|
on Macroeconomics |
|
Issue of 2017‒07‒23
ninety-two papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Gerke, Rafael; Giesen, Sebastian; Kienzler, Daniel; Tenhofen, Jörn |
| Abstract: | We analyze the macroeconomic implications of a transient interest-rate peg in combination with a QE program in a non-linear medium-scale DSGE model. In this context, we re-examine what has become known as the reversal puzzle (Carlstrom, Fuerst and Paustian, 2015) and provide an analytical explanation for its appearance. We show that the puzzle is intimately related with agents' expectations. If, for instance, agents do not anticipate the peg, the reversal does not appear. The same is true if agents' inflation expectations are influenced by a monetary authority which follows a price-level-targeting rule instead of a standard Taylor rule. In this case, sign reversals do not occur even for very long durations of pegged nominal interest rates. |
| Keywords: | Unconventional Monetary Policy,Interest-Rate Peg,Perfect Foresight,Reversal Puzzle,Price-Level Targeting |
| JEL: | E32 E44 E52 E61 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:212017&r=mac |
| By: | Maddalena Galardo (Bank of Italy); Cinzia Guerrieri (LUISS Guido Carli) |
| Abstract: | In this paper we propose a new indicator of central bank’s verbal guidance, which measures communications about the future based on the frequency of future verbs in monetary policy statements. We consider the press conferences of the European Central Bank as a test case. First, we analyze the main determinants of our index and estimate the unexpected component. Second, we investigate the effects of the identified change in verbal guidance on daily movements in forward money market rates between September 2007 and December 2015. Our results show that financial markets’ expectations on future short-term interest rates react to a communication shock about the future: after controlling for the standard policy rate shock and the announcement of unconventional monetary policies, the effect turns out to be negative and larger for longer horizons. This suggests that verbal guidance has proven to be an effective policy instrument for signalling an accommodative monetary policy stance. |
| Keywords: | central bank communication, textual analysis, European Central Bank, signalling channel, unconventional monetary policy, event-study analysis |
| JEL: | E43 E44 E52 E58 E61 G14 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1129_17&r=mac |
| By: | Nadim Ahmad; Jennifer Ribarsky; Marshall Reinsdorf |
| Abstract: | The digital economy has created some new measurement challenges for macroeconomic statistics and may have exacerbated some older ones, raising some concerns about the scope and estimation of GDP. Against a backdrop of slowing rates of measured productivity growth, this has raised questions about the conceptual basis of GDP and output, and whether current compilation methods are adequate to capture them (known as the mismeasurement hypothesis). In response to these concerns the international statistics community has reinforced efforts to investigate these concerns, chiefly under the vehicle of OECD-IMF collaboration and a newly formed Advisory Expert Group working under the auspices of the OECD’s Committee for Statistics and Statistical Policy. This paper is intended to provide momentum to these on-going efforts and to address immediate concerns about the potential scale of GDP mismeasurement in key areas where mismeasurement is often suspected. Notwithstanding the need for further work in some areas, notably with regards to cross-border transactions as well as potential mismeasurement in other macro-economic statistics, such as the consumer prices index, this paper concludes that even if mismeasurement is occurring, its scale is not sufficient to explain the widespread slowdown in measured GDP growth or multi-factor productivity growth. Nevertheless it’s important to note that this is a backward looking exercise. Even though the distortionary impact of any potential mismeasurement is currently thought to be small the growing size of digitised transactions could point to larger impacts in the future. |
| Keywords: | digitalisation, GDP, mismeasurement, prices, Productivity |
| JEL: | E1 E22 E24 E30 |
| Date: | 2017–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stdaaa:2017/9-en&r=mac |
| By: | Guido Bulligan (Bank of Italy); Lorenzo Burlon (Bank of Italy); Davide Delle Monache (Bank of Italy); Andrea Silvestrini (Bank of Italy) |
| Abstract: | In this paper we examine the empirical features of both the business and financial cycles in Italy. We employ univariate and multivariate trend-cycle decompositions based on unobserved component models. Univariate estimates highlight the different cyclical properties (persistence, duration and amplitude) of real GDP and real credit to the private sector. Multivariate estimates uncover the presence of feedback effects between the real and financial cycles. At the same time, in the most recent period (2015-2016), the multivariate approach highlights a wider output gap than that estimated by the univariate models considered in this paper. |
| Keywords: | business cycle, financial cycle, unobserved components, model-based filters |
| JEL: | C32 E32 E44 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_382_17&r=mac |
| By: | Guido Bulligan (Bank of Italy); Fabio Busetti (Bank of Italy); Michele Caivano (Bank of Italy); Pietro Cova (Bank of Italy); Davide Fantino (Bank of Italy); Alberto Locarno (Bank of Italy); Lisa Rodano (Bank of Italy) |
| Abstract: | The Bank of Italy quarterly econometric model (BIQM) is a large-scale ‘semi structural’ macro-econometric model. It tries to strike the right balance between theoretical rigour and statistical fit to the data. This paper provides an update of the features and the properties of the model, focussing on the empirical estimates of its main equations and on the system responses to various shocks; interactions and feedback mechanisms between the financial and the real side of the economy are also illustrated. The BIQM is primarily used to produce macroeconomic forecasts, but it is also employed – in conjunction with other tools – for evaluating the impact of monetary and fiscal policy options and for counterfactual analyses. Examples of the types of macro-economic analyses carried out with the model are provided. |
| Keywords: | macro-econometric models, Italy, forecasting, policy simulation |
| JEL: | C30 E10 E17 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1130_17&r=mac |
| By: | Kenza Benhima; Céline Poilly |
| Abstract: | We assess theoretically and empirically the consequences of demand misperceptions. In a New Keynesian model with dispersed information, agents receive noisy signals about both supply and demand. Firms and consumers have an asymmetric access to information, so aggregate misperceptions of demand by the supply side can drive economic fluctuations. The model's predictions are used to identify empirically fundamental and noise shocks on supply and demand. We exploit survey nowcast errors on both GDP growth and inflation, fundamental and noise shocks aff ecting the errors with opposite signs. We show that demand-related noise shocks have a negative eff ect on output and contribute substantially to business cycles. Additionally, monetary policy plays a key role in the transmission of demand noise. |
| Keywords: | Business cycles, information frictions, noise shocks, SVARs with sign restrictions |
| JEL: | E32 D82 C32 E31 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:17.08&r=mac |
| By: | Forbes, Kristin (Bank of England); Hjortsoe, Ida (Bank of England); Nenova, Tsvetelina (Bank of England) |
| Abstract: | We show that exchange rate pass-through to consumer prices varies not only across countries, but also over time. Previous literature has highlighted the role of an economy’s ‘structure’ — such as its inflation volatility, inflation rate, use of foreign currency invoicing, and openness — in explaining these variations in pass-through. We use a sample of 26 advanced and emerging economies to show which of these structural variables are significant in explaining not only differences in pass-through across countries, but also over time. The ‘shocks’ leading to exchange rate movements can also explain variations in pass‑through over time. For example, exchange rate movements caused by monetary policy shocks consistently correspond to significantly higher estimates of pass-through than those caused by demand shocks. The role of ‘shocks’ in driving pass-through over time can be as large as that of structural variables, and even larger for some countries. As a result, forecasts predicting how a given exchange rate movement will impact inflation at a specific point in time should take into account not just an economy’s ‘structure’, but also the ‘shocks’. |
| Keywords: | Pass-through; exchange rate; price level; inflation; monetary policy |
| JEL: | E31 E37 E52 F47 |
| Date: | 2017–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:mpc:wpaper:0050&r=mac |
| By: | Annette Meinusch (Justus-Liebig-University Giessen) |
| Abstract: | This paper aims to shed light on the role mean and volatility spillovers of U.S. monetary policy played for asset markets of several emerging market economies in a period from January 2000 to October 2014. We employ multivariate GARCH models in which we distinguish between a conventional and an unconventional monetary policy phase to account for possible heterogeneity in spillover e ects. Our results suggest that the anticipation of loose U.S. monetary policy has diverse effects across monetary policy regimes. While spillovers have little impact on equity returns, they put pressure on local currencies. However, they increase conditional volatilities of both stock and exchange rate returns considerably in most emerging economies within the conventional monetary policy period. These effects can be stronger during unconventional monetary policy times. In accordance with these findings, we observe a tighter link between U.S. monetary policy and foreign asset markets during the unconventional monetary policy phase. Volatility impulse responses show that conditional volatilities of foreign asset markets mainly decrease in response to historical shocks. Particularly during unconventional monetary policy times, U.S. shocks gain importance in explaining the change in conditional volatilities especially fr countries with less geographical distance to the United States. |
| Keywords: | emerging markets, monetary policy spillovers, multivariate GARCH, unconventional monetary policy, quantitative easing |
| JEL: | E43 E44 E52 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201730&r=mac |
| By: | Jean-Francois Carpantier (University of Aix-Marseille); Javier Olivera (Luxembourg Institute of Socio-Economic Research); Philippe Van Kerm (Luxembourg Institute of Socio-Economic Research and University of Luxembourg) |
| Abstract: | Macroprudential policies, such as caps on loan-to-value (LTV) ratios, have become part of the policy paradigm in emerging markets and advanced countries alike. Given that housing is the most important asset in household portfolios, relaxing or tightening access to mortgages may affect the distribution of household wealth in the country. In a stylised model we show that the final level of wealth inequality depends on the size of the LTV ratio, housing prices, credit cost and the strength of a bequest motive; ultimately with no unequivocal effect of LTV ratios on wealth inequality. These trade-offs are illustrated with estimations of ``Gini Recentered Inuence Function'' regressions on household survey data from 12 eurozone countries that participated in the first wave of the Household Finance and Consumption Survey (HFCS). The results show that, among the households with active mortgages, high LTV ratios at the time of acquisition are related to high contributions to wealth inequality today, while house price increases are negatively related to inequality contributions. A proxy for the strength of bequest motives tends to be negatively related with wealth inequality, but credit cost does not show a significant link to the distribution of wealth. |
| Keywords: | Household Finance, Macroprudential policy, Inequality, LTV ratio, Wealth distribution. |
| JEL: | D31 E5 E21 G21 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:inq:inqwps:ecineq2017-442&r=mac |
| By: | Atsushi Sekine; Takayuki Tsuruga |
| Abstract: | Since the 2000s, large fluctuations in commodity prices have become a concern among policymakers regarding price stability. This paper investigates the effects of commodity price shocks on headline inflation with a monthly panel consisting of 144 countries. We find that the effects of commodity price shocks on inflation virtually disappear within about one year after the shock. While the effect on the level of consumer prices varies across countries, this transitory effect is fairly robust, suggesting a low risk of a persistent second-round effect on inflation. Employing the smooth transition autoregressive models that use past inflation as the transition variable, we also explore the possibility that the effect of commodity price shocks could be persistent, depending on inflation regimes. In this specification, commodity price shocks may not have transitory effects when a country’s currency is pegged to the U.S. dollar. However, the effect remains transitory in countries with exchange-rate flexibility. |
| Keywords: | Commodity prices, inflation, pass-through, local projections, smooth transition autoregressive models |
| JEL: | E31 E37 Q43 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2017-45&r=mac |
| By: | Michael Boutros; Jonathan Witmer |
| Abstract: | Monetary policy implementation could, in theory, be constrained by deeply negative rates since overnight market participants may have an incentive to invest in cash rather than lend to other participants. To understand the functioning of overnight markets in such an environment, we add the option to exchange central bank reserves for cash to the standard workhorse model of monetary policy implementation (Poole 1968). Importantly, we show that monetary policy is not constrained when just the deposit rate is below the yield on cash. However, it could be constrained when the target overnight rate is below the yield on cash. At this point, the overnight rate equals the yield on cash instead of the target rate. Modifications to the implementation framework, such as a tiered remuneration of central bank deposits contingent on cash withdrawals, can work to restore the implementation of monetary policy such that the overnight rate equals the target rate. |
| Keywords: | Interest rates, Monetary policy framework, Monetary policy implementation |
| JEL: | E4 E40 E42 E43 G G0 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:17-25&r=mac |
| By: | James Morley; Benjamin Wong |
| Abstract: | We demonstrate how Bayesian shrinkage can address problems with utilizing large information sets to calculate trend and cycle via a multivariate Beveridge-Nelson (BN) decomposition. We illustrate our approach by estimating the U.S. output gap with large Bayesian vector autoregressions that include up to 138 variables. Because the BN trend and cycle are linear functions of historical forecast errors, we are also able to account for the estimated output gap in terms of different sources of information, as well as particular underlying structural shocks given identification restrictions. Our empirical analysis suggests that, in addition to output growth, the unemployment rate, CPI inflation, and, to a lesser extent, housing starts, consumption, stock prices, real M1, and the federal funds rate are important conditioning variables for estimating the U.S. output gap, with estimates largely robust to incorporating additional variables. Using standard identification restrictions, we find that the role of monetary policy shocks in driving the output gap is small, while oil price shocks explain about 10% of the variance over different horizons. |
| Keywords: | Beveridge-Nelson decomposition, output gap, Bayesian estimation, multivariate information |
| JEL: | C18 E17 E32 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2017-46&r=mac |
| By: | Gerke, Rafael; Hauzenberger, Klemens |
| Abstract: | The neo-Fisherian view does not consider a negative interest rate gap a prerequisite for boosting inflation. Instead, a negative interest rate gap is said to lower inflation. We discuss this counterintuitive response - known as the Fisher paradox - in a prototypical new-Keynesian model. We draw the following conclusions. First, with a temporarily pegged nominal rate during a liquidity trap (given an otherwise standard Taylor rule) the model generally produces multiple equilibrium paths: some of these paths are consistent with the neo-Fisherian view, others are not. Second, the unique optimal monetary policy at the lower bound on interest rates, which can be implemented in the model with interest rate rules and state-contingent forward guidance, does not result in a paradox. Third, if the assumption of perfect foresight or rational expectations is relaxed, the model produces an equilibrium that is not consistent with the neo-Fisherian view. |
| Keywords: | Neo-Fisherian,Interest Rates,Inflation,Multiple Equilibria,Rational Expectations |
| JEL: | E31 E43 E52 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:202017&r=mac |
| By: | Razmi, Fatemeh; M., Azali; Chin, Lee; Habibullah, Muzafar Shah |
| Abstract: | This paper investigates the role of the monetary policy in protecting the economy against the external shocks of US output and oil price during the 2007-2009 fnancial crisis. It also considers economic vulnerability caused by these external shocks after the crisis abated. The application of the structural vector auto regression model using monthly data from 2002:M1 to 2013:M4 for Indonesia, Malaysia, and Thailand shows that poor influence of monetary policies on monetary policy transmission channels (namely, interest rate, exchange rate, domestic credit, and stock price) in the pre-crisis period could not shield these economies from shocks of oil price and US output. The results of post-crisis period indicate a signifcant increase in the positive impact of monetary policy on channels of monetary transmission channels compared to the pre-crisis period. However, these economies continue to remain vulnerable to oil price shocks. |
| Keywords: | Monetary Transmission, Global Financial Crisis, Monetary Policy, Domestic Credit, Stock Price, Exchange Rate, Interest Rate, Oil Price Shock, US Economy |
| JEL: | E00 E4 E44 E49 Z0 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79079&r=mac |
| By: | Antonio Diez de los Rios; Maral Shamloo |
| Abstract: | We compare the Federal Reserve’s asset purchase programs with those implemented by the Bank of England and the Swedish Riksbank, and the Swiss National Bank’s reserve expansion program. We decompose government bond yields into (i) an expectations component, (ii) a global term premium and (iii) a country-specific term premium to analyze two-day changes in 10-year yields around announcement dates. We find that, in contrast to the Federal Reserve’s asset purchases, the programs implemented in these smaller economies have not been able to affect the global term premium and, consequently, their effectiveness in lowering long-term yields has been limited. |
| Keywords: | Financial markets, Interest rates, Monetary Policy |
| JEL: | E43 E52 E58 G12 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:17-26&r=mac |
| By: | Ellahie, Atif (David Eccles School of Business, University of Utah); Ricco, Giovanni (Department of Economics, The University of Warwick) |
| Abstract: | Using a large Bayesian VAR, we approximate the flow of information received by economic agents to investigate the effects of changes to government purchases. We document robust evidence that informational insufficiency in conventional models explains inconsistent results across samples and commonly employed identifications in recursive Structural VARs and Expectational VARs. Furthermore, we report heterogeneous effects of components of government purchases. While aggregate government purchases do not appear to produce strong stimulative effects with output multiplier around 0.7, government investment components have multipliers well above unity. State and local consumption, which captures investment in education and health, elicits a strong response. |
| Keywords: | fiscal shocks ; government purchases ; fiscal foresight ; Large Bayesian; VARs |
| JEL: | C32 E32 E62 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1138&r=mac |
| By: | Altunbas, Yener; Binici, Mahir; Gambacorta, Leonardo |
| Abstract: | This paper investigates the effects of macroprudential policies on bank risk through a large panel of banks operating in 61 advanced and emerging market economies. There are three main findings. First, there is evidence suggesting that macroprudential tools have a significant impact on bank risk. Second, the responses to changes in macroprudential tools differ among banks, depending on their specific balance sheet characteristics. In particular, banks that are small, weakly capitalised and with a higher share of wholesale funding react more strongly to changes in macroprudential tools. Third, controlling for bank-specific characteristics, macroprudential policies are more effective in a tightening than in an easing episode. |
| Keywords: | bank risk; effectiveness; macroprudential policies |
| JEL: | E43 E58 G18 G28 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12138&r=mac |
| By: | Kovačić, Zlatko; Vilotić, Miloš |
| Abstract: | Objectives: We analyzed the level of economic integration in Europe by analyzing the degree of growth cycle synchronization between 36 countries and its evolution over the past 17 years. Information whether the business cycles in a currency union are synchronized or not is of key importance for policymakers, because lack of synchronization will lead to sub-optimal common monetary policy. The article has three objectives: extend the literature on the business cycles synchronization by using dataset that includes countries that have never been analyzed before, test the robustness of the results to extraction and synchronization measures used and propose new method for assessing evolution of the synchronization over time. Data/methods: Quarterly GDP series from Eurostat database covering period 2000q1-2016q3 were used with two exceptions (industrial productions indexes for Bosnia and Herzegovina and Montenegro). Series were prepared by removing seasonal component using X13-ARIMA procedure. To assess robustness of synchronization tests results to alternative methods of detrending, business cycles were extracted using two filters: Corbae-Ouliaris ideal band filter and double Hodrick-Prescott filter. For assessing synchronization of the business cycles two methods were used: concordance index and cross-correlation function. Rolling cross-correlations at three lags were used to assess evolution of synchronization over time. Conclusions: Both concordance index and cross-correlations indicated that business cycles of most old EU members are synchronized with EU cycle. However, rolling cross-correlations suggested that this synchronization decreased after 2012. Majority of new EU members cycles were weakly or not at all synchronized with EU cycle until 2004/5. After 2004 most of them were synchronized in the same quarter but with greater variations between countries. For most of them after 2010/12 the degree of synchronization dropped significantly. These results are quite robust across the cycles extraction and synchronization measures used. |
| Keywords: | Business cycles, European Union, synchronization, HP filter, FD filter, concordance index, cross-correlations, rolling cross-correlations |
| JEL: | C22 E32 O57 |
| Date: | 2017–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:79990&r=mac |
| By: | Ngotran, Duong |
| Abstract: | We build a dynamic monetary model with two types of electronic money: reserves for transactions between bankers and zero-maturity deposits for transactions in the non-bank private sector. Using this model, we discuss about unconventional monetary policy during the Great Recession. Committing to keep the federal funds rate at the zero lower bound for a long time is very effective in the short run, but it creates deflation and lowers output in the long run. At the time of raising interest on reserves, if the central bank also commits to target the growth of money supply in responding to inflation, both output and inflation paths will be smooth. In short, “raise rate and raise money supply” is a good way to get out of the zero lower bound. |
| Keywords: | reserves; interest on reserves; zero lower bound; quantitative easing; money supply |
| JEL: | E4 E40 |
| Date: | 2017–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80207&r=mac |
| By: | Steven Ongena (University of Lousanne); Ibolya Schindele (Magyar Nemzeti Bank (Central Bank of Hungary)); Dzsamila Vonnák (Magyar Nemzeti Bank (Central Bank of Hungary)) |
| Abstract: | We study the impact of monetary policy on the supply of bank credit when bank lending is also denominated in foreign currencies. Accessing a comprehensive supervisory dataset from Hungary, we find that the supply of bank credit in a foreign currency is less sensitive to changes in domestic monetary conditions than the equivalent supply in the domestic currency. Changes in foreign monetary conditions similarly affect bank lending more in the foreign than in the domestic currency. Hence when banks lend in multiple currencies the domestic bank lending channel is weakened and international bank lending channels become operational. |
| Keywords: | Bank balance-sheet channel, monetary policy, foreign currency lending |
| JEL: | E51 F3 G21 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2017/6&r=mac |
| By: | International Monetary Fund |
| Abstract: | Germany’s open economy has been performing well, underpinned by prudent economic management, past structural reforms, and a well-developed social safety net. Employment growth is strong, the unemployment rate is at a record low, output growth is above potential, and the fiscal position keeps strengthening. However, despite high and rising capacity utilization and job vacancy rates, wage growth and core inflation so far remain too low and business investment lacks momentum, while adverse demographics weigh on long-term growth prospects. The large and persistent current account surplus in part reflects these imbalances, which result in high domestic savings and better investment opportunities abroad, though external factors also play a role. Germany should embrace a set of coordinated fiscal and structural policies to safeguard its strengths and address remaining challenges, including reducing external imbalances. |
| Date: | 2017–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/192&r=mac |
| By: | Rangan Gupta (University of Pretoria); Marian Risse (Helmut Schmidt University); David A. Volkman (University of Nebraska at Omaha); Mark E. Wohar (University of Nebraska-Omaha and Loughborough University) |
| Abstract: | Given the existence of nonlinear relationship between equity premium and term spread, as well as pattern changes and the interaction of pattern changes with the term-spread and changes in the shape of the yield curve, we use a nonparametric k-th order causality-in-quantiles test to predict the movement in excess returns and volatility based on changes in the shape of the yield curve. With the test applied to over 250 years of monthly data for the UK covering the period 1753:08 to 2017:02, we find that pattern changes and the interaction of pattern changes with the term-spread, besides the term spread itself, tends to also play an important role in predicting volatility at the upper end of its conditional distribution. In addition, the effect on excess returns from term spread, pattern changes and the interaction is found to have improved markedly over time, barring at the conditional median of the equity premium. Finally, comparisons are made with historical data of the US and South Africa, and implications of our results are discussed. |
| Keywords: | Stock returns, volatility, yield curve changes, conditional term spreads, nonparametric causality-in-quantiles test |
| JEL: | C22 G14 G18 E43 E44 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201755&r=mac |
| By: | Melisso Boschi; Stefano d'Addona |
| Abstract: | We estimate short- and long-run tax elasticities that capture the relationship between changes in national income and tax revenue. We show that the short-run tax elasticity changes according to the business cycle. We estimate a two state Markov-switching regression on a novel dataset of tax policy reforms in 15 European countries from 1980 to 2013, showing that the elasticities during booms and recessions are statistically (and often economically) different. The elasticities of (i) indirect taxes, (ii) social contributions, and (iii) corporate income taxes, tend to be larger during recessions. Tax elasticities for personal income tend to be more stable across the regimes. Estimates of long-run elasticities are in line with existing literature. |
| Keywords: | Tax elasticity, Tax policy discretionary change, Business cycle, European economy, Markov-switching regimes |
| JEL: | C24 C29 E32 E62 H20 H30 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2017-44&r=mac |
| By: | Russell Wong (Federal Reserve Bank of Richmond); Cathy Zhang (Purdue University); Guillaume Rocheteau (University of California, Irvine) |
| Abstract: | This paper develops a dynamic model of lending relationships and monetary policy. Entrepreneurs can finance idiosyncratic investment opportunities through external finance -- by forming lending relationships with banks -- or internal finance -- by accumulating partially liquid assets. We study the dynamic response of lending rates, inflation, and investment to a banking crisis that severs lending relationships. We characterize optimal monetary policy in the aftermath of a crisis and show it involves a positive nominal interest rate that trades off the need to reduce the cost of self insurance by unbanked entrepreneurs and the need to promote the creation of lending relationships with banks. We calibrate the model to the U.S. economy and study quantitatively the optimal policy problem in and out of steady state, with and without commitment by the policymaker. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:152&r=mac |
| By: | International Monetary Fund |
| Abstract: | The Czech economy is performing relatively well. It is a dynamic economy, open to investment and tightly integrated to global supply chains. Recent growth has been solid, employment is very high, and inflation is now back around its target, after numerous periods at zero during the past two years. Nonetheless, the Czech economy faces challenges that will require a well-calibrated combination of monetary, macroprudential, financial, fiscal, and structural policies to ensure continued steady growth. |
| Keywords: | Czech Republic;Europe; |
| Date: | 2017–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/168&r=mac |
| By: | László Békési (Magyar Nemzeti Bank (Central Bank of Hungary)); Lorant Kaszab (Magyar Nemzeti Bank (Central Bank of Hungary)); Szabolcs Szentmihályi (Magyar Nemzeti Bank (Central Bank of Hungary)) |
| Abstract: | In this paper we adopt the Hungarian version of the EAGLE (Euro Area GLobal Economy) model. The version of the EAGLE model used in this paper allows for the high import content of export a typical feature of small open economies such as Hungary. We study the e/ects of four globally important shocks on Hungary: i) a slowdown of the Chinese economy, ii) more restrictive US monetary policy, iii)areductioninoilprices, andiv)more protectionist US trade policy. We found these policies to have non-negligible indirect e/ects (beyond the relatively small direct ones) on Hungary mostly due to the workings of the shock to the eurozone which is our main trade partner. |
| Keywords: | Multi-country DSGE, price and wage rigidity, EAGLE model, trade matrix, import content of export, local currency pricing, monetary policy shock, consumption preference shock, markup-shock. |
| JEL: | E12 E13 E52 E58 F11 F41 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:mnb:wpaper:2017/7&r=mac |
| By: | Olivier Coibion; Yuriy Gorodnichenko; Mauricio Ulate |
| Abstract: | The fact that most of the persistent declines in output since the Great Recession have parlayed into equivalent declines in measures of potential output is commonly interpreted as implying that output will not return to previous trends. Using a variety of estimates of potential output for the U.S. and other countries, we show that these estimates respond gradually not only to supply-side shocks but also respond to demand shocks that have only transitory effects on output. Observing a revision in measures of potential output therefore says little about whether concurrent changes in actual output are likely to be permanent or not. In contrast, some structural VAR methodologies can avoid these shortcomings, even in real-time. This approach points toward a more limited decline in potential output following the Great Recession. |
| JEL: | E2 E3 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23580&r=mac |
| By: | Efraim Benmelech; Adam Guren; Brian T. Melzer |
| Abstract: | We introduce and quantify a new channel through which the housing market affects household spending: the home purchase channel. Using an event-study design with data from the Consumer Expenditure Survey, we show that households spend on average $3,700 more in the months before and the first year following a home purchase. This spending is concentrated in the home-related durables and home improvements sectors, which are complementary to the purchase of the house. Expenditures on nondurables and durables unrelated to the home remain unchanged or decrease modestly. We estimate that the home purchase channel played a substantial role in the Great Recession, accounting for one-third of the decline in home-related durables spending and a fifth of the decline in home maintenance and investment spending from 2005 to 2010, together totaling $14.3 billion annually. |
| JEL: | E21 E32 G01 G12 R11 R2 R21 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23570&r=mac |
| By: | Alessandro Borin (Bank of Italy); Virginia Di Nino (Bank of Italy, European Central Bank); Michele Mancini (Bank of Italy); Massimo Sbracia (Bank of Italy) |
| Abstract: | In the five years 2011-2015 global trade fell short of expectations to a much larger extent than global GDP. We show that two key features of real trade flows - their high volatility and their procyclicality - are the cause behind the cyclicality of the income elasticity of trade. This property implies that when real GDP growth is positive but below its long-run trend, then the income elasticity of trade is also below its own long-run trend. Therefore, when real GDP growth turns out to be weaker than expected, the forecast error on trade volumes is amplified by the fact that the income elasticity of trade also happens to be lower than predicted. We then analyze the implications of our findings for cross-country differences in the elasticity, the role played by long-run and cyclical factors in the weakness of trade in the aftermath of the Great Recession, and the accuracy of existing trade forecasts, which we significantly improve by exploiting real-time data on business conditions. |
| Keywords: | global trade, trade elasticity, trade forecasts, trade slowdown, international business cycle. |
| JEL: | E32 F1 F4 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1126_17&r=mac |
| By: | Corsetti, Giancarlo (Cambridge University); Mavroeidi, Eleonora (Bank of England); Thwaites, Gregory (Bank of England); Wolf, Martin (University of Bonn) |
| Abstract: | We study how small open economies can escape from deflation and unemployment in a situation where the world economy is permanently depressed. Building on the framework of Eggertsson et al (2016), we show that the transition to full employment and at-target inflation requires real and nominal depreciation of the exchange rate. However, because of adverse income and valuation effects from real depreciation, the escape can be beggar thy self, raising employment but actually lowering welfare. We show that as long as the economy remains financially open, domestic asset supply policies or reducing the effective lower bound on policy rates may be ineffective or even counterproductive. However, closing domestic capital markets does not necessarily enhance the monetary authorities’ ability to rescue the economy from stagnation. |
| Keywords: | Small open economy; secular stagnation; capital controls; optimal policy; zero lower bound |
| JEL: | E62 F41 |
| Date: | 2017–07–17 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0666&r=mac |
| By: | International Monetary Fund |
| Abstract: | Economic activity remains robust and inflation is well-anchored by the crawling peg exchange rate regime. GDP growth is expected to moderate to its potential in 2017 and risks to the outlook are tilted to the downside. The external position is assessed to be broadly consistent with fundamentals. Monetary and financial conditions are stable, with credit growth decelerating in 2016; nonetheless, gaps in financial supervision remain. A slightly more expansionary fiscal stance is projected for the medium term, and, while staff considers public debt to be sustainable over the medium term, stress events could significantly alter its trajectory. |
| Keywords: | Western Hemisphere;Nicaragua; |
| Date: | 2017–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/173&r=mac |
| By: | International Monetary Fund |
| Abstract: | With average growth of over 5¼ percent since 2000, Peru has significantly reduced unemployment and poverty. Inflation is in low single digits, the fiscal position has strengthened, and dollarization has declined markedly. In the context of a commodity boom, sound macroeconomic management and structural reforms have played an essential role in this improvement. With lower commodity prices now, consolidating these gains and further reforms—including financial deepening and labor reforms—will be critical in helping Peru reach its target of high-income status. The government has introduced several structural reforms aimed at modernizing the economy, increasing formality, and lifting potential growth. But the current juncture is a difficult one given domestic headwinds and challenging external conditions. These include the Odebrecht scandal, one of the worst flooding and landslides in over 50 years, the lack of a majority in Congress, and significant uncertainty surrounding the U.S. outlook and how much protectionist pressures will rise globally. |
| Keywords: | Western Hemisphere;Peru; |
| Date: | 2017–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/166&r=mac |
| By: | Juan Carlos Conesa; Timothy J. Kehoe |
| 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. |
| JEL: | C68 E13 E24 H31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23592&r=mac |
| By: | Heipertz, Jonas; Mihov, Ilian; Santacreu, Ana Maria |
| Abstract: | Most of the theoretical research in small open economies has typically focused on corner solutions regarding the exchange rate: either the currency rate is fixed by the central bank or it is left to be freely determined by market forces. We build an open-economy model with external habits in consumption to study the properties of a new class of monetary policy rules, in which the exchange rate serves as the instrument for stabilizing business cycle fluctuations. Instead of using a short-term interest rate, the monetary authority announces a path for currency appreciation or depreciation as a reaction to fluctuations in inflation and the output gap. We find that, under a wide range of modeling assumptions, the exchange rate rule outperforms a standard Taylor rule in terms of stabilizing both output and inflation. The reduction in volatility is more pronounced for more open economies and for economies with lower sensitivity to movements in the interest rate. We show that differences between the two rules are driven by two key factors: (i) paths of the nominal exchange rate and the interest rate under each rule, and (ii) the time variation in the risk premium, which leads to deviations from uncovered interest parity. |
| Keywords: | Exchange rate management; External habit; monetary policy rules; Risk premium |
| JEL: | E52 F31 F41 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12137&r=mac |
| By: | Martin Seneca (Bank of England) |
| Abstract: | Risk shocks give rise to cost-push effects in the canonical New Keynesian model if they are large relative to the distance between the nominal interest rate and its zero lower bound (ZLB). Therefore, stochastic volatility introduces occasional trade-offs for monetary policy between inflation and output gap stabilisation. The trade-off inducing effects operate through expectational responses to the interaction between perceived shock volatility and the ZLB. At the same time, a given monetary policy stance becomes less effective when risk is high. Optimal monetary policy calls for potentially sharp reductions in the interest rate when risk is elevated, even if this risk never materialises. If the underlying level of risk is high, inflation will settle potentially materially below target in a risky steady state even under optimal monetary policy. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:107&r=mac |
| By: | Ravazzolo, Francesco (Free University of Bozen/Bolzano, Italy); Vespignani, Joaquin (Tasmanian School of Business & Economics, University of Tasmania) |
| Abstract: | In this paper we propose a new indicator of monthly global real economic activity, named world steel production. We use world steel production, OECD industrial production index and Kilian’s rea index to forecast world real GDP, and key commodity prices. We find that world steel production generates large statistically significant gains in forecasting world real GDP and oil prices, relative to an autoregressive benchmark. A forecast combination of the three indices produces statistically significant gains in forecasting world real GDP, oil, natural gas, gold and fertilizer prices, relative to an autoregressive benchmark. |
| Keywords: | global real economic activity, world steel production, forecasting |
| JEL: | E1 E3 C1 C5 C8 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:tas:wpaper:23636&r=mac |
| By: | Saskia ter Ellen (Norges Bank (Central Bank of Norway)); Cars H. Hommes (University of Amsterdam and Tinbergen Institute); Remco C.J. Zwinkels (Vrije Universiteit Amsterdam and Tinbergen Institute) |
| Abstract: | We estimate a generic agent-based model in which agents have heterogeneous beliefs about the future price to see to what extent behaviour differs across assets, and what this implies for market stability. We find evidence for behavioural heterogeneity for all asset classes, except for equities. Heterogeneity is especially pronounced for macro-economic variables. Agents update their beliefs frequently in financial markets, and only gradually in the case of macro-economic variables. Consequently, we find that the probability of behavioural bubbles is substantially higher for the macro-economic variables than for financial assets. |
| Keywords: | financial markets, heterogeneous expectations, market stability |
| JEL: | E31 G12 G15 |
| Date: | 2017–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2017_12&r=mac |
| By: | Luca Fornaro (CREI and Universitat Pompeu Fabra) |
| Abstract: | A recent literature has suggested that macroprudential policies can act as second-best stabilization tools when monetary policy is constrained by the zero lower bound. In this paper we show that, once their international dimension is taken into account, macroprudential policies can backfire. We provide a tractable multi-country framework of an imperfectly financially integrated world, in which equilibrium interest rates are low and monetary policy is occasionally constrained by the zero lower bound. Idiosyncratic shocks generate capital flows and asymmetric liquidity traps across countries. Due to a domestic aggregate demand externality, it is optimal for governments to implement countercyclical macroprudential policies, taxing borrowing in good times, as a precaution against the risk of a future liquidity trap triggered by a negative shock. The key insight of the paper is that this policy is inefficient from a global perspective, because it depresses global rates and deepens the recession in the countries currently stuck in a liquidity trap. This international aggregate demand externality points toward the need for international cooperation in the design of financial market interventions. Indeed, under the cooperative optimal financial policy countries internalize the fact that a stronger demand for borrowing and consumption from countries at full employment sustains global rates, reducing the recession in liquidity trap economies. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:139&r=mac |
| By: | International Monetary Fund |
| Abstract: | St. Kitts and Nevis attained the strongest growth and fiscal performance in the ECCU region in recent years, with public debt set to meet the ECCU’s 60 percent of GDP target in 2018. The strong macroeconomic performance owes much to the robust Citizenship-by-Investment (CBI) inflows as well as overall prudent macroeconomic policies. However, CBI revenues fell significantly last year and are expected to fall further going forward. In this context, additional efforts are needed to secure the macroeconomic gains, while enhancing resilience to external shocks and ensuring sustainable, inclusive growth into the medium term. |
| Date: | 2017–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/186&r=mac |
| By: | Mirko Djukic; Tibor Hledik; Jiri Polansky; Ljubica Trajcev; Jan Vlcek |
| Abstract: | We amend a DSGE model of a small open economy by adding financial euroization in order to capture the main channels of the monetary transmission mechanism in match the Serbian data. In contrast to the standard DSGE workhorse, the model encompasses commercial banks and foreign-exchange-denominated deposits and loans. Given these features, the model is well suited to evaluating effects of the nominal exchange rate on the financial wealth and consumption of households. The model structure, including optimization problems and first-order conditions, is provided in the paper. The model properties are tested to match the stylized facts of dollarized economies. Specifically, the model is calibrated to the Serbian data, and a model-consistent multivariate filter is used to identify unobserved trends and gaps. |
| Keywords: | DSGE model, financial dollarization |
| JEL: | E44 F41 F47 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2017/02&r=mac |
| By: | Seppo Honkapohja (Bank of Finland); Kaushik Mitra (University of Birmingham); George Evans (University of Oregon) |
| Abstract: | Persistent stagnation and fiscal policy are examined in a New Keynesian model with adaptive learning determining expectations. We impose inflation and consumption lower bounds, which can be relevant when agents are pessimistic. The inflation target is locally but not globally stable under learning. Pessimistic initial expectations may sink the economy into steady-state stagnation with deflation. The deflation rate can be near zero for discount factors near one or if credit frictions are present. Following a severe pessimistic expectations shock a large temporary fiscal stimulus is needed to avoid or emerge from stagnation. A modest stimulus is sufficient if implemented early. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:160&r=mac |
| By: | Podlich, Natalia; Schnabel, Isabel; Tischer, Johannes |
| Abstract: | Based on a detailed trade-level dataset, we analyze the proprietary trading behavior of German banks in the months directly preceding and following the Lehman collapse in September 2008. The default of Lehman Brothers was a shock to the German banking system that was both unexpected and exogenous. We examine banks' immediate reactions as well as their responses to unconventional monetary policy measures introduced shortly after the event - the introduction of full allotment and the change in eligibility criteria for collateral in central bank refinancing operations. Our results show that market liquidity tightened after the Lehman collapse but there is no evidence of fire sales in the German banking sector. Instead, we observe a broad-based flight to liquidity. The European Central Bank's unconventional monetary policy had a strong impact on banks' trading behavior by inducing shifts towards eligible securities and reducing pressure on market liquidity. This suggests that the ECB's measures contributed to stabilizing the financial system after the Lehman collapse. |
| Keywords: | proprietary trading,fire sales,flight to liquidity,Lehman crisis,market liquidity,unconventional monetary policy |
| JEL: | E44 E50 G01 G11 G21 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:192017&r=mac |
| By: | Sebastian Di Tella |
| Abstract: | I characterize the optimal financial regulation policy in an economy where financial intermediaries trade capital assets on behalf of households, but must retain an equity stake to align incentives. Financial regulation is necessary because intermediaries cannot be excluded from privately trading in capital markets. They don’t internalize that high asset prices force everyone to bear more risk. The socially optimal allocation can be implemented with a tax on asset holdings. I derive a sufficient statistic for the externality/optimal policy in terms of observable variables, valid for heterogenous intermediaries and asset classes, and arbitrary aggregate shocks. I use market data on leverage and volatility of intermediaries’ equity to measure the externality, which co-moves with the business cycle. |
| JEL: | E44 G01 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23586&r=mac |
| By: | International Monetary Fund |
| Abstract: | Cameroon’s reform strategy is embedded in the coordinated regional approach outlined at the Yaoundé Heads of States summit in December 2016, during which the Cameroonian authorities spearheaded a coordinated response to maintain regional external stability as well as the integrity of the monetary arrangement. In that context, Cameroon’s ECF-supported program aims to restore the country’s fiscal and external sustainability and unlock job-rich, private sector-driven growth. The program rests on three main pillars: i) frontloaded fiscal consolidation to strengthen fiscal and external buffers, while protecting social spending and social safety nets; ii) structural fiscal reforms to expand the non-oil revenue base, improve the efficiency of public investment and the quality of budgetary system, and mitigate fiscal risks from contingent liabilities; iii) reforms to accelerate private sector-led economic diversification and boost the resilience of the financial sector. |
| Date: | 2017–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/185&r=mac |
| By: | International Monetary Fund |
| Abstract: | Macroeconomic conditions are broadly sound: fiscal and current account deficits remain at prudent levels; public debt persists at a low level; and unemployment continues to fall. For the first time in the last 5 years, credit growth to the private sector is positive, signaling that the credit cycle has turned. However, growth seems to have settled at a more modest pace, and staff estimate that the post-crisis medium-term potential growth rate is lower than previously thought, with implications for the convergence path. |
| Date: | 2017–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/194&r=mac |
| By: | Link, Thomas; Neyer, Ulrike |
| Abstract: | This paper proposes rules for the control of interbank rate volatility under different interest corridor systems when volatility stems from interbank market frictions. Friction-induced volatility will occur if there is heterogeneity in two dimensions (across banks and time) with respect to the degree to which frictions change the relative attractiveness of banks' outside options to using the interbank market. Under a "floor" or "ceiling operating system" (asymmetric scheme), friction-induced volatility can be controlled by implementing a relatively wide interest corridor - which is the inversion of the traditional principle. Under a "standard corridor system" (symmetric scheme), the systematic control of friction-induced interbank rate volatility can never be achieved through corridor width adjustments but requires a switch to an asymmetric corridor scheme. |
| Keywords: | interbank market,monetary policy implementation,interest corridor,floor operating system,transaction costs,excess reserves |
| JEL: | E52 E58 G21 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:259&r=mac |
| By: | International Monetary Fund |
| Abstract: | After two years of recession, the economy is recovering due to higher oil prices and improved sentiment, amid tight fiscal and monetary policies. Medium-term prospects are nonetheless subdued given the expected stability of oil prices over the forecasting period and a structurally weak economy. Structural reforms over the past year consisted of a high profile partial privatization and other small measures. |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/197&r=mac |
| By: | Gabriel Chodorow-Reich |
| Abstract: | A geographic cross-sectional fiscal spending multiplier measures the effect of an increase in spending in one region in a monetary union. Empirical studies of such multipliers have proliferated in recent years. In this paper, I review this research and what the evidence implies for national multipliers. Based on an updated analysis of the American Recovery and Reinvestment Act and a survey of empirical studies, my preferred point estimate for a cross-sectional output multiplier is 1.8. Economic theory of how to map these multipliers into a national multiplier has also advanced. Drawing on the theoretical literature, the paper discusses conditions under which the cross-sectional multiplier provides a rough lower bound for a particular national multiplier, the closed economy zero lower bound multiplier. Putting these elements together, the cross-sectional evidence suggests a national zero lower bound multiplier of about 1.7 or above, at the upper end of most studies based on time series evidence. The paper concludes by offering suggestions for future research on cross-sectional multipliers. |
| JEL: | E62 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23577&r=mac |
| By: | Christian Groth (Department of Economics, University of Copenhagen); Jakub Growiec (SGH Warsaw School of Economics) |
| Abstract: | We study the links between the Mincerian wage equation (the crosssectional relationship between wages and years of schooling) and the human capital production function (the causal effect of schooling on labor productivity). Based on a stylized Mincerian general equilibrium model with imperfect substitutability across skill types and ex ante identical workers, we demonstrate that the mechanism of compensating wage differentials renders the Mincerian wage equation uninformative for the human capital production function. Proper identification of the human capital production function should take into account the equilibrium allocation of individuals across skill types. |
| Keywords: | Mincerian wage equation, human capital production function, skill distribution, compensating wage differentials, golden rule of skill formation |
| JEL: | E24 I26 J24 |
| Date: | 2017–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1712&r=mac |
| By: | Leonardo Melosi (Federal Reserve Bank of Chicago); Francesco Bianchi (Duke University) |
| Abstract: | We study the problem of coordination between the monetary and the fiscal authorities at the zero lower bound. Lack of coordination between the monetary and fiscal authorities can lead to an explosive dynamics of inflation and large output losses. Policy makers can achieve the goal of mitigating the recession without giving up on long-run macroeconomic stability by committing to inflate away only the portion of debt resulting from an unusually large recession. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:110&r=mac |
| By: | Simon Mongey (NYU) |
| Abstract: | Canonical macroeconomic models of pricing under nominal rigidities assume markets consist of atomistic firms. Most US retail markets are dominated by a few large firms. To bridge this gap, I extend an equilibrium menu cost model to allow for a continuum of sectors with two large firms in each sector. Compared to a model with monopolistically competitive markets, and calibrated to the same good-level data on price adjustment, the duopoly model generates output responses to monetary shocks that are more than twice as large. Firm-level prices respond equally to idiosyncratic shocks, but less to aggregate shocks in the calibrated duopoly model. Under duopoly, the response of low priced firms to an increase in money is dampened: a falling real price at its competitor weakens both the incentive to increase prices, and price conditional on adjustment. The dynamic duopoly model also implies (i) large first order welfare losses from nominal rigidities, (ii) lower menu costs, (iii) a U-shaped relationship between market concentration and price flexibility, forwhich I find strong evidence in the data, (iv) a source of downward bias in markup estimates attained from inverting a static oligopoly model. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:184&r=mac |
| By: | Ivo Krznar; Troy D Matheson |
| Abstract: | Macro-feedback effects have been identified as a key missing element for more effective macro-prudential stress testing. To fill this gap, this paper develops a framework that facilitates the analysis of both the direct effects of macroeconomic shocks on the solvency of individual banks and feedback effects that allow for the amplification and propagation of shocks that can result from bank deleveraging and credit crunches. The framework ensures consistency in the key relationships between macroeconomic and financial variables, and banks’ balance sheets. This is accomplished by embedding a standard stress-testing framework based on individual banks’ data in a semi-structural macroeconomic model. The framework has numerous applications that can strengthen stress testing and macro financial analysis. Moreover, it provides an avenue for many extensions that address the challenges of incorporating other second-round effects important for comprehensive systemic risk analysis, such as interactions between solvency, liquidity and contagion risks. To this end, the paper presents some preliminary simulations of feedback effects arising from the link between the liquidity and solvency risk. |
| Date: | 2017–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:17/149&r=mac |
| By: | Checo, Ariadne; Mejía, Mariam; Ramírez, Francisco A. |
| Abstract: | We assess the impact of extreme variations in rainfalls on consumer prices and agricultural economic activity during the period of 2000 - 2016. Using historical records on rainfall at national level and time series techniques, we identify important effects of droughts over price dynamics and moderate effects on agricultural value added growth. Relative to the events of rainfall excess, we find evidence of a relevant negative effect on sectorial value added, nevertheless we do not observe any significant influence on food prices. |
| Keywords: | Business cycles, inflation, rainfall. |
| JEL: | C31 C32 E31 Q54 |
| Date: | 2017–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80301&r=mac |
| By: | International Monetary Fund |
| Abstract: | Tanzania’s macroeconomic performance has been strong, albeit with a recent deceleration in economic growth. GDP grew by 7 percent in 2016. High frequency data, however, suggest a weakening of economic activity in late 2016. Inflation remains moderate and is expected to fall towards the authorities’ 5 percent target. Key risks to the outlook are linked to slow budget implementation from financing shortfalls. |
| Date: | 2017–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/180&r=mac |
| By: | Miho Sunaga (Graduate School of Economics, Osaka University) |
| Abstract: | I introduce nancial market friction into a neoclassical growth model. I consider a moral hazard problem between bankers and workers in the macroeconomic model. Using the model, this study analyzes how capital adequacy requirements for banks affect the economy. I show that strengthening capital adequacy requirements is desirable for an economy whose nancial market has not developed sufficiently. Regulatory authorities should pull up the minimum capital adequacy ratio in a country whose nancial market has not developed sufficiently. Moreover, there is no need to change the minimum cap- ital adequacy ratio in a country whose nancial market has developed sufficiently even if the economy experiences a recession. |
| Keywords: | Capital adequacy requirements; Economic Growth; Financial Intermedi- aries; Macro-prudential policies |
| JEL: | E44 G21 G28 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1721&r=mac |
| By: | Radek Stefanski (University of St Andrews) |
| Abstract: | Monetary velocity declines as economies grow. We argue that this is due to the process of structural transformation - the shift of workers from agricultural to non-agricultural production associated with rising income. A calibrated, two-sector model of structural transformation with monetary and non-monetary trade accurately generates the long run monetary velocity of the US between 1869 and 2013 as well as the velocity of a panel of 92 countries between 1980 and 2010. Three lessons arise from our analysis: 1) Developments in agriculture, rather than non-agriculture, are key in driving monetary velocity; 2) Inflationary policies are disproportionately more costly in richer than in poorer countries; and 3) Nominal prices and inflation rates are not ‘always and everywhere a monetary phenomenon’: the composition of output influences money demand and hence the secular trends of price levels. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:168&r=mac |
| By: | International Monetary Fund |
| Abstract: | The sharp decline in oil prices has profoundly impaired the region’s external and fiscal balances. Oil export proceeds and budget oil revenues have plummeted between 2014 and 2016. The oil revenue shock and accommodative fiscal policy by member countries supported by expansionary regional monetary policies contributed to a fall in international reserves to a near critical point, despite initial spending cuts by some member countries. As a result of widening fiscal deficits and accommodative monetary policy, the current account deficit also widened substantially. International reserves reached the equivalent of 2.3 months of imports in December 2016. |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/176&r=mac |
| By: | Diana Zigraiova; Petr Jakubik |
| Abstract: | This study proposes a potential methodological approach to be used by regulators when updating the Ultimate Forward Rate (UFR) for the evaluation of insurers' liabilities beyond the last liquid point observable in the market. Our approach is based on the optimisation of two contradictory aspects - stability and accuracy implied by economic fundamentals. We use U.S. Treasury term structure data over the period 1985-2015 to calibrate an algorithm that dynamically revises the UFR based on the distance between the value implied by the long-term growth of economic fundamentals in a given year and the regulatory value of the UFR valid in the prior year. We employ both the Nelson-Siegel and Svensson models to extrapolate yields over maturities of 21-30 years employing the selected value of the UFR and compare them with the observed yields using the mean square error statistic. Furthermore, we optimise the parameters of the proposed UFR formula by minimising the defined loss function capturing both mentioned factors. |
| Keywords: | Extrapolation, Nelson-Siegel, Svensson, term structure of interest rates, Ultimate Forward Rate |
| JEL: | E43 G22 L51 M2 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2017/03&r=mac |
| By: | Aiginger, Karl; Handler, Heinz |
| Abstract: | Political opposition to globalisation has risen in industrialized countries, although the positive overall effects on the growth of the world economy and the alleviation of poverty are empirically verifiable. However, the effects of globalisation vary according to regions, professional groups, and education. In the period of intensive globalisation, unemployment and inequality have risen, and people feel their lives to be determined by forces they cannot influence. Since the many new challenges, such as climate protection, can be better solved by worldwide efforts, it is indispensable to avoid new national barriers and to strengthen the endorsement of globalisation and the concomitant welfare effects. However, it is also necessary to respect cultural differences in preferences and to view globalisation as a search and learning process. Instruments for the implementation of such a strategy may vary according to regional specifics. Social and ecological goals - gaining higher importance with rising per capita incomes - are well-represented in the European model, but for worldwide solutions other socio-economic models will offer preferences and solutions. Apart from the announced partial withdrawal of the United States from globalisation and the upcoming dominance of China in world affairs and large scale investment, Europe would be well-advised to take a greater responsibility if not the lead in determining the rules of globalisation. Based on an opinion-forming process within Europe, responsible globalisation can significantly improve the quality of life in Europe and its partners worldwide. |
| Keywords: | responsible globalization,change in US policy,Chinese ambitions |
| JEL: | E02 E61 F13 F42 O10 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201742&r=mac |
| By: | Tigran Poghosyan |
| Abstract: | This paper revisits the issue of cross-country spillovers from fiscal consolidations using an innovative empirical methodology. We find evidence in support of fiscal spillovers in 10 euro area countries. Fiscal consolidation in one country not only reduces domestic output (direct effect), but also the output of other member countries (indirect/spillover effect). Fiscal spillovers are larger for: (i) more closely located and economically integrated countries, and (ii) fiscal shocks originating from relatively larger countries. On average, 1 percent of GDP fiscal consolidation in 10 euro area countries reduces the combined output by 0.6 percent on impact, out of which half is driven by indirect effects from fiscal spillovers. The impact peters out and becomes insignificant over the medium-term. It is largely driven by tax measures, which have a relatively stronger effect on output compared to expenditure measures. The results are robust to alternative measures of bilateral links across countries. |
| Date: | 2017–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:17/140&r=mac |
| By: | Jesper Lindé; Andrea Pescatori |
| Abstract: | We study the robustness of the Lerner symmetry result in an open economy New Keynesian model with price rigidities. While the Lerner symmetry result of no real effects of a combined import tariff and export subsidy holds up approximately for a number of alternative assumptions, we obtain quantitatively important long-term deviations under complete international asset markets. Direct pass-through of tariffs and subsidies to prices and slow exchange rate adjustment can also generate significant short-term deviations from Lerner. Finally, we quantify the macroeconomic costs of a trade war and find that they can be substantial, with permanently lower income and trade volumes. However, a fully symmetric retaliation to a unilaterally imposed border adjustment tax can prevent any real or nominal effects. |
| Date: | 2017–07–07 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:17/151&r=mac |
| By: | International Monetary Fund |
| Abstract: | Seychelles has made noticeable progress toward economic stability and external sustainability through bold reforms since the crisis in 2008. Despite the impressive macroeconomic performance, social concerns came to surface in 2016 and temporary fiscal policy slippage led to a delay in completing the fourth review under the Extended arrangement (EFF). The authorities brought the fiscal position back to a sustainable path during 2016?17 largely through one-off revenue measures, which will expire in 2018. The country’s banks lost some correspondent banking relations (CBRs) in recent years. Seychelles is the first pilot country for Climate Policy Change Assessment (CCPA) for small states. |
| Keywords: | Sub-Saharan Africa;Seychelles; |
| Date: | 2017–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/160&r=mac |
| By: | International Monetary Fund |
| Abstract: | Economic activity continued to expand but growth was uneven. In 2016, subdued agricultural commodity prices, adverse weather conditions and delays in public investment led to a contraction in non-mining sectors. Nevertheless, GDP increased by 3.3 percent buoyed by very large increases in gold output. Increased exports of gold and improved terms of trade helped the current account achieve a surplus of 0.4 percent of GDP from a 5.7 percent deficit in 2015. Guyana is expected to become an oil producer by mid-2020. |
| Keywords: | Guyana;Western Hemisphere; |
| Date: | 2017–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/175&r=mac |
| By: | Dey Shubhasis (Indian Institute of Management Kozhikode) |
| Abstract: | Indian economy is exposed to various forms of uncertainty. Theories of investment underuncertainty and real options predict that increased uncertainty tends to depress real investment.Literature finds that uncertainties regarding oil price and real exchange rate adversely affect domestic capital formation. The socio-economic realities of India together with the lack of penetration of formal financial institutions make gold as a one of the main modes of investment for Indian households. However, over-investment in gold may have adverse consequences for the real economy as it drives away resources from productive capital. Moreover, higher inflation uncertainty makes it harder to extract information from the price system and thus may reduce economic efficiency. In this paper, we use a bivariate GARCH-in-mean VAR model to estimate the interrelationships of various uncertainty measures and the real economy. We find that the Indian economy is not particularly vulnerable to real exchange rate or oil price uncertainties.However, gold price uncertainty has a significant positive effect on output growth. Higher WPI inflation uncertainty is detrimental to growth rates of private consumption expenditure and gross capital formation. Moreover, a rise in the growth rate of government expenditure following a positive CPI inflation shock may partially explain the lack of any detrimental effect on output growth. |
| Keywords: | Uncertainty; output growth; bivariate GARCH-in-mean VAR; India |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:iik:wpaper:252&r=mac |
| By: | International Monetary Fund |
| Abstract: | The sharp oil price slump in 2014–15 has hurt Norway’s oil and gas sector, with spillover effects on supporting industries across the supply chain. Mainland growth fell to its lowest level since the 2008/09 crisis at only 0.9 percent last year. However, the economy turned the corner late last year, supported by domestic demand, with unemployment falling from last summer’s peak. Meanwhile, house price inflation accelerated to double digits in the second half of 2016, resulting in a further build-up of imbalances. Productivity growth has been low since the mid-2000s and labor force participation rates are falling, particularly for men and the young, in the face of aging. |
| Date: | 2017–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/182&r=mac |
| By: | International Monetary Fund |
| Abstract: | Aruba’s economy has been in recession since mid-2015, mainly due to a temporary slowdown in tourism activity and fiscal consolidation. Short-term recovery in economic activity depends on timely implementation of refinery-related investments. Despite fiscal efforts by the authorities, public debt remains at around 85 percent of GDP, limiting fiscal space. |
| Date: | 2017–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/155&r=mac |
| By: | Forni, Mario; Gambetti, Luca; Sala, Luca |
| Abstract: | We formalize the idea that uncertainty is generated by news about future developments in economic conditions which are not perfectly predictable by the agents. Using a simple model of limited information, we show that uncertainty shocks can be obtained as the square of news shocks. We develop a two-step econometric procedure to estimate the effects of news and we find highly nonlinear effects. Large news shocks increase uncertainty. This mitigates the effects of good news and amplifies the effects of bad news in the short run. By contrast, small news shocks reduce uncertainty and increase output in the short run. The Volcker recession and the Great Recession were exacerbated by the uncertainty effects of news. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12139&r=mac |
| By: | Cortez, Willy W.; Islas-Camargo, Alejandro |
| Abstract: | This essay evaluates the relationship between crime and GDP growth rates controlling by the proportion of people that cannot purchase the basic food basket with their labor income. Following recent studies we demonstrate that the relationship between crime and economic performance is not time invariant. We estimate the response coefficient using a Markov Switching model. Our results indicate that when GDP is in the expansion's regime, crime growth rates become positive; while when GDP is in the stagnation's regime, crime growth rates turn negative. Another of the findings is that an increase in the proportion of people that earn less than the cost of the basic food basket, growth rate of robberies increase. The latter effect is stronger when the economy shows a relative economic growth. |
| Keywords: | Business Cycles, Crime, Asymmetric Effects, Poverty, Markov Switching |
| JEL: | D01 E24 K42 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80258&r=mac |
| By: | International Monetary Fund |
| Abstract: | Vietnam’s dynamic economy continues on a solid growth path, driven by robust domestic demand and export-oriented manufacturing. The new government is pushing ahead with reforms along a broad front, keenly aware of the limited fiscal space, the need to upgrade the growth model at home, and rising risks of economic fragmentation abroad. |
| Date: | 2017–07–05 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/190&r=mac |
| By: | António Afonso; Mina Kazemi |
| Abstract: | We assess the determinants of long-term sovereign yield spreads using a panel of 10 Euro area countries over the period 1999.01–2016.07 notably regarding the ECB (standard and non-standard) quantitative easing measures. Our findings indicate that the international risk, the bid-ask spread and real effective exchange rate increased the 10-year sovereign bond yield spreads. Moreover, quantitative easing, notably Longer-term Refinancing Operations (LTROs), Targeted LTROs and the Securities Market Program decreased the yield spreads. Key Words: sovereign bonds, non-conventional monetary policy, panel data |
| JEL: | C23 E52 G10 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp122017&r=mac |
| By: | International Monetary Fund |
| Abstract: | Sierra Leone has shown remarkable resilience in overcoming the twin shocks of the iron ore export collapse and the Ebola Virus Disease (EVD) epidemic. However, significant medium-term challenges remain amidst persistent economic fragilities. There is a severe infrastructure gap with deficiencies in transportation, housing for the poor, sanitation and health facilities, as well as food security and energy supply. Despite these problems, the economy holds tremendous potential. Sierra Leone boasts one of the largest natural ports in the region, it receives abundant rainfall with a fertile soil and a sea front with promise in agriculture, fishing and tourism. Meanwhile, the mineral sector can be a basis for higher value added processing. But weaknesses, especially on fiscal policy and in the financial sector, remain impediments for unlocking this potential. The key structural macroeconomic problem is low fiscal revenues—despite significant efforts to enhance revenues in recent years. Since late 2016, high inflation and falling foreign exchange reserves have emerged as new macroeconomic challenges. Both are a direct result of a spending surge in late 2016. |
| Keywords: | Sierra Leone;Sub-Saharan Africa; |
| Date: | 2017–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/154&r=mac |
| By: | International Monetary Fund |
| Abstract: | The economy is approaching its reduced post-crisis potential and capacity constraints are gradually starting to bind. The outlook is for continued moderate growth though domestic and external risks are substantial. House prices continue to rise, increasing the vulnerability of highly-indebted households, including to interest rate shocks. The current account surplus is declining but remains large. After five years of negative interest rates, banks remain sound and profitable. |
| Keywords: | Denmark;Europe; |
| Date: | 2017–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/158&r=mac |
| By: | Bak, Céline; Bhattacharya, Amar; Edenhofer, Ottmar; Knopf, Brigitte |
| Abstract: | The authors propose a policy package of low-carbon growth stimulation through a steep increase in sustainable infrastructure, mobilizing sustainable finance, and adoption of carbon pricing to simultaneously achieve the objectives of the Paris Agreement and the Sustainable Development Goals. |
| Keywords: | Paris Agreement,climate change,infrastructure,carbon pricing,green finance |
| JEL: | D62 E62 H21 H22 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201741&r=mac |
| By: | Nikki Panjer; Leo de Haan; Jan Jacobs |
| Abstract: | According to the so-called 'fiscal theory of the price level' (FTPL), under a non-Ricardian regime the price level has to adjust to fulfil the government's budget constraint. In contrast, under a Ricardian regime, government balances adjust in order to preserve government solvency. We empirically determine whether a Ricardian or a non-Ricardian regime is more plausible for the euro area, following the research strategy of Canzoneri, Cumby, and Diba (2001). A Vector AutoRegressive (VAR) model for the primary government balance and the government debt is estimated for the period 1980q2-2013q4. Our model uses dummy interaction terms to account for the breaks due to the introduction of the Euro Convergence Criteria (ECC) and the start of the global financial crisis, respectively. No evidence is found in favour of either regime for the pre-ECC period. In the post-ECC period, a Ricardian regime is more plausible. Some evidence points in the direction of a non-Ricardian regime for the period after the start of the financial crisis. |
| Keywords: | Fiscal Policy; Euro area; Ricardian regime |
| JEL: | E63 H62 H63 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:562&r=mac |
| By: | International Monetary Fund |
| Abstract: | Growth is robust, inflation low, and the current account deficit has narrowed amid favorable external conditions. The budget deficit is being reduced through improvements in tax administration, expenditure under-execution, and recently passed legislation, but it remains high. With the external environment turning less favorable, the urgency of addressing elevated macro vulnerabilities has increased. |
| Keywords: | Costa Rica;Western Hemisphere; |
| Date: | 2017–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/156&r=mac |
| By: | International Monetary Fund |
| Abstract: | In late 2016, peaceful legislative elections in December and adoption of a new constitution in the national referendum in October added more certainty to the political environment. However, social tensions arose in early 2017 with soldiers’ mutinies and a general strike of civil servants. |
| Keywords: | Sub-Saharan Africa; |
| Date: | 2017–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/165&r=mac |
| By: | Strulik, Holger |
| Abstract: | In this paper I unify the economic theories of addiction and health deficit accumulation and develop a life cycle theory in which individuals take into account the fact that the consumption of addictive goods reduces their health and longevity. I distinguish two types of addiction: perfect and common. Individuals with perfect addiction perfectly control their addiction. Individuals with common addiction, though otherwise rational and forward looking, fail to fully understand how their addiction develops. I argue that the life cycle consumption pattern predicted for common addiction is more suitable for motivating empirically observable patterns of addictive goods consumption. I take the case of smoking as unhealthy behavior, calibrate the model with U.S. data, and apply it in order to investigate the life cycle patterns of smoking and quitting smoking and the socioeconomic gradients of unhealthy consumption and longevity. |
| Keywords: | addiction,unhealthy behavior,health investments,aging,longevity |
| JEL: | D11 D91 E21 I10 I12 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cegedp:316&r=mac |
| By: | Emanuele Russo |
| Abstract: | This paper presents a small-scale agent-based extension of the so-called neo-Kaleckian model. The aim is to investigate the emergence of Harrodian instability in decentralized market economies. We introduce a parsimonious microfoundation of investment decisions. Agents have heteroge- neous expectations about demand growth and set idiosyncratically their investment expendi- tures. Interactions occur through demand externalities. We simulate the model under different scenarios. First, when heterogeneity is ruled out, Harrodian instability is showed to emerge as for the aggregate model. Instead, when heterogeneity is accounted for, a stable dynamics with endogenous fluctuations arises. At the same time, in this second scenario, all the Keynesian implications are preserved, including the presence of macroeconomic paradoxes. Sensitivity analysis confirms the general robustness of our results and the logical consistency of the model. |
| Keywords: | Harrodian Instability, Agent-Based Models, Coordination Failures, Heterogeneous Expectations, Neo-Kaleckian model |
| Date: | 2017–07–13 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2017/17&r=mac |
| By: | International Monetary Fund |
| Abstract: | Ireland continues to be among the euro area’s top growth performers. Real GDP expanded by 5.2 percent in 2016, aided by favorable labor market dynamics and improved balance sheets. Foreign-owned multinational enterprises (MNEs) play an important role in the economy, although their large scale and complex operations complicate assessment of underlying activity. While a steady reduction in crisis legacies is underway, continuity in recovery efforts will be key to ensuring that gains are sustainable and broadly shared. |
| Keywords: | Europe;Ireland; |
| Date: | 2017–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/171&r=mac |
| By: | Germán Gutiérrez; Thomas Philippon |
| Abstract: | The U.S. business sector has under-invested relative to Tobin's Q since the early 2000's. We argue that declining competition is partly responsible for this phenomenon. We use a combination of natural experiments and instrumental variables to establish a causal relationship between competition and investment. Within manufacturing, we show that industry leaders invest and innovate more in response to exogenous changes in Chinese competition. Beyond manufacturing we show that excess entry in the late 1990's, which is orthogonal to demand shocks in the 2000's, predicts higher industry investment given Q. Finally, we provide some evidence that the increase in concentration can be explained by increasing regulations. |
| JEL: | D4 E22 G31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23583&r=mac |
| By: | International Monetary Fund |
| Abstract: | Lithuania has experienced strong convergence since the mid-1990s, but the catch-up of productivity with Western Europe has stalled in the last three years. While a cyclical upswing is likely to lift growth to 3.2 percent this year and next, structural reforms are essential to support strong medium-term performance. The government that took office in December is committed to a “social market economy,” but its reform agenda may be difficult to implement without greater focus on key measures. |
| Keywords: | Lithuania;Europe; |
| Date: | 2017–06–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/177&r=mac |
| By: | International Monetary Fund |
| Abstract: | Iceland is stepping into a new era of financial openness, with capital controls mostly gone. Reshaped by tourism, the economy is on a firmer footing than the last time it grew this fast. Current growth rates—more than 7 percent last year—are driven by tourism, private consumption, and investment, not leverage. Nonetheless, overheating risks are a clear and present concern. |
| Keywords: | Europe;Iceland; |
| Date: | 2017–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/163&r=mac |
| By: | International Monetary Fund |
| Abstract: | Living conditions have ameliorated substantially for the bulk of South Africa’s population since the advent of democracy, but the pace of improvement has gradually slowed. Economic growth is currently insufficient to make a dent in widespread unemployment and longstanding inequalities. Public debate is increasingly questioning whether the prevailing economic policy paradigm can deliver results for all citizens. |
| Date: | 2017–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/189&r=mac |
| By: | Christine Whitehead; Peter Williams |
| Abstract: | This paper looks at the issue of access to home ownership for younger people in OECD countries, from the point of view of changes in mortgage market regulation and control. It sets out the factors determining the demand for and supply of mortgages, particularly for first time buyers and it provides a review of the relevant literature and comparative data. The paper provides an overview of regulatory change since 2008 for over 20 countries. The paper also includes case studies of a subset of countries with mature mortgage markets that are known to face relevant issues and for which data are more readily available: Canada, Denmark, the United Kingdom and the United States. |
| Keywords: | financial regulation, insecure employment, Mortgage markets, owner-occupation, younger households |
| JEL: | E5 G21 J3 R31 R38 |
| Date: | 2017–07–18 |
| URL: | http://d.repec.org/n?u=RePEc:oec:elsaab:196-en&r=mac |
| By: | Anil Savio Kavuri; Warwick J. McKibbin |
| Abstract: | While the impact of technology on production is widely researched, this study explores the economic implications of technology through the channel of enhancing leisure experience on the consumer side. We develop a theoretical model which allows for habit formation for a technology good purchased to enhance leisure activities. In contrast, for the normal consumption good, habits are irrelevant. A persistent fall in the relative price of the technology good and increased addiction to technology are shown to have significant macroeconomic consequences. For example, we show that these perturbations can drive the real interest rate below the rate of time preference and depress consumption growth of non technology goods. Modelling the framework with US data illustrates that model predictions of falling interest rates and consumption growth are consistent with the recent observations of declining technology’s relative prices and increases in technology good purchases. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2017-43&r=mac |
| By: | Viacheslav Sheremirov (Federal Reserve Bank of Boston); Thuy Lan Nguyen (Santa Clara University); Wataru Miyamoto (Bank of Canada) |
| Abstract: | Using panel data on military spending for 125 countries, we document new facts about the effects of changes in government purchases on the real exchange rate, consumption, and current accounts in both advanced and developing countries. While an increase in government purchases causes real exchange rates to appreciate and increases consumption significantly in developing countries, it causes real exchange rates to depreciate and decreases consumption in advanced countries. The current account deteriorates in both groups of countries. These findings are not consistent with standard international business-cycle models. We propose potential sources of the differences between advanced and developing countries in the responses to spending shocks. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:117&r=mac |
| By: | Stella Xiuhua Huangfu (University of Sydney); Hongfei Sun (Queen's University); Chenggang Zhou (University of Waterloo); Mei Dong (University of Melbourne) |
| Abstract: | We study the behavior and economic impact of oligopolistic banks in a tractable macro environment with solid micro-foundations for money and banking. Our model has three key features: (i) banks as oligopolists; (ii) liquidity constraint for banks that arises from mismatched timing of payments; and (iii) search frictions in credit, labor and goods markets. Our main ndings are: First, both bank prot and welfare react non-monotonically to the number of banks in equilibrium. Strategic interaction among banks may improve welfare as in standard Cournot competition. Nevertheless, competition among oligopolistic banks does not always improve welfare. As the number of banks rises, each bank has stronger marginal incentives to issue loans, yet each receives a smaller share of the aggregate demand deposit used to make loans. When the number is su¢ ciently high, banks become liquidity constrained in that the amount they lend is limited by the amount of deposits they can gather. In this case, welfare is dampened as banks are forced to reduce lending, which leads to fewer rms getting funded, higher unemployment, and thus ultimately lower output. Second, with entry to the banking sector, there may exist at most three equilibria of the following types: one is stable and Pareto dominates, another is unstable and ranks second in welfare, and the third is stable yet Pareto inferior. The number of banks is the lowest in the equilibrium that Pareto dominates. Finally, ination can change the nature of the equilibrium. Low ination promotes a unique good equilibrium, high ination cultivates a unique bad equilibrium, but medium ination can induce all three equilibria of the aforementioned types. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:191&r=mac |
| By: | International Monetary Fund |
| Abstract: | The Polish government has committed to a budget reform strategy that is intended to modernize, strengthen, and lift the horizon of policy-making into the medium term. The reform was introduced by the Minister of Finance, and approved by the Council of Ministers (CoM) in July 2016. The first step in the new process will take place in March 2017 with a meeting of the CoM. At this meeting, the macroeconomic and fiscal projections to be included in Poland’s Multi-Year State Financial Plan (MYSFP) will be compared to spending envelopes, and policy priorities for the coming budget will be determined. This meeting will also launch the process of preparing Poland’s first medium-term budget framework (MTBF) for the period 2018–20. |
| Keywords: | Europe;Poland; |
| Date: | 2017–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:17/170&r=mac |
| By: | Giovanni D'Alessio (Bank of Italy) |
| Abstract: | The paper compares a subjective well-being indicator provided by households in the Centre and North and in the South in the Survey on Household Income and Wealth (SHIW), and tries to identify the factors that can explain the gap. In particular, the role of the price level in the two areas of the country is examined: all other things being equal, the same nominal income should provide a higher level of well-being to southern families, due to the lower price level which characterizes that area. However, in models that do not take context variables into account , the well-being levels of southerners are lower than those of residents in the Centre and North with the same income. This result, apparently incompatible with a lower price level in the South, is due to other factors (not included in the model) that act in the opposite direction. The results obtained with more extensive models indicate that the gap in perceived levels of well-being between the two areas is influenced by health status and by factors describing the socio-economic context, namely levels of unemployment, crime, quality of health and childcare services and the conditions of access to urban and logistic services. In some experiments, alongside the elements mentioned above, there are also signals that are compatible with a lower price level for southern areas. |
| Keywords: | income distribution, welfare, prices |
| JEL: | D31 E31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:opques:qef_385_17&r=mac |
| By: | DOMBOU T., Dany R. |
| Abstract: | This study investigates the influence of institutional pressures on the level of entrepreneurship in Sub-Saharan Africa (SSA). It assumes that in sub-Saharan Africa, countries with the highest levels of entrepreneurship rates tend to have the highest levels of economic freedom. Data are on 37 SSA countries and come from The Heritage Foundation and the World Data Indicator. Equations are estimated using the ordinary least squares method. The main results show that a less restrictive institutional environment tends to encourage entrepreneurship. Low levels of fiscal pressure significantly encourage entrepreneurship up to 114% of the levels of tax freedom. The results also show that women entrepreneurs are much more sensitive to tax pressure than their male counterparts. Finally, the results show that entrepreneurs tend to evolve in the informal sector, or to submit false accounting balances to the tax authorities in order to avoid tax burden (Women entrepreneurs in this case being either more entrepreneurial than their male counterparts or more Honest), which has a negative impact on their ability to benefit from external funding. The main recommendation goes to governments, they must reduce the tax pressures linked to small activities. And to do this, they must order microeconomic studies to determine which taxes to reduce and at which level. |
| Keywords: | Entrepreneurship; Economic freedom; Tax burden; Financial inclusion; gender; |
| JEL: | E02 L26 O43 O55 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80242&r=mac |
| By: | Kinghan, Christina (Central Bank of Ireland); Lyons, Paul (Central Bank of Ireland); McCarthy, Yvonne (Central Bank of Ireland); O'Toole, Conor |
| Abstract: | This Economic Letter provides an overview of residential mortgage lending in Ireland in 2016 for the five credit institutions reporting loan-level data to the Central Bank of Ireland as part of their compliance with loan-to-value (LTV) and loan-to-income (LTI) macroprudential Regulations. A total of €5.7 billion of mortgage lending was originated by these banks in 2016. The majority of new lending was for the purchase of primary dwelling homes (PDHs); within this group, first-time buyers (FTBs) accounted for 51 per cent of new lending and second and subsequent borrowers (SSBs) for the remaining 49 per cent. The average LTV and LTI ratios of FTBs and SSBs in-scope of the Regulations in 2016 were similar to those observed in 2015. Across the five institutions, 12 per cent of the value of PDH lending exceeded the LTV limit and 13 per cent exceeded the LTI limit for that group. We observe differences in the characteristics of borrowers with and without an allowance to exceed the limits of the Regulations. Specifically, a larger share of SSBs, couples, higher income and Dublin-based borrowers presented among the PDH group with an LTV allowance, relative to those without; SSBs accounted for 61 per cent of that group. In contrast, a larger share of FTBs, single persons, lower income and Dublin-based borrowers presented among the PDH group with an LTI allowance; 70 per cent of that group were FTBs. We find that approximately 66 per cent of FTBs and SSBs in 2016 originated a mortgage with an LTV that was below their regulatory limit. Among FTBs with an allowance to exceed the LTV limit set by the Regulations, the majority had an LTV at or below 90 per cent. This pattern is also evident among SSBs with an allowance to exceed the regulatory LTV limit. |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:ecolet:06/el/17&r=mac |
| By: | Zachary Bethune (University of Virginia); Tai-Wei Hu (Northwestern University); Guillaume Rocheteau (University of California, Irvine) |
| Abstract: | Online appendix for the Review of Economic Dynamics article |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:append:17-63&r=mac |