on the differential effects on traded and non-traded sectors. We find, first, that investment in national roads have positive effects, particularly large for public services, while the effects of investments in municipal roads are mixed, and investments in highways have mostly benefited the non-traded sectors. Second, we find that railroad investments, and to a lesser extent airports have clearly biased labor productivity gains toward the non-traded sectors, while the effects of port investments are more muted and mixed. Third, for social infrastructure investments, the effects tend to be large and again particularly favorable to the non-traded sectors. Fourth, for public utilities the effects are in general small, with the exception of investments in telecommunications, which have large positive effects mainly on non-traded sectors. We conclude that infrastructure investments have contributed to the growth of labor productivity in Portugal but have done so in a way that has benefitted mostly non-traded goods sectors. This may be a matter of concern for a small open economy in a currency union and with a development model greatly reliant on exports.
    Keywords: Infrastructure Investment, Labor Productivity, Traded and non-traded sectors, VAR, Portugal
    JEL: C32 E22 H54 O52 L90 L98
    Date: 2017–06
  63. By: Carine MEYIMDJUI
    Abstract: The delicacy of socio-political consequences during the recent commodities’ prices spikes has given rise to stabilising measures that might have had repercussions on public policy alternatives. This effect may be worrying for developing countries, which because of the importance of the share of imports in their households’ basket, have observed a remarkable increase of their food import bills. This paper attempts to evaluate the effect of food price shocks on public expenditure in level and composition on 47 African countries between 1980 and 2011. After solving for endogeneity issues, our results show that food price shocks positively and significantly affect total government expenditure and the share of current government consumption in the total government expenditure. More precisely, an additional one standard deviation of the food price shock increase is associated to an increase of 0.06 standard deviation of the percentage of current government consumption in the total government expenditure. Interestingly, this effect highly depends on the vulnerability level. Future studies will use more disaggregated data of fiscal variables, including those on revenue, to better assess food security policies.
    Keywords: Expenditure composition, Price shock, Africa.
    JEL: Q11 N57 H50
    Date: 2017–02
  64. By: Chen, Bai; Masih, Mansur
    Abstract: Criticisms of Islamic banks and financial products motivate us to re-examine whether the profit rate of Islamic financial products and conventional interest rate are highly related or not. It is well known that interest rate is highly influenced by the economic policies, so, in this research we will check the relation between several rates (Islamic and conventional) of return and economic policy uncertainty index respectively to make a judgement on the criticisms. We applied MGARCH-DCC and Continuous Wavelet Transform analyses to see the relations of these variables among different time scales with data collected from different sources. Unlike previous studies, economic policy is incorporated in the analyses in order to explain the issue. Our results tend to indicate that the Islamic profit- and- loss sharing (PLS) rates have divergent relations with interest rates. Islamic Murabahah profit rate is less correlated with LIBOR, while Islamic Mudarabah profit rate is highly correlated with LIBOR. That shows both the uniqueness and similarity of Islamic financial products with the conventional interest rate. Hence the policy makers, if they intend to, can make Islamic money market more independent of the influence of conventional market.
    Keywords: MGARCH; Wavelet; PLS; Islamic profit rate; Murabahah; Mudarabah; LIBOR
    JEL: C58 E44 G11 G15
    Date: 2017–06–12
  65. By: Loriana Pelizzon; Matteo Sottocornola (EIOPA)
    Abstract: This paper investigates the effect of the conventional and unconventional (e.g. Quantitative Easing) monetary policy intervention on the insurance industry. We first analyse the impact on the stock performances of 166 (re)insurers of the last Quantitative Easing programme launched by the ECB by constructing an event study around the announcement date. Then we enlarge the scope by looking at the monetary policy surprise effects on the same sample of (re)insurers over a timeframe of 8 years. Our evidences suggest that a single intervention extrapolated from the comprehensive strategy cannot be utilized to estimate the effect of the monetary policy intervention on the market. On the impact of monetary policies we show how the effect of interventions changes over time. The expansionary monetary policy interventions, when generating an instantaneous reduction of interest rates, had an immediate positive effect on the stock market and on the insurance industry from 2008 till 2013. However, the effect fades away in 2014-2015. This period includes the last ECB QE intervention and it is characterized by already extreme low interest rates shows statistically non-significant effects on the (re)insurers stock returns.
    Keywords: Insurance, monetary policy, financial stability
    JEL: G22 G28 E27
    Date: 2016–12
  66. By: Wang, J. Christina (Federal Reserve Bank of Boston)
    Abstract: This paper examines whether the low interest rate environment that has prevailed since the Great Recession has compelled banks to reach for yield. It is important to recognize that banks can take on a variety of risks that offer higher yields today but incur different forms of future losses. Some losses, such as mark-to-market losses due to yield increases, can be avoided with accounting treatments whereas others, chiefly credit losses, cannot. A simple model shows that a bank’s incentive to take on risks for which potential future losses can be managed, such as interest rate risk, is countercyclical, especially if a bank is capital constrained. This study thus focuses on a bank’s exposure to interest rate risk through a maturity mismatch between its assets and liabilities. It finds evidence that the banks that faced less enhanced regulation after the financial crisis, especially those institutions used to having a higher net interest margin before the crisis, took on assets with longer maturities or prepayment risk, even while their source of funding shifted toward more transaction and saving deposits as a result of the near zero short-term interest rates. In contrast, those banks designated as systematically important and thus subjected to expanded post-crisis regulations have substantially shortened the average maturity of their assets since the crisis. There is some evidence that greater maturity mismatch is slightly more associated with a higher net interest margin during the post-crisis years. After the taper tantrum in 2013, these two groups of banks also adjusted their securities holdings in different ways, consistent with the differential regulatory accounting treatment.
    Keywords: banks; reaching for yield; maturity mismatch; regulation; zero lower bound
    JEL: E41 E52 G11 G18 G21
    Date: 2017–06–01
  67. By: Simionescu, Mihaela
    Abstract: The main aim of this paper is to provide forecast intervals for inflation and unemployment rate in Romania, bringing methodological novelties in the construction and evaluation of the prediction intervals. Considering the period 2004-2017 as forecast horizon, 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 were very short. The proposed Bayesian technique for assessing prediction intervals was better than traditional approaches based on statistic tests.
    Keywords: forecast interval,Bayesian interval,inflation,unemployment
    JEL: C11 C13 C53 E37
    Date: 2017
  68. By: Braun, Eduard; Howden, David
    Abstract: The “subsistence fund” was once an integral part of Austrian business cycle theory to indicate the resource constraint on the ability to complete investments. Early agrarian and industrial economies were constrained by resource availability in a manner consistent with that alluded to by the subsistence fund. This link became more tenuous as the growth of the financial economy in the 20th century removed the apparent importance of pre-saved goods to complete investments. At this point the subsistence fund came to be used only as a metaphor and was jettisoned from Austrian business cycle theory. The present paper points to the merits of the subsistence fund in explaining the turning point of the business cycle as compared to alternative explanations. It also works out the deficiencies in historical expositions of the Austrian theory based on the subsistence fund, and traces the evolution of the resource constraint at the core of Austrian economists´ treatment of the business cycle.
    Keywords: subsistence fund; early business cycle theories; Austrian business cycle theory; wages fund
    JEL: B13 B25 E32
    Date: 2017
  69. By: Dániel Baksa (Central European University and Center for Economic and Regional Studies); István Kónya (Center for Economic and Regional Studies 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
  70. By: Haliassos, Michael; Jansson, Thomas; Karabulut, Yigitcan
    Abstract: This paper uses unique administrative data and a quasi-field experiment of exogenous refugee allocation in Sweden to estimate effects of exposure to financially literate neighbors. It contributes evidence of causal impact of financial literacy and points to a social multiplier of financial education. Exposure promotes saving for retirement in the medium run and stockholding in the longer run, especially when neighbors have economics or business education, but only for educated or male-headed households. Findings point to knowledge transfer rather than mere imitation. We do not find significant effects on income or employment prospects, except for employment in the financial sector.
    Keywords: financial literacy; household finance; Refugees; Social interactions
    JEL: D14 E21 F22 G11 I28
    Date: 2017–06
  71. By: Bukvić, Rajko; Pavlović, Radica; Gajić, Aleksandar
    Abstract: The Republic of Serbia is characterized by an unsatisfactory macroeconomic environment. Under the conditions of an evident shortage of liquid assets, the financial capital has moved from real to the financial sector, which led companies to over-indebtedness and shutdown of their own capacities. Therefore, capital investments largely depend on internal financing sources and the ability of companies to internally generate funds for investments. In this regard, an emphasis is placed on the difference in the assessment of the company’s investment capacity based on internal financing sources, which are measured using static and dynamic indicators in order to prove the necessity of applying dynamic coefficients, which are unfortunately not present in our domestic practice. The paper examines and proves the advantages of the use of the dynamic approach for such analyses using the example of energy sector, which is one of the most important branches in Serbian economy.
    Keywords: dynamic and static coefficients, dynamic analysis, investments, financing, sources, dispersion analysis
    JEL: E22 G17 G31 G32 M40 M49
    Date: 2017
  72. By: Zubarev, Andrey (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Polbin, Andrey (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The article studies macroeconomic effects of reducing oil export duty in the neoclassical general equilibrium model for the Russian economy. It is shown that in the current economic environment with low oil prices, this tax reform can be virtually painless for the economy. At the same time, if considered economic policy measure will force the oil refining industry to modernise its production facilities, there will be a positive effect on output in the economy and the welfare of domestic economic agents in the long run.
    Keywords: ýêñïîðòíàÿ ïîøëèíà íà íåôòü, íàëîãîâûé ìàíåâð, äèíàìè÷åñêèå ìîäåëè îáùåãî ðàâíîâåñèÿ, ðîññèéñêàÿ ýêîíîìèêà, oil export duty, tax reform, DSGE model for the Russian economy
    Date: 2017–05
  73. By: Senra, Eva; Espasa Terrades, Antoni
    Abstract: The Bulletin of EU & US Inflation and Macroeconomic Analysis (BIAM) is a monthly publication that has been reporting real time analysis and forecasts for inflation and other macroeconomic aggregates for the Euro Area, the US and Spain since 1994. The BIAM inflation forecasting methodology stands on working with useful disaggregation schemes, using leading indicators when possible and applying outliers' correction. The paper relates this methodology to corresponding topics in the literature and discusses the design of disaggregation schemes. It concludes that those schemes would be useful if they were formulated according to economic, institutional and statistical criteria aiming to end up with a set of components with very different statistical properties for which valid single-equation models could be built. The BIAM assessment, which derives from a new observation, is based on (a) an evaluation of the forecasting errors (innovations) at the components' level. It provides information on which sectors they come from and allows, when required, for the appropriate correction in the specific models. (b) In updating the path forecast with its corresponding fan chart. Finally, we show that BIAM real time Euro Area inflation forecasts compare successfully with the consensus from the ECB Survey of Professional Forecasters, one and two years ahead.
    Keywords: Outliers; Indirect forecast; Disaggregation
    JEL: C13
    Date: 2017–06
  74. By: Petr Jakubik; Diana Zigraiova (EIOPA)
    Abstract: This study proposes the potential methodological approach to be utilized by regulators when setting up a Long-Term Rate (LTR) for the evaluation of insurers’ liabilities beyond the last liquid point observable in the market. Our approach is based on the optimization of two contradictory aspects – stability and accuracy implied by economic fundamentals. We use U.S. Treasury term structure data over the period 1985-2015 to calibrate an algorithm that dynamically revises LTR based on the distance between the value implied by long-term growth of economic fundamentals in a given year and the regulatory value of LTR valid in a year prior. We employ both Nelson-Siegel and Svensson models to extrapolate yields over maturities of 21-30 years employing the selected value of the LTR and compare them to the observed yields using mean square error statistic. Furthermore, we optimise the parameter of the proposed LTR formula by minimising the defined loss function capturing both mentioned factors.
    Keywords: Insurance, Long Term Rate, financial stability
    JEL: G22 G28 E27
    Date: 2016–12
  75. By: Lehmann-Hasemeyer, Sibylle; Streb, Jochen
    Abstract: Imperial chancellor Bismarck’s system of social insurance (with its three pillars health, accident and pension insurance) was an important role model for social security systems across Europe and in the US. How the introduction of the German system changed economic expectations and decisions of the German workforce has not been researched, though. This article closes this gap by analyzing the development of Prussian savings banks’ deposits in the late 19th century with the help of a difference-in-difference-like approach. We show that, in the Prussian case, social security crowded out private savings considerably. As counterfactual voluntary savings would have been far from sufficient, however, Bismarck’s social insurance system was still needed to fight the misery workers and their families potentially faced in old age or times of sickness.
    JEL: D14 E21 H55 N33
    Date: 2017
  76. By: Lambertini Luisa; Nuguer Victoria; Uysal Pinar
    Abstract: This paper models the housing sector, mortgages and endogenous default in a DSGE setting with nominal and real rigidities. We use data for the period 1981-2006 to estimate our model using Bayesian techniques. We analyze how an increase in risk in the mortgage market raises the default rate and spreads to the rest of the economy, creating a recession. In our model two shocks are well suited to replicate the subprime crisis and the Great Recession: the mortgage risk shock and the housing demand shock. Next we use our estimated model to evaluate a policy that reduces the principal of underwater mortgages. This policy is successful in stabilizing the mortgage market and makes all agents better off.
    Keywords: Housing;Mortgage Default;DSGE model;Bayesian Estimation
    JEL: G01 E44 G21 C11
    Date: 2017–06
  77. By: Hugo Rodríguez Mendizábal
    Abstract: What would be the effect of imposing a 100 percent reserve require- ment to depository institutions? This paper contends that reserves do not compete with loans on the asset side of bank’s balance sheets. Thus, they only affect liquidity provision by banks indirectly through their impact on the cost of loan and deposit creation. This cost could be driven to zero if, as the Eurosystem does, central banks remunerated required reserves at the same rate of their refinancing operations. The paper argues that the crucial constraint imposed by a fully backed banking system is collateral availability by depository institutions.
    Keywords: narrow banking, endogenous money, interbank market, bank solvency, liquidity, monetary policy
    JEL: E4 E5 G21
    Date: 2017–01
  78. By: Howden, David
    Abstract: Machaj (2015) does a great service in pointing out a key assumption, heretofore unaddressed, in Filleule (2007) and Hülsmann (2010). Machaj errs, however, in stating that who saves will have an ambiguous effect on the interest rate and that where savings are directed can have ambiguous effects on the length of production. In this brief comment I will first show that who saves will have no effect on the interest rate. I then turn my attention to what it means to “lengthen” the structure of production. Although extended production time or additional “stages” of production make convenient placeholders for increased roundaboutness, they fail to grasp the core concept as it pertains to capital theory – what is it about production processes that makes more or better consumer goods?
    Keywords: capital theory, interest, production structure, roundaboutness, labor intensity
    JEL: B13 B53 D24 E43
    Date: 2017
  79. By: Carlos Medel
    Abstract: To what extent geopolitical tensions in major oil-producer countries and unexpected news related to the Organisation of the Petroleum Exporting Countries (OPEC) affect oil price? What are the effects of non-market externalities in oil price? Are oil price forecasters aware or affected by such externalities when making their predictions? In this article, I analyse the influence of these events on oil price by means of Granger causality, using a unique measure of geopolitical tensions accounting for supply disruptions for the 2001-12 period. I found evidence favouring OPEC countries'-related news as an oil price driver jointly with supply disruptions as well as reducing the consensus when unanticipated news are available. When considering separately OPEC news, the evidence-- rather episodic--suggest some influence on the oil price expectations consensus plus a feedback dynamics between OPEC news and the level of oil price expectations.
    Date: 2017–06
  80. By: Laun, Tobias (Department of Economics); Wallenius, Johanna (Department of Economics, Stockholm School of Economics)
    Abstract: Sweden boasts high fertility and high female employment. However, part-time employment is very prevalent. There is a notable gender gap in both wages and earnings, which widens substantially after women have children. In this paper we study the effect of family policies on female employment, fertility and the gender wage gap. To this end, we develop a structural, life cycle model of heterogeneous households which features endogenous labor supply, human capital accumulation, fertility and home production. We find that family policies, such as subsidized daycare and part-time work options, promote maternal employment and fertility. Part-time work contributes greatly to the widening of the gender wage gap following the arrival of children. However, restricting part-time work options would lower maternal employment, and thereby also widen the gender wage gap.
    Keywords: Life cycle; Labor supply; Human capital; Fertility; Home production
    JEL: E24 J22 J24
    Date: 2017–04–23
  81. By: Pinshi, Christian; Mukendi, Christian; Ndombe, Patrick
    Abstract: The economists provide forecasts in connection with future economic facts by using statistical data to conduct these forecasts. The goal of this study is to provide an academic paper for the universities in the analysis of forecasting. We analyzed and estimated the coefficient of the reserve requirement in foreign currency to envisage with horizon October 2014 until December 2014. We chose two methods: the first method is that of the exponential smoothing of Holt and Winters, since the series comprised seasonal effect and the trend. The second method is that of the linear exponential smoothing of Brown, after having deseasonalized the series, there was not seasonal effect and there remained only the trend. Both of method predicted a weak increasing variation of the coefficient of the reserve requirement. This small rise is in particular due to the process of fight against dollarization. By comparing both method we retained Holt and Winters because the error of forecasting (difference between realization and forecasting) of the method of Holt and Winters is very minimal.
    Keywords: forecasting (Holt-Winters and linear exponential smoothing of Brown), reserve requirement.
    JEL: E37 E52
    Date: 2015–07
  82. By: Isabelle Joumard (OECD); Peter Hoeller (OECD); Jean-Marc Fournier (OECD); Hermes Morgavi (OECD)
    Abstract: In relation to GDP, India's public debt and interest payments are high compared with most other emerging economies and rating agencies have put India's sovereign debt at the lowest investment grade. On the other hand, India benefits from strong economic growth and needs to increase spending on social and physical infrastructure to support economic growth and to meet the needs of its fast-growing population. This paper assesses recent fiscal developments in India, discusses the threshold beyond which debt has adverse effects on the economy, quantifies the uncertainties surrounding key macroeconomic variables and the risks of overshooting the debt threshold to define a "prudent" debt level. It also provides a debt sustainability analysis. It concludes that under a "no-policy change" scenario, the debt-to-GDP ratio will decline gradually to close to the "prudent" level by 2040. However, adverse shocks could derail this benign scenario.
    Keywords: fiscal policy, India, prudent debt, public finance sustainability
    JEL: H63 H68
    Date: 2017–06–30
  83. By: Victor Olkhov
    Abstract: This paper describes surface-like waves of macroeconomic Credits-Loans transactions on economic space. We use agent's risk ratings as their coordinates and describe evolution of macro variables by transactions between agents. Aggregations of agent's variables with risk coordinates x on economic space define macro variables as function of x. Aggregations of transactions between agents at point x and y determine functions of two variables (x,y) on economic space. As example we study Credits transactions provided from agents at point x to agents at point y and thus amount of Loans received by agents at point y from agents at point x at moment t during time term dt. We model evolution of macro transactions by hydrodynamic-like equations. Agents fill macro domain on economic space that is bounded by minimum risk ratings of most secure and maximum risk ratings of most risky agents. Economic and financial shocks can disturb steady borders of macro domain and cause perturbations of transactions. Such disturbances can generate waves that can propagate along risk borders alike to surface waves in fluids. As example, we describe simple model interactions between two transactions by hydrodynamic like equations in a closed form. We introduce notions of "macro accelerations" and their potentials that establish steady state distributions of transactions on economic space. For this model in linear approximation we describe surface-like waves and show that perturbations induced by surface-like waves can exponentially grow up inside macro domain and induce macro instabilities in a low risk area. Description of possible steady state distributions of transactions and surface-like waves on economic space might be important for macro modeling and policy-making.
    Date: 2017–05
  84. By: Groneck, Max (Dept. of Economics); Wallenius, Johanna (Dept. of Economics)
    Abstract: In this paper, we study the labor supply effects and the redistributional consequences of the U.S. social security system. We focus particularly on auxiliary benefits, where eligibility is linked to marital status. To this end, we develop a dynamic, structural life cycle model of singles and couples, featuring uncertain marital status and survival. We account for the socio-economic gradients to both marriage stability and life expectancy. We find that auxiliary benefits have a large depressing effect on married women's employment. Moreover, we show that a revenue neutral minimum benefit scheme would moderately reduce inequality relative to the current U.S. system.
    Keywords: Social Security; Spousal and Survivor Benefits; Marital Risk; Female Labor Supply; Redistribution
    JEL: D91 E62 H55 J12 J26
    Date: 2017–02–23
  85. By: Lorenzo Pozzi; Barbara Sadaba
    Abstract: This paper presents a new testing method for the scapegoat model of exchange rates that aims to tighten the link between the theory on scapegoats and its empirical implementation. This new testing method consists of a number of steps. First, the exchange rate risk premium, the unobserved time-varying structural impact of the macro fundamentals on the exchange rate and the unobserved fundamental of the model are estimated. Next, the scapegoat terms in the model’s exchange rate equation are estimated under the restrictions implied by these first-step estimates. The scapegoat terms consist of macro fundamentals, i.e., potential scapegoats, interacted with parameter expectations, where the latter are proxied using survey data. We use a Bayesian Gibbs sampling approach to estimate the different steps of the methodology for eight countries (five developed, three emerging) versus the US over the period 2002Q1–2014Q4. The macro fundamentals we consider are real GDP growth, the inflation rate, the long-run nominal interest rate and the current account to GDP ratio. We calculate the posterior probabilities that these macro fundamentals are scapegoats. For the inflation rate, these probabilities are considerably higher than the imposed prior probabilities of 0.5 in five out of eight countries (including the Anglo-Saxon economies). We find little evidence to suggest that the other macro fundamentals we consider are scapegoats.
    Keywords: Econometric and statistical methods, Exchange rates, International financial markets
    JEL: G15 C32 F31
    Date: 2017
  86. By: Yang, Bill Huajian
    Abstract: In the process of loan pricing, stress testing, capital allocation, modeling of PD term structure, and IFRS9 expected credit loss estimation, it is widely expected that higher risk grades carry higher default risks, and that an entity is more likely to migrate to a closer non-default rating than a farther away non-default rating. In practice, sample estimates for rating level default rate or rating migration probability do not always respect this monotonicity rule, and hence the need for smoothing approaches. Regression and interpolation techniques are widely used for this purpose. A common issue with these approaches is that the risk scale for the estimates is not fully justified, leading to a possible bias in credit loss estimates. In this paper, we propose smoothing algorithms for rating level PD and rating migration probability. The smoothed estimates obtained by these approaches are optimal in the sense of constrained maximum likelihood, with a fair risk scale determined by constrained maximum likelihood, leading to more robust credit loss estimation. The proposed algorithms can be easily implemented by a modeller using, for example, the SAS procedure PROC NLMIXED. The approaches proposed in this paper will provide an effective and useful smoothing tool for practitioners in the field of risk modeling.
    Keywords: Credit loss estimation, risk scale, constrained maximum likelihood, PD term structure, rating migration probability
    JEL: C1 C13 C18 C5 C51 C52 C53 C54 C61 C63 E5 G31 G38 O32 O33 O38
    Date: 2017–06
  87. By: N. Berardi; P. Sevestre; J. Thébault
    Abstract: We characterize the dispersion of grocery prices in France based on a large original data set of prices in more than 1500 supermarkets. On average across products, the 90th percentile of relative prices is 17 percentage points higher than the 10th and the mean absolute deviation from quarterly average product prices is 5%. We show that temporal price variations (including sales and promotions) explain only little of the observed price dispersion, while the spatial permanent component of price dispersion largely dominates. Price dispersion across stores in France essentially results from persistent heterogeneity in retail chains' pricing, while local conditions regarding demand or competition contribute to a much lower extent.
    Keywords: price dispersion, retail chain, wholesaler.
    JEL: E31 D40
    Date: 2017
  88. By: Netsanet Haile (Seoul National University, Seoul, Korea); Jörn Altmann (Seoul National University, Seoul, Korea)
    Abstract: Within a closed ecosystem, end-users cannot interoperate with other platforms or port their software and data easily without a cost for interface integration or data re-formatting. The customers of these closed software service platforms are locked-in. Potential customers, who are aware of this lock-in issue, are hesitant to adopt a closed software service platform, slowing down the wide deployment of the software service platform. This paper applies an economic perspective to investigate the value creation for providers and users at different levels of interoperability. For the analysis, a value creation model for software service platforms within a software service ecosystem has been developed. Simulations of the value creation model show that, even if investments in interoperability and portability are aimed at addressing user requirements, their impact also drives the providers’ profitability. Furthermore, emerging providers require investing more than market leading providers, as they have less power to set de facto standards. The simulation results also show that there is an optimal level of investments, with respect to profit and return on investments. Overall, from these results, platform providers cannot only obtain an understanding on how investments in interoperability and portability impact cost, enable cost-effective service integration, and create value, but also design new strategies for optimizing investments.
    Keywords: Cloud Computing, Software Service Platform, Interoperability, Portability, Value Creation Model, Computational Economics, Simulation, Value Analysis, Net Present Value, Return On Investments, Investment Assessment.
    JEL: C15 D24 D46 D85 E22 L86 O31
    Date: 2017–05
  89. By: Sungyup Chung
    Abstract: A Factor Augmented Vector Autoregressive model is constructed in a way that it resolves the price puzzle problem and separately identifies domestic and foreign monetary policy shocks by imposing a small-open economy structure. An analysis on the employment data grouped by age and gender reveals that only the young male worker group exhibits an inverse relationship between employment and domestic policy rates. In the case of the foreign (the United States) policy rate rise, however, the negative response of employment could be observed for all of the worker groups.
    Keywords: employment, monetory policy, FAVAR, small open economy, IRF
    Date: 2017–03–05
  90. By: Michael Ade; Jannie Rossouw; Tendai Gwatidzo
    Abstract: This paper analyses tax harmonisation in the SADC region. Results of first attempt to devise a tax policy harmonisation measure (TPHM) by the use of a cross-sectional and panel data are reported. New methodology of computing optimum tax rates (OTRs) are introduced and a robustness test (via a sensitivity analysis) on the impact of taxation (based on new tax dataset from the TPHM and OTRs computation) on FDI inflows to the SADC is conducted.The research shows a need for the SADC countries to develop policies aimed at collectively expanding their corporate tax base in order to accommodate the relatively low optimum CIT rates. It is also shown that the adoption of an optimum VAT rate by all SADC member countries will reduce the usage of different politically motivated VAT rates by individual member states as instruments to gain voters' confidence. The research shows that, some further policy considerations towards enhanced harmonisation and tax revenue could include developing a benchmarking process with other regional economic groupings such as the EU and the EAC.
    Keywords: SADC; Harmonisation; Tax Policy; Tax Rates; EBA; FDI
    JEL: E60 F15 H21 H25 H27
    Date: 2017–06
  91. By: Muge Adalet McGowan; Dan Andrews; Valentine Millot
    Abstract: This paper explores the extent to which “zombie” firms – defined as old firms that have persistent problems meeting their interest payments – are stifling labour productivity performance. The results show that the prevalence of and resources sunk in zombie firms have risen since the mid-2000s and that the increasing survival of these low productivity firms at the margins of exit congests markets and constrains the growth of more productive firms. Controlling for cyclical effects, cross-country analysis shows that within-industries over the period 2003-2013, a higher share of industry capital sunk in zombie firms is associated with lower investment and employment growth of the typical non-zombie firm and less productivity-enhancing capital reallocation. Besides limiting the expansion possibilities of healthy incumbent firms, market congestion generated by zombie firms can also create barriers to entry and constrain the post-entry growth of young firms. Finally, we link the rise of zombie firms to the decline in OECD potential output growth through two key channels: business investment and multi-factor productivity growth Les Morts-Vivants ? : Entreprises Zombies et Productivité dans les Pays de l’OCDE Ce document examine dans quelle mesure les entreprises “zombies” – définies comme les entreprises de plus de dix ans rencontrant des problèmes persistants dans le remboursement de leurs intérêts – nuisent aux performances de la productivité du travail. Les résultats montrent que la prévalence des entreprises zombies et les ressources qui y sont renfermées ont augmenté depuis le milieu des années 2000 et que l’augmentation de la survie de ces entreprises à faible productivité, au bord de la sortie, accroît la congestion du marché et limite la croissance des entreprises plus productives. Une analyse portant sur différents pays sur la période 2003-2013 et contrôlant pour les effets conjoncturels montre qu’au sein d’un secteur, une part plus importante de capital renfermé dans les entreprises zombies est associée à un moindre investissement et une plus faible croissance de l’emploi pour l’entreprise non-zombie typique, et à une réaffectation du capital moins favorable à la productivité. Outre le fait qu’elle limite les possibilités de croissance des entreprises saines en place, la congestion du marché générée par les entreprises zombies peut également créer des barrières à l’entrée et limiter la croissance après l’entrée des jeunes entreprises. Enfin, nous relions l’augmentation des entreprises zombies au ralentissement de la croissance potentielle de l’OCDE à travers deux mécanismes principaux : l’investissement des entreprises et la croissance de la productivité multifactorielle.
    Keywords: firm exit, investment, misallocation, productivity, zombie lending
    JEL: D24 E22 G32 O16 O40 O47
    Date: 2017–01–25
  92. By: SERGI BASCO; John P. Tang
    Abstract: While credit supply growth is associated with exacerbating financial crises, its impact on general economic activity and long run development are unclear. To identify a causal impact, we use bond payments to samurai in nineteenth century Japan as a quasi-natural experiment and exploit variation between regions. Our proxy for credit supply, samurai population shares, is positively associated with per capita levels of firm establishment and capital investment and average firm capital. Initial samurai population share affects output per capita in the short and long run only in regions with early access to railways, mainly through the tertiary sector. Our interpretation is that increased credit supply may have a positive and persistent impact on output if a region has productivity-enhancing investment opportunities.
    Keywords: credit supply, finance-led growth, market access, railways
    JEL: E51 N15 O47
    Date: 2017–06
  93. By: Ralf R. Meisenzahl
    Abstract: More than half of auto financing is originated by non-bank finance companies that typically rely on short-term funding markets for their own financing. During the recent financial crisis, disruptions in these short-term financing markets reduced the availability of auto credit to consumers, which contributed to the decline in auto sales.
    Date: 2017–06–22
  94. By: Chen, John-ren (Center for Mathematical Economics, Bielefeld University)
    Date: 2017–04–04
  95. By: Petr Jakubik; Dimitris Zafeiris (EIOPA)
    Abstract: Under the current low yield environment insurers are changing their business models and looking for new investment and business opportunities. This is also reflected in an increasing interest in mergers and acquisitions to achieve sufficient returns. However, there is no clear answer in the literature whether this strategy brings the expected positive results. This study empirically tests the effects of mergers and acquisitions (M&A) on share prices of European insurers via an event study. Our results do not confirm the positive impact of such strategies on acquirers’ share prices delivering abnormal returns for shareholders.
    Keywords: Insurance, Mergers and Acquisitions, financial stability
    JEL: G22 G28 E27
    Date: 2016–06

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