nep-mac New Economics Papers
on Macroeconomics
Issue of 2017‒09‒10
57 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary-Fiscal Interactions and the Euro Area's Malaise By Marek Jarociński; Bartosz Maćkowiak
  2. Leaning Against the Credit Cycle By Gelain, Paolo; Lansing, Kevin J.; Natvik, Gisele J.
  3. Price Rigidities and the Granular Origins of Aggregate Fluctuations By Ernesto Pasten; Raphael Schoenle; Michael Weber
  4. Central bank information and the effects of monetary shocks By Hubert, Paul
  5. What's 'structural' about unemployment in Europe: On the Determinants of the European Commission's NAIRU Estimates By Jakob Kapeller; Philipp Heimberger; Bernhard Schuetz
  6. Trend-cycle-seasonal interactions: identification and estimation By Irma Hindrayanto; Jan P.A.M. Jacobs; Denise R. Osborn; Jing Tian
  7. Credit and the Labor Share: Evidence from U.S. States By Leblebicioglu, Asli; Weinberger, Ariel
  8. Own or inherited? The effect of national fiscal rules after changes of government By Tóth, Csaba G.
  9. Did Fiscal Consolidation Cause the Double Dip Recession in the Euro Area? By Philipp Heimberger
  10. Measuring the Stance of Monetary Policy in a Time-Varying By Fernando J. Pérez Forero
  11. Modelling a complex world: Improving macro-models By Warwick J. McKibbin; Andrew Stoeckel
  12. A Simple Algorithm for Solving Ramsey Optimal Policy with Exogenous Forcing Variables By Chatelain, Jean-Bernard; Ralf, Kirsten
  13. Does It Matter If Statistical Agencies Frame the Month’s CPI Reporton a 1-Month or 12-month Basis? By Jeffrey A. Frankel; Ayako Saiki
  14. Asymmetric Unemployment Fluctuations and Monetary Policy Trade-offs By Antoine Lepetit
  15. Dealing with time-inconsistency: Inflation targeting vs. exchange rate targeting By J. Scott Davis; Ippei Fujiwara; Jiao Wang
  16. Econophysics of Business Cycles: Aggregate Economic Fluctuations, Mean Risks and Mean Square Risks By Victor Olkhov
  17. Machine learning at central banks By Chakraborty, Chiranjit; Joseph, Andreas
  18. Global banking and the conduct of macroprudential policy in a monetary union By Jean-Christophe Poutineau; Gauthier Vermandel
  19. How Have Banks Been Managing the Composition of High-Quality Liquid Assets? By Jane E. Ihrig; Edward Kim; Ashish Kumbhat; Cindy M. Vojtech; Gretchen C. Weinbach
  20. Leaning Against the Wind: The Role of Different Assumptions About the Costs By Lars E.O. Svensson
  21. The U.S. Oil Supply Revolution and the Global Economy By Kamiar Mohaddes; Mehdi Raissi
  22. Employment, Wages and Optimal Monetary Policy By Martin Bodenstein; Junzhu Zhao
  23. A Simple Algorithm for Solving Ramsey Optimal Policy with Exogenous Forcing Variables By Jean-Bernard Chatelain; Kirsten Ralf
  24. Fully Bayesian Analysis of SVAR Models under Zero and Sign Restrictions By Kocięcki, Andrzej
  25. Uncertainty and the Macroeconomy: Evidence from an uncertainty composite indicator * By Amélie Charles; Olivier Darné; Fabien Tripier
  26. Credit Growth and the Financial Crisis: A New Narrative By Stefania Albanesi; Giacomo DeGiorgi; Jaromir Nosal
  27. Fixed on Flexible Rethinking Exchange Rate Regimes after the Great Recession By Corsetti, G.; Kuester, K; Müller, G. J.
  28. Home Values and Firm Behaviour By Saleem Bahaj; Angus Foulis; Gabor Pinter
  29. The Eurozone Convergence through Crises and Structural Changes By Merih Uctum; Remzi Uctum; Chu-Ping C. Vijverberg
  30. Targeting Debt in Lebanon: A Structural Macro-Econometric Model By Salim Araji; Vladimir Hlasny; Vito Intini
  31. Equilibrium Determinacy in a Two-Tax System with Utility from Government Expenditure By Fujisaki, Seiya
  32. International Value-Added Linkages in Development Accounting By Robert Zymek; Alejandro Cunat
  33. Piyasa ekonomisine geçiş süreci ve sonrasında Türkiye'de GINI katsayılarının analizi: Alternatif GINI formülü yaklaşımı By Bilgili, Faik
  34. Measuring Productivity Dispersion: Lessons from counting one-hundred million ballots By Ethan Ilzetzki; Saverio Simonelli
  35. Financial liberalization and long-run stability of money demand in Nigeria By Folarin, Oludele; Asongu, Simplice
  36. Reconciling facts with fiction: Minimum wages in a post-Keynesian perspective By Heise, Arne
  37. The Gender Unemployment Gap By Stefania Albanesi; Ayşegül Şahin
  38. The U.S. Treasury Premium By Wenxin Du; Joanne Im; Jesse Schreger
  39. Modeling Time-Varying Uncertainty of Multiple-Horizon Forecast Errors By Clark, Todd E.; McCracken, Michael W.; Mertens, Elmar
  40. Forecasting growth of U.S. aggregate and household-sector M2 after 2000 using economic uncertainty measures By Artur Tarassow
  41. Tractable likelihood-based estimation of non- linear DSGE models By Robert Kollmann
  42. A Treatise on Socioeconomic Roles of Zakah By Shehu Usman Rano, Aliyu
  43. Informal one-sided target zone model and the Swiss franc By Yu-Fu Chen; Michael Funke; Richhild Moessner
  44. The performativity of potential output: Pro-cyclicality and path dependency in coordinating European fiscal policies By Jakob Kapeller; Philipp Heimberger
  46. Do Estimated Taylor Rules Suffer from Weak Identification? By Christian Murray; Juan Urquiza
  47. Tractable Likelihood-Based Estimation of Non-Linear DSGE Models By Kollmann, Robert
  48. On the Effect of Bank of Japan's Outright Purchase on the JGB Yield Curve By Masafumi Nakano; Akihiko Takahashi; Soichiro Takahashi; Takami Tokioka
  49. Makroökonomische Effekte einer paritätischen Beitragsfinanzierung: Eine Analyse aktueller Reformvorschläge für die Gesetzliche Kranken- und die soziale Pflegeversicherung By Beznoska, Martin; Kolev, Galina; Pimpertz, Jochen
  50. Bail-ins and Bail-outs: Incentives, Connectivity, and Systemic Stability By Benjamin Bernard; Agostino Capponi; Joseph E. Stiglitz
  51. Adult training in the digital age By Gold, Robert; Bode, Eckhardt
  52. An analysis of the contribution of public expenditure to economic growth and fiscal multipliers in Mexico, Central America and the Dominican Republic, 1990-2015 By Garry, Stefanie; Rivas Valdivia, Juan Carlos
  53. Die Medienökonomik personalisierter Daten und der Facebook-Fall By Budzinski, Oliver; Grusevaja, Marina
  54. Do Military Expenditures Boost Profit Rates? By Elveren, Adem Yavuz; Dunning, Rachel
  55. Quality Pricing-to-Market By Raphael Auer; Thomas Chaney; Philip Sauré
  56. The Mortgage Rate Conundrum By Justiniano, Alejandro; Primiceri, Giorgio E; Tambalotti, Andrea
  57. Regional GDP estimates for Sweden, 1571-1850 By Enflo, Kerstin; Missiaia, Anna

  1. By: Marek Jarociński; Bartosz Maćkowiak
    Abstract: When monetary and fiscal policy are conducted as in the euro area, output, inflation, and government bond default premia are indeterminate according to a standard general equilibrium model with sticky prices extended to include defaultable public debt. With sunspots, the model mimics the recent euro area data. We specify an alternative configuration of monetary and fiscal policy, with a non-defaultable eurobond. If this policy arrangement had been in place since the onset of the Great Recession, output could have been much higher than in the data with inflation in line with the ECB's objective.
    JEL: E31 E32 E63
    Date: 2017–08
  2. By: Gelain, Paolo (European Central Bank); Lansing, Kevin J. (Federal Reserve Bank of San Francisco); Natvik, Gisele J. (BI Norwegian Business School)
    Abstract: How should a central bank act to stabilize the debt-to-GDP ratio? We show how the persistent nature of household debt shapes the answer to this question. In environments where households repay mortgages gradually, surprise interest hikes only weakly influence household debt, and tend to increase debt-to-GDP in the short run while reducing it in the medium run. Interest rate rules with a positive weight on debt-to-GDP cause indeterminacy. Compared to inflation targeting, debt-to-GDP stabilization calls for a more expansionary policy when debt-to-GDP is high, so as to deflate the debt burden through inflation and output growth.
    JEL: E32 E44 E52
    Date: 2017–08–30
  3. By: Ernesto Pasten; Raphael Schoenle; Michael Weber
    Abstract: We study the aggregate implications of sectoral shocks in a multi-sector New Keynesian model featuring sectoral heterogeneity in price stickiness, sector size, and input-output linkages. We calibrate a 341 sector version of the model to the United States. Both theoretically and empirically, sectoral heterogeneity in price rigidity (i) generates sizable GDP volatility from sectoral shocks, (ii) amplifies both the "granular" and the "network" effects, (iii) alters the identity and relative contributions of the most important sectors for aggregate fluctuations, (iv) can change the sign of fluctuations, (v) invalidates the Hulten Theorem, and (vi) generates a frictional origin of aggregate fluctuations.
    JEL: E31 E32 O40
    Date: 2017–08
  4. By: Hubert, Paul (Sciences Po)
    Abstract: Does the effect of monetary policy depend on the macroeconomic information released by the central bank? Because differences between central bank’s and private agents’ information sets affect private agents’ interpretation of policy decisions, this paper aims to investigate whether the publication of macroeconomic information by the central bank modifies private responses to monetary policy. We assess the non-linear effects of monetary shocks conditional on the Bank of England’s macroeconomic projections on UK private inflation expectations. We find that inflation projections modify the impact of monetary shocks. When contractionary monetary shocks are interacted with positive(negative) projections, the negative effect of policy on inflation expectations is amplified (reduced). This suggests that providing guidance about central bank future expected inflation helps private agents’ information processing, and therefore changes their response to policy decisions.
    Keywords: Monetary policy; information processing; signal extraction; market-based inflation expectations; central bank projections; real-time forecasts
    JEL: E52 E58
    Date: 2017–08–25
  5. By: Jakob Kapeller (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria); Philipp Heimberger (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria); Bernhard Schuetz (Department of Economics, Johannes Kepler University Linz)
    Abstract: This paper analyzes the determinants of the European Commission’s NAIRU estimates for 14 European OECD countries during 1985-2012. The NAIRU is a poor proxy for 'structural unemployment': Labor market institutions – employment protection legislation, union density, tax wedge, minimum wages – underperform in explaining the NAIRU, while cyclical variables – capital accumulation and boom – bust patterns in housing markets – play an important role. This is relevant since the NAIRU is used to compute potential output and structural budget balances and, hence, has a direct impact on the scope and evaluation of fiscal policy in EU countries.
    Keywords: NAIRU, potential output, fiscal policy coordination, unemployment in Europe, labor market flexibility
    JEL: C54 E24 E62
    Date: 2016–03
  6. By: Irma Hindrayanto; Jan P.A.M. Jacobs; Denise R. Osborn; Jing Tian
    Abstract: Economists typically use seasonally adjusted data in which the assumption is imposed that seasonality is uncorrelated with trend and cycle. The importance of this assumption has been highlighted by the Great Recession. The paper examines an unobserved components model that permits non-zero correlations between seasonal and nonseasonal shocks. Identification conditions for estimation of the parameters are discussed from the perspectives of both analytical and simulation results. Applications to UK household consumption expenditures and US employment reject the zero correlation restrictions and also show that the correlation assumptions imposed have important implications about the evolution of the trend and cycle in the post-Great Recession period.
    Keywords: Trend-cycle-seasonal decomposition, unobserved components, seasonal adjustment, employment, Great Recession
    JEL: C22 E24 E32 E37 F01
    Date: 2017–08
  7. By: Leblebicioglu, Asli (University of Texas at Dallas); Weinberger, Ariel (University of Oklahoma)
    Abstract: We analyze the role of credit markets in explaining the changes in the U.S. labor share by evaluating the effects of state-level banking deregulation, which resulted in improved access to cheaper credit. Utilizing a difference-in-differences strategy, we provide causal evidence showing labor share declined following the interstate banking deregulation. We show that the lower cost of credit, increase in the availability of credit, and greater bank competition in each state are mechanisms that led to the decline in the labor share. We use this evidence to obtain the elasticity of labor share with respect to borrowing costs, which itself is informative about the aggregate elasticity of substitution between capital and labor. Finally, we focus on manufacturing and services to show that the impact of banking deregulation is particularly important in capital intensive and external finance dependent industries.
    JEL: E21 E22 E25 G21 G28
    Date: 2017–08–01
  8. By: Tóth, Csaba G.
    Abstract: In order to get to know more precisely the way national fiscal rules work, in our study we tried to differentiate the signaling function from the limiting one in regard to the operation of the rules. The former occurs when a government introduces fiscal rules to show its commitment to a disciplined fiscal policy, while the latter refers to the fact that rules constitute a true obstacle for budgetary policy. Through an empirical examination on our own database, we considered only the observations when the reigning government responsible for fiscal policy differed from the previous government responsible for its establishment; in this way we measured the effect of the limiting function the rules had. The results of our panel econometric study prove that fiscal rules can contribute to disciplined fiscal policy after a change in government, in times of economic upturn. All this, however, does not mean that the signaling function would be useless; quite the contrary. Our results, in line with the literature, indicate that the double functions of the rule complement one another. The government that introduces the rule is mostly already committed to a disciplined policy, and wishes to signal this in the short term. With the appearance of new governments, however, the rule changes its function and promotes disciplined economic activity efficiently in the long term.
    Keywords: fiscal policy; fiscal rules; fiscal discipline, political economy
    JEL: E60 E62 E63 H60
    Date: 2017–09–06
  9. By: Philipp Heimberger (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria)
    Abstract: This paper analyses the short-run effects of fiscal consolidation measures on economic activity in the euro area during the euro crisis. It presents new econometric estimates on the link between cumulative GDP growth and fiscal austerity measures during 2011-2013. The main empirical finding is that the depth of the economic crisis in the euro area's economies is closely related to the harshness of fiscal austerity. Cumulative multiplier estimates are found to vary in a range from 1.4 to 2.1, depending on the data source used to identify the intensity of fiscal consolidation. Given these multiplier values, a reasonable approximation of the size of the output losses due to fiscal austerity in the euro area during 2011-2013 is in the range of 5.5% to 8.4% of GDP. Against the background of the prevailing macroeconomic and institutional circumstances, fiscal consolidation is argued to be the cause of the double-dip recession.
    Keywords: fiscal policy, fiscal multiplier, fiscal consolidation, austerity, growth, eurozone
    JEL: E61 E62 E63
    Date: 2015–11
  10. By: Fernando J. Pérez Forero (Central Reserve Bank of Peru)
    Abstract: The stance of monetary policy is a general interest for academics, policy makers and the private sector. The latter is not necessarily observable, since the Fed have used different monetary instruments at different points in time. This paper provides a measure of this stance for the last forty five years, which is a weighted average of a pool of instruments. We extend Bernanke and Mihov (1998)'s Interbank Market model by allowing structural parameters and shock variances to change over time. In particular, we follow the recent work of Canova and Pérez Forero (2015) for estimating non-recursive TVC-VARs with Bayesian Methods. The estimated stance measure describes how tight/loose was monetary policy over time and takes into account the uncertainty related with posterior estimates of time varying parameters. Finally, we present how has monetary transmission mechanism changed over time, focusing our attention in the period after the Great Recession.
    Keywords: SVARs, Interbank Market, Operating Procedures, Monetary Policy Stance, Time-varying parameters, Bayesian Methods, Multi-move Metropolis within Gibbs Sampling
    JEL: C11 E51 E52 E58
    Date: 2017–08
  11. By: Warwick J. McKibbin; Andrew Stoeckel
    Abstract: Macro models have come under criticism for their ability to understand or predict major economic events such as the global financial crisis and its aftermath. Some of that criticism is warranted; but, in our view, much is not. This paper contributes to the debate over the adequacy of benchmark DSGE models by showing how three extensions, which are features that have characterized the global economy since the early 2000s, are necessary to improve our understanding of global shocks and policy insights. The three extensions are to acknowledge and model the entire global economy and the linkage through trade and capital flows; to allow for a wider range of relative price variability by moving to multiple sector models rather than a single good model; and to allow for changes in risk perceptions which propagate through financial markets and adjustments in the real economy. These extensions add some complexity to large scale macromodels, but without them policy models can oversimplify things, allowing misinterpretations of shocks and therefore costly policy mistakes to occur. Using oversimplified models to explain a complex world makes it more likely there will be “puzzles”. The usefulness of these extensions is demonstrated in two ways; first, by briefly revisiting some historical shocks to show how outcomes can be interpreted that make sense within a more complex DSGE framework; then, by making a contemporary assessment of the implications from the proposed large fiscal stimulus and the bans on immigration by the Trump administration which have both sectoral and macroeconomic implications that interact.
    Keywords: Macroeconomics; Models; Risk, Relative Prices, Sectors, DSGE
    JEL: C02 C5 C68 D58 D9 E17 E62 F4
    Date: 2017–08
  12. 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: Stackelberg dynamic game,Ramsey optimal policy,Augmented linear quadratic regulator,Algorithm
    JEL: C61 C62 E47 E52 E58
    Date: 2017
  13. By: Jeffrey A. Frankel; Ayako Saiki
    Abstract: When the US Bureau of Labor Statistics releases new numbers, in theory it should make no difference whether the press release emphasizes the most recent 1-month number, which is what it always does, or the 12-month number, as many other countries’ statistical agencies do. This paper offers the hypothesis that it does matter: Markets react to CPI inflation news via whichever framing the agency has adopted.
    JEL: E44 F3 G15
    Date: 2017–08
  14. By: Antoine Lepetit (Banque de France - Banque de France - Banque de France)
    Abstract: I show that a trade-off between inflation volatility and average unemployment arises in a New Keynesian model with search and matching frictions in the labor market. In this environment, unemployment rises more and faster in a recession than it decreases in an expansion. A strong focus on inflation stabilization in response to technology shocks comes at the cost of larger labor market volatility. Because unemployment fluctuations are asymmetric, it also results in higher average unemployment. The optimal policy responds strongly to both inflation and employment and stabilizes labor market fluctuations. Adopting this policy rather than a policy of price stability yields sizeable welfare gains. These gains are mostly accounted for by the increase in average employment relative to the price stability case.
    Keywords: Optimal monetary policy,Unemployment fluctuations,Matching frictions
    Date: 2016–04
  15. By: J. Scott Davis; Ippei Fujiwara; Jiao Wang
    Abstract: Abandoning an objective function with multiple targets and adopting single mandate can be an effective way for a central bank to overcome the classic time-inconsistency problem. We show that the choice of a particular single mandate depends on an economy’s level of trade openness and the credibility of the central bank. We begin with reduced form empirical results which show that as central banks become less credible they are more likely to adopt a pegged exchange rate, and crucially, the tendency to peg depends on trade openness. Then in a model where the central bank displays “loose commitment” we show that as central bank credibility falls, they are more likely to adopt either an inflation target or a pegged exchange rate. A relatively closed economy would adopt an inflation target to overcome the time-inconsistency problem, but a highly open economy would prefer an exchange rate peg.
    Keywords: Time-inconsistency, Commitment, Inflation target, Exchange rate peg, Tie-one’s-hands
    JEL: E50 E30 F40
    Date: 2017–08
  16. By: Victor Olkhov
    Abstract: This paper presents hydrodynamic-like model of business cycles aggregate fluctuations of economic and financial variables. We model macroeconomics as ensemble of economic agents on economic space and agent's risk ratings play role of their coordinates. Sum of economic variables of agents with coordinate x define macroeconomic variables as functions of time and coordinates x. We describe evolution and interactions between macro variables on economic space by hydrodynamic-like equations. Integral of macro variables over economic space defines aggregate economic or financial variables as functions of time t only. Hydrodynamic-like equations define fluctuations of aggregate variables. Motion of agents from low risk to high risk area and back define the origin for repeated fluctuations of aggregate variables. Economic or financial variables on economic space may define statistical moments like mean risk, mean square risk and higher. Fluctuations of statistical moments describe phases of financial and economic cycles. As example we present a simple model relations between Assets and Revenue-on-Assets and derive hydrodynamic-like equations that describe evolution and interaction between these variables. Hydrodynamic-like equations permit derive systems of ordinary differential equations that describe fluctuations of aggregate Assets, Assets mean risks and Assets mean square risks. Our approach allows describe business cycle aggregate fluctuations induced by interactions between any number of economic or financial variables.
    Date: 2017–08
  17. By: Chakraborty, Chiranjit (Bank of England); Joseph, Andreas (Bank of England)
    Abstract: We introduce machine learning in the context of central banking and policy analyses. Our aim is to give an overview broad enough to allow the reader to place machine learning within the wider range of statistical modelling and computational analyses, and provide an idea of its scope and limitations. We review the underlying technical sources and the nascent literature applying machine learning to economic and policy problems. We present popular modelling approaches, such as artificial neural networks, tree-based models, support vector machines, recommender systems and different clustering techniques. Important concepts like the bias-variance trade-off, optimal model complexity, regularisation and cross-validation are discussed to enrich the econometrics toolbox in their own right. We present three case studies relevant to central bank policy, financial regulation and economic modelling more widely. First, we model the detection of alerts on the balance sheets of financial institutions in the context of banking supervision. Second, we perform a projection exercise for UK CPI inflation on a medium-term horizon of two years. Here, we introduce a simple training-testing framework for time series analyses. Third, we investigate the funding patterns of technology start-ups with the aim to detect potentially disruptive innovators in financial technology. Machine learning models generally outperform traditional modelling approaches in prediction tasks, while open research questions remain with regard to their causal inference properties.
    Keywords: Machine learning; artificial intelligence; big data; econometrics; forecasting; inflation; financial markets; banking supervision; financial technology
    JEL: A12 A33 C14 C38 C44 C45 C51 C52 C53 C54 C61 C63 C87 E37 E58 G17 Y20
    Date: 2017–09–04
  18. By: Jean-Christophe Poutineau (CREM - Centre de Recherche en Economie et Management - UNICAEN - Université Caen Normandie - UR1 - Université de Rennes 1 - CNRS - Centre National de la Recherche Scientifique); Gauthier Vermandel (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    Abstract: This paper questions the role of cross-border lending in the definition of national macroprudential policies in the European Monetary Union. We build and estimate a two-country DSGE model with corporate and interbank cross-border loans, Core-Periphery diverging financial cycles and a national implementation of coordinated macroprudential measures based on Countercyclical Capital Buffers. We get three main results. First, targeting a national credit-to-GDP ratio should be favored to federal averages as this rule induces better stabilizing performances in front of important divergences in credit cycles between core and peripheral countries. Second, policies reacting to the evolution of national credit supply should be favored as the transmission channel of macroprudential policy directly impacts the marginal cost of loan production and, by so, financial intermediaries. Third, the interest of lifting up macroprudential policymaking to the supra-national level remains questionable for admissible value of international lending between Eurozone countries. Indeed, national capital buffers reacting to the union-wide loan-to-GDP ratio only lead to the same stabilization results than the one obtained under the national reaction if cross-border lending reaches 45%. However, even if cross-border linkages are high enough to justify the implementation of a federal adjusted solution, the reaction to national lending conditions remains remarkably optimal.
    Keywords: Macroprudential policy, Global banking, International business cycles, Euro area
    Date: 2017
  19. By: Jane E. Ihrig; Edward Kim; Ashish Kumbhat; Cindy M. Vojtech; Gretchen C. Weinbach
    Abstract: Leading up to 2014, banks generally increased their holdings of excess reserves as they moved to become compliant with the liquidity coverage ratio (LCR) requirement. However, once the LCR requirement was met, some banks shifted the compositions of their high-quality liquid assets (HQLA), reducing shares of reserves and increasing shares of Treasury securities and certain mortgage-backed securities (MBS). This raises the question: For a given stock of HQLA, what is its optimal composition? We use standard optimal portfolio theory to benchmark the ideal composition of a given stock of HQLA and find that a range of "optimal" HQLA portfolios is plausible depending on banks' tolerance for risk. A bank that is highly risk averse (inclined) prefers a relatively large share of reserves (MBS). Of course, the LCR is not the only constraint on banks' operations. We discuss how other factors interact with the LCR, and then examine the data for individual BHCs to show that they are currently employing a range of approaches to managing the compositions of their HQLA. In addition, we find that the pattern of dispersion in the daily variance of banks' HQLA shares supports the view that such factors are important drivers of banks' management of HQLA. Finally, we discuss possible policy implications of our results regarding the Federal Reserve's longer-run implementation of monetary policy.
    Keywords: CAPM ; HQLA ; LCR ; Bank balance sheets ; Liquid assets ; Liquidity management ; Reserve balances
    JEL: E51 E58 G21 G28
    Date: 2017–08–30
  20. By: Lars E.O. Svensson
    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.
    JEL: E52 E58 G01
    Date: 2017–08
  21. By: Kamiar Mohaddes (University of Cambridge); Mehdi Raissi
    Abstract: This paper investigates the global macroeconomic consequences of falling oil prices due to the oil revolution in the United States, using a Global VAR model estimated for 38 countries/regions over the period 1979Q2 to 2011Q2. Set-identification of the U.S. oil supply shock is achieved through imposing dynamic sign restrictions on the impulse responses of the model. The results show that there are considerable heterogeneities in the responses of different countries to a U.S. supply-driven oil price shock, with real GDP increasing in both advanced and emerging market oil-importing economies, output declining in commodity exporters, inflation falling in most countries, and equity prices rising worldwide. Overall, our results suggest that a U.S. supply-driven oil-price shock (equivalent to a 10–12% fall per quarter in the price of oil) results in an increase in global growth by 0.16 to 0.37 percentage points in the medium term. This is mainly due to an increase in spending by oil importing countries, which exceeds the decline in expenditure by oil exporters.
    Date: 2017–07–20
  22. By: Martin Bodenstein; Junzhu Zhao
    Abstract: We study optimal monetary policy when the empirical evidence leaves the policymaker uncertain whether the true data-generating process is given by a model with sticky wages or a model with search and matching frictions in the labor market. Unless the policymaker is almost certain about the search and matching model being the correct data-generating process, the policymaker chooses to stabilize wage inflation at the expense of price inflation, a policy resembling the policy that is optimal in the sticky wage model, regardless of the true model. This finding reflects the greater sensitivity of welfare losses to deviations from the model-specific optimal policy in the sticky wage model. Thus, uncertainty about important aspects of the structure of the economy does not necessarily translate into uncertainty about the features of good monetary policy.
    Keywords: Model uncertainty ; Optimal monetary policy ; Optimal targeting rules ; Search and matching ; Sticky wages
    JEL: E52
    Date: 2017–08–29
  23. By: Jean-Bernard Chatelain (PSE - Paris-Jourdan Sciences Economiques - 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); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)
    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. C61, C62, C73, E47, E52, E61, E63.
    Keywords: Ramsey optimal policy,Stackelberg dynamic game,algorithm,forcing variables,augmented linear quadratic regulator
    Date: 2017–08–26
  24. By: Kocięcki, Andrzej
    Abstract: The paper proposes the methodologically sound method to deal with set identified Structural VAR (SVAR) models under zero and sign restrictions. What distinguishes our method from that proposed by Arias, Rubio-Ramírez and Waggoner (2016) is that we isolated many special cases for which we arrive at more efficient algorithms to draw from the posterior. We illustrate our approach with the help of two serious empirical examples. First of all we challenge the output puzzle found by Uhlig (2005). Second, we check the robustness of the results given by Beaudry et al. (2014) concerning impact of optimism shocks on economy.
    Keywords: Set identified Structural VAR, Sign restrictions, Monetary policy, Bayesian
    JEL: C11 C18 C3 E5 E52
    Date: 2017–08–23
  25. By: Amélie Charles (Audencia Business School); Olivier Darné (LEMNA - Laboratoire d'Economie et de Management de Nantes-Atlantique - UN - Université de Nantes); Fabien Tripier (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)
    Abstract: This paper proposes a uncertainty composite indicator (UCI) based on three distinct sources of uncertainty (namely financial, political, and macroeconomic) for the US economy on the period 1985-2015. For that, we use the dynamic fac- tor model proposed by Doz et al. (2012), summarizing effciently six individual uncertainty proxies, namely two macroeconomic and financial uncertainty factors based on the unpredictability, a measure of (micro)economic uncertainty, the im- plied volatility index, the corporate bond spreads, and an index of economic policy uncertainty. We then compare the effects of uncertainty on economic activity when the UCI is used instead of individual uncertainty proxies in structural VAR models. The interest of our UCI is to synthesize theses effects within one measure of uncer- tainty. Overall, the UCI was able to account for the most important dynamics of uncertainty which play an important role in business cycles.
    Keywords: Uncertainty, dynamic factor model, economic activity
    Date: 2017
  26. By: Stefania Albanesi (University of Pittsburgh); Giacomo DeGiorgi (GSEM-University of Geneva); Jaromir Nosal (Boston College)
    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.
    Keywords: subprime debt, housing boom, housing crisis
    JEL: D14 E21 G21
    Date: 2017–08
  27. By: Corsetti, G.; Kuester, K; Müller, G. J.
    Abstract: The zero lower bound problem during the Great Recession has exposed the limits of monetary autonomy, prompting a re-evaluation of the relative benefits of currency pegs and monetary unions (see e.g. Cook and Devereux, 2016). We revisit this issue from the perspective of a small open economy. While a peg can be beneficial when the recession originates domestically, we show that a float dominates in the face of deflationary demand shocks abroad. When the rest of the world is in a liquidity trap, the domestic currency depreciates in nominal and real terms even in the absence of domestic monetary stimulus (if domestic rates are also at the zero lower bound) - enhancing the country's competitiveness and insulating to some extent the domestic economy from foreign deflationary pressure.
    Keywords: External shock, Great Recession, Exchange rate, Zero lower bound, Exchange rate peg, Currency union, Fiscal Multiplier, Benign coincidence
    JEL: F41 F42 E31
    Date: 2017–08–17
  28. By: Saleem Bahaj (Bank of England; Centre for Macroeconomics (CFM)); Angus Foulis (Bank of England; Centre for Macroeconomics (CFM)); Gabor Pinter (Bank of England; Centre for Macroeconomics (CFM))
    Abstract: The homes of those in charge of firms are an important source of finance for ongoing businesses. We use firm level accounting data, transaction level house price data and loan level residential mortgage data from the UK to show that a £1 increase in the value of the residential real estate of a firm’s directors increases the firm’s investment and wage bill by £0.03 each. These effects run through smaller firms and are similar in booms and busts. In aggregate, the homes of firm directors are worth 80% of GDP. Using this, a back of the envelope calculation suggests that a 1% increase in real estate prices leads, through this channel, to up to a 0.28% rise in business investment and a 0.08% rise in total wages paid. We complement this with evidence on how a firm responds to changes in the value of its own corporate real estate; we find that, in aggregate, the residential real estate of directors is at least as important for activity. We use an estimated general equilibrium model to quantify the importance of both types of real estate for the propagation of shocks to the macroeconomy.
    JEL: D22 E32 R30
    Date: 2017–08
  29. By: Merih Uctum; Remzi Uctum; Chu-Ping C. Vijverberg
    Abstract: In light of several economic and financial crises and institutional changes experienced by the Eurozone countries, we examine whether the adoption of the euro led to business cycle synchronization or fostered convergence of growth rates. Controlling for reverse causality, we conduct multiple endogenous break tests and find that while output growth was synchronized for some countries, convergence occurred in a nonlinear way for others: (i) convergence was not triggered by adoption of the euro but by international or idiosyncratic shocks; (ii) in several countries convergence started long before the introduction of the euro, accelerated during the 1990s and continued since then, reflecting persistent influence of the core countries; (iii) convergence has been prevalent among the non-Eurozone economies in our sample.
    Keywords: Convergence, business cycle synchronization, euro, crises, structural breaks.
    JEL: E3 F4
    Date: 2017
  30. By: Salim Araji (University of Jordan); Vladimir Hlasny; Vito Intini
    Abstract: This paper lays out and estimates a structural macro-econometric model of the Lebanese economy to simulate the implications of accumulated debt changes on GDP and other economic indicators, and to project the growth–fiscal nexus for the six years following the last year for which national statistics are available, 2015–2020. To these ends, historical and up-to-date national accounts data for years 1992–2014 are painstakingly collected from individual government agencies, and economic framework with five macroeconomic blocks is constructed, namely: macroeconomic, government, price, monetary and financial sector, and external accounts blocks. In total 16 behavioral equations are estimated with the help of an additional 10 identity equations defining theoretical dependency among variables in order to impute missing variables and to bound model forecasts.
    Date: 2017–08–24
  31. By: Fujisaki, Seiya
    Abstract: We analyse the relationship between two kinds of tax and equilibrium determinacy in an economy with government expenditure used for utility. We assume that the income tax rate depends on the level of income itself and that the tax rate of consumption is constant. This describes a realistic tax system which resonates in many countries. Our model complements similar extant research, but we extend the literature by theoretically showing that the expansion of policy types can decrease the risk of instability when one condition slightly changes.
    Keywords: equilibrium determinacy, progressive income tax rate, consumption tax, government expenditure on utility.
    JEL: E62
    Date: 2017–09
  32. By: Robert Zymek; Alejandro Cunat
    Abstract: We generalise the traditional development-accounting framework to an open economy setting. In addition to factor endowments and productivity, relative factor costs emerge as a source of real-income variation across countries. These are determined by bilateral trade frictions (which underpin the patterns of international value-added linkages) and the global distribution of factor endowments and final expenditures. We use information on endowments, trade balances and value-added trade to back out the relative factor costs of 40 major economies in a theory-consistent manner. This reduces the variation in residual TFP required to explain the observed per-capita income differences by more than one half.
    Keywords: world input-output, development accounting, transfer effect
    JEL: E01 F15 F40
    Date: 2017–07
  33. By: Bilgili, Faik
    Abstract: This study considers the Gini 1 and alternative Gini 2 coefficients for households’ % income shares from 1963 to 2015 in Turkey. Throughout regarding calibrations, one might see that, despite the existence of some deviations from trend and some Gini 1 and Gini 2 coefficients’ differences, (a) there exists an improvement in the distribution of income until 2011, except for the year 2009 when the global crisis was experienced, but an average deterioration in the distribution for 2011-2015 period is experienced, (b) the geographical regions of the Turkish economy reveal different outcomes. For the period 2006-2015, it is observed that in the regions of Istanbul, West Marmara, Central Anatolia and North East Anatolia, the Lorenz curve has moved away from full equilibrium line, but in the regions of Aegean, Eastern Marmara and Eastern Black Sea, on the average, a convergence towards the equilibrium from the Lorenz curve has appeared. In other three regions, the Gini coefficients improve on average in Western Anatolia, Mediterranean and Western Black Sea regions. The Gini coefficients are increasing in the period 2006-2011 in the Middle East Anatolia and falling in 2015. In the South East Anatolia Region, there is no progress in the period 2006-2011, but, there happens to be a recovery in income distribution in 2015.
    Keywords: New classical approach, Keynesian approach, income distribution, Lorenz curve, measurement of inequality of incomes, Gini coefficient, alternative Gini coefficient, Turkish economy
    JEL: B21 B22 B41 B52 C02 C81 C82 C83 D31 D33 D63 E12 E13 E60 H20
    Date: 2017–08–29
  34. By: Ethan Ilzetzki (London School of Economics (LSE); Centre for Macroeconomics (CFM)); Saverio Simonelli (University of Naplpes Federico II; enter for Studies in Economics and Finance)
    Abstract: We measure output per worker in nearly 8,000 municipalities in the Italian electoral process using ballot counting times in the 2013 general election and two referenda in 2016. We document large productivity dispersion across provinces in this very uniform and low-skill task that involves nearly no technology and requires limited physical capital. Using a development accounting framework, this measure explains up to half of the firm-level productivity dispersion across Italian provinces and more than half the north-south productivity gap in Italy. We explore potential drivers of our measure of labor efficiency and find that its association with measures of work ethic and trust is particularly robust.
    Keywords: Labor productivity, Development accounting, Work ethic, Cultural economics
    JEL: O47 E24 J24 Z10
    Date: 2017–08
  35. By: Folarin, Oludele; Asongu, Simplice
    Abstract: A stable money demand function is essential when using monetary aggregate as a monetary policy. Thus, there is need to examine the stability of the money demand function in Nigeria after the deregulation of the financial sector. To achieve this, the study employed CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests after using autoregressive distributive lag bounds test to determine the existence of a long run relationship between monetary aggregate and its determinant. Results of the study show that a long-run relationship holds and that the demand for money is stable in Nigeria. In addition, the inflation rate is found to be a better proxy for an opportunity variable when compared to interest rate. The main implication of the study is that interest rate is ineffective as a monetary policy instrument in Nigeria.
    Keywords: Stable; demand for money; bounds test
    JEL: C22 E41
    Date: 2017–06
  36. By: Heise, Arne
    Abstract: There has long been a discussion about the employment impact of minimum wages and this discussion has recently been renewed with the introduction of an economy-wide, binding minimum wage in Germany in 2015. In traditional reasoning, based on the allocational approach of modern labour market economics, it has been suggested that the impact is clearly negative on the assumption of a competitive labour market and clearly positive on the assumption of a monopsonistic labour market. Unfortunately, both predictions conflict with the empirical findings, which do not show a clear-cut impact of significant size in any direction.
    Keywords: Post-Keynesianism,minimum wage,aggregate demand,aggregate supply
    JEL: B50 E12 E23 J31
    Date: 2017
  37. By: Stefania Albanesi; Ayşegül Şahin
    Abstract: The gender unemployment gap, the difference between female and male unemployment rates, was positive until the early 1980s. This gap disappeared after 1983, except during recessions, when men’s unemployment rate has always exceeded women’s. Using a calibrated three-state search model, we show that the convergence in female and male labor force attachment accounts for most of the closing of the gender unemployment gap. Evidence from nineteen OECD countries is consistent with this finding. We show that gender differences in industry composition are the main source of the cyclicality of the unemployment gap.
    JEL: E24 J16 J21
    Date: 2017–08
  38. By: Wenxin Du; Joanne Im; Jesse Schreger
    Abstract: We quantify the difference in the convenience yield of U.S. Treasuries and the bonds of near default-free sovereigns by measuring the gap between the FX swap-implied dollar yield paid by foreign governments and the U.S. Treasury dollar yield. We call this wedge the “U.S. Treasury Premium.” We find that this premium was approximately 21 basis points for five-year bonds prior to the Global Financial Crisis, increased up to 90 basis points during the crisis, and has disappeared since the crisis with the post-crisis mean at -8 basis points. We show the decline in the premium cannot be explained away by credit risk or FX swap market mispricings. In addition, we present evidence that the relative supply of government bonds in the United States and foreign countries affects the premium.
    JEL: E4 F30 G12 G15
    Date: 2017–08
  39. By: Clark, Todd E. (Federal Reserve Bank of Cleveland); McCracken, Michael W. (Federal Reserve Bank of St. Louis); Mertens, Elmar (Bank for International Settlements)
    Abstract: We develop uncertainty measures for point forecasts from surveys such as the Survey of Professional Forecasters, Blue Chip, or the Federal Open Market Committee's Summary of Economic Projections. At a given point of time, these surveys provide forecasts for macroeconomic variables at multiple horizons. To track time-varying uncertainty in the associated forecast errors, we derive a multiple-horizon specification of stochastic volatility. Compared to constant-variance approaches, our stochastic-volatility model improves the accuracy of uncertainty measures for survey forecasts.
    Keywords: Stochastic volatility; survey forecasts; prediction
    JEL: C32 C53 E47
    Date: 2017–08–28
  40. By: Artur Tarassow (Universität Hamburg (University of Hamburg))
    Abstract: This paper evaluates the predictive out-of-sample forecasting properties of six different economic uncertainty variables for both growth in aggregate M2 and growth in household-sector M2 in the U.S. using data between 1971m1 and 2014m12. The core contention is that economic uncertainty improves both forecast accuracy as well as direction-of-change forecasts of real money stock growth. We estimate linear ARDL models using the iterated rolling-window forecasting scheme combined with two different indicator selection procedures. Forecast accuracy is evaluated by RMSE and the Diebold-Mariano test. Direction-of-change forecasts are assessed by means of the Kuipers Score and the Pesaran-Timmermann test. The results indicate an increased relevance of certain economic uncertainty measures for forecasting growth in both real aggregate as well as real household-sector M2 since 2000.
    Keywords: Money demand, uncertainty, risk, multi-step forecasts, forecast comparison
    JEL: C22 E41 E47
    Date: 2017–08
  41. By: Robert Kollmann
    Abstract: This paper presents a simple and fast maximum likelihood estimation method for nonlinear DSGE models that are solved using a second- (or higher-) order accurate approximation. The method requires that the number of observables equals the number of exogenous shocks. Exogenous innovations are extracted recursively by inverting the observation equation, which allows easy computation of the likelihood function.
    Keywords: Estimation of non-linear DSGE models, observation equation inversion
    JEL: C51 C63 C68 E37
    Date: 2017–09
  42. By: Shehu Usman Rano, Aliyu
    Abstract: A major preoccupation of policymakers is the design and implementation of public policy for efficient resource mobilization, allocation, stabilization of the economy and redistribution of wealth to guarantee minimum standard of living for all. At the extremes, the Capitalist and Socialist systems are characterized by the supremacy of self-interest in the former and total state control in the latter. Exacerbated by the prevalence of riba in the systems, unwanted economic outcomes; social and economic inequality, poverty, unemployment, crimes, booms and recessions, thrive. The Islamic economic system which blends the material pursuit with spiritual upliftment tailors economic policies towards attainment of Maqasid al-Shari’ah. As a pillar of Islam and an omnibus instrument of economic stabilization, Zakah serves as an automatic catalyst with backward and forward implications on resource mobilization, allocation, stabilization and redistribution of wealth. Using a heuristic approach, the paper conducts an in-depth assessment of the socioeconomic impact of Zakah in an Islamic economy. Evidences from review of both classical and empirical literature unveil the positive impact of Zakah on consumption, savings, investment leading to employment and higher productivity, (Kahf 1980; Metwally 1983; Khan 1984;Ahmad, 1985; Kuran 2006; Azmi, 2009 and Norulazidah, Ali & Myles,2010. Further, Zakah acts as an expansionary tool to those at lower income level and a discretionary tool to those at higher income level to redistribute income, remove poverty and facilitates provision of desired public good for the benefit of the poor Faridi (1983). The paper posits that in view of the overwhelming empirical evidences in the literature, Zakah is an effective tool for tackling socioeconomic problems of our modern times.
    Keywords: Zakah, socioeconomic, resources allocation, stabilization, redistribution, poverty
    JEL: E62 I31 P24 Z12
    Date: 2017–09–01
  43. By: Yu-Fu Chen; Michael Funke; Richhild Moessner
    Abstract: This paper develops a new theoretical model with an asymmetric informal one-sided exchange rate target zone, with an application to the Swiss franc following the removal of the minimum exchange rate of CHF 1.20 per euro in January 2015. We extend and generalize the standard target zone model of Krugman (1991) by introducing perceived uncertainty about the lower edge of the band. We find that informal soft edge target zone bands lead to weaker honeymoon effects, wider target zone ranges and higher exchange rate volatility than formal target zone bands. These results suggest that it would be beneficial for exchange rate policy intentions to be stated clearly in order to anchor exchange rate expectations and reduce exchange rate volatility. We also study how exchange rate dynamics can be characterized in models in which financial markets are aware of occasional changes in the policy regime. We show that expected changes in the central bank's exchange rate policy may lead to exchange rate oscillations, providing an additional source of exchange rate volatility, and to capture this it is important to take into account the possibility of regime changes in exchange rate policy.
    Keywords: Swiss franc, target zone model, exchange rate interventions
    JEL: F31 E42 C61
    Date: 2017–08
  44. By: Jakob Kapeller (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria); Philipp Heimberger (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria)
    Abstract: This paper analyzes the performative impact of the European Commission’s model for estimating ‘potential output’, which is used as a yardstick for measuring the ‘structural budget balance’ of EU countries and, hence, is crucial for coordinating European fiscal policies. In pre-crisis years, potential output estimates amplified the build-up of private debt, housing bubbles and macroeconomic imbalances. After the financial crisis, they were revised downwards, which increased fiscal consolidation pressures. By focusing on the euro area’s economies during 1999-2014, we identify two performative aspects of the potential output model. First, the political implications of the model led to a pro- cyclical feedback loop, reinforcing general economic developments. Second, the model has contributed to national lock-ins on path dependent debt trajectories, fueling ‘structural polarization’ between core and periphery.
    Keywords: performativity, potential output, path dependency, Eurozone crisis, fiscal policy, austerity
    Date: 2016–06
  45. By: Charaf Eddine Moussir (Université Mohammed 5 Agdal); Abdellatif Chatri (Université Mohammed 5 Agdal)
    Abstract: The purpose of this paper is to shed more light on the existence of significant differences in the reactions of Moroccan sectors to monetary policy shocks. The results of the analysis indicate that at the aggregate level a monetary policy tightening leads to a decrease of the overall GDP and price level. At the disaggregated level, the extraction industry, manufacturing, construction, hotels & restaurants, the financial and insurance activities are among the more sensitive sectors to monetary policy shocks. On the other hand monetary policy innovations do not appear to have an adverse impact on agriculture and fishing sectors
    Keywords: Morocco.,Monetary policy, sectoral output, VAR model, Impulse response functions
    Date: 2017–01–06
  46. By: Christian Murray (University of Houston); Juan Urquiza (Pontificia Universidad Católica de Chile)
    Abstract: Over the last decade, applied researchers have estimated forward looking Taylor rules with interest rate smoothing via Nonlinear Least Squares. A common empirical finding for post-Volcker samples, based on asymptotic theory, is that the Federal Reserve adheres to the Taylor Principle. We explore the possibility of weak identification and spurious inference in estimated Taylor rule regressions with interest rate smoothing. We argue that the presence of smoothing subjects the parameters of interest to the Zero Information Limit Condition analyzed by Nelson and Startz (2007, Journal of Econometrics). We demonstrate that confidence intervals based on standard methods such as the delta method can have severe coverage problems when interest rate smoothing is persistent. We then demonstrate that alternative methodologies such as Fieller (1940, 1954), Krinsky and Robb (1986), and the Anderson-Rubin (1949) test have better finite sample coverage. We reconsider the results of four recent empirical studies and show that the evidence supporting the Taylor Principle can be reversed over half of the time.
    Keywords: Spurious Inference; Zero-Information-Limit-Condition; Interest Rate Smoothing; Nonlinear Least Squares.
    JEL: C12 C22 E52
    Date: 2017–09–03
  47. By: Kollmann, Robert
    Abstract: This paper presents a simple and fast maximum likelihood estimation method for non-linear DSGE models that are solved using a second- (or higher-) order accurate approximation. The method requires that the number of observables equals the number of exogenous shocks. Exogenous innovations are extracted recursively by inverting the observation equation, which allows easy computation of the likelihood function.
    Keywords: Estimation of non-linear DSGE models; observation equation inversion
    JEL: C51 C63 C68 E37
    Date: 2017–08
  48. By: Masafumi Nakano (Graduate School of Economics, University of Tokyo); Akihiko Takahashi (Graduate School of Economics, University of Tokyo); Soichiro Takahashi (Graduate School of Economics, University of Tokyo); Takami Tokioka (GCI Asset Management)
    Abstract: This note examines an impact of the Bank of Japan (BOJ)’s outright purchase on the JGB (Japanese government bond) yield curve. Particularly, we develop a simple state space model, which incorporates new factors regarding the BOJ’s announcement for its outright purchase and the current market outstanding with standard level and spread factors. Based on the model with a filtering method, we also implement an empirical analysis with time series of the BOJ’s announcement records during 2014/10/22-2017/8/3 in the QQE2 period to estimate the sensitivities of interest rates against the changes in the market expectation for the net supply with each sector of JGB. We expect the current work provides a basis for considering quantitative effects on the term structure by BOJ’s policy changes such as termination or significant reduction of the BOJ’s outright purchase. For instance, our scenario analysis shows substantial increase in the 30 year yield with steepening of 20-30 year spread.
    Date: 2017–08
  49. By: Beznoska, Martin; Kolev, Galina; Pimpertz, Jochen
    Abstract: Im Vorfeld der Bundestagswahl wird unter anderem eine Rückkehr zur vollständig paritätischen Beitragsfinanzierung der Gesetzlichen Krankenversicherung gefordert. Allerdings entpuppt sich die damit verbundene Hoffnung auf eine nachhaltige Entlastung der Beitragszahler als Irrweg.
    Keywords: Einkommensverteilung,makroökonomische Modelle,Gesundheitspolitik
    JEL: D31 E17 I18
    Date: 2017
  50. By: Benjamin Bernard; Agostino Capponi; Joseph E. Stiglitz
    Abstract: This paper develops a framework to analyze the consequences of alternative designs for interbank networks, in which a failure of one bank may lead to others. Earlier work had suggested that, provided shocks were not too large (or too correlated), denser networks were preferred to more sparsely connected networks because they were better able to absorb shocks. With large shocks, especially when systems are non-conservative, the likelihood of costly bankruptcy cascades increases with dense networks. Governments, worried about the cost of bailouts, have proposed bail-ins, where banks contribute. We analyze the conditions under which governments can credibly implement a bail-in strategy, showing that this depends on the network structure as well. With bail-ins, government intervention becomes desirable even for relatively small shocks, but the critical shock size above which sparser networks perform better is decreased; with sparser networks, a bail-in strategy is more credible.
    JEL: D85 E44 G21 G28 L14
    Date: 2017–08
  51. By: Gold, Robert; Bode, Eckhardt
    Abstract: Digital technologies will both create new jobs and replace existing ones. To cope with increasing labor market dynamics in the digital age, workers will have to become more mobile across jobs, occupations, and industries. The relative importance of their job-specific skills will decrease while that of their general skills applicable to various occupations will increase. The G20 should establish national adult training programs that focus on improving workers' general skills, specifically their theoretical, non-cognitive, and digital skills. These general skills will enable workers to work with technology instead of competing with it, thereby increasing their job mobility and employability.
    Keywords: digitalization,employability,job mobility,adult training,skills,G20
    JEL: E24 I38 J62 O33
    Date: 2017
  52. By: Garry, Stefanie; Rivas Valdivia, Juan Carlos
    Abstract: In this research, different complementary approaches are developed to determine the impact of public expenditure on economic growth in Mexico, Central America and the Dominican Republic. The evolution of the countries’ fiscal performance is analyzed; the strong link between public spending and economic growth is verified; the long-run relationship between current and capital expenditure with GDP growth is identified, and it is shown that public spending has a significant multiplier effect in the short and long-term, highlighting its persistence over time.
    Date: 2017–08
  53. By: Budzinski, Oliver; Grusevaja, Marina
    Abstract: Im Internet erfreut sich ein Geschäftsmodell erheblicher Beliebtheit, bei welchem den Nut-zern Dienstleistungen oder Inhalte (in traditionellen Geldeinheiten) unentgeltlich zur Verfügung gestellt werden und stattdessen die auf dem Wege der Nutzung durch die Nutzer (bewusst oder unbewusst) bereitgestellten persönlichen Daten profitabel verwertet werden, sei es für gezielte Werbung, die Personalisierung und Individualisierung von Produkten und Dienstleistungen oder für datenbasierte Preisdiskriminierung. Im Kontext dieser innovativen Unternehmensstrategien können beim Vorliegen von Marktmacht auch neuartige Formen des Missbrauchs dieser Marktmacht zu Lasten der Nutzer auftreten. So geht beispielsweise derzeit das Bundeskartellamt dem Verdacht nach, dass der dominierende Anbieter von Soziale-Medien-Dienstleistungen, Facebook, seine Marktmacht missbrauche, indem er den Nutzern zu weit reichende Nutzungsrechte an persönlichen Daten abverlangt. Der vorliegende Beitrag nimmt diesen aktuellen Fall zum Anlass, die neuere ökonomische Forschung zur Rolle personalisierter Daten auf Onlinemärkten fallbezogen zusammenzufassen und exemplarisch auf Facebook anzuwenden. Dabei werden mögliche Missbrauchsstrategien auf ihre Plausibilität untersucht. Dabei wird deutlich, dass auch auf Märkten bzw. Plattformseiten, auf denen kein Geld im Sinne der gesetzlichen Währung fließt, dennoch Ausbeutungsmissbrauch möglich und vorstellbar ist. Dies wäre auch im Falle Facebook denkbar, wobei hierzu ohne eine empirische Analyse interner Daten (welche den Autoren nicht vorliegen) keine endgültige Aussage möglich ist.
    Keywords: Medienökonomik,personalisierte Daten,big data,Soziale Medien,Wettbewerbspolitik,Industrieökonomik,Facebook,Marktmacht,targeted advertising,zero-price economy,Internetökonomie,Onlinemärkte
    JEL: L40 K21 L82 D43 D42 E42 L86 L41
    Date: 2017
  54. By: Elveren, Adem Yavuz; Dunning, Rachel
    Abstract: Understanding the effect of military expenditures on profit rates can provide important insights on the use of government spending. We utilize the panel dynamic ordinary least square method to examine that relationship for 32 major countries from the period of 1963-2008. We find that while military expenditures increase profit rates in arm-exporting countries, the opposite occurs in the case of arms-importing countries.
    Keywords: Military expenditures, profit rates, panel data
    JEL: C33 E11 H50
    Date: 2017–09–04
  55. By: Raphael Auer; Thomas Chaney; Philip Sauré
    Abstract: This paper analyses firm's pricing-to-market decisions in vertically differentiated industries. We first present a model featuring firms that sell goods of heterogeneous quality levels to consumers who are heterogeneous in their income and thus their marginal willingness to pay for quality increments. We derive closed-form solutions for the unique pricing game under costly international trade. The comparative statics highlight how firms' pricing-to-market decisions are shaped by the interaction of consumer income and good quality. We derive two testable predictions. First, the relative price of high qualities compared to low qualities increases with the income of the destination market. Second, the rate of cost pass-through into consumer prices falls with quality if destination market income is sufficiently high. We present evidence in support of these two predictions based on a dataset of prices, sales, and product attributes in the European car industry.
    Keywords: exchange rate pass-through, intra-industry trade, monopolistic competition, pricing-to-market, vertical differentiation
    JEL: E3 E41 F12 F4 L13
    Date: 2017–08
  56. By: Justiniano, Alejandro; Primiceri, Giorgio E; Tambalotti, Andrea
    Abstract: We document the emergence of a disconnect between mortgage and Treasury interest rates in the summer of 2003. Following the end of the Federal Reserve expansionary cycle in June 2003, mortgage rates failed to rise according to their historical relationship with Treasury yields, leading to significantly and persistently easier mortgage credit conditions. We uncover this phenomenon by analyzing a large dataset with millions of loan-level observations, which allows us to control for the impact of varying loan, borrower and geographic characteristics. These detailed data also reveal that delinquency rates started to rise for loans originated after mid 2003, exactly when mortgage rates disconnected from Treasury yields and credit became relatively cheaper.
    Keywords: Credit boom; housing boom; private label; Securitization; subprime.
    Date: 2017–09
  57. By: Enflo, Kerstin (Department of Economic History, Lund University); Missiaia, Anna (Department of Economic History, Lund University)
    Abstract: This paper provides regional GDP estimates for the 24 Swedish regions (NUTS-3) for the benchmark year 1571 and for 11 ten-year benchmarks for the period 1750-1850. The 1571 estimates are based on tax sources and agricultural statistics. The 1750-1850 estimates are produced following the widely used methodology by Geary and Stark (2002): labour force figures from population censuses at regional level are used to allocate to regions the national estimates of agriculture, industry and services while wages are used to correct for productivity differentials. By connecting our series to the existing ones by Enflo et al. (2014) for the period 1860-2010, we are able to produce the longest set of regional GDP series to date for any single country.
    Keywords: regional GDP; Sweden; long-run regional inequality; pre-industrial regional development
    JEL: N01 N13 N93
    Date: 2017–06–04

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