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on Macroeconomics |
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Issue of 2017‒10‒01
72 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Fujita, Shigeru (Federal Reserve Bank of Philadelphia); Moscarini, Giuseppe (Yale University) |
| Abstract: | We document in the Survey of Income and Program Participation covering 1990- 2013 that a surprisingly large share of workers return to their previous employer after a jobless spell and experience very different unemployment and employment outcomes than job switchers. The probability of recall is much less procyclical and volatile than the probability of finding a new employer. We add to a quantitative, and otherwise canonical, search-and-matching model of the labor market a recall option, which can be activated freely following aggregate and job-specific productivity shocks. Recall and search effort significantly amplify the cyclical volatility of new job-finding and separation probabilities. |
| Keywords: | Recall; unemployment; duration; matching function; business cycles |
| JEL: | E24 E32 J64 |
| Date: | 2017–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:17-29&r=mac |
| By: | Kenza Benhima; Isabella Blengini |
| Abstract: | Endogenous - i.e. market-generated - signals observed by firms have crucial implications for monetary policy. When information is endogenous, firms gather a demand signal from their market that is both real and nominal. As a result, the traditional surprise channel of monetary policy is absent. Instead, monetary policy works through a signaling channel, as it affects firms' information through the demand signal. The optimal policy is then the signaling policy, i.e. the policy that maximizes the information content of the demand signal. In our setup, the signaling policy targets a positive correlation between money supply and prices, which emphasizes the natural response of prices to real shocks. On the contrary, in the more traditional case of exogenous information, optimal monetary policy would stabilize prices as it acts through the surprise channel. We show that the signaling policy is optimal regardless of the amount of attention that firms pay to central bank communication. |
| Keywords: | Optimal monetary policy; information frictions; expectations; central bank communication |
| JEL: | D83 E32 E52 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:17.14&r=mac |
| By: | Ghironi, Fabio |
| Abstract: | An emerging consensus on the future of macroeconomics views the incorporation of a role for financial intermediation, labor market frictions, and household heterogeneity in the presence of uninsurable unemployment risk as key needed extensions to the benchmark macro framework. I argue that this is welcome, but not sufficient for macro---and international macro---to tackle the menu of issues that have been facing policymakers since the recent global crisis. For this purpose, macro needs more micro than the benchmark setup has been incorporating so far. Specifically, artificial separations between business cycle analysis, the study of stabilization policies, and growth macro, as well as between international macroeconomics and international trade, must be overcome. I review selected literature contributions that took steps in this direction; outline a number of important, promising directions for future research; and discuss methodological issues in the development of this agenda. |
| Keywords: | DSGE; Heterogeneous firms; Macroeconomic policy; Market entry and exit; Monopoly power; Producer dynamics; Reallocation; Structural reforms; Trade |
| JEL: | E10 E32 E52 F12 F23 F40 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12299&r=mac |
| By: | Edward Nelson |
| Abstract: | This paper finds a significant influence of Milton Friedman on U.K. economic policy from the 1970s onward, and especially during the period of the Thatcher Government. The finding is based on a consideration of statements by policymakers and key economic advisers, as well as an analysis of Friedman’s commentary in the 1970s, 1980s, and 1990s on U.K. economic developments. Explicit, public acknowledgments of Friedman's influence were given by Margaret Thatcher, Chancellor of the Exchequer Geoffrey Howe, Bank of England officials, and others in policy circles. Examples of Friedman's influence include the absorption into U.K. policy doctrine of the permanent income hypothesis and the natural rate hypothesis, the rejection from 1979 onward of incomes policy as a weapon against inflation, and U.K. officials' repeated appeals to monetary sovereignty when arguing against monetary union or a sterling peg. Evidence of influence by Friedman on privatization policy and on the official perspective on the current account deficit can also be discerned. Although he had only limited interaction with U.K. policymakers, Friedman had a major influence, reflected in the adoption into actual U.K. policymaking of recommendations made in his writings and in the fact that those writings-which were studied closely by a number of senior U.K. economic advisers-helped alter U.K. economists' conceptual framework and thereby fostered doctrinal changes in U.K. economic policy. This paper's analysis also shows that two prominent critics of the Thatcher economic policy-Labour's Harold Wilson and the Conservatives' Edward Heath-saw this policy as partly due to the influence of Friedman, whom each of them had met before the Thatcher era. |
| Keywords: | Incomes policy ; Milton Friedman ; Monetarism ; U.K. economic policy |
| JEL: | E51 E52 E58 |
| Date: | 2017–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-96&r=mac |
| By: | Laséen, Stefan (Monetary Policy Department, Central Bank of Sweden); Pescatori, Andrea (International Monetary Fund); Turunen, Jarkko (International Monetary Fund) |
| Abstract: | We introduce time-varying systemic risk (à la He and Krishnamurthy, 2014) in an otherwise standard New-Keynesian model to study whether simple leaning-against-the-wind interest rate rules can reduce systemic risk and improve welfare. We find that while financial sector leverage contains additional information about the state of the economy that is not captured in inflation and output leaning against financial variables can only marginally improve welfare because rules are detrimental in the presence of falling asset prices. An optimal macroprudential policy, similar to a countercyclical capital requirement, can eliminate systemic risk raising welfare by about 1.5%. Also, a surprise monetary policy tightening does not necessarily reduce systemic risk, especially during bad times. Finally, a volatility paradox a la Brunnermeier and Sannikov (2014) arises when monetary policy tries to excessively stabilize output. |
| Keywords: | Monetary Policy; Endogenous Financial Risk; DSGE models; Non-Linear Dynamics; Policy Evaluation |
| JEL: | E30 E44 E52 E58 E61 G12 G20 |
| Date: | 2017–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0341&r=mac |
| By: | Fabio Ghironi |
| Abstract: | An emerging consensus on the future of macroeconomics views the incorporation of a role for financial intermediation, labor market frictions, and household heterogeneity in the presence of uninsurable unemployment risk as key needed extensions to the benchmark macro framework. I argue that this is welcome, but not sufficient for macro—and international macro—to tackle the menu of issues that have been facing policymakers since the recent global crisis. For this purpose, macro needs more micro than the benchmark setup has been incorporating so far. Specifically, artificial separations between business cycle analysis, the study of stabilization policies, and growth macro, as well as between international macroeconomics and international trade, must be overcome. I review selected literature contributions that took steps in this direction; outline a number of important, promising directions for future research; and discuss methodological issues in the development of this agenda. |
| JEL: | E10 E32 E52 F12 F23 F40 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23836&r=mac |
| By: | Jacob Assa (United Nations - OHRLLS) |
| Abstract: | Modern Monetary Theory (MMT) as well as Stock-Flow Consistent (SFC) modelling have both had significant implications for economic theory in recent years. Neither, however, had any meaningful impact on the key measurement of output, Gross Domestic Product (GDP). While balance sheets have been nominally included in national accounting systems since 1968, main aggregates such as GDP are still blind to the creation and flow of credit (and hence debt). The financial sector is only presented in GDP as a provider of services, not as a producer of credit and thus money. Following Schumpeter's (and Bezemer's) functional differentiation of credit, this paper separates finance into two parts - credit to the productive sectors and credit for speculation (i.e. for purchasing financial assets and real-estate). The former grows at the same rate as GDP, while the latter grows faster, increasing aggregate leverage. A systemic leverage index is then constructed from flow-of-funds data for the US (1960-2015), and used to render real GDP stock-flow consistent. Debt-adjusted GDP is theoretically and methodologically more consistent than GDP, and also correlates better with aggregate employment. The paper concludes by discussing the implications of debt-adjusted output for the trend and volatility of growth, as well as some thoughts on the gap between measurement and theory in economics. |
| Keywords: | Modern Money Theory, Stock-flow consistency, Functional differentiation of credit, speculation, credit, endogenous money, aggregated demand |
| JEL: | E01 E12 E23 E44 G20 O42 O47 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1727&r=mac |
| By: | Ngotran, Duong |
| Abstract: | We build a dynamic model with currency, demand deposits and bank reserves. The monetary base is controlled by the central bank, while the money supply is determined by the interactions between the central bank, banks and public. In banking crises when banks cut loans, a Taylor rule is not efficient. Negative interest on reserves or forward guidance is effective, but deflation is still likely to be persistent. If the central bank simultaneously targets both the interest rate and the money supply by a Taylor rule and a Friedman's k-percent rule, inflation and output are stabilized. |
| Keywords: | interest on reserves; negative interest on reserves; forward guidance; monetary base; endogenous money supply |
| JEL: | E4 E42 E5 E51 |
| Date: | 2017–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81579&r=mac |
| By: | Michael D. Bordo; Pierre L. Siklos |
| Abstract: | Central banks have evolved for close to four centuries. This paper argues that for two centuries central banks caught up to the strategies followed by the leading central banks of the era; the Bank of England in the eighteenth and nineteenth centuries and the Federal Reserve in the twentieth century. It also argues that, by the late 20th century, small open economies were more prone to adopt a new policy regime when the old one no longer served its purpose whereas large, less open, and systemically important economies were more reluctant to embrace new approaches to monetary policy. Our study blends the quantitative with narrative explanations of the evolution of central banks. We begin by providing an overview of the evolution of monetary policy regimes taking note of the changing role of financial stability over time. We then provide some background to an analysis that aims, via econometric means, to quantify the similarities and idiosyncrasies of the ten central banks and the extent to which they represent a network of sorts where, in effect, some central banks learn from others. |
| JEL: | E02 E31 E32 E42 E58 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23847&r=mac |
| By: | James Cloyne; Kilian Huber; Ethan Ilzetzki; Henrik Kleven |
| Abstract: | We investigate the effect of house prices on household borrowing using administrative mortgage data from the UK and a new empirical approach. The data contain household-level information on house prices and borrowing in a panel of homeowners, who refinance at regular and quasi-exogenous intervals. The data and setting allow us to develop an empirical approach that exploits house price variation coming from idiosyncratic and exogenous timing of refinance events around the Great Recession. We present two main results. First, there is a clear and robust effect of house prices on borrowing, but the responsiveness is smaller than recent US estimates. Second, the effect of house prices on borrowing can be explained largely by collateral effects. We study the collateral channel in two ways: through a multivariate and non-parametric heterogeneity analysis of proxies for collateral and wealth effects, and through a test that exploits interest rate notches that depend on housing collateral. |
| JEL: | D14 E21 E32 E43 E51 G21 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23861&r=mac |
| By: | Jan Hajek; Roman Horvath |
| Abstract: | We estimate a global vector autoregression model to examine the effects of euro area and US monetary policy stances, together with the effect of euro area consumer prices, on economic activity and prices in non-euro EU countries using monthly data from 2001-2016. Along with some standard macroeconomic variables, our model contains measures of the shadow monetary policy rate to address the zero lower bound and the implementation of unconventional monetary policy by the European Central Bank and US Federal Reserve. We find that these monetary shocks have the expected qualitative effects but their magnitude differs across countries, with Southeastern EU economies being less affected than their peers in Central Europe. Euro area monetary shocks have greater effects than those that emanate from the US. We also find certain evidence that the effects of unconventional monetary policy measures are weaker than those of conventional measures. The spillovers of euro area price shocks to non-euro EU countries are limited, suggesting that the law of one price materializes slowly. |
| Keywords: | Global VAR, international spillovers, monetary policy, shadow rate |
| JEL: | E52 E58 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2017/05&r=mac |
| By: | William, Barnett; Hu, Jingxian |
| Abstract: | Will capital controls enhance macro economy stability? How will the results be influenced by the exchange rate regime and monetary policy reaction? Are the consequences of policy decisions involving capital controls easily predictable, or more complicated than may have been anticipated? We will answer the above questions by investigating the macroeconomic dynamics of a small open economy. In recent years, these matters have become particularly important to emerging market economies, which have often adopted capital controls. We especially investigate two dynamical characteristics: indeterminacy and bifurcation. Four cases are explored, based on different exchange rate regimes and monetary policy rules. With capital controls in place, we find that indeterminacy depends upon how inflation and output gap coordinate with each other in their feedback to interest rate setting in the Taylor rule. When forward-looking, both passive and positive monetary policy feedback can lead to indeterminacy. Compared with flexible exchange rates, fixed exchange rate regimes produce more complex indeterminacy conditions, depending upon the stickiness of prices and the elasticity of substitution between labor and consumption. We find Hopf bifurcation under capital control with fixed exchange rates and current-looking monetary policy. To determine empirical relevance, we test indeterminacy empirically using Bayesian estimation. Fixed exchange rate regimes with capital controls produce larger posterior probability of the indeterminate region than a flexible exchange rate regime. Fixed exchange rate regimes with current-looking monetary policy lead to several kinds of bifurcation under capital controls. We provide monetary policy suggestions on achieving macroeconomic stability through financial regulation. |
| Keywords: | Capital controls, open economy monetary policy, exchange rate regimes, Bayesian methods, bifurcation, indeterminacy. |
| JEL: | C11 C62 E52 F3 F31 F41 |
| Date: | 2017–09–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81450&r=mac |
| By: | William Barnett (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin); Jingxian Hu (Department of Economics, The University of Kansas;) |
| Abstract: | Will capital controls enhance macro economy stability? How will the results be influenced by the exchange rate regime and monetary policy reaction? Are the consequences of policy decisions involving capital controls easily predictable, or more complicated than may have been anticipated? We will answer the above questions by investigating the macroeconomic dynamics of a small open economy. In recent years, these matters have become particularly important to emerging market economies, which have often adopted capital controls. We especially investigate two dynamical characteristics: indeterminacy and bifurcation. Four cases are explored, based on different exchange rate regimes and monetary policy rules. With capital controls in place, we find that indeterminacy depends upon how inflation and output gap coordinate with each other in their feedback to interest rate setting in the Taylor rule. When forward-looking, both passive and positive monetary policy feedback can lead to indeterminacy. Compared with flexible exchange rates, fixed exchange rate regimes produce more complex indeterminacy conditions, depending upon the stickiness of prices and the elasticity of substitution between labor and consumption. We find Hopf bifurcation under capital control with fixed exchange rates and current-looking monetary policy. To determine empirical relevance, we test indeterminacy empirically using Bayesian estimation. Fixed exchange rate regimes with capital controls produce larger posterior probability of the indeterminate region than a flexible exchange rate regime. Fixed exchange rate regimes with current-looking monetary policy lead to several kinds of bifurcation under capital controls. We provide monetary policy suggestions on achieving macroeconomic stability through financial regulation. |
| Keywords: | Capital controls, open economy monetary policy, exchange rate regimes, Bayesian methods, bifurcation, indeterminacy. |
| JEL: | F41 F31 E52 C11 C62 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:201706&r=mac |
| By: | Martin Bodenstein; Junzhu Zhao |
| Abstract: | Speed limit policy, a monetary policy strategy that focuses on stabilizing inflation and the change in the output gap, consistently delivers better welfare outcomes than flexible inflation targeting or flexible price level targeting in empirical New Keynesian models when policymakers lack the ability to commit to future policies. Even if the policymaker can commit under an inflation targeting strategy, the discretionary speed limit policy performs better for most empirically plausible model parameterizations from a normative perspective. |
| Keywords: | Delegation ; Inflation targeting ; Optimal monetary policy ; Price level targeting ; Speed limit policy |
| JEL: | E52 E58 |
| Date: | 2017–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-98&r=mac |
| By: | Almeida, Guilherme; Pappa, Evi; Sajedi, Rana; Vella, Eugenia |
| Abstract: | We construct a model of a monetary union to study fiscal consolidation in the Periphery of the Euro area, through cuts in public sector wages or hiring when the nominal interest rate is constrained at its lower bound. Consolidation induces a posi- tive wealth effect that increases demand, as well as a reallocation of workers towards the private sector, which together boost private activity. However, in a low inflation environment, demand is suppressed and the private sector is not able to absorb the additional workers. Comparing the two instruments, cuts in public hiring increase un- employment persistently in this environment, while wage cuts can reduce it. Regions with higher mobility of labor between the two sectors are able to consolidate more effectively. Price flexibility is also key at the zero lower bound: for a higher degree of price rigidity in the Periphery, consolidation becomes harder to achieve. Consolidations can be self-defeating when the public good is productive. |
| Keywords: | fiscal consolidation; Public Wage Bill; zero lower bound |
| JEL: | E32 E62 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12310&r=mac |
| By: | Hafedh BOUAKEZ; Laurent KEMOE |
| Abstract: | We argue that key findings of the recent empirical literature on the effects of news about future technology — including their tendency to generate negative comovement of macroeconomic aggregates, and their puzzling disinflationary nature — are due to measurement errors in total factor productivity (TFP). Reduced-form innovations to TFP, which are typically identified as unanticipated technology shocks, are found to generate anomalous responses that are inconsistent with the interpretation of these disturbances as supply shocks, thus hinting at the presence of an unpurged non-technological component in measured TFP. Such an impurity undermines existing identification schemes, which are based on the premise that measured TFP is entirely driven by surprise and news shocks to technology. In this paper, we estimate the macroeconomic effects of news shocks in the U.S. using an agnostic identification approach that is robust to measurement errors in TFP. We find no evidence of negative comovement conditional on a news shock, and the disinflation puzzle essentially vanishes under our identification strategy. Our results also indicate that news shocks have become an important driver of business-cycle fluctuations in recent years. |
| Keywords: | identification, measurement errors, news shocks, sign restrictions, technology, total factor productivity |
| JEL: | E20 C32 E32 O47 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:05-2017&r=mac |
| By: | Barnett, William; Liu, Jinan |
| Abstract: | This paper derives the user cost of monetary assets and credit card services with interest rate risk under the assumption of intertemporal non-separability. Barnett and Su (2016) derived theory permitting inclusion of credit card transaction services into Divisia monetary aggregates. The risk adjustment in their theory is based on CCAPM under intertemporal separability. The equity premium puzzle focusses on downward bias in the CCAPM risk adjustment to common stock returns. Despite the high risk of credit card interest rates, the risk adjustment under the CCAPM assumption of intertemporal separability might nevertheless be similarly small. While the known downward bias of CCAPM risk adjustments are of little concern with Divisia monetary aggregates containing only low risk monetary assets, that downward bias cannot be ignored, once high risk credit card services are included. We believe that extending to intertemporal non-separability could provide a non-negligible risk adjustment, as has been emphasized by Barnett and Wu (2015). In this paper, we extend the credit-card-augmented Divisia monetary quantity aggregates to the case of risk aversion and intertemporal non-separability in consumption. Our results are for the “representative consumer” aggregated over all consumers. While credit-card interest-rate risk may be low for some consumers, the volatility of credit card interest rates for the representative consumer is high, as reflected by the high volatility of the Federal Reserve’s data on credit card interest rates aggregated over consumers. One method of introducing intertemporal non-separability is to assume habit formation. We explore that possibility. To implement our theory, we introduce a pricing kernel, in accordance with the approach advocated by Barnett and Wu (2015). We assume that the pricing kernel is a linear function of the rate of return on a well-diversified wealth portfolio. We find that the risk adjustment of the credit-card-services user cost to its certainty equivalence level can be measured by its beta. That beta depends upon the covariance between the interest rates on credit card services and on the wealth portfolio of the consumer, in a manner analogous to the standard CAPM adjustment. As a result, credit card services’ risk premia depend on their market portfolio risk exposure, which is measured by the beta of the credit card interest rates. We are currently conducting research on empirical implementation of the theory proposed in this paper. |
| Keywords: | Divisia Index, monetary aggregation, intertemporal non-separability, credit card services, risk adjustment. |
| JEL: | C43 D81 E40 E41 E44 E51 G12 |
| Date: | 2017–09–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81461&r=mac |
| By: | Duval Hernández, Robert (University of Cyprus); Fang, Lei (Federal Reserve Bank of Atlanta); Ngai, L. Rachel (London School of Economics) |
| Abstract: | Cross-country differences of market hours in 17 OECD countries are mainly due to the hours of women, especially low-skilled women. This paper develops a model to account for the gender-skill differences in market hours across countries. The model explains a substantial fraction of the differences in hours by taxes, which reduce market hours in favor of leisure and home production, and by subsidized care, which frees (mostly) women from home care in favor of their market hours. Low-skilled women are more responsive to policy because of their low market returns and their comparative advantage in home activities. |
| Keywords: | cross-country differences in market hours, home production, subsidies on family care |
| JEL: | E24 E62 J22 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11002&r=mac |
| By: | Roger E.A. Farmer; Giovanni Nicolò |
| Abstract: | We extend Farmer's (2012b) Monetary (FM) Model in three ways. First, we derive an analog of the Taylor Principle and we show that it fails in U.S. data. Second, we use the fact that the model displays dynamic indeterminacy to explain the real effects of nominal shocks. Third, we use the fact the model displays steady-state indeterminacy to explain the persistence of unemployment. We show that the FM model outperforms the NK model and we argue that its superior performance arises from the fact that the reduced form of the FM model is a VECM as opposed to a VAR. |
| JEL: | E0 E12 E52 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23837&r=mac |
| By: | Jane E. Ihrig; Lawrence Mize; Gretchen C. Weinbach |
| Abstract: | The Federal Open Market Committee indicated in its September 2017 post-meeting statement that it will initiate in October a balance sheet normalization program to gradually reduce its securities holdings. This action will put in place a policy of reinvesting and redeeming portions of the principal payments received by the Federal Reserve from its holdings of Treasury and agency securities. How are these adjustments to the Federal Reserve’s securities holdings transacted and who is affected? This paper provides a primer regarding how the Federal Reserve accounts for these securities transactions. It also illustrates the numerous ways that the Federal Reserve's actions can play out across other sectors of the economy, including those that engage directly with the Federal Reserve and those that are involved indirectly as funds change hands. |
| Keywords: | FOMC ; Federal Reserve Board and Federal Reserve System ; Balance sheet management ; Balance sheet policy ; Monetary policy normalization ; Securities redemption ; Securities reinvestment |
| JEL: | E52 E58 M41 |
| Date: | 2017–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-99&r=mac |
| By: | Martin Ellison (Centre For Economic Policy Research (CEPR); Centre for Macroeconomics (CFM); Department of Economics Oxford University); Andrew Scott (Centre For Economic Policy Research (CEPR); Department of Economics London Business School (LBS)) |
| Abstract: | We construct a new monthly dataset for UK government debt over the period 1694 to 2017 based on price and quantity data for each individual bond issued. This enables us to examine long run fiscal sustainability using the theoretically relevant variable of the market value of debt, and investigate the historical importance of debt management. We find the general implications of the tax smoothing literature are replicated in our data, especially around financing wars, although we find major shifts over time in how fiscal sustainability is achieved. Before the 20th century, governments continued to pay bond holders a high rate of return and achieved sustainability through running fiscal surpluses but since then governments have relied on low growth adjusted real interest rates. The optimal debt management literature tends to favour the use of long bonds but we find the government would have been better off over the 20th century issuing short bonds. The contrast with the literature occurs because of an upward sloping yield curve and long bonds rarely providing fiscal insurance. This is particularly true during periods of financial crises when falling interest rates lead to sharp rises in the price of long bonds, making them an expensive form of finance. We examine the robustness of our conclusions to liquidity effects, rollover risks, buyback operations and leverage. In general, these do suggest a greater role for long bonds but do not overturn an issuance strategy based mainly on short term bonds. |
| Keywords: | Debt management, Fiscal Deficits, Fiscal Policy, Goveernment Debt, Inflation maturity, Yield curve |
| JEL: | E43 E62 H63 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1727&r=mac |
| By: | Ellison, Martin; Scott, Andrew |
| Abstract: | We construct a new monthly dataset for UK government debt over the period 1694 to 2017 based on price and quantity data for each individual bond issued. This enables us to examine long run fiscal sustainability using the theoretically relevant variable of the market value of debt, and investigate the historical importance of debt management. We find the general implications of the tax smoothing literature are replicated in our data, especially around financing wars, although we find major shifts over time in how fiscal sustainability is achieved. Before the 20th century, governments continued to pay bond holders a high rate of return and achieved sustainability through running fiscal surpluses but since then governments have relied on low growth adjusted real interest rates. The optimal debt management literature tends to favour the use of long bonds but we find the government would have been better off over the 20th century issuing short bonds. The contrast with the literature occurs because of an upward sloping yield curve and long bonds rarely providing fiscal insurance. This is particularly true during periods of financial crises when falling interest rates lead to sharp rises in the price of long bonds, making them an expensive form of finance. We examine the robustness of our conclusions to liquidity effects, rollover risks, buyback operations and leverage. In general, these do suggest a greater role for long bonds but do not overturn an issuance strategy based mainly on short term bonds. |
| Keywords: | Debt Management; Fiscal Deficits; Fiscal policy; Government Debt; inflation; Maturity; Yield Curve |
| JEL: | E43 E62 H63 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12304&r=mac |
| By: | Luis A. Gil-Alana (Faculty of Economics and ICS, University of Navarra, Pamplona, Spain); Zeynel Abidin Ozdemir (Department of Economics, Gazi University, Ankara, Turkey and Economic Research Forum (ERF), Cairo, Egypt); Aysit Tansel (Department of Economics, Middle East Technical University, Ankara, Turkey and Institute for the Study of Labor (IZA), Bonn, Germany and Economic Research Forum (ERF), Cairo, Egypt) |
| Abstract: | In this paper we have examined the unemployment rate series in Turkey by using long memory models and in particular employing fractionally integrated techniques. Our results suggest that unemployment in Turkey is highly persistent, with orders of integration equal to or higher than 1 in most cases. This implies lack of mean reversion and permanence of the shocks. We found evidence in favor of mean reversion in the case of female unemployment and this happens for all the groups of non-agricultural, rural, urban and youth unemployment series. The possibility of non-linearities are observed only in the case of female unemployment and the degree of persistence is higher in the cases of female and youth unemployment series. Important policy implications emerge from our empirical results. Labor and macroeconomic policies will most likely have long lasting effects on the unemployment rates. |
| Keywords: | Unemployment, hysteresis, NAIRU, fractional integration, Turkey |
| JEL: | C22 E24 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:met:wpaper:1709&r=mac |
| By: | Luis A. Gil-Alana (University of Navarra, Faculty of Economics and ICS, Pamplona, Spain); Zeynel Abidin Ozdemir (Department of Economics, Gazi University, Economic Research Forum (ERF) Cairo); Aysit Tansel (Middle East Technical University,IZA, Economic Research Forum (ERF) Cairo) |
| Abstract: | In this paper we have examined the unemployment rate series in Turkey by using long memory models and in particular employing fractionally integrated techniques. Our results suggest that unemployment in Turkey is highly persistent, with orders of integration equal to or higher than 1 in most cases. This implies lack of mean reversion and permanence of the shocks. We found evidence in favor of mean reversion in the case of female unemployment and this happens for all the groups of non-agricultural, rural, urban and youth unemployment series. The possibility of non-linearities are observed only in the case of female unemployment and the degree of persistence is higher in the cases of female and youth unemployment series. Important policy implications emerge from our empirical results. Labor and macroeconomic policies will most likely have long lasting effects on the unemployment rates. |
| Keywords: | Unemployment; hysteresis; NAIRU; fractional integration; Turkey. |
| JEL: | C22 E24 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1715&r=mac |
| By: | Mabrouk, Mohamed |
| Abstract: | The current economic context shows a tendency to inequality and rather weak growth. Rent-seeking behavior is often blamed for that. The purpose of this paper is to analyze the consequences, on the accumulation trajectory, of the existence of a rent levied by the rich on the poor. The model is inspired by the articles Stiglitz 1969, Schilcht 1975 and Bourguignon 1981. In particular, convex saving is used. We seek to see to what extent the introduction of a rent may call into question the Pareto-superiority of inequality proved by Bourguignon 1981 or alter the risk of decline highlighted in Mabrouk 2016. Within the limits of the assumptions of the model and of the numerical simulations carried out, we arrive at interesting and rather unexpected observations. Namely, a moderate rent levied by the rich on the poor may not only allow a Pareto-improvement of the economy and prevent the risk of decline, but also, it may unlock the economy from under-accumulation trap even if initial capital endowment is insufficient. The disadvantages of such a rent for the poor are felt only if the economy approaches or exceeds the golden rule where the net marginal productivity of capital is zero. |
| Keywords: | Rent, Inequality, Efficiency, Accumulation |
| JEL: | D31 E13 E21 E25 O4 |
| Date: | 2017–09–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81565&r=mac |
| By: | Olivier CARDI (Université de Tours, LEO (CNRS UMR 7322) and Université de Paris 2 CRED); Peter CLAEYS (Vrije Universiteit Brussel, Faculteit Economische en Sociale Wetenschappen); Romain RESTOUT (Université de Lorraine, BETA and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)) |
| Abstract: | Our paper investigates the impact of government spending shocks on relative sector size and contrasts the effects across countries. Using a panel of sixteen OECD countries over the period 1970-2007, our VAR evidence shows that a rise in government consumption i) increases the share of non tradables in labor and real GDP and lowers the share of tradables, and ii) causes a significant increase in non traded wages relative to traded wages. While the first finding reveals that the non traded sector is more intensive in the government spending shock and experiences a labor inflow that increases its relative size, the second finding suggests the presence of labor mobility costs preventing wage equalization across sectors. Turning to cross-country differences, empirically we detect a positive relationship between the magnitude of the impact responses of sectoral output shares and the degree of labor mobility across sectors. To account for our evidence, we develop an open economy version of the neoclassical model with tradables and non tradables. Our quantitative analysis shows that the model is successful in replicating the responses of sectoral output shares to a fiscal shock, as long as we allow for a difficulty in reallocating labor across sectors along with adjustment costs to capital accumulation. Finally, calibrating the model to country-specific data, we are able to generate a cross-country relationship between the degree of labor mobility and the responses of sectoral output shares which is similar to that in the data. |
| Keywords: | Fiscal policy; Labor mobility; Investment; Non tradables; Sectoral wages |
| JEL: | E22 E62 F11 F41 J31 |
| Date: | 2017–08–18 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2017015&r=mac |
| By: | Saint-Paul, Gilles; Ticchi, Davide; Vindigni, Andrea |
| Abstract: | If people understand that some macroeconomic policies are unsustainable, why would they vote for them in the first place? We develop a political economy theory of the endogenous emergence of fiscal crises, based on the idea that the adjustment mechanism to a crisis favors some social groups, that may be induced ex-ante to vote in favor of policies that are more likely to lead to a crisis. People are entitled to a certain level of a publicly provided good, which may be rationed in times of crises. After voting on that level, society votes on the extend to which it will be financed by debt. Under bad enough macro shocks, a crisis arises: taxes are set at their maximum but despite that some agents do not get their entitlement. Some social groups do better in this rationing process than others. We show that public debt -- which makes crises more likely -- is higher, as is the probability of a crisis, the greater the level of favoritism. If the favored group is important enough to be pivotal when society votes on the entitlement level, favoritism also leads to greater public expenditure. We show that the favored group may strategically favor a weaker state in order to make crises more frequent. Finally, the decisive voter when choosing expenditure may be different from the one when voting on debt. In such a case, constitutional limits on debt may raise the utility of all the poor, relative to the equilibrium outcome absent such limits. |
| Keywords: | Entitlements; favoritism; Fiscal Crises; inequality; political economy; public debt; State Capacity. |
| JEL: | E62 F34 H12 H6 O11 P16 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12291&r=mac |
| By: | Slimani, Slah |
| Abstract: | To evaluate the effectiveness of fiscal policy in Tunisia, we use the SVAR approach based on the work of Blanchard and Perotti (2002). Our paper shows the short-term macroeconomic efficiency of a structural increase in budgetary expenditure in Tunisia with a budget multiplier close to 2.7%, in line with the Keynesians models. However, the estimated effect of a structural increase in tax revenues on activity is non-Keynesian (increase in the level of economic activity). This is explained by the presence of the voracity effect in the case of the Tunisian economy. Thus, a structural shock in tax revenues leads to a rapid and immediate adjustment of budgetary expenditure, which neutralizes the recessionary effect of the tax increase on economic activity in Tunisia. |
| Keywords: | Politique budgétaire, SVAR, Chocs,dynamique économique, efficacité |
| JEL: | E6 H3 H5 |
| Date: | 2017–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81573&r=mac |
| By: | Chang, C-L.; Hsu, H-K.; McAleer, M.J. |
| Abstract: | The paper uses monthly data on tourism related factors from April 2005 - June 2016 for Taiwan that applies factor analysis and Chang’s (2015) novel approach for constructing a tourism financial indicator, namely the Tourism Financial Conditions Index (TFCI). The TFCI is an adaptation and extension of the widely-used Monetary Conditions Index (MCI) and Financial Conditions Index (FCI) to tourism stock data. However, the method of calculation of the TFCI is different from existing methods of constructing the MCI and FCI in that the weights are estimated empirically. The empirical findings show that TFCI is statistically significant using the estimated conditional mean of the tourism stock index returns (RTS). Granger Causality tests show that TFCI shows strong feedback on RTS. An interesting insight is that the empirical results show a significant negative correlation between F1_visistors and RTS, implying that tourism authorities might promote travel by the “rich”, and not only on inbound visitor growth. The use of market returns on the tourism stock sub-index as the sole indicator of the tourism sector, as compared with the general activity of economic variables on tourism stocks, is shown to provide an exaggerated and excessively volatile explanation of tourism financial conditions. |
| Keywords: | Monetary Conditions Index, Financial Conditions Index, Model-based Tourism Financial Conditions Index, Unbiased Estimation |
| JEL: | B41 E44 E47 G32 |
| Date: | 2017–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:ems:eureir:101763&r=mac |
| By: | Jobst, Clemens; Stix, Helmut |
| Abstract: | The circulation of cash has increased in many economies over the past decade. To understand this development we provide evidence from two perspectives. First, we analyze long time series from the late 19th century to 2015 for several economies. Second, we collect evidence from 70 economies from 2001 to 2014. The descriptive account provides two main findings: (i) Recent increases for the euro, the US dollar and the Swiss franc are strong if seen over a 100 year horizon, (ii) increases can be observed in the majority of the 72 economies over the period from 2001 to 2014. Panel money demand models show that interest rates or GDP can only partially explain the increases in cash demand. The size of the shadow economy is not found to be an important factor for this period. We find that cash demand has evolved in line with a standard money demand model in economies with no record of financial crises. For economies that had a financial crisis in 2008, we find an increase in cash demand, on average. However, an "unexplained" increase is also obtained for wealthier economies that did not have a financial crisis in 2007/08 but before. We conjecture that the level shift in cash demand is related to increased uncertainty. |
| Keywords: | cash; Demand for currency; Financial crises; international comparison; monetary history |
| JEL: | E41 E42 N10 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12327&r=mac |
| By: | William Barnett (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin); Jinan Liu (Department of Economics, The University of Kansas;) |
| Abstract: | This paper derives the user cost of monetary assets and credit card services with interest rate risk under the assumption of intertemporal non-separability. Barnett and Su (2016) derived theory permitting inclusion of credit card transaction services into Divisia monetary aggregates. The risk adjustment in their theory is based on CCAPM1 under intertemporal separability. The equity premium puzzle focusses on downward bias in the CCAPM risk adjustment to common stock returns. Despite the high risk of credit card interest rates, the risk adjustment under the CCAPM assumption of intertemporal separability might nevertheless be similarly small. While the known downward bias of CCAPM risk adjustments are of little concern with Divisia monetary aggregates containing only low risk monetary assets, that downward bias cannot be ignored, once high risk credit card services are included. We believe that extending to intertemporal non-separability could provide a non-negligible risk adjustment, as has been emphasized by Barnett and Wu (2015) |
| Keywords: | Divisia monetary aggregation, monetary aggregation theory, multilateral aggregation. |
| JEL: | C43 C82 D12 E51 F33 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:201705&r=mac |
| By: | Arvind Krishnamurthy; Tyler Muir |
| Abstract: | We study the behavior of credit and output across a financial crisis cycle using information from credit spreads. We show the transition into a crisis occurs with a large increase in credit spreads, indicating that crises involve a dramatic shift in expectations and are a surprise. The severity of the subsequent crisis can be forecast by the size of credit losses (change in spreads) coupled with the fragility of the financial sector (as measured by pre-crisis credit growth), and we document that this interaction is an important feature of crises. We also find that recessions in the aftermath of financial crises are severe and protracted. Finally, we find that spreads fall pre-crisis and appear too low, even as credit grows ahead of a crisis. This behavior of both prices and quantities suggests that credit supply expansions are a precursor to crises. The 2008 financial crisis cycle is in keeping with these historical patterns surrounding financial crises. |
| JEL: | E0 G01 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23850&r=mac |
| By: | Danny Yagan |
| Abstract: | This paper uses U.S. local areas as a laboratory to test whether the Great Recession depressed 2015 employment. In full-population longitudinal data, I find that exposure to a 1-percentage-point-larger 2007-2009 local unemployment shock caused working-age individuals to be 0.4 percentage points less likely to be employed at all in 2015, likely via labor force exit. These shocks also increased 2015 income inequality. General human capital decay and persistently low labor demand each rationalize the findings better than lost job-specific rents, lost firm-specific human capital, or reduced migration. Simple extrapolation suggests the recession caused most of the 2007-2015 age-adjusted employment decline. |
| JEL: | E0 H0 L0 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23844&r=mac |
| By: | Ambrogio Cesa-Bianchi; Andrea Ferrero; Alessandro Rebucci |
| Abstract: | House prices and exchange rates can potentially amplify the expansionary effect of capital inflows by inflating the value of collateral. We first set up a model of collateralized borrowing in domestic and foreign currency with international financial intermediation in which a change in leverage of global intermediaries leads to an international credit supply increase. In this environment, we illustrate how house price increases and exchange rates appreciations contribute to fueling the boom by inflating the value of collateral. We then document empirically, in a Panel VAR model for 50 advanced and emerging countries estimated with quarterly data from 1985 to 2012, that an increase in the leverage of US Broker-Dealers also leads to an increase in cross-border credit flows, a house price and consumption boom, a real exchange rate appreciation and a current account deterioration consistent with the transmission in the model. Finally, we study the sensitivity of the consumption and asset price response to such a shock and show that country differences are associated with the level of the maximum loan-to-value ratio and the share of foreign currency denominated credit. |
| JEL: | C33 E44 F3 F44 R0 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23841&r=mac |
| By: | William Barnett (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin); Neepa B. Gaekwad (Department of Economics, The University of Kansas;) |
| Abstract: | Monetary aggregates have a special role under the "two pillar strategy" of the ECB. Hence, the need for a theoretically consistent measure of monetary aggregates for the European Monetary Union (EMU) is needed. This paper analyzes aggregation over monetary assets for the EMU. We aggregate over the monetary services for the EMU-11 countries, which include Estonia, Finland, France, Germany, Ireland, Italy, Luxembourg, Malta, Netherlands, Slovakia, and Slovenia. We adopt the Divisia monetary aggregation approach, which is consistent with index number theory and microeconomic aggregation theory. The result is a multilateral Divisia monetary aggregate in accordance with Barnett (2007). The multilateral Divisia monetary aggregate for the EMU-11 is found to be more informative and a better signal of economic trends than the corresponding simple sum aggregate. We then analyze substitutability among monetary assets for the EMU-11 within the framework of a representative consumer's utility function, using Barnett’s (1983) locally flexible functional form, the minflex Laurent Indirect utility function. The analysis of elasticities with respect to the asset’s user-cost prices shows that: (i) transaction balances (TB) and deposits redeemable at notice (DRN) are income elastic, (ii) the DRN display large variation in price elasticity, and (iii) the monetary assets are not good substitutes for each other within the EMU-11. Simple sum monetary aggregation assumes that component assets are perfect substitutes. Hence simple sum aggregation distorts measurement of the monetary aggregate. The ECB has Divisia monetary aggregates provided to the Governing Council at its meetings, but not to the public. Our European Divisia monetary aggregates will be expanded and refined, in collaboration with Wenjuan Chen at the Humboldt University of Berlin, to a complete EMU Divisia monetary aggregates database to be supplied to the public by the Center for Financial Stability in New York City. |
| Keywords: | Divisia monetary aggregation, European Monetary Union, monetary aggregation theory, multilateral aggregation, minflex Laurent, elasticities of demand. |
| JEL: | C43 C82 D12 E51 F33 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:201704&r=mac |
| By: | Barnett, William; Gaekwad, Neepa |
| Abstract: | Monetary aggregates have a special role under the "two pillar strategy" of the ECB. Hence, the need for a theoretically consistent measure of monetary aggregates for the European Monetary Union (EMU) is needed. This paper analyzes aggregation over monetary assets for the EMU. We aggregate over the monetary services for the EMU-11 countries, which include Estonia, Finland, France, Germany, Ireland, Italy, Luxembourg, Malta, Netherlands, Slovakia, and Slovenia. We adopt the Divisia monetary aggregation approach, which is consistent with index number theory and microeconomic aggregation theory. The result is a multilateral Divisia monetary aggregate in accordance with Barnett (2007). The multilateral Divisia monetary aggregate for the EMU-11 is found to be more informative and a better signal of economic trends than the corresponding simple sum aggregate. We then analyze substitutability among monetary assets for the EMU-11 within the framework of a representative consumer's utility function, using Barnett’s (1983) locally flexible functional form, the minflex Laurent Indirect utility function. The analysis of elasticities with respect to the asset’s user-cost prices shows that: (i) transaction balances (TB) and deposits redeemable at notice (DRN) are income elastic, (ii) the DRN display large variation in price elasticity, and (iii) the monetary assets are not good substitutes for each other within the EMU-11. Simple sum monetary aggregation assumes that component assets are perfect substitutes. Hence simple sum aggregation distorts measurement of the monetary aggregate. The ECB has Divisia monetary aggregates provided to the Governing Council at its meetings, but not to the public. Our European Divisia monetary aggregates will be expanded and refined, in collaboration with Wenjuan Chen at the Humboldt University of Berlin, to a complete EMU Divisia monetary aggregates database to be supplied to the public by the Center for Financial Stability in New York City. |
| Keywords: | Divisia monetary aggregation, European Monetary Union, monetary aggregation theory, multilateral aggregation, minflex Laurent, elasticities of demand |
| JEL: | C43 C82 D12 E51 F33 |
| Date: | 2017–09–19 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81466&r=mac |
| By: | De Paola, Maria (University of Calabria); Gioia, Francesca (University of Edinburgh); Piluso, Fabio (University of Calabria) |
| Abstract: | We ran a field experiment to investigate whether nudge policies, consisting in behavioural insight messaging, help to improve performance in financial trading. Our experiment involved students enrolled in a financial trading course in an Italian University who were invited to trade on Borsa Italiana's virtual platform. Students were randomly assigned to a control group and a treatment group. Treated students received a message reminding them of the existence of behavioural biases in financial trading. We find that treated students significantly improve the performance of their portfolio. Several behaviours may explain the increase in performance. We find evidence pointing to a reduction in the home and status quo biases for risk averse nudged participants. |
| Keywords: | financial trading, behavioural biases, reminders, nudges, home bias, status quo bias, risk aversion |
| JEL: | D14 E21 E22 O16 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp10983&r=mac |
| By: | Sven Steinkamp (University Osnabrueck); Aaron Tornell (UC Los Angeles); Frank Westermann (University Osnabrueck) |
| Abstract: | The Single Supervisory Mechanism was introduced to eliminate the common-pool problem and limit uncontrolled lending by national central banks (NCBs). We analyze its effectiveness. Second, we model how, by forbearing and providing refinancing credit, NCBs avoid domestic resolution costs and, instead, share potential losses within the Euro Area. This results in “evergreening” of bad loans. Third, we construct a new evergreening index based on a large worldwide survey administered by the ifo institute. Regressions show evergreening is significantly greater in the Euro Area and where banks are in distress. Finally, greater evergreening accompanies higher growth of NCB-credit and Target2-liabilities. |
| Keywords: | Single Supervisory Mechanism; Evergreening; Non-performing Loans; Common-pool Problem |
| JEL: | F33 F55 E58 |
| Date: | 2017–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:iee:wpaper:wp0107&r=mac |
| By: | Subramaniam, Viswanatha |
| Abstract: | Human generation try to fit into a 4 dimensional survival concepts comprising the Environment, Geography, Economic and Social dimensions, over centuries and their pedigree too progressed under these guidelines. Because of the divergent level of survival targets in the economic and social strata by each human being, wealth accumulation flows unequally among the people. Industrial revolution mechanised the human work, with cost reduction and quality/volume optimization and planted Capitalism in the world, creating a wedge in the wealth accumulation process. This inducted a class war between the owners of wealth versus the workers, who are hired and fired by them. Competition made the capitalist to realise the importance of labour and diluted their concept as “Socialism”. The disproportionate wealth accumulation among people seeded the concept of communism in the world. Communism originated by Marx in Germany, spread to Russia and was promoted by Lenin. Both assumed that the large volume of people in the world belong to the low wealth possessing worker class, will revolt towards equal wealth share, and Communism shall dominate the whole world soon. But both Marx and Lenin were “Social revolutionists” and lacked “futuristic management thoughts” on how the shared wealth will be recycled to grow more, and result in prosperity among the equally shared population ? With this limited thought, the USSR (1922) and the East Germany (GDR-1961) and were created, with the entire wealth of the nation pooled on the apex “State”, representing the entire population. The state became a monopoly and all the people were simple labourers, without any self possessions. The state utilised the labour like a commodity, without any motivation to use their original ideas and any incentive to improve the productive contribution spirit. As a result, the GDR collapsed in 1989 and the USSR dwindled in 1991, bringing an end to the 69 year old Communist concept. Also both started promoting the diametrically opposite Capitalist approach and established cooperation with the (imperialist) USA. Communism could have survived and continued as a guide for wealth and prosperity for all the nations and their people in the world, if the domestic population was considered as “superior” to the “state”. The national wealth owned by the “State” should have been invested in sectorial projects and entrusted to optimum group of people to work, manage and encouraged to meet a targeted quality volume. State should have met all needs of these groups of people. A reasonable share of the net gains should have been distributed in equal proportion to all the people involved, as an incentive. Below targets and loss should have been questioned and corrective action should have been taken. In addition, the productivity and management decision should have been oriented towards ‘socio-economic Development units”. The domestic investment should be made from domestic savings and domestic technology should be manned by the domestic labour. |
| Keywords: | basic needs, capitalism, central bank, communism, darwin, domestic, economic, engels, financial, fittest, groups, individual, investment, lenin, management, manpower, marx, pareto, people, productivity, rate of return, revolution, savings, sectors, social, socialism, state, surplus, survival, technology, wealth |
| JEL: | A13 A14 B41 D63 D78 E2 E22 E24 H11 O11 P12 |
| Date: | 2017–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81500&r=mac |
| By: | Kaplan, Greg (University of Chicago); Schulhofer-Wohl, Sam (Federal Reserve Bank of Chicago) |
| Abstract: | We use scanner data to estimate inflation rates at the household level. Households' inflation rates have an annual interquartile range of 6.2 to 9.0 percentage points. Most of the heterogeneity comes not from variation in broadly defined consumption bundles but from variation in prices paid for the same types of goods. Lower-income households experience higher inflation, but most cross-sectional variation is uncorrelated with observables. Households' deviations from aggregate inflation exhibit only slightly negative serial correlation. Almost all variability in a household's inflation rate comes from variability in household-level prices relative to average prices, not from variability in aggregate inflation. |
| Keywords: | Inflation; heterogeneity; households; low income |
| JEL: | D12 D30 E31 |
| Date: | 2017–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2017-13&r=mac |
| By: | Campos, Nauro F.; Jarko, Fidrmuc; Iikka, Korhonen |
| Abstract: | This paper offers a first systematic evaluation of the evidence on the effects of currency unions on the synchronisation of economic activity. Focusing on Europe, we construct a database of about 3,000 business cycle synchronisation coefficients as well as their design and estimation characteristics. We find that: (1) synchronisation increased from about 0.4 before the introduction of the euro in 1999 to 0.6 afterwards; (2) this increase occurred in both euro and non-euro countries (larger in former); (3) there is evidence of country-specific publication bias; (4) our difference-in-differences estimates suggest the euro accounted for approximately half of the observed increase in synchronisation. |
| JEL: | E32 F42 |
| Date: | 2017–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2017_028&r=mac |
| By: | Tsoulfidis, Lefteris; Paitaridis, Dimitris |
| Abstract: | The purpose of this article is to show that the ‘great recession’ of 2007 in the USA is of the classical type with basic features the rising value composition of capital which more than fully offset the rising rate of surplus value giving rise to a falling rate of profit. The tendential fall of the latter, from a point onwards, led to a stagnant mass of real net profits, thereby decreased net investment and eventually impacted on employment. The evolution of capital intensity and the consequences of unproductive activities remain key issues in the discussions of capital accumulation and its periodic ruptures |
| Keywords: | Composition of capital, unproductive labour, capital accumulation, rate of profit, growth accounting |
| JEL: | B5 D33 E1 N12 O51 |
| Date: | 2017–09–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81542&r=mac |
| By: | Haelim Park Anderson; Gary Richardson; Brian S. Yang |
| Abstract: | In the Banking Acts of 1933 and 1935, the United States created the Federal Deposit Insurance Corporation, which ensured deposits in commercial banks up to $5,000. Congress capped the size of insured deposits so that small depositors would not run on banks, but large and informed depositors – such as firms and investors – would continue to monitor banks’ behavior. This essay asks how that insurance scheme influenced depositors’ reactions to news about the health of the economy and information on bank’s balance sheets. An answer arises from our treatment-and-control estimation strategy. When deposit insurance was created, banks with New York state charters accepted regular and preferred deposits. Preferred depositors received low, fixed interest rates, but when banks failed, received priority in repayment. Deposit-insurance legislation diminished differences between preferred and regular deposits by capping interest rates and protecting regular depositors from losses. We find that before deposit insurance, regular depositors reacted more to news about banks’ balance sheets and economic aggregates; while preferred depositors reacted less. After deposit insurance, this difference diminished, but did not disappear. The change in the behavior of one group relative to the other indicates that deposit insurance reduced depositor monitoring, although the continued reaction of depositors to some information suggests that, as intended, the legislation did not entirely eliminate depositor monitoring. |
| JEL: | E42 E65 G21 G28 N22 P34 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23828&r=mac |
| By: | Stanislao Gualdi (CentraleSupélec); Marco Tarzia (LPTMC - Laboratoire de Physique Théorique de la Matière Condensée - UPMC - Université Pierre et Marie Curie - Paris 6 - CNRS - Centre National de la Recherche Scientifique); Francesco Zamponi (LPTENS - Laboratoire de Physique Théorique de l'ENS - ENS Paris - École normale supérieure - Paris - UPMC - Université Pierre et Marie Curie - Paris 6 - CNRS - Centre National de la Recherche Scientifique); Jean-Philippe Bouchaud (CFM - Capital Fund Management - Capital Fund Management) |
| Abstract: | We generalise the stylised macroeconomic Agent-Based model introduced in our previous paper [1], with the aim of investigating the role and efficacy of monetary policy of a 'Central Bank', that sets the interest rate such as to steer the economy towards a prescribed inflation and employment level. Our major finding is that provided its policy is not too aggressive (in a sense detailed in the paper) the Central Bank is successful in achieving its goals. However, the existence of different equilibrium states of the economy, separated by phase boundaries (or " dark corners "), can cause the monetary policy itself to trigger instabilities and be counter-productive. In other words, the Central Bank must navigate in a narrow window: too little is not enough, too much leads to instabilities and wildly oscillating economies. This conclusion strongly contrasts with the prediction of DSGE models. |
| Keywords: | Agent-based Computational Economics |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01370217&r=mac |
| By: | Allen, Franklin (Imperial College London); Barlevy, Gadi (Federal Reserve Bank of Chicago); Gale, Douglas (New York University) |
| Abstract: | In a provocative paper, Galí (2014) showed that a policymaker who raises interest rates to rein in a potential bubble will only make a bubble bigger if one exists. This poses a challenge to advocates of lean-against-the-wind policies that call for raising interest rates to mitigate potential bubbles. In this paper, we argue there are situations in which the lean-against-the wind view is justified. First, we argue Galí’s framework abstracts from the possibility that a policymaker who raises rates will crowd out resources that would have otherwise been spent on the bubble. Once we modify Galí’s model to allow for this possibility, policymakers can intervene in ways that raise interest rates and dampen bubbles. However, there is no reason policymakers should intervene to dampen the bubble in this case, since the bubble that arises in Galí’s setup is not one that society would be better off without. We then further modify Galí’s model to generate the type of credit-driven bubbles that alarm policymakers, and argue there may be justification for intervention in that case. |
| Keywords: | Interest rate; monetary policy; asset bubble |
| JEL: | E43 E52 |
| Date: | 2017–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2017-16&r=mac |
| By: | Waknis, Parag |
| Abstract: | Whether currency can be efficiently provided by private competitive money suppliers is arguably one of the fundamental questions in monetary theory. It is also one with practical relevance because of the emergence of multiple competing financial assets as well as competing cryptocurrencies as means of payments in certain class of transactions. In this paper, a dual currency version of Lagos and Wright (2005) money search model is used to explore the answer to this question. The centralized market sub-period is modeled as infinitely repeated game between two long lived players (money suppliers) and a short lived player (a continuum of agents), where longetivity of the players refers to the ability to influence aggregate outcomes. There are multiple equilibria, however we show that equilibrium featuring lowest inflation tax is weakly renegotiation proof, suggesting that better inflation outcome is possible in an environment with currency competition. |
| Keywords: | currency competition, repeated games, long lived- short lived players, inflation tax, money search, weakly renegotiation proof. |
| JEL: | E52 E61 |
| Date: | 2017–09–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:75401&r=mac |
| By: | Ojo, Marianne |
| Abstract: | How do we address challenges presented by unequal distribution of the benefits of globalization? Such that the imposition of unduly high tariffs – as well as anti-dumping measures, do not offset positive gains to be derived from trade liberalization and globalization. This article also aims to highlight and address challenges presented to global trade relations as a result of the failure of central bankers to appreciate fully the consequences and impact – as well as contribution of emerging economies to all time low levels of inflation. This not having been demonstrated in the build up to the 2008 Financial Crisis, but also prompting the introduction of Basel III regulations – and particularly the 2010 Basel leverage ratio. |
| Keywords: | monetary policy; interest rates; positive supply shock; inflation; anti dumping tariffs; Uruguay World Trade round; Doha trade round; regional agreements |
| JEL: | E3 G2 G21 G3 K2 M4 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81474&r=mac |
| By: | Clark, Todd E. (Federal Reserve Bank of Cleveland); McCracken, Michael W. (Federal Reserve Bank of St. Louis); Mertens, Elmar (Bank for Inernational 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; fan charts; |
| JEL: | C53 E37 |
| Date: | 2017–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1715&r=mac |
| By: | Jaremski, Matthew (Department of Economics, Colgate University) |
| Abstract: | In recent years, there has been a revival of privately issued money. Due to the general lack of successful or even widely circulating private currency, it can be challenging to get a clear view of its efficiency using modern data. The U.S. historical period, however, offers a unique environment to examine the topic as private bank money made up a sizable portion of the money supply. Moreover, the period presents a wide range of regulation, including spans with and without the presence of a central bank or monetary authority. This chapter begins by highlighting the general history of privately issued money in the United States from 1790 through its elimination in the 1930s. Topics include the rise of state bank notes, the switch to national bank notes, clearinghouse currency, the Aldrich-Vreeland emergency currency associations, and the decline of private currency. It then examines open topics in the literature and provides suggestions for study going forward. |
| Keywords: | private currency, banks, bank notes, clearinghouses, and financial regulation |
| JEL: | E42 G21 N11 |
| Date: | 2017–09–20 |
| URL: | http://d.repec.org/n?u=RePEc:cgt:wpaper:2017-05&r=mac |
| By: | Gene M. Grossman; Elhanan Helpman; Ezra Oberfield; Thomas Sampson |
| Abstract: | We explore the possibility that a global productivity slowdown is responsible for the widespread decline in the labor share of national income. In a neoclassical growth model with endogenous human capital accumulation a la Ben Porath (1967) and capital-skill complementarity a la Grossman et al. (2017), the steady-state labor share is positively correlated with the rates of capital-augmenting and labor-augmenting technological progress. We calibrate the key parameters describing the balanced growth path to U.S. data for the early postwar period and find that a one percentage point slowdown in the growth rate of per capita income can account for between one half and all of the observed decline in the U.S. labor share. |
| JEL: | E13 E25 J24 O41 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23853&r=mac |
| By: | Cobb, Marcus P A |
| Abstract: | Abstract In terms of aggregate accuracy, whether it is worth the effort of modelling a disaggregate process, instead of forecasting the aggregate directly, depends on the properties of the data. Forecasting the aggregate directly and forecasting each of the components separately, however, are not the only options. This paper develops a framework to forecast an aggregate that dynamically chooses groupings of components based on the properties of the data to benefit from both the advantages of aggregation and disaggregation. With this objective in mind, the dimension of the problem is reduced by selecting a subset of possible groupings through the use of agglomerative hierarchical clustering. The definitive forecast is then produced based on this subset. The results from an empirical application using CPI data for France, Germany and the UK suggest that the grouping methods can improve both aggregate and disaggregate accuracy. |
| Keywords: | Forecasting economic aggregates; Bottom-up forecasting; Hierarchical forecasting; Hierarchical Clustering; |
| JEL: | C38 C53 E37 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81585&r=mac |
| By: | Li-Shiun Chen; Ping Wang; Yao Yao |
| Abstract: | Cigarette smoking leads to large healthcare and morbidity costs, and mortality losses, and smoking cessation plays a key role in reducing health risk and economic costs. While medical evidence suggests that some smokers are more likely to respond to medication treatment than others depending on genetic markers, it remains unexplored whether pharmacogenetic testing is cost-effective in treating potential quitters of smoking. We address this knowledge gap by developing a lifecycle model in which individuals make smoking, health investment and consumption-savings decisions. Depending on an individual's genotype, smoking may bring enjoyment but deteriorates one's health, and the dynamic evolution of health capital determines life expectancy. In addition to heterogeneous genotypes, individuals also differ in demographics. We calibrate this model to fit key economic and medical observations in the U.S. We then propose three smoking cessation policies, two with standard treatments and one personalized depending on genetic markers, all under the same program costs. We construct two unified measures of effectiveness and subsequently compute the cost-effectiveness ratio. We find that personalized treatment is the most cost-effective: for each dollar of program cost, it generates $8.94 value in effectiveness, which is 22-45% higher than those under standard treatments. |
| JEL: | D91 E20 I10 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23820&r=mac |
| By: | Yassin, Shaimaa (University of Lausanne); Langot, François (University of Le Mans) |
| Abstract: | This paper proposes an equilibrium matching model for developing countries' labor markets where the interaction between public, formal private and informal private sectors are taken into account. Theoretical analysis shows that gains from reforms aiming at liberalizing formal labor markets can be annulled by shifts in the public sector employment and wage policies. Since the public sector accounts for a substantial share of employment in developing countries, this approach is crucial to understand the main labor market outcomes of such economies. Wages offered by the public sector increase the outside option value of the workers during the bargaining processes in the formal and informal sectors. It becomes more profitable for workers to search on-the-job, in order to move to these more attractive and more stable types of jobs. The public sector therefore acts as an additional tax for the formal private firms. Using data on workers' flows from Egypt, we show empirically and theoretically that the liberalization of labor markets plays against informal employment by increasing the profitability, and hence job creations, of formal jobs. The latter effect is however dampened or even sometimes nullified by the increase of the offered wages in the public sector observed at the same time. |
| Keywords: | job search, informality, public sector, Egypt, unemployment, wages, policy interventions |
| JEL: | E24 E26 J60 J64 O17 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11014&r=mac |
| By: | Emiel van Bezooijen; Jacob Bikker |
| Abstract: | In 2015, the European Commission (EC) launched its action plan for the creation of a European Capital Markets Union. The EC aims to return the European economy to sustainable growth and to enhance its shock absorbing capacity by reducing the reliance on bank finance and stimulating financial deepening and cross-border integration of Europe's capital markets. Financial diversification and integrated European capital markets are expected to improve risk sharing among households, supporting economic stability. However, the economic literature reveals a lack of theoretical and empirical consensus on the superiority of either a bank-based or a market-based financial system in promoting growth or reducing macroeconomic volatility. This paper is the first to include bond markets in its financial structure indicators, besides stock markets and bank lending. Using panel data on 55 countries between 1975 and 2014 and three different measures of financial structure, we investigate the effect of the structure of the financial system on the volatility of output and investment growth as well as their cyclical components. We do not find evidence that market-based financial structures dampen volatility of output or overall investment. Increase of the stock market size relative to that of the banking sector has a significant positive effect on the business cycle volatility of investments. |
| Keywords: | financial development; financial system structure; macroeconomic volatility; market-based finance; bank-based finance; capital market integration; business cycle |
| JEL: | G15 G18 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:568&r=mac |
| By: | Chari, V. V. (University of Minnesota); Christiano, Lawrence J. (Northwestern University) |
| 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 because 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 without 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: | 2017–09–17 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2017-15&r=mac |
| By: | Mbazia, Nadia |
| Abstract: | The purpose of this paper is to explore the relationships between income inequality, economic growth and the main macroeconomic factors in Tunisia. We investigate two effects: the effect of inequality on growth, and particularly, the effect of growth on inequality. Also, attention has been focused on the role of the monetary policy, via introducing money supply as an independent variable, in affecting inequality and growth. Our empirical study is based on a series of annual data from 1975 to 2015 using the Dynamic Ordinary Least Squares (DOLS) method in order to estimate the cointegrating equations. The findings of the paper show that income inequality increase economic growth in Tunisia. Other factors having significant positive effect on economic growth include money supply and life expectancy at birth. However, inflation rate, primary education and unemployment have statistically significant and negative effect on economic growth. On the other hand, the results indicate that money supply, inflation rate, unemployment and savings are positively and significantly related to income inequality, whereas, life expectancy at birth and gross fixed capital formation decrease inequality in Tunisia. The policy implications of these results are discussed. |
| Keywords: | Income Inequality; Economic Growth; Tunisia, Money Supply; Education; Unemployment; Health |
| JEL: | C32 E52 I14 I24 O2 |
| Date: | 2017–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81127&r=mac |
| By: | Cristina Arellano; Yan Bai; Gabriel Mihalache |
| Abstract: | Sovereign debt crises are associated with large and persistent declines in economic activity, disproportionately so for nontradable sectors. This paper documents this pattern using Spanish data and builds a two-sector dynamic quantitative model of sovereign default with capital accumulation. Recessions are very persistent in the model and more pronounced for nontraded sectors because of default risk. An adverse domestic shock increases the likelihood of default, limits capital inflows, and thus restricts the ability of the economy to exploit investment opportunities. The economy responds by reducing investment and reallocating capital toward the traded sector to support debt service payments. The real exchange rate depreciates, a reflection of the scarcity of traded goods. We find that these mechanisms are quantitatively important for rationalizing the experience of Spain during the recent debt crisis. |
| JEL: | E3 F3 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23835&r=mac |
| By: | Rodrigo Suescún; Roberto Steiner |
| Abstract: | Este documento presenta un modelo de equilibrio general dinámico para el análisis de la economía colombiana. A diferencia de la mayoría de modelos de equilibrio general aplicado, este integra simultáneamente (i) el modelamiento dinámico de la toma de decisiones; (ii) la posibilidad de simular política económica discrecional; y (iii) un tratamiento explícito de los encadenamientos intersectoriales en la economía. Gracias a esto, resulta idóneo para responder preguntas que no se prestan para ser estudiadas con otros modelos económicos, como los modelos de equilibrio general dinámico estocástico (DSGE) o los modelos de equilibrio general computable (CGE). El trabajo consta de cuatro capítulos. En el primero se hace una detallada revisión de la literatura, tanto teórica como de modelos aplicados al caso de Colombia. Queremos con ello hacer plena claridad respecto del vacío que pretendemos llenar con nuestro trabajo. El segundo capítulo desarrolla el modelo mientras que en el tercero se presenta la calibración de los parámetros. El cuarto capítulo se presenta un par de simulaciones para ilustrar el uso del modelo. |
| Keywords: | Modelos de Equilibrio General Computable, Política EconómicaEconomía Colombiana, Evaluación Económica, Colombia |
| JEL: | C68 D58 E60 C52 D04 |
| Date: | 2017–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:col:000124:015736&r=mac |
| By: | Teguh Budiman (Faculty of Economics & Business, Universitas Padjadjaran, Indonesia. Author-2-Name: Aldrin Herwany Author-2-Workplace-Name: Faculty of Economics & Business, Universitas Padjadjaran, Indonesia. Author-3-Name: Farida Titik Kristanti Author-3-Workplace-Name: Faculty of Economics & Business, Telkom University, Bandung, Indonesia.) |
| Abstract: | "Objective – In recent years, the market share of Indonesian Islamic banks has declined. The purpose of this study is to assess the financial distress being experienced by Islamic banks in Indonesia by using the Bankometer's score. This study will also uncover any differences between listed and non-listed Islamic banks using the Bankometer model. The Bankometer model is a model developed by the IMF (2000) to measure the financial soundness of banks. Methodology/Technique – The study uses data obtained between 2011 and 2015 using a purposive sampling model. The sample consists of 11 Islamic Banks in Indonesia. Findings – The results show that all Islamic banks are categorized as very healthy throughout the period of the research. Using and independent t-test, it is shown that there are differences between non-performing loans from listed and nonlisted Islamic banks. However, there are no significant differences between Variable Capital Asset, Equity Asset, Cost to Income and Loan to Asset. Novelty – The study uses Bankometer's score to evaluate financial distress." |
| Keywords: | Bankometer Model; Financial Distress; Islamic Banks. |
| JEL: | E44 F14 G01 |
| Date: | 2017–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:gtr:gatrjs:jfbr130&r=mac |
| By: | Carlos Garriga; Aaron Hedlund; Yang Tang; Ping Wang |
| Abstract: | This paper explores the contribution of the structural transformation and urbanization process to China's housing-market boom. Rural to urban migration together with regulated land supplies and developer entry restrictions can raise housing prices. This issue is examined using a multi-sector dynamic general-equilibrium model with migration and housing. Our quantitative findings suggest that this process accounts for about 80 percent of urban housing price changes. This mechanism remains valid in extensions calibrated to the two largest cities with most noticeable housing booms and to several alternative setups. Overall, supply factors and productivity account for most of the housing price growth. |
| JEL: | E20 O41 R21 R31 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23819&r=mac |
| By: | Tetteh, Rebecca; Mohammed, Safura; Ahmed Azumah, Ayisha |
| Abstract: | The study examines the influence of wages and supervision on employee’s productivity for Sunyani Technical University using standard Ordinary Least Square method (OLS). The findings of the study indicate that wages and supervision have influence on productivity; however, supervision is ranked higher to influence productivity than wages. The management of higher institutions should consider the findings of the study to ensure that workers are appropriately supervised, and well paid to improve productivity and performance. Further studies should replicate the current study in a comparative study using private and public institutions in a causal study using structural modelling method. |
| Keywords: | Performance, demographics, wages |
| JEL: | E24 J31 J41 |
| Date: | 2017–07–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81473&r=mac |
| By: | Chrysafis Iordanoglou; Manos Matsaganis |
| Abstract: | Grexit was narrowly averted in summer 2015. Nevertheless, the view that Greece might be better off outside the Euro area has never really gone away. Moreover, although Marine Le Pen’s bid for the French presidency was frustrated in May 2017, in Italy a disparate coalition, encompassing Beppe Grillo’s Movimento Cinque Stelle as well as Matteo Salvini’s Lega Nord, has called for a referendum on exiting the Euro. In this context, our argument that Grexit cannot save Greece may be of some relevance to national debates elsewhere in Europe. The paper examines the case for Grexit by offering a detailed account of its likely effects. Its structure is as follows. Section 2 analyses the transition, with the two currencies (old and new) coexisting. Section 3 charts the challenges facing the Greek economy in the short term, after the new national currency has become legal tender. Section 4 assesses prospects in the medium term, with Grexit complete and the new currency drastically devalued. Section 5 reviews the underlying weaknesses of Greece’s growth regime and explains why these are unrelated to the nominal exchange rate. Section 6 discusses the conditions for an investment-led recovery, and shows why tackling them would be more difficult outside the Euro area. Section 7 sums up and concludes. |
| Keywords: | Greece, Grexit, Eurozone, growth regime |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:eiq:eileqs:123&r=mac |
| By: | Anil K. Kashyap; Dimitrios P. Tsomocos; Alexandros Vardoulakis |
| Abstract: | We modify the Diamond and Dybvig (1983) model of banking to jointly study various regulations in the presence of credit and run risk. Banks choose between liquid and illiquid assets on the asset side, and between deposits and equity on the liability side. The endogenously determined asset portfolio and capital structure interact to support credit extension, as well as to provide liquidity and risk-sharing services to the real economy. Our modifications create wedges in the asset and liability mix between the private equilibrium and a social planner's equilibrium. Correcting these distortions requires the joint implementation of a capital and a liquidity regulation. |
| Keywords: | Bank runs ; Capital ; Credit risk ; Limited liability ; Liquidity ; Regulation |
| JEL: | E44 G01 G21 G28 |
| Date: | 2017–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-97&r=mac |
| By: | Gunes Gokmen; Tommaso Nannicini; Massimiliano Gaetano Onorato (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Chris Papageorgiou |
| Abstract: | It is argued that crises open up a window of opportunity to implement policies that otherwise would not have the necessary political backing. The argument goes that the political cost of deep reforms declines as crises unravel structural problems that need to be urgently recti ed and the public is more willing to bear the pains associated with such reforms. This paper casts doubt on this prevalent view by showing that not only the crises-reforms hypothesis is unfounded in the data, but rather crises are associated with slowing structural reforms depending on the institutional environment. In particular, we look at measures of liberalization in international trade, agriculture, network industries, and nancial markets. We nd that, after a nancial crisis, democracies neither open nor close their economy. On the contrary, autocracies reduce liberalizations in multiple economic sectors, as the fear of regime change might lead non- democratic rulers to please vested economic interests. |
| Keywords: | Financial crises, structural reforms, institutional systems, IMF programs, govern- ment crises, public opinion. |
| JEL: | E44 G01 L51 P16 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:ctc:serie1:def061&r=mac |
| By: | Furukawa, Yuichi; Lai, Tat-kei; Sato, Kenji |
| Abstract: | In this study, we investigate the relationship between receptivity to novelty and innovation. Consumers’ receptivity to novelty, as an individual propensity toward new goods, might be perceived to encourage innovation at the aggregate level unambiguously. On analyzing data from the World Values Survey and the World Intellectual Property Organization, however, we find that there is an inverted U-shaped relationship between average receptivity and innovation at country level; receptivity may not always be conducive to innovation. To capture a mechanism behind this counterintuitive fact, we develop a new dynamic general equilibrium model with the understanding that innovation consists of two separate activities of inventing new goods and introducing them to the society. In our model, consumer receptivity encourages firms to invent but discourages them from introducing. Interacted with population size and the elasticity of substitution, these opposing forces generate a non-monotonic relationship. While economies with moderate receptivity can achieve sustained innovation and thereby long-run growth, those with too much or too little receptivity are likely to be caught in an underdevelopment trap, in which innovations eventually fail. These results suggest a theory that explains the inverted-U. |
| Keywords: | Openness to novelty; aversion to novelty; underdevelopment traps; endogenous growth; innovation cycles |
| JEL: | E32 O40 Z10 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81536&r=mac |
| By: | Cyril Monnet; Borghan N. Narajabad |
| Abstract: | Using a model with bilateral trades, we explain why agents prefer to rent the goods they can afford to buy. Absent bilateral trading frictions, renting has no role even with uncertainty about future valuations. With pairwise meetings, agents prefer to sell (or buy) durable goods whenever they have little doubt on the future value of the good. As uncertainty grows, renting becomes more prevalent. Pairwise matching alone is sufficient to explain why agents prefer to rent, and there is no need to introduce random matching, information asymmetries, or other market frictions. |
| Keywords: | Bargaining ; Bilateral matching ; Over-the-counter market ; Rent ; Repo ; Security lending ; Directed search |
| JEL: | G11 E44 C78 |
| Date: | 2017–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-94&r=mac |
| By: | J. Paul Dunne (School of Economics, University of Cape Town); Elizabeth Kasekende (Bank of Uganda) |
| Abstract: | While the effect of financial innovation on money demand has been widely researched in industrialised countries, because of its major role in monetary policy, few studies have focussed on developing countries. This is surprising given the considerable growth in financial innovation in Sub-Saharan Africa in recent years and its potential implications for developing country macroeconomic policy. This paper investigates the development of financial innovation and its impact on money demand in the region using panel data estimation techniques for 34 countries between 1980 and 2013. The results indicate that there is a negative relationship between financial innovation and money demand. This implies that financial innovation plays a crucial role in explaining money demand in Sub-Saharan Africa and given innovations such as mobile money in the region this can have important implications for future policy design. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ctn:dpaper:2017-06&r=mac |
| By: | James M. Poterba; Steven F. Venti; David A. Wise |
| Abstract: | This paper examines inequality in end-of-life wealth and the factors that contribute to individuals reaching this life stage with few financial resources. It analyzes repeated cross-sections of the Health and Retirement Study, as well as a small longitudinal sample of individuals observed both at age 65 and shortly before death. Most of those who die with little wealth had little wealth at retirement. There is strong persistence over time in the bottom tail of the wealth distribution, but the probability of having low wealth increases slowly with age after age 65. Those with low lifetime earnings are much more likely to report low wealth at retirement, and to die with little wealth, than their higher-earning contemporaries. The onset of a major medical condition and the loss of a spouse increase in the probability of falling into the low wealth category at advanced ages, although these factors appear to contribute to wealth decline for only a small fraction of those who had modest wealth at age 65 but low wealth at the time of death. |
| JEL: | E21 H55 J14 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23839&r=mac |
| By: | Muhammad Aamir, Shahzad |
| Abstract: | This study focused on developing forecasting model for perishable commodities and tomato is taken as a case to study. The model is developed on in-depth analysis of market dynamics and structure. An estimable theoretically founded model is the major output of this study which is based on true structure of the market. Complete model is comprised of inverted demand equation, Plantation and yield equations and the role of price expectations. The study reveals the fact that the farmers’ production decisions are affected by the expected profitability which is based on the expected output prices. However, due to the involvement of certain intermediaries the farmers couldn’t get the proper prices of its output whereas the domestic production meets 31.5% to its total demand only and the deficit is imported from other provinces of the country and from India. Low per acre yield and inefficient management practices, non-availability of hybrid seed, weather conditions and less profit margins and declining area of production causes the production to fall short of its potential maximum. Moreover, the increased reliance on imports and the increased demand due to increase in population causes the domestic prices to becomes more volatile. The majority of the small farmers sell their product through commission agents and wholesaler that cause imperfections in the market. Tomatoes value chain have certain problems like there exists a disparity between the small and large farmers in cost of production, yield and profitability. The model may forecast the prices on monthly or weekly basis depending upon the data availability. |
| Keywords: | Forecasting, Tomato, Market, Price |
| JEL: | E17 E31 Q11 |
| Date: | 2017–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81531&r=mac |
| By: | James Edward, Curtis Jr |
| Abstract: | ABSTRACT An understanding of the freedoms (or the lack of freedoms) and their economic consequences on early black Americans provides an informative understanding to the freedoms (or the lack of freedoms), and their economic consequences on other, modern ethnic groups. James Curtis Jr (2017) investigates the link between the social asymmetry and economic asymmetry among early blacks and whites in the United States of America. For the empirical study, James Curtis Jr (2017) uses cross-sectional variables from the Integrated Public Use Microdata Sample (IPUMS), developed informative conditional ratios, and employed least squares statistical analyses. FINDINGS This study finds that economic differences among ethnic groups, as measured by differences between early blacks and whites, are intertwined with asymmetrical freedoms, leading to statistically insignificant returns to education, as measured by literacy. One might conclude that the individual’s basic protection of life, liberty, and the pursuit of happiness must proceed any expectations of measured returns to schooling, particularly among individuals in disenfranchised groups. Furthermore, one might propose education policy such that modern higher education investment programs prioritize education entrepreneurs and/or state/social planners with academic research familiarity of differences in wealth. This research is a revision of November 2002, November 2010 and January 2012 working papers. Copyright 2017. James Edward Curtis, Jr. is the President & Research Economist of The James Edward Curtis Jr Education Foundation, Correspond with James Edward Curtis, Jr. at PO Box 3126, Washington, District of Columbia 20010, or phone (202) 739-1962, email jamesjr@jecjef.net Learn more at jecjef.net. |
| Keywords: | Education, History, Wealth |
| JEL: | C81 E21 I24 N00 |
| Date: | 2017–09–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81528&r=mac |
| By: | James B. Ang (Division of Economics, Nanyang Technological University, 14 Nanyang Drive, Singapore 637332.); Satyendra K. Gupta (Division of Economics, Nanyang Technological University, 14 Nanyang Drive, Singapore 637332.) |
| Abstract: | This research establishes that the emergence and persistence of intrastate con ict incidence since 1960 are in uenced by regional agro-ecological factors captured by the extent of variation in crop yield potential. Our results based on cross-country and grid-level analysis indicate that higher potential crop yield variability within a country that is exogenous to both human intervention and regional culture increases the likelihood of intrastate con ict. Our ndings are robust to the inclusion of various geographical, institutional, and potentially confounding economic development correlates. |
| Keywords: | Intrastate con ict, crop yield, agronomy |
| JEL: | E02 F50 Q10 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:nan:wpaper:1702&r=mac |
| By: | Ojo, Marianne |
| Abstract: | “………in the long run, the lack of commitment to multilateral trade that sank the Doha round this week, will also start to corrode the trading system as a whole……. America, the animating spirit behind earlier trade rounds, declared that a bad deal was worse than no deal at all – and meant it…. The underlying rationale of unilateral trade liberalization had been buried and forgotten long ago.” (The Economist, 2006a) The Uruguay and Doha trade rounds of agreements, do not only accentuate the difficulties of multilateral trade agreements, but also highlight the growing importance of regional agreements. In a phase where new territory is being experienced – particularly with the need for the United States to address its current account deficit, will it be willing to compromise in any deals involving America’s interest – in favor of diplomatic relations or will it stick to the widely held principle in Washington that “no deal at all is better than a bad deal”? Or will the United Kingdom’s involvement in the present trade dispute involving Bombardier and Boeing bring about an unprecedented and unexpected turn in events? |
| Keywords: | current account deficit; multilateral trade agreements; bilateral agreements; Doha Trade Round; tariffs |
| JEL: | E3 F4 G2 G28 G3 K2 M4 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81475&r=mac |