nep-mac New Economics Papers
on Macroeconomics
Issue of 2017‒10‒08
106 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Computing long‐term market inflation expectations for countries without inflation expectation markets By Petra Gerlach-Kristen; Richhild Moessner; Rina Rosenblatt-Wisch
  2. Should unconventional monetary policies become conventional? By Quint, Dominic; Rabanal, Pau
  3. Market Reforms at the Zero Lower Bound By Cacciatore, Matteo; Duval, Romain; Fiori, Giuseppe; Ghironi, Fabio
  4. The Effect of News Shocks and Monetary Policy By Luca Gambetti; Dimitris Korobilis; John D. Tsoukalas; Francesco Zanetti
  5. Optimal inflation target: Insights from an agentbased model By Bouchaud, Jean-Philippe; Gualdi, Stanislao; Tarzia, Marco; Zamponi, Francesco
  6. Unconventional Monetary Policy and the Interest Rate Channel: Signalling and Portfolio Rebalancing By Lloyd, S. P.
  7. Monetary Policy Shifts and Central Bank Independence By Qureshi, Irfan
  8. Changes in Monetary Regimes and the Identification of Monetary Policy Shocks: Narrative Evidence from Canada By Julien Champagne; Rodrigo Sekkel
  9. Macroeconomic effects of non-standard monetary policy measures in the euro area: the role of corporate bond purchases By Anna Bartocci; Lorenzo Burlon; Alessandro Notarpietro; Massimiliano Pisani
  10. Synchronicity of real and financial cycles and structural characteristics in EU countries By Mariarosaria Comunale
  11. Monetary policy, asset prices, and liquidity under adverse selection By Florian Madison
  12. Leverage and deepening business cycle skewness By Henrik Jensen; Ivan Petrella; Søren Hove Ravn; Emiliano Santoro
  13. Overnight Indexed Swap Market-Based Measures of Monetary Policy Expectations By Lloyd, S. P.
  14. Natural rates across the Atlantic By Stefano Neri; Andrea Gerali
  15. On the Interplay between Monetary Policy and Macroprudential Policy: A Simple Analytical Framework By Øistein Røisland
  16. Worker Churn and Employment Growth at the Establishment Level By Bachmann, Rüdiger; Bayer, Christian; Merkl, Christian; Seth, Stefan; Stüber, Heiko; Wellschmied, Felix
  17. Optimal quantitative easing By Harrison, Richard
  18. Government Spending Multipliers Under the Zero Lower Bound: Evidence from Japan By Wataru Miyamoto; Thuy Lan Nguyen; Dmitriy Sergeyev
  19. ?Whatever it takes? to resolve the European sovereign debt crisis? Bond pricing regime switches and monetary policy effects By Afonso, Ant¢nio; Arghyrou, Michael G; Gadea, Mar¡a Dolores; Kontonikas, Alexandros
  20. Predicting Ordinary and Severe Recessions with a Three-State Markov-Switching Dynamic Factor Model. An Application to the German Business Cycle By Heinrich, Markus; Carstensen, Kai; Reif, Magnus; Wolters, Maik
  21. What does “below, but close to, two percent” mean? Assessing the ECB’s reaction function with real time data By Paloviita, Maritta; Haavio, Markus; Jalasjoki, Pirkka; Kilponen, Juha
  22. Low frequency drivers of the real interest rate: a band spectrum regression approach By Fabio Busetti; Michele Caivano
  23. The Effects of Pre-announced Consumption Tax Reforms on the Sales and Prices of Consumer Durables By Büttner, Thiess; Madzharova, Boryana
  24. Taxes and Market Hours -- the Role of Gender and Skill By Duval-Hernandez, Robert; Fang, Lei; Ngai, Liwa Rachel
  25. Inflation and professional forecast dynamics: An evaluation of stickiness, persistence, and volatility By Elmar Mertens; James M. Nason
  26. The macroeconomics of rational bubbles: a user's guide By Alberto Martin; Jaume Ventura
  27. On the exposure of the BRIC countries to global economic shocks By Belke, Ansgar; Dreger, Christian; Dubova, Irina
  28. Labour market transitions, shocks and institutions in turbulent times: A cross-country analysis By Bachmann, Ronald; Felder, Rahel
  29. Robust test of Long Run Risk and Valuation risk model By G. Gopalakrishna
  30. Measuring the size of the shadow economy using a dynamic general equilibrium model with trends By Solis-Garcia, Mario; Xie, Yingtong
  31. Funders-of-Last-Resort: Legal Issues Involved in Using Central Bank Balance Sheets to Bolster Economic Growth By Michael, Bryane; Dalko, Viktoria
  32. "The Influence of Global Stock Index and the Economic Indicators of Stock Investment Decision by Foreign Investors in the Indonesian Stock Exchange" By Sulaeman Rahman Nidar
  33. Long memory in Turkish Unemployment Rates By Gil-Alana, Luis A.; Ozdemir, Zeynel Abidin; Tansel, Aysit
  34. Estimating the Credibility of Brazilian Monetary Policy using Forward Measures and a State-Space Model By Flávio de Freitas Val; Wagner Piazza Gaglianone; Marcelo Cabus Klotzle; Antonio Carlos Figueiredo Pinto
  35. Cross-border transmission of emergency liquidity By Kick, Thomas; Koetter, Michael; Storz, Manuela
  36. International liquidity By Hartmann, Philipp
  37. The response of long-term yields to negative interest rates: evidence from Switzerland By Christian Grisse; Silvio Schumacher
  38. Time-varying fiscal spending multipliers in the UK By C. Glocker; G. Sestieri; P. Towbin
  39. Is there a Link between Profit Share Rate of Participation Banks and Interest Rate?[:] The Case of Turkey By Korkut, Cem; Özgür, Önder
  40. The Effect of Central Bank Transparency on Exchange Rate Volatility By Christoph S. Weber
  41. Structural Reforms and Monetary Policies in a Behavioural Macroeconomic Model By De Grauwe, Paul; Ji, Yuemei
  42. US monetary regimes and optimal monetary policy in the Euro Area By Kostas Mavromatis
  43. Keynesian Economics without the Phillips Curve By Farmer, Roger E A
  44. Common Business Cycles and Volatilities in US States and MSAs: The Role of Economic Uncertainty By Rangan Gupta; Jun Ma; Marian Risse; Mark E. Wohar
  45. Spreading the word or reducing the term spread? Assessing spillovers from euro area monetary policy By Feldkircher, Martin; Gruber, Thomas; Huber, Florian
  46. Forecasting GDP all over the World: Evidence from Comprehensive Survey Data By Garnitz, Johanna; Lehmann, Robert; Wohlrabe, Klaus
  47. Estimating Nominal Interest Rate Expectations: Overnight Indexed Swaps and the Term Structure By Lloyd, S. P.
  48. "The Impact of Macro Economy on Stock Price Index: An Empirical Study of Five ASEAN Countries" By Embun Prowanta
  49. Using debit card payments data for nowcasting Dutch household consumption By Roy Verbaan; Wilko Bolt; Carin van der Cruijsen
  50. A Short “Second Best” Narrative of the Ukrainian Economy/ Una Breve “Segunda Mejor Opción” de Narrativa de la Economía Ucraniana By Soldatos, Gerasimos T.
  51. External stress early warning indicators By César Martín Machuca
  52. Rising inequality and trends in leisure By Boppart, Timo; Ngai, Liwa Rachel
  53. Credit demand and supply: a two-way feedback relation By Ugo Albertazzi; Lucia Esposito
  54. Teaching Modern Macroeconomics in the Traditional Language: The IS-MR-AD-AS Model By Waldo Mendoza Bellido
  55. "The Ability of Export and GDP Value Added in Explaining the Variation of Employment Opportunities in Indonesia" By Dinarjad Achmad
  56. R&D Cyclicality and Composition Effects: A Unifying Approach By Nikolay Chernyshev
  57. Banking Panics and Liquidity in a Monetary Economy By Tarishi Matsuoka; Makoto Watanabe
  58. The Impact of Petrol Prices on Stock Prices of Energy Companies: A Panel Data Analysis for Turkey By Nur Dilbaz Alacahan; Seda Yavuzaslan Soylemez
  59. Austerity & Competitiveness in the Eurozone: a misleading linkage By Walter Paternesi Meloni
  60. Persistence and stochastic convergence of euro area unemployment rates: evidence from LM and RALS-LM unit root tests with breaks By Irena Raguž Krištić; Lucija Rogić Dumančić; Vladimir Arčabić
  61. Are daily financial data useful for forecasting GDP? Evidence from Mexico By Gómez-Zamudio Luis M.; Ibarra-Ramírez Raúl
  62. Neoliberal Redistributive Policy : The U.S. Net Social Wage in the 21st Century By Katherine A. Moos
  63. On secular stagnation and low interest rates: demography matters By Stefano Neri; Giuseppe Ferrero; Marco Gross
  64. Credit misallocation during the European financial crisis By Fabiano Schivardi; Enrico Sette; Guido Tabellini
  65. The Growth and Human Capital Structure of New Firms over the Business Cycle By Murmann, Martin
  66. Symmetric Information Bubbles: Experimental Evidence By Yasushi Asako; Yukihiko Funaki; Kozo Ueda; Nobuyuki Uto
  67. Yes we can! Teaching DSGE models to undergraduate students By Solis-Garcia, Mario
  68. "The Impact of Minimum Wage Policy on Small Medium Enterprises’ Productivity in the Manufacturing Sector" By Ung Leng Yean
  69. Empirical Findings on Inflation Expectations in Brazil: a survey By Wagner Piazza Gaglianone
  70. The human capital and development. The Romanian case study By Elena Pelinescu
  71. Tax shocks with high and low uncertainty By Bertolotti, Fabio; Marcellino, Massimiliano
  72. Early Warning Systems with Real-Time Data By Boonman Tjeerd; Jan P.A.M. Jacobs; Kuper Gerard H.; Romero Alberto
  73. Worker Churn and Employment Growth at the Establishment Level By Bachmann, Rüdiger; Bayer, Christian; Merkl, Christian; Seth, Stefan; Stüber, Heiko; Wellschmied, Felix
  74. Long memory in Turkish Unemployment Rates By Luis A. Gil-Alana; Zeynel Abidin Ozdemir; Aysit Tansel
  75. Recession and financial development: An empirical analysis By Kodila-Tedika, Oasis; NGUENA, Christian L.
  76. "The Influence of Financial Distress Using Altman Z-Score, The Beta of Stocks and Inflation To The Stock Return" By Mathius Tandiontong
  77. Credit Constraints and Economic Growth in a Dual Economy By Peter Skott; Leopoldo Gomez-Ramirez
  78. Forecasting US inflation using Markov dimension switching By Prüser, Jan
  79. Benefits of EMU Participation : Estimates using the Synthetic Control Method By Verstegen, Loes; van Groezen, Bas; Meijdam, Lex
  80. The real effects of relationship lending By Ryan Banerjee; Enrico Sette; Leonardo Gambacorta
  81. The real effects of relationship lending By Ryan Niladri Banerjee; Leonardo Gambacorta; Enrico Sette
  82. The real effects of relationship lending By Banerjee, Ryan; Gambacorta, Leonardo; Sette, Enrico
  83. Demand-Driven Structural Change in Applied General Equilibrium Models By Roberto Roson; Dominique van der Mensbrugghe
  84. Macroeconomic Determinants of Income Inequality in Bulgaria By Silviya Bratoeva-Manoleva
  85. Nonlinear models in macroeconometrics By Timo Teräsvirta
  86. "Impact of Surplus Labor Existence on Land Lease Market in Rural Central Java" By Ernoiz Antriyandarti
  87. Green Marketing vs. Greenwashing. How to protect against Negative Impact of Greenwashing? By Margareta Nadanyiova
  88. Brexit and the Future of Globalization? By John Van Reenen
  89. The impact of oil-market shocks on stock returns in major oil-exporting countries: A Markov-switching approach By Basher, Syed Abul; Haug, Alfred A.; Sadorsky, Perry
  90. Institutional shocks and economic outcomes : Allende's election, Pinochet's coup and the Santiago stock market By Daniele Girardi; Samuel Bowles
  91. Labour market access, family responsibilities and health perception of Italian women By Raffaella Patimo; Chiara Mussida
  92. FIW Note No. 24 - September 2017 By Cornelius Hirsch; Vasily Astrov
  93. Inference for VARs Identified with Sign Restrictions By Eleonora Granziera; Hyungsik Roger Moon; Frank Schorfheide
  94. Wage Dynamics in Bulgaria: Co-movement and Causality By Hristina Manolova; Aleksandar Vasilev
  95. Electricity intensity and unemployment in South Africa: A quantile regression analysis By Ruzive, Tafadzwa; Mkhombo, Thando; Mhaka, Simba; Mavikela, Nomahlubi; Phiri, Andrew
  96. Pricing sin stocks: Ethical preference vs. risk aversion By Colonnello, Stefano; Curatola, Giuliano; Gioffré, Alessandro
  97. FIW Note No. 23 - March 2017 By Cornelius Hirsch; Vasily Astrov
  98. Business Cycle Dating and Forecasting with Real-time Swiss GDP Data By Christian Glocker; Philipp Wegmüller
  99. Forecasting with Dynamic Panel Data Models By Laura Liu; Hyungsik Roger Moon; Frank Schorfheide
  100. "The Assessment of Client Creditworthiness Using Predictive Methods Based on Multivariate Discriminant Analysis" By Anna Siekelova
  101. What moves the Beveridge curve and the Phillips curve: An agent-based analysis By Chen, Siyan; Desiderio, Saul
  102. "A Study on The Behavioural Aspects of Retail Investors for Investment Decision Making in Telangana State" By Jhansi Rani Boda
  103. The Philosophy of Debt Alexander DOUGLAS, Abingdon: Routledge, 2016. 164 pp By Louis Larue
  104. Dynamic Openness and Finance in Africa By Simplice Asongu; Jules R. Minkoua N
  105. A European perspective on overindebtedness By Nicolas Véron; Jeromin Zettelmeyer
  106. Institutions et ordre politique dans le modèle économique algérien By Rachid Mira

  1. By: Petra Gerlach-Kristen; Richhild Moessner; Rina Rosenblatt-Wisch
    Abstract: We derive daily market‐based domestic long‐term inflation expectations for eight countries without inflation swap markets. To do so, we use foreign inflation swaps together with (1) foreign and domestic interest rate swaps assuming that purchasing power parity (PPP) and uncovered interest rate parity (UIP) hold or together with (2) spot and forward exchange rates assuming that PPP, UIP and covered interest rate parity (CIP) hold. We confirm the plausibility of our PPP‐UIP and PPP‐UIC‐CIP measures by also applying these methods for countries with inflation swap markets. We moreover illustrate how the data can be used to answer such questions as whether inflation reacts to long‐term inflation expectations, whether these expectations are well‐anchored and how long‐term real interest rates have moved over the past decade.
    Keywords: Inflation expectations, market‐based inflation expectations, anchoring of inflation expectations, long‐term real interest rates
    JEL: E31 E44 E58
    Date: 2017
  2. By: Quint, Dominic; Rabanal, Pau
    Abstract: The large recession that followed the Global Financial Crisis of 2008-09 triggered unprecedented monetary policy easing around the world. Most central banks in advanced economies deployed new instruments to affect credit conditions and to provide liquidity on a large scale after short-term policy rates had reached their effective lower bound. In this paper, we study if this new set of tools, commonly labeled as unconventional monetary policies (UMP), should continue to be used once economic conditions and interest rates have normalized. In particular, we study the optimality of asset purchase programs by using an estimated non-linear DSGE model with a banking sector and long-term private and public debt for the United States. We find that the benefits of using such UMP in normal times are substantial, equivalent to 1.45 percent of consumption. However, the benefits of using UMP are shock-dependent and mostly arise when the economy is hit by financial shocks. By contrast, when more traditional business cycle shocks (such as supply and demand shocks) hit the economy, the benefits of using UMP are negligible or zero.
    Keywords: Unconventional Monetary Policy,Banking,Optimal Rules
    JEL: C32 E32 E52
    Date: 2017
  3. By: Cacciatore, Matteo; Duval, Romain; Fiori, Giuseppe; Ghironi, Fabio
    Abstract: This paper studies the impact of product and labor market reforms when the economy faces major slack and a binding constraint on monetary policy easing---such as the zero lower bound. To this end, we build a two-country model with endogenous producer entry, labor market frictions, and nominal rigidities. We find that while the effect of market reforms depends on the cyclical conditions under which they are implemented, the zero lower bound itself does not appear to matter. In fact, when carried out in a recession, the impact of reforms is typically stronger when the zero lower bound is binding. The reason is that reforms are inflationary in our structural model (or they have no noticeable deflationary effects). Thus, contrary to the implications of reduced-form modeling of product and labor market reforms as exogenous reductions in price and wage markups, our analysis shows that there is no simple across-the-board relationship between market reforms and the behavior of real marginal costs. This significantly alters the consequences of the zero (or any effective) lower bound on policy rates.
    Keywords: Employment protection; Monetary policy; Producer entry; Product market regulation; Structural reforms; Unemployment benefits; Zero lower bound
    JEL: E24 E32 E52 F41 J64
    Date: 2017–09
  4. By: Luca Gambetti (Universitat Autonomade Barcelona); Dimitris Korobilis (University of Essex); John D. Tsoukalas (University of Glasgow); Francesco Zanetti (Centre for Macroeconomics (CFM); University of Oxford)
    Abstract: A VAR model estimated on U.S. data before and after 1980 documents systematic differences in the response of short- and long-term interest rates, corporate bond spreads and durable spending to news TFP shocks. Interest rates across the maturity spectrum broadly increase in the pre-1980s and broadly decline in the post-1980s. Corporate bond spreads decline significantly, and durable spending rises signi cantly in the post-1980 period while the opposite short-run response is observed in the pre-1980 period. Measuring expectations of future monetary policy rates conditional on a news shock suggests that the Federal Reserve has adopted a restrictive stance before the 1980s with the goal of retaining control over in ation while adopting a neutral/accommodative stance in the post-1980 period.
    Keywords: News shocks, Business cycles, VAR models, DSGE models
    JEL: E20 E32 E43 E52
    Date: 2017–09
  5. By: Bouchaud, Jean-Philippe; Gualdi, Stanislao; Tarzia, Marco; Zamponi, Francesco
    Abstract: Which level of inflation should Central Banks be targeting? The authors investigate this issue in the context of a simplified Agent Based Model of the economy. Depending on the value of the parameters that describe the micro-behaviour of agents (in particular inflation anticipations), they find a surprisingly rich variety of behaviour at the macro-level. Without any monetary policy, our ABM economy can be in a high inflation/high output state, or in a low inflation/low output state. Hyper-inflation, stagflation, deflation and business cycles are also possible. The authors then introduce a Central Bank with a Taylor-rule-based inflation target, and study the resulting aggregate variables. The main result is that too low inflation targets are in general detrimental to a CB-controlled economy. One symptom is a persistent under-realisation of inflation, perhaps similar to the current macroeconomic situation. This predicament is alleviated by higher inflation targets that are found to improve both unemployment and negative interest rate episodes, up to the point where erosion of savings becomes unacceptable. The results are contrasted with the predictions of the standard DSGE model.
    Keywords: Agent based models,monetary policy,inflation target,Taylor rule
    JEL: E31 E32 E52
    Date: 2017
  6. By: Lloyd, S. P.
    Abstract: In response to financial turmoil that began in 2007 and the effective lower bound for short-term interest rates that was reached in late-2008, the Federal Reserve adopted a raft of 'unconventional' monetary policies, notably: forward guidance and large-scale asset purchases. These policies transmit to the real economy, inter alia, via an interest rate channel, with two sub-channels: signalling and portfolio rebalancing. I apply the OIS-augmented decomposition of interest rates from Lloyd (2017a) to identify these two sub-channels. I demonstrate that US unconventional monetary policy announcements between November 2008 and April 2013 did exert significant signalling and portfolio balance effects on financial markets, reducing longer-term interest rates. Signalling effects were particularly powerful at horizons in excess of two years. As a result of these declines, unconventional monetary policy aided real economic outcomes. I show that the signalling channel exerted a more powerful influence on US industrial production and consumer prices than portfolio rebalancing. In terms of long-term bond yield and industrial production effects, the signalling channel is associated with around two-thirds to three-quarters of the total effects attributed to the two channels.
    Keywords: Unconventional Monetary Policy, Large-Scale Asset Purchases, Forward Guidance, Signalling, Portfolio Rebalancing, Interest Rates, Term Structure, Overnight Indexed Swaps
    JEL: E32 E43 E44 E52 E58 G12 G14
    Date: 2017–09–20
  7. By: Qureshi, Irfan (The University of Warwick)
    Abstract: Why does low central bank independence generate high macroeconomic instability? A government may periodically appoint a subservient central bank chairman to exploit the inflation-output trade-off, which may generate instability. In a New Keynesian framework, time-varying monetary policy is connected with a “chairman effect.” To identify departures from full independence, I classify chairmen based on tenure (premature exits), and the type of successor (whether the replacement is a government ally). Bayesian estimation using cross-country data confirms the relationship between policy shifts and central bank independence, explaining approximately 25 (15) percent of inflation volatility in developing (advanced) economies. Theoretical analyses reveal a novel propagation mechanism of the policy shock.
    Keywords: Time-varying policy parameters ; macroeconomic volatility ; central bank independence ; type of chairman changes
    JEL: E30 E42 E43 E52 E58 E61 O11 O23 O57
    Date: 2017
  8. By: Julien Champagne; Rodrigo Sekkel
    Abstract: We use narrative evidence along with a novel database of real-time data and forecasts from the Bank of Canada's staff economic projections from 1974 to 2015 to construct a new measure of monetary policy shocks and estimate the effects of monetary policy in Canada. We show that it is crucial to take into account the break in the conduct of monetary policy caused by the announcement of inflation targeting in 1991 when estimating the effects of monetary policy. For instance, we find that a 100-basis-point increase in our new shock series leads to a 1.0 per cent decrease in real GDP and a 0.4 per cent fall in the price level, while not accounting for the break leads to a permanent decrease in real GDP and a price puzzle. Finally, we compare our results with updated narrative evidence for the U.S. and the U.K. and argue that taking into account changes in the conduct of monetary policy in these countries also yields significantly different effects of monetary policy.
    Keywords: Business fluctuations and cycles, Central bank research, Econometric and statistical methods, Exchange rate regimes, Inflation and prices, Inflation targets, Interest rates, Monetary Policy, Monetary policy framework
    JEL: E31 E32 E43 E52 E58
    Date: 2017
  9. By: Anna Bartocci (Bank of Italy); Lorenzo Burlon (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Massimiliano Pisani (Bank of Italy)
    Abstract: This paper evaluates the macroeconomic effects of the corporate sector purchase programme (CSPP) implemented in the euro area by the Eurosystem. For this purpose we calibrate and simulate a monetary-union dynamic general equilibrium model. We assume that entrepreneurs can finance their spending by issuing bonds in the domestic corporate bond market and by borrowing from domestic banks. We found that the March 2016 CSPP boosts euro-area GDP by around 0.3% in the second year (peak level). Inflation rises too but by a smaller amount. Second, taking into account the programme’s extension in December 2016, its overall impact on GDP amounts to 0.6%. Third, the CSPP also stimulates banking activity, because the improvement in macroeconomic conditions leads to higher demand for loans from households and entrepreneurs. Fourth, an early exit from the CSPP negatively impacts its macroeconomic effectiveness, while forward guidance on monetary policy rate enhances it.
    Keywords: DSGE models, financial frictions, open-economy macroeconomics, non-standard monetary policy, corporate bonds, forward guidance, euro area
    JEL: E43 E44 E52 E58
    Date: 2017–09
  10. By: Mariarosaria Comunale (Economics Department, Bank of Lithuania)
    Abstract: In this paper, we examine the relationships between real, credit and house price cycles, by using a synchronicity index, and structural characteristics and macroeconomic variables of 17 EU countries. We find that the cycles between credit variables and the real cycle with the property or equity prices cycles seem relatively well synchronised. Credit and GDP fluctuations seem to be less synchronised, mostly because credit volumes tend to lag the real cycle by several quarters. The high rates of private homeownership tend to be associated with larger cycles in GDP, credit, and house prices. Higher Loan-To-Value ratios, seen as a proxy of borrowing constraints, and a higher percentage of flexible-rate mortgages, could also indicate that a country is more sensitive to shocks and possibly increase pro-cyclicality and increase cycle volatility. Finally, the pro-cyclicality of the credit and housing market to the GDP cycle can be linked to the fluctuation in current accounts and their misalignments with respect to the theoretical equilibrium value. The synchronicity and the cycles of credit may also be considered for signaling recessions.
    Keywords: cycles; synchronicity; housing market; credit; European Union
    JEL: E32 E44 F36
    Date: 2017–09–25
  11. By: Florian Madison
    Abstract: The aim of this paper is to analyze the relationship between primary market investment, decentralized secondary market asset trades, and final goods consumption under asymmetric information regarding the quality of the traded assets. Using a search-theoretic dynamic general equilibrium model where money and real assets coexist, but only fiat money is accepted as a direct medium of exchange, I study bilateral bargaining on over-the-counter asset markets under private information and analyze impact of monetary policy on equilibrium allocations. The main results show that asymmetric information impairs the liquidity of the real asset on the over-the-counter market and reduces both trading volume and consumption. As a consequence, a positive liquidity differential between money and assets emerges, resulting in an increased demand for fiat money, as observed since the eruption of the global financial crisis. A policy intervention replacing information sensitive assets with government bonds or fiat money, as done in the asset-purchase program implemented by the Federal Reserve Bank, improves equilibrium consumption and overall welfare.
    Keywords: Money, assets, over-the-counter, asymmetric information, signaling, undefeated equilibrium, search and matching
    JEL: D82 D83 E44 E52 G11 G12
    Date: 2017–09
  12. By: Henrik Jensen (University Of Copenhagen and CEPR); Ivan Petrella (University of Warwick and CEPR); Søren Hove Ravn (University of Copenhagen); Emiliano Santoro (University of Copenhagen)
    Abstract: We document that the U.S. economy has been characterized by an increasingly negative business cycle asymmetry over the last three decades. This fi nding can be explained by the concurrent increase in the fi nancial leverage of households and fi rms. To support this view, we devise and estimate a dynamic general equilibrium model with collateralized borrowing and occasionally binding credit constraints. Higher leverage increases the likelihood that constraints become slack in the face of expansionary shocks, while contractionary shocks are further amplifi ed due to binding constraints. As a result, booms become progressively smoother and more prolonged than busts. We are therefore able to reconcile a more negatively skewed business cycle with the Great Moderation in cyclical volatility. Finally, in line with recent empirical evidence, fi nancially-driven expansions lead to deeper contractions, as compared with equally-sized non-fi nancial expansions.
    Keywords: credit constraints, business cycles, skewness, deleveraging
    JEL: E32 E44
    Date: 2017–09
  13. By: Lloyd, S. P.
    Abstract: A growing literature has begun to use overnight indexed swap (OIS) rates to measure market expectations of future short-term interest rates. In this paper, I assess the empirical success of OIS rates in predicting the future path of monetary policy. I first compare US OIS rates to federal funds futures (FFFs), which have regularly been used to construct financial market-based measures of interest rate expectations. For the 2002-2016 period, I find that 1 to 11-month OIS rates provide measures of investors' interest rate expectations that are as good as those from comparable-horizon FFFs contracts. More generally, I find that, on average, 1 to 24-month US, UK, Eurozone and Japanese OIS rates accurately measure expectations of future short-term interest rates. To date, many methods used by monetary economists rely on FFFs data to measure monetary policy expectations. This has limited the application of these methods to US data only. Motivated by the results in this paper, researchers can look to OIS rates as a globally-comparable measure of monetary.
    Keywords: Federal Funds Futures, Overnight Indexed Swaps, Monetary Policy Expectations
    JEL: E43 E44 E52 G1
    Date: 2017–09–20
  14. By: Stefano Neri (Bank of Italy); Andrea Gerali (Bank of Italy)
    Abstract: The paper estimates a closed-economy medium-scale model for the United States and the euro area to assess the current level of the natural rate of interest and shed light on its drivers. The dynamics of the model are driven by permanent and transitory shocks that bear some connection to the explanations put forward in the literature to explain the secular downward trend in interest rates. The analysis shows that the natural rate has declined, contributing to a lowering of nominal and real rates. Risk premium shocks, a short-cut for changes in agents’ preference for safe assets, have been an important driver in the euro area; in the United States, shocks to the risk premium and to the efficiency of investment, which proxy the functioning of the financial sector, have played a major role. These differences in the importance of the shocks underscore the need to adopt a structural model with a rich stochastic structure, featuring permanent and transitory shocks.
    Keywords: natural rate of interest, monetary policy, DSGE model, Bayesian methods
    JEL: C51 E32 E43 E52
    Date: 2017–09
  15. By: Øistein Røisland (Norges Bank (Central Bank of Norway))
    Abstract: The paper provides a simple analytical framework for analyzing the interplay between monetary policy and macroprudential policy. Three questions are analyzed: (i) Under which assumptions is coordination necessary to implement an optimal policy mix? (ii) Are the two policy instruments substitutes or complements, i.e. should they move in opposite or the same direction as response to a shock? (iii) Can "leaning against the wind" in monetary policy lead to a negative inflation bias?
    Keywords: Monetary policy, Macroprudential policy, Coordination
    JEL: E52 E58 E61
    Date: 2017–10–02
  16. By: Bachmann, Rüdiger; Bayer, Christian; Merkl, Christian; Seth, Stefan; Stüber, Heiko; Wellschmied, Felix
    Abstract: We study the relationship between employment growth and worker flows in excess of job flows (churn) at the establishment level using the new German AWFP dataset spanning from 1975-2014. Churn is above 5 percent of employment along the entire employment growth distribution and most pronounced at rapidly-adjusting establishments. We find that the patterns of churn along the employment growth distribution can be explained by separation rate shocks and time-to-hire frictions. These shocks become larger on average during boom periods leading to procyclical worker churn. Distinguishing between separations into non-employment and to other establishments, we find that separations to other establishments drive all procyclical churn. In a secondary contribution, we compare German worker and job flows with their US counterparts and recent US findings.
    Keywords: aggregate fluctations; churn; job flows; job-to-job transitions; worker flows
    JEL: E20 E24 E32 J23 J63
    Date: 2017–09
  17. By: Harrison, Richard (Bank of England)
    Abstract: I study optimal monetary policy in a simple New Keynesian model with portfolio adjustment costs. Purchases of long-term debt by the central bank (quantitative easing; ‘QE’) alter the average portfolio return and hence influence aggregate demand and inflation. The central bank chooses the short-term policy rate and QE to minimise a welfare-based loss function under discretion. Adoption of QE is rapid, with large-scale asset purchases triggered when the policy rate hits the zero bound, consistent with observed policy responses to the Global Financial Crisis. Optimal exit is gradual. Despite the presence of portfolio adjustment costs, a policy of ‘permanent QE’ in which the central bank holds a constant stock of long-term bonds does not improve welfare.
    Keywords: Quantitative easing; optimal monetary policy; zero lower bound
    JEL: E52 E58
    Date: 2017–09–25
  18. By: Wataru Miyamoto; Thuy Lan Nguyen; Dmitriy Sergeyev
    Abstract: Using a rich data set on government spending forecasts in Japan, we provide new evidence on the effects of unexpected changes in government spending when the nominal interest rate is near the zero lower bound (ZLB). The on-impact output multiplier is 1.5 in the ZLB period, and 0.6 outside of it. We estimate that government spending shocks increase both private consumption and investment during the ZLB period but crowd them out in the normal period. There is evidence that expected inflation increases by more in the ZLB period than in the normal period.
    Keywords: Economic models, Fiscal Policy
    JEL: E32 E62 E5
    Date: 2017
  19. By: Afonso, Ant¢nio (ISEG-UL ? Universidade de Lisboa); Arghyrou, Michael G (Cardiff Business School); Gadea, Mar¡a Dolores (Department of Applied Economics, University of Zaragoza); Kontonikas, Alexandros (Essex Business School, University of Essex)
    Abstract: This paper investigates the role of unconventional monetary policy as a source of time-variation in the relationship between sovereign bond yield spreads and their fundamental determinants. We use a two-step empirical approach. First, we apply a time-varying parameter panel modelling framework to determine shifts in the pricing regime characterising sovereign bond markets in the euro area over the period January 1999 to July 2016. Second, we estimate the impact of ECB policy interventions on the time-varying risk factor sensitivities of spreads. Our results provide evidence of a new bond-pricing regime following the announcement of the Outright Monetary Transactions (OMT) programme in August 2012. This regime is characterised by a weakened link between spreads and fundamentals, but with higher spreads relative to the pre-crisis period and residual redenomination risk. We also find that unconventional monetary policy measures affect the pricing of sovereign risk not only directly, but also indirectly through changes in banking risk. Overall, the actions of the ECB have operated as catalysts for reversing the dynamics of the European sovereign debt crisis.
    Keywords: euro area, spreads, crisis, time-varying relationship, unconventional monetary policy
    JEL: E43 E44 F30 G01 G12
    Date: 2017–09
  20. By: Heinrich, Markus; Carstensen, Kai; Reif, Magnus; Wolters, Maik
    Abstract: We use a Markow-switching dynamic factor model with three states for Germany with indicators selected by the Elastic Net. The states represent expansions, normal - and severe recessions. Adding a third state helps to identify all business cycle turning points in-sample and in real-time. Combining the factor and the recession probabilities with a GDP forecasting model yields accurate nowcasts and a correct prediction of the timing of the Great Recession and its recovery one quarter in advance.
    JEL: C53 E32 E37
    Date: 2017
  21. By: Paloviita, Maritta; Haavio, Markus; Jalasjoki, Pirkka; Kilponen, Juha
    Abstract: We estimate the ECB’s monetary policy reaction function by using real time Eurosystem/ECB staff macroeconomic projection data, which are presented to the ECB’s Governing Council when it assesses the monetary policy stance in the euro area. Alternative specifications of the reaction function account for a possible credibility loss due to persistent deviations of past inflation from the ECB’s inflation target. The results provide support for two alternative interpretations of the definition of price stability. First, the ECB dislikes inflation rates above two percent more than rates below two percent. Second, the ECB policy responses to past inflation gaps are symmetric with respect to a target of 1.6 - 1.7 percent. The out-of-sample predictions of the reaction function based on the second interpretation of the definition of price stability track well an estimated shadow interest rate during the zero lower bound period.
    JEL: E52 E58
    Date: 2017–10–05
  22. By: Fabio Busetti (Bank of Italy); Michele Caivano (Bank of Italy)
    Abstract: This paper presents an empirical analysis of the underlying drivers of the real interest rate in advanced economies over the last 35 years. We adopt a band spectrum regression approach, which allows to study the link between the real interest rate and its determinants only over low frequencies, leaving aside business cycle fluctuations and high frequency noise. Spectral regressions are pooled across countries, allowing for country fixed effects. Our findings indicate that important factors affecting the long-term movements of real interest rates are the evolution of total factor productivity (with a specific role for human capital accumulation) and demographic trends. Monetary policy developments and changes in income inequality, instead, appear to play a limited part. According to our estimates, over recent years the natural rate of interest fell below zero in the euro area. Finally, the paper provides an empirical contribution to the debate on secular stagnation, suggesting that supply-side mechanisms were one of the most significant factors behind the fall in income growth in the advanced economies over the last two decades.
    Keywords: natural rate, secular stagnation, spectral analysis
    JEL: C22 E43
    Date: 2017–09
  23. By: Büttner, Thiess; Madzharova, Boryana
    Abstract: This paper utilizes a unique micro data set on consumer durables to study the effect of consumption tax reforms on the time path of consumption. The dataset reports the monthly sales of individual products and their consumer prices in 22 European countries, which enacted numerous consumption tax reforms in recent years. We implement a reduced form specification for sales that allows us to test theoretical predictions by a standard inter-temporal model of consumer choice under different assumptions about the pass-through of taxes into prices. Our identification strategy exploits the trading of individual products in multiple countries. The results document that changes in baseline consumption tax rates are fully and quickly shifted into consumer prices and exert very strong effects on the time path of consumption. We find that a one percentage point increase in consumption taxes causes an inter-temporal shift in consumption by 3 or more percent. In addition, purchases of durable goods increase temporarily by about 2 percent in the last month before a tax increase.
    Keywords: Tax Reform,Fiscal Policy,Consumption Tax,Pass-Through,Tax Incidence,Durable Goods
    JEL: D12 H24 H32 E21 E62
    Date: 2017
  24. By: Duval-Hernandez, Robert; Fang, Lei; Ngai, Liwa Rachel
    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
  25. By: Elmar Mertens; James M. Nason
    Abstract: This paper studies the joint dynamics of real time U.S. inflation and the mean inflation predictions of the Survey of Professional Forecasters (SPF) on a 1968Q4 to 2017Q2 sample. The joint data generating process (DGP) is an unobserved components (UC) model of inflation and a sticky information (SI) prediction mechanism for SPF inflation predictions. We add drifting gap inflation persistence to a UC model that already has stochastic volatility (SV) afflicting trend and gap inflation. Another innovation puts a time-varying frequency of inflation forecast updating into the SI-prediction mechanism. The joint DGP is a nonlinear state space model (SSM). We estimate the SSM using Bayesian tools grounded in a Rao-Blackwellized auxiliary particle filter, particle learning, and a particle smoother. The estimates show (i) longer horizon average SPF inflation predictions inform estimates of trend inflation, (ii) gap inflation persistence is pro-cyclical, and SI inflation updating is frequent before the Volcker disinflation, and (iii) subsequently, trend inflation and its SV fall, gap inflation persistence turns counter-cyclical, and SI inflation updating becomes infrequent.
    Keywords: Inflation, unobserved components, professional forecasts, sticky information, stochastic volatility, time-varying parameters, Bayesian, particle filter
    JEL: E31 C11 C32
    Date: 2017–09
  26. By: Alberto Martin; Jaume Ventura
    Abstract: This paper provides a guide to macroeconomic applications of the theory of rational bubbles. It shows that rational bubbles can be easily incorporated into standard macroeconomic models, and illustrates how they can be used to account for important macroeconomic phenomena. It also discusses the welfare implications of rational bubbles and the role of policy in managing them. Finally, it provides a detailed review of the literature.
    Keywords: bubbles, credit, business cycles, economic growth, financial frictions, pyramid schemes
    JEL: E32 E44 O40
    Date: 2017–09
  27. By: Belke, Ansgar; Dreger, Christian; Dubova, Irina
    Abstract: The financial crisis led to a deep recession in many industrial countries. While large emerging countries recovered relatively quickly from the financial crisis, their performance deteriorated in the recent years, despite the modest recovery in advanced economies. The higher divergence of business cycles is closely linked to the Chinese transformation. During the crisis, the Chinese fiscal stimulus prevented a decline in GDP growth not only in that country, but also in resource-rich economies. The Chinese shift to consumption-driven growth led to a decline in commodity demand, and the environment became more challenging for many emerging markets. This view is supported by Bayesian VARs specified for the BRIC (Brazil, Russia, India, and China) countries. The results reveal a strong impact of international variables on GDP growth. In contrast to the other countries, China plays a crucial role in determining global trade and oil prices. Hence, the change in the Chinese growth strategy puts additional reform pressure on countries with abundant natural resources.
    Keywords: Business cycle divergence,Chinese transformation,Bayesian VARs
    JEL: F44 E32 C32
    Date: 2017
  28. By: Bachmann, Ronald; Felder, Rahel
    Abstract: This paper analyses the impact of the business cycle on labour market dynamics in EU member states and the US during the first decade of the 21st century. Using unique measures of labour market flows constructed from worker-level micro data, we examine to what extent macro shocks were transmitted to national labour markets. We apply the approach by Blanchard and Wolfers (2000) to analyse the role of the interaction of macroeconomic shocks and labour market institutions for worker transitions in order to explain cross-country differences in labour market reactions in a period including the Great Recession. Our results suggest a significant influence of trade unions in channelling macroeconomic shocks. Specifically, union density moderates these impacts over the business cycle, i.e. countries with stronger trade unions experience weaker reactions of the unemployment rate and of worker transitions.
    Keywords: worker flows,labour market dynamics,institutions,Great Recession
    JEL: J6 E24
    Date: 2017
  29. By: G. Gopalakrishna
    Abstract: This paper tests the long run risk and valuation risk model using a robust estimation procedure. The persistent long run component of consumption growth process is proxied by a news based index that is created using a random forest algorithm. This news index is shown to predict aggregate long term consumption growth with an R-square of 57% and is robust to inclusion of other commonly used predictors. I theoretically derive an estimatable bias term in adjusted Euler equation of the model that arises due to measurement error in consumption data and show that this bias term is non-zero. Using a three pass estimation procedure that accounts for this bias, I show that the long run risk and valuation risk model fails to explain cross section of equity returns. This contrasts to the results from regular two pass Fama-MacBeth estimation procedure that implies that the same model explains the cross section of asset returns with statistically significant risk premia estimates.
    JEL: G12 E21 E44
    Date: 2017–09
  30. By: Solis-Garcia, Mario; Xie, Yingtong
    Abstract: We propose a methodology for measuring the size and properties of the shadow economy. We use a two-sector dynamic deterministic general equilibrium model with four different trends: hours worked, investment-specific productivity, formal productivity, and shadow productivity. We find that the shadow productivity trend is endogenous, in the sense that it is an exact function of model parameters and the other three trends. We also document that, in order to be consistent with observed (real-world) trend growths, the shadow sector needs to exhibit increasing returns to scale, which is contrary to the standard procedure of imposing decreasing returns to this sector. We apply our methodology to a set of seven Latin American and Asian countries and document several empirical regularities that emerge from our analysis, the most important one being that the volatility of shadow sector output is considerably larger than the one in formal sector output.
    Keywords: Shadow economy, business cycles, DSGE models
    JEL: E26 E32 O17
    Date: 2017–01–03
  31. By: Michael, Bryane; Dalko, Viktoria
    Abstract: What role does unconventional monetary policy – and particularly unconventional policies like private asset purchases under a quantitative easing or lender of last resort scheme – play in influencing economic growth directly? Emerging and developing countries’ central banks could contribute to GDP growth by following the example of jurisdiction like the US, UK and EU, by buying private sector and specific obligation public sector assets. Such a scheme would like most benefit jurisdictions like Greece, Bulgaria, Ukraine and others. Unsurprisingly, we find a weak relationship between these purchases and investment world-wide for the last 10 years. We also find the existence of a “sloth effect” – a pattern in the data whereby more central bank asset purchases actually coincides with lower investment. We estimate the gains to increasing central bank balance sheet sizes with these assets. We also show how statutory mandate for nominal GDP targeting set the best legal foundations for such asset purchases. We finally describe an internal audit engagement which would collect the specific data needed to verify the results in this study.
    Keywords: unconventional monetary policy,funder of last resort,nominal GDP targeting,central bank balance sheet,sloth effect,internal audit
    JEL: E58 E42 K23 O23
    Date: 2017
  32. By: Sulaeman Rahman Nidar (Business and Management Department, Padjadjaran University, Indonesia Author-2-Name: Erwin Jaya Diwangsa Author-2-Workplace-Name: Padjadjaran University, Indonesia)
    Abstract: "Objective – The objective of this study is to determine how the movement of several indices and indicators of the global economy affect the change in investment by foreign fund flows in the Indonesia Stock Exchange (BEI). Methodology/Technique – Some global stock indices used in this study comprise the Dow Jones index, the Nikkei 225 index, the Shanghai index (SSE) and the Singapore Index (STI). Data were taken monthly from March 2009 to June 2014. Findings – The results obtained from this study indicate that the Dow Jones index and the STI index have a significant positive effect on the movement of foreign investments in the Stock Exchange. In contrast, the movement of world oil prices and exchange rate of the IDR/USD have a significant negative effect on the movement of foreign investments in the BEI. Novelty – The results of this study reinforces that the depreciation of the rupiah against the USD is an indication that the fundamentals of the Indonesian economy is not strong enough."
    Keywords: "Dow Jones, Nikkei 225 Index, Shanghai Index (SSE), STI Index, World Oil Prices, World Gold Price, Exchange Rate IDR/USD."
    JEL: E31 E44
    Date: 2017–03–19
  33. By: Gil-Alana, Luis A.; Ozdemir, Zeynel Abidin; Tansel, Aysit
    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: 2017–05–04
  34. By: Flávio de Freitas Val; Wagner Piazza Gaglianone; Marcelo Cabus Klotzle; Antonio Carlos Figueiredo Pinto
    Abstract: The objective of this study is to estimate the credibility of the monetary policy followed by the Central Bank of Brazil (BCB) during the period from January 2006 to July 2017. To estimate this credibility, we use the Kalman filter in two measures of inflation expectations (breakeven inflation and Focus survey) with a medium/long-term forecast horizon. The results indicate four shifts in the perceived credibility based on breakeven inflation: (i) decline in mid-2008, during the U.S. subprime mortgage crisis; (ii) relative stability from early 2009 to mid-2015; (iii) strong decline by the end of 2015; and (iv) recovery from mid-2016 until mid-2017 (end of the sample). The credibility measure based on the Focus survey showed a more regular behavior, reflecting the degree of anchoring of the survey-based inflation expectations for the considered horizon. By associating the estimated credibility with financial and macroeconomic variables, we have also found that credibility is relatively persistent and seems not to be influenced by short-run movements of such variables
    Date: 2017–09
  35. By: Kick, Thomas; Koetter, Michael; Storz, Manuela
    Abstract: We show that emergency liquidity provision by the Federal Reserve transmitted to non-U.S. banking markets. Based on manually collected holding company structures of international banks, we can identify banks in Germany with access to U.S. facilities via internal capital markets. Using proprietary interest rate data reported to the German central bank, we compare lending and borrowing rates of banks with and without such access. U.S. liquidity shocks cause a significant decrease in the short-term funding costs of German banks with access. Short-term loan rates charged to German corporates also decline, albeit with lags between two and four months. These spillover effects of U.S. monetary policy are confined to short-term rates.
    Keywords: Monetary policy transmission,emergency liquidity,internal capital markets,interest rates
    JEL: E52 E58 F23 G01 G21
    Date: 2017
  36. By: Hartmann, Philipp
    Abstract: Global or international liquidity has moved to centre stage in recent international policy, research and market discussions. Contrary to the approach of major international organisations, which focus particularly on cross-border credit, this paper discusses five dimensions of international liquidity that are all of interest to central banks and should be subject to appropriate surveillance. It describes how they have evolved before, during and after the financial crisis. No general shortage of liquidity is found for the recent past and diverse developments can be explained, in part, by a small number of factors. The paper also raises salient policy issues related to these international liquidity developments. For example, financial regulation needs to be designed in a way that preserves incentives for market-making in major international assets. Data need to be made available for properly analysing to which extent global collateral re-use "lubricates" the financial system and to which extent it may act as a conduit for contagion. Ways need to be found how soaring corporate cash hoarding can be brought back into real investment. International spillovers of unconventional monetary policies suggest revisiting the current consensus on international monetary policy coordination. As the economic recovery in advanced economies strengthens consolidating public finances may be a more sustainable approach to re-increasing the availability of liquid and safe international assets than the further issuance of sovereign bonds by large countries that have already high levels of debt.
    Keywords: Collateral; Financial market liquidity; funding liquidity; global financial cycle; international financial stability; international payments; international safe assets; liquidity hoarding; money supply; Unconventional Monetary Policy
    JEL: E42 E51 E52 F21 F32 F33 G15 G28
    Date: 2017–09
  37. By: Christian Grisse; Silvio Schumacher
    Abstract: This paper studies the transmission of changes in short-term interest rates to longer-term government bond yields when interest rates are at very low levels or negative. We focus on Switzerland, where short-term interest rates have been at zero since late 2008 and negative since the beginning of 2015. The expectations hypothesis of the term structure implies that as nominal interest rates approach their lower bound, the effect of short-term rates on longer-term yields should decline, and positive short rate changes should have larger absolute effects than negative short rate changes. Contrary to studies of other countries, we find no evidence for a decline in the effect of short rate changes for the low-interest rate period using Swiss data. However, we do find evidence for the predicted asymmetric effect for positive and negative short rate changes during the period when short-term rates are close to zero. This asymmetry normalized again after the introduction of negative interest rates.
    Keywords: monetary policy, negative interest rates, zero lower bound, yield curve
    JEL: E43 E52
    Date: 2017
  38. By: C. Glocker; G. Sestieri; P. Towbin
    Abstract: We study fiscal spending multipliers of the UK economy using a time-varying parameter factor augmented vector autoregressive (TVP-FAVAR) model. We show that government spending multipliers vary over time and that most of the variation is cyclical: multipliers are typically above one in recessions and below one in expansions. Regarding the drivers of the cyclical variations, our results are consistent with theories emphasizing the role of financial frictions and economic slack. We find no evidence that multipliers are larger at the zero lower bound. Structural factors seem to play a lesser role and multipliers do not exhibit a clear tread. We conclude that policy recommendations based on average multipliers that do not take into account the position of the economy in the cycle are potentially misleading and that the impact of government spending shocks is rather limited in the UK in non-recessionary periods.
    Keywords: Government spending shocks, Fiscal transmission mechanism, Time-varying parameter models, Business cycle.
    JEL: C32 E62 H30 H50
    Date: 2017
  39. By: Korkut, Cem; Özgür, Önder
    Abstract: Today, the sensitive side of national economies is financial sector. The main reason for this sensitivity is financial crises. This situation has increased the demand and orientation for Islamic finance as a substitute for the modern financial system. The Islamic finance is discussed as a real solution to financial crises because the Islamic finance methods and applications depend on real economic activities. Both this case and the distance that is taken by Muslim countries in recent years has increased the share of Islamic banking/finance in the world. Thus, it has been a long debate in Islamic finance literature to investigate the presence of dependency between profit share rate settled by participation banks and deposit interest rate offered in conventional banking. In this study, variables that affect profit share rate of participation banks and deposit interest rate of conventional banks are examined over the period between January 2006 and May 2015 in Turkey. OLS method is constructed and empirical results are pointed out that interest rate on government security and foreign exchange rate are significantly effective on participation banks’ profit share rate. In addition, the profitability of conventional banks, government security, and foreign exchange rate are significantly effective on deposit interest rate settled by conventional banks. The main reason for this link between conventional interest rate and profit share rate arises with the domiance of murabahah, simple buy and sell with term sale transactions, at Islamic financial institutions. The interest rate is a benchmark for participation banks to determine the profit share rate. To get rid of this dependency, Islamic financial institutions may tend towards mudarabah transactions.
    Keywords: Islamic banking and finance, participation banks, banking system, rate of returns, profit share rate, interest
    JEL: E43 E44 G00 P43 P50
    Date: 2017–06–01
  40. By: Christoph S. Weber
    Abstract: The increase in central bank transparency was one of the main developments in central banking in the last two decades. This leads to the question of which effect central bank transparency has on the volatility of exchange rates. According to theoretical considerations, more information could either lead to more precise forecasts or to more noise trading. This raises the need for an empirical estimation of the relationship. The study shows that the effect of central bank transparency on exchange rate volatility depends on the development of countries. While there is no effect of central bank transparency in the composite sample and for developing countries, transparency increases exchange rate fluctuations in developed countries.
    Keywords: Central Bank Transparency, Exchange Rate Volatility, Monetary Policy
    JEL: E24 E58 F31
    Date: 2017–09
  41. By: De Grauwe, Paul; Ji, Yuemei
    Abstract: We use a New Keynesian behavioral macroeconomic model to analyze how structural reforms affect the nature of the business cycle and the capacity of the central bank to stabilize output and inflation. We find that structural reforms that increase the flexibility of wages and prices can have profound effects on the dynamics of the business cycle. Our main finding here is that there is an optimal level of flexibility (produced by structural reforms). We also find that in a rigid economy the central bank in general faces a tradeoff between output and inflation volatility. This tradeoff disappears when the economy becomes sufficiently flexible. In that case the central bank's efforts at stabilizing inflation and output are always welfare improving.
    Keywords: behavioural macroeconomics; Structural reforms
    Date: 2017–09
  42. By: Kostas Mavromatis
    Abstract: Monetary policy in the US has been documented to have switched from reacting weakly to inflation fluctuations during the '70s, to fighting inflation aggressively from the early '80s onwards. In this paper, I analyze the impact of the US monetary policy regime switches on the Eurozone. I construct a New Keynesian two-country model where foreign (US) monetary policy switches regimes over time. I estimate the model for the US and the Euro Area using quarterly data and find that the US has switched between those two regimes, in line with existing evidence. I show that foreign regime switches affect home (Eurozone) inflation and output volatility and their responses to shocks, substantially, as long as the home central bank commits to a time invariant interest rate rule reacting to domestic conditions only. Optimal policy in the home country instead requires that the home central bank reacts strongly to domestic producer price inflation and to international variables, like imported goods relative prices. In fact, I show that currency misalignments and relative prices play a crucial role in the transmission of foreign monetary policy regime switches internationally. Interestingly, I show that only marginal gains arise for the Euro Area when the ECB adjusts its policy according to the monetary regime in the US. Thus, a simple time-invariant monetary policy rule with a strong reaction to PPI inflation and relative prices is enough to counteract the effects of monetary policy switches in the US.
    Keywords: Monetary Policy; Markov-switching DSGE and Bayesian estimation; optimal monetary policy; international spillovers
    JEL: C3 E52 F3 F41 F42
    Date: 2017–09
  43. By: Farmer, Roger E A
    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.
    Keywords: Indeterminacy; Keynesian economics; money
    JEL: E10 E12 E52
    Date: 2017–09
  44. By: Rangan Gupta (University of Pretoria, Pretoria, South Africa); Jun Ma (Department of Economics, Northeastern University, Boston, Massachusetts, USA); Marian Risse (Department of Economics, Helmut Schmidt University, Hamburg, Germany); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha, Omaha, USA and School of Business and Economics, Loughborough University, Leicestershire, UK)
    Abstract: This paper analyses the role of a news-based measure of economic policy uncertainty (EPU) in explaining time-varying co-movements in economic activity and volatility of 48 US states and 51 largest MSAs. In this regard, we, first, estimate a dynamic factor model with time-varying loadings and stochastic volatility (DFM-TV-SV). Then, in the second step, we use a quantile-on-quantile (QQ) predictive regression model to capture the effect of EPU on the common factor and stochastic volatility derived from the DFM-TV-SV for the states and MSAs. Our results show that EPU has a significant negative effect on the common economic activity of both the states and MASs, and it also significantly increases the common volatility. However, the impact of uncertainty varies substantially depending on the initial states (quantiles) of both common output or volatility and EPU. Thus, our results tend to suggest that policy design should be state-dependent
    Keywords: Common Business Cycles, Common Stochastic Volatility, Time-Varying Dynamic Factor Models, Quantile-on-Quantile Regressions
    JEL: C11 C22 C32 E30 R10
    Date: 2017–09
  45. By: Feldkircher, Martin; Gruber, Thomas; Huber, Florian
    Abstract: As a consequence of asset purchases by the European Central Bank (ECB), longer- term yields in the euro area decline, and spreads between euro area long-term yields narrow. To assess spillovers of these recent financial developments, we use a Bayesian variant of the global vector autoregressive (BGVAR) model that uses shrinkage priors coupled with stochastic volatility. We find positive and signif- icant spillovers to industrial production in Central, Eastern and Southeastern Europe (CESEE) and other non-euro area EU member states. These effects are transmitted via the financial channel (mainly through interest rates and equity prices) and outweigh costs of appreciation pressure on local currencies vis-a-vis the euro (trade channel). That both shocks yield rather similar results adds narrowing longer-term yields in the euro area as a viable alternative to the pol- icymakers' toolkit. While these results represent general trends, we also find evidence for both cross-country heterogeneity of effects within the euro area and region-specific spillovers thereof.
    Keywords: Euro area monetary policy,quantitative easing,spillovers
    JEL: C30 E52 F41 E32
    Date: 2017
  46. By: Garnitz, Johanna; Lehmann, Robert; Wohlrabe, Klaus
    Abstract: Comprehensive and international comparable leading indicators across countries and continents are rare. In this paper, we use a free and fast available source of leading indicators, the World Economic Survey (WES) conducted by the ifo Institute, to forecast growth of Gross Domestic Product (GDP) in 44 countries and three country aggregates separately. We come up with three major results. First, for 35 countries as well as the three aggregates a model containing one of the major WES indicators produces on average lower forecast errors compared to an autoregressive benchmark model. Second, the most important WES indicators are either the economic climate or the expectations on future economic development for the next six months. And last, 70% of all country-specific models contain WES information from at least one of the main trading partners. Thus, by allowing WES indicators from economic important partners to forecast GDP of the country under consideration, increases forecast accuracy.
    Keywords: World Economic Survey, Economic Climate, Forecasting GDP
    JEL: E17 E27 E37
    Date: 2017–10–04
  47. By: Lloyd, S. P.
    Abstract: Financial market participants and policymakers closely monitor the evolution of interest rate expectations. At any given time, the term structure of interest rates contains information regarding these expectations. No-arbitrage dynamic term structure models have regularly been used to estimate interest rate expectations and term premia, but daily frequency estimates of these models fail to accurately capture the evolution of interest rate expectations implied by surveys and financial market instruments. I propose the augmentation of no-arbitrage Gaussian affine dynamic term structure models (GADTSMs) with overnight indexed swap (OIS) rates in order to better estimate the evolution of interest rate expectations and term premia across the whole term structure. I augment the model with 3 to 24-month OIS rates, which provide accurate information about interest rate expectations. The OIS-augmented model that I propose, estimated between January 2002 and December 2016 for the US, generates estimates of the expected path of short-term interest rates, up to the 10-year horizon, that closely correspond to those implied by federal funds futures rates and survey expectations at a range of horizons, and accurately depict their daily frequency evolution. Against these metrics, the interest rate expectation estimates from OIS-augmented models are superior to estimates from existing GADTSMs.
    Keywords: Term Structure of Interest Rates, Overnight Indexed Swaps, Monetary Policy Expectations, Dynamic Term Structure Model.
    JEL: C32 C58 E43 E47 G12
    Date: 2017–09–20
  48. By: Embun Prowanta (Faculty of Economics and Business, University of Brawijaya, Indonesia Author-2-Name: Moeljadi Author-2-Workplace-Name: Faculty of Economics and Business, University of Brawijaya, Indonesia Author-3-Name: Sumiati Author-3-Workplace-Name: Faculty of Economics and Business, University of Brawijaya, Indonesia Author-4-Name: Kusuma Ratnawati Author-4-Workplace-Name: Faculty of Economics and Business, University of Brawijaya, Indonesia)
    Abstract: "Objective – The objective of the study is to empirically investigate the relationship between macroeconomic variables as Gross Domestic Product (GDP), inflation, interest rates, exchange rates, foreign exchange reserves, current accounts and export-import towards the stock price index. Methodology/Technique – The data used is monthly data for macroeconomic and the stock price index of five ASEAN countries including Indonesia, Malaysia, Singapore, Thailand and the Philippines from 2006 to 2015. The analysis uses a regression estimation of panel data and a series of chow tests i.e. the Hausman test and the LM test as the selection process, with the aim of determining the macroeconomic variables that could significantly affect the stock price index of five ASEAN countries. Findings – The result show that of the seven macroeconomic variables affecting the stock price index, only four macroeconomic variables showed a significant effect. These are GDP, interest rates, exchange rates, and inflation. Meanwhile, three other variables (foreign exchange reserves, current accounts and export-import) did not show a significant effect. Novelty – The study looked at the effect of deregulation on stock markets, focusing on variables that significantly influence the stock price index."
    Keywords: Stock Price Index; Macro Economics; Five ASEAN Countries.
    JEL: E31 G14 G15
    Date: 2017–04–24
  49. By: Roy Verbaan; Wilko Bolt; Carin van der Cruijsen
    Abstract: In this paper we analyse whether the use of debit card payments data improves the accuracy of one-quarter ahead forecasts and nowcasts (current-quarter forecasts) of Dutch private household consumption. Since debit card payments data are timely available, they may be a valuable indicator of economic activity. We study a variety of models with payments data and find that a combination of models provides the most accurate nowcast. The best combined model reduces the root mean squared prediction error (RMSPE) by 18% relative to the macroeconomic policy model (DELFI) that is used by the Dutch central bank (DNB). Based on these results for the Netherlands, we conclude that debit card payments data are useful in modelling household consumption.
    Keywords: Nowcasting; debit card payments; household consumption; Midas
    JEL: C53 E27
    Date: 2017–09
  50. By: Soldatos, Gerasimos T.
    Abstract: This article maintains that in our second best world, neither corruption nor the informal sector and political instability can be held responsible for the moderate performance of the Ukrainian economy. Corruption in Ukraine appears to act as “grease in the wheels of the economy”, while informal activities add to the welfare of its people. And, no connection of political instability with economic performance may be contemplated conclusively. The cause of the inefficiency of private and public investment is traced to poor public governance. Massive infrastructure investments can become the remedy (i) in the context of public-private partnerships with the collaboration of the subnational governments, and (ii) in financing the projects through domestic monetary expansion, under a macroeconomic policy viewpoint emphasizing the monetary rather than fiscal side of the venture. The proposed monetary expansion can only work only under the proper multiplier, accelerator, and capital accumulation link. Special care should be taken to improve the industrial organization of the inefficient banking sector Este artículo manifiesta que en nuestro mundo de la segunda mejor opción, no se puede atribuir ni a la corrupción ni al sector informal y a la inestabilidad política el rendimiento limitado de la economía ucraniana. En Ucrania, la corrupción parece funcionar como “lubrificante para las ruedas de la economía”, mientras las actividades incrementan el bienestar de su pueblo. Además, no se puede contemplar de manera definitiva ninguna conexión entre la inestabilidad política y el rendimiento económico. La causa de la ineficencia de las inversiones particulares y públicas resalen a la gobernación pública ineficaz. Las inversiones masivas en infraestructuras pueden constituir un remedio (i) en el ámbito de partenariados entre los sectores públicos y privados con la colaboración del gobierno a nivel sub-nacional y (ii) financiando los proyectos mediante una expansión monetaria interior, desde un punto de vista de política macroeconómica que se enfoque en el aspecto monetario de la inversión más que en el fiscal. La expansión monetaria propuesta puede funcionar únicamente con el enlace correcto entre multiplicadores, aceleradores y la acumulación de capital. Se debe cuidar en particular de mejorar la organización del sector bancario actualmente ineficiente.
    Keywords: Ukrainian economy, Second-best theory, Infrastructure investments, Monetary expansion; Economía ucraniana, teoría de la segunda mejor opción, inversiones en infraestructura, expansión monetaria
    JEL: E26 E63 H11 H54 H83 I31 J01 O11 O52 P20
    Date: 2016–08
  51. By: César Martín Machuca (Banco de España)
    Abstract: We examine the determinants of external stress episodes through probit analysis, focusing on the role of foreign liabilities in order to build an external crisis early warning indicator for a set of selected EMU countries. We use a panel country data spanning 1970-2011 from External Wealth Dataset (Phillip Lane). Our results show that the ratio of net and gross foreign liabilities to GDP and current account balances — which measure external debt accumulation speed — are significant stress predictors, although (net) FDI liabilities seem an offset factor. Early warning indicators are based on a signalling approach and exploit panel dimension of the data to develop a country specific indicator. We find that EMU peripheral countries’ external indebtedness remains higher than risk threshold, in spite of the external adjustment accumulated in the last years in some countries. This result highlights the necessity of going on structural reforms that reinforce competitiveness of these economies.
    Keywords: International investment positions, external debt, external vulnerability, current account imbalances.
    JEL: E44 F32 F34 G15 H63
    Date: 2017–10
  52. By: Boppart, Timo; Ngai, Liwa Rachel
    Abstract: This paper develops a model that generates rising average leisure time and increasing leisure inequality along a path of balanced growth. Households derive utility from three sources: market goods, home goods and leisure. Home production and leisure are both activities that require time and capital. Households allocate time and capital to these non-market activities, work and rent capital out to the market place. The dynamics are driven by activity-specific TFP growth and a spread in the distribution of household-specific labor market efficiencies. When the spread is set to match the increase in wage inequality across education groups, the model can account for the observed average time series and cross-sectional dynamics of leisure time in the U.S. over the last five decades.
    Keywords: balanced growth path; Home Production; inequality; Labor Supply; leisure
    JEL: E24 J22 O41
    Date: 2017–09
  53. By: Ugo Albertazzi (Bank of Italy); Lucia Esposito (Bank of Italy)
    Abstract: The model developed in this paper extends the framework of self-fulfilling credit market freezes proposed by Bebchuk and Goldstein (2011) by endogenizing firms' investments decisions. The existence of an aggregate investment threshold below which individual investment projects are unsuccessful creates a coordination failure not only among banks but also among firms and, crucially, between the two sides of the market. Because of the resulting strategic complementarities between firms and banks, low credit demand expectations reduce credit supply and viceversa. This two-way feedback loop explains why a severe slump in aggregate demand may be associated with a disruption in lending caused by a financial crisis. Replies to the euro area Bank Lending Survey by individual Italian banks provide support to the model's conclusions.
    Keywords: credit crunch, investment, strategic complementarities, global games
    JEL: D82 E51 G21
    Date: 2017–09
  54. By: Waldo Mendoza Bellido (Departamento de Economía de la Pontificia Universidad Católica del Perú)
    Abstract: During the last two decades we have witnessed the emergence in the field of intermediate macroeconomics of an extensive literature that seeks to dismiss the traditional IS-LM-AD-AS model and replace it with the New Keynesian option. However, the efforts have not been successful, and currently most macroeconomics textbooks still rely on the traditional model, which is more than 80 years old. In order to help break this inertia, this paper proposes the IS-MR-AD-AS model, a New Keynesian model that allows determining the equilibrium values of production, inflation and the real interest rate. The model differs from the existing ones in two respects. Firstly, in the description of the model, in the graphic and mathematical treatment, and in the use of comparative static as a method to simulate the effects of the exogenous variables on the endogenous ones, the simplicity and elegance of the traditional IS-LM-AD-AS is replicated. Second, in spite of its simplicity, more complex issues can be dealt with, since the general model gives rise to four subsystems with which short-term equilibrium, steady-state equilibrium, transit toward steady-state equilibrium and rational expectations are addressed one at a time. JEL Classification-JEL: E32, E52
    Keywords: Inflation Targeting Scheme, New Keynesian model, Monetary policy
    Date: 2017
  55. By: Dinarjad Achmad (Faculty of Economics and Business, Universitas Tanjungpura, Indonesia. Author-2-Name: Umiaty Hamzani)
    Abstract: "Objective – This study aims to obtain empirical evidence regarding the ability of exports and gross domestic product (GDP) value-added in explaining the variation of employment opportunities in Indonesia. The method used in this study is explanatory research. Methodology/Technique – This research uses panel data which is a combination of time series data for 8 (eight) years with the cross section of 33 provinces in Indonesia. Data were analyzed using structural equation regression through fixed effect technique and common effect technique. Findings – The results show that using fixed effect technique, the export plays a positive and significant role in creating GDP value added and plays a negative role in creating employment opportunities, whereas the estimated GDP valueadded plays a positive and significant role in shaping the employment opportunities in Indonesia. However, using common effect technique, the export plays a positive and significant role in shaping the GDP value added as well as both export. Novelty – The study suggests that GDP value-added play a positive and significant role in shaping the employment opportunities in Indonesia."
    Keywords: Common Effect Technique; Employment Opportunity; Export; Fixed Effect Technique; GDP Value Added.
    JEL: E24 F16
    Date: 2017–04–23
  56. By: Nikolay Chernyshev (University of St Andrews)
    Abstract: Existing empirical studies do not concur on whether R&D spending is procyclical or countercyclical: the former hypothesis is supported by studies of aggregate R&D spending, whereas the latter is vindicated by firm-level evidence. In this paper, we reconcile the two facts by advancing a general equilibrium framework, in which, while a single firm's R&D spending profile is countercyclical, aggregate R&D spending is procyclical owing to procyclical fluctuations in the number of R&D performers. Our findings suggest that economic crises might be beneficial for economic performance by fostering individual R&D effort. An advantage of our framework is that it brings together conflicting pieces of empirical evidence, while incorporating and building upon Schumpeter's hypothesis of countercyclical innovation.
    Keywords: Economic cycles, opportunity cost hypothesis, procyclicality of R&D, countercyclicality of R&D
    JEL: E23 E32 L13 L23 O31
    Date: 2017–09–27
  57. By: Tarishi Matsuoka (Tokyo Metropolitan University); Makoto Watanabe (VU Amsterdam; Tinbergen Institute, The Netherlands)
    Abstract: This paper studies banks' liquidity provision in the Lagos and Wright model of monetary exchanges. With aggregate uncertainty we show that banks sometimes exhaust their cash reserves and fail to satisfy their depositors' need of consumption smoothing. The banking panics can be eliminated by the zero-interest policy for the perfect risk sharing, but the first best can be achieved only at the Friedman rule. In our monetary equilibrium, the probability of banking panics is endogenous and increases with inflation, as is consistent with empirical evidence. The model derives a rich array of non-trivial effects of inflation on the equilibrium deposit and the bank's portfolio.
    Keywords: Money Search; Monetary Equilibrium; Banking panics; Liquidity
    JEL: E40
    Date: 2017–09–22
  58. By: Nur Dilbaz Alacahan (Canakkale Onsekiz Mart University, Department of Banking and Finance); Seda Yavuzaslan Soylemez (Canakkale Onsekiz Mart University, Department of Accounting and Tax)
    Abstract: The aim of this paper is to analyze the impact of petrol prices on the stock prices of energy companies traded in Istanbul Stock Exchange. To achieve this objective, daily panel data for 9 energy companies are examined for the period between 01/02/2008 and 02/26/2016. For the estimations, random effects and fixed effects panel data estimation methods are used. According to the results, changes in petrol prices effects stock prices of energy companies, negatively. Interest rates and M2 money supply affect stock prices of the energy companies, negatively. In addition to the macro variables, ROA and capital growth are the micro variables affecting stock prices of energy companies.
    Keywords: Petrol Prices, Stock Prices, Panel Data Analysis, Turkey
    JEL: E44 G12 L96
    Date: 2017–10
  59. By: Walter Paternesi Meloni
    Abstract: After focusing on fiscal indiscipline, the debate on the Eurozone crisis switched over persistent external imbalances among the European Monetary Union countries. Current account differentials were almost exclusively ascribed to the weak price competitiveness of deficit countries – neglecting demand-side factors – and consequently austerity measures have been imposed to peripheral countries in order to foster their competitiveness with the purpose of adjusting external imbalances through export growth. In this context, the contribution of this paper is twofold. Firstly, we identify this view as competitive austerity (in parallel with the expansionary austerity narrative), as the set of measures which, according to policy makers, would stimulate trade balance, output and employment. Secondly, we criticize this approach since fiscal restraints were proved to be counterproductive. We conclude by disproving the austerity-competitiveness linkage from a Keynesian perspective as well as by means of some macroeconomic evidence, and we provide an alternative recipe for the Eurozone issues.
    Keywords: austerity, competitiveness, European imbalances, current account, fiscal policy, aggregate demand
    JEL: E63 F32
    Date: 2017–09
  60. By: Irena Raguž Krištić (Faculty of Economics and Business, University of Zagreb); Lucija Rogić Dumančić (Faculty of Economics and Business, University of Zagreb); Vladimir Arčabić (Faculty of Economics and Business, University of Zagreb)
    Abstract: The goal of this paper is to determine if the euro area (EUA) accession and membership had a significant impact on the unemployment rates of the EUA countries. The hypothesis of the paper is that there is unemployment hysteresis and EUA accession thus contributed to the economic integration and convergence of the unemployment rates in the EUA. The paper employs LM and RALS-LM unit root tests with two breaks to analyze the persistence, test the stochastic convergence and locate structural break(s) in the seasonally adjusted quarterly unemployment rates, covering the period from 1995q1 to 2016q2. The most interesting results are that: (i) there are EUA-related down breaks in unemployment rates with hysteresis, (ii) EUA-related breaks are followed by the periods of convergence to the EUA11 average, (iii) crisis-related breaks are followed by the periods of divergence and (iv) the EUA membership is not a sufficient condition for stochastic convergence.
    Keywords: Unemployment, Euro area, Hysteresis, Stochastic convergence, Unit root, Structural breaks
    JEL: E24 O52
    Date: 2017–09–28
  61. By: Gómez-Zamudio Luis M.; Ibarra-Ramírez Raúl
    Abstract: This article evaluates the use of financial data sampled at high frequencies to improve short-term forecasts of quarterly GDP for Mexico. In particular, the mixed data sampling (MIDAS) regression model is employed to incorporate both quarterly and daily frequencies while remaining parsimonious. To preserve parsimony, factor analysis and forecast combination techniques are used to summarize the information contained in a dataset containing 392 daily financial series. Our findings suggest that the MIDAS model that incorporates daily financial data lead to improvements for quarterly forecasts of GDP growth over traditional models that either rely only on quarterly macroeconomic data or average daily financial data. Furthermore, we explore the ability of the MIDAS model to provide forecast updates for GDP growth (nowcasting).
    Keywords: GDP Forecasting;Mixed Frequency Data;Daily Financial Data;Nowcasting
    JEL: C22 C53 E37
    Date: 2017–09
  62. By: Katherine A. Moos (Department of Economics, University of Massachusetts Amherst)
    Abstract: In this paper, I examine the trends of fiscal transfers between the state and workers during 1959-2012 to understand the net impact of redistributive policy in the United States. This paper presents original net social wage data from and analysis based on the replication and extension of Shaikh and Tonak (2002). The paper investigates the appearance of a post-2001 variation in the net social wage data. The positive net social wage in the 21st century is the result of a combination of factors including the growth of income support, healthcare inflation, neoliberal tax reforms, and macroeconomic instability. Growing economic inequality does not appear to alter the results of the net social wage methodology. Classification-JEL: H5, E62, E64, B5
    Keywords: fiscal policy, net social wage, neoliberalism, social spending, taxation
    Date: 2017
  63. By: Stefano Neri (Banca d'Italia); Giuseppe Ferrero (Banca d'Italia); Marco Gross (European Central Bank)
    Abstract: Nominal and real interest rates in advanced economies have been decreasing since the mid-1980s and reached historical lows in the aftermath of the global financial crisis. Understanding why interest rates have fallen is essential for both monetary policy and financial stability. This paper focuses on one of the factors put forward in the literature within the secular stagnation view: adverse demographic developments. The main conclusion that we draw from the empirical analysis is that these developments have exerted downward pressure on real short- and long-term interest rates in the euro area over the past decade. Moreover, building on the European Commission’s projections for dependency ratios until 2025, we illustrate that the foreseen changes in the age structure of the population may dampen economic growth and continue exerting downward pressure on real interest rates in the future.
    Keywords: secular stagnation, demographic developments, real interest rates, monetary policy
    JEL: C32 E52 J11
    Date: 2017–09
  64. By: Fabiano Schivardi (EIEF, LUISS); Enrico Sette (Bank of Italy); Guido Tabellini (Bocconi)
    Abstract: Do banks with low capital extend excessive credit to weak firms, and does this matter for aggregate efficiency? Using a unique dataset that covers almost all bank-firm relationships in Italy in the period 2004-2013, we find that during the Eurozone financial crisis (i) under-capitalized banks were less likely to cut credit to non-viable firms; (ii) credit misallocation increased the failure rate of healthy firms and reduced the failure rate of non-viable firms; and (iii) nevertheless, the adverse effects of credit misallocation on the growth rate of healthier firms were negligible, as were the effects on TFP dispersion. This goes against previous influential findings, which, we argue, face serious identification problems. Thus, while banks with low capital can be an important source of aggregate inefficiency in the long run, their contribution to the severity of the great recession via capital misallocation was modest.
    Keywords: Bank capitalization, zombie lending, capital misallocation
    JEL: D23 E24 G21
    Date: 2017–09
  65. By: Murmann, Martin
    Abstract: Recent research based on aggregate data suggests that employment in young firms is more negatively impacted during economic crises than employment in incumbent firms. Using firm-level data, we show that under constant human capital of the firms' founders, employment growth in less than 1 1/2-year-old start-ups reacts countercyclically and employment growth in older start-ups reacts procyclically. The young start-ups realize their countercyclical growth by hiring qualified labor market entrants.
    JEL: E32 J23 L26 M13 L25 L11 D22
    Date: 2017
  66. By: Yasushi Asako (Waseda University); Yukihiko Funaki (Waseda University); Kozo Ueda (Waseda University and Centre for Applied Macroeconomic Analysis (CAMA)); Nobuyuki Uto (Waseda University)
    Abstract: This study experimentally analyzes tradersíchoices, with and without asymmetric information, based on the riding-bubble model. While asymmetric information has been necessary to explain a bubble in past theoretical models, our experiments show that traders have an incentive to hold a bubble asset for longer, thereby expanding the bubble in a market with symmetric, rather than asymmetric information. This Önding implies a possibility that information symmetry promotes cooperation. However, when traders are more experienced, the size of the bubble decreases, in which case bubbles do not arise, even with symmetric information.
    Keywords: riding bubbles, crashes, asymmetric information, experiment, clock game
    JEL: C72 D82 D84 E58 G12 G18
    Date: 2016–12
  67. By: Solis-Garcia, Mario
    Abstract: Dynamic stochastic general equilibrium (DSGE) models have become the workhorse of modern macroeconomics and the standard way to communicate ideas among applied macroeconomists. Undergraduate students, however, often remain unaware of their existence. The lack of specialized knowledge can hurt them if they decide to attend graduate school. Indeed, many first-year PhD students discover that the material they are currently learning differs significantly from what they mastered in college. But this can change. In this essay, I describe how to teach a full-fledged macroeconomics course where DSGE models take center stage. I discuss how to arrange such a course within a one-semester time frame, detail the main components of instruction, and finish with some thoughts based on my teaching experience at Macalester College.
    Keywords: DSGE models, Bayesian estimation, undergraduate education, advanced macroe- conomics
    JEL: A22 B41 E30 E60
    Date: 2017–09–21
  68. By: Ung Leng Yean (Faculty of Accountancy and Management, UTAR, Malaysia Author-2-Name: Tee Peck Ling Author-2-Workplace-Name: Faculty of Accountancy and Management, UTAR, Malaysia Author-3-Name: Chung Chay Yoke Author-3-Workplace-Name: Faculty of Accountancy and Management, UTAR, Malaysia Author-4-Name: Jayamalathi Jayabalan Author-4-Workplace-Name: Faculty of Accountancy and Management, UTAR, Malaysia Author-5-Name: Pok Wei Fong Author-5-Workplace-Name: Faculty of Accountancy and Management, UTAR, Malaysia Author-6-Name: Shamini Kandasamy Author-6-Workplace-Name: Faculty of Accountancy and Management, UTAR, Malaysia)
    Abstract: "Objective – This study’s aim is to identifies the minimum wage policy implementation and its impact on SMEs in Malaysia. It addresses the question of the level of SME’s awareness and their readiness towards the implementation of the policy and improving productivity. Methodology/Technique – Data were collected through questionnaire distribution and literature study. Analysis was conducted via a descriptive method. Findings – The solutions identified in addressing the problem include the need to increase labour productivity, lower operational costs and change organizational methods. Novelty – The discussions of this paper provide an in-depth understanding of the issues related to how the policy affects company’s competitive advantage and financial performance."
    Keywords: Minimum Wage Policy; Malaysia; SMEs, Manufacturing Sectors; Productivity.
    JEL: E24 L60
    Date: 2016–12–24
  69. By: Wagner Piazza Gaglianone
    Abstract: This paper provides a collection of empirical findings and stylized facts about inflation expectations in Brazil. A set of 23 papers selected ad hoc from the literature is employed in order to provide a concise overview of several aspects of these expectations, such as disagreement, forecast bias, role of information, epidemiology, driving-forces of the inflation expectations’ formation process, and credibility of the monetary policy, among others. These findings form a practical guide about inflation expectations in Brazil, which might be useful for policymakers and academics interested in designing forward-looking policy rules as well as developing macroeconomic models for the Brazilian economy
    Date: 2017–09
  70. By: Elena Pelinescu (Institute for Economic Forecasting, Romanian Academy)
    Abstract: The human capital is the main driver of development and economic growth. This paper is focused on human capital and tries to show how the human capital, as an important economic factor contributes to the growth of the economy. Romer (1969) identified a positive relation between the initial level of literacy and its rate of growth and the increase of income per capita. Benhabib, and Spiegel (1994) showed that the growth rate of total factor productivity depends on the human capital stock level. Wilson and Briscoe (2004) in a literature review of relation between human capital and economic performance at macroeconomic level highlighted that the increases in economic growth across the EU are associated with increases in both education and training. This paper is focused on the relation between human capital and development in Romania and uses econometric techniques to highlight the role of human capital in increasing the country’s wealth.
    Keywords: human capital, development, inovation
    JEL: E24 J24 O15 O31
    Date: 2017–09
  71. By: Bertolotti, Fabio; Marcellino, Massimiliano
    Abstract: We assess whether the effects of fiscal policy depend on the extent of uncertainty in the economy. Specifically, focusing on tax shocks, identified by the narrative series by Romer and Romer (2010), and various measures of uncertainty, we use a Threshold VAR model to allow for dependence of the effects of the tax shocks both on the level of uncertainty and on the sign of the shock. Our two main empirical results are that the economy responds more positively to tax cuts during periods of low uncertainty, while, in response to tax increases, monetary policy contributes significantly in making the reaction of the economy neutral during more uncertain times. We also show that existing theoretical models can explain, to a good extent, this empirical evidence.
    Date: 2017–09
  72. By: Boonman Tjeerd; Jan P.A.M. Jacobs; Kuper Gerard H.; Romero Alberto
    Abstract: This paper investigates the performance of early warning systems in real-time, using forecasts of indicators that were available at the moment predictions are to be made. The study analyzes currency crises in eight Latin American and Central and Eastern European countries, distinguishing an estimation period 1990-2009 and a prediction period 2010-2014. We apply two varieties of early warning systems: the signal approach and the logit models. For both methods we find that using forecasts of the indicators worsens the predictive ability of early warning systems compared to using the most recently available information (ex post).
    Keywords: Real-time data;Early warning system;Signal approach;Logit model;Emerging economies
    JEL: E47 G01 F31 C23 E58
    Date: 2017–09
  73. By: Bachmann, Rüdiger; Bayer, Christian; Merkl, Christian; Seth, Stefan; Stüber, Heiko; Wellschmied, Felix
    Abstract: We find that worker turnover is more procyclical than job turnover. Procyclical worker churn result almost exclusively from job-to-job transitions. The size and cyclical properties of churn are close to uniform along the entire employment growth distribution of establishments. Even shrinking firms churn, i.e., they hire while separating from workers. The cyclical movements in the source of hiring, from employment vs non-employment, are close to uniform across the employment growth distribution.
    JEL: E32 J23 J63
    Date: 2017
  74. By: Luis A. Gil-Alana (University of Navarra, Faculty of Economics and ICS, Pamplona, Spain); Zeynel Abidin Ozdemir (Department of Economics, Gazi University, Besevler, 06500, Ankara, Turkey. Economic Research Forum (ERF) Cairo, Egypt); Aysit Tansel (Middle East Technical University, ERF & IZA)
    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.
    Date: 2017
  75. By: Kodila-Tedika, Oasis; NGUENA, Christian L.
    Abstract: This paper mainly examine the sensitivity level of economic recession to the financial sector development by ascertaining whether such relationship is linear and contingent on trade openness, GDP per capita, financial openness, institution, democracy and fuels. We employ annual data of 129 countries from all part of the world spanning 1990-2010 and invoke Ordinary Least Squares (OLS) estimation method; we applied Sasabuchi test to verify the inverse U-shape and estimate the extreme point. We also used semiparametric and regional exclusion based regression for robustness check. The nexus between recession and financial development assessment suggest that, the nonlinearity and thus U-shaped relationship is operational; additionally, when financial development increases, it is accompanied by a reduction in the depth of recessions; and this, up to a certain threshold. Beyond this brink, financial deepening correlates with deep recessions. Additionally, we found that trade openness have a positive on economic recession independently to the estimation method. For robustness check, estimations results first confirm the baseline findings in terms of magnitude and significance in the correlation coefficients; then, highlight sub-Saharan Africa (SSA), South Asia (SASIA) and Latin America and Caribbean (LAC) as the order of continental/regional importance in increasing magnitude. Finally, the semiparametric regression show that, the results of the parametric part converge with the previous results in general, and bear out with illustration the functional form of the nonlinear relation between recession and financial development. To the best of our knowledge, this is the first study examining this relationship using newly primary and hitherto almost unexploited “Rare macroeconomic disasters” data from Barro and Ursua (2012) which allow us to build a more specific proxy of the variable “economic recession”.
    Keywords: Recession - Financial development - Macroeconomics disasters
    JEL: E32 E44 O16 O50
    Date: 2017–09–04
  76. By: Mathius Tandiontong (Faculty of Economics, Maranatha Christian University, Indonesia. Author-2-Name: Margaretha Sitompul Author-2-Workplace-Name: Faculty of Economics, Maranatha Christian University, Indonesia.)
    Abstract: "Objective – Stock is one securities among other securities, as a high risk instrument. Stock classified as high risk due to reflection in the uncertainty of the rate of return to be received by investors in the future. The purpose of this research is to examine of financial distress as measured by the Altman Z-Score, systematic risk as measured by beta stocks and macroeconomic measured by inflation on stock returns Manufacturing Company listed on the Stock Exchange 2008-2012 period Methodology/Technique – From 133 companies listed, 75 companies are taken as sample by using purposive sampling technique. Panel data regression analysis shows that the overall effect of variables is equal to 28.7%. Findings – Partially, the variables that affect the stock returns are financial distress with Altman Z-Score, beta stocks and inflation. Novelty – Financial distress with the measurement using the Altman Z-Score."
    Keywords: Stock return; Financial distress; Altman Z-Score; Systematic risk; Beta stocks and Inflation
    JEL: E44 F14 G01
    Date: 2017–05–24
  77. By: Peter Skott (University of Massachusetts - Amherst); Leopoldo Gomez-Ramirez (Universidad del Norte, Colombia)
    Abstract: Pervasive credit constraints have been seen as major sources of slow growth in developing economies. This paper clarifies a mechanism through which an inefficient financial system can reduce productivity growth. Using a two-sector model, second, we examine the implications for employment and the distribution of income. Both classical and Keynesian versions of the model are considered; saving decisions are central in the classical version while firms’ investment and pricing decisions take center stage in the Keynesian version. We find that, although boosting the asymptotic rate of growth, a relaxation of credit constraints may reduce the share of the formal sector, increase inequality and underemployment, and have little or no effect on the medium-run rate of growth.
    Keywords: credit constraints, productivity growth, dual economy, underemployment, income distribution
    JEL: O11 O41 E2
    Date: 2017
  78. By: Prüser, Jan
    Abstract: This study considers Bayesian variable selection in the Phillips curve context by using the Bernoulli approach of Korobilis (2013a). The Bernoulli model, however, is unable to account for model change over time, which is important if the set of relevant predictors changes over time. To tackle this problem, this paper extends the Bernoulli model by introducing a novel modeling approach called Markov Dimension Switching (MDS). MDS allows the set of predictors to change over time. The MDS and Bernoulli model reveal that the unemployment rate, the Treasury bill rate and the number of newly built houses are the most important variables in the generalized Phillips curve. Furthermore, these three predictors exhibit a sizeable degree of time variation for which the Bernoulli approach is not able to account, stressing the importance and benefit of the MDS approach. In a forecasting exercise the MDS model compares favorably to the Bernoulli model for one quarter and one year ahead inflation. In addition, it turns out that the performance of MDS model forecasting is competitive in comparison with other models found to be useful in the inflation forecasting literature.
    Keywords: Phillips Curve,fat data,variable selection,model change
    JEL: C11 C32 C53 E37
    Date: 2017
  79. By: Verstegen, Loes (Tilburg University, Center For Economic Research); van Groezen, Bas (Tilburg University, Center For Economic Research); Meijdam, Lex (Tilburg University, Center For Economic Research)
    Abstract: This paper investigates quantitatively the benefits from participation in the Economic and Monetary Union for individual Euro area countries. Using the synthetic control method, we estimate how real GDP per capita would have developed for the EMU member states, if those countries had not joined the EMU. The estimates show that most countries have profited from having the euro, though the crisis leads to negative effects of EMU membership. The PIGS countries, in particular, would have been better off if they had not been an EMU member during the crisis, however, Greece, Portugal and Spain experienced the largest benefits of EMU participation in the pre-crisis period.
    Keywords: economic growth; euro area; synthetic control method; monetary union
    JEL: C23 E65 F33 F36 F43
    Date: 2017
  80. By: Ryan Banerjee (BIS); Enrico Sette (Bank of Italy); Leonardo Gambacorta (BIS)
    Abstract: This paper studies the real consequences of relationship lending on firm activity in Italy following Lehman Brothers’ default shock and Europe’s sovereign debt crisis. We use a large data set that merges the comprehensive Italian Credit and Firm Registers. We find that following Lehman’s default, banks offered more favourable continuation lending terms to firms with which they had stronger relationships. Such favourable conditions enabled firms to maintain higher levels of investment and employment. The insulation effects of tighter bank-firm relationships was still present during the European sovereign debt crisis, especially for firms tied to well capitalised banks.
    Keywords: relationship banking, real effects of credit, credit supply
    JEL: E44 G21
    Date: 2017–09
  81. By: Ryan Niladri Banerjee; Leonardo Gambacorta; Enrico Sette
    Abstract: This paper studies the real consequences of relationship lending on firm activity in Italy following Lehman Brothers' default shock and Europe's sovereign debt crisis. We use a large data set that merges the comprehensive Italian Credit and Firm Registers. We find that following Lehman's default, banks offered more favourable continuation lending terms to firms with which they had stronger relationships. Such favourable conditions enabled firms to maintain higher levels of investment and employment. The insulation effects of tighter bank-firm relationships was still present during the European sovereign debt crisis, especially for firms tied to well capitalised banks.
    Keywords: relationship banking, real effects of credit, credit supply
    JEL: E44 G21
    Date: 2017–09
  82. By: Banerjee, Ryan; Gambacorta, Leonardo; Sette, Enrico
    Abstract: This paper studies the real consequences of relationship lending on firm activity in Italy following Lehman Brothers' default shock and Europe's sovereign debt crisis. We use a large data set that merges the comprehensive Italian Credit and Firm Registers. We find that following Lehman's default, banks offered more favourable continuation lending terms to firms with which they had stronger relationships. Such favourable conditions enabled firms to maintain higher levels of investment and employment. The insulation effects of tighter bank-firm relationships was still present during the European sovereign debt crisis, especially for firms tied to well capitalised banks.
    Keywords: credit supply; real effects of credit; relationship banking
    JEL: E44 G21
    Date: 2017–09
  83. By: Roberto Roson (Department of Economics, University Of Venice Cà Foscari and IEFE, Bocconi University, Milan); Dominique van der Mensbrugghe (The Center for Global Trade Analysis, Purdue University, West Lafayette, IN, US)
    Abstract: This study analyzes the variations in industrial structure induced by income-sensitive patterns of final consumption, and how these changes can be captured by a multi-sector numerical model with a flexible demand system. We focus, in particular, on the estimation of parameters for an AIDADS (An Implicitly, Directly Additive Demand System) specification. We then test the latter by inserting it in the ENVISAGE global general equilibrium dynamic model, which is run under the SSP2 scenario from 2011 to 2050. It is found that time-varying income elasticity can generate sizable variations in the industrial structure. This finding has important practical implications, particularly when structural models are applied at a medium and long term horizon.
    Keywords: Demand systems, structural change, economic dynamics, computable general equilibrium models
    JEL: C33 C68 D58 E21 O11 O41
    Date: 2017
  84. By: Silviya Bratoeva-Manoleva (University of Economics – Varna, Department of Economics)
    Abstract: Income inequality in Bulgaria increased noticeably over the period 1990-2015. This paper aims to identify the main macroeconomic determinants of income inequality. We find that GDP growth and structural changes in Bulgarian economy are among the determinants which deepen income inequality. The statistically significant negative estimate of the government expenditures on social protection means that an increase in social transfers mitigate income inequality. The empirical results show that inflation, foreign direct investment and education are statistically insignificant in affecting income inequality.
    Keywords: income inequality, OLS regression, transition economies
    JEL: D31 C32 P24
    Date: 2017–09
  85. By: Timo Teräsvirta (Aarhus University and CREATES, C.A.S.E., Humboldt-Universität zu Berlin)
    Abstract: This article contains a short review of nonlinear models that are applied to modelling macroeconomic time series. Brief descriptions of relevant models, both univariate, dynamic single-equation, and vector autoregressive ones are presented. Their application is illuminated by a number of selected examples.
    Keywords: Markov-switching model, nonlinear time series, random coefficient model, smooth transition model, threshold autoregressive model, vector autoregressive model
    JEL: C32 C51 E00
    Date: 2909
  86. By: Ernoiz Antriyandarti (Faculty of Agriculture, Universitas Sebelas Maret, Indonesia. Author-2-Name: Susi Wuri Ani Author-2-Workplace-Name: Faculty of Agriculture, Universitas Sebelas Maret, Indonesia.)
    Abstract: "Objective – The Indonesian rice sector seems to lose global competitiveness, and the government intervenes in the market to achieve food self-sufficiency. Particularly, in the main rice producing areas of Central Java, the rice sector does not have a comparative and competitive advantage due to small farm size. Then, we need to investigate the reasons why the farm sizes of rice producers are still small. Methodology/Technique – We hypothesize that the existence of surplus labor in rural areas restrains farm size enlargement. Therefore, we need to examine the existence of surplus labor in study area. By using the empirical model of the Cobb Douglas production function, we test the hypothesis of surplus labor. The estimation result shows that there is a surplus of labor in the study area. Findings – In addition, we examine the impact of surplus labor on land lease market in rural area. This study proves empirically that there is surplus labor in rural areas; therefore, farmers have difficulty finding job opportunities in sectors other than farming. In such a case, they prefer to cultivate rather than lease their land. Novelty – This result implies that the existence of surplus labor restricts the number of land lease contract. As a result, the land lease supply in the land lease market has become very limited. Thus, the existence of surplus labor in rural areas would be a constraint of farm size enlargement. This is the first study which explores the relationship between surplus labor and land lease market in the main rice producer area in Central Java."
    Keywords: Impact; Existence; Surplus Labour; Land Lease Market; Farm Size Enlargement.
    JEL: E24 H83
    Date: 2017–04–17
  87. By: Margareta Nadanyiova (Faculty of Operation and Economics of Transport and Communications, University of Zilina, Slovak Republic Author-2-Name: Jana Kliestikova Author-2-Workplace-Name: Faculty of Operation and Economics of Transport and Communications, University of Zilina, Slovak Republic)
    Abstract: "Objective – Following paper deals with the essence of green marketing, green consumers and green strategies. It also defines greenwashing, different types of greenwashing, the seven sins of greenwashing, greenwashing index and negative impact of greenwashing. Based on this are outlined measures to protect against negative impact of greenwashing. Methodology/Technique – The study carried out with reviewing literature. Findings – The ways to avert the negative impacts of greenwashing includes: increasing awareness through media and education, elimination of greenwashing by companies, inclusion of greenwashing into the legislation, blacklisting of companies using greenwashing Novelty – The study suggests solutions for negative impacts of greenwashing."
    Keywords: Green Marketing; Greenwashing; Eco-friendly; Social Responsibility; Environment.
    JEL: D11 E21 M31
    Date: 2017–03–18
  88. By: John Van Reenen
    Abstract: Alongside the victory of Donald Trump in the 2016 US elections, Britain's vote to leave the European Union ("Brexit") in June 2016 reflects a global upsurge in populism. I find that under all plausible scenarios Brexit will make the average UK household poorer than the alternative of remaining in the European Union. The welfare loss is larger if the UK leaves the Single Market (a "hard Brexit) and larger still (6% to 9% of GDP) when the dynamic effects of productivity losses are factored in. This damage hits the poor as much as the rich and is unlikely to be offset by new trade deals which cannot replicate the sustained reduction in non-tariff barriers that the Single Market has engineered.
    Keywords: brexit, globalization, populism
    JEL: D92 E22 D8 C23
    Date: 2017–09
  89. By: Basher, Syed Abul; Haug, Alfred A.; Sadorsky, Perry
    Abstract: The impact that oil shocks have on stock prices in oil exporting countries has implications for both domestic and international investors. We derive the shocks driving oil prices from a fully-identified structural model of the oil market. We study their nonlinear relationship with stock market returns in major oil-exporting countries in a multi-factor Markov-switching framework. Flow oil-demand shocks have a statistically significant impact on stock returns in Canada, Norway, Russia, Kuwait, Saudi Arabia, and the UAE. Idiosyncratic oil-market shocks affect stock returns in Norway, Russia, Kuwait, Saudi Arabia and UAE. Speculative oil shocks impact stock returns in Canada, Russia, Kuwait and the UAE. Flow oil-supply shocks matter for the UK, Kuwait, and UAE. Mexico is the only country where stock returns are unaffected by oil shocks. These results shed important light on investor sentiment toward the relationship between oil shocks and stock markets in oil exporting countries.
    Keywords: Markov-switching; oil-exporting countries; oil-market shocks; stock returns
    JEL: E44 G15 Q43
    Date: 2017–09–28
  90. By: Daniele Girardi (University of Massachusetts Amherst); Samuel Bowles (Santa Fe Institute)
    Abstract: To study the effect of political and institutional changes on the economy, we look at share prices in the Santiago exchange during the tumultuous political events that characterized Chile in the early 1970s. We use a transparent empirical strategy, deploying previously unused daily data and exploiting two largely unexpected shocks which involved substantial variation in policies and institutions, providing a rare natural experiment. Allende's election and subsequent socialist experiment decreased share values, while the military coup and dictatorship that replaced him boosted them, in both cases by magnitudes unprecedented in the literature.
    Keywords: institutional shocks, natural experiment, share prices, Chile, socialism, military coup, elections
    JEL: P00 P16 D02 E02 N2
    Date: 2017
  91. By: Raffaella Patimo (Università degli Studi di Bari "Aldo Moro”); Chiara Mussida (Università Cattolica del Sacro Cuore)
    Abstract: The aim of this paper is to highlight the determinants of female employment in Italy in recent years, when education, costumes, family composition and social and individual preferences for family and work have considerably changed from the past. Nevertheless, the difficulties Italian women still experience in planning and carrying out their (potential) professional and private life have no similar explanations in other countries. We calculate the impact of several features of women’s life in determining their employment and we find highly significant results which help to explain the situation. Furthermore, we investigate what shape the perception of their health status using the same variables. We find significant results also for explaining the health status of women through the (multiple) family burdens and the chance to have a job.
    Keywords: female employment; family burdens; health outcome
    JEL: C25 E24 I10 J13 J21
    Date: 2017–10
  92. By: Cornelius Hirsch; Vasily Astrov
    Abstract: FIW publishes biannually FIW Notes. They present an overview of the most important Austrian and international developments regarding International Economics.
    Keywords: Austrian Foreign Trade, Economic Outlook Austria, International Trade, FDI, exports
    JEL: E66 F01
    Date: 2017–09
  93. By: Eleonora Granziera; Hyungsik Roger Moon; Frank Schorfheide
    Abstract: There is a fast growing literature that set-identifies structural vector autoregressions (SVARs) by imposing sign restrictions on the responses of a subset of the endogenous variables to a particular structural shock (sign-restricted SVARs). Most methods that have been used to construct pointwise coverage bands for impulse responses of sign-restricted SVARs are justified only from a Bayesian perspective. This paper demonstrates how to formulate the inference problem for sign-restricted SVARs within a moment-inequality framework. In particular, it develops methods of constructing confidence bands for impulse response functions of sign-restricted SVARs that are valid from a frequentist perspective. The paper also provides a comparison of frequentist and Bayesian coverage bands in the context of an empirical application - the former can be substantially wider than the latter.
    Date: 2017–09
  94. By: Hristina Manolova (American University in Bulgaria); Aleksandar Vasilev (American University in Bulgaria)
    Abstract: Motivated by recent debates on the possible role of wages as an income policy tool, in this study we examine the dynamic inter-relationship between wages in Bulgaria, mainly in the context of its EU accession. Relative to the WDN studies on the other EU member states, the novelty in this paper is the inclusion of the minimum wage as a possible conditional determinant of the other two wages. We demonstrate that minimum wage increases do not cause changes in average wages in either the government or the private sector. Using variety of econometric tests, we also demonstrate the leadership of private sector wage over public compensation and recommend the implementation of policy measures aimed at labor productivity growth.
    Keywords: public sector wages, private sector wages, minimum wages, causality
    JEL: C32 E62 J3 J4
    Date: 2017–09
  95. By: Ruzive, Tafadzwa; Mkhombo, Thando; Mhaka, Simba; Mavikela, Nomahlubi; Phiri, Andrew
    Abstract: Our study investigates the relationship between electricity intensity and unemployment in South Africa. Our mode of empirical investigation is the quantile regressions approach which has been applied to quarterly interpolated time series data collected between 2000:01 and 2014:04. As a further development to our study, we split our empirical data into two sub-samples, the first corresponding to the pre-financial crisis period and the other corresponding to the post-financial crisis period. Our empirical results point to electricity intensity being significantly and positively correlated with unemployment in periods before the crisis at all estimated quantiles, whereas this relationship turns significantly negative in periods subsequent to the crisis at all quantile levels. In other words, since the financial crisis, increased electricity intensity (i.e. lower electricity efficiency) appears to reduce domestic unemployment rates, a result which indicates that policymakers should be discouraged from implementing electricity conversation strategies and encouraged to rely on environmental friendly methods of supplying electricity.
    Keywords: Electricity intensity; Unemployment; South Africa; SSA; Quantile regressions
    JEL: C31 C51 E24 Q43
    Date: 2017–09–30
  96. By: Colonnello, Stefano; Curatola, Giuliano; Gioffré, Alessandro
    Abstract: We develop a model that reproduces the return and volatility spread between sin and non-sin stocks, where investors trade off dividends with the ethical assessment of companies. We relax the assumption of boycott behaviour and investigate the role played by the dividend share of sin stocks on their return and volatility spread relative to non-sin stocks. We empirically show that the dividend share predicts a positive return and volatility spread. This pattern is reproduced by our model when dividends and ethicalness are complementary goods and investors are sufficiently risk averse.
    Keywords: asset pricing,general equilibrium,sin stocks
    JEL: D51 D91 E20 G12
    Date: 2017
  97. By: Cornelius Hirsch; Vasily Astrov
    Abstract: FIW publishes biannually FIW Notes. They present an overview of the most important Austrian and international developments regarding International Economics.
    Keywords: Austrian Foreign Trade, Economic Outlook Austria, International Trade, FDI, exports
    JEL: E66 F01
    Date: 2017–03
  98. By: Christian Glocker (WIFO); Philipp Wegmüller
    Abstract: We develop a small-scale dynamic factor model for the Swiss economy based on an appropriately selected set of indicators. The resulting business cycle factor is in striking accordance with historical Swiss business cycle fluctuations. Our proposed model demonstrates a remarkable performance in short-term and medium-term forecasting. Using real-time GDP data since 2004, the model successfully anticipates the downturn of 2008-09 and responds in a timely manner to the recent sudden drop following the removal of the Swiss Franc lower bound. In a Markov-switching extension, we propose that our model could be used for Swiss recession dating. Our model does not indicate a regime-switch following the removal of the Swiss Franc lower bound.
    Keywords: Dynamic Factor Model, Nowcasting, Real-Time Data, Markov-Switching
    Date: 2017–10–02
  99. By: Laura Liu; Hyungsik Roger Moon; Frank Schorfheide
    Abstract: This paper considers the problem of forecasting a collection of short time series using cross sectional information in panel data. We construct point predictors using Tweedie's formula for the posterior mean of heterogeneous coefficients under a correlated random effects distribution. This formula utilizes cross-sectional information to transform the unit-specific (quasi) maximum likelihood estimator into an approximation of the posterior mean under a prior distribution that equals the population distribution of the random coefficients. We show that the risk of a predictor based on a non-parametric estimate of the Tweedie correction is asymptotically equivalent to the risk of a predictor that treats the correlated-random-effects distribution as known (ratio-optimality). Our empirical Bayes predictor performs well compared to various competitors in a Monte Carlo study. In an empirical application we use the predictor to forecast revenues for a large panel of bank holding companies and compare forecasts that condition on actual and severely adverse macroeconomic conditions.
    Date: 2017–09
  100. By: Anna Siekelova ("Faculty of Operation and Economics of Transport and Communications, University of Zilina, Slovak Republic" Author-2-Name: Erika Spuchlakova Author-2-Workplace-Name: "Faculty of Operation and Economics of Transport and Communications, University of Zilina, Slovak Republic")
    Abstract: "Objective – Trade credit is the most important source of external finance for many companies. It appears on every balance sheet and represents more than 50 percent of company’s short-term liabilities and a third of all company’s total liabilities in OECD countries. Late payment of invoices may suffer firm’s solvency. The European economies are now putting the years of financial turmoil and debt crisis behind them and several macro-economic indicators are pointing towards a brighter future. The aim of this paper is to assess creditworthiness of companies. Methodology/Technique – Assessment of client creditworthiness carried out using predictive methods based on multivariate discriminant analysis Findings – The situation in the enterprise can be characterized as stable. An enterprise that chooses this client to provide it a trade credit should also consider supplementing the predictive models by complex financial and economic analysis and review of available. If the firm provides trade credit to more clients, it is necessary to consider that the terms of trade credits may not be the same for everyone but also it is not in the power of company to approach to each client individually. Novelty – The study suggests that client groups can be created by using cluster analysis. Thus, the company may increase efficiency in the provision of trade credit."
    Keywords: "Trade Credit; Trade Credit Receivables; Late Payment; Predictive Model; Z Score; IN 01; Taffler Model; G Index; SAF 2002."
    JEL: E51 G21 G33
    Date: 2017–03–14
  101. By: Chen, Siyan; Desiderio, Saul
    Abstract: Understanding what moves the Phillips curve is important to monetary policy. Because the Phillips curve has experienced over time movements similar to those characterizing the Beveridge curve, the authors jointly analyze the two phenomena. They do that through an agent-based macro model based on adaptive micro-foundations, which works fairly well in replicating a number of stylized facts, including the Beveridge curve, the Phillips curve and the Okun curve. By Monte Carlo experiments the authors explore the mechanisms behind the movements of the Beveridge curve and the Phillips curve. They discovered that shifts of the Beveridge curve are best explained by the intensity of worker reallocation. Reallocation also shifts the Phillips curve in the same direction, suggesting that it may be the reason behind the similarity of the patterns historically recorded for these two curves. This finding may shed new light on what moves the Phillips curve and might have direct implications for the conduction of monetary policy.
    Keywords: Beveridge curve,Phillips curve,labor market dynamics,agent-based simulations,sensitivity analysis
    JEL: C63 D51 E31 J30 J63 J64
    Date: 2017
  102. By: Jhansi Rani Boda (School of Management, National Institute of Technology, India Author-2-Name: G. Sunitha Author-2-Workplace-Name: School of Management, National Institute of Technology, India Author-3-Name: Parag Ray Author-3-Workplace-Name: School of Management, National Institute of Technology, India)
    Abstract: "Objective – Investment is the commitment of funds which have been saved from the current consumption with an expectation of favorable future returns. Investment behavior is concerned with choices made about the purchase of a significant number of securities for an individual or institutional account. Individual investment behavior is relatively a new area of research in behavioral finance. This study aims to identify the various behavioral patterns of retail investors and their investment decision making in the newly formed Telangana state of India. Methodology/Technique – Data were collected from a sample of 200 retail investors via a structured questionnaire. Factor analysis was then conducted to critically identify the behavioral patterns of the retail investors. Findings – The findings of this study indicate that the two behavioral factors of Heuristics and Prospect have significant impact on the investment decision making attitudes of the retail investors. Novelty – As a newly formed state in India, the Telangana state provides potential investment opportunities for retail as well as institutional investors. It is thus, highly imperative to explore how retail investors make investment decisions especially in the newly formed Telangana State in India"
    Keywords: Behavioral Factors; Behavioral Finance; Investment Behavior; Investment Decision Making; Retail Investor.
    JEL: E22 P25
    Date: 2016–12–21
  103. By: Louis Larue (UNIVERSITE CATHOLIQUE DE LOUVAIN, Hoover Chair of economic and Social Ethics)
    Abstract: In "The Philosophy of Debt", Alexander Douglas claims that we collectively have a duty to sustain the institution of debt. I discuss this claim on two grounds. First, I argue that one would need a more thorough examination of the sorts of goods the institution of debt is supposed to sustain. Not all debts are beneficial, and not all forms of production are desirable. Second, I contend that individual agents may not always be able to go into debt. It is not at all clear, therefore, that they have a duty to promote and sustain this institution.
    Keywords: Debt, Economic Ethics, History of Economic Thought, Economic History
    JEL: B5 E5 Z13
    Date: 2017–10–02
  104. By: Simplice Asongu (Yaoundé/Cameroon); Jules R. Minkoua N (Buea, Cameroon)
    Abstract: This study assesses dynamics of openness and finance in Africa by integrating financial development dynamics of depth, activity and size in the assessment of how financial, trade, institutional, political and other openness policies (of second generation structural and institutional reforms) have affected financial development. The empirical evidence is based on Generalized Method of Moments with data from 28 African countries for the period 1996-2010. The following findings are established. (i) While the de jure (KAOPEN) indicator of financial openness improves financial depth, the de facto (FDI) measurement decreases it, with the effect of the latter measure positive on financial size. (ii) Whereas trade openness improves financial depth, its effect on financial activity and size is negative. (iii) Institutional openness has a positive effect on financial dynamics of depth and activity, while its effect on financial size is negative. (iv) Political openness and economic freedom are detrimental to financial depth and activity. Justifications for these nexuses are discussed.
    Keywords: Banking; Trade; Institutions; Politics; Africa
    JEL: E50 G20 O16 O17 O55
    Date: 2017–01
  105. By: Nicolas Véron; Jeromin Zettelmeyer
    Abstract: The euro-area crisis, which nearly destroyed Europe’s Economic and Monetary Union (EMU) in 2011-12, was a result of perverse incentives and inadequate institutions. The perverse incentives included excessive implicit national guarantees of domestic banks, and a lack of clarity on what would happen in case of sovereign debt distress, which was interpreted as an implicit guarantee of euro-area sovereigns by each other. Correspondingly, Europe had no institutions that could credibly declare a bank to be failing or likely to fail, manage a bank resolution process, or manage a sovereign debt restructuring. As a consequence, in the decade before the crisis, most countries’ banking systems accumulated excessive risk on their balance sheets, and several member states also became overindebted. The sequence of crisis and policy responses after mid-2007 was one of gradual, and generally very slow, recognition of the unsustainability of the euro-area policy framework. The bank-sovereign vicious circle, which had not been specifically identified as a potential contagion mechanism before the crisis, was first observed in 2009 and became widely acknowledged in the course of 2011 and early 2012. This vicious circle is now accepted by most observers as the central driver of the crisis during its most acute phase in 2011-12. The policy response has developed in accordance with this evolving analysis. The most impactful initiative has been the initiation of a banking union in mid-2012, but this remains incomplete and needs strengthening. While many features of the euro-area experience are unique, the role of incentives and the gradual introduction of market discipline into the policy framework hold useful lessons for other jurisdictions.
    Date: 2017–09
  106. By: Rachid Mira (Centre d'Economie de l'Université de Paris Nord (CEPN))
    Abstract: Notre étude sur longue période de l’économie politique algérienne, prend appui sur l’approche régulationniste inspirée du cadre d’analyse néoréaliste de Bruno Amable et Stefano Palombarini (2009) et des concepts néo institutionnalistes de Mushtaq Khan (2000, 2009) : elle considère que le développement économique de l’Algérie s’opère dans un contexte donné de distribution du pouvoir et d’institutions variées formelles et informelles, qui structurent des accords ou équilibres politiques sur la base de groupes sociaux soutenant la coalition au pouvoir et captant en retour des rentes distribuées. La confluence ou divergence d’intérêts politiques et économiques conditionne la réussite ou l’échec de politiques économiques et industrielles favorables à la croissance et au développement. Les institutions joueraient dans le processus de développement un rôle fondamental.
    Keywords: Political economy, Algeria, institutions, political power, development
    JEL: E02 H11 N17 N47 N57 O11 O14 O23
    Date: 2017–04

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