|
on Macroeconomics |
|
Issue of 2017‒08‒27
75 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Hyunduk Suh (Inha University) |
| Abstract: | This paper examines an optimal simple rule for monetary policy and macroprudential policy in a New Keynesian DSGE model with a Bernanke et al. (1999) financial accelerator mechanism. Macroprudential policy is given by countercyclical bank capital regulation or loan-to-value (LTV) ratio regulation. Macroprudential policy can mitigate the inefficiencies arising from financial friction, by reducing the uncertainty related with the solvency risk. It is optimal to separate monetary policy from macroprudential concern and use only macroprudential policy for credit stabilization. Using monetary policy for credit stabilization is sub-optimal because of its tradeoff with inflation stability. |
| Keywords: | Macroprudential policy, monetary policy, countercyclical bank capital regulation, loan-to-value (LTV) ratio regulation, optimal simple rule |
| JEL: | E44 E52 E59 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:inh:wpaper:2017-9&r=mac |
| By: | Giannoulakis, Stylianos |
| Abstract: | The purpose of this article is to carefully lay out the internal monetary and fiscal transmission mechanisms in the context of a New Keynesian model, with a particular focus on the role of capital - the most vital ingredient in the transition from the basic framework to the medium - scale DSGE models. The key concept of this paper is the form of the monetary policy: we assume a two-channel monetary policy, i.e. it is conducted through a rule for money supply and a Taylor-type rule for interest rates, in order to keep up with the ECB and Fed’s policies. We also adopt a simple fiscal policy rule for public consumption to examine the interactions between fiscal and monetary policy. Finally, in order to capture the crisis effects we introduce exogenous shocks to both monetary and fiscal policy rules. |
| Keywords: | Transmission Mechanisms; New Keynesian Model; Tobin’s Q; Two-Channel Monetary Policy |
| JEL: | E37 E52 E62 E63 |
| Date: | 2017–05–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80892&r=mac |
| By: | Christoph S. Weber |
| Abstract: | Most central banks around the world have increased their transparency in the recent past. The greater openness of central bankers manifests itself in the publication of the central banks’ own macroeconomic forecasts or the disclosure of minutes and voting records of central bank committees. The intention of this policy is to build credibility and achieve better economic outcomes. The question is whether higher transparency comes at some cost, i.e. higher unemployment or higher unemployment variability. Firstly, the article shows in a theoretical model that opaqueness regarding the central bank’s preferences does not necessarily lead to lower unemployment. Secondly, the paper analyses the main theoretical results of other authors, namely that transparency leads to higher wages, higher unemployment, and higher unemployment volatility. The results of the estimations show that there is no evidence that central bank transparency leads to higher wages. We can also reject the hypothesis that transparency induces higher unemployment. In fact, the analyses show that central bank transparency can reduce the detrimental effect that central bank independence has on employment. Furthermore, the estimations confirm that central bank transparency does not lead to higher unemployment volatility but can reduce it in most cases. |
| Keywords: | Central Bank Transparency, Unemployment, Determinants of Unemployment Rates |
| JEL: | E24 E42 E58 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:bav:wpaper:172_weber&r=mac |
| By: | Theodoros S. Papaspyrou (Bank of Greece) |
| Abstract: | This paper proposes a new approach to EMU governance and integration consisting of the following elements: (i) an optimal use of the existing EU institutional framework for economic, fiscal and financial policies is necessary and possible at each level of EMU integration that is politically feasible, in order to strengthen synergies between stability and growth policies, complete the single market, support public and private investment, and improve macroeconomic and fiscal coordination and surveillance, (ii) priority should be given to financial union which would facilitate the smooth transmission of monetary policy, enhance financial stability and economic growth and contribute to macroeconomic stabilization through private risk sharing, (iii) the drive to fiscal union should be focused on the creation of fiscal backstops to banking union, enhancing its solidity and credibility (iv) initiatives towards deeper EMU integration should be undertaken where there is strong evidence, within the EU and beyond, of their usefulness and for which widespread political support exists, maximizing benefits and avoiding controversial proposals, and (v) institutional strengthening and democratic accountability are indispensable elements for a successful EMU and should be pursued by following the “Community approach”, based on the Treaties, in contrast to the “intergovernmental approach” increasingly used in recent years. |
| Keywords: | Economic governance and integration in EMUq macroeconomic and fiscal adjustment in a monetary unionq economic policy coordinationq banking and capital markets unionq European Stability Mechanism |
| JEL: | E42 E44 E52 E61 F32 F33 F41 G18 G28 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:229&r=mac |
| By: | Greg Kaplan; Kurt Mitman; Giovanni L. Violante |
| Abstract: | We build a model of the U.S. economy with multiple aggregate shocks (income, housing finance conditions, and beliefs about future housing demand) that generate fluctuations in equilibrium house prices. Through a series of counterfactual experiments, we study the housing boom and bust around the Great Recession and obtain three main results. First, we find that the main driver of movements in house prices and rents was a shift in beliefs. Shifts in credit conditions do not move house prices but are important for the dynamics of home ownership, leverage, and foreclosures. The role of housing rental markets and long-term mortgages in alleviating credit constraints is central to these findings. Second, our model suggests that the boom-bust in house prices explains half of the corresponding swings in non-durable expenditures and that the transmission mechanism is a wealth effect through household balance sheets. Third, we find that a large-scale debt forgiveness program would have done little to temper the collapse of house prices and expenditures, but would have dramatically reduced foreclosures and induced a small, but persistent, increase in consumption during the recovery. |
| JEL: | D10 D31 E21 E30 E40 E51 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23694&r=mac |
| By: | Mark Gertler |
| Abstract: | In the spring of 2013 the Bank of Japan introduced a state-of-the-art monetary policy which included among other things inflation targeting and aggressive use of forward guidance. In contrast to the predictions of conventional macroeconomic theory, these policies have had only very limited success in reflating the economy. I argue that the disconnect between the Japanese experience and existing theory can be traced to the forward guidance puzzle (FGP). As recent literature suggests, the essence of the FGP is that existing models predict implausibly strong effects of expected future interest rate changes on the economy,.with the strength of the effect increasing with the expected horizon of the interest rate change. Accordingly, in this lecture I sketch a model meant to capture the challenge of reflation in Japan. As in recent literature I attempt to mute the power of forward guidance by stepping outside of rational expectations. In particular I introduce a hybrid adaptive/rational expectations belief mechanism. Most relevant to the Japanese experience is that individuals have adaptive expectations about trend inflation, which is consistent with the evidence. As Kuroda (2016) emphasizes, for an economy without a history of inflation being anchored by a target, individuals need direct evidence that the central bank is capable of moving inflation to target. |
| JEL: | E52 E58 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23707&r=mac |
| By: | Russell Cooper; Moritz Meyer; Immo Schott |
| Abstract: | We study the employment and output effects of the short-time work (STW) policy in Germany between 2009 and 2010. This intervention facilitated reductions in hours worked per employee with the goal of preventing layoffs. Using confidential German micro-level data we estimate a search model with heterogeneous multi-worker firms as a basis for policy analysis. Our findings suggest that STW can prevent increases in unemployment during a recession. However, the policy leads to a decrease in the allocative efficiency of the labor market, resulting in significant output losses. These effects arise from a reduction in the vacancy filling rate resulting from the policy intervention. |
| JEL: | E24 E32 E65 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23688&r=mac |
| By: | Marcin Bielecki (Faculty of Economic Sciences, University of Warsaw) |
| Abstract: | Endogenous growth literature treats deliberate R&D effort as the main engine of long-run growth. It has been already recognized that R&D expenditures are procyclical. This paper builds a microfounded model that generates procyclical aggregate R&D investment as a result of optimizing behavior by heterogeneous monopolistically competitive firms. I find that business cycle fluctuations affect the aggregate endogenous growth rate of the economy so that transitory shocks leave lasting level effects on the economy’s Balanced Growth Path. This result stems from both procyclical R&D expenditures of the incumbents and procyclical firm entry rates. This mechanism generates economically significant hysteresis effects, increasing the welfare cost of business cycles by two orders of magnitude relative to the exogenous growth model. Coupled with potential to affect endogenous growth rates, ample space for welfare improving policy interventions arises. The paper evaluates the effects of selected subsidy schemes and finds some of them welfare improving. |
| Keywords: | business cycles, firm dynamics, innovation, growth, welfare analysis |
| JEL: | E32 E37 L11 O31 O32 O38 O40 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:war:wpaper:2017-19&r=mac |
| By: | Michael D. Bordo; Andrew T. Levin |
| Abstract: | We consider how a central bank digital currency (CBDC) could transform all aspects of the monetary system and facilitate the systematic and transparent conduct of monetary policy. In particular, we find that CBDC can serve as a practically costless medium of exchange, secure store of value, and stable unit of account. To achieve these criteria, CBDC would be account-based and interest-bearing, and the monetary policy framework would foster true price stability. |
| JEL: | B12 B13 B22 E42 E52 E58 E63 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23711&r=mac |
| By: | Mario Alloza (Banco de España and CFM) |
| Abstract: | This paper estimates the impact of government spending shocks on economic activity during periods of high and low uncertainty and during periods of boom and recession. We find that government spending shocks have larger impacts on output in booms than in recessions and larger impacts during tranquil times than during uncertain times. The results suggest that confidence plays an important role in explaining this differential impact. |
| Keywords: | fiscal policy, vector autoregressions, uncertainty |
| JEL: | E62 E32 C32 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1730&r=mac |
| By: | Prüser, Jan; Schlösser, Alexander |
| Abstract: | Recent events such as the financial and sovereign debt crisis have triggered an increase in European Economic Policy Uncertainty (EPU). We use a TVP-FAVAR model with hierarchical priors on the hyperparameters to investigate the effect of EPU on a wide range of macroeconomic variables for eleven European Monetary Union (EMU) countries. First, we find that EPU shocks are transmitted through various channels, such as the real options-, the precautionary savings- and the financial channel. Second, we are able to distinguish between a group of fragile countries (GIIPScountries) and a group of stable countries (northern countries), where the former are more strongly affected by EPU shocks. Third, while the IRFs for most variables differ only in magnitude and not in sign between groups of countries, responses of long term interest rates to EPU shocks have a different sign across countries. Fourth, we discover that investors and traders react more sensitively than consumers to uncertainty. Fifth, we find that EPU shocks affect monetary policy decisions. Sixth, we provide evidence that the transmission of EPU shocks is quite stable over time. Finally, the increase in EPU can partly be explained by the state of the European economy and should therefore be treated as an endogenous variable. |
| Keywords: | TVP-FAVAR,economic policy uncertainty,fat data,hyperparameter,European Monetary Union,hierarchical prior |
| JEL: | C11 C32 E20 E60 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:708&r=mac |
| By: | Cristina Conflitti; Matteo Luciani |
| Abstract: | We estimate the oil price pass-through into consumer prices both in the US and in the euro area. In particular, we disentangle the specific effect that an oil price change might have on each disaggregate price, from the effect on all prices that an oil price change might have since it affects the whole economy. To do so, we first estimate a Dynamic Factor Model on a panel of disaggregate price indicators, and then we use VAR techniques to estimate the pass-through. Our results show that the oil price passes through core inflation only via its effect on the whole economy. This pass-through is estimated to be small, but statistically different from zero and long lasting. |
| Keywords: | Core inflation ; Disaggregate consumer prices ; Dynamic factor model ; Oil price ; Pass-through |
| JEL: | C32 E31 E32 Q43 |
| Date: | 2017–08–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-85&r=mac |
| By: | Gregor Bäurle; Matthias Gubler; Diego R. Känzig |
| Abstract: | We analyze how the transmission of international inflation spillovers depends on the nature of the underlying shocks that drive inflation abroad. We find evidence for substantial heterogeneity in the magnitude of spillovers to domestic inflation related to the fundamental source of international price fluctuations and the corresponding monetary policy reactions. Indeed, it turns out that the relative conduct of monetary policy varies depending on the source of these price fluctuations, and so does the role of the exchange rate as a shock absorber. We show this by looking at international inflation spillovers to Switzerland through the lenses of a Bayesian structural dynamic factor model relating a large set of disaggregated prices to key macroeconomic factors. Being a small open economy with an independent monetary policy, Switzerland is a particularly suitable subject for studying the role of monetary policy in the transmission of foreign shocks. However, our results more broadly indicate that inflation spillovers need to be analyzed in a framework allowing for different transmission channels. |
| Keywords: | international spillovers, inflation, monetary policy, Bayesian factor model, sign restrictions |
| JEL: | C11 C32 E31 E52 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2017-07&r=mac |
| By: | David Andolfatto; Aleksander Berentsen; Fernando M. Martin |
| Abstract: | The fact that money, banking, and financial markets interact in important ways seems self-evident. The theoretical nature of this interaction, however, has not been fully explored. To this end, we integrate the Diamond (1997) model of banking and financial markets with the Lagos and Wright (2005) dynamic model of monetary exchange – a union that bears a framework in which fractional reserve banks emerge in equilibrium, where bank assets are funded with liabilities made demandable for government money, where the terms of bank deposit contracts are constrained by the liquidity insurance available in financial markets, where banks are subject to runs, and where a central bank has a meaningful role to play, both in terms of inflation policy and as a lender of last resort. The model provides a rationale for nominal deposit contracts combined with a central bank lender-of-last-resort facility to promote efficient liquidity insurance and a panic-free banking system. |
| Keywords: | Money, banking, financial markets, monetary policy |
| JEL: | E50 E60 D53 D02 G21 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:259&r=mac |
| By: | Alexander Meyer-Gohde; |
| Abstract: | This paper examines magnitudes and business cycle dynamics of social security contributions (SSC). In most OECD countries studied, we document a negative covariation of payroll tax burdens with GDP and GDP growth at business cycle and lower frequencies. We assess the overall magnitude of the distortion following Barro and Redlick (2011). For most countries, average marginal SSC tax rates exceed average rates, but the latter tracks the former tightly. Changes in average payroll tax burdens are mostly accounted for by changes in tax schedules rather than shifts in the earnings distribution over time. For many countries, SSC rates behave like estimated values of the “labor wedge” (Chari et al. 2007, Brinca et al., 2016). |
| Keywords: | business cycle, payroll tax, social security contributions, labor wedge |
| JEL: | E24 E32 J32 H55 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2017-018&r=mac |
| By: | Imamoglu, Hatice |
| Abstract: | This paper investigates both the static and dynamic relationships between the development within the financial sector development and international trade openness with regard to the size of the underground economy in 20 EU (European Union) Countries. Panel data analysis will be conducted for the period 2006 to 2014, in order to examine the effect of the financial sector development and trade openness on the size of the underground economy. In addition to the static relationship framework, the Arellano-Bond Generalized Method of Moments econometric method will be applied to examine the dynamic framework between the variables. The main findings of this paper suggest that financial development has a significant impact on the size of the underground economy, and the existence of the negative correlation between the official GDP and the size of the underground economy is proven. In conclusion, the development within the financial sector is a significant contributor to the underground economy. |
| Keywords: | Financial Sector Development,International Trade Openness,Corruption Perception Index,Underground Economy,European Union Countries |
| JEL: | C23 E26 E44 E10 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201750&r=mac |
| By: | John Haltiwanger; Henry Hyatt; Erika McEntarfer |
| Abstract: | In this paper, we use linked employer-employee data to study the reallocation of heterogeneous workers between heterogeneous firms. We build on recent evidence of a cyclical job ladder that reallocates workers from low productivity to high productivity firms through job-to-job moves. In this paper we turn to the question of who moves up this job ladder, and the implications for worker sorting across firms. Not surprisingly, we find that job-to-job moves reallocate younger workers disproportionately from less productive to more productive firms. More surprisingly, especially in the context of the recent literature on assortative matching with on-the-job search, we find that job-to-job moves disproportionately reallocate less-educated workers up the job ladder. This finding holds even though we find that more educated workers are more likely to work with more productive firms. We find that while more educated workers are less likely to match to low productivity firms, they are even less likely to separate from them, with less educated workers both more likely to separate to a better employer in expansions and to be shaken off the ladder (separate to nonemployment) in contractions. Our findings underscore the cyclical role job-to-job moves play in matching workers to higher productivity and better paying employers. |
| JEL: | E24 E32 J63 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23693&r=mac |
| By: | Andreas Fuster; Stephanie H. Lo; Paul S. Willen |
| Abstract: | The U.S. mortgage market links homeowners with savers all over the world. In this paper, we ask how much of the flow of money from savers to borrowers goes to the intermediaries that facilitate these transactions. Based on a new methodology and a new administrative dataset, we find that the price of intermediation, measured as a fraction of the loan amount at origination, is large—142 basis points on average over the 2008–2014 period. At daily frequencies, intermediaries pass on price changes in the secondary market to borrowers in the primary market almost completely. At monthly frequencies, the price of intermediation fluctuates significantly and is highly sensitive to volume, likely reflecting capacity constraints: a one standard deviation increase in applications for new mortgages leads to a 30–35 basis point increase in the price of intermediation. Additionally, over 2008–2014, the price of intermediation increased about 30 basis points per year, potentially reflecting higher mortgage servicing costs and an increased legal and regulatory burden. Taken together, the sensitivity to volume and the positive trend led to an implicit total cost to borrowers of about $135 billion over this period. Finally, increases in application volume associated with “quantitative easing” (QE) led to substantial increases in the price of intermediation, which attenuated the benefits of QE to borrowers. |
| JEL: | E44 E52 G21 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23706&r=mac |
| By: | Ferrari, Stijn; Pirovano, Mara; Rovira Kaltwasser, Pablo |
| Abstract: | In December 2013 the National Bank of Belgium introduced a sectoral capital requirement aimed at strengthening the resilience of Belgian banks against adverse developments in the real estate market. This paper assesses the impact of this macroprudential measure on mortgage lending. Our results indicate that the sectoral capital requirement on average did not affect IRB banks’ mortgage rates and mortgage loan growth. However, the findings do indicate that IRB banks may have reacted heterogeneously to the introduction of the measure: capital-constrained banks with more exposures to the segment targeted by the additional requirement tended to respond stronger in terms of mortgage lending. |
| Keywords: | Systemic risk, macroprudential policy, bank capital requirements, real estate. |
| JEL: | E44 E58 G21 G28 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80821&r=mac |
| By: | Leonidas S. Rompolis (Athens University of Economics and Business) |
| Abstract: | This paper examines the impact of unconventional monetary policy of ECB measured by its balance sheet expansion on euro area equity market uncertainty and investors risk aversion within a structural VAR framework. An expansionary balance sheet shock decreases both risk aversion and uncertainty at least in the medium-run. A negative shock on policy rates has also a negative impact on risk aversion and uncertainty. These results are generally robust to different specifications of the VAR model, estimation procedures and identification schemes. Conversely, periods of high uncertainty are followed by a looser conventional monetary policy. The effect of uncertainty on ECB’s total assets and of risk aversion on conventional or unconventional monetary policy is not always statistically significant. |
| Keywords: | Unconventional monetary policy; euro area; risk aversion; uncertainty |
| JEL: | C32 E44 E52 G12 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:231&r=mac |
| By: | Graham Gudgin (Centre for Business Research, University of Cambridge); Ken Coutts (Centre for Business Research, University of Cambridge); Neil Gibson (Ulster University Economic Policy Centre); Jordan Buchanan (Ulster University Economic Policy Centre) |
| Abstract: | The predictions of the Treasury, OECD and IMF for the long-term impact of Brexit remain influential. They provide an important context for the Brexit negotiations and underpin the belief of Scottish and Irish nationalists that Brexit strengthens their case for independence or Irish unity. Because these predictions have received limited scrutiny they are examined in detail in this paper. The bases of the predictions are similar for each of the three organisations. In each case estimates are made of the impact of Brexit on trade and on foreign direct investment. This is followed by an estimate of the knock-on effect on productivity. The OECD and IMF also include an assessment of the impact of lower migration. The aggregate impact of these factors is then fed into a macro-economic model to obtain a forecast for GDP. Much of the final impact depends on the estimate for trade which, in each case, is assessed using a ‘gravity model’. Because gravity models are inaccessible to the general public, they are explained here in comprehensible terms. In addition the Treasury’s gravity model results are replicated and examined in detail. Our conclusion is that different versions of the model give a range of results and that most versions give a smaller trade impact than that reported by the Treasury, OECD or IMF. In particular, equations which estimate the average impact of EU membership on exports of goods tend to over-predict UK exports to the EU. This implies that the average impact of EU membership applies less to the UK than to the other EU member states. The further implication is that these official predictions of the impact of Brexit are overly pessimistic. |
| Keywords: | Brexit; Gravity Model; H M Treasury; IMF; Trade: macroeconomic forecasts; OECD |
| JEL: | C54 E24 E44 H24 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0077&r=mac |
| By: | Thomas Drechsel (London School of Economics (LSE); Centre for Macroeconomics (CFM)); Silvana Tenreyro (London School of Economics (LSE); Centre for Macroeconomics (CFM); Centre for Economic Performance (CEP)) |
| Abstract: | Emerging economies, particularly those dependent on commodity exports, are prone to highly disruptive economic cycles. This paper proposes a small open economy model for a net commodity exporter to quantitatively study the triggers of these cycles. The economy consists of two sectors, one of which produces commodities with prices subject to exogenous international fluctuations. These fluctuations affect both the competitiveness of the economy and its borrowing terms, as higher commodity prices are associated with lower spreads between the country's borrowing rate and world interest rates. Both effects jointly result in strongly positive effects of commodity price increases on GDP, consumption and investment, and a negative effect on the total trade balance. Furthermore, they generate excess volatility of consumption over output and a large volatility of investment. The model structure nests various candidate sources of shocks proposed in previous work on emerging economy business cycles. Estimating the model on Argentine data, we find that the contribution of commodity price shocks to fluctuations in post-1950 output growth is in the order of 38%. In addition, commodity prices account for around 42% and 61% of the variation in consumption and investment growth, respectively. We find transitory productivity shocks to be an important driver of output fluctuations, exceeding the contribution of shocks to the trend, which is smaller, although not negligible. |
| Keywords: | Business cycles, Small open economy, Emerging markets, Commodity prices, Argentina's economy |
| JEL: | E13 E32 F43 O11 O16 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1723&r=mac |
| By: | Eran Yashiv (Tel Aviv University); Renato Faccini (Queen Mary) |
| Abstract: | We study the interactions between hiring frictions and price frictions in business cycle models. We find that this interaction matters in a significant way for business cycle fluctuations and for labor market outcomes. Using a simple DSGE business-cycle model with Diamond-Mortensen-Pisssarides (DMP) elements, we derive two main results. First, introducing hiring frictions into a New Keynesian model offsets the effects of price frictions. As a result, some business cycle outcomes are actually close to the frictionless New Classical-type outcomes; namely, with moderate hiring frictions the response of employment to technology shocks is positive, and the effects of monetary policy shocks are small, if not neutral. Moreover, it generates endogenous wage rigidity. Second, introducing price frictions into a DMP setting generates amplification of employment and unemployment responses to technology shocks, as well as hump-shaped dynamics. Both results arise through the confluence of frictions. We offer an explanation of the mechanisms underlying them. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:464&r=mac |
| By: | Thomas Drechsel; Silvana Tenreyro |
| Abstract: | Emerging economies, particularly those dependent on commodity exports, are prone to highly disruptive economic cycles. This paper proposes a small open economy model for a net commodity exporter to quantitatively study the triggers of these cycles. The economy consists of two sectors, one of which produces commodities with prices subject to exogenous international fluctuations. These fluctuations affect both the competitiveness of the economy and its borrowing terms, as higher commodity prices are associated with lower spreads between the country's borrowing rate and world interest rates. Both effects jointly result in strongly positive effects of commodity price increases on GDP, consumption and investment, and a negative effect on the total trade balance. Furthermore, they generate excess volatility of consumption over output and a large volatility of investment. The model structure nests various candidate sources of shocks proposed in previous work on emerging economy business cycles. Estimating the model on Argentine data, we find that the contribution of commodity price shocks to fluctuations in post-1950 output growth is in the order of 38%. In addition, commodity prices account for around 42% and 61% of the variation in consumption and investment growth, respectively. We find transitory productivity shocks to be an important driver of output fluctuations, exceeding the contribution of shocks to the trend, which is smaller, although not negligible. |
| JEL: | E13 E32 F41 F43 O11 O16 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23716&r=mac |
| By: | Albanesi, Stefania; De Giorgi, Giacomo; Nosal, Jaromir |
| Abstract: | A broadly accepted view contends that the 2007-09 financial crisis in the U.S. was caused by an expansion in the supply of credit to subprime borrowers during the 2001- 2006 credit boom, leading to the spike in defaults and foreclosures that sparked the crisis. We use a large administrative panel of credit file data to examine the evolution of household debt and defaults between 1999 and 2013. Our findings suggest an alternative narrative that challenges the large role of subprime credit in the crisis. We show that credit growth between 2001 and 2007 was concentrated in the prime segment, and debt to high risk borrowers was virtually constant for all debt categories during this period. The rise in mortgage defaults during the crisis was concentrated in the middle of the credit score distribution, and mostly attributable to real estate investors. We argue that previous analyses confounded life cycle debt demand of borrowers who were young at the start of the boom with an expansion in credit supply over that period. Moreover, a positive correlation between the concentration of subprime borrowers and the severity of the 2007-09 recession found in previous research may be driven by the high prevalence of young, low education, minority individuals in zip codes with large subprime population. |
| Keywords: | subprime debt; credit boom; housing crisis; financial crisis |
| JEL: | D14 E01 E21 G01 G1 G18 G20 G21 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12230&r=mac |
| By: | João F. Gomes; Marco Grotteria; Jessica A. Wachter |
| Abstract: | A growing literature shows that credit indicators forecast aggregate real outcomes. While researchers have proposed various explanations, the economic mechanism behind these results remains an open question. In this paper, we show that a simple, frictionless, model explains empirical findings commonly attributed to credit cycles. Our key assumption is that firms have heterogeneous exposures to underlying economy-wide shocks. This leads to endogenous dispersion in credit quality that varies over time and predicts future excess returns and real outcomes. |
| JEL: | E32 G12 G32 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23704&r=mac |
| By: | L. De Charsonville; F. Ferrière; C. Jardet |
| Abstract: | In this paper, we present the new model developed at Banque de France to forecast the Harmonized Index of Consumer Prices (HICP) and its components in France up to twelve quarters during the Eurosystem projection exercises. The model is a partial equilibrium model and is used for forecast purposes jointly with the macroeconomic model Mascotte. The model generates more accurate forecasts, conditional to Eurosystem common technical assumptions, than pure autoregressive models. We derive impacts of oil-price shock, exchange rate and wage shocks on headline and core HICP and find significant pass-through. |
| Keywords: | forecasting, inflation, time-series. |
| JEL: | E37 C32 E31 C53 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:637&r=mac |
| By: | Guangling Liu (University of Stellenbosch); Fernando Garcia-Barragan |
| Abstract: | This paper studies the effectiveness of capital controls with foreign currency denomination on business cycle fluctuations and the implications for welfare. To do this, we develop a general equilibrium model with financial frictions and banking, in which assets and liabilities are denominated in both domestic and foreign currencies. We propose a non-pecuniary, capital-control policy that limits the gap between foreign-currency denominated loans and deposits to the amount of foreign funds that bankers can borrow from the international credit market. We show that capital controls have a significant impact on the dynamics of assets and liabilities that are denominated in foreign currency. The non-pecuniary capital controls help to stabilize the financial sector, thereby reducing the negative spillovers to the real economy. A more restrictive capital-control policy significantly weakens the welfare effect of the foreign monetary policy and exchange rate shocks. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:415&r=mac |
| By: | Ellul, Reuben |
| Abstract: | This paper investigates correlation in Malta government stock (MGS) yields and assesses correlation between these yields and those of Malta’s major euro area partners. Correlation coefficients are found to be high, indicating the existence of a long-run relationship in the setting of MGS yields with short-term deviations. The analysis also includes an MGARCH-DCC(1,1) system based on spreads over the German ten-year bond, which are modelled for eleven euro area countries. Dynamic conditional correlations (DCCs) confirm that Maltese ten-year bond yields tend to be broadly insulated from event specific volatility in other countries’ yields. Simple ‘benchmark’ regressions are estimated over the period 2007 – 2016, allowing the comparison of actual ten-year bond yields with composite equation outputs. The benchmarked yields based on euro area bonds track consistently actual MGS yields, while from mid-2015 onwards, MGS yields follow closely a benchmark derived on the basis of underlying economic fundamentals. |
| Keywords: | correlation, sovereign bond yields, MGARCH-DCC, Malta |
| JEL: | E43 E44 E63 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80795&r=mac |
| By: | Uluc Aysun (University of Central Florida, Orlando, FL); Takeshi Yagihashi (Old Dominion University) |
| Abstract: | This paper uses both a nonstructural and a structural analysis to investigate the drivers of the business cycles in the US and 15 Trans-Pacific (TP) countries. Our nonstructural approach, based on a principal component methodology, helps us measure the share of the variation in macroeconomic variables that is explained by factors that are common to both the US and the TP region. We carry out a similar exercise after estimating a large scale, two country dynamic stochastic general equilibrium model that allows for common and correlated shocks across the two regions. The clear and common finding from our analyses is that common shocks explain a substantial amount of macroeconomic variation. Comparison with the NAFTA region, along this dimension, reveals that the US economy is more similar to the TP region than it is with Mexico and Canada. |
| Keywords: | Principal component analysis, DSGE, Bayesian estimation, Trans-Pacific, NAFTA |
| JEL: | E32 F15 F42 F44 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfl:wpaper:2017-03&r=mac |
| By: | J-s.Mésonnier; C. O’Donnell; O.Toutain |
| Abstract: | Major central banks often accept pooled individual corporate loans as collateral in their refinancing operations with credit institutions. Such ``eligible'' loans to firms therefore provide a liquidity advantage to the banks that originate them. Banks may in turn pass on this advantage to the borrowers in the form of a reduced liquidity risk premium: the eligibility discount. We exploit a temporary surprise extension of the Eurosystem's universe of eligible collateral to mediumquality corporate loans, the Additional Credit Claims (ACC) program of February 2012, to assess the eligibility discount to corporate loans spreads in France. We find that becoming eligible to the Eurosystem's collateral framework translates into a reduction in rates by 7bp for new loans issued to ACC-firms, controlling for loan-, firm- and bank-level characteristics. In line with the opportunity-cost view of collateral choice, we also find evidence that this collateral channel of monetary policy is only active for banks which ex ante pledged more credit claims as part of their collateral with the Eurosystem. |
| Keywords: | monetary policy, collateral framework, eligibility discount, Eurosystem. |
| JEL: | C21 G21 E43 E52 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:636&r=mac |
| By: | Xiong, Wanting; Wang, Yougui |
| Abstract: | Recent evidences provoke broad rethinking of the role of banks in money creation. The authors argue that apart from the reserve requirement, prudential regulations also play important roles in constraining the money supply. Specifically, they study three Basel III regulations and theoretically analyze their standalone and collective impacts. The authors find that 1) the money multiplier under Basel III is not constant but a decreasing function of the monetary base; 2) the determinants of the bank's money creation capacity are regulation-specific; 3) the effective binding regulation and the corresponding money multiplier vary across different economic states and bank balance sheet conditions. |
| Keywords: | money creation,Basel III,liquidity coverage ratio,capital adequacy ratio,leverage ratio,money multiplier |
| JEL: | E51 G28 G18 E60 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201753&r=mac |
| By: | Charles Goodhart; Manoj Pradhan |
| Abstract: | Between the 1980s and the 2000s, the largest ever positive labour supply shock occurred, resulting from demographic trends and from the inclusion of China and eastern Europe into the World Trade Organization. This led to a shift in manufacturing to Asia, especially China; a stagnation in real wages; a collapse in the power of private sector trade unions; increasing inequality within countries, but less inequality between countries; deflationary pressures; and falling interest rates. This shock is now reversing. As the world ages, real interest rates will rise, inflation and wage growth will pick up and inequality will fall. What is the biggest challenge to our thesis? The hardest prior trend to reverse will be that of low interest rates, which have resulted in a huge and persistent debt overhang, apart from some deleveraging in advanced economy banks. Future problems may now intensify as the demographic structure worsens, growth slows, and there is little stomach for major inflation. Are we in a trap where the debt overhang enforces continuing low interest rates, and those low interest rates encourage yet more debt finance? There is no silver bullet, but we recommend policy measures to switch from debt to equity finance. |
| Keywords: | demography, global labor supply, ageing, real interest rates, inequality |
| JEL: | J11 J18 E43 D63 E31 H63 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:656&r=mac |
| By: | Uluc Aysun (University of Central Florida, Orlando, FL); Stefan Avdjiev (Bank for International Settlements, Basel, Switzerland); Ralf Hepp (Fordham University, New York, NY) |
| Abstract: | We find that the lending behavior of large global banks’ subsidiaries throughout the world is more closely related to local macroeconomic conditions and their financial structure than to their owner-specific counterparts. This inference is drawn from a panel dataset populated with bank-level observations from the Bankscope database. Using this database, we identify ownership structures and incorporate them into a unique methodology that identifies and compares the owner and subsidiary-specific determinants of lending. A distinctive feature of our analysis is that we use multi- dimensional country-level data from the BIS international banking statistics to account for exchange rate fluctuations and cross-border lending |
| Keywords: | Bankscope; G-SIB; bank-level data; global banks; BIS international banking statistics |
| JEL: | E44 F32 G15 G21 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfl:wpaper:2017-02&r=mac |
| By: | Robin Braun (Department of Economics, University of Konstanz, Germany); Ralf Brüggemann (Department of Economics, University of Konstanz, Germany) |
| Abstract: | We identify structural vector autoregressive (SVAR) models by combining sign restrictions with information in external instruments and proxy variables. We incorporate the proxy variables by augmenting the SVAR with equations that relate them to the structural shocks. Our modeling framework allows to simultaneously identify different shocks using either sign restrictions or an external instrument approach, always ensuring that all shocks are orthogonal. The combination of restrictions can also be used to identify a single shock. This entails discarding models that imply structural shocks that have no close relation to the external proxy time series, which narrows down the set of admissible models. Our approach nests the pure sign restriction case and the pure external instrument variable case. We discuss full Bayesian inference, which accounts for both, model and estimation uncertainty. We illustrate the usefulness of our method in SVARs analyzing oil market and monetary policy shocks. Our results suggest that combining sign restrictions with proxy variable information is a promising way to sharpen results from SVAR models. |
| Keywords: | Structural vector autoregressive model, sign restrictions, external instruments |
| JEL: | C32 C11 E32 E52 |
| Date: | 2017–08–11 |
| URL: | http://d.repec.org/n?u=RePEc:knz:dpteco:1707&r=mac |
| By: | GBATO, ANDRE |
| Abstract: | This study aimed to analyze the intentionally fiscal position of the governments of developing countries. Our results suggest that a significant proportion of developing countries adopts counter-cyclical positions. However, forecasting errors weak their positions. Results lead to conclude that if developing countries want to increase the effectiveness of their fiscal policies, they must build the skills of their forecast offices, and enhance the political and institutional framework governing the budget process. |
| Keywords: | Fiscal policy; Real Time Data; Developing countries; Generalized moment method, Revision errors |
| JEL: | C23 E30 E62 H30 H60 |
| Date: | 2017–08–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80881&r=mac |
| By: | Fève, Patrick; Pierrard, Olivier |
| Abstract: | In this paper, we revisit the role of regulation in a small-scale dynamic stochastic general equilibrium (DSGE) model with interacting traditional and shadow banks. We estimate the model on US data and we show that shadow banking interferes with macro-prudential policies. More precisely, asymmetric regulation causes a leak towards shadow banking which weakens the expected stabilizing effect. A counterfactual experiment shows that a regulation of the whole banking sector would have reduced investment fluctuations by 10% between 2005 and 2015. Our results therefore suggest to base regulation on the economic functions of financial institutions rather than on their legal forms. |
| Keywords: | Shadow Banking; DSGE models; Macro-prudential Policy |
| JEL: | C32 E32 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:31822&r=mac |
| By: | Pierre Guérin (OECD); Danilo Leiva-Leon (Banco de España) |
| Abstract: | This paper evaluates the role that sectoral comovement plays in the propagation of monetary policy shocks on the stock market. In doing so, we introduce a factor-augmented vector autoregressive model with heterogeneous regime-switching factor loadings, denoted as MS2-FAVAR, that allows us to jointly assess (i) potential changes in the degree of comovement between each sector-specific stock return and the aggregate stock market as well as (ii) the propagation of monetary policy shocks taking into account such changes in comovement. We find that the efects of monetary policy shocks on stock returns are substantially amplied when industries experience a stronger degree of comovement, suggesting that a more interconnected stock market is more prone to the propagation of monetary policy shocks. The MS2-FAVAR model is also well-suited to perform a network analysis to characterize linkages in large datasets. |
| Keywords: | stock market, monetary policy, markov-switching, factor model, network analysis |
| JEL: | E44 C32 G12 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1731&r=mac |
| By: | Nelimarkka, Jaakko |
| Abstract: | News shocks about future productivity can be correctly inferred from a conventional VAR model only if information contained in observables is rich enough. This paper examines news shocks by means of a noncausal VAR model that recovers economic shocks from both past and future variation. As noncausality is implied by nonfundamentalness, the model solves the problem of insufficient information per se. By the impulse responses derived from the model, variables react to the anticipated structural shocks, which are identified by exploiting future dependence of investment with respect to productivity. In the U.S. economy, news about improving total factor productivity moves investment and stock prices on impact, but these responses are likely affected by a parallel increase in productivity. The news shock gradually diffuses to productivity and generates smooth reactions of forward-looking variables. |
| Keywords: | News shocks, Structural VAR analysis, Nonfundamentalness, Noncausal VAR |
| JEL: | C18 C32 C53 E32 |
| Date: | 2017–08–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80850&r=mac |
| By: | Abbassi, Puriya (Deutsche Bundesbank); Brauning, Falk (Federal Reserve Bank of Boston); Fecht, Falko (Frankfurt School of Finance & Management); Peydro, Jose Luis (Universitat Pompeu Fabra) |
| Abstract: | We analyze how financial crises affect international financial integration, exploiting euro area proprietary interbank data, crisis and monetary policy shocks, and variation in loan terms to the same borrower on the same day by domestic versus foreign lenders. Crisis shocks reduce the supply of crossborder liquidity, with stronger volume effects than pricing effects, thereby impairing international financial integration. On the extensive margin, there is flight to home — but this is independent of quality. On the intensive margin, however, GIPS-headquartered debtor banks suffer in the Lehman crisis, but effects are stronger in the sovereign-debt crisis, especially for riskier banks. Nonstandard monetary policy improves interbank liquidity, but without fostering strong cross-border financial reintegration. |
| Keywords: | financial integration; financial crises; cross-border lending; monetary policy; euro area sovereign crisis; liquidity |
| JEL: | E58 F30 G01 G21 G28 |
| Date: | 2017–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:17-6&r=mac |
| By: | Alain Galli |
| Abstract: | For policy institutions such as central banks, it is important to have a timely and ac-curate measure of past and current economic activity and the business cycle situation. The most prominent example for such a measure is gross domestic product (GDP). However, GDP is only released at a quarterly frequency and with a substantial delay. Furthermore, it captures elements that are not directly linked to the business cycle and the underlying momentum of the economy. In this paper, I construct a new business cycle index for the Swiss economy, which uses state-of-the-art methods, is available at a monthly frequency and can be calculated in real-time, even when some indicators are not yet available for the most recent periods. The index is based on a large and broad set of monthly and quarterly indicators. As I show, for the case of Switzerland, it is important to base a business-cycle index on a broad set of indicators instead of only a small subset. This result contrasts with the results for other countries. |
| Keywords: | Business cycle index, dynamic factor model, mixed frequency, Switzerland |
| JEL: | C32 C38 C53 E32 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2017-08&r=mac |
| By: | Giancarlo Corsetti (University of Cambridge; Centre for Macroeconomics (CFM); Centre for Economic Policy Research); Eleonora Mavroeidi (Bank of England); Gregory Thwaites (Bank of England; Centre for Macroeconomics (CFM)); Martin Wolf (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 in ation 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: | Monetary policy, Zero lower bound, deflation, depreciation, Beggar-thy-neighbour, Capital controls |
| JEL: | F41 E62 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1722&r=mac |
| By: | Filip Novokmet; Thomas Piketty; Gabriel Zucman |
| Abstract: | This paper combines national accounts, survey, wealth and fiscal data (including recently released tax data on high-income taxpayers) in order to provide consistent series on the accumulation and distribution of income and wealth in Russia from the Soviet period until the present day. We find that official survey-based measures vastly under-estimate the rise of inequality since 1990. According to our benchmark estimates, top income shares are now similar to (or higher than) the levels observed in the United States. We also find that inequality has increased substantially more in Russia than in China and other ex-communist countries in Eastern Europe. We relate this finding to the specific transition strategy followed in Russia. According to our benchmark estimates, the wealth held offshore by rich Russians is about three times larger than official net foreign reserves, and is comparable in magnitude to total household financial assets held in Russia. |
| JEL: | D31 E01 E21 O52 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23712&r=mac |
| By: | Svensson, Lars E O |
| Abstract: | The simple and transparent framework for cost-benefit analysis of leaning against the wind (LAW) in Svensson (2017a) and its main result are summarized. The analysis of the policy-rate effects on debt in Bauer and Granziera (2017) does not seem to contradict that the effects may be small and of either sign. The analysis of LAW in DSGE models is complicated and the results of Gerdrup et al. (2017) may not be robust. The Svensson (2017a) framework may allow comparison and evaluation of old and new approaches and their results. As an example, it is shown that these three papers result in very different marginal costs of LAW and that a realistic policy-rate effect on unemployment is crucial. |
| Keywords: | Financial crises; Financial Stability; macroprudential policy; monetary policy |
| JEL: | E52 E58 G01 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12226&r=mac |
| By: | George Hondroyiannis (Bank of Greece and Harokopio University); Dimitrios Papaoikonomou (Bank of Greece) |
| Abstract: | The effect of card payments on VAT revenue performance in Greece is investigated using quarterly observations on card transactions during 2002q1-2016q2. Time-varying-coefficient methods are employed, in order to study the role of increasing card payments after the imposition of cash restrictions in July 2015. We find that (i) a 1pp increase in the share of card payments in private consumption results in approximately 1% higher revenue through increased compliance; (ii) lowering the VAT rate can generate revenue gains; (iii) card transactions may facilitate tax buoyancy. It is argued that stronger incentives for using card payments in tax evading industries can help lock-in the recent strong revenue performance when cash restrictions are lifted. |
| Keywords: | VAT; card payments; time-varying-coefficients; Greece |
| JEL: | E62 H21 H25 H26 K34 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:225&r=mac |
| By: | Brissimis, Sophocles N.; Bechlioulis, Alexandros P. |
| Abstract: | The assumption of multiplicative non-separable (Cobb-Douglas) consumer preferences is a key assumption for analyzing the interdependence of consumption and leisure choices. In this paper we solve the consumer utility maximization problem under these preferences and derive a simultaneous system of two equations corresponding to a static and an inter-temporal equation of consumption and leisure choice. The system is estimated with GMM to obtain consistent estimates of the consumer's preference parameters, of which the relative weight of consumption in the utility function is found to be much higher than that commonly assumed in DSGE model calibration exercises. |
| Keywords: | Cobb-Douglas consumer preferences; consumption and leisure choices; GMM estimation; weight of consumption in utility |
| JEL: | C36 C61 D12 E44 |
| Date: | 2017–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80877&r=mac |
| By: | Slimani, Slah; Bakari, Sayef; Othmani, Abdelhafidh |
| Abstract: | Through this paper, we assess the sustainability of Tunisian external debt and its effect on the growth of the country. Based on two main approaches, namely the actuarial approach and the accounting approach, we check whether Tunisia was able to support its external debt during the period 1970-2012, while ensuring the balance of its economic fundamentals And its financial indicators. At a second level, we evaluate, empirically, the effects of foreign debt on the economic growth of the country in order to validate the thesis of over indebtedness for the case of Tunisia. Finally, we calculate, under a quadratic approach, the optimal sustainable external debt threshold that ensures regular economic growth and the sustainability of the country's fiscal policy. According to the actuarial method based on tests of stationarity and cointegration, it was not possible to verify, absolutely, the sustainability of the external debt during the period studied. Some tests verify sustainability, others have given contradictory results. The accounting method shows that this debt was no longer sustainable except for a few years, namely, 1972, 1974, 1996. This result reflects Tunisia's current situation of over-indebtedness, and the problem of external debt for Growth and economic performance. After calculating the external debt threshold, it seems that 51% is the sustainable threshold that allows maximum economic growth. This threshold of external debt stock can only be beneficial to the Tunisian economy if it is allocated to profitable investments that generate wealth and capital. |
| Keywords: | Growth, Sustainability, External Debt, Dynamic Analysis, Tunisia. |
| JEL: | A1 C32 E21 F0 F43 O4 O40 O55 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80954&r=mac |
| By: | Anisha Ghosh; George M. Constantinides |
| Abstract: | The market price-dividend ratio is highly correlated with several macroeconomic variables, particularly inflation and labor market variables, but not with aggregate consumption and GDP. We incorporate this observation in an exchange economy with learning about the economic regime from consumption history and a latent signal. The estimated model rationalizes the moments of consumption and dividend growth, market return, price-dividend ratio, and real and nominal term structures and the low predictive power of the price-dividend ratio for consumption and dividend growth while a nested model with learning from consumption history alone does not. The intuition is that the beliefs process has high persistence and low variance because beliefs depend on the signal. The model fit remains largely intact when we replace the latent signal with a combination of macroeconomic variables that heavily loads on inflation and labor market variables. The results highlight the informational role of macroeconomic variables and suggest that just one combination of macroeconomic variables, along with consumption, proxies well for investors’ relevant information set. |
| JEL: | D00 E00 G12 G14 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23689&r=mac |
| By: | Adegboye, Abiodun Adewale; Alimi, R. Santos |
| Abstract: | Much of the social and economic infrastructural deficits in Africa have been attributed to inadequate investment levels in many countries of Africa. Although Nigeria is not lacking in foreign private investments, the present level of total investment is adjudged sub-optimal, and the public sector is perceived to be large, inefficient and also dominant. The question arising is whether the composition of investment matters for the overall investment behaviour in Nigeria. The main objectives of the paper are to investigate the complementarity or substitutability of public and private investment, as well as examine whether financial sector development drive private investment in Nigeria. The paper employed annual data covering the period of 1981 to 2015 and ARDL estimation. The bounds test results revealed that there exists a long-run relationship among the variables. The study found that public investment crowds out private investment in Nigeria. In other words, the complementarity effect between private investment and public investment is not justified in the study; rather, there exists a substitution effect between private and public investments in Nigeria. More so, the result suggested that the effect of financial development on private – public investment nexus is positive and significant (P |
| Keywords: | Nigeria, private investment, public investment, financial development, ARDL |
| JEL: | E22 E62 H00 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80908&r=mac |
| By: | Zulkhibri, Muhamed (The Islamic Research and Teaching Institute (IRTI)); Sakti, Muhammad Rizky Prima (Islamic Economic Forum for Indonesian Development (ISEFID), Indonesia.) |
| Abstract: | The loan-to-funding ratio based reserve-requirement (called as RR-LFR) is a macroprudential instrument used by Bank Indonesia to maintain the stability of Indonesian financial system by considering the bank liquidity condition. This paper examines the impact of RR-LFR on financing behaviour in Indonesian dual banking system. The paper uses generalized method of moment estimation (GMM) technique to address the endogeneity of explanatory variables and reduce the possible biases from residual correlation. Using a bank-level data for both Islamic and conventional banks covering the period 2001-2015, we analyze the reaction of bank financing behavior toward RR-LFR policy. The findings indicate that RRLFR is observed to be effective in curtailing financing behaviour of banking institutions. Further, we show that RR-LFR exerts more impacts in managing credit expansion of conventional banks as compared to Islamic banks. |
| Keywords: | Macroprudential; Dual Banking System; Financing Behaviour; Indonesia; GMM |
| JEL: | E59 E69 G29 |
| Date: | 2017–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:irtiwp:2017_005&r=mac |
| By: | Cozzi, Guido (University of St. Gallen); Pataracchia, Beatrice (European Commission – JRC); Pfeiffer, Philipp (Technische Universitat Berlin); Marco, Ratto (European Commission – JRC) |
| Abstract: | The macroeconomic experience of the last decade stressed the importance of jointly studying the growth and business cycle fluctuations behavior of the economy. To analyze this issue, we embed a model of Schumpeterian growth into an estimated medium-scale DSGE model. Results from a Bayesian estimation suggest that investment risk premia are a key driver of the slump following the Great Recession. Endogenous innovation dynamics amplifies financial crises and helps explain the slow recovery. Moreover, financial conditions also account for a substantial share of R&D investment dynamics. |
| Keywords: | endogenous growth; R&D; Schumpeterian growth; Bayesian estimation |
| JEL: | E3 O3 O4 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:201701&r=mac |
| By: | Emmanuel Farhi (Harvard University); David Baqaee (London School of Economics and Political) |
| Abstract: | We provide a nonlinear characterization of the macroeconomic impact of microeconomic TFP shocks in terms of reduced-form non-parametric elasticities for efficient economies. We also provide the mapping from structural parameters to these reduced-form elasticities, under general equilibrium. In this sense, the paper extends the foundational theorem of Hulten (1978) beyond first-order terms to capture nonlinearities. Key features ignored by first-order approximations that play a crucial role are: structural elasticities of substitution, network linkages, structural returns to scale, and the degree to which factors can be reallocated. Higher-order terms are large and economically interesting: they magnify negative shocks and attenuate positive shocks, resulting in an output distribution that is asymmetric (negative skewness), fat-tailed (excess kurtosis), and has a lower mean. They explain how small microeconomic shocks to critical sectors can have a large macroeconomic impact. To give a sense of magnitudes: in our benchmark calibration, output losses due to business cycle fluctuations are 0.6% of GDP, an order of magnitude larger than the cost of business cycles calculated by Lucas (1987), and are entirely due to a reduction in the mean of GDP because of nonlinearities in production; and accounting for second-order terms increases the estimated impact of the price shock to the critical sector of oil in the 1970s from 0.7% to 2.4% of world GDP. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:479&r=mac |
| By: | Maik Wolters (FSU Jena) |
| Abstract: | This paper illustrates the importance of consistency between the empirical measurement and the concept of variables in macroeconomic models. Since standard New Keynesian models do not account for demographic trends and sectoral shifts, I propose adjusting hours per capita used to estimate such models to enhance the consistency between the data and the model. Without this adjustment, low frequency shifts in hours lead to unreasonable trends in the output gap, caused by the close link between hours and the output gap in such models. The retirement wave of baby boomers, for example, lowers U.S. aggregate hours per capita, which leads to erroneous permanently negative output gap estimates following the Great Recession. After correcting hours for changes in the age composition, the estimated output gap closes gradually instead following the years after the Great Recession. |
| Keywords: | low frequency trends, demographic trends, hours per capita measurement, output gap estimates, DSGE models, Bayesian estimation |
| JEL: | C54 E32 J11 |
| Date: | 2017–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2017-008&r=mac |
| By: | Bacchiocchi, Emanuele Author-X-Name-Firs Emanuele (University of Milan, Department of Economics, Management and Quantitative Method); Bastianin, Andrea Author-X-Name-Firs Andrea (University of Milan, Department of Economics, Management and Quantitative Method); Missale, Alessandro Author-X-Name-Firs Alessandro (University of Milan, Department of Economics, Management and Quantitative Method); Rossi, Eduardo (European Commission – JRC) |
| Abstract: | In this paper we study how monetary policy, economic uncertainty and economic policy uncertainty impact on the dynamics of gross capital inflows in the US. Particular attention is paid to the mixed frequency-nature of the economic time series involved in the analysis. A MIDAS-SVAR model is presented and estimated over the period 1988-2013. While no relation is found when using standard quarterly data, exploiting the variability present in the series within the quarter shows that the effect of a monetary policy shock is greater the longer the time lag between the month of the shock and the end of the quarter. In general, the effects of economic and policy uncertainty on US capital inflows are negative and significant. Finally, the effect of the three shocks is different when distinguishing between financial and bank capital in ows from one side, and FDI from the other. |
| Keywords: | Gross capital inflows; monetary policy; economic and policy uncertainty; mixed frequency variables |
| JEL: | C32 E52 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:201604&r=mac |
| By: | Ekpo, Akpan H.; Effiong, Ekpeno L. |
| Abstract: | This paper investigates the relationship between a country's openness to trade and the effects of monetary policy on output growth and inflation in Africa. Theory suggest that monetary policy effectiveness is influenced by the degree of openness to international trade. We apply standard panel data techniques to annual data from the period 1990-2015 for a panel of 37 African countries, and find a strong significant relationship between openness and monetary policy effectiveness in Africa. The empirical results indicate that the effects of monetary policy on output growth and inflation increases and decreases respectively with higher levels of trade openness. Therefore, monetary authorities should place emphasis on the level of openness when designing their choice of optimal monetary policy. |
| Keywords: | Openness; Monetary Policy; Africa. |
| JEL: | C33 E52 F41 O55 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80847&r=mac |
| By: | GBATO, ANDRE |
| Abstract: | In this study, we empirically test the impact of taxation on the long-term growth of a sample of 32 countries in sub-Saharan Africa. The results indicate a zero effect of taxation on long-term growth. Moreover, the results suggest a significant negative effect of indirect taxes and taxes on individuals in short term. Consequently, the use of taxation as an instrument of intervention is not appropriate in the region. The countries of the region could therefore increase their growth, if the design of fiscal policy rests solely on logic of fiscal neutrality. |
| Keywords: | Growth, Taxation, Heterogeneous panels, Cross-sectional dependence |
| JEL: | C13 E62 H30 O40 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80903&r=mac |
| By: | Giancarlo Corsetti (University of Cambridge; Centre for Macroeconomics (CFM); Centre for Economic Policy Research); Keith Kuester (University of Bonn; Centre for Economic Policy Research); Gernot J. Müller (University of Tübingen; Centre for Economic Policy Research) |
| Abstract: | The zero lower bound problem during the Great Recession has exposed the limits of monetary autonomy, prompting a re-evaluation of the relative benefits of currency pegs and monetary unions (see e.g. Cook and Devereux, 2016). We revisit this issue from the perspective of a small open economy. While a peg can be beneficial when the recession originates domestically, we show that a oat dominates in the face of deflationary demand shocks abroad. When the rest of the world is in a liquidity trap, the domestic currency depreciates in nominal and real terms even in the absence of domestic monetary stimulus (if domestic rates are also at the zero lower bound)|enhancing the country's competitiveness and insulating to some extent the domestic economy from foreign deflationary pressure. |
| Keywords: | External shock, Great Recession, Exchange rate, Zero lower bound, Exchange rate peg, Currency union, Fiscal Multiplier, Benign coincidence |
| JEL: | F41 F42 E31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1721&r=mac |
| By: | Hulten, Charles R. (University of Maryland and NBER); Nakamura, Leonard I. (Federal Reserve Bank of Philadelphia) |
| Abstract: | We extend the conventional Solow growth accounting model to allow innovation to affect consumer welfare directly. Our model is based on Lancaster’s New Approach to Consumer Theory, in which there is a separate “consumption technology” that transforms the produced goods, measured at production cost, into utility. This technology can shift over time, allowing consumers to make more efficient use of each dollar of income. This is “output-saving” technical change, in contrast to the Solow TFP “resource-saving” technical change. One implication of our model is that living standards can rise at a greater rate than real GDP growth. |
| Keywords: | consumers; accounting; consumer welfare; GDP |
| JEL: | E01 O3 O4 |
| Date: | 2017–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:17-24&r=mac |
| By: | Thomas Philippon |
| Abstract: | This paper assesses the potential impact of FinTech on the finance industry. I document first that financial services remain surprisingly expensive, which explains the emergence of new entrants. I then argue that the current regulatory approach is subject to significant political economy and coordination costs, and therefore unlikely to deliver much structural change. FinTech can improve both financial stability and access to services, but this requires significant changes in the focus of regulations. |
| Keywords: | FinTech, financial innovation, regulation, rents |
| JEL: | E2 G2 N2 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:655&r=mac |
| By: | Mauro Rodrigues; Danilo P. Souza |
| Abstract: | We extend Mankiw, Romer and Weil's (1992) classic paper by introducing differences in education quality (proxied by students' performance on the PISA test). This substantially reduces the role of human capital investment rates in explaining cross-country income differences. More importantly, the coefficient on this variable is now consistent with microeconomic evidence on returns to education. |
| Keywords: | Education quality; human capital; cross-country income differences |
| JEL: | O47 E24 I25 |
| Date: | 2017–08–16 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2017wpecon14&r=mac |
| By: | Thomas Winberry (University of Chicago); Benjamin Moll (Princeton); Greg Kaplan (University of Chicago) |
| Abstract: | We study the aggregate consumption, interest rate and output dynamics of a heterogeneous agent economy that is parameterized to match key features of the cross-sectional distribution of labor income, wealth, and marginal propensities to consume measured from household-level micro data. Households face a process for idiosyncratic income risk with leptokurtic growth rates and can self-insure in two assets with different degrees of liquidity . The equilibrium features a three-dimensional distribution that moves stochastically over time, rendering computation difficult with existing methods. We develop computational tools to efficiently solve a broad class of heterogeneous agent model with aggregate shocks that include our model as a special case. The method uses linearization to solve for the dynamics of a reduced version of the model, which is obtained from a model-free dimensionality reduction method for the endogenous distributions. We will publish an open source set of Matlab codes to implement our method in an easy-to-use and model-free way. We find that our model, which is parameterized to household level facts, is consistent with the sensitivity of aggregate consumption to predictable changes in aggregate income, and with the relative smoothness of aggregate consumption - features that are difficult to generate in representative agent model. We illustrate the usefulness of our model and methods for studying the distributional implications of shocks more generally. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:483&r=mac |
| By: | Xin Zhang (Sveriges Riksbank); Christoph Bertsch (Sveriges Riksbank); Isaiah Hull (Sveriges Riksbank) |
| Abstract: | On December 16th of 2015, the Fed initiated "liftoff," raising the federal funds rate range by 25 basis points and initiating a significant step in the monetary normalization process. We use a unique panel dataset of 640,000 loan-hour observations to measure the impact of liftoff on interest rates, demand, and supply in the online primary market for uncollateralized consumer credit. We find that the average interest rate dropped by 16.9-22.9 basis points. This holds for a number of window sizes, including 3 days, 7 days, and 14 days around liftoff, and is robust to the inclusion of a broad set of loan-level controls and fixed effects. We also find that the interest rate declined more for borrowers with subprime characteristics, leading to a 16% reduction in the spread. We reject a number of candidate explanations for these results, including a change in borrower composition, a collapse in demand, and a shift in risk appetite. Our findings are consistent with an investor-perceived reduction in default probabilities; and suggest that liftoff may have provided a strong, positive signal ab out the future solvency of borrowers. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:442&r=mac |
| By: | De Loecker, Jan; Eeckhout, Jan |
| Abstract: | We document the evolution of markups based on firm-level data for the US economy since 1950. Initially, markups are stable, even slightly decreasing. In 1980, average markups start to rise from 18% above marginal cost to 67% now. There is no strong pattern across industries, though markups tend to be higher, across all sectors of the economy, in smaller firms and most of the increase is due to an increase within industry. We do see a notable change in the distribution of markups with the increase exclusively due to a sharp increase in high markup firms. We then evaluate the macroeconomic implications of an increase in average market power, which can account for a number of secular trends in the last 3 decades: 1. decrease in labor share; 2. increase in capital share; 3. decrease in low skill wages; 4. decrease in labor force participation; 5. decrease in labor flows; 6. decrease in migration rates; 7. slowdown in aggregate output. |
| Keywords: | Markups; Market Power; Secular Trends; Labor Market. |
| JEL: | D2 D4 E2 J3 K2 L1 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12221&r=mac |
| By: | Jan De Loecker; Jan Eeckhout |
| Abstract: | We document the evolution of markups based on firm-level data for the US economy since 1950. Initially, markups are stable, even slightly decreasing. In 1980, average markups start to rise from 18% above marginal cost to 67% now. There is no strong pattern across industries, though markups tend to be higher, across all sectors of the economy, in smaller firms and most of the increase is due to an increase within industry. We do see a notable change in the distribution of markups with the increase exclusively due to a sharp increase in high markup firms. We then evaluate the macroeconomic implications of an increase in average market power, which can account for a number of secular trends in the last 3 decades: 1. decrease in labor share, 2. increase in capital share, 3. decrease in low skill wages, 4. decrease in labor force participation, 5. decrease in labor flows, 6. decrease in migration rates, 7. slowdown in aggregate output. |
| JEL: | D2 D4 E2 J3 K2 L1 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23687&r=mac |
| By: | Jiménez Sotelo, Renzo |
| Abstract: | This paper shows a methodological application of prospective strategic planning as a tool to improve future decision making within the state. To do this, the method of scenarios and pro-spective strategy applied to an exercise of improving the management of the financial equity of the public treasury of a small, open and partly dollarized economy such as the Peruvian one is used. In the exercise, five possible future scenarios were designed from which an aspirational scenario was constructed, based on current results and lessons from the past, in order to respond to what could happen (risks and opportunities) and the strategic actions that should be implemented to achieve the objectives of such scenario. The document recognizes the different historical importance given to the prospective as a tool of strategic anticipation within the states of developed countries, which unfortunately has not been given in most Latin American countries. Therefore, it is hoped that document will contribute to spread the viability of its application in government entities of these countries. |
| Keywords: | public treasury, public debt, strategic planning, fiscal policy |
| JEL: | C90 E62 G00 O38 |
| Date: | 2016–08–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80862&r=mac |
| By: | Alexander Meyer-Gohde; |
| Abstract: | I entertain a generalization of the standard Bolzmann-Gibbs-Shannon measure of entropy in multiplier preferences of model uncertainty. Using this measure, I derive a generalized exponential certainty equivalent, which nests the exponential certainty equivalent of the standard Hansen-Sargent model uncertainty formulation and the power certainty equivalent of the popular Epstein-Zin-Weil recursive preferences as special cases. Besides providing a model uncertainty rationale to these risk-sensitive preferences, the generalized exponential equivalent provides additional flexibility in modeling uncertainty through its introduction of pessimism into agents, causing them to overweight events made more likely in the worst case model when forming expectations. In a standard neoclassical growth model, I close the gap to the Hansen-Jagannathan bounds with plausible detection error probabilities using the generalized exponential equivalent and show that Hansen-Sargent and Epstein-Zin-Weil preferences yield comparable market prices of risk for given detection error probabilities. |
| Keywords: | model uncertainty; robust control; recursive preferences; equity premium puzzle; Tsallis entropy |
| JEL: | C61 C63 E17 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2017-017&r=mac |
| By: | Jasmina Arifovic; Stephanie Schmitt-Grohé; Martín Uribe |
| Abstract: | The Taylor rule in combination with the zero lower bound on nominal rates has been shown to create an unintended liquidity-trap equilibrium. The relevance of this equilibrium has been challenged on the basis that it is not stable under least-square learning. In this paper, we show that the liquidity-trap equilibrium is stable under social learning. The learning mechanism we employ includes three realistic elements: mutation, crossover, and tournaments. We show that agents can learn to have pessimistic sentiments about the central bank's ability to generate price growth, giving rise to a stochastically stable environment characterized by deflation and stagnation. |
| JEL: | E52 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23725&r=mac |
| By: | Abdul Aziz, Muhammad; Widodo, Tri |
| Abstract: | Monetary model of Exchange Market Pressure (EMP) is one of the best-known measures to determine size of intervention, which is needed to attain any favored exchange rate target. This study intends to examine the relationship between EMP and its determinant in ASEAN inflation targeting countries during 2006Q1-2016Q4. Monetary model of Exchange Market Pressure is employed. The results show that all variables are corresponding with the theory implies, except change in real income for Indonesia and Thailand, and change in world prices for Philippines. Thus, additional pressure by financial crisis is only found in Indonesian rupiah and Thai baht exchange rates. This study also proves that independent variables, which are used, can attempt favorable prediction of the value of EMP, especially during financial crisis. In the context controlling EMP, this study finds that these countries prefer to hold their currency exchange rate level by managing domestic credit and interest rate. |
| Keywords: | Exchange Market Pressure, Exchange Rate, Intervention, Inflation Targeting, Financial Crisis |
| JEL: | F31 F33 F35 |
| Date: | 2017–08–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80919&r=mac |
| By: | Selcuk, Cemil (Cardiff Business School); Gokpinar, Bilal (UCL School of Management) |
| Abstract: | We study the selection and dynamics of two popular pricing policies fixed price and flexible pricing in competitive markets. Our paper extends previous work in marketing, e.g. Desai and Purohit (2004) by focusing on decentralized markets with a dynamic and fully competitive framework while also considering possible non-economic aspects of bargaining. We construct and analyze a competitive search model which allows us to endogenize the expected demand depending on pricing rules and posted prices. Our analysis reveals that fixed price and flexible pricing policies generally coexist in the same marketplace, and each policy comes with its own list price and customer demographics. More specifically, if customers dislike haggling, then fixed pricing emerges as the unique equilibrium, but if customers get some additional satisfaction from the bargaining process, then both policies are offered, and the unique equilibrium exhibits full segmentation: Haggler customers avoid fixed-price firms and exclusively shop at flexible firms whereas non-haggler customers do the opposite. We also find that prices increase in customer satisfaction, implying that sellers take advantage of the positive utility enjoyed by hagglers in the form of higher prices. Finally, considering the presence of seasonal cycles in most markets, we analyze a scenario where market demand goes through periodic ups and downs and find that equilibrium prices remain mostly stable despite significant áuctuations in demand. This finding suggests a plausible competition-based explanation for the stability of prices. |
| Keywords: | housing; search; thin and thick markets; seasonality |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2017/9&r=mac |
| By: | Neil Bhutta; Daniel R. Ringo |
| Abstract: | We study the effect of interest rates on the housing market by taking advantage of a sudden and unexpected price change in a large government mortgage program. The Federal Housing Administration (FHA) insures most mortgages to lower-downpayment, lower credit score borrowers, including a majority of first-time homebuyers. The FHA charges borrowers an annual mortgage insurance premium (MIP), and in January, 2015 the FHA abruptly reduced the MIP, and thus FHA borrowers’ effective interest rate, by 50 basis points. Using a regression discontinuity design, we find that the MIP reduction increased the number of home purchase originations among the FHA-reliant population by nearly 14 percent. The response to the premium cut was negatively correlated with borrower income, with no observable response among relatively high income borrowers. We trace part of the jump in home buying to the MIP reduction helping ease binding debt payment-to-income ratio limits thus allowing more applications to be approved. Finally, we find no evidence that the MIP reduction increased house prices. |
| Keywords: | Interest rates ; Mortgages and credit ; Residential real estate |
| JEL: | R21 R28 E52 G18 |
| Date: | 2017–08–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-86&r=mac |
| By: | Kurt Kratena (WIFO); Gerhard Streicher (WIFO) |
| Abstract: | The recent macroeconomic literature dealing with fiscal policy multipliers is dominated by applications of aggregate DSGE (Dynamic Stochastic General Equilibrium) models, whereas multi-sectoral models (econometric input-output or CGE) are absent. This paper contributes to the debate from a multi-regional, multi-sectoral perspective. The macroeconomic input-output model applied covers 67 countries (plus a statistical rest of world) and incorporates model blocks for private consumption, production, the labour market and the public sector. Household consumption follows the permanent income hypothesis, but with important liquidity constraints. This study calculates macroeconomic and sectoral impacts of fiscal policy in one peripheral EU economy (Spain) as well as their inter-regional spillovers to the rest of Europe. Multipliers are about 1.9 for public consumption and 1.2 for household taxes or transfers in the case of high liquidity constraints (1.6 and 0.9, respectively, for low liquidity constraints). Partially endogenous public spending produces additional domestic effects as well as relatively large spillovers for some highly indebted European countries. |
| Date: | 2017–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:wfo:wpaper:y:2017:i:540&r=mac |
| By: | Seck, Ousmane (The Islamic Research and Teaching Institute (IRTI)); Naiya, Ismaeel Ibrahim (Islamic Development Bank, Jeddah, Saudi Arabia); Muhammad, Aliyu Dahiru (International Institute of Islamic Banking and Finance, Bayero University Kano) |
| Abstract: | The recent awareness of the important role of finance in economic growth, development and poverty reduction has stimulated interests of policy makers and other stakeholders in increasing financial access to vast majority of the people. Although there are several studies that investigate the effects of financial inclusion on households both at macro and micro levels, few studies focus on its impact on welfare of the poor and how to move them out of poverty. It is noteworthy that there is evidence of voluntary exclusion from the banking system in Nigeria, with some individuals shunning conventional banking system due to the prohibition of interest in Islam. Based on the data of Living Standards and Demographic survey of 2012-2013, this paper investigates the effect of financial inclusion on the households’ welfare through consumption in Nigeria. The study employs the approach of panel data to analyze the effects of financial inclusion on household consumption, controlling for the endogeneity of the financial inclusion itself. The paper finds that access to finance has a positive impact on households’ consumption. This has implication for policy makers and practitioners to provide access to finance for poverty reduction in the country. Similarly, in addition to increasing the financial resources available for financing SMEs and households, Islamic finance could be useful in improving access to finance by attracting the voluntarily excluded segment of the population by offering them an alternative form of banking. |
| Keywords: | Islamic Finance; Financial Inclusion; Nigeria; Household Consumption |
| JEL: | C26 D10 E21 G02 G21 |
| Date: | 2017–02–20 |
| URL: | http://d.repec.org/n?u=RePEc:ris:irtiwp:2017_003&r=mac |
| By: | Leshoro, Temitope L A |
| Abstract: | Inflation expectation is believed to be critical in the formation of prices and wages; hence the South African Reserve Bank (SARB) reacts to any first-round effect of inflation by tightening the monetary policy in order to avoid the second-round effect. But how important are the inflation expectations of the trade unions in leading the inflation rate? Using quarterly data and Toda-Yamamoto causality technique, this study investigates whether inflation rate is led by inflation expectations and/or vice versa, using three different measures of inflation expectations of trade union representatives. The study also investigates the importance of the exchange rate in leading or lagging inflation rate. The inflation expectations of trade union representatives were chosen because of the way in which this sector, through the trade union federation COSATU (Congress of South African Trade Unions), has antagonised the inflation targeting framework adopted by SARB. The results obtained showed that inflation and the exchange rate have bi-directional causality, while uni-directional causality exists from inflation rate to inflation expectations. The study therefore concluded that a possible second-round effect of inflation cannot be experienced from the changes in inflation expectations of the trade unions, while providing possible policy recommendations. While many studies have observed inflation expectations in different ways, to our knowledge, no study has been conducted with regard to the cause and effect of inflation expectations of trade unions, in particular, on inflation rate using Toda-Yamamoto causality technique for South Africa. |
| Keywords: | Exchange rate, Inflation, Inflation expectations, Toda-Yamamoto causality, Trade union |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:uza:wpaper:23036&r=mac |
| By: | Andreas Tryphonides; |
| Abstract: | While incomplete models are desirable due to their robustness to misspecification, they cannot be used to conduct full information exercises i.e. counterfactual experiments and predictions. Moreover, the performance of the corresponding GMM estimators is fragile in small samples. To deal with both issues, we propose the use of an auxiliary conditional model for the observables f(X|Z, '), where the equilibrium conditions E(m(X, #)|Z) = 0 are imposed on f(X|Z, ') using information projections, and (#, ') are estimated jointly. We provide the asymptotic theory for parameter estimates for a general set of conditional projection densities, under correct and local misspecification of f(X|Z, '). In either cases, efficiency gains are significant. We provide simulation evidence for the Mean Squared Error (MSE) both under the case of local and fixed density misspecification and apply the method to the prototypical stochastic growth model. Moreover, we illustrate that given (#ˆ, 'ˆ) it is now feasible to do counterfactual experiments without explicitly solving for the equilibrium law of motion. |
| Keywords: | Incomplete models, Information projections, Small Samples, Shrinkage |
| JEL: | C13 C14 E10 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2017-016&r=mac |
| By: | Lucia S. Foster; Cheryl A. Grim; John Haltiwanger; Zoltan Wolf |
| Abstract: | Researchers use a variety of methods to estimate total factor productivity (TFP) at the firm level and, while these may seem broadly equivalent, how the resulting measures relate to the TFP concept in theoretical models depends on the assumptions about the environment in which firms operate. Interpreting these measures and drawing insights based upon their characteristics thus must take into account these conceptual differences. Absent data on prices and quantities, most methods yield “revenue productivity” measures. We focus on two broad classes of revenue productivity measures in our examination of the relationship between measured and conceptual TFP (TFPQ). The first measure has been increasingly used as a measure of idiosyncratic distortions and to assess the degree of misallocation. The second measure is, under standard assumptions, a function of funda- mentals (e.g., TFPQ). Using plant-level U.S. manufacturing data, we find these alternative measures are (i) highly correlated; (ii) exhibit similar dispersion; and (iii) have similar relationships with growth and survival. These findings raise questions about interpreting the first measure as a measure of idiosyncratic distortions. We also explore the sensitivity of estimates of the contribution of reallocation to aggregate productivity growth to these alternative approaches. We use recently developed structural decompositions of aggregate productivity growth that depend critically on estimates of output versus revenue elasticities. We find alternative approaches all yield a significant contribution of reallocation to productivity growth (although the quantitative contribution varies across approaches). |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:17-41r&r=mac |