nep-mac New Economics Papers
on Macroeconomics
Issue of 2017‒07‒16
sixty-nine papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Macro-Economic Impact of Brexit: Using the CBR Macro-Economic Model of the UK Economy (UKMOD) By Graham Gudgin; Ken Coutts; Neil Gibson; Jordan Buchanan
  2. Optimal Monetary Policy under Negative Interest Rate By Dong, Feng; Wen, Yi
  3. The Effectiveness of Japan’s Negative Interest Rate Policy By Yoshino, Naoyuki; Taghizadeh–Hesary, Farhad; Miyamoto, Hiroaki
  4. How large are fiscal multipliers in Turkey? By Şen, Hüseyin; Kaya, Ayşe
  5. Elasticities of Business Investment in the U.S. and their Policy Implications: A Disaggregate Approach to Modeling and Estimation. By Bitros, George C.; Nadiri, M. Ishaq
  6. Beyond the traditional monetary circuit: endogenous money, finance and the theory of long-period effective demand By Sergio Cesaratto
  7. How Effective is Monetary Policy at the Zero Lower Bound? Identification Through Industry Heterogeneity By Arsenios Skaperdas
  8. What is Driving Inflation and GDP in a Small European Economy: The Case of Croatia By Goran Jovičić; Davor Kunovac
  9. Debt Hangover in the Aftermath of the Great Recession By Stephane Auray; Aurelien Eyquem; Paul Gomme
  10. Dissecting the financial cycle with dynamic factor models By Menden, Christian; Proaño, Christian R.
  11. The Combination of Monetary and Fiscal Policy Shocks: A TVP-FAVAR Approach By MOLTENI, Francesco, PAPPA, Evi
  12. Long-run Unemployment and Macroeconomic Volatility By Stefano Fasani
  13. Optimal Unconventional Monetary Policy in the Face of Shadow Banking By Philipp Kirchner; Benjamin Schwanebeck
  14. Why Has Japan Failed to Escape from Deflation? By Kota Watanabe; Tsutomu Watanabe
  15. Fiscal policy shocks and stock prices in the United States By Konstantinos Theodoridis; Haroon Mumtaz
  16. The Global Factor in Neutral Policy Rates: Some Implications for Exchange Rates, Monetary Policy, and Policy Coordination By Richard H. Clarida
  17. Government borrowing cost and budget deficits: is investment spending different? By Jemima Peppel-Srebrny
  18. Revenue- versus spending-based consolidation plans: the role of follow-up By Beetsma, Roel; Furtuna, Oana; Giuliodori, Massimo
  19. Does Gold Act as a Hedge against Inflation in the UK? Evidence from a Fractional Cointegration Approach Over 1257 to 2016 By Goodness C. Aye; Hector Carcel; Luis A. Gil-Alana; Rangan Gupta
  20. Secular Satiation By Saint-Paul, Gilles
  21. Demand, Markups and the Business Cycle. Bayesian Estimation and Quantitative Analysis in Closed and Open Economies By Lilia Cavallari; Federico Etro
  22. Consumption and Exchange Rate Uncertainty: Evidence from Selected Asian Countries By Ho, Sin-Yu; Njindan Iyke, Bernard
  23. The Role of Gravity Models in Estimating the Economic Impact of Brexit By Graham Gudgin; Ken Coutts; Neil Gibson; Jordan Buchanan
  24. Explaining Central Bank Trust in an Inflation Targeting Country: The Case of the Reserve Bank of New Zealand By Bernd Hayo; Florian Neumeier
  25. Changes in the relationship between interest rates and housing prices in South Africa around the 2007 financial crisis By Kolisi, Nwabisa; Phiri, Andrew
  26. Minsky models. A structured survey By Maria Nikolaidi; Engelbert Stockhammer
  27. On the estimation of panel fiscal reaction functions : Heterogeneity or fiscal fatigue? By Gerdie Everaert
  28. Quelques leçons d'un modèle de macroéconomie écologique à 2 périodes By Jean-François FAGNART; Marc GERMAIN
  29. The Impact of Domestic Investment on Economic Growth: New Policy Analysis from Algeria By Bakari, Sayef
  30. Productivity, Taxes, and Hours Worked in Spain: 1970-2015 By Conesa, Juan Carlos; Kehoe, Timothy J.
  31. Default, Efficiency and Uniqueness By Cheng-Zhong Qin; Thomas Quint; Martin Shubik
  32. Accounting for Wealth Inequality Dynamics: Methods, Estimates and Simulations for France (1800-2014) By B. Garbinti; J. Goupille-Lebret; T. Piketty
  33. Ramsey-optimal Tax Reforms and Real Exchange Rate Dynamics By Stephane Auray; Aurelien Eyquem; Paul Gomme
  34. A Note on the Solow Growth Model with a CES Production Function and Declining Population By Sasaki, Hiroaki
  35. Macroeconomic Effects of Oil Price Fluctuations in Colombia By Leonardo Quero-Virla
  36. Should euro area countries cut taxes on labour or capital in order to boost their growth? By B. Castelletti-Font; P. Clerc; M. Lemoine
  37. Transitions in Central Bank Leadership By Carlos Carvalho; Tiago Fl´orido; Eduardo Zilberman
  38. Inflation persistence in BRICS countries: A quantile autoregressive (QAR) model By Phiri, Andrew
  40. Striking a balance: optimal tax policy with labor market duality By Gilbert Mbara; Ryszard Kokoszczynski; Joanna Tyrowicz
  41. The Federal Reserve's Portfolio and its Effect on Interest Rates By Jeff W. Huther; Jane E. Ihrig; Elizabeth C. Klee
  42. The Shifting Drivers of Global Liquidity By Stefan Avdjiev; Leonardo Gambacorta; Linda S. Goldberg; Stefano Schiaffi
  43. Utilitarianism, Voting and the Redistribution of Income By Dan Usher
  44. Labour market adjustment in Europe during the crisis: microeconomic evidence from the Wage Dynamics Network survey. By Mario Izquierdo; Juan Francisco Jimeno; Theodora Kosma; Ana Lamo; Stephen Millard; Tairi Rõõm; Eliana Viviano
  45. Revisions in Utilization-Adjusted TFP and Robust Identification of News Shocks By Eric Sims; Andre Kurmann
  46. Missing Aggregate Dynamics: On the Slow Convergence of Lumpy Adjustment Models By David Berger; Ricardo Caballero; Eduardo Engel
  47. A Tale of Two Velocities By Steve Ambler
  48. On the seemingly incompleteness of exchange rate pass-through to import prices: Do globalization and/or regional trade matter? By Antonia Lopez-Villavicencio; Valérie Mignon
  49. General Equilibrium Evaluation of Temporary Employment By Yang, Guanyi
  50. A shadow rate New Keynesian model By Ji Zhang; Jing Cynthia Wu
  51. Political (In)Stability of Social Security Reform By Krzysztof Makarski; Joanna Tyrowicz
  52. Incidencia de la Política Fiscal en la Desigualdad y la Pobreza en El Salvador By Instituto Centroamericano de Estudios Fiscales–ICEFI
  53. Incidencia de la Política Fiscal en la Desigualdad y la Pobreza en Honduras By Instituto Centroamericano de Estudios Fiscales–ICEFI
  55. Systemic Financial Sector and Sovereign Risks By Xisong Jin; Francisco Nadal De Simone
  56. Threats to Inclusive Growth in India: Unemployment and Informal Sector By Gupta, Avnesh Kumar
  57. Structural Changes of the U.S. Economy: Implications for the U.S. Mid- to Long-Term Growth Path and the Korean Economy By Kim, Wongi
  58. Forward Guidance without Common Knowledge By George-Marios Angeletos; Chen Lian
  59. Incidencia de la Política Fiscal en la Desigualdad y la Pobreza en Guatemala By Instituto Centroamericano de Estudios Fiscales–ICEFI
  60. Incidencia de la Política Fiscal en la Desigualdad y la Pobreza en Nicaragua By Instituto Centroamericano de Estudios Fiscales–ICEFI
  61. Demand-Driven Structural Change in Applied General Equilibrium Models By Roberto Roson; Dominique van der Mensbrugghe
  62. Segmented money markets and covered interest parity arbitrage By Dagfinn Rime; Andreas Schrimpf; Olav Syrstad
  63. An anatomy of the Spanish current account adjustment: the role of permanent and transitory factors By Moral-Benito, Enrique; Viani, Francesca
  64. A note on automation, stagnation, and the implications of a robot tax By Gasteiger, Emanuel; Prettner, Klaus
  65. Examining the Common Dynamics of Commodity Futures Prices By Christian Gross
  66. Africa and global commodity markets: from cyclical realities to structural By Yves Jégourel
  67. Macroprudential policy and household wealth inequality By Jean-Francois Carpantier; Javier Olivera Angulo; Philippe Van Kerm
  68. The FDI-growth nexus in South Africa: A re-examination using quantile regression approach By Khobai, Hlalefang; Hamman, Nicolene; Mkhombo, Thando; Mkaha, Simba; Matolweni, Nomahlubi; Phiri, Andrew
  69. Traditional and Shadow Banks during the Crisis By E. Chrétien; V. Lyonnet

  1. By: Graham Gudgin; Ken Coutts; Neil Gibson; Jordan Buchanan
    Abstract: This working paper uses the new CBR macro-economic model of the UK economy to investigate possible futures following the referendum decision to leave the EU. The paper briefly explains why we felt the necessity to build a new model and describes some of its key features. Since Brexit is a unique event with no precedent it is not possible to do a normal forecast in which a few assumptions are made about a limited range of exogenous variables. The best that can be done is to construct scenarios and two are presented here. The difficult part is to decide what scale of adjustment is needed to reflect the likely realities of Brexit. Analysis by HM Treasury of the potential impact of various outcomes for trade outside the EU is examined and found wanting. Instead the actual experience of UK export performance is examined for a long period including both pre- and post- accession years. This suggests a more limited impact of EU membership. While we include a scenario based on Treasury assumptions, a more realistic, although in our view still pessimistic, scenario assumes half of the trade loss of the Treasury. The results are presented through comparing these scenarios with a pre-referendum forecast. In the milder Brexit scenario there is a two per cent loss of GDP by 2025 but little loss of per capita GDP, less unemployment but more inflation. In the more severe, Treasury-based scenario the loss of GDP is nearer five per cent (two per cent for per capita GDP), inflation is higher and the advantage in unemployment less.
    Keywords: Brexit; H M Treasury; macroeconomic policy; fiscal and monetary policy; macroeconomic forecasts; macroeconomic models
    JEL: E12 E17 E27 E37 E47 E66 F17
    Date: 2016–05
  2. By: Dong, Feng (Shanghai Jiao Tong University); Wen, Yi (Federal Reserve Bank of St. Louis)
    Abstract: In responding to the extremely weak global economy after the financial crisis in 2008, many industrial nations have been considering or have already implemented negative nominal interest rate policy. This situation raises two important questions for monetary theories: (i) Given the widely held doctrine of the zero lower bound on nominal interest rate, how is a negative interest rate (NIR) policy possible? (ii) Will NIR be effective in stimulating aggregate demand? (iii) Are there any new theoretical issues emerging under NIR policies? This article builds a model to show that (i) money injections can remain effective even when the nominal bank lending rate has reached zero or become negative; (ii) it is a good policy to keep the nominal interest rate as low as possible by purchasing government bonds with money; and (iii) the conventional wisdom on the notion of the liquidity trap and the Fisherian decomposition between the nominal and real interest rate can be invalid.
    Keywords: Monetary Policy; Quantitative Easing; Liquidity Preference; Liquidity Trap; Banking; Money Demand
    JEL: E12 E13 E31 E32 E41 E43 E51
    Date: 2017–05–16
  3. By: Yoshino, Naoyuki (Asian Development Bank Institute); Taghizadeh–Hesary, Farhad (Asian Development Bank Institute); Miyamoto, Hiroaki (Asian Development Bank Institute)
    Abstract: In April 2013, the Bank of Japan (BOJ) introduced an inflation target of 2% with the aim of overcoming deflation and achieving sustainable economic growth. But due to lower international oil prices, it was unable to achieve this target and was forced to take further measures. Hence, in February 2016, the BOJ adopted a negative interest rate policy by massively increasing the money supply through purchasing long-term Japanese government bonds (JGB). The BOJ had previously purchased short-term government bonds mainly, a policy that flattened the yield curve of JGBs. On the one hand, banks reduced the numbers of government bonds because short-term bond yields had become negative, and even the interest rates of long-term government bonds up to 15 years became negative. On the other hand, bank loans to the corporate sector did not increase due to the Japanese economy’s vertical investment–saving (IS) curve. Firstly, we explain why the BOJ has to reduce its 2% inflation target in the present low oil price era. Secondly, we argue that Japan cannot make a sustainable recovery from its long-lasting recession and tackle its long-standing deflation problem by means of its current monetary policy and its negative interest rate policy in particular. It is of key importance to make the IS curve downward sloping rather than vertical. That means the rate of return on investment must be positive and companies must be willing to invest if interest rates are set too low. Japan’s long-term recession is due to structural problems that cannot be solved by its current monetary policy. The last section reports our simulation results of tackling Japan’s aging population by introducing a productivity-based wage rate and postponement of the retirement age, which will help the recovery of the Japanese economy.
    Keywords: negative interest rate policy; oil price; Abenomics; government bonds; inflation target
    JEL: E12 E43 E52
    Date: 2017–01–27
  4. By: Şen, Hüseyin; Kaya, Ayşe
    Abstract: Using the augmented version of the Blanchard - Perotti’s SVAR technique, this paper seeks to empirically estimate the size of fiscal multipliers in Turkey over the period 2002:q3-2016:q2. In contrast to many previous papers that concentrate on fiscal policy instruments -taxes and government spending- at the aggregate level, in the paper we consider these instruments at the sub-component level. We examine output responses to discretionary changes in five fiscal variables (value-added tax, special consumption tax, personal income tax, real government spending, and transfer payments), and then we estimate the size of fiscal multipliers for taxes and government spending. Overall, our empirical findings indicate that the size of multipliers for taxes is different from that of government spending. Depending on the sub-components, the size of the multiplier ranges from -0.83 to -0.27 for taxes, and from 0.02 to 0.98 for government spending respectively. Overall, these findings corroborate the idea that a shock to government spending creates a (weak) Keynesian effect on GDP in the short run, while a shock to taxes brings about a non-Keynesian effect.
    Keywords: Fiscal Multipliers,Fiscal Policy,SVAR,Turkey
    JEL: E6 E62 H2 H30
    Date: 2017
  5. By: Bitros, George C.; Nadiri, M. Ishaq
    Abstract: Using data from the U. S. Bureau of Economic Analysis for the period 1947-2015, we estimate investment equations for three types of fixed assets and three policy instruments. In particular, we disaggregate investment into structures, equipment and intangibles, and the policy instruments into the rates of replacement, interest and taxes. Additionally, we estimate an equation for total investment. At the aggregate level the long run elasticities of investment with respect to output and the user cost are found to vary narrowly around 0.83; the direct elasticities of investment with respect to the rates of replacement, interest and taxation are 0.91, -0.04 and -0.23, whereas the indirect and inversely additive ones through the user cost are -0.11, -0.05 and -0.27, respectively. To highlight the significance of these findings, we investigate their implications for economic growth by focusing on four policy channels, i.e. aggregate demand, relative prices, and monetary and fiscal policies. We conclude that mone-tary policy may be weak to stimulate investment, and even fall into the trap of the law of un-intended consequences by slowing replacement investment down, since the average age of capital is related negatively to the discount rate. On the contrary fiscal policy is relatively more potent as a 10% reduction in the expected effective tax rate is found to boost investment directly and indirectly by as much as. In general, first best policies would aim at increasing the replacement rate, particularly of intangibles and equipment in the same order.
    Keywords: Business investment, elasticities, economic policies, composition of the capital stock, economic growth.
    JEL: E22 E52 E62
    Date: 2017–07–07
  6. By: Sergio Cesaratto
    Abstract: The paper is a contribution to a long-run theory of effective demand with elements from monetary circuit theory, Modern Monetary Theory and endogenous finance analysis. Some shortcomings of the still influential neo-Kaleckian growth model and monetary circuit theory are underlined, and the Sraffian supermultiplier is indicated as the most promising heterodox approach to growth and instability in capitalism. The Sraffian supermultiplier allows full consideration of the autonomous components of aggregate demand as the ultimate sources of growth and instability in modern capitalism. Following Steindl, capital gains are included among these components. Autonomous demand and investment are typically fed by endogenous finance. The paper articulates the relation between autonomous demand and investment on one hand, and endogenous finance on the other, in the light of Keynes’s distinction between initial and final finance.
    Keywords: Supermultiplier, endogenous money, monetary circuit theory, modern monetary theory, autonomous demand
    JEL: B51 E11 E12 E42 E5
    Date: 2017–07
  7. By: Arsenios Skaperdas
    Abstract: US monetary policy was constrained from 2008 to 2015 by the zero lower bound, during which the Federal Reserve would likely have lowered the federal funds rate further if it were able to. This paper uses industry-level data to examine how growth was affected. Despite the zero bound constraint, industries historically more sensitive to interest rates, such as construction, performed relatively well in comparison to industries not typically affected by monetary policy. Further evidence suggests that unconventional policy lowered the effective stance of policy below zero.
    Keywords: Industry heterogeneity ; Unconventional monetary policy ; Zero lower bound
    JEL: E32 E43 E47 E52
    Date: 2017–07–07
  8. By: Goran Jovičić (The Croatian National Bank, Croatia); Davor Kunovac (The Croatian National Bank, Croatia)
    Abstract: In this paper we estimate and identify a small open economy Bayesian VAR model in order to disentangle the contribution of individual domestic, euro area-specific and global shocks to domestic macroeconomic developments. Our identification suggests that foreign (global and euro area - specific) shocks have a large impact on the variability of domestic variables - they account for approximately 40% of variation in GDP growth and around 50% of variation in inflation. Looking at the contribution of individual structural shocks our results emphasize two particular findings. First, low oil prices have played an important role for muted inflation in Croatia during the last two years while, at the same time, domestic real activity has not benefited much. We show how this finding depends crucially on the specific mix of economic shocks underlying the movements in oil prices (demand vs supply shocks). Second, our results suggest that the large-scale asset purchase programme launched by the ECB at the beginning of 2015 resulted in favourable, albeit limited, spillover effects on domestic economy.
    Keywords: Small open economy, BVAR with sign and zero restrictions, Oil prices, ECB monetary policy
    JEL: E30 E10 E50 Q43
    Date: 2017–04
  9. By: Stephane Auray (CREST-Ensai and Universite du Littoral Cote d'Opale); Aurelien Eyquem (CREST-Ensai, GATE, UMR 5824, Universite de Lyon, and Universite Lumiere Lyon 2); Paul Gomme (Concordia University and CIREQ)
    Abstract: Following the Great Recession, U.S. government debt levels exceeded 100% of output. We develop a macroeconomic model to evaluate the role of various shocks during and after the Great Recession; labor market shocks have the greatest impact on macroeconomic activity. We then evaluate the consequences of using alternative fiscal policy instruments to implement a fiscal austerity program to return the debt-output ratio to its pre-Great Recession level. Our welfare analysis reveals that there is not much difference between applying fiscal austerity through government spending, the labor income tax, or the consumption tax; using the capital income tax is welfare-reducing.
    Keywords: fiscal policy; fiscal austerity; Great Recession
    JEL: E62 H63 E24
    Date: 2017–06
  10. By: Menden, Christian; Proaño, Christian R.
    Abstract: The analysis of the financial cycle and its interaction with the macroeconomy has become a central issue for the design of macroprudential policy since the 2007-08 financial crisis. This paper proposes the construction of financial cycle measures for the US based on a large data set of macroeconomic and financial variables. More specifically, we estimate three synthetic financial cycle components that account for the majority of the variation in the data set using a dynamic factor model. We investigate whether these financial cycle components have significant predictive power for economic activity, inflation and short-term interest rates by means of Granger causality tests in a factor-augmented VAR set-up. Further, we analyze if the synthetic financial cycle components have significant forecasting power for the prediction of economic recessions using dynamic probit models. Our main findings indicate that all financial cycle measures improve the quality of recession forecasts significantly. In particular, the factor related to financial market participants' uncertainty and risk aversion - related to Rey's (2013) global financial cycle - seems to serve as an appropriate early warning indicator for policymakers.
    Keywords: financial cycle,dynamic factor model,Granger causality,recession forecasting,dynamic probit models,early warning systems
    JEL: C35 C38 C52 C53 E32 E47
    Date: 2017
  11. By: MOLTENI, Francesco, PAPPA, Evi
    Abstract: This paper analyzes jointly the effects of monetary and fiscal policy shocks in the US economy using a factor augmented vector autoregressive model with drifting coefficients and stochastic volatility. The time varying structure of the model allows to assess the impact of monetary policy shocks in the same periods when fiscal policy shocks identified via the narrative approach are also at play. In this way we study how the monetary policy transmission changes conditional on expansionary or contractionary exogenous fiscal policies, which are determined by the discretionary intervention of the fiscal authority and are not the response of business cycle fluctuations or the reaction to monetary policy. We find that fiscal policy strongly affects the impulse responses to monetary policy shocks through the aggregate demand channel. These results are relevant to understand the implications of different policy mixes.
    Keywords: TVP FAVAR, monetary policy shocks, fiscal policy shocks
    JEL: E52 E62 E63 E65 C32
    Date: 2017
  12. By: Stefano Fasani (University of Rome "Tor Vergata")
    Abstract: This paper develops a DSGE model with downward nominal wage rigidity, in which aggregate price and productivity dynamics are exogenously determined by independent Brownian motions with drift. As a result, the long-run expected value of unemployment depends positively on the drift coe¢ cients and negatively on the volatility coe¢ cients of both price and productivity growth processes. Model prescriptions are empirically tested by using a dataset including a wide sample of OECD countries from a period spanning from 1961 to 2011. Panel regressions with fixed effects and time dummies confirm the expected relation of inflation and productivity with unemployment at low frequencies. Long-run unemployment is negatively correlated with the levels of inflation and productivity growth, and positively with their volatilities.
    Keywords: Long-run unemployment, Downward Nominal Wage Rigidity, Volatility, In?ation targeting, DSGE model, Cross-country panel data.
    JEL: E12 E24 E31 C23
    Date: 2017–07–07
  13. By: Philipp Kirchner (University of Kassel); Benjamin Schwanebeck (University of Kassel)
    Abstract: Using a DSGE framework, we discuss the optimal design of monetary policy for an economy where both retail banks and shadow banks serve as fi?nancial intermediaries. We get the following results. During crises times, a standard Taylor rule fails to reach sufficient stimulus. Direct asset purchases prove to be the most effective unconventional tool. When maximizing welfare, central banks should shy away from interventions in the funding process between retail and shadow banks. Liquidity facilities are the welfare-maximizing unconventional policy tool. The effectiveness of unconventional measures increases in the size of the shadow banking sector. However, the optimal response to shocks is sensitive to the resource costs of the implementation which may differ across central banks. Hence, optimal unconventional monetary policy is country-speci?c.
    Keywords: ?nancial intermediation; shadow banking; ?financial frictions; unconventional policy; optimal policy
    JEL: E44 E52 E58
    Date: 2017
  14. By: Kota Watanabe (Canon Institute for Global Studies(CIGS) and University of Tokyo); Tsutomu Watanabe (Graduate School of Economics, University of Tokyo)
    Abstract: Japan has failed to escape from deflation despite extraordinary monetary policy easing over the past four years. Monetary easing undoubtedly stimulated aggregate demand, leading to an improvement in the output gap. However, since the Phillips curve was almost flat, prices hardly reacted. Against this background, the key question is why prices were so sticky. To examine this, we employ sectoral price data for Japan and seven other countries including the United States, and use these to compare the shape of the price change distribution. Our main finding is that Japan differs significantly from the other countries in that the mode of the distribution is very close to zero for Japan, while it is near 2 percent for other countries. This suggests that whereas in the United States and other countries the "default" is for firms to raise prices by about 2 percent each year, in Japan the default is that, as a result of prolonged deflation, firms keep prices unchanged.
    Keywords: deflation; price stickiness; Phillips curve; inflation expectations; inflation norms; quantitative easing; menu cost models; sectoral price data
    JEL: E31 E5
    Date: 2017–06
  15. By: Konstantinos Theodoridis; Haroon Mumtaz
    Abstract: This paper uses a range of structural VARs to show that the response of US stock prices to fiscal shocks changed in 1980. Over the period 1955-1980 an expansionary spending or revenue shock was associated with modestly higher stock prices. After 1980, along with a decline in the fiscal multiplier, the response of stock prices to the same shock became negative and larger in magnitude. We use an estimated DSGE model to show that this change is consistent with a switch from an economy characterised by active fiscal policy and passive monetary policy to one where fiscal policy was passive and the central bank acted aggressively in response to inflationary shocks.
    Keywords: Fiscal policy shocks, Stock prices, VAR, DSGE
    JEL: C5 E1 E6 E5
    Date: 2017
  16. By: Richard H. Clarida
    Abstract: This paper highlights some of the theoretical and practical implications for monetary policy and exchange rates that derive specifically from the presence of a global general equilibrium factor embedded in neutral real policy rates in open economies. Using a standard two country DSGE model, we derive a structural decomposition in which the nominal exchange rate is a function of the expected present value of future neutral real interest rate differentials plus a business cycle factor and a PPP factor. Country specific “r*” shocks in general require optimal monetary policy to pass these through to the policy rate, but such shocks will also have exchange rate implications, with an expected decline in the path of the real neutral policy rate reflected in a depreciation of the nominal exchange rate. We document a novel empirical regularity between the equilibrium error in the VECM representation of the empirical Holston Laubach Williams (2017) four country r* model and the value of the nominal trade weighted dollar. In fact, the correlation between the dollar and the 12 quarter lag of the HLW equilibrium error is estimated to be 0.7. Global shocks to r* under optimal policy require no exchange rate adjustment because passing though r* shocks to policy rates ‘does all the work’ of maintaining global equilibrium. We also study a richer model with international spill overs so that in theory there can be gains to international policy cooperation. In this richer model we obtain a similar decomposition for the nominal exchange rate, but with the added feature that r* in each country is a function global productivity and business cycle factors even if these factors are themselves independent across countries. We argue that in practice, there could well be significant costs to central bank communication and credibility under a regime formal policy cooperation, but that gains to policy coordination could be substantial given that r*’s are unobserved but are correlated across countries.
    JEL: E4 F31 F33
    Date: 2017–06
  17. By: Jemima Peppel-Srebrny
    Abstract: Abstract The reasons for and underlying composition of government budget deficits are often disregarded both by the academic literature about the links between fiscal policy and interest rates and by the policy debate about fiscal sustainability. However, we show that, from the perspective of financial markets, not all budget deficits are created equal: bond markets do discriminate between deficits that are the result of higher government current spending and those that stem from higher government investment, penalising the former significantly more than the latter. To do so, we apply a reduced-form regression approach to a panel of 31 OECD economies from 1960 to 2014 with data from the European Commission on the decomposition of the government budget deficit into its current spending, investment spending and revenue components. Quantitatively, based on our preferred specifications, a higher deficit solely due to higher government investment would in fact decrease long-term government bond yields. These findings suggest that austerity policies should focus more on current spending than investment spending and that fiscal rules in individual countries and monetary unions should distinguish budget deficits that are the result of investment from those that are not.
    Keywords: Government budget deficits, government investment, fiscal policy, longterm interest rates, OECD countries
    JEL: E44 E62 H54 H62
    Date: 2017–06–19
  18. By: Beetsma, Roel; Furtuna, Oana; Giuliodori, Massimo
    Abstract: The literature presents evidence that spending-based fiscal consolidations tend to have more benign macro-economic consequences than revenues-based consolidations. Several explanations have been put forward. By directly comparing ex-post data with consolidation plans, we offer a new explanation based on robust evidence of systematically-weaker follow-up of spending-based consolidation plans. Systematically over-optimistic growth forecasts can explain a substantial part of the differences in follow up. Next, using a newly developed dataset on consolidation announcements, we indeed confirm that follow-up in actual revenues is substantially better than in actual spending and that, consistent with a Keynesian setting, spending-based consolidations produce more benign macro-economic effects. An advantage of our dataset is that we control for confidence effects that can occur immediately after new fiscal information becomes available. Consistent with the ensuing course of the economy, confidence falls (is unchanged) upon announced revenue increases (spending reductions). Under a counterfactual in which the confidence channel is suppressed, announcements of revenue-based consolidations have a substantially less negative effect on the economy.
    Keywords: confidence; fiscal consolidation; Fiscal multipliers; follow-up; panel vector auto-regression; revenues; spending
    JEL: E21 E62 H5
    Date: 2017–07
  19. By: Goodness C. Aye (Department of Economics, University of Pretoria, South Africa); Hector Carcel (University of Navarra, Faculty of Economics and NCID, Edificio Amigos, Pamplona, Spain); Luis A. Gil-Alana (University of Navarra, Faculty of Economics and NCID, Edificio Amigos, Pamplona, Spain); Rangan Gupta (Department of Economics, University of Pretoria, South Africa)
    Abstract: This paper examines the inflation hedging ability of gold in the UK based on a fractional integration and cointegration framework. This gives more flexibility as it does not restrict the order of integration between zero and 1. Annual time series data covering 1257 to 2016 were used. We conducted both full sample and sub-sample analysis. Using the full sample, the findings shows that gold and retail price index (RPI) are both I(1). However, based on the sub-sample analyses, gold is I(1) for most sub-periods while RPI is mean reverting (d
    Keywords: Inflation, gold price, hedging, fractional cointegration, long memory
    JEL: C32 E31 E44 G15 Q02
    Date: 2017–07
  20. By: Saint-Paul, Gilles
    Abstract: Satiation of need is generally ignored by growth theory. I study a model where consumers may be satiated in any given good but new goods may be introduced. A social planner will never elect a trajectory with long-run satiation. Instead, he will introduce enough new goods to avoid such a situation. In contrast, the decentralized equilibrium may involve long run satiation. This, despite that the social costs of innovation are second order compared to their social benefits. Multiple equilibria may arise: depending on expectations, the economy may then converge to a satiated steady state or a non satiated one. In the latter equilibrium, capital and the number of varieties are larger than in the former, while consumption of each good is lower. This multiplicity comes from the following strategic complementary: when people expect more varieties to be introduced in the future, this raises their marginal utility of future consumption, inducing them to save more. In turn, higher savings reduces interest rates, which boosts the rate of innovation. When TFP grows exogenously and labor supply is endogenized, the satiated equilibrium generically survives. For some parametrer values, its growth rate is positive while labor supply declines over time to zero. Its growth rate is then lower than that of the non satiated equilibrium. Hence, the economy may either coordinate on a high leisure, low growth, satiated "leisure society" or a low leisure, high growth, non satiated "consumption society".
    Keywords: consumer society; growth; innovation; Labor Supply; leisure society; multiple equilibra; new products; satiation; strategic complementarities
    JEL: E13 E14 E21 E22 E23
    Date: 2017–07
  21. By: Lilia Cavallari (Department of Economics, University of Rome III); Federico Etro (Department of Economics, University Of Venice Cà Foscari)
    Abstract: We generalize the demand side of a Real Business Cycle model introducing non-homothetic preferences over differentiated final goods. Under monopolistic competition this generates variable markups that depend on the level of consumption. We estimate a flexible preference specification through Bayesian methods and obtain countercyclical markups. The associated closed-economy model magnifies the propagation of shocks (compared to perfect competition or fixed markups) through additional substitution effects on labor supply and consumption. In an open-economy framework, it also generates positive comovements of output, labor and investment and reduces consumption correlation between countries: in particular, a positive shock in the Home country reduces its markups and improves its terms of trade, which promotes consumption in the Home country but also production in the Foreign country to exploit the increased profitability of exports.
    Keywords: RBC, variable markups, non-homothetic preferences, international macroeconomics
    JEL: E1 E2 E3
    Date: 2017
  22. By: Ho, Sin-Yu; Njindan Iyke, Bernard
    Abstract: We set out to assess the effects of exchange rate uncertainty on real consumption in selected Asian countries. Consumption influences business cycles, which in turn shape short-run monetary policy decisions. Hence, understanding factors driving consumption is appealing to policymakers. In the extant literature, few studies have analysed the effects of uncertainty on consumption. The available ones generally focus on the long-run effects, in spite of the fact that the short-run persistence and adjustments to equilibrium are equally relevant. Our study takes this limitation seriously by distinguishing the short- and long-run effects of exchange rate uncertainty on consumption. Using a flexible dynamic panel data technique that allows long-run effects to be homogeneous and the short-run effects to be heterogeneous, we find that uncertainty impedes consumption in the long run. In the short run, however, the effects are immaterial. This evidence remains robust to the measure of uncertainty, asymmetric uncertainty, the role of consumer prices, and the global financial crisis of 2008. By decomposing uncertainty into its temporary and permanent components, we find that the latter have a stronger effect on consumption in the long run than the former. Although both components demand policy attention, the evidence suggests that policymakers should be more concerned with permanent uncertainty.
    Keywords: Real Consumption; Exchange Rate Uncertainty; Asian Countries.
    JEL: C23 E31 F31
    Date: 2017–07
  23. By: Graham Gudgin; Ken Coutts; Neil Gibson; Jordan Buchanan
    Abstract: The predictions of the Treasury, OECD and IMF for the long-term impact of Brexit remain influential. They provide an important context for the Brexit negotiations and underpin the belief of Scottish and Irish nationalists that Brexit strengthens their case for independence or Irish unity. Because these predictions have received limited scrutiny they are examined in detail in this paper. The bases of the predictions are similar for each of the three organisations. In each case estimates are made of the impact of Brexit on trade and on foreign direct investment. This is followed by an estimate of the knock-on effect on productivity. The OECD and IMF also include an assessment of the impact of lower migration. The aggregate impact of these factors is then fed into a macro-economic model to obtain a forecast for GDP. Much of the final impact depends on the estimate for trade which, in each case, is assessed using a ‘gravity model’. Because gravity models are inaccessible to the general public, they are explained here in comprehensible terms. In addition the Treasury’s gravity model results are replicated and examined in detail. Our conclusion is that different versions of the model give a range of results and that most versions give a smaller trade impact than that reported by the Treasury, OECD or IMF. In particular, equations which estimate the average impact of EU membership on exports of goods tend to over-predict UK exports to the EU. This implies that the average impact of EU membership applies less to the UK than to the other EU member states. The further implication is that these official predictions of the impact of Brexit are overly pessimistic.
    Keywords: Brexit; Gravity Model; H M Treasury; IMF; Trade: macroeconomic forecasts; OECD
    JEL: C54 E24 E44 H24
    Date: 2017–06
  24. By: Bernd Hayo (University of Marburg); Florian Neumeier (Ifo Institute–Leibniz Institute for Economic Research at the University of Munich)
    Abstract: Employing data from a representative population survey conducted in New Zealand in 2016, this paper examines factors that influence, or are at least associated with, public trust in the Reserve Bank of New Zealand (RBNZ). The large number of specifically designed questions allows studying the relationship between six dimensions and RBNZ trust: (i) economic situation, (ii) monetary policy knowledge, (iii) nonspecific trust, (iv) interest and information search, (v) politicians and government, and (vi) socio-demographic indicators. Using ordered logit models, we find that at least one indicator from each of these six dimensions has a statistically significant conditional correlation with individuals’ trust in RBNZ. Satisfaction with own financial situation, objective knowledge about the RBNZ’s main policy objective, responsibility for interest rate setting, subjective knowledge about inflation, trust in government institutions, desire to be informed about RBNZ, age, and full-time selfemployment have a positive relationship with RBNZ trust. The reverse is found for respondents who do not keep up with RBNZ and believe that politicians are long-term oriented. In terms of economic relevance, institutional trust has the largest single impact on RBNZ trust and the subjective and objective knowledge indicators show a strong combined influence.
    Keywords: Central Bank Trust, Survey, Public Attitudes, Reserve Bank of New Zealand, Monetary Policy
    JEL: E52 E58 Z1
    Date: 2017
  25. By: Kolisi, Nwabisa; Phiri, Andrew
    Abstract: In this study we investigate the cointegration relationship between interest rates and housing prices in South Africa using the autoregressive distributive (ARDL) model applied to quarterly data covering the post inflation targeting period of 2002:Q1 and 2016:Q4. Our empirical consists of splitting the empirical data into two sub-periods, one corresponding to the pre-crisis period (i.e. 2002:Q1 – 2008:Q2) and the other corresponding to the post-crisis periods (i.e. 2008:Q3 – 2016:Q4). Indeed, our empirical results confirm changing dynamics of the interest rate-housing price relationship in light of the financial crisis with the Reserve Bank appearing to respond to changes in the housing price growth in the post-crisis period. This results reflect the strong macropudential stance which the Reserve Bank has recently assumed after the sub-prime crisis and such policy stance critically depends on monitoring asset prices such as housing and property prices as a means of assessing market conditions.
    Keywords: Interest rates; Housing prices; Monetary policy; Cointegration; ARDL model; South Africa; Emerging economy
    JEL: C22 C51 E31 E52
    Date: 2017–07–13
  26. By: Maria Nikolaidi (University of Greenwich); Engelbert Stockhammer
    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: 2017–07
  27. By: Gerdie Everaert (Ghent University, Department of Social Economics)
    Abstract: This paper investigates whether fiscal fatigue is a robust characteristic of the fiscal reaction function in a panel of OECD countries over the period 1970-2014 or merely an artifact of ignoring important aspects of the panel dimension of the data. More specifically, we test whether the quadratic and cubic debt-to-GDP terms remain significant once dynamics, heterogeneous slopes and an asymmetric reaction to the business cycle are allowed for. The results show a significant heterogeneous reaction of the primary balance to lagged debt with fiscal fatigue not being a general characteristic of the fiscal reaction function shared by all countries in our panel. In line with the literature, we further find that fiscal balances tend to deteriorate in contractions without correspondingly improving during expansions. Explorative stochastic debt simulations show that debt forecasts crucially depend on the specification of the fiscal reaction function.
    Keywords: Fiscal reaction function, dynamics, non-linearities, fiscal fatigue, debt sustainability analysis
    JEL: E62 H62 H63 H68
    Date: 2017–05
  28. By: Jean-François FAGNART (CEREC, Université Saint-Louis, Bruxelles et UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Marc GERMAIN (LEM-CNRS (UMR 9221), Université de Lille 3 et UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: Cet article revisite un modèle néoclassique de l'enseignement de la macroéconomie (Williamson, 2014) en y introduisant une contrainte de ressource naturelle intertemporelle, tout en respectant le postulat de soutenabilité forte. Deux régimes, appelés respectivement contraint et non contraint, sont distingués selon que la contrainte de ressource (CR) est liante ou non. Dans le Régime contraint, un durcissement de la CR (i) a un impact négatif sur les indicateurs macroéconomiques d'activité a chaque période et (ii) modifie le partage de la valeur ajoutée au détriment du facteur travail (même si la ressource est gratuite). Une CR liante modifie aussi l'efficacité des politiques de soutien de la demande. Le progrès technique n'a un impact positif sur l'activité que s'il permet d'économiser le(s) facteur(s) de production limitant(s), c-a-d les facteurs travail et capital dans le cadre du Régime non contraint et la ressource dans le cadre du Régime contraint. Dans une extension ou l'usage de la ressource se traduit par de la pollution, nous étudions les conséquences d'une politique qui laisse délibérément une partie de la ressource inexploitée. Si la politique a des effets négatifs sur l'activité et la consommation, le bien-être des ménages augmente si leur désutilité marginale de la pollution est suffisamment forte. Ce résultat montre l'importance de considérer d'autres mesures que les indicateurs macroéconomiques traditionnels pour évaluer les politiques environnementales. We introduce an intertemporal resource constraint into the textbook 2-period neoclassical macro-model proposed by Williamson (2014). The resource is free but is an essential input in final production and is complementary to man-made inputs (labour and capital). Two regimes, called respectively constrained and unconstrained, are possible whether the resource constraint is binding or not. In the constrained regime, a strengthening of the resource constraint has a negative impact on economic activity and employment in the two periods. It also changes the value-added sharing in a way unfavourable to labour income. A binding resource constraint also alters the effectiveness of demand policies. Technical progress only improves economic activity in the two periods if it improves the productivity of man-made inputs in the unconstrained regime and the resource productivity in the constrained one.
    Keywords: macroéconomie écologique, ressource naturelle, soutenabilité forte
    JEL: E10 E25 E60 Q57
    Date: 2017–05–31
  29. By: Bakari, Sayef
    Abstract: This paper investigates the relationship between domestic investment and economic growth in Algeria, by using co integration analysis of Vector Error Correction Model. The equation of the long run relationship shows that domestic investment has a negative effect on economic growth. However, in the short run term, domestic investment causes economic growth. These results prove that domestic investment is a source of economic growth for Algeria, but unfortunately it suffers from several obstacles and problems that are directly related to the poor management and the weak strategy for development and investment.
    Keywords: Domestic Investment, VECM, Causality, Economic Growth, Algeria.
    JEL: E2 E22 F1 F14 O40 O47
    Date: 2017–06
  30. By: Conesa, Juan Carlos (Stony Brook University); Kehoe, Timothy J. (Federal Reserve Bank of Minneapolis)
    Abstract: In the early 1970s, hours worked per working-age person in Spain were higher than in the United States. Starting in 1975, however, hours worked in Spain fell by 40 percent. We find that 80 percent of the decline in hours worked can be accounted for by the evolution of taxes in an otherwise standard neoclassical growth model. Although taxes play a crucial role, we cannot argue that taxes drive all of the movements in hours worked. In particular, the model underpredicts the large decrease in hours in 1975–1986 and the large increase in hours in 1994–2007. The lack of productivity growth in Spain during 1994–2015 has little impact on the model’s prediction for hours worked.
    Keywords: Dynamic general equilibrium; Hours worked; Distortionary taxes; Total factor productivity
    JEL: C68 E13 E24 H31
    Date: 2017–07–10
  31. By: Cheng-Zhong Qin (Dept. of Economics, UC Santa Barbara); Thomas Quint (Dept. of Mathematics, University of Nevada, Reno); Martin Shubik (Cowles Foundation, Yale University)
    Abstract: An adequate description of economic dynamics requires the introduction of a monetary system including default penalties and expectations in a society whose economy utilizes money and credit. This essay notes and discusses several of the factors involved in the use of money and credit in a process oriented economy. It links these observations with the general equilibrium treatment of the same underlying economy and formulates a government guidance game where the government sets several key parameters in a monetary economy sufficient to select a unique equilibrium. Low information and error correction are noted. The links to the first and second welfare theorems of GE are also considered as is the setting of the price level.
    Keywords: General equilibrium, Strategic market games, Uniqueness, Aggregation, Information, Disequilibrium, Minimal institutions, Playable games
    JEL: C7 D50 E4
    Date: 2017–07
  32. By: B. Garbinti; J. Goupille-Lebret; T. Piketty
    Abstract: This paper combines different sources and methods (income tax data, inheritance registers, national accounts, wealth surveys) in order to deliver consistent, unified wealth distribution series for France over the 1800-2014 period. We find a large decline of the top 10% wealth share from the 1910s to the 1980s, mostly to the benefit of the middle 40% of the distribution. Since the 1980s-90s, we observe a moderate rise of wealth concentration, with large fluctuations due to asset price movements. In effect, rising inequality in saving rates and rates of return pushes toward rising wealth concentration, in spite of the contradictory effect of housing prices. We develop a simple simulation model highlighting how the combination of unequal saving rates, rates of return and labor earnings leads to large multiplicative effects and high steady-state wealth concentration. Small changes in the key parameters appear to matter a lot for long-run inequality. We discuss the conditions under which rising concentration is likely to continue in the coming decades.
    Keywords: saving rate, steady-state, wealth inequality.
    JEL: D31 E21 N34
    Date: 2017
  33. By: Stephane Auray (CREST-Ensai and ULCO); Aurelien Eyquem (CREST-Ensai and Universite de Lyon); Paul Gomme (Concordia University and CIREQ)
    Abstract: We solve for the Ramsey-optimal path for government debt, labor income taxes and capital income taxes for a small open economy with an endogenously-determined real exchange rate. Due to the endogenous exchange rate, the model must be solved using the `primal problem': maximize the lifetime utility of the representative household subject to equilibrium conditions and the government budget constraint. The open economy constrains the government's setting of the capital income tax rate since physical capital cannot be dominated in rate of return by foreign assets. However, the endogenous real exchange rate loosens this constraint relative to a one good open economy model in which the real exchange rate is necessarily fixed.
    Keywords: Optimal fiscal policy, Tax reforms, Welfare
    JEL: E32 E52 F41
    Date: 2017–07
  34. By: Sasaki, Hiroaki
    Abstract: This study investigates the relationship between per capita output growth and population growth using the Solow growth model when population growth is negative. When the Cobb-Douglas production function is used, the per capita output growth rate is positive even if the technological progress rate is zero. In contrast, when the CES production function is used, the per capita output growth rate is zero if the technological progress rate is zero.
    Keywords: Solow growth model; negative population growth; CES production function
    JEL: E13 E23 O41
    Date: 2017–07–07
  35. By: Leonardo Quero-Virla
    Abstract: This research aims to study the effects of oil price changes on the Colombian economy during 2001:Q1 to 2016:Q2. A structural vector auto-regression model in the spirit of Blanchard and Galí (2010) is estimated under a recursive identification scheme, where unexpected oil price variations are exogenous relative to the contemporaneous values of the remaining variables. Drawing on impulse-response estimates, a 10% increase in the oil price generates the following accumulated orthogonalized responses: i) a contemporaneous 0.4% increase in GDP growth, later on the effect reaches its maximum in the first quarter (1.7% increase) and starts to decay after two quarters; ii) a contemporaneous 1.2% decrease in unemployment, then the effect remains slightly negative and reaches its maximum after ten quarters (5.1% decrease); iii) a contemporaneous 0.9% decrease in inflation, followed by an 0.2% increase by quarter three, and thereafter the effect remains slightly negative
    Keywords: SVAR, impulse-response, oil market, Colombia
    JEL: C50 E20 E30 Q43
    Date: 2016–12–16
  36. By: B. Castelletti-Font; P. Clerc; M. Lemoine
    Abstract: The large imbalances within euro area have led to renew interest in tax policies that could reduce labour costs and thus improve competitiveness and growth. In this paper, we consider whether it would be more growth-enhancing for euro area countries to, instead, use capital income tax cuts.To address this issue, we focus on the open-economy dimension and make the simplifying assumption of complete insurance markets. Using a DSGE model calibrated for France within the euro area, we show that the increase in output resulting from tax cuts on capital income would indeed be higher than the increase in output resulting from tax cuts on labour, both in the short and long run. Importantly, the strong response of output to capital income tax cuts appears to be partly explained by the particularly high level of capital income taxes in France. Moreover, such tax cuts would be less efficient if they were expected to be only temporary. Finally, we illustrate our main points through a recent fiscal package implemented in France, which combines labour and capital income tax cuts. After briefly assessing this package, we find that investment and real output would have been more strongly boosted in the medium run if this package had been focused to a larger extent on reductions in capital income taxes.
    Keywords: Fiscal reforms, taxes, government spending, DSGE model.
    JEL: E62 E63 F42
    Date: 2017
  37. By: Carlos Carvalho (Central Bank of Brazil and PUC-Rio); Tiago Fl´orido (Harvard University); Eduardo Zilberman (PUC-Rio)
    Abstract: We assemble a novel dataset on transitions in central bank leadership in several countries, and study how monetary policy is conducted around those events. We find that policy is tighter both at the last meetings of departing governors and first meetings of incoming leaders. This finding cannot be fully explained by endogenous transitions, the effects of the zero lower bound, surges in inflation expectations, omitted variables such as fiscal policy and uncertainty nor electoral cycles. We conclude by offering two possible, perhaps complementary, explanations for these results. One based on a simple signalling story, another based on career and reputation concerns.Creation-Date: 2017-07
  38. By: Phiri, Andrew
    Abstract: Using the recently-introduced quantile autoregression methodology (QAR), this study contributes to the ever-expanding empirical literature by investigating the persistence in inflation for BRICS countries using quarterly time series data collected between 1996 to 2016. Our empirical analysis reveals two crucial findings. Firstly, for all estimated regressions, persistence in moderate to high inflation rates in the QAR regression exhibits unit root tendencies. Secondly, we note that inflation persistence varies across different time horizons corresponding to periods priori and subsequent to the global financial crisis. These findings have important implications for Central Banks in BRICs countries.
    Keywords: BRICS; Emerging economies; Inflation persistence; Quantile regression.
    JEL: C31 E31
    Date: 2017–06–29
  39. By: Maria De Paola; Francesca Gioia; Fabio Piluso (Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF, Università della Calabria)
    Abstract: We ran a field experiment to investigate whether nudge policies, consisting in behavioural insight messaging, help to improve performance in financial trading. Our experiment involved students enrolled in a financial trading course in an Italian University who were invited to trade on Borsa Italiana’s virtual platform. Students were randomly assigned to a control group and a treatment group. Treated students received a message reminding them of the existence of behavioural biases in financial trading. We find that treated students significantly improve the performance of their portfolio. This effect is mainly driven by students with a higher than average risk aversion. Several behaviours may explain the increase in performance. We find evidence pointing to a reduction in the home and status quo biases for risk averse nudged participants.
    Keywords: Financial trading, Behavioural biases, Reminders, Nudges, Home bias, Status quo bias, Risk aversion
    JEL: D14 E21 E22 O16
    Date: 2017–07
  40. By: Gilbert Mbara (Group for Research in Applied Economics (GRAPE)); Ryszard Kokoszczynski (University of Warsaw; Narodowy Bank Polski); Joanna Tyrowicz (Group for Research in Applied Economics (GRAPE); University of Warsaw)
    Abstract: We develop a dynamic general equilibrium model in which firms may evade the employer contribution component of social security taxes by offering some workers "secondary contracts". When calibrated, the model yields estimates of secondary labor market participation consistent with empirical evidence for the EU14 countries and the US. We investigate the optimal mix of the avoidable and unavoidable components of labor taxes and analyze the fiscal and macroeconomic effects of bringing the composition to the welfare optimum. We find that partial labor tax evasion makes tax revenues more elastic, but full tax compliance need not be a welfare enhancing policy mix.
    Keywords: Laffer curve, tax evasion, labor market duality
    JEL: H2 H26 H3 E13 E26 J81
    Date: 2017
  41. By: Jeff W. Huther; Jane E. Ihrig; Elizabeth C. Klee
    Abstract: We explore the historical composition of the Federal Reserve's Treasury portfolio and its effect on Treasury yields. Using data from 1985 to 2016, we show that the divergence of the composition of the Federal Reserve's portfolio from overall Treasury securities outstanding is associated with a statistically significant effect on interest rates. In aggregate, when the Federal Reserve's portfolio has shorter maturity than overall Treasury debt outstanding, measures of the term premium are higher at all horizons; likewise, when the Federal Reserve's portfolio has longer maturity, term premiums are lower. In addition, at the individual security level, differences in Federal Reserve holdings from overall Treasury debt outstanding are correlated with measures of pricing errors and liquidity premiums. We discuss the mechanism for this effect, which could include elements of preferred-habitat theory as well as the fiscal theory of the price level.
    Keywords: Federal Reserve ; SOMA portfolio ; Treasury securities ; Portfolio composition
    JEL: E42 E52 N12 O23
    Date: 2017–07
  42. By: Stefan Avdjiev; Leonardo Gambacorta; Linda S. Goldberg; Stefano Schiaffi
    Abstract: The post-crisis period has seen a considerable shift in the composition and drivers of international bank lending and international bond issuance, the two main components of global liquidity. The sensitivity of both types of flow to US monetary policy rose substantially in the immediate aftermath of the Global Financial Crisis, peaked around the time of the 2013 Fed “taper tantrum”, and then partially reverted towards pre-crisis levels. Conversely, the responsiveness of international bank lending to global risk conditions declined considerably post-crisis and became similar to that of international debt securities. The increased sensitivity of international bank flows to US monetary policy has been driven mainly by post-crisis changes in the behaviour of national lending banking systems, especially those that ex ante had less well capitalized banks. By contrast, the post-crisis fall in the sensitivity of international bank lending to global risk was mainly due to a compositional effect, driven by increases in the lending market shares of better-capitalized national banking systems. The post-2013 reversal in the sensitivities to US monetary policy partially reflects the expected divergence of the monetary policy of the US and other advanced economies, highlighting the sensitivity of capital flows to the degree of commonality of cycles and the stance of policy. Moreover, global liquidity fluctuations have largely been driven by policy initiatives in creditor countries. Policies and prudential instruments that reinforced lending banks’ capitalization and stable funding levels reduced the volatility of international lending flows.
    JEL: F34 G10 G21
    Date: 2017–06
  43. By: Dan Usher (Queen's University)
    Abstract: Utilitarianism can be misplaced or ambiguous. As a prescription for individual behaviour, the injunction to seek the greatest good for the greatest number is misplaced because there remains a domain of life where, within the bounds of law and custom, one is free to act as selfishly or as altruistically as one pleases. As a criterion for responsible government, it is ambiguous because there is no universally-recognized perception of the greatest good; people have different perceptions which can only be reconciled by compromise or by voting. The greatest number must be of citizens alive today, but governments may be vicariously concerned about people in other countries or yet to be born, in so far as citizens today have such concerns and are prepared to sacrifice for the benefit of others. The greatest good for the greatest number has no rival as a criterion for government, but it is vague nonetheless. Utilitarian ambiguity is inherited in any attempt to combine the ordinary measure of economic growth with changes in the distribution of income on a common scale.
    Keywords: utilitarianism, voting, redistribution
    JEL: E31 E31 O40
    Date: 2017–07
  44. By: Mario Izquierdo (Banco de España); Juan Francisco Jimeno (Banco de España); Theodora Kosma (Bank of greece); Ana Lamo (European Central Bank); Stephen Millard (Bank of England); Tairi Rõõm (Eestipank); Eliana Viviano (Banca D’Italia)
    Abstract: Against the backdrop of continuing adjustment in EU labour markets in response to the Great Recession and the sovereign debt crisis, the European System of Central Banks (ESCB) conducted the third wave of the Wage Dynamics Network (WDN) survey in 2014-15 as a follow-up to the two previous WDN waves carried out in 2007 and 2009. The WDN survey collected information on wage-setting practices at the firm level. This third wave sampled about 25,000 firms in 25 European countries with the aim of assessing how firms adjusted wages and employment in response to the various shocks and labour market reforms that took place in the European Union (EU) during the period 2010-13. This paper summarises the main results of WDN3 by identifying some patterns in firms’ adjustments and labour market reforms. It seeks to lay out the main lessons learnt from the survey in terms of both the general response of EU labour markets to the crisis and how these responses varied across the countries that took part in the survey.
    Keywords: Wage Dynamics Network, Survey data, Labour market adjustment, Labour market reforms.
    JEL: E24 J30 J52 J68
    Date: 2017–07
  45. By: Eric Sims (University of Notre Dame); Andre Kurmann (Drexel University)
    Abstract: This paper documents large revisions in a widely-used series of utilization-adjusted total factor productivity (TFP) by Fernald (2014) and shows that these revisions can materially affect empirical conclusions about the macroeconomic effects of news shocks. The results suggest that for all its improvements over a traditional Solow residual, Fernald's measure of technology may be confounded by systematic measurement error, potentially invalidating the main identifying restriction of the literature that productivity reacts to a news shock only with a lag. Building on the large empirical literature documenting the slow diffusion of new technologies, we propose an alternative identification that does not rely on this zero impact restriction and instead accounts for most of the unpredictable variation in TFP at long horizons. We interpret the resulting shock as news because it predicts sustained future productivity growth while simultaneously generating a strong impact response of technological innovation indicators and forward-looking information variables. The identification is robust to different measurement issues, including the revisions in Fernald's TFP series, and to whether news affects (true) productivity with a lag or not. When applied to U.S. data, the shock fails to generate comovement in the main macro aggregates and therefore does not constitute a main source of business cycle fluctuations. The shock nevertheless accounts for a large part of macroeconomic fluctuations at medium and longer horizons and generates sharp impact responses of inflation and asset prices.
    Date: 2017
  46. By: David Berger; Ricardo Caballero; Eduardo Engel
    Abstract: The estimated persistence of macro aggregates involving lumpy microeconomic adjustment is biased downward when inferred from VAR estimates. The extent of this “missing persistence bias” decreases with the level of aggregation, yet convergence is very slow. Paradoxically, while idiosyncratic shocks smooth away microeconomic non-convexities and are often used to justify approximating aggregate dynamics with linear models, their presence exacerbates the bias. We propose a method to estimate the true speed of adjustment and illustrate its effectiveness via simulations and applications to real data. The missing persistence bias is relevant for macroeconomists on many grounds. First, when calibrating or estimating models via simulation based methods, macroeconomists should pay attention to the number of agents used in simulations for otherwise they are likely to obtain systematic biases in their parameter estimates. Second, results purporting to find persistence measures that vary systematically with levels of aggregation should be examined with care since the differential speeds may disappear when using estimation methods robust to the missing persistence bias. To illustrate the latter, we show that the difference in the speed with which inflation responds to sectoral and aggregate shocks (Boivin et al 2009; Mackoviak et al 2009) disappears once we correct for the missing persistence bias.
    Date: 2017–07
  47. By: Steve Ambler (Département des sciences économiques, ESG UQAM, Canada; C.D. Howe Institute, Canada; The Rimini Centre for Economic Analysis)
    Abstract: Quantitative easing in the US has meant a massive increase in the size of the Fed’s balance sheet and the monetary base without a commensurate increase in inflation. Instead, velocity has decreased dramatically. The only comparable episode in recent economic history was Japan’s experiment with quantitative easing in the early 2000s, where inflation remained low or negative and which ended in 2006 when the Bank of Japan reduced the size of its balance sheet to a level compatible with the growth path it was on before quantitative easing. We show that this is precisely what we would expect in a standard New Keynesian model in response to an increase in the money supply that is expected to be temporary.
    Date: 2017–07
  48. By: Antonia Lopez-Villavicencio; Valérie Mignon
    Abstract: This paper assesses the impact of globalization and regionalization on exchange rate pass-through (ERPT) into import prices in three core eurozone countries. To this end, we consider various indicators of globalization and rely on both aggregated (i.e., country level) and disaggregated (i.e., good level) data. Using quarterly data since 1992, we do not find compelling evidence that global factors cause a structural change in the degree of exchange rate pass-through. Indeed, increased trade openness or lower trade tariffs push up ERPT in some sectors, though results are quite sparse. However, regionalization, defined as a higher proportion of intra-EU imports' share in total imports, reduces the pass-through in a more generalized way. Most importantly, we show that ERPT incompleteness generally observed in the literature is in appearance only and not at play when intra-EU trade is controlled for. Overall, our findings show that ERPT is complete and significant in numerous sectors, meaning that exchange rate changes still exert important pressure on domestic prices.
    Keywords: exchange rate pass-through; import prices; globalization; eurozone.
    JEL: E31 F31 F4 C22
    Date: 2017
  49. By: Yang, Guanyi
    Abstract: This paper studies the response of firms in an environment with heightened idiosyncratic risk and dual labor markets, a regular market with firing rigidity and a frictionless temporary labor market. I find that firing rigidity induces firms to switch from regular employment to temporary employment, and heightened risks amplify such behavior. Efficiency and welfare loss from friction and risk, though alleviated by a small extent, cannot be fully compensated by having temporary employment. This study also first extends the literature of temporary employment by examining its impact in the U.S. labor market.
    Keywords: Labor market misallocation, temporary employment, firing costs, idiosyncratic uncertainty, general equilibrium, heterogeneous agents
    JEL: C68 E24 J30
    Date: 2017–06
  50. By: Ji Zhang (Tsinghua University); Jing Cynthia Wu (University of Chicago)
    Abstract: We propose a New Keynesian model with the shadow rate, which is the federal funds rate during normal times. At the zero lower bound, we establish empirically the negative shadow rate summarizes unconventional monetary policy with its resemblance to private interest rates, the Fed's balance sheet, and Taylor rule. Theoretically, we formalize our shadow rate New Keynesian model with QE and lending facilities. Our model generates data-consistent results: a negative supply shock is always contractionary. %Relatedly, the government multiplier is under 1. It also salvages the New Keynesian model from the zero lower bound induced structural break.
    Date: 2017
  51. By: Krzysztof Makarski (Group for Research in Applied Economics (GRAPE); Warsaw School of Economics; Narodowy Bank Polski); Joanna Tyrowicz (Group for Research in Applied Economics (GRAPE); University of Warsaw)
    Abstract: We analyze the political stability social security reforms which introduce a funded pillar (a.k.a. privatizations). We consider an economy populated by overlapping generations, which introduces a funded pillar. This reform is efficient in Kaldor-Hicks sense and has political support. Subsequently, agents vote on abolishing the funded system and replacing it with the pay-as-you-go scheme, i.e. “unprivatizing” the pension system. We show that even if abolishing the system reduces welfare in the long run, the distribution of benefits across cohorts along the transition path implies that “unprivatizing” social security is always politically favored. This suggests that property rights definition over retirement savings may be of crucial importance for determining the stability of retirement systems with a funded pillar.
    Keywords: majority voting, pension system reform, welfare
    JEL: H55 D72 C68 E17 E27
    Date: 2017
  52. By: Instituto Centroamericano de Estudios Fiscales–ICEFI (Instituto Centroamericano de Estudios Fiscales –ICEFI)
    Abstract: La pobreza y la desigualdad son problemáticas que afectan a la población centroamericana, especialmente la que reside en el área rural. La política fiscal es la herramienta principal con la que cuentan los Estados para reducir la desigualdad. La reducción de la desigualdad a su vez incide en la disminución de los niveles de pobreza. Para determinar la incidencia de la política fiscal en la reducción de la pobreza y la desigualdad en Centroamérica se utilizó la metodología de «Compromiso por la Equidad» (CEQ por sus siglas en inglés). En términos generales, las intervenciones fiscales (impuestos y transferencias directas) aumentan la pobreza en la región centroamericana. El incremento de la pobreza en los países centroamericanos se da cuando se transita del ingreso disponible al posfiscal; es decir, después del pago de los impuestos indirectos; esto se debe a la naturaleza regresiva de este tipo de impuestos. En El Salvador la política fiscal tiene una leve incidencia en la reducción de la desigualdad, a través del gasto público y no por los impuestos. Las erogaciones en educación y salud y las transferencias, son los elementos que tienen mayor incidencia en la reducción de la desigualdad. La política fiscal salvadoreña no es capaz de reducir la pobreza total, especialmente de aquellos que habitan en las zonas rurales del país
    Keywords: El Salvador, política fiscal, desarrollo rural, pobreza, desigualdad, CEQ
    JEL: E62 R51 I32 D63 H22
    Date: 2017–05
  53. By: Instituto Centroamericano de Estudios Fiscales–ICEFI (Instituto Centroamericano de Estudios Fiscales –ICEFI)
    Abstract: La pobreza y la desigualdad son problemáticas que afectan a la población centroamericana, especialmente la que reside en el área rural. La política fiscal es la herramienta principal con la que cuentan los Estados para reducir la desigualdad. La reducción de la desigualdad incide, a su vez, en la disminución de los niveles de pobreza. Para determinar la incidencia de la política fiscal en la reducción de la pobreza y la desigualdad en Centroamérica se utilizó la metodología de «Compromiso por la Equidad» (CEQ, por sus siglas en inglés). En términos generales, las intervenciones fiscales (impuestos y transferencias directas) aumentan la pobreza en la región centroamericana, en cuyos países el incremento de la pobreza se da cuando se transita del ingreso disponible al posfiscal; es decir, después del pago de los impuestos indirectos, lo cual obedece a la naturaleza regresiva de este tipo de tributos. En Honduras, la política fiscal tiene una leve incidencia en la reducción de la desigualdad a través del gasto público, no mediante los impuestos. Las erogaciones en educación y salud, así como las transferencias, constituyen los elementos que más inciden en la reducción de la desigualdad. La política fiscal hondureña aumenta la pobreza
    Keywords: Honduras, política fiscal, desarrollo rural, pobreza, desigualdad, CEQ
    JEL: E62 R51 I32 D63 H22
    Date: 2017–04
  54. By: Pasquale Tridico; Riccardo Pariboni
    Abstract: Over the last three decades, many advanced economies have experienced significant changes in their productive structures, with a decline in the share of workers in manufacture and a transition towards the service sector. This structural change can be considered as one of the main causes behind the poor performance of aggregate labour productivity. Moreover, these changes have been associated with a process of reforms in the labour market - i.e. an increase in labour flexibility and a reduction in employees’ protections - and a compression of the wage share. Our hypothesis is that these institutional and economic processes can also be harmful to labour productivity. We submit our hypotheses to empirical scrutiny. The results are as follows: the share of employment in manufacture is positively related to labour productivity. On the other hand, the share of employment in several service industries and labour flexibility negatively affect it.
    Keywords: Structural change, labour productivity, aggregate demand, welfare models
    JEL: L16 E24 J23 H53
    Date: 2017–07
  55. By: Xisong Jin; Francisco Nadal De Simone
    Abstract: This study takes a comprehensive approach to systemic risk stemming from Luxembourg’s Other Systemically Important Institutions (OSIIs), from the Global Systemically Important Banks (G-SIBs) to which they belong, from the investment funds sponsored by the OSIIs, from the housing market, from the non-financial corporate sector and from the sovereign. All sectoral balance sheets are integrated and the resulting systemic contingent claims are linked into a stochastic version of the general government balance sheet to gauge their impact on sovereign risk. Explicitly modelling default dependence and capturing the time-varying non-linearities and feedback effects typical of financial markets, the approach evaluates systemic losses and potential public sector costs from contingent liabilities stemming directly or indirectly from the financial sector. Various vulnerability and risk indicators suggest the sovereign is robust to a variety of shocks. The analysis highlights the key role of a sustainable fiscal position for financial stability.
    Keywords: financial stability; sovereign risk; macro-prudential policy; banking sector; investment funds; default probability; non-linearities; generalized dynamic factor model; dynamic copulas
    JEL: C1 E5 F3 G1
    Date: 2017–06
  56. By: Gupta, Avnesh Kumar
    Abstract: The creation of decent jobs outside of agriculture is one of the largest challenges that confront the policy makers trying to achieve ‘faster, sustainable and more inclusive growth’. The Indian economy has been growing at unprecedented rates, but it has been characterized by jobless growth and informatization of job opportunities in the organized sector. The paper attempts to evaluate the employment intensity of output growth through an examination of employment elasticity, and the potential for employment generation and decent work during the 12th Five Year Plan (2012-17).
    Keywords: jobless growth, organized-unorganized sectors, formal-informal employment, informalization, employment elasticity, decent employment
    JEL: E6 E61 O2
    Date: 2016–01–15
  57. By: Kim, Wongi (Korea Institute for International Economic Policy)
    Abstract: s shown in various data, during the 2008-2009 financial crisis period, the real GDP of each country recovered slowly after a sharp decline, but is recovering differently in each country. In the case of the United States, it shows a rapid recovery compared to Japan and Europe. Despite the rapid recovery compared to other developed countries, there are still many people who harbor doubts regarding the mid- to long-term growth path of the U.S. economy. In the mid-to-long term, the growth potential of the U.S. is limited to the mid-1% range, and renowned economists such as Larry Summers and Paul Krugman are questioning the U.S.'s long-term growth by insisting on its secular stagnation. The U.S. mid- to long-term growth path will have a crucial impact on the future growth of the global economy in light of the U.S. weighting in the global economy. Especially, in the case of Korea, export is still a large part of the economy and the mid- to long-term growth of the global economy accounts for a large portion of Korea's mid- to long-term growth. In this situation, it is important to find a way to accelerate economic recovery through benchmarking of U.S. growth policies. We use the growth accounting method to diagnose whether the U.S. will grow in the medium-to-long term. Growth accounting is a method for analyzing the effects of supply side factors such as labor supply, total factor productivity, and labor quality on mid- and long-term growth, and is particularly appropriate for analyzing the impact of trend growth decline. The results of the analysis are as follows. According to labor supply factors, such as the degree of population aging, the quality of education and productivity, the U.S. economic potential growth rate is found to range from 1.4% to 2.9% on average by 2060 unless the effects of the aging of its population are reduced or there is a rapid increase in productivity due to the recent 4th industrial revolution. In spite of the not-so-great mid- to long-term growth path of the U.S., why is the U.S. re-covering faster than other developed countries after the financial crisis? One important reason is active monetary and fiscal policy. During the financial crisis, the U.S. Fed cut its policy rate to zero and conducted quantitative easing. Furthermore, the American Recovery and Reinvestment Act (ARRA) was enacted by the Obama administration to carry out a huge-scale fiscal stimulus package to boost the economy. In addition to these monetary and fiscal policies, supply side policies such as R&D investment played an important role to support the fast recovery. Based on the macroeconomic model that we build, we examined the impact of the decline in trend growth on the economic recovery and searched for the reasons of the rapid recovery of the U.S. Productivity is recovering faster in the U.S. than other countries after the financial crisis. The results of the model analysis show that the recovery of productivity reduces the decline of trend growth, and this better trend growth is positive for current consumption and investment as it improves expectations for future income increase. This rapid U.S. productivity recovery can be attributed to the large-scale national R&D initiated during and after the financial crisis The policy implications suggested in this paper can be divided into two major categories. First, the implications for the mid- to long-term foreign policy are as follows. The U.S. is Korea's second largest export market and has a large impact on the global economy. The Korean economy is still highly dependent on exports. Considering this point, we need to diversify our export markets, increase export unit price through development of high value-added products, and develop core goods that are less affected by economic fluctuations. In addition, Korea's mid- to long-term growth strategy suggestions are as follows. As a result of supply side analyzing of the growth rate of Korea, the recent decline in growth rate is caused by productivity decline, decrease of capital accumulation, and low contribution of labor supply. Therefore, it is necessary to implement investment promotion policies similar to productivity improvement and innovation-related policies actively promoted by the Obama administration. Finally, the implications for national R&D policy for mid- to long-term growth are as follows. Korea's R&D spending is quantitatively the top among OECD countries. However, the uncertainty of its R&D spending is much higher than in the U.S. Uncertainty as a result of increased volatility in R&D expenditure may result in lower efficiency of R&D spending by hindering stable research. In Korea, it will be important to benchmark such a system to ensure the sustainability of R&D investment and raise efficiency.
    Keywords: U.S.; Economy; Structural Change; Long-term Growth
    Date: 2017–06–22
  58. By: George-Marios Angeletos (MIT); Chen Lian (MIT)
    Abstract: Forward guidance—and macroeconomic policy more generally—relies on shifting expectations, not only of future policy, but also of future economic outcomes such as income and inflation. These expectations matter through general-equilibrium mechanisms. Recasting these expectations and these mechanisms in terms of higher-order beliefs reveals how standard policy predictions hinge on the assumption of common knowledge. Relaxing this assumption anchors expectations and attenuates the associated general-equilibrium effects. In the context of interest, this helps lessen the forward-guidance puzzle, as well as the paradox of flexibility. More broadly, it helps operationalize the idea that policy makers may find it hard to shift expectations of economic outcomes even if they can easily shift expectations of policy.
    Date: 2017
  59. By: Instituto Centroamericano de Estudios Fiscales–ICEFI (Instituto Centroamericano de Estudios Fiscales –ICEFI)
    Abstract: La pobreza y la desigualdad son problemáticas que afectan a la población centroamericana, especialmente la que reside en el área rural. La política fiscal es la herramienta principal con la que cuentan los Estados para reducir la desigualdad. La reducción de la desigualdad incide, a su vez, en la disminución de los niveles de pobreza. Para determinar la incidencia de la política fiscal en la reducción de la pobreza y la desigualdad en Centroamérica se utilizó la metodología de «Compromiso por la Equidad» (CEQ, por sus siglas en inglés). En términos generales, las intervenciones fiscales (impuestos y transferencias directas) aumentan la pobreza en la región centroamericana, en cuyos países el incremento de la pobreza se da cuando se transita del ingreso disponible al posfiscal; es decir, después del pago de los impuestos indirectos, lo cual obedece a la naturaleza regresiva de este tipo de tributos. En Guatemala, la política fiscal tiene una leve incidencia en la reducción de la desigualdad a través del gasto público, no mediante los impuestos. Las erogaciones en educación y salud, así como las transferencias, constituyen los elementos que más inciden en la reducción de la desigualdad. La política fiscal guatemalteca aumenta la pobreza
    Keywords: Guatemala, política fiscal, desarrollo rural, pobreza, desigualdad, CEQ
    JEL: E62 R51 I32 D63 H22
    Date: 2017–05
  60. By: Instituto Centroamericano de Estudios Fiscales–ICEFI (Instituto Centroamericano de Estudios Fiscales –ICEFI)
    Abstract: La pobreza y la desigualdad son problemáticas que afectan a la población centroamericana, especialmente la que reside en el área rural. La política fiscal es la herramienta principal con la que cuentan los Estados para reducir la desigualdad. La reducción de la desigualdad incide, a su vez, en la disminución de los niveles de pobreza. Para determinar la incidencia de la política fiscal en la reducción de la pobreza y la desigualdad en Centroamérica se utilizó la metodología de «Compromiso por la Equidad» (CEQ, por sus siglas en inglés). En términos generales, las intervenciones fiscales (impuestos y transferencias directas) aumentan la pobreza en la región centroamericana, en cuyos países el incremento de la pobreza se da cuando se transita del ingreso disponible al posfiscal; es decir, después del pago de los impuestos indirectos, lo cual obedece a la naturaleza regresiva de este tipo de tributos. En Nicaragua, la política fiscal tiene una leve incidencia en la reducción de la desigualdad a través del gasto público, no mediante los impuestos. Las erogaciones en educación y salud, así como las transferencias, constituyen los elementos que más inciden en la reducción de la desigualdad. La política fiscal nicaragüense aumenta la pobreza
    Keywords: Nicaragua, política fiscal, desarrollo rural, pobreza, desigualdad, CEQ
    JEL: E62 R51 I32 D63 H22
    Date: 2017–05
  61. By: Roberto Roson; Dominique van der Mensbrugghe
    Abstract: This study analyzes the variations in industrial structure induced by income-sensitive patterns of final consumption, and how these changes can be captured by a multi-sector numerical model with a flexible demand system. We focus, in particular, on the estimation of parameters for an AIDADS (An Implicitly, Directly Additive Demand System) specification. We then test the latter by inserting it in the ENVISAGE global general equilibrium dynamic model, which is run under the SSP2 scenario from 2011 to 2050. It is found that time-varying income elasticity can generate sizable variations in the industrial structure. This finding has important practical implications, particularly when structural models are applied at a medium and long term horizon.
    Keywords: Demand systems, structural change, economic dynamics, computable general equilibrium models.
    JEL: C33 C68 D58 E21 O11 O41
    Date: 2017
  62. By: Dagfinn Rime; Andreas Schrimpf; Olav Syrstad
    Abstract: This paper studies the violation of the most basic no-arbitrage condition in international finance - Covered Interest Parity (CIP). To understand the CIP conundrum, it is key to (i) account for funding frictions in U.S. dollar money markets, and (ii) to study the challenges of swap intermediaries when funding liquidity evolves differently across major currency areas. We find that CIP holds remarkably well for most potential arbitrageurs when applying their marginal funding rates. With severe funding liquidity differences, however, it becomes impossible for dealers to quote prices such that CIP holds across the full rate spectrum. A narrow set of global top-tier banks enjoys risk-less arbitrage opportunities as dealers set quotes to avert order flow imbalances. We show how a situation with persistent arbitrage profits arises as an equilibrium outcome due to the constellation of market segmentation, the abundance of excess reserves and their remuneration in central banks' deposit facilities.
    Keywords: Covered interest parity, money market segmentation, funding liquidity premia, FX swap market, U.S. dollar funding
    JEL: E43 F31 G15
    Date: 2017–07
  63. By: Moral-Benito, Enrique; Viani, Francesca
    Abstract: This paper aims to identify how much of the recent current account adjustment in Spain can be explained by cyclical factors. For this purpose, we consider a variant of the External Balance Assessment (EBA) methodology with country-specific slopes and intercepts. The resulting residuals are negligible for most countries so that the positive analysis of current account decompositions provides a more informative assessment. According to our findings, around 60% of the 12 pp. adjustment of the Spanish external imbalance over the 2008-2015 period can be explained by transitory factors such as the output gap, the oil balance, and the financial cycle. The remaining 40% is explained by factors such as the cyclically-adjusted fiscal consolidation, population aging, lower growth expectations, or competitiveness gains, which can all be considered as more permanent phenomena.
    Keywords: current account, global imbalances.
    JEL: F21 F32
    Date: 2017–07–08
  64. By: Gasteiger, Emanuel; Prettner, Klaus
    Abstract: We analyze the long-run growth effects of automation in the canonical overlapping generations framework. While automation implies constant returns to capital within this model class (even in the absence of technological progress), we show that it does not have the potential to lead to positive long-growth. The reason is that automation suppresses wages, which are the only source of investment because of the demographic structure of the overlapping generations model. This result stands in sharp contrast to the effects of automation in the representative agent setting, where positive long-run growth is feasible because agents can invest out of their wage income and out of their asset income. We also analyze the effects of a robot tax that has featured prominently in the policy debate on automation and show that it could raise the capital stock and per capita output at the steady state. However, the robot tax cannot induce a takeoff toward positive long-run growth.
    Keywords: automation,robots,robot taxes,investment,stagnation,economic growth,canonical overlapping generations model,fiscal policy
    JEL: J10 J20 O14 O33 O41 E62
    Date: 2017
  65. By: Christian Gross
    Abstract: We investigate the extent and dynamic nature of co-movement in daily futures prices of 18 non-energy commodities over the period 1994-2016. Our analysis provides evidence that co-movement between individual commodities and between commodities and outside financial markets varies strongly over time and that economic events play a key role in shaping the dynamics of co-movement. Our main findings suggest a steady rise in the co-movement of commodity returns between 2004 and 2010, with clear peaks during the period of global financial turmoil, but a steep decline in co-movement after 2013. We also find that overall connectedness of commodity futures markets to shocks in financial markets shows an increasing trend after 2004. Using several risk measures we show that financial investors' risk aversion affects the systematic component of commodity futures returns.
    Keywords: Commodity futures markets, connectedness, co-movement, financialization, common factors
    JEL: E44 F30 G12 G13 G15
    Date: 2017–07
  66. By: Yves Jégourel
    Abstract: In June 2017, the second Annual Report on Commodity Analytics and Dynamics In Africa (Arcadia report) was published, in collaboration between the OCP Policy Center and CyclOpe. Its aim is to annually report on the evolution of the economic, legal, financial and societal links between Africa and the world commodity markets, both with regard to the cyclical changes in the markets, and to the structural changes or failures that may have emerged. Focusing on 2016 and early 2017, the Arcadia 2017 report analyzes the rebound in commodity prices, particularly mineral prices, which are important for the African continent. In a still difficult macroeconomic context characterized by weak world trade and (geo)political uncertainty, the recovery offered needed relief to the continent's producing countries. However, it did not allow them to significantly improve their public finances. While 2017 should be under better auspices, African countries’ commitment to addressing the many structural challenges that condition their economic and social development does not appear to have weakened. The Arcadia 2017 report focuses on a full accounting of the central issue of food security to the electrification of the continent, from the financing of African states to the reform of mining codes and agreements.
    Date: 2017–06
  67. By: Jean-Francois Carpantier; Javier Olivera Angulo; Philippe Van Kerm
    Date: 2017–06
  68. By: Khobai, Hlalefang; Hamman, Nicolene; Mkhombo, Thando; Mkaha, Simba; Matolweni, Nomahlubi; Phiri, Andrew
    Abstract: This study sought to contribute to the growing empirical literature by investigating the effects of FDI on per capita GDP growth for South Africa using time series data collected between 1970 and 2016. In differing from a majority of previous studies we use quantile regressions which investigates the effects of FDI on economic growth at different distributional quantiles. Puzzling enough, our empirical results show that FDI has a negative influence on welfare at extremely low quantiles whereas at other levels this effect turns insignificant. Contrary, the effects of domestic investment on welfare is positive and significant at all levels. Collectively, these result have important implications for policymakers in South Africa.
    Keywords: FDI; Economic growth; Quantile regression; Global financial crisis; South Africa.
    JEL: C21 C31 E22 F43 O40
    Date: 2017–07–12
  69. By: E. Chrétien; V. Lyonnet
    Abstract: We present a model of the interactions between traditional and shadow banks that explains their coexistence. In the 2007 financial crisis, some of shadow banks’ assets and liabilities moved to traditional banks, and assets were sold at fire sale prices. Our model is able to accommodate these stylized facts. The difference between traditional and shadow banks is twofold. First, traditional banks have access to a guarantee fund that enables them to issue claims to households in a crisis. Second, traditional banks have to comply with costly regulation. We show that in a crisis, shadow banks liquidate assets to repay their creditors, while traditional banks purchase these assets at fire-sale prices. This exchange of assets in a crisis generates a complementarity between traditional and shadow banks, where each type of intermediary benefits from the presence of the other. We find two competing effects from a decrease in traditional banks’ support in a crisis, which we dub a substitution effect and an income effect. The latter effect dominates the former, so that lower anticipated support to traditional banks in a crisis increases entry in the traditional banking sector ex-ante.
    Keywords: Traditional banking, Shadow banking, Safe money-like claims, Financial crisis.
    JEL: E2 G2 N2
    Date: 2017

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