|
on Macroeconomics |
|
Issue of 2017‒09‒03
eighty papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Bilbiie, Florin Ovidiu |
| Abstract: | Forward guidance (FG) is phenomenally powerful in New Keynesian models---a feature that earned the label "FG puzzle". This paper shows formally how two channels are jointly necessary to reduce the power enough to resolve the puzzle: hand-to-mouth constrained households' income respond to aggregate less than one-to-one; and unconstrained households self-insure idiosyncratic risk. These channels are complementary: if the former condition fails, FG power is instead amplified and the puzzle aggravated. Yet optimal policy does not imply larger FG duration even with such puzzling amplification, because FG power has a dark side: when it increases, so does its welfare cost. |
| Keywords: | forward guidance; hand-to-mouth; heterogenous households; aggregate demand; self-insurance; optimal monetary policy; liquidity trap; Keynesian cross. |
| JEL: | E21 E31 E40 E44 E50 E52 E58 E60 E62 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12231&r=mac |
| By: | Yun K. Kim; Gilberto Tadeu Lima, Mark Stterfield |
| Abstract: | The recent literature has shown that income inequality is one of the main causes of borrowing and debt accumulation by working households. This paper explores the possibility that household indebtedness is an important cause of rising income inequality. If workers experience rising debt burdens, their cost of job loss may rise if they need labor-market income to continue borrowing and servicing existing debt. This, in turn, will reduce their bargaining power and increase income inequality, inducing workers to borrow more in order to maintain consumption standards, and so creating a vicious circle of rising inequality, job insecurity, and indebtedness. We believe that these dynamics may have contributed to observed simultaneous increases in income inequality and household debt prior to the recent financial crisis. To explore the two-way interaction between inequality and debt, we develop an employment rent framework that explicitly considers the impact of workers' indebtedness on their perceived cost of job loss. This is embedded in a neo-Kaleckian macro model in which inequality spurs debt accumulation that contributes to household consumption spending and hence demand formation. Our analysis suggests that: (1) workers' borrowing behavior plays a crucial role in understanding the character of demand and growth regimes; (2) debt and workers' borrowing behavior play an important role in the labor market by influencing workers' bargaining power; and (3) through such channels, workers' borrowing behavior can be a decisive factor in the determination of macroeconomic (in)stability. |
| Keywords: | Consumer debt; employment rent; cost of job loss; bargaining power; income distribution; growth; stability. |
| JEL: | E12 E21 E24 E44 O41 |
| Date: | 2017–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2017wpecon15&r=mac |
| By: | Gavazza, Alessandro (London School of Economics); Mongey, Simon (Federal Reserve Bank of Minneapolis); Violante, Giovanni L. (Princeton University) |
| Abstract: | We develop an equilibrium model of firm dynamics with random search in the labor market where hiring firms exert recruiting effort by spending resources to fill vacancies faster. Consistent with microevidence, fast-growing firms invest more in recruiting activities and achieve higher job-filling rates. These hiring decisions of firms aggregate into an index of economy-wide recruiting intensity. We study how aggregate shocks transmit to recruiting intensity, and whether this channel can account for the dynamics of aggregate matching efficiency during the Great Recession. Productivity and financial shocks lead to sizable pro-cyclical fluctuations in matching efficiency through recruiting effort. Quantitatively, the main mechanism is that firms attain their employment targets by adjusting their recruiting effort in response to movements in labor market slackness. |
| Keywords: | Aggregate matching efficiency; Firm dynamics; Macroeconomic shocks; Recruiting intensity; Unemployment; Vacancies |
| JEL: | E24 E32 E44 G01 J23 J63 J64 |
| Date: | 2017–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:553&r=mac |
| By: | Yun K. Kim (Department of Economics, University of Massachusetts, Boston); Gilberto Tadeu Lima (Department of Economics, University of Sao Paulo); Mark Setterfield (Department of Economics, New School for Social Research) |
| Abstract: | The recent literature has shown that income inequality is one of the main causes of borrowing and debt accumulation by working households. This paper explores the possibility that household indebtedness is an important cause of rising income inequality. If workers experience rising debt burdens, their cost of job loss may rise if they need labor-market income to continue borrowing and servicing existing debt. This, in turn, will reduce their bargaining power and increase income inequality, inducing workers to borrow more in order to maintain consumption standards, and so creating a vicious circle of rising inequality, job insecurity, and indebtedness. We believe that these dynamics may have contributed to observed simultaneous increases in income inequality and household debt prior to the recent nancial crisis. To explore the two-way interaction between inequality and debt, we develop an employment rent framework that explicitly considers the impact of workers' indebtedness on their perceived cost of job loss. This is embedded in a neo-Kaleckian macro model in which inequality spurs debt accumulation that contributes to household consumption spending and hence demand formation. Our analysis suggests that: (1) workers' borrowing behavior plays a crucial role in understanding the character of demand and growth regimes; (2) debt and workers' borrowing behavior play an important role in the labor market by in uencing workers' bargaining power; and (3) through such channels, workers' borrowing behavior can be a decisive factor in the determination of macroeconomic (in)stability. |
| Keywords: | Consumer debt, employment rent, cost of job loss, bargaining power, income distribution, growth, stability |
| JEL: | E12 E21 E24 E44 O41 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1724&r=mac |
| By: | Drautzburg, Thorsten (Federal Reserve Bank of Philadelphia); Fernandez-Villaverde, Jesus (Federal Reserve Bank of Philadelphia); Guerron-Quintana, Pablo (Federal Reserve Bank of Philadelphia) |
| Abstract: | We argue that political distribution risk is an important driver of aggregate fluctuations. To that end, we document significant changes in the capital share after large political events, such as political realignments, modifications in collective bargaining rules, or the end of dictatorships, in a sample of developed and emerging economies. These policy changes are associated with significant fluctuations in output and asset prices. Using a Bayesian proxy-VAR estimated with U.S. data, we show how distribution shocks cause movements in output, unemployment, and sectoral asset prices. To quantify the importance of these political shocks for the U.S. as a whole, we extend an otherwise standard neoclassical growth model. We model political shocks as exogenous changes in the bargaining power of workers in a labor market with search and matching. We calibrate the model to the U.S. corporate non-financial business sector and we back up the evolution of the bargaining power of workers over time using a new methodological approach, the partial filter. We show how the estimated shocks agree with the historical narrative evidence. We document that bargaining shocks account for 34% of aggregate fluctuations. |
| Keywords: | Political redistribution risk; bargaining shocks; aggregate fluctuations; partial filter; historical narrative |
| JEL: | E32 E37 E44 J20 |
| Date: | 2017–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:17-25&r=mac |
| By: | Anastasiou, Dimitrios |
| Abstract: | The objective of this study is to examine the determinants of MIR rate in the Euro area for the period 2003Q1-2015Q3. By employing Fixed Effects, Random Effects and Dynamic OLS (DOLS) as econometric methodologies, I examine if the MIR rate is affected by the following macroeconomic factors: unemployment rate, inflation rate, GDP growth, political stability index and wages as % to GDP. All of these factors found to exert great significance to MIR rate and thus they have to be taken into consideration when macro-prudential policies are designing. |
| Keywords: | MIR rate; Interest margin; DOLS estimation; Euro area; European Central Bank. |
| JEL: | C33 C51 E4 E43 E58 G2 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80972&r=mac |
| By: | Henrik Jensen (Department of Economics, University of Copenhagen); Ivan Petrella (Warwick Business School, University of Warwick); Søren Hove Ravn (Department of Economics, University of Copenhagen); Emiliano Santoro (Department of Economics, University of Copenhagen) |
| Abstract: | We document that the U.S. economy has been characterized by an increasingly negative business cycle asymmetry over the last three decades. This fi?nding can be explained by the concurrent increase in the fi?nancial leverage of households and fi?rms. To support this view, we devise and estimate a dynamic general equilibrium model with collateralized borrowing and occasionally binding credit constraints. Higher leverage increases the likelihood that constraints become slack in the face of expansionary shocks, while contractionary shocks are further ampli?ed due to binding constraints. As a result, booms become progressively smoother and more prolonged than busts. We are therefore able to reconcile a more negatively skewed business cycle with the Great Moderation in cyclical volatility. Finally, in line with recent empirical evidence, fi?nancially-driven expansions lead to deeper contractions, as compared with equally-sized non-?financial expansions. |
| Keywords: | Credit constraints, business cycles, skewness, deleveraging |
| JEL: | E32 E44 |
| Date: | 2017–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:1717&r=mac |
| By: | Jensen, Henrik; Petrella, Ivan; Ravn, Søren Hove; Santoro, Emiliano |
| Abstract: | We document that the U.S. economy has been characterized by an increasingly negative business cycle asymmetry over the last three decades. This finding can be explained by the concurrent increase in the financial leverage of households and firms. To support this view, we devise and estimate a dynamic general equilibrium model with collateralized borrowing and occasionally binding credit constraints. Higher leverage increases the likelihood that constraints become slack in the face of expansionary shocks, while contractionary shocks are further amplified due to binding constraints. As a result, booms become progressively smoother and more prolonged than busts. We are therefore able to reconcile a more negatively skewed business cycle with the Great Moderation in cyclical volatility. Finally, in line with recent empirical evidence, financially-driven expansions lead to deeper contractions, as compared with equally-sized non-financial expansions. |
| Keywords: | Business Cycles; credit constraints; deleveraging.; Skewness |
| JEL: | E32 E44 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12239&r=mac |
| By: | Pavlina R. Tcherneva |
| Abstract: | This paper examines two key aspects of unemployment--its propagation mechanism and socioeconomic costs. It identifies a key feature of this macroeconomic phenomenon: it behaves like a disease. A detailed assessment of the transmission mechanism and the existing pecuniary and nonpecuniary costs of unemployment suggests a fundamental shift in the policy responses to tackling joblessness. To stem the contagion effect and its outsized social and economic impact, fiscal policy can be designed around two criteria for successful disease intervention--preparedness and prevention. The paper examines how a job guarantee proposal uniquely meets those two requirements. It is a policy response whose merits include much more than its macroeconomic stabilization features, as discussed in the literature. It is, in a sense, a method of inoculation against the vile effects of unemployment. The paper discusses several preventative features of the program. |
| Keywords: | Unemployment; Epidemic; Mortality; Morbidity; Health; Scarring Effects; Crime; Family; Job Guarantee; Labor Market Dynamics; Involuntary Job Loss; Prevention |
| JEL: | E24 E62 H1 H4 I18 I3 J08 J6 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_895&r=mac |
| By: | Brecht Boone; Ewoud Quaghebeur (-) |
| Abstract: | n this paper, we explore the effects of government spending in the real business cycle model where agents use a learning mechanism to form expectations. In contrast to most of the learning literature, we study learning behaviour in the original non-linear model. Following the learning interpretation of the parameterized expect- ations method, agents’ forecast rules are approximations of the conditional expectations appearing in the Euler equation. We show that variation in agents’ beliefs about the coefficients of these rules, generates time variation in the transmission of government spending shocks to the economy. Hence, our modelling approach provides an endogenous mechanism for time-varying government spending multipliers in the standard real business cycle model. |
| Keywords: | Non-linear learning, Parameterized expectations, Fiscal policy, Time-varying multipliers |
| JEL: | E62 D83 D84 E32 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:17/939&r=mac |
| By: | Jackson, Laura E. (Bentley University); Owyang, Michael T. (Federal Reserve Bank of St. Louis); Zubairy, Sarah (Texas A&M University) |
| Abstract: | The Euro-area poses a unique problem in evaluating policy: a currency union with a shared monetary policy and country-specific fiscal policy. Analysis can be further complicated if high levels of public debt affect the performance of stabilization policy. We construct a framework capable of handling these issues with an application to Euro-Area data. In order to incorporate multiple macroeconomic series from each country but, simultaneously, treat country-specific fiscal policy, we develop a hierarchical factor-augmented VAR with zero restrictions on the loadings that yield country-level factors. Monetary policy, then, responds to area-wide conditions but fiscal policy responds only to its country level conditions. We find that there is broad quantitative variation in different countries'' responses to area-wide monetary policy and both qualitative and quantitative variation in responses to country-specific fiscal policy. Moreover, we find that debt conditions do not diminish the effectiveness of policy in a significant manner, suggesting that any negative effects must come through other channels. |
| Keywords: | Government spending; monetary policy; European Monetary Union; debt |
| JEL: | C32 E58 E62 |
| Date: | 2017–07–27 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-022&r=mac |
| By: | Dawid Johannes van Lill |
| Abstract: | This paper employs a time-varying parameter vector autoregressive (TVP-VAR) model to establish the nature of the relationship between central bank liabilities and the overnight policy rate. Four countries with different monetary policy regimes were considered. It was found that a clear negative relationship between these variables exists only in the case of one regime, namely the reserve regime. This result indicates that the introduction of new operational frameworks for central banks have challenged the traditional model of monetary policy implementation. A potential practical implication of the ‘decoupling’ of interest rates from reserves is that the central bank in the United States and Canada could potentially use their balance sheet alongside conventional interest rate policy. However, as there is practically no decoupling in South Africa, and very little evidence in Norway, such a policy recommendation would not apply. |
| JEL: | E42 E58 E52 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:704&r=mac |
| By: | Dong, Feng (Shanghai Jiao Tong University, Shanghai, China.); Wen, Yi (Federal Reserve Bank of St. Louis) |
| Abstract: | We endogenize the liquidity and the quality of private assets in a tractable incomplete-market model with heterogeneous agents. The model decomposes the convenience yield of government bond into a "liquidity premium" (flight to liquidity) and a "safety premium" (flight to quality) over the business cycle. When calibrated to match the U.S. aggregate output fluctuations and bond premiums, the model reveals that a sharp reduction in the quality, instead of the liquidity, of private assets was the culprit of the recent financial crisis, consistent with the perception that it was the subprime mortgage problem that triggered the Great Recession. Since the provision of public liquidity endogenously affects the provision of private liquidity, our model indicates that excessive injection of public liquidity during financial crisis can be welfare reducing under either conventional or unconventional policies. In particular, too much intervention for too long can depress capital investment. |
| Keywords: | Liquidity Shortage; Resaleability Constraint; Information Asymmetry; Flight to Liquidity; Flight to Quality; Financial Crisis; Unconventional Policy. |
| JEL: | E44 E58 G01 G10 |
| Date: | 2017–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-025&r=mac |
| By: | Sensarma, Rudra; Bhattacharyya, Indranil |
| Abstract: | In view of multiple instruments used by many central banks in emerging market economies, we derive a composite measure of monetary policy for India and assess its impact on the yield curve. Our results show that while monetary policy has the dominant impact among macroeconomic variables on the entire term structure, it is particularly strong at the shorter end and on credit spreads. Shifts in the level of the government yield curve and credit spreads also lead to changes in monetary policy. In terms of robustness, our measure performs better than a narrative based measure of monetary policy available in the literature. |
| Keywords: | Term structure, yield curve, monetary policy, SVAR |
| JEL: | C51 E44 E52 |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81067&r=mac |
| By: | Afees A. Salisu (Centre for Econometric and Allied Research, University of Ibadan); Ahaemefula Ephraim Ogbonna (Centre for Econometric and Allied Research, University of Ibadan) |
| Abstract: | This paper attempts to improve the predictive ability of oil for inflation by incorporating mixed data sampling regression model into the autoregressive distributed lag model. The efficiency of the conventionally used models, which are based on same frequency of variables, is challenged on the basis of the concealed information in low frequency series. Using data covering OECD countries, we find that the ADL-MIDAS seems to outperform all the other competing models, a feat attributable to the integration of more information from a higher frequency oil price series in the forecast of a low frequency inflation series. In addition, including oil price in inflation model produces more accurate results than the model that excludes it. |
| Keywords: | OECD countries, ADL-MIDAS, Inflation forecasts, Forecast evaluation |
| JEL: | C53 E31 E37 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cui:wpaper:0025&r=mac |
| By: | Stefania Albanesi; Giacomo De Giorgi; Jaromir Nosal |
| 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. |
| JEL: | D14 E01 E21 E40 G01 G1 G18 G20 G21 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23740&r=mac |
| By: | Jörg Döpke (University of Applied Sciences Merseburg (Hochschule Merseburg)); Ulrich Fritsche (Universität Hamburg); Gabi Waldhof (Martin-Luther-Universität Halle-Wittenberg) |
| Abstract: | The paper reports results of a survey among active forecasters of the German business cycle. Relying on 82 respondents from 37 different institutions, we investigate what models and theories forecasters subscribe to and find that they are pronounced conservative in the sense, that they overwhelmingly rely on methods and theories that have been well-established for a long time, while more recent approaches are relatively unimportant for the practice of business cycle forecasting. DSGE models are mostly used in public institutions. In line with findings in the literature there are tendencies of “leaning towards consensus” (especially for public institutions) and “sticky adjustment of forecasts” with regard to new information. We find little evidence that the behaviour of forecasters has changed fundamentally since the Great Recession but there are signs that forecast errors are evaluated more carefully. Also, a stable relationship between preferred theories and methods and forecast accuracy cannot be established. |
| Keywords: | Forecast error evaluation, questionnaire, survey, business cycle forecast, professional forecaster |
| JEL: | E32 E37 C83 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:gwc:wpaper:2017-002&r=mac |
| By: | Hiermeyer, Martin |
| Abstract: | Textbooks give a fairly short IS-LM story. This paper offers a more detailed one. This story has several advantages vis-à-vis the usual textbook story, including: (a) it is clear about what it means by "money"; (b) it describes the central bank as targeting an interest rate; and (c) it covers the money multiplier and quantitative easing. To unfold, the more detailed story requires only minor adjustments to the IS-LM model, mostly the addition of the quantity equation of money – a mere identity. |
| Keywords: | Fiscal policy; monetary policy; teaching of economics |
| JEL: | A2 E52 E62 |
| Date: | 2017–08–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81004&r=mac |
| By: | Marko Petrovic (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Bulent Ozel (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Andrea Teglio (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Marco Raberto (DIME-University of Genoa, Italy); Silvano Cincotti (DIME-University of Genoa, Italy) |
| Abstract: | The global economic and financial crises, whose genesis is often associated with the collapse of Lehman Brothers, had a pervasive impact on all the leading economies in the world. The place where it might have been more disruptive has been the European Union (EU), which revealed a structural fragility and inadequacy to tackle some of the main challenges ahead. In this paper we mainly focus on migration challenges, further integrations of a monetary union, spatial inequality, and sovereign debt crisis. To address the relevant issues, we use a multi-country model that is an extension of the Eurace agent-based model. We design a flexible modeling framework that can host many different countries. In this paper the model hosts four countries. It is designed as a monetary union of two countries with international labor market, international trade, and international financial market, and another two independent countries that are always identical to the union members and serve as control states. We found that when countries are identical it is always beneficial to join the union, however an excess of workers mobility can weaken the performance of the union and even create persistent inequality between countries. Moreover, the monetary policy of the union central bank can deteriorate if the difference between countries growth and in general it tends to overshoot the inflation target. When the two countries differ in productivity, the union on aggregate performs again better than the sum of the isolated countries counterparts. However, taking into account the welfare in both countries of the union, it is not always convenient to form the union. The performance of the union is strongly affected by the level of labor market frictions and the size of the productivity gap among countries. The real sovereign debt per capita in the union increases with low mobility frictions and high productivity gap. Stronger fiscal integration (fiscal transfers) reduces inequality between countries, allowing the low productivity country and, hence, the total union to sustain even with a higher mobility of workers. |
| Keywords: | Agent-based multi-country model, migration, integration, monetary union, monetary policy, fiscal policy |
| JEL: | E02 E2 F22 F4 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:jau:wpaper:2017/09&r=mac |
| By: | José-Luis Peydró; Gabriel Jiménez; Rafael Repullo; Jesús Saurina |
| Abstract: | We analyze new lending to firms by a state-owned bank in crisis times, the potential adverse selection faced by the bank, and the causal real effects associated to its lending. For identification, we exploit: (i) a new credit facility set up in Spain by its state-owned bank during the credit crunch of 2010-2012; (ii) the bank’s continuous scoring system, together with firms' individual credit scores and the threshold for granting vs. rejecting loan applications; (iii) the rich credit register matched with firm- and bank-level data. We show that, compared to privately-owned banks, the state-owned bank faces a worse pool of applicants, is tighter (softer) in lending to firms with observable (unobservable) riskier characteristics, and has substantial higher loan defaults. Using a regression discontinuity approach around the threshold, we show that the supply of credit causes large positive real effects on firm survival, employment, investment, total assets, sales, and productivity, as well as crowding-in of new credit by private banks. |
| Keywords: | Adverse selection, real effects of credit supply, crowding-in, state-owned banks, credit crunch, credit scoring, loan defaults, countercyclical policies. |
| JEL: | E44 G01 G21 G28 H81 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1577&r=mac |
| By: | William Allen; Gabriele Galati; Richhild Moessner; William Nelson |
| Abstract: | We study the use of US dollar central bank swap lines as a tool for addressing dislocations in the foreign currency swap market against the USD since the global financial crisis. We find that the use of the Federal Reserve's USD central bank swap lines was mainly related to tensions in US money markets during times of financial crisis, and less to tensions which were confined to foreign exchange swap markets. In particular, we find that the use of USD central bank swap lines did not react significantly to the recent period of persistent deviations of covered interest parity (CIP) since 2014. These results are consistent with the view that the Federal Reserve was guided by enlightened self-interest when providing swap lines to foreign central banks, in order to reduce dislocations in US financial markets and support financial stability. In recent years foreign exchange swap markets have not functioned properly, but it appears that now that the crisis is over, the Federal Reserve and other central banks have decided against trying permanently to fill the gap left by the dysfunction in the commercial foreign exchange swap market. |
| Keywords: | Central bank swap lines; foreign exchange swaps; covered interest parity; financial crisis |
| JEL: | E52 E58 F31 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:566&r=mac |
| By: | Afees A. Salisu (Centre for Econometric and Allied Research, University of Ibadan); Kazeem Isah (Centre for Econometric and Allied Research, University of Ibadan) |
| Abstract: | In this paper, we construct a multi-predictor framework for US inflation by augmenting the traditional Phillips curve-based inflation model with symmetric and asymmetric oil price changes. We show that the underlying predictors of US inflation exhibit persistence, endogeneity and conditional heteroscedasticity effects which have implications on forecast performance. Thus, we employ the Westerlund and Narayan (WN hereafter) (2014) estimator which allows for these effects in the predictive model. Also, we follow the linear multi-predictor set-up by Makin et al. (2014) which is an extension of the bivariate predictive model of WN (2014). Thereafter, we extend the former in order to construct a nonlinear multi-predictor model that allows for asymmetries based on Shin et al. (2014) approach. Using historical quarterly data for relevant variables ranging from 1957 to 2017, we demonstrate that US inflation is better modelled with the proposed multi-predictor model suggesting the significance of oil price in the predictive model for US inflation. In addition, we find that the US inflation forecast is episodic and asymmetric. Among the competing multi-predictor variants, the positive oil price-based variant outperforms all other variants both for in-sample and out-of-sample forecasts. The proposed model also outperforms the autoregressive process for a longer out-of-sample period. Our results are robust to different measures of inflation, multiple in-sample periods and forecast horizon. |
| Keywords: | OECD, Phillips curve, Asymmetries, Inflation forecasts, Forecast evaluation |
| JEL: | C53 E31 E37 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cui:wpaper:0026&r=mac |
| By: | Yves Achdou; Jiequn Han; Jean-Michel Lasry; Pierre-Louis Lions; Benjamin Moll |
| Abstract: | We recast the Aiyagari-Bewley-Huggett model of income and wealth distribution in continuous time. This workhorse model – as well as heterogeneous agent models more generally – then boils down to a system of partial differential equations, a fact we take advantage of to make two types of contributions. First, a number of new theoretical results: (i) an analytic characterization of the consumption and saving behavior of the poor, particularly their marginal propensities to consume; (ii) a closed-form solution for the wealth distribution in a special case with two income types; (iii) a proof that there is a unique stationary equilibrium if the intertemporal elasticity of substitution is weakly greater than one; (iv) characterization of “soft” borrowing constraints. Second, we develop a simple, efficient and portable algorithm for numerically solving for equilibria in a wide class of heterogeneous agent models, including – but not limited to – the Aiyagari-Bewley-Huggett model. |
| JEL: | D31 E00 E21 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23732&r=mac |
| By: | Chatelain, Jean-Bernard; Ralf, Kirsten |
| Abstract: | This algorithm extends Ljungqvist and Sargent (2012) algorithm of Stackelberg dynamic game to the case of dynamic stochastic general equilibrium models including exogenous forcing variables. It is based Anderson, Hansen, McGrattan, Sargent (1996) discounted augmented linear quadratic regulator. It adds an intermediate step in solving a Sylvester equation. Forward-looking variables are also optimally anchored on forcing variables. This simple algorithm calls for already programmed routines for Ricatti, Sylvester and Inverse matrix in Matlab and Scilab. A final step using a change of basis vector computes a vector auto regressive representation including Ramsey optimal policy rule function of lagged observable variables, when the exogenous forcing variables are not observable. |
| Keywords: | Ramsey optimal policy, Stackelberg dynamic game, algorithm, forcing variables, augmented linear quadratic regulator. |
| JEL: | C61 C62 C73 E47 E52 E61 E63 |
| Date: | 2017–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81006&r=mac |
| By: | Bullard, James B. (Federal Reserve Bank of St. Louis) |
| Abstract: | St. Louis Fed President James Bullard discussed several aspects of the current macroeconomic situation during a presentation in Nashville, Tenn. He noted that recent data indicate that real GDP growth remains consistent with the low-growth regime of recent years. On inflation, he said that recent inflation outcomes have been unexpectedly low, below the Fed’s inflation target of 2 percent. Bullard also examined headline inflation’s connection to global commodity prices and whether the low U.S. unemployment rate means that inflation is about to increase substantially. In summary, Bullard said, “the current level of the policy rate is likely to remain appropriate over the near term.” |
| Date: | 2017–08–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlps:290&r=mac |
| By: | Trust R. Mpofu; Amos C. Peters |
| Abstract: | Since 2000 the South African rand has been among the most volatile emerging market currencies, occasionally experiencing sharp depreciations. These sharp fluctuations in the value of the currency cannot be adequately explained by models of flow-supply and flow-demand of currency or by movements in fundamental factors, yet few studies have employed an asset pricing approach to explain exchange rate variability in emerging markets. To remedy this gap, we use an event study methodology to measure the impact of monetary policy announcements and political events on the exchange value of the South African rand. Using daily exchange rate data over the period March 1, 2000 to December 31, 2014, we find that the rand is highly responsive to both monetary policy announcements and political events. A total of 28 out of 43 monetary policy announcements displayed significant cumulative abnormal returns, while four political events, most notably the Marikana massacre, had significant impact on the rand. |
| Keywords: | Event study, Exchange Rate Volatility, asset pricing, Monetary policy, South Africa |
| JEL: | E52 E58 F31 G14 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:700&r=mac |
| By: | Pau Rabanal (IMF); Dominic Quint (Deutsche Bundesbank) |
| Abstract: | The large recession that followed the Global Financial Crisis of 2008–09 triggered unprecedented monetary policy easing around the world. Most central banks in advanced economies deployed new instruments to affect credit conditions and to provide liquidity at a large scale after short-term policy rates reached their effective lower bound. In this paper, we study if this new set of tools, commonly labeled as unconventional monetary policies (UMP), should still be used when economic conditions and interest rates normalize. We study the optimality of UMP by using an estimated non-linear DSGE model with a banking sector and long-term private and public debt for the United States. We find that the benefits of using UMP in normal times are substantial, equivalent to 1.45 percent of consumption. However, the benefits from using UMP are shock-dependent and mostly arise when the economy is hit by financial shocks. When more traditional business cycle shocks (such as supply and demand shocks) hit the economy, the benefits of using UMP are negligible or zero. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:526&r=mac |
| By: | Adrian, Tobias; Boyarchenko, Nina |
| Abstract: | Bank liquidity shortages associated with the growth of wholesale-funded credit intermediation has motivated the implementation of liquidity regulations. We analyze a dynamic stochastic general equilibrium model in which liquidity and capital regulations interact with the supply of risk-free assets. In the model, the endogenously time varying tightness of liquidity and capital constraints generates intermediaries' leverage cycle, influencing the pricing of risk and the level of risk in the economy. Our analysis focuses on liquidity policies' implications for households' welfare. Within the context of our model, liquidity requirements are preferable to capital requirements, as tightening liquidity requirements lowers the likelihood of systemic distress without impairing consumption growth. In addition, we find that intermediate ranges of risk-free asset supply achieve higher welfare. |
| Keywords: | DSGE; Financial Intermediation; liquidity regulation; systemic risk |
| JEL: | E02 E32 G00 G28 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12247&r=mac |
| By: | Pierre De Leo (Boston College); Vito Cormun (Boston College) |
| Abstract: | Recursive vector autoregression (VAR) analysis suggests that the nominal exchange rate tends to depreciate after a contractionary monetary policy shock in most developing countries, a puzzle for virtually all open-economy macroeconomic models. Using a structural VAR approach, we document that when the U.S. economic outlook worsens developing countries' exchange rates signicantly depreciate and their policy-controlled interest rates increase. We show that commonly used recursive VAR schemes inevitably confound these correlations for the monetary policy innovation. In our econometric framework, we identify the spillover effects of future U.S. business cycles as the innovations that best explain future movements in the Federal Funds rate over an horizon of two years. When the monetary policy shock is then cleansed of these variations, the exchange rate response puzzle disappears. We conclude by showing that a standard small open economy model with news about future fundamentals in a large economy is consistent with all the empirical findings of this paper. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:576&r=mac |
| By: | Luis Araujo (Michigan State University); Qingqing Cao (Michigan State University); Raoul Minetti (Michigan State University); Pierluigi Murro (LUMSA University) |
| Abstract: | We investigate the effects of a credit crunch in an economy where firms can retain a mature technology or adopt a new technology. We show that firms' collateral eases firms' access to credit and investment but can also inhibit firms' innovation. When this occurs, a contraction in the price of collateral assets squeezes collateral-poor firms out of the credit market but fosters the innovation of collateral-rich firms. The analysis reveals that the credit and asset market policies adopted during recent credit market crises can boost investment but slow down innovation. We find that the predictions of the model are consistent with the innovation patterns of a large sample of European firms during the 2008-2010 credit crisis. |
| Keywords: | Credit Crunch, Technological Change, Collateral |
| JEL: | E44 G21 G01 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:lsa:wpaper:wpc22&r=mac |
| By: | Alexander Hijzen; Andreas Kappeler; Mathilde Pak; Cyrille Schwellnus |
| Abstract: | This paper provides an overview of labour market resilience in the wake of the Great Recession of 2008-09 and the role played by macroeconomic and structural policies. The OECD unemployment rate has returned to close to its pre-crisis level, but the unemployment cost of the Great Recession has nonetheless been very large and long-lasting in many countries. Moreover, as the recovery in output has been weak relative to the recovery in employment, labour productivity and wage growth remain low. Labour market resilience depends crucially on macroeconomic and labour market policy settings. Macroeconomic policies are highly effective in limiting employment declines during economic downturns and preventing that cyclical increases in unemployment become structural. Spending on active labour market policies needs to respond strongly to cyclical increases in unemployment to promote a quick return to work in the recovery and preserve the mutual-obligations ethos of activation regimes. Overly strict employment protection for regular workers reduces resilience by promoting the use of temporary contracts and slowing job creation in the recovery. Co-ordinated collective bargaining systems can promote resilience by facilitating wage and working-time adjustments. |
| Keywords: | fiscal policy, labour market policy, politiques budgétaires, politiques du marché de travail, resilience, résilience |
| JEL: | E6 J3 J6 |
| Date: | 2017–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1406-en&r=mac |
| By: | Svensson, Lars E O |
| Abstract: | "Leaning against the wind" (LAW), that is, tighter monetary policy for financial-stability purposes, has costs in terms of a weaker economy with higher unemployment and lower inflation and possible benefits from a lower probability or magnitude of a (financial) crisis. A first obvious cost is a weaker economy if no crisis occurs. A second cost - less obvious, but higher - is a weaker economy if a crisis occurs. Taking the second cost into account, Svensson (2017) shows that for representative empirical benchmark estimates and reasonable assumptions the costs of LAW exceed the benefits by a substantial margin. Previous literature has disregarded the second cost, by assuming that the crisis loss level is independent of LAW. Some recent literature has effectively disregarded the second cost, making it to be of second order by assuming that the cost of a crisis (the crisis loss level less the non-crisis loss level) is independent of LAW. In these cases where the second cost is disregarded, for representative estimates a small but economically insignificant amount of LAW is optimal. |
| 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:12249&r=mac |
| By: | Kaiser, Micha (University of Hohenheim); Reutter, Mirjam (University of Hohenheim); Sousa-Poza, Alfonso (University of Hohenheim); Strohmaier, Kristina (Ruhr University Bochum) |
| Abstract: | In this paper, we use data from the German Socio-Economic Panel to investigate the effect on cigarette consumption of macro-economic conditions in the form of regional unemployment rates. The results from our panel data models, several of which control for selection bias, indicate that the propensity to become a smoker increases significantly during an economic downturn, with an approximately 0.7 percentage point increase for each one percentage point rise in the unemployment rate. Conversely, conditional on the individual being a smoker, cigarette consumption decreases during recessions, with a one percentage point increase in the regional unemployment rate leading to an up to 0.8 percent decrease in consumption. |
| Keywords: | business cycle, smoking, unemployment |
| JEL: | E32 I12 J22 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10953&r=mac |
| By: | Denny Irawan (Researcher, Institute for Economic and Social Research, Faculty of Economics, University of Indonesia, Jakarta); Febrio Kacaribu (Researcher, Institute for Economic and Social Research, Faculty of Economics, University of Indonesia, Jakarta) |
| Abstract: | The financial crisis of 2007/8 has revealed the importance of risk, besides credit, in the dynamics of financial cycle and business cycle in the economy. This study examines relationship among those three cycles in the economy (Tri-Cycles), namely (i) business cycle risk, (ii) credit cycle and (iii) risk cycle, and their impacts toward individual bank performance. We examine the responses of individual bank credit cycle and risk cycle toward a shock in business cycle risk and its consequence to the bank performance. We use Indonesian data for period of 2002q1 to 2014q4. We use unbalanced panel data of individual banks’ balance sheet with Panel Vector Autoregressive approach based on GMM style estimation by implementing PVAR package developed by [1]. The result shows dynamic relationship between business cycle risk and financial risk cycles. The study also observes prominent role of risk cycles in driving bank performance. We also show the existence of financial accelerator phenomenon in Indonesian banking system, in which financial cycles precede the business cycle risk. |
| Keywords: | Business Cycle Risk — Credit Cycle — Bank Lending — Financial Risk |
| JEL: | E32 G21 G31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:lpe:wpaper:201707&r=mac |
| By: | Elie Bouri (USEK Business School, Holy Spirit University of Kaslik (USEK), POB 446 Jounieh, Lebanon); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Amine Lahiani (LEO, University of Orleans, Orléans – France, Montpellier Business School, Montpellier, France); Muhammad Shahbaz (Montpellier Business School, Montpellier, France) |
| Abstract: | Unlike prior studies, this study examines the nonlinear, asymmetric and quantile effects of aggregate commodity index and gold prices on the price of Bitcoin. Using daily data from July 17, 2010 to February 2, 2017, we employed several advanced autoregressive distributed lag (ARDL) models. The nonlinear ARDL approach was applied to uncover short- and longrun asymmetries, whereas the quantile ARDL was applied to account for a second type of asymmetry, known as the distributional asymmetry according to the position of a dependent variable within its own distribution. Moreover, we extended the nonlinear ARDL to a quantile framework, leading to a richer new model, which allows testing for distributional asymmetry while accounting for short- and long-run asymmetries. Overall, our results indicate the possibility to predict Bitcoin price movements based on price information from the aggregate commodity index and gold prices. Importantly, we report the nuanced result that most often the relations between bitcoin and aggregate commodity, on the one hand, and between bitcoin and gold, on the other, are asymmetric, nonlinear, and quantiles-dependent, suggesting the need to apply non-standard cointegration models to uncover the complexity and hidden relations between Bitcoin and asset classes. |
| Keywords: | Cointegration, Asymmetry, Nonlinearity, Quantile Dependence, Bitcoin, Commodity, Gold |
| JEL: | C12 G15 Q02 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:201760&r=mac |
| By: | R. Jason Faberman; Andreas I. Mueller; Ayşegül Şahin; Giorgio Topa |
| Abstract: | Using a unique new survey, we study the relationship between search effort and outcomes for employed and non-employed workers. We find that the employed fare better than the non-employed in job search: they receive more offers per application and are offered higher pay even after controlling for observable characteristics. We use an on-the-job search model with endogenous search effort and find that unobserved heterogeneity explains less than a third of the residual wage offer differential. The model calibrated using various moments from our survey provides a good fit to the data and implies a reasonable flow value of unemployment. |
| JEL: | E24 J29 J60 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23731&r=mac |
| By: | Faberman, R. Jason (Federal Reserve Bank of Chicago); Mueller, Andreas I. (Columbia University); Sahin, Aysegül (Federal Reserve Bank of New York); Topa, Giorgio (Federal Reserve Bank of New York) |
| Abstract: | Using a unique new survey, we study the relationship between search effort and outcomes for employed and non-employed workers. We find that the employed fare better than the non-employed in job search: they receive more offers per application and are offered higher pay even after controlling for observable characteristics. We use an on-the-job search model with endogenous search effort and find that unobserved heterogeneity explains less than a third of the residual wage offer differential. The model calibrated using various moments from our survey provides a good fit to the data and implies a reasonable flow value of unemployment. |
| Keywords: | job search, unemployment, on-the-job search, search effort, wage dispersion |
| JEL: | E24 J29 J60 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10960&r=mac |
| By: | Dotsey, Michael (Federal Reserve Bank of Philadelphia); Fujita, Shigeru (Federal Reserve Bank of Philadelphia); Stark, Tom (Federal Reserve Bank of Philadelphia) |
| Abstract: | This paper reexamines the forecasting ability of Phillips curves from both an unconditional and conditional perspective by applying the method developed by Giacomini and White (2006). We find that forecasts from our Phillips curve models tend to be unconditionally inferior to those from our univariate forecasting models. Significantly, we also find conditional inferiority, with some exceptions. When we do find improvement, it is asymmetric - Phillips curve forecasts tend to be more accurate when the economy is weak and less accurate when the economy is strong. Any improvement we find, however, vanished over the post-1984 period. |
| Keywords: | Phillips curve; unemployment gap; conditional predictive ability |
| JEL: | C53 E37 |
| Date: | 2017–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:17-26&r=mac |
| By: | Andolfatto, David (Federal Reserve Bank of St. Louis); Berentsen, Aleksander (University of Basel); Martin, Fernando M. (Federal Reserve Bank of St. Louis) |
| 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. |
| Date: | 2017–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-023&r=mac |
| By: | Cheolbeom Park (Department of Economics, Korea University, Seoul, Republic of Korea); Erdenebat Bataa (Department of Economics, National University of Mongolia , Ulaanbaatar, Mongolia) |
| Abstract: | The U.S. Energy Information Administration estimates that approximately 52% of total U.S. crude oil was produced from shale oil resources in 2015. We examine whether the recent low crude oil price is attributable to this shale revolution in the U.S., using a SVAR model with structural breaks. Our results reveal that U.S. supply shocks are important drivers of real oil price and, for example, explain approximately a quarter of the 73% decline between June 2014-February 2016. Failure to consider statistically significant structural changes results in underestimating the role played by global supply shocks, while overestimating the role of the demand shocks. |
| Keywords: | Oil market, structural breaks, U.S. shale revolution |
| JEL: | C32 E32 F43 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:iek:wpaper:1704&r=mac |
| By: | Christian Pinshi (Université de Kinshasa - Université de Kinshasa) |
| Abstract: | Financial system being the place of metting capital flows (equality between saving and investment), a volatility of capital flows can destroy the robustness and good working of financial system, it means subvert financial stability. The same a weak financial system, few regulated and bad manage can exacerbate volatility of capital flows and finely undermine financial stability. The present study provides evidence on feedback effect between volatility of capital flows and financial stability in Democratic republic of Congo (DRC), and estimate the contributions of macroeconomic and macroprudential policies in the attenuation volatility of capital flows effects on financial stability and in the prevention of instability financial. Assessment dynamic regression model a la Feldstein-Horioka we showed that financial system is widely supplied and financed by internationals capital flows. This implicate Congolese economy is financially mobile, that can be dangerous for financial stability. The study dynamic econometric of financial system’s absolute size, we stipulate financial system has a systemic weight on real economy. Hence a shock of financial system could have devastating effects on Congolese economy. We estimate a vector autoregressive (VAR) model for prove the bilateral causality and impacts of macroeconomic and macroprudential policies. With regard to results, it proved on the one there is a feedback effect between volatility of capital flows and financial stability, on the other hand macroeconomic and macroprudential policies can’t attenuate volatility of capital flows and prevent instability financial. It prove macroprudential approach is given a better result than monetary policy. The implementation of framework macroprudential by Central Bank of Congo will be beneficial in the realization of financial stability and attenuation volatility of capital flows. Keywords: Volatility of capital flows, financial stability, macroeconomic and macroprudential policies |
| Abstract: | RÉSUME Le système financier étant le lieu de rencontre des flux de capitaux (égalité entre épargne et investissement), une volatilité des flux de capitaux peut détruire le bon fonctionnement et la robustesse du système financier, c'est-à-dire saper la stabilité financière. De même un système financier faible, peu réglementé et mal géré peut exacerber la volatilité des flux de capitaux et in fine saper la stabilité financière. Cette étude examine la boucle rétroactive entre la volatilité des flux de capitaux et la stabilité financière en République démocratique du Congo (RDC), et évalue les contributions des politiques macroéconomique et macroprudentielle dans l'atténuation des effets de la volatilité des flux de capitaux sur la stabilité financière et dans la prévention de l'instabilité financière. L'estimation du modèle de régression dynamique à la Feldstein-Horioka nous a montré que le système financier est largement alimenté et financé par les flux de capitaux internationaux. Ceci implique que l'économie congolaise est mobile financièrement, ceci peut être un danger pour la stabilité financière. L'étude économétrique dynamique de la taille absolue du système financier, nous stipule que le système financier a un poids systémique sur l'économie réelle. D'où un choc du système financier pourrait avoir des effets dévastateurs sur l'économie congolaise. Nous estimons un modèle vectoriel autorégressif pour vérifier la causalité bidirectionnelle et les impacts des politiques macroéconomique et macroprudentielle. Eu égards aux résultats, il s'est avéré d'une part, qu'il y a une boucle rétroactive entre la volatilité des flux de capitaux et la stabilité financière. Et d'autre part, que les politiques macroéconomique et macroprudentielle ne peuvent pas atténuer la volatilité des flux de capitaux et prévenir une instabilité financière. Il s'avère que l'approche macroprudentielle a donné un résultat meilleur que la politique monétaire. La mise en oeuvre d'un cadre macroprudentielle par la Banque centrale du Congo sera bénéfique dans l'atteinte de la stabilité financière et dans l'atténuation de la volatilité des flux de capitaux. Mots-clés: volatilité des flux des capitaux, stabilité financière, politique macroéconomique et macroprudentielle. Code JEL: F32, E37, E58, G13, G18 1 Chercheur en macroéconomie et en système financier. Phone: +243 (0) 81 570 25 30. |
| Keywords: | Volatility of capital flows, financial stability, macroeconomic and macroprudential policies,volatilité des flux des capitaux,stabilité financière,politique macroéconomique et macroprudentielle |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01577198&r=mac |
| By: | Jang-Ting Guo (Department of Economics, University of California Riverside); Alan Krause (University of York, UK) |
| Abstract: | We compare optimal nonlinear savings taxation under different assumptions with regard to the government's ability to commit to its future tax policy. In particular, we incorporate the possibility that individuals may differ in their beliefs regarding the probability of commitment. When these beliefs are homogeneous, we find that optimal marginal savings tax rates always fall between those under the polar cases of full-commitment (zero marginal savings taxation) and no-commitment (progressive marginal savings taxation). However, this result no longer holds when beliefs are postulated to be heterogeneous. The effects of beliefs changing in response to past commitment or no-commitment decisions by the government are also quantitatively explored. |
| Keywords: | Savings Taxation; Commitment; Multi-Dimensional Screening. |
| JEL: | E60 H21 H24 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:ucr:wpaper:201708&r=mac |
| By: | Jean-Pierre Danthine (CEPR - Center for Economic Policy Research - CEPR, UNIL - Université de Lausanne, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics) |
| Abstract: | The Swiss National Bank has introduced negative interest rates of minus 75bp in mid-January 2015. Large exemptions on commercial bank holdings at the SNB result in the average rate being significantly less negative than the marginal rate. With this constellation the policy transmission to the real economy is asymmetric. It fully satisfies the needs of a SOE in search of a negative interest differential, not those of an economy aiming at a 'classical' monetary stimulus at the zero bound. While the Swiss design would make it possible to impose rates that are significantly more negative with modest complementary features, the unpopularity of negative rates makes it likely that the ambition to totally free monetary policy of the ZLB will be thwarted by democratic realities in the near future. |
| Keywords: | safe haven currency,negative interest rates,paper currency hoarding |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-01571635&r=mac |
| By: | Mark Setterfield (Department of Economics, New School for Social Research); Selen Ozcelik (Department of Economics, New School for Social Research) |
| Abstract: | A long-held view among macroeconomists in the UK and US is that sustained currency over valuation – often the result of financial-sector dominance – weakens domestic macroeconomic performance and results in premature deindustrialization. Similar concerns have been expressed about persistent, policy-induced recessions. According to balance-of payments-constrained growth (BPCG) theory, meanwhile, the BPCG rate in a multi-sector economy varies directly with the share of manufacturing in total output. This chapter develops a simple model that combines these observations to show how a temporary but persistent shock to the nominal exchange rate and/or domestic demand can both affect the actual rate of growth in the short run (by moving it away from the long-run equilibrium BPCG rate), and alter the BPCG rate itself (by lowering the income elasticity of demand for exports as a result of induced premature deindustrialization). The result is a time-varying balance-of payments constrained growth (TV-BPCG) rate. Because actual growth and the TV-BPCG rate vary directly, the latter is also characterized as quasi path dependent. |
| Keywords: | Exchange rate, policy-induced recession, deindustrialization, balance-ofpayments-constrained growth, path dependence |
| JEL: | E12 F43 O41 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1726&r=mac |
| By: | Claudius Gräbner; Philipp Heimberger; Jakob Kapeller; Bernhard Schütz |
| Abstract: | This paper analyses economic developments in the Eurozone since its inception in 1999. In doing so, we document a process of economic divergence and polarization among those countries that joined the Eurozone during its first two years, which fits a typical ‘core – periphery’ pattern. We show how this polarization process first manifested in increasing current account imbalances before the crisis, before it translated unto the level of general macroeconomic development after the crisis. Empirically, we demonstrate how this divergence is tied to a ‘structural polarization’ in terms of the sectoral composition of Eurozone countries: specifically, the emergence of export-driven growth in core countries and debt-driven growth in the European periphery coincides with differences in technological capabilities and firm performance. Pushing for convergence within Europe requires the implementation of three intertwined policy programs: macroprudential financial regulation, active industrial policies aiming at a technological catch-up process in periphery countries, and progressive redistributional policies to sustain adequate levels of aggregate demand throughout the Eurozone. |
| Keywords: | polarization, European Monetary Union, industrial policy, financial regulation, growth trajectories |
| JEL: | B5 E6 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2017_11&r=mac |
| By: | Galindo, Arturo; Panizza, Ugo |
| Abstract: | This paper shows that international government borrowing from multilateral development banks is countercyclical while international government borrowing form private sector lenders is procyclical. The countercyclicality of official lending is mostly driven by the behavior of the World Bank (borrowing from regional development banks tends to be acyclical). The paper also shows that official sector lending to Latin America and East Asia is more countercyclical than official lending to other regions. Private sector lending is instead procyclical in all developing regions. While the cyclicality of official lending does not depend on domestic or international conditions, private lending becomes particularly procyclical in periods of limited global capital flows. By focusing on both borrowers and lenders' heterogeneity the paper shows that the cyclical properties of international government debt are mostly driven by credit supply shocks. Demand factors appear to be less important drivers of procyclical international government borrowing. The paper's focus on supply and demand factors is different from the traditional push and pull classification, as push and pull factors could affect both the demand and the supply of international government debt. |
| Keywords: | Fiscal Policy; International Financial Institutions; International Government Debt; Capital Flows |
| JEL: | E62 F32 F34 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12243&r=mac |
| By: | Richard Pomfret, Professor at the University of Adelaide School of Economics in Australia, Tiziana Bonapace and Hiroaki Ogawa of the ESCAP Subregional Office for North and Central Asia. (United Nations Economic and Social Commission for Asia and the Pacific) |
| Abstract: | Ongoing economic stagnation in North and Central Asia since the collapse of global oil prices in mid-2014 reinforces the need to diversify the subregion’s economic growth engine beyond the resource based sectors. Economic growth performance in the subregional economies is often volatile, largely influenced by global prices for a few commodities. For example, oil and gas account for more than 90 per cent of the total export value in Azerbaijan and Turkmenistan and more than half in Kazakhstan and the Russian Federation. Similarly, more than half of Kyrgyzstan’s exports comprise gold, while copper ore and aluminium account for one third of the exports from Armenia and Tajikistan respectively. A more diversified economic base in resource-based economies also would help reduce economic volatility in countries that rely on workers’ remittances, such as Kyrgyzstan and Tajikistan where workers’ remittances (mainly from workers in the Russian Federation) are equivalent to about a quarter of their GDP. Despite an expected modest rebound in the near term, global oil prices are projected to remain relatively low for an extended period of time. In this regard, an effort to broaden the economic base of North and Central Asian economies in order to increase their economic resilience to external adverse shocks remains an urgent task. |
| URL: | http://d.repec.org/n?u=RePEc:unt:pbmpdd:pb55&r=mac |
| By: | Kiyutsevskaya Anna (Gaidar Institute for Economic Policy) |
| Abstract: | The article examines the specific features that characterize central banks' monetary policies under current conditions in the context of evolution of their goals and objectives during different phases of economic development. The author substantiates the statement that the choice of goals and objectives is determined by objective factors, and on this basis comes to the conclusion that the global financial and economic crisis, which revealed the challenges to and constraints on the choice of monetary policy directions, became the next starting point in its evolution. |
| Keywords: | Russian economy, monetary policy regime, monetary authorities, features of macroeconomic development, targeting, developed and developing countries |
| JEL: | E52 F33 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:gai:wpaper:wpaper-2017-298&r=mac |
| By: | Jean-Bernard Chatelain (PSE - Paris School of Economics); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school) |
| Abstract: | This paper shows that a shift from Ramsey optimal policy under short term commitment (based on a negative-feedback mechanism) to a Taylor rule (based on positive-feedback mechanism) in the new-Keynesian model is in fact a Hopf bifurcation, with opposite policy advice. The number of stable eigenvalues corresponds to the number of predetermined variables including the interest rate and its lag as policy instruments for Ramsey optimal policy. With a new-Keynesian Taylor rule, however, these policy instruments are arbitrarily assumed to be forward-looking variables when policy targets (inflation and output gap) are forward-looking variables. For new-Keynesian Taylor rule, this Hopf bifurcation implies a lack of robustness and multiple equilibria if public debt is not set to zero for all observation. |
| Keywords: | Bifurcations,Taylor rule,Taylor principle,new-Keynesian model,Ramsey optimal policy,Finite horizon commitment |
| Date: | 2017–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01527872&r=mac |
| By: | Kajii, Atsushi (Kyoto University, Singapore Management University (Visiting Professor)); Xue, Jingyi (School of Economics, Singapore Management University) |
| Abstract: | We study a two-period saving model where the agent’s future income might be ambiguous. Our agent has a version of the smooth ambiguity decision criterion (Klibanoff, Marinacci and Mukerji (2005)), where the agent’s perception about ambiguity is described by a second-order belief over first-order risks. We model increasing ambiguity as a spreading-out of the second-order belief. We show that under a “Risk Comonotonicity” condition, our agent saves more when ambiguity in future income increases. We argue that the condition is indispensable for our result. |
| Keywords: | Precautionary Saving; Smooth Ambiguity; Increasing Ambiguity; Risk Comonotonicity; Informativeness |
| JEL: | D80 D81 D91 E21 |
| Date: | 2016–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:ris:smuesw:2017_002&r=mac |
| By: | Arturo J. Galindo (Inter-American Development Bank); Ugo Panizza (IHEID, Graduate Institute of International and Development Studies, Geneva and CEPR) |
| Abstract: | The paper shows that international government borrowing from multilateral development banks is countercyclical while international government borrowing form private sector lenders is procyclical. The countercyclicality of official lending is mostly driven by the behavior of the World Bank (borrowing from regional development banks tends to be acyclical). The paper also shows that official sector lending to Latin America and East Asia is more countercyclical than official lending to other regions. Private sector lending is instead procyclical in all developing regions. While the cyclicality of official lending does not depend on domestic or international conditions, private lending becomes particularly procyclical in periods of limited global capital flows. By focusing on both borrowers and lenders’ heterogeneity the paper shows that the cyclical properties of international government debt are mostly driven by credit supply shocks. Demand factors appear to be less important drivers of procyclical international government borrowing. The paper’s focus on supply and demand factors is different from the traditional push and pull classification, as push and pull factors could affect both the demand and the supply of international government debt. |
| Keywords: | International Government Debt; Capital Flows, Fiscal Policy; International Financial Institutions |
| JEL: | E62 F34 F32 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp17-2017&r=mac |
| By: | Brave, Scott A. (Federal Reserve Bank of Chicago); Lopez, Jose A. (Federal Reserve Bank of San Francisco) |
| Abstract: | The introduction of macroprudential responsibilities at central banks and financial regulatory agencies has created a need for new measures of financial stability. While many have been proposed, they usually require further transformation for use by policymakers. We propose a transformation based on transition probabilities between states of high and low financial stability. Forecasts of these state probabilities can then be used within a decision-theoretic framework to address the implementation of a countercyclical capital buffer, a common macroprudential policy. Our policy simulations suggest that given the low probability of a period of financial instability at year-end 2015, U.S. policymakers need not have engaged this capital buffer. |
| Date: | 2017–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:2017-17&r=mac |
| By: | Effah Nyamekye, Gabriel; Adusei Poku, Eugene |
| Abstract: | The paper examines the effect of inflation on consumer spending behaviour in Ghana during the period 1964 to 2013 using annual data. The analysis of the results was done using Ordinary least square test (OLS), the Johansen test (JH), and Vector Error Correction (VECM) test. The findings of the studies based on the JH tests showed stable significant long run relationship between inflation and consumer spending behaviour. The findings of the study shows significant short run relationship between inflation and consumer spending using the VECM. The results of the OLS test show there is positive relationship between inflation and consumer spending behaviour. Policy makers should take into account the findings of the study in managing the economy. Future studies on causality and structural break are worth undertaking. |
| Keywords: | Inflation, consumer spending behaviour, long run, short run |
| JEL: | D11 D12 E31 L67 L68 P24 P44 P46 |
| Date: | 2017–03–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81081&r=mac |
| By: | Chari, V. V. (Federal Reserve Bank of Minneapolis); Christiano, Lawrence J. (Federal Reserve Bank of Minneapolis) |
| Abstract: | The financialization view is that increased trading in commodity futures markets is associated with increases in the growth rate and volatility of commodity spot prices. This view gained credence be-cause in the 2000s trading volume increased sharply and many commodity prices rose and became more volatile. Using a large panel dataset we constructed, which includes commodities with and with-out futures markets, we find no empirical link between increased futures market trading and changes in price behavior. Our data sheds light on the economic role of futures markets. The conventional view is that futures markets provide one-way insurance by allowing outsiders, traders with no direct interest in a commodity, to insure insiders, traders with a direct interest. The data are not consistent with the conventional view and we argue that they point to an alternative mutual insurance view, in which all participants insure each other. We formalize this view in a model and show that it is consistent with key features of the data. |
| Keywords: | Spot price volatility; Futures market returns; Open interest; Net financial flows |
| JEL: | E02 G12 G23 |
| Date: | 2017–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:552&r=mac |
| By: | Chakraborty, Tanika (Indian Institute of Management); Mukherjee, Anirban (University of Calcutta); Rachapalli, Swapnika Reddy (University of Toronto); Saha, Sarani (Indian Institute of Technology Kanpur) |
| Abstract: | Our study is motivated by two disturbing evidences concerning women in India. On one hand, crime against women is on the rise while on the other, women's labor force participation rate (WLFPR) has been declining over the last three decades. We estimate the extent to which the decline in WLFPR can be assigned to increasing instances of crime against women. We argue that an increase in crime against women, increases the non-pecuniary costs of traveling to work, particularly in a traditional society marked by stigma against victims of sexual crimes. Our findings suggest that women are less likely to work away from home in regions where the perceived threat of sexual harassment against girls is higher. The estimate is robust to various sensitivity checks. Moreover, the deterrence effect of crime responds to the opportunity cost of work on one hand and the stigma cost of sexual crimes on the other. |
| Keywords: | crime against women, labor force participation, stigma cost |
| JEL: | E24 J16 J18 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10934&r=mac |
| By: | Jamal Bouoiyour (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour); Refk Selmi (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour) |
| Abstract: | Much significant research has been done to investigate various facets of the link between Bitcoin price and its fundamental sources. This study goes beyond by looking into least to most influential factors-across the fundamental, macroeconomic, financial, speculative and technical determinants as well as the 2016 events-which drove the value of Bitcoin in times of economic and geopolitical chaos. We use a Bayesian quantile regression to inspect how the structure of dependence of Bitcoin price and its determinants varies across the entire conditional distribution of Bitcoin price movements. In doing so, three groups of determinants were derived. The use of Bitcoin in trade and the uncertainty surrounding China's deepening slowdown, Brexit and India's demonetization were found to be the most potential contributors of Bitcoin price when the market is improving. The intense anxiety over Donald Trump being the president of United States was shown to be a positive determinant pushing up the price of Bitcoin when the market is functioning around the normal mode. The velocity of bitcoins in circulation, the gold price, the Venezuelan currency demonetization and the hash rate were found to be the fundamentals influencing the Bitcoin price when the market is heading into decline. |
| Keywords: | Bitcoin price,Bayesian quantile regression ,correlation,determinants |
| Date: | 2017–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01548710&r=mac |
| By: | Francesca Monti (Bank of England); Riccardo Maria Masolo (Bank of England) |
| Abstract: | Allowing for ambiguity, or Knightian uncertainty, about the behavior of the policymaker helps explain the evolution of trend inflation in the US in a simple new-Keynesian model, without resorting to exogenous changes in the inflation target. Using Blue Chip survey data to gauge the degree of private sector confidence, our model helps reconcile the difference between target inflation and the inflation trend measured in the data. We also show how, in the presence of ambiguity, it is optimal for policymakers to lean against the private sectors pessimistic expectations. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:508&r=mac |
| By: | Vincent Vandenberghe (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)) |
| Abstract: | Vandenbussche et al (2006), Aghion et al. (2009) posit and show that when economies operate close to the technical frontier, their ability to generate efficiency gains rests on the contribution of workers with advanced forms of education (i.e. those who attended tertiary education). The main originality of this empirical paper is to revisit and improve the analysis of that assumption in the context of firms located in advanced economics, assuming that something that has been verified for OECD countries or US states is likely to be observed also at a much more desegregated level. To that purpose, we analyse a rich panel of Belgian firm-level data, covering the 2008-14 period. In the first step, we concentrate on properly estimating each firm’s distance/proximity to frontier. Step 2 consists in regressing each firm's efficiency growth rate on [1] the share of workers by education attainment [2] its (initial) distance/proximity to the frontier and [3] (the main variable of interest here) the interaction between [1] & [2], whose sign provides a direct test of the Vandenbussche/Aghion assumption. The main result of the paper supports the idea that the closer the firms are from the frontier, the more educated workers matter for efficiency gains. |
| Keywords: | Efficiency growth, Highly-educated workers, Frontier Firms, Proximity to frontier |
| JEL: | J24 I20 E24 O30 O40 |
| Date: | 2017–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2017012&r=mac |
| By: | Jose Maria Barrero; Nicholas Bloom; Ian Wright |
| Abstract: | Uncertainty appears to have both a short-run and a long-run component, which we measure using firm and macro implied volatility data from options of 30 days to 10 years duration. We ask what may be driving uncertainty over these different time horizons, finding that oil price volatility is particularly important for short-run uncertainty, policy uncertainty is particularly important for long-run uncertainty, while currency volatility and CEO turnover appear to equally impact short- and long-run uncertainty. Examining a panel of over 4,000 firms from 1996 to 2013 we find that R&D is relatively more sensitive to long-run uncertainty than investment, and in turn investment is relatively more sensitive to long-run uncertainty than hiring. In a simulation model we investigate the channels underlying this pecking-order response to long-run uncertainty, and show that lower depreciation rates and higher adjustment costs lead R&D and investment to be more sensitive to longer-run uncertainty than hiring. Collectively, these results suggest that recent events that have raised long-run policy uncertainty may be particularly damaging to growth by reducing R&D and investment. |
| JEL: | E22 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23676&r=mac |
| By: | Russell Cooper; Guozhong Zhu |
| Abstract: | This paper studies household finance in China, focusing on the high savings rate, the low participation rate in the stock market, and the low stock share in household portfolios. These salient features are studied in a lifecycle model in which households receive both income and medical expense shocks and decide on stock market participation and portfolio adjustment. The structural estimation explicitly takes into account important regime changes in China, such as the re-opening of the stock market, the privatization of the housing market and the labor market reforms that changed household income processes. The paper also compares household finance patterns in China to those in the US, and shows that between-country differences in financial choices are driven by both institutional factors (e.g. higher costs associated with stock market participation and a lower consumption floor in China) and preferences (e.g. higher discount factors of Chinese households). |
| JEL: | E21 G11 P2 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23741&r=mac |
| By: | Hamza Ali Malik and Vatcharin Sirimaneetham from the Macroeconomic Policy and Financing for Development Division. (United Nations Economic and Social Commission for Asia and the Pacific) |
| Abstract: | Monetary policy considerations should go beyond concerns of near-term economic growth and inflation, and be mindful of other issues, such as financial stability, exchange rate movements and capital flows. In particular, a monetary policy stance that is kept too loose for too long could undermine domestic financial stability because firms and individuals tend to undertake riskier investment decisions when their balance sheets look stronger than they would otherwise. In many regional economies, financial stability is already being closely monitored. |
| URL: | http://d.repec.org/n?u=RePEc:unt:pbmpdd:pb41&r=mac |
| By: | Antoine Lepetit (Banque de France - Banque de France - Banque de France) |
| Abstract: | This paper considers a standard New Keynesian model in which the relevant frictions faced by the monetary authority are price stickiness and the market power of firms, and shows that the optimal inflation rate is no longer zero in the presence of discount factor heterogeneity. I derive analytical solutions for the long-run optimal inflation rate under different assumptions about price setting, and find that it is positive when the social discount factor is greater than the discount factor used by firms when evaluating profit flows, zero when the two are equal, and negative when the planner is more impatient than firms. |
| Keywords: | Optimal inflation rate, sticky prices, discount factor heterogeneity |
| Date: | 2017–05–25 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01527816&r=mac |
| By: | Neil Mehrotra (Brown University); Nicolas Crouzet (Northwestern University) |
| Abstract: | We analyze the behavior of small and large firms over the business cycle, using new firm-level quarterly data from the US Census Bureau covering the balance sheets and income statements of all firms in the US manufacturing sector. We find that sales, inventory growth, and investment rates are more cyclical among smaller firms. The differential cyclicality holds after controlling for industry effects, and is driven by the behavior of firms in the top 1\% of the asset distribution. We show that the result survives when directly controlling for firm leverage, liquidity, or bank dependency, suggesting that the excess cyclicality of small firms may not be driven by differences in access to credit. Additionally, we find that independent of size, firms with zero debt exhibit less sensitivity to the business cycle than positive leverage firms. Finally, we assess the importance of the excess cylicality of small firms for aggregate fluctuations in sales, inventory, and investment. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:600&r=mac |
| By: | Steve Gui-Diby and Oliver Paddison from the Macroeconomic Policy and Financing for Development Division. (United Nations Economic and Social Commission for Asia and the Pacific) |
| Abstract: | This policy brief discusses channels through which governance affects fiscal management and presents the estimated impact of change in governance on fiscal variables. Policy options are also discussed for further consideration by policy makers. |
| URL: | http://d.repec.org/n?u=RePEc:unt:pbmpdd:pb59&r=mac |
| By: | Alison E. Weingarden |
| Abstract: | This paper studies employment decisions at U.S. companies over the 2007-2012 period, during and after the Great Recession. To this end, I build a panel dataset that matches publicly-listed companies' financial reports to their announced layoff episodes. Using limited dependent variable regressions, I find that layoffs respond to accumulated changes in a company's financial conditions. While recent financial changes have the largest impacts on layoff propensities, financial changes over at least four previous quarters appear to have additional marginal effects. |
| Keywords: | Downsizing ; Employment adjustment costs |
| JEL: | J21 J63 E24 |
| Date: | 2017–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-88&r=mac |
| By: | Paredes, Joan |
| Abstract: | Due to input-output linkages, an industry level shock can widely transmit to the rest of the economy. We identify government policies on the automobile industry, which change final prices and estimate their effect on sales and production. An example could be the scrappage schemes that many European governments introduced at the start of the Great Recession. In line with previous studies, we confirm that the effect on car sales is positive. More interestingly, we extend the literature that explores the effects of these policies on domestic and foreign production to disentangle the potential spill-overs. JEL Classification: C32, C54, E23, E62, H25 |
| Keywords: | automotive industry, Bayesian GVAR, fiscal policy, production, spill-overs |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20172094&r=mac |
| By: | Jasmina Arifovic (Simon Fraser University); John Duffy (Department of Economics, University of California-Irvine); Janet Jiang (Bank of Canada) |
| Abstract: | We model the introduction of a new payment method that competes with an existing payment method. Due to network adoption effects, there are two symmetric pure strategy equilibria in which only one of the two payment methods is used. The equilibrium where only the new payment method is used is socially optimal. In an experiment, we find that, depending on the fixed fee for acceptance of the new payment method and on the choices made by participants on both sides of the market, either equilibrium can be selected. An evolutionary learning model provides a good characterization of our experimental data. |
| Keywords: | Payment methods; Network effects; E-money; Experimental economics. |
| JEL: | E41 C35 C83 C92 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:171801&r=mac |
| By: | Stefania Albanesi (University of Pittsburgh) |
| Abstract: | I examine the effects of female labor market behavior on the dynamics of aggregate employment and hours in the trend and over the business cycle in the US. I argue that the steep increase in women's labor force participation throughout the 1970s and 1980s, and its flattening out since the 1990s can contribute to explain three puzzling phenomena experienced by the US: the non-stationarity of aggregate hours, the decrease business cycle volatility of labor market variables before the great recession, and the recent jobless recoveries. To develop the analysis, I first construct an aggregate time series for hours by gender similar to the series used in in aggregate business cycle analysis, and provide descriptive empirical evidence supporting the hypothesis proposed in this paper. I then develop and estimate a dynamic stochastic general equilibrium model that allows for gender differences in hours and wages to assess the implications of the changing trend in female participation on the behavior of aggregate variables. I find that female specific shocks explain a substantial fraction of the volatility of aggregate outcomes, both at the business cycle frequency and in the longer run. Using a number of counterfactuals, I show that the trend in female participation and its variation over time can rationalize the three phenomena of interest. These findings have implications for the behavior of aggregate labor market variables in other advanced economies where female labor force participation is experiencing secular changes. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:580&r=mac |
| By: | Daniel Jeongdae Lee from the Macroeconomic Policy and Financing for Development Division. (United Nations Economic and Social Commission for Asia and the Pacific) |
| Abstract: | Countercyclical fiscal policy has continued to play an active role in stabilizing the economy in the Asia-Pacific region. Nevertheless, ensuring fiscal sustainability is important and would require comprehensive tax reforms and effective debt management. |
| URL: | http://d.repec.org/n?u=RePEc:unt:pbmpdd:pb51&r=mac |
| By: | Jean-Bernard Chatelain (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school) |
| Abstract: | Shifting from Ramsey optimal policy to time-consistent policy or optimal simple rule corresponds to a saddle-node bifurcation of the dynamic system of the economy. A pre-test of Ramsey optimal policy versus time-consistent policy rejects time-consistent policy and optimal simple rule for the U.S. Fed during 1960 to 2006, assuming the reference new-Keynesian Phillips curve transmission mechanism with auto-correlated cost-push shock. The number of reduced form parameters is larger with Ramsey optimal policy than with time-consistent policy although the number of structural parameters, including central bank preferences, is the same. The new-Keynesian Phillips curve model is under-identified with Ramsey optimal policy (one identifying equation missing) and hence under-identified for time-consistent policy (three identifying equations missing). Estimating a structural VAR for Ramsey optimal policy during Volcker-Greenspan period, the new-Keynesian Phillips curve slope parameter and the Fed's preferences (weight of the volatility of the output gap) are not statistically different from zero at the 5% level. |
| Keywords: | Ramsey optimal policy,Time-consistent policy,Identication,Central bank preferences,New-Keynesian Phillips curve |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-01549908&r=mac |
| By: | Chien, YiLi (Federal Reserve Bank of St. Louis); Wen, Yi (Federal Reserve Bank of St. Louis) |
| Abstract: | This paper addresses a long-standing problem in the optimal Ramsey capital taxation literature. The tractability of our model enables us to solve the Ramsey problem analytically along the entire transitional path. We show that the conventional wisdom on Ramsey tax policy and its underlying intuition and rationales do not hold in our model and may thus be misrepresented in the literature. We uncover a critical trade off for the Ramsey planner between aggregate allocative efficiency in terms of the modified golden rule and individual allocative efficiency in terms of self-insurance. Facing the trade off, the Ramsey planner prefers issuing debt rather than taxing capital if possible. In particular, the planner always intends to supply enough bonds to relax individuals' borrowing constraints and through which to achieve the modified golden rule by crowding out capital. Capital tax is not the vital tool to achieve aggregate allocative efficiency despite possible over-accumulation of capital. Thus the optimal capital tax can be zero, positive, or even negative, depending on the Ramsey planner's ability to issue debt. The modified golden rule can fail to hold whenever the government encounters a debt limit. Finally, the desire to relax individuals' borrowing constraints by the planner may lead to unlimited debt accumulation, resulting in a dynamic path featuring no steady state. |
| Keywords: | Optimal Capital Taxation; Ramsey Problem; Incomplete Market |
| JEL: | E13 E62 H21 H30 |
| Date: | 2017–08–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-024&r=mac |
| By: | Todd Walker (Indiana University); Giacomo Rondina (University of Colorado, Boulder) |
| Abstract: | In the context of a dynamic model with incomplete information, we isolate a novel mechanism of shock propagation that results in waves of optimism and pessimism along a Rational Expectations equilibrium. We term the mechanism confounding dynamics because it arises from agents’ optimal signal extraction efforts on variables whose dynamics—as opposed to superimposed noise—prevents full revelation of information. Employing methods in the space of analytic functions, we are able to obtain analytical characterizations of the equilibria that generalize the celebrated Hansen-Sargent optimal prediction formula. We apply our results to a canonical real business cycle model and derive the analytic solution for output, consumption and capital. We show that, in response to a permanent positive productivity shock, confounding dynamics generate expansions and recessions that would not be present under complete information. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:525&r=mac |
| By: | Alexander F. McQuoid (United States Naval Academy); Yi Ding (Tianjin Precious Metal Exchange); Cem Karayalcin (Florida International University) |
| Abstract: | Though it has been recognized that political institutions and state capacity play an important role in determining economic outcomes, for most non-Western economies we still do not have granular enough historical knowledge as to how. Here we study a particular historical episode in the case of China, which, after a period of fiscal decentralization that has been credited with leading to historically unprecedented growth rates but significant fiscal decline, recentralized the collection of tax revenues. The economic and political consequences of this new Tax Sharing System (TSS) have been debated extensively given the interest on fiscal decentralization and its interaction with political institutions and economic outcomes. The central question in this debate has been whether the TSS constitutes a significant departure from decentralization with adverse effects on fiscal federalism or whether the recentralization under the TSS corrects for the overshooting in decentralization with beneficial economic outcomes. Our approach exploits the staggered introduction of the TSS across regions and over time to causally identify the policy impact on economic outcomes. After showing traditional proxies of fiscal federalism provide unstable estimates and contradictory conclusions, we utilize a difference-in-difference approach, and find that the TSS increased per capita GDP growth rates by 17%. |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:usn:usnawp:57&r=mac |
| By: | Bakari, Sayef; Mabrouki, Mohamed; elmakki, asma |
| Abstract: | This paper investigates the relationship between industrial domestic investment and economic growth in Tunisia. In order to achieve this purpose, annual data for the periods between 1969 and 2015 were tested using the Johansen co-integration analysis of VECM and the Granger-Causality tests. According to the result of the analysis, it was determined that there is a negative relationship between industrial domestic investment and economic growth in the long run term. Otherwise, and on the basis of the results of the Granger causality test, we noted a unidirectional causal relationship from economic growth to industrial domestic investment in the short term. These results provide evidence that domestic investment in industrial sector, thus, are not seen as the source of economic growth in Tunisia during this large period and suffer a lot of problems and poor economic strategy. |
| Keywords: | Industrial Investment, Economic Growth, Tunisia, Cointegration, VECM and Causality. |
| JEL: | A1 E22 F0 O4 O47 O55 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81039&r=mac |
| By: | Christopher Otrok (University of Missouri); Andrew Foerster (Federal Reserve Bank of Kansas City); Alessandro Rebucci (The Johns Hopkins Carey Business School); Gianluca Benigno |
| Abstract: | This paper develops an endogenous regime switching approach to modeling financial crises. In the model there are two regimes, one a crisis regime, the second a regime for normal economic times. The switch between regimes is based on a probability determined by economic variables in the economy. Agents in the economy know how economic fundamentals affect the probability of moving in or out of the crisis state. That is, it is a rational expectations solution of the model. The solution then ensures that decisions made in the normal state fully incorporate how those decision affect the probability of moving into the crisis state as well as how the economy will operate in a crisis. The model developed captures all of the salient features one would want in an empirical model of financial crises. First, it captures the non-linear nature of a crisis. Second, the regime switching model is solved using perturbation methods and a second order solution. This allows the solution to capture the impact of risk on decision rules due both in an out of the crisis. Third, since the solution method is perturbation based it can handle a number of state variables and many shocks. That is, we are less constrained than current non-linear methods in terms of the size of the model. Fourth, the speed of the solution method means that non-linear filters can be used to calculate the likelihood function of the model for a full Bayesian estimation of the relevant shocks and frictions that are fundamental to models of financial crises. Fifth, the fully rational expectations nature of the solution allows one to ask key counterfactual policy questions. We adopt this approach to study sudden stop episodes in Mexico. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:572&r=mac |
| By: | Huang, Kaixing |
| Abstract: | Although the persistent slowdown in the growth of per capita output has been observed in virtually all industrialized countries since the early 1970s, no persuasive theoretical explanation for this phenomenon has been given. This paper constructs a modified endogenous growth model that indicates the slowdown is part of the natural process of economic development. Specifically, the model predicts that each economy develops along a path characterized by Malthusian stagnation, economic take-off, demographic transition, growth slowdown, and steady-state. The persistent slowdown in growth indicates that even the most developed countries are not in their steady-state yet, and their future growth could be slower. |
| Keywords: | Growth slowdown, ideas, human capital, population |
| JEL: | E27 O4 |
| Date: | 2016–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80988&r=mac |
| By: | Garbade, Kenneth D. (Federal Reserve Bank of New York); Keane, Frank M. (Federal Reserve Bank of New York) |
| Abstract: | Modern money and capital markets are not free-form bazaars where participants are left alone to contract as they choose, but rather are circumscribed by a variety of statutes, regulations, and behavioral norms. This paper examines the circumstances surrounding the introduction of a set of norms recommended by the Treasury Market Practices Group (TMPG) and pertinent to trading in U.S. government securities. The TMPG is a voluntary association of market participants that does not have any direct or indirect statutory authority; its recommendations do not have the force of law. The recommendations do, however, carry the cachet of respected market participants and are targeted to behaviors that are widely acknowledged to impinge on market liquidity and that risk damaging the reputation of the market. |
| Keywords: | Treasury Market Practices Group; behavioral norms; fails charge; dealer time; margin |
| JEL: | E58 G20 N22 |
| Date: | 2017–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:822&r=mac |
| By: | Khan, Muhammad Kamran; Teng, Jian -Zhou; Parviaz, Javed; Chaudhary, Sunil Kumar |
| Abstract: | Economist and stock managers always focus on stock market return. This study investigated short and long run relationship between economic factors and stock returns in China by applying ARDL approach from 01/2000 to 12/2016. Estimated results of bound test for co-integration shows that long run relationships exist among the variables except inflation rate. Results of short and long run ARDL demonstrate that exchange rate and inflation rate have positive effect on stock returns in China while interest rate have negative effect on stock returns. Results indicate that stock returns in China are very sensitive and can be affected positively or negatively with increase and decrease in economic factors. Both local and regional factors in China can directly and indirectly explain Shanghai Stock Exchange stock returns. |
| Keywords: | stock returns, economic factors, ARDL |
| JEL: | E4 G10 |
| Date: | 2017–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81017&r=mac |
| By: | Hatgioannides, John (City University London); Karanassou, Marika (Queen Mary, University of London); Sala, Hector (Universitat Autònoma de Barcelona) |
| Abstract: | This paper holistically addresses the effective (relative) income tax contribution of a given in-come (or, wealth) group. The widely acclaimed standard in public policy is the absolute benefaction of a given income group in filling up the fiscal coffers. Instead, we focus on the ratio of the average income tax rate of an income group divided by the percentage of national income (or wealth) appropriated by the same income group. In turn, we develop the Fiscal Inequality Coefficient which compares the effective percentage income tax payments of pairs of income (or wealth) groups. Using data for the US, we concentrate on pairs such as the Bottom 90% versus Top 10%, Bottom 99% versus Top 1%, and Bottom 99.9% versus Top 0.1%. We conclude that policy makers with a strong social conscience should re-evaluate the progressivity of the income tax system and make the richest echelons of the income and wealth distributions pay a fairer and higher tax. |
| Keywords: | fiscal policy, progressive income taxation, inequality, effective income tax rate, fiscal inequality coefficient |
| JEL: | H23 H30 E64 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10978&r=mac |
| By: | Aurore Burietz; Kim Oosterlinck; Ariane Szafarz |
| Abstract: | According to the syndicated loan pricing puzzle (Carey and Nini, Journal of Finance, 2007) interest rates charged to corporate borrowers are lower in Europe than in the U.S. Our investigation suggests that controlling for region-specific credit ratings makes the Europe-U.S. gap insignificant, and solves the puzzle. We speculate that the puzzle originates from the lack of uniformity of accounting standards. |
| Keywords: | Pricing puzzle; Syndicated loan; Rating; Europe; U.S. |
| JEL: | E40 G15 G21 G24 |
| Date: | 2017–08–21 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/256702&r=mac |