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on Macroeconomics |
|
Issue of 2017‒11‒12
89 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Zeno Enders |
| Abstract: | This paper proposes a novel mechanism by which changes in the distribution of money holdings have real effects. Specifically, I develop a flexible-price model of segmented asset markets that generates real aggregate effects of monetary policy through the dependence of optimal markups on the heterogeneity of money holdings. Because varieties of consumption bundles are purchased sequentially, newly injected money disseminates slowly throughout the economy via second-round effects. The model predicts a short-term inflation-output trade-off, a liquidity effect, countercyclical markups, and procyclical wages after monetary shocks. Among other correlations of financial variables, it also reproduces the empirical, negative relationship between changes in the money supply and markups. |
| Keywords: | segmented asset markets, monetary policy, countercyclical markups, liquidity effect, heterogenous money holdings |
| JEL: | E31 E32 E51 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6467&r=mac |
| By: | Gilberto Tadeu Lima (Department of Economics, University of Sao Paulo); Mark Setterfield (Department of Economics, New School for Social Research); Jaylson Jair da Silveira (Department of Economics and International Relations, Federal University of Santa Catarina) |
| Abstract: | Conventional wisdom suggests that the Great Moderation was caused by either good policy, good luck (favourable shocks), more efficient private sector behaviour (such as better inventory management), or more effective financial innovations. We show that it may, instead, have originated from the complementarity of an erroneous reading of the economy by central bankers and evolutionarily time-varying heterogeneity in inflation expectations formation within the private sector. One general finding of our analysis is that seemingly inadequate stabilization policies may, in fact, work. We comment on the broader ramifications for stabilization policy of this finding. |
| Keywords: | Great Moderation, monetary policy, inflation targeting, macroeconomic stability, heterogeneous inflation expectations, satisficing evolutionary dynamics |
| JEL: | B52 E12 E31 E32 E52 E58 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:new:wpaper:1729&r=mac |
| By: | Kliem, Martin; Meyer-Gohde, Alexander |
| Abstract: | We analyze an estimated stochastic general equilibrium model that replicates key macroeconomic and financial stylized facts during the Great Moderation of 1983-2007. Our model predicts a sizeable and volatile nominal term premium - comparable to recent reduced-form empirical estimates - with real risk two times more important than inflation risk. The model enables us to address salient questions about the effects of monetary policy on the term structure of interest rates. We find that monetary policy can have sizeable and differing effects on nominal and real risk premia, rationalizing many opposing findings in the empirical literature. |
| Keywords: | DSGE model,Bayesian estimation,Term structure,Monetary policy |
| JEL: | E13 E31 E43 E44 E52 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:302017&r=mac |
| By: | William Barnett (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin); Liting Su (Department of Economics, The University of Kansas;) |
| Abstract: | A monetary-production model of financial firms is employed to investigate supply-side monetary aggregation, augmented to include credit card transaction services. Financial firms are conceived to produce monetary and credit card transaction services as outputs through financial intermediation. While credit cards provide transactions services, credit cards have never been included into measures of the money supply. The reason is accounting conventions, which do not permit adding liabilities to assets. However, index number theory measures service flows and is based on microeconomic aggregation theory, not accounting. Barnett, Chauvet, Leiva-Leon, and Su (2016) have derived and applied the relevant aggregation theory applicable to measuring the demand for the joint services of money and credit cards. But because of the existence of required reserves and differences in taxation on the demand and supply side, there is a regulatory wedge between the demand and supply of monetary services. We derive theory needed to measure the supply of the joint services of credit cards and money, to estimate the output supply function, and to compute value added. The resulting model can be used to investigate the transmission mechanism of monetary policy. Earlier results on the monetary policy transmission mechanism based on the correlation between simple sum inside money and final targets are not likely to approximate or even be relevant to results that can be acquired by empirical implementation of this model or its extensions. Our financialfirm value-added measure and its supply function are fundamentally different from prior measures of inside money, shadow banking output, or money supply functions. The data needed for empirical implementation of our theory are available online from the Center for Financial Stability (CFS) in New York City. We show that the now discredited conventional accounting-based measures of privately produced inside money can be replaced by our measures, based on microeconomic aggregation theory, to provide the information originally contemplated in the literature on monetary theory for over a century. |
| Keywords: | Credit Cards, Money, Credit, Aggregation, Monetary Aggregation, Index Number Theory, Divisia Index, Risk, Euler Equations, Asset Pricing |
| JEL: | C43 C53 C58 E01 E3 E40 E41 E51 E52 E58 G17 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:201707&r=mac |
| By: | Falck, Elisabeth; Hoffmann, Mathias; Hürtgen, Patrick |
| Abstract: | Time-variation in disagreement about inflation expectations is a stylized fact in surveys, but little is known on how disagreement interacts with the efficacy of monetary policy. This paper fills this gap in providing theoretical predictions of monetary policy shocks for different levels of disagreement and testing these empirically. When disagreement is high, a dispersed information New Keynesian model predicts that a contractionary monetary policy shock leads to a short-run rise in inflation and inflation expectations, whereas both decline when disagreement is low. Estimating a smooth-transition model on U.S. data shows significantly different responses in inflation and inflation expectations consistent with theory. |
| Keywords: | disagreement,dispersed information,disanchoring of inflation expectations,monetary policy transmission,state-dependent effects of monetary policy,local projections |
| JEL: | C52 D83 E31 E32 E52 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:292017&r=mac |
| By: | Chris Garbers; Guangling Liu |
| Abstract: | This paper investigates the impact of capital controls on business cycle fluctuations and welfare. To perform this analysis, we deploy an asymmetric two country model that is subject to negative foreign interest rate shocks. The results show that both an inflow and outflow capital control are able to attenuate capital flow dynamics, but each control bears different implications for macroeconomic outcomes. Whilst the outflow capital control is associated with shock attenuation benefits, the inflow capital control is shown to amplify the impact of shocks. Easier capital control regimes enhance the attenuation and amplification properties associated with each capital control, whilst strict regimes do the opposite. Lastly, the analysis shows that the welfare effects of capital controls are agent dependent, and that society prefers the outflow capital control to the inflow capital control. Taken together, these results are indicative of the comparative desirability of capital controls imposed on the financial sector (outflows) as compared to the real sector (inflows). |
| Keywords: | Capital controls, Welfare, Wealth, DSGE, real business cycle, Financial intermediation |
| JEL: | E21 E32 E43 E44 E51 E52 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:717&r=mac |
| By: | Bianchi, Francesco (Duke University); Melosi, Leonardo (Federal Reserve Bank of Chicago) |
| Abstract: | What happens if the government’s willingness to stabilize a large stock of debt is waning, while the central bank is adamant about preventing a rise in inflation? The large fiscal imbalance brings about inflationary pressures, triggering a monetary tightening, further debt accumulation, and additional inflationary pressure. Thus, the economy will go through a spiral of higher inflation, output contraction, and further debt accumulation. A coordinated commitment to inflate away the portion of debt resulting from a large recession leads to better macroeconomic outcomes by separating the issue of long-run fiscal sustainability from the need for short-run fiscal stabilization. This strategy can also be used to rule out episodes in which the central bank becomes constrained by the zero lower bound. |
| Keywords: | Monetary and fiscal policies; coordination; emergency budget; Markov-switching models; liquidity traps |
| JEL: | D83 E31 E5 E62 E63 |
| Date: | 2017–07–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2017-19&r=mac |
| By: | Steven A. Sharpe; Nitish R. Sinha; Christopher A. Hollrah |
| Abstract: | We apply textual analysis tools to measure the degree of optimism versus pessimism of the text that describes Federal Reserve Board forecasts published in the Greenbook. We then examine whether this measure of sentiment, or Greenbook text "Tonality", has incremental power for predicting the economy, specifically, unemployment, GDP growth, and inflation up to four quarters ahead; we also test whether Tonality helps predict monetary policy and stock returns. Tonality is found to have significant and substantive directional predictive power for the GDP growth and the change in unemployment over the subsequent four-quarter horizon, particularly since 1990. Higher (more optimistic) Tonality presages higher than forecast GDP growth and lower unemployment. Higher Tonality is also found to help predict tighter monetary policy up to four quarters ahead. Finally, we find that Tonality has substantial positive and significant power for predicting 3-month-ahead and 6-month ahea d stock market returns. |
| Keywords: | Economic Forecasts ; Monetary policy ; Text Analysis |
| JEL: | C53 E17 E27 E37 E52 |
| Date: | 2017–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-107&r=mac |
| By: | Mustapha Olalekan Ojo (Economics Department, University of Minho); Luís Aguiar-Conraria (NIPE and Economics Department, University of Minho); Maria Joana Soares (NIPE and Department of Mathematics and Applications, University of Minho.) |
| Abstract: | We use wavelet analysis to study the relationship between the yield curve and macro- economic indicators in Canada. We rely on the Nelson-Siegel approach to model the zero coupon yield curve, and use the Kalman lter to estimate its time-varying factors: the level, the slope and the curvature. Apart from the bidirectional yield-macro relation, the paper broadens the existing literature by exploring the link between the monetary policy and the yield curve. |
| Keywords: | Term structure; Yield curve; Macroeconomic variables; Wavelet Power Spectrum; Wavelet Coherency; Wavelet Phase Difference |
| JEL: | E43 E44 C32 C49 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:12/2017&r=mac |
| By: | T. Bennani; C. Couaillier; A. Devulder; S. Gabrieli; J. Idier; P. Lopez; T. Piquard; V. Scalone |
| Abstract: | This project presents the analytical framework for macroprudential policy (AFMaP) developed at the Financial Stability Directorate of the Banque de France that could be used to calibrate macroprudential instruments and to provide analytical support to macroprudential policy decision making. In this paper, we present and compare several possible methodologies to calibrate macroprudential capital buffers that rely both on structural models and macroprudential stresstesting tools. |
| Keywords: | Macroprudential policy; Countercyclical capital buffer; Systemic risk buffer. |
| JEL: | G21 E44 C58 E32 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:648&r=mac |
| By: | Bachmann, Rüdiger (University of Notre Dame); Bayer, Christian (University of Bonn); Merkl, Christian (University of Erlangen-Nuremberg); Seth, Stefan (Institute for Employment Research (IAB), Nuremberg); Stüber, Heiko (Institute for Employment Research (IAB), Nuremberg); Wellschmied, Felix (Universidad Carlos III de Madrid) |
| 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: | job flows, worker flows, churn, job-to-job transitions, aggregate fluctuations |
| JEL: | E20 E24 E32 J23 J63 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11063&r=mac |
| By: | Guilherme Bandeira (Bank of Spain); Evi Pappa (European University Institute); Rana Sajedi (Bank of England); Eugenia Vella (Department of Economics, University of Sheffield) |
| Abstract: | We construct a model of a monetary union to study fiscal consolidation in the Periphery of the Euro area, through cuts in public sector wages or hiring when the nominal interest rate is constrained at its lower bound. Consolidation induces a positive wealth effect that increases demand, as well as a reallocation of workers towards the private sector, which together boost private activity. However, in a low inflation environment, demand is suppressed and the private sector is not able to absorb the additional workers. Comparing the two instruments, cuts in public hiring increase unemployment persistently in this environment, while wage cuts can reduce it. Regions with higher mobility of labor between the two sectors are able to consolidate more effectively. Price flexibility is also key at the zero lower bound: for a higher degree of price rigidity in the Periphery, consolidation becomes harder to achieve. Consolidations can be self-defeating when the public good is productive. |
| Keywords: | Fiscal Consolidation, Public Wage Bill, Zero Lower Bound |
| JEL: | E32 E62 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2017012&r=mac |
| By: | Michael D. Bauer; Glenn D. Rudebusch |
| Abstract: | Theory predicts that the equilibrium real interest rate, r*t, and the perceived trend in inflation, ð*t, are key determinants of the term structure of interest rates. However, term structure analyses generally assume that these endpoints are constant. Instead, we show that allowing for time variation in both r*t and ð*t is crucial for understanding the empirical dynamics of U.S. Treasury yields and risk pricing. Our evidence reveals that accounting for fluctuations in both r*t and ð*t substantially increases the accuracy of long-range interest rate forecasts, helps predict excess bond returns, improves estimates of the term premium in long-term interest rates, and captures a substantial share of interest rate variability at low frequencies. |
| Keywords: | yield curve, macro-finance, inflation trend, equilibrium real interest rate, shifting endpoints, bond risk premia |
| JEL: | E43 E44 E47 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6571&r=mac |
| By: | Ernesto Pasten; Raphael S. Schoenle; Michael Weber |
| Abstract: | We study the aggregate implications of sectoral shocks in a multi-sector New Keynesian model featuring sectoral heterogeneity in price stickiness, sector size, and input-output linkages. We calibrate a 341 sector version of the model to the United States. Both theoretically and empirically, sectoral heterogeneity in price rigidity (i) generates sizable GDP volatility from sectoral shocks, (ii) amplifies both the “granular†and the “network†effects, (iii) alters the identity and relative contributions of the most important sectors for aggregate fluctuations, (iv) can change the sign of fluctuations, (v) invalidates the Hulten (1978) Theorem, and (vi) generates a “frictional†origin of aggregate fluctuations. |
| Keywords: | input-output linkages, sticky prices, idiosyncratic shocks |
| JEL: | E31 E32 O40 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6619&r=mac |
| By: | Kenny, Seán; Lennard, Jason; Turner, John D. |
| Abstract: | This paper investigates the macroeconomic effects of UK banking crises over the period 1750 to 1938. We construct a new annual banking crisis series using bank failure rate data, which suggests that the incidence of banking crises was every 32 years. Using our new series and a narrative approach to identify exogenous banking crises, we find that industrial production contracts by 8.2 per cent in the year following a crisis. This finding is robust to a battery of checks, including different VAR specifications, different thresholds for the crisis indicator, and the use of a capital-weighted bank failure rate. |
| Keywords: | banking crisis,bank failures,narrative approach,macroeconomy,United Kingdom |
| JEL: | E32 E44 G21 N13 N14 N23 N24 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:qucehw:201709&r=mac |
| By: | Aurélien Leroy; Yannick Lucotte |
| Abstract: | This paper empirically assesses the effects of competition in the financial sector on credit procyclicality by estimating both an interacted panel VAR (IPVAR) model using macroeconomic data and a single-equation model with bank-level European banking data. The findings of these two empirical approaches highlight that an exogenous deviation of actual GDP from potential GDP leads to greater credit fluctuation in economies where both competition among banks and competition from non-bank financial institutions or direct finance (proxied by the fi- nancial structure) are weak. According to the financial accelerator theory, if lower competition strengthens the cyclical behavior of financial intermediaries, it follows that these "endogenous developments in credit markets work to amplify and propagate shocks to the macroeconomy" (Bernanke et al., 1999). Furthermore, since credit booms are closely associated with future financial crises (Laeven and Valencia, 2012), our results can also be read as evidence that greater competition in the financial sphere reduces financial instability, which is in line with the competition-stability view denying the existence of a trade-off between competition and stability |
| Keywords: | credit cycle, business cycle, bank competition, interacted panel VAR |
| JEL: | E32 E51 G20 D40 C33 |
| Date: | 2017–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2017-9&r=mac |
| By: | Javier Garcia-Cicco; Markus Kirchner; Julio Carrillo; Diego Rodríguez; Fernando Perez; Rocío Gondo; Carlos Montoro; Roberto Chang |
| Abstract: | This work compares the impact of monetary and macroprudential policies on financial and real sectors in four Latin American countries: Chile, Colombia, Mexico and Peru, and explores the commonalities and differences in the reaction to shocks to both the financial and real sector. In order to do that, we estimate a New Keynesian small open economy model with frictions in the domestic financial intermediation sector and a commodity sector for each country. Results suggest that financial shocks are important drivers of output and investment fluctuations in the short run for most countries, but in the long run their contribution is small. Furthermore, we evaluate the ability of macroprudential policies to limit the impact on credit growth and its effect on real variables. In a scenario of tighter financial conditions, monetary policy becomes expansionary due to both lower inflation (given the exchange rate appreciation) and weaker output growth, and macroprudential policies further contribute to restoring credit and output growth. However, in the case of a negative commodity price shock, macroprudential policies are less effective but useful as a complement for the tightening of monetary policy. Higher inflation (due to the exchange rate depreciation) and higher policy rates lead to a contraction in output growth, but macroprudential policies could alleviate this by improving credit conditions. |
| Keywords: | central banking, monetary policy, macroprudential policy, financial frictions |
| JEL: | E52 F41 F47 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:668&r=mac |
| By: | William F. Lincoln; Andrew H. McCallum; Michael Siemer |
| Abstract: | The collapse of international trade surrounding the Great Recession has garnered significant attention. This paper studies firm entry and exit in foreign markets and their role in the post-recession recovery of U.S. exports using confidential microdata from the U.S. Census Bureau. We find that incumbent exporters account for the vast majority of the decline in export volumes during the crisis. The recession also induced a missing generation of exporters, with large increases in exits and a substantial decline in entries into foreign markets. New exporters during these years tended to have larger export volumes, however, compensating for the decline in the number of exporting firms. Thus, while entry and exit were important for determining the variety of U.S. goods that were exported, they were less important for the trajectory of aggregate foreign sales. |
| Keywords: | Business cycles ; Entry ; Exit ; Exports ; Financial crisis ; Firm dynamics ; Great recession ; Recession |
| JEL: | F10 F40 E32 E44 J2 |
| Date: | 2017–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-108&r=mac |
| By: | Karsten Staehr; Lenno Uusküla |
| Abstract: | This paper estimates panel data models that use macroeconomic and macrofinancial variables to forecast the ratio of non-performing loans to total loans. The panels consist of either all EU countries or various subgroups, and the time sample is 1997Q4 to 2017Q1. The estimations show that macroeconomic and macro-financial variables have important roles in forecasting nonperforming loans. The ratio of non-performing loans exhibits substantial persistence and higher GDP growth, lower inflation and lower debt are robust leading indicators of the ratio of lower non-performing loans. The current account balance and real house prices are important indicators for Western Europe but are less important for Central and Eastern Europe |
| Keywords: | non-performing loans, forecasting, financial stability |
| JEL: | E44 E47 G21 |
| Date: | 2017–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2017-10&r=mac |
| By: | Brauning, Falk (Federal Reserve Bank of Boston); Ivashina, Victoria (Harvard Business School) |
| Abstract: | Foreign banks’ lending to firms in emerging market economies (EMEs) is large and denominated primarily in U.S. dollars. This creates a direct connection between U.S. monetary policy and EME credit cycles. We estimate that over a typical U.S. monetary easing cycle, EME borrowers face a 32-percentage-point greater increase in the volume of loans issued by foreign banks than borrowers from developed markets face, with a similarly large effect upon reversal of the U.S. monetary policy stance. This result is robust across different geographical regions and industries, and holds for non-U.S. lenders, including those with little direct exposure to the U.S. economy. Local EME lenders do not offset the foreign bank capital flows; thus, U.S. monetary policy affects credit conditions for EME firms. We show that the spillover is stronger in higher-yielding and more financially open markets, and for firms with a higher reliance on foreign bank credit. |
| Keywords: | global business cycle; monetary policy; emerging markets; reaching for yield |
| JEL: | E44 E52 F34 F44 G21 |
| Date: | 2017–08–29 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbwp:17-9&r=mac |
| By: | Gourio, Francois (Federal Reserve Bank of Chicago); Kashyap, Anil K. (University of Chicago); Sim, Jae W. (Board of Governors) |
| Abstract: | Credit booms sometimes lead to financial crises which are accompanied with severe and persistent economic slumps. Does this imply that monetary policy should “lean against the wind” and counteract excess credit growth, even at the cost of higher output and inflation volatility? We study this issue quantitatively in a standard small New Keynesian dynamic stochastic general equilibrium model which includes a risk of financial crisis that depends on “excess credit”. We compare monetary policy rules that respond to the output gap with rules that respond to excess credit. We find that leaning against the wind may be attractive, depending on several factors, including (1) the severity of financial crises; (2) the sensitivity of crisis probability to excess credit; (3) the volatility of excess credit; (4) the level of risk aversion. |
| Keywords: | Credit risk; financial crisis; monetary policy |
| JEL: | E52 E58 G28 |
| Date: | 2017–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2017-21&r=mac |
| By: | Gomes, Pedro Maia (Birkbeck, University of London) |
| Abstract: | A model with search and matching frictions and heterogeneous workers was established to evaluate a reform of the public sector wage policy in steady-state. The model was calibrated to the UK economy based on Labour Force Survey data. A review of the pay received by all public sector workers to align the distribution of wages with the private sector reduces steady-state unemployment by 1.4 percentage points. |
| Keywords: | public sector employment, public sector wages, public sector wage premium, unemployment, skilled workers, worker heterogeneity |
| JEL: | E24 E62 J45 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp11091&r=mac |
| By: | Giovanni Caggiano; Efrem Castelnuovo; Giovanni Pellegrino |
| Abstract: | We employ a parsimonious nonlinear Interacted-VAR to examine whether the real effects of uncertainty shocks are greater when the economy is at the ZeroLower Bound. We find the contractionary effects of uncertainty shocks to be statistically larger when the ZLB is binding, with differences that are economically important. Our results are shown not to be driven by the contemporaneous occurrence of the Great Recession and high .nancial stress, and to be robust to different ways of modeling unconventional monetary policy. These findings lend support to recent theoretical contributions on the interaction between uncertainty shocks and the stance of monetary policy. |
| Keywords: | uncertainty shocks, nonlinear structural vector auto regressions, interacted VAR, generalized impulse response functions, zero lower bound |
| JEL: | C32 E32 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6622&r=mac |
| By: | Anna Thum-Thysen; Peter Voigt; Benat Bilbao-Osorio; Christoph Maier; Diana Ognyanova |
| Abstract: | Intangible assets are at the heart of what makes firms competitive. They are vital for productivity and economic growth. A key question is whether the factors that tend to hold back investments in Europe are the same for tangible and intangible assets, i.e. is there a need for specific policy measures addressing intangible assets? This paper provides contextual information concerning intangible assets by discussing conceptual aspects, illustrating recent trends in terms of investments in intangibles and their corresponding impact on productivity and Gross Value Added (GVA) growth. With a view at specific characteristics of intangibles, potential drivers and barriers to investments in intangibles are identified and tested. Evidence from the presented empirical analyses suggests that including intangibles in a source-ofgrowth framework changes the corresponding growth patterns (GVA tends to grow more rapidly and capital deepening becomes the dominant source of growth). Looking at intangibles also helps to improve the understanding of TFP differentials. As regards investments, structural factors tend to matter generally more for intangibles whereas cyclical factors matter more for tangible assets. Against this backdrop, a series of policy-relevant messages has been derived. Overall, however, there is need to enlarge the general understanding of knowledge creation and to further improve the measurement of intangible assets in order to allow sound and evidence-based policy support. |
| JEL: | E01 E22 O34 O4 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:047&r=mac |
| By: | Juan Carlos Parra-Alvarez; Olaf Posch; Mu-Chun Wang |
| Abstract: | In this paper, we study the statistical properties of heterogeneous agent models with incomplete markets. Using a Bewley-Hugget-Aiyagari model we compute the equilibrium density function of wealth and show how it can be used for likelihood inference. We investigate the identifiability of the model parameters based on data representing a large cross-section of individual wealth. We also study the finite sample properties of the maximum likelihood estimator using Monte Carlo experiments. Our results suggest that while the parameters related to the household’s preferences can be correctly identified and accurately estimated, the parameters associated with the supply side of the economy cannot be separately identified leading to inferential problems that persist even in large samples. In the presence of partially identification problems, we show that an empirical strategy based on fixing the value of one the troublesome parameters allows us to pin down the other unidentified parameter without compromising the estimation of the remaining parameters of the model. An empirical illustration of our maximum likelihood framework using the 2013 SCF data for the U.S. confirms the results from our identification experiments. |
| Keywords: | heterogeneous agent models, continuous-time, Fokker-Planck equations, identification, maximum likelihood |
| JEL: | C10 C13 C63 E21 E24 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6717&r=mac |
| By: | Gunther Schnabl |
| Abstract: | The paper analyses the common European monetary policy based on a Mises-Hayek overinvestment framework, which is combined with the theory of optimum currency areas. It shows how since the turn of the millennium a too expansionary monetary policy contributed to unsustainable overinvestment booms in the periphery of the European Monetary Union, and more recently in Germany, dependent on the national fiscal policy stances. It is argued that the ECB´s ultra-loose monetary policy as a crisis therapy puts a drag on long-term growth by conserving distorted economic structures. To preserve political stability a timely exit from the ultra-expansionary monetary policy is postulated. |
| Keywords: | Hayek, Mises, European Monetary Union, European Central Bank, monetary overinvestment theory, optimum currency areas, fiscal policy, asymmetric shocks, secular stagnation |
| JEL: | E52 E58 F42 E63 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6388&r=mac |
| By: | Hegadekatti, Kartik; S G, Yatish |
| Abstract: | In this paper, a method to implement K-Y protocol using Distributed Consensus is discussed. Firstly, the various available methods are discussed. Then, Proof - Of - Sovereignty (PoSv) is proposed. Its mechanism is deliberated and its advantages are described vis-a-vis other methods of distributed consensus. Finally a summary of all the procedures involved in 'NationCoin Mining' is explained. |
| Keywords: | Distributed Consensus, K-Y Protocol, Proof-of-Work |
| JEL: | A12 C60 C80 E51 E52 E58 F33 G18 L86 N40 O38 |
| Date: | 2016–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82072&r=mac |
| By: | Devonald, L.; Higson, C.; Holly, S. |
| Abstract: | The purpose of this paper is to revisit an intriguing finding. Although over the last few decades leading up to the financial crisis there was a marked reduction in the volatility of aggregate output and inflation, there appears to have been a corresponding increase in the sales volatility of individual firms. Here we argue that a significant reason for this apparent increase in firm level volatility was an increase in churning of firm activity through the acquisition and disposal of businesses. This created an increase in observed negative covariances between firms, so even if the volatility of underlying organic growth has also fallen, observed volatility has risen. |
| Keywords: | Volatility,firm level growth |
| JEL: | D12 E52 E43 |
| Date: | 2017–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1748&r=mac |
| By: | Hegadekatti, Kartik; S G, Yatish |
| Abstract: | The K-Y Protocol envisages the introduction of RSBCs (Regulated and Sovereign Backed Cryptocurrencies). In this paper we discuss in detail the establishment of a Controlled Block Chain based on the K-Y Protocol. It is primarily accomplished using the NationCoin system. There are two aspects to the NationCoin system. The software and the hardware aspect. The software necessary to write and run the Block Chain on the hardware is envisaged. The hardware needed to run and sustain the blockchain is then deliberated. A host of institutions have also been envisioned to create, support and run the NationCoin system. The DAR will be the main institution responsible for creating the Controlled Block Chain architecture. The costing, timeline and the interplay of institutions are also outlined. |
| Keywords: | K-Y Protocol, Controlled Block Chain, RSBC, Distributed Ledger |
| JEL: | E51 E52 E58 G18 O38 |
| Date: | 2016–08–13 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82070&r=mac |
| By: | Christoph Bierbrauer (Hochschule Darmstadt) |
| Abstract: | We present an analytically tractable two-country New Open Economy Macroeconomics model of a currency union featuring an overlapping generations structure of the Blanchard (1985)-Yaari (1965) type. It enables us to study the transmission and spillover effects of a wider range of fiscal shocks in comparison to the standard model. We show that, depending on the financing decision of the government, fiscal policy measures can have very different effects on key macroeconomic variables such as consumption and output. Moreover, the spillovers of national fiscal policy depend on the composition of government spending, the type of the fiscal measure and the cross-country substitutability between goods. |
| Keywords: | Overlapping generations; New open economy macroeconomics; Public Debt; Decentralized fiscal policy; Monetary union |
| JEL: | E62 F33 F41 H31 H50 H63 |
| Date: | 2017–10–29 |
| URL: | http://d.repec.org/n?u=RePEc:iee:wpaper:wp109&r=mac |
| By: | Engin Kara; Yongmin Park |
| Abstract: | It has been noted that the search and matching model cannot account for the observed unemployment fluctuations. Gertler and Trigari (2009) show this weakness of the model disappears when wage stickiness is introduced to the model. Pissarides (2009) disagrees with this modification, arguing that new hires’ wages are not sticky. We argue that there is heterogeneity in wage setting: while some wages are sticky, the others are not. We generalise the model to account for this heterogeneity. We find that the new model with even only a small fraction of sticky wage contracts comes closer to matching the data. |
| Keywords: | search and matching, heterogeneity in staggered wage bargaining, unemployment volatility puzzle |
| JEL: | E24 E32 J64 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6536&r=mac |
| By: | Björn Kauder; Niklas Potrafke; Christoph Schinke |
| Abstract: | We examine whether German state governments manipulated fiscal forecasts before elections. Our data set includes three fiscal measures over the period 1980-2014. The results do not show that electoral motives influenced fiscal forecasts in West German states. By contrast, East German state governments underestimated spending in pre-election years (compared to other years) by about 0.20 percent of GDP, tax revenues by about 0.36 percent of GDP, and net lending by 0.30 percent of GDP. Predicting low levels of spending and tax revenues, East German state governments thus underestimated the size of government in pre-election years. |
| Keywords: | fiscal forecasts, electoral cycles, East and West Germany |
| JEL: | H68 E32 E62 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6310&r=mac |
| By: | Jesper Lindé; Mathias Trabandt |
| Abstract: | We calculate the magnitude of the fiscal spending multiplier in linearised and nonlinear solutions of a New Keynesian model at the zero lower bound. Importantly, the model is amended with real rigidities to simultaneously account for the macroeconomic evidence of a low Phillips curve slope and the microeconomic evidence of frequent price re-optimisation. We show that the nonlinear solution is associated with a much smaller multiplier than the linearised solution in long-lived liquidity traps, and pin down the key features in the model which account for the difference. Our results caution against the common practice of using linearised models to calculate fiscal multipliers in long-lived liquidity traps. |
| JEL: | E52 E58 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:064&r=mac |
| By: | Ricardo Reis |
| Abstract: | Central banks affect the resources available to fiscal authorities through the impact of their policies on the public debt, as well as through their income, their mix of assets, their liabilities, and their own solvency. This paper inspects the ability of the central bank to alleviate the fiscal burden by inuencing different terms in the government resource constraint. It discusses five channels: (i) how inflation can (and cannot) lower the real burden of the public debt, (ii) how seignorage is generated and subject to what constraints, (iii) whether central bank liabilities should count as public debt, (iv) how central bank assets create income risk, and whether or not this threatens its solvency, and (v) how the central bank balance sheet can be used for fiscal redistributions. Overall, it concludes that the scope for the central bank to lower the fiscal burden is limited. |
| Keywords: | monetary policy, reserves, interest rates, quantitative easing |
| JEL: | E58 E63 E52 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6604&r=mac |
| By: | Jan Toporowski (SOAS, University of London; University of Bergamo; and International University College, Turin.) |
| Abstract: | Kalecki’s analysis of military Keynesianism highlights the difficulties of managing aggregate demand in one country, without coordination with trading partners. Military Keynesianism is effective as a means of reflation because, unlike civilian public works, it induces similar expenditure by political rivals. In this way it overcomes some of the trade difficulties that arise if aggregate demand expands in only one country. However, military technology is not immediately transferable to civilian production, and therefore tends to reinforce technological backwardness. |
| Keywords: | Kalecki, military Keynesianism, aggregate demand management, technology |
| JEL: | B3 E2 E3 E6 H5 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:sru:ssewps:2017-22&r=mac |
| By: | Abbassi, Puriya; Bräuning, Falk; Schulze, Niels |
| Abstract: | We study the role of bargaining power and outside options for the pricing of over-the-counter interbank loans using a bilateral Nash bargaining model and test the model predictions with detailed transaction-level data from the euro-area interbank market. We find that lender banks with greater bargaining power over their borrowers charge higher interest rates, while the lack of alternative investment opportunities for lenders reduces bilateral interest rates. Moreover, we find that lenders that are not eligible to earn interest on excess reserves (IOER) lend funds below the IOER rate to borrowers with access to the IOER facility, which in turn put these funds in their reserve accounts to earn the spread. Our findings highlight that this persistent arbitrage opportunity is not a result of the mere lack of alternative outside options of some lenders, but it crucially depends on their limited bilateral bargaining power, leading to a persistent segmentation of prices in the euro interbank market. We examine the implications of these findings for the transmission of euro-area monetary policy. |
| Keywords: | bargaining power,over-the-counter market,monetary policy,money market segmentation |
| JEL: | E4 E58 G21 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:312017&r=mac |
| By: | Hegadekatti, Kartik; S G, Yatish |
| Abstract: | In this paper, we analyse the workings of commercial banks in a scenario where crypto-currencies are the mainstream bills of exchange. We start by explaining the concept of cryptocurrencies (also referred to as cryptocoins in this paper). Then we discuss the concept of Regulated and Sovereign Backed Cryptocurrencies (RSBCs). Later on, we envisage a scenario where cryptocoins are the main media of exchange. The banking aspects of Paper money, Bitcoins and RSBCs are then deliberated. We analyse the interplays between Banking and various currency formats. Finally, the paper concludes as to which currency is best suited to be the mainstream bill of exchange. |
| Keywords: | Banking, Cryptocurrencies, Bitcoin, Blockchain |
| JEL: | E51 E52 E58 F33 G18 G21 O38 |
| Date: | 2016–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82100&r=mac |
| By: | Polbin, Andrey; Fokin, Nikita |
| Abstract: | The paper is devoted to testing for existence of a long run relationship between consumption and income in Russia. We couldn’t find cointegration between consumption of households and GDP in constant prices. But statistical tests are in favor of cointegration between consumption in constant prices and real income which we define as a ratio of nominal GDP to implicit deflator for consumption. We also estimated a VECM model for real consumption and real income. Our results show high predictability of consumption growth by the error correction mechanism. |
| Keywords: | Consumption, consumption forecasting, GDP, real income, VECM, cointegration, permanent income hypothesis, ARIMA |
| JEL: | E21 E27 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82451&r=mac |
| By: | Christiaan Pattipeilohy; Christina Bräuning; Jan Willem van den End; Renske Maas |
| Abstract: | We present an empirical approach to derive the implicit stance of monetary policy. The indicator can be interpreted as an implied short-term interest rate that is not restricted by the effective lower bound. Factor analysis is used to extract an expectations and term premium component from fitted yield curve data. Based on this, an implied short-term interest rate is constructed, which reflects how much the short-term rate should have fallen to achieve observed drop in long-term yields, assuming it could not have been caused by a fall in the term premium. Following Lombardi and Zhu (2014), we study how the implied rate performs as instrument for monetary policy analysis. Regression analyses suggests that the implied rate provides a good gauge for the identification of non-standard monetary policy shocks, and has responded significantly to financial stress as opposed to the output and inflation gap. |
| Keywords: | interest rates; determination; term structure and effects; monetary policy |
| JEL: | E43 E52 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:575&r=mac |
| By: | Hegadekatti, Kartik; S G, Yatish |
| Abstract: | Crypto currencies like Bitcoin are gaining prominence as a medium of exchange. They have several benefits like very low transaction cost, fungibility etc. But Crypto currencies are also identified with their use in crimes, illegal activities and speculation. Part of the reason for their prominence as well as notoriety is the fact that they have no Sovereign Backing whatsoever and also because they are decentralized. To make Crypto currencies acceptable by the people and also curb their misuse, the authors have proposed a protocol containing a set of standards and procedures. By using this procedure, any nation can create its own Sovereign Backed crypto currency called NationCoin. A commission will be established which will hold a certain quantum of money loaned by the Government. This loaned money will provide the Sovereign backing to the Crypto Currency. A Controlled Block Chain Protocol is used. The Genesis Block of several NationCoins is then provided to the banks in the country to use them for interbank settlements. These Interbank transactions will lead to the mining (generation) of additional NationCoins by the commission which will hold it without releasing it to the public. Once there are sufficient numbers of NationCoins so as to be equal to the loaned amount unit-for-unit, it shall be released to the public for use. |
| Keywords: | bitcoin, blockchain, cryptocurrency |
| JEL: | E51 E52 E58 F33 G18 O38 |
| Date: | 2016–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82067&r=mac |
| By: | Stéphanie Pamies Sumner; Katia Berti |
| Abstract: | This paper presents an indicator of fiscal distress for European economies based on a multivariate regression analysis (logit modelling, the L1 indicator) and on a recently updated dataset of fiscal stress episodes. This indicator presents some interesting features: relying on a parsimonious set of variables that have been tested for their conditional statistical significance, it exhibits an overall satisfactory insample performance. In line with Berti et al. (2012), this indicator confirms the importance of monitoring macro-financial variables to assess countries' vulnerabilities to fiscal distress. It also provides some evidence that the change in the public debt ratio is an important predictor of fiscal distress events, while the level of public debt would particularly matter when combined with macrocompetitiveness imbalances. Our analysis suggests that the L1 indicator could be used as a complementary tool to the Commission S0 indicator to monitor prospective fiscal risks, building on the respective strengths of the two approaches, while compensating for their limitations. |
| JEL: | E62 E65 F34 H62 H63 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:049&r=mac |
| By: | Juliane Gerstenberger; Gunther Schnabl |
| Abstract: | The paper analyses the impact of Japanese monetary policy crisis management on the Japanese banking sector since the 1998 Japanese financial crisis. It shows how low-cost liquidity provision as a means to stabilize banks has created a growing gap between deposits above lending and has compressed interest margins as the traditional source of bank’s income. Efficiency scores are compiled to estimate the impact of monetary policy crisis management on the efficiency of banks. The estimation results provide evidence that the Japanese monetary policy crisis management has contributed to declining efficiency in the banking sector despite or because of growing concentration. |
| Keywords: | Japan, monetary policy, crisis management, banking sector, city banks, regional banks, shinkin banks, concentration |
| JEL: | E52 E58 F42 E63 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6440&r=mac |
| By: | O'Grady, Michael (Central Bank of Ireland); Rice, Jonathan (Central Bank of Ireland); Walsh, Graeme (Central Bank of Ireland) |
| Abstract: | This paper studies the effects of external macroeconomic shocks on Ireland. Using a weighting scheme based on international trade linkages, we apply a global vector autoregressive model (GVAR) to investigate the degree of shock transmission between Ireland and a number of advanced countries / regions. Constructing a global model of 25 countries over the 1980q1-2016q1 sample period, we examine responses to five distinct shocks: a US interest rate hike; a decline in UK GDP; a depreciation of UK exchange rates; a reduction in Chinese output; and a global economic slowdown. Results suggest that Ireland is relatively more exposed to shocks to the UK economy, than either the euro area or the US, while it is relatively more insulated to movements in oil prices. |
| Keywords: | Global VAR, macro-financial linkages, global spillovers |
| JEL: | E44 F41 C33 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:09/rt/17&r=mac |
| By: | Mavikela, Nomahlubi; Mhaka, Simba; Phiri, Andrew |
| Abstract: | This paper investigates the relationship between inflation and economic growth for South Africa and Ghana using quarterly empirical data collected from 2001 to 2016 applied to the quantile regression method. For our full sample estimates we find that inflation is positively related with growth in Ghana at high inflation levels whilst inflation in South Africa exerts its least adverse effects at high inflation levels. However, when particularly focusing on the post-crisis period, we find inflation exerts negative effects at all levels of inflation for both countries with inflation having its least adverse effects at high levels for Ghana and at moderate levels for South Arica. Based on these findings bear important implications for inflation targeting frameworks adopted by Central Banks in both countries. |
| Keywords: | Inflation, Economic Growth, quantile regression, Inflation targeting; South Africa, Ghana, Sub-Saharan Africa (SSA). |
| JEL: | C32 C51 E31 E52 O40 |
| Date: | 2018–10–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82141&r=mac |
| By: | Anadu, Ken (Federal Reserve Bank of Boston); Baklanova, Viktoria (Office of Financial Research) |
| Abstract: | The most recent changes to money market fund regulations have had a strong impact on the money fund industry. In the months leading up to the compliance date of the core provisions of the amended regulations, assets in prime money market funds declined significantly, while those in government funds increased contemporaneously. This reallocation from prime to government funds has contributed to the latter's increased demand for debt issued by the U.S. government and government-sponsored enterprises. The Federal Home Loan Bank (FHLBank) System played a key role in meeting this heightened demand for U.S. government-related assets with increased issuance of short-term debt. The FHLBank System uses the funding obtained from money market funds to provide general liquidity to its members, including the largest U.S. banks. Large U.S. banks' increased borrowings from the FHLBank System are motivated, in large part, by other post-crisis regulations, specifically the liquidity coverage ratio (LCR). The intersection of money market mutual fund reforms and the LCR have contributed to the FHLBanks' increased reliance on short-term funding to finance relatively longer-term assets, primarily collateralized loans to its largest members. This funding model could be vulnerable to "runs" and impact financial markets and financial institutions in ways that are difficult to predict. While a funding run seems unlikely, it is often the violation of commonly held conventions that tend to pose financial stability risks. Indeed, runs on leveraged financial intermediaries engaged in maturity transformation have produced systemic risks issues in the past and are worthy of investigation and continuous monitoring. |
| Keywords: | Federal Home Loan Banks; liquidity coverage ratio; Money Market Mutual Funds; short-term funding markets; systemic risk |
| JEL: | E50 G23 G28 |
| Date: | 2017–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbqu:rpa17-5&r=mac |
| By: | Niklas Engbom; Christian Moser |
| Abstract: | We quantify the effect of a minimum wage on compression throughout the earnings distribution. Using the case of Brazil, which experienced a large decrease in earnings inequality while its real minimum wage increased from 1996-2012, we document that the inequality decrease was bottom-driven yet widespread, with compression up to the 75th earnings percentile. We develop an equilibrium search model with heterogeneous firms and workers and find that effects of the minimum wage are consistent with the above facts, explaining 70 percent of the observed inequality decrease, with half of the decrease due to spillovers further up the earnings distribution. |
| Keywords: | worker and firm heterogeneity, minimum wage, matched employer-employee data, equilibrium search model |
| JEL: | E24 E61 J31 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6393&r=mac |
| By: | Salomon Faure; Hans Gersbach |
| Abstract: | We study money creation and destruction in today’s monetary architecture within a general equilibrium setting. Two types of money are created and destructed: bank deposits, when banks grant loans to firms or to other banks, and central bank money, when the central bank grants loans to private banks. We show that symmetric equilibria yield the first-best allocation when prices are exible, regardless of the monetary policy or capital regulation. When prices are rigid, we identify the circumstances in which money creation is excessive or breaks down and how an adequate combination of monetary policy and capital regulation may restore efficiency. |
| Keywords: | money creation, bank deposits, capital regulation, zero lower bound, monetary policy, price rigidities |
| JEL: | D50 E40 E50 G21 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6565&r=mac |
| By: | Ryan Chahrour (Boston College); Kyle Jurado (Duke University) |
| Abstract: | When can structural shocks be recovered from observable data? We present a necessary and sufficient condition that gives the answer for any linear model. Invertibility, which requires that shocks be recoverable from current and past data only, is sufficient but not necessary. This means that semi-structural empirical methods like structural vector autoregression analysis can be applied even to models with non-invertible shocks. We illustrate these results in the context of a simple model of consumption determination with productivity shocks and non-productivity noise shocks. In an application to postwar U.S. data, we find that non-productivity shocks account for a large majority of fluctuations in aggregate consumption over business cycle frequencies. |
| Keywords: | structural vector autoregression, noise shocks |
| JEL: | D84 E32 C31 |
| Date: | 2017–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:935&r=mac |
| By: | Gianluca Cafiso |
| Abstract: | Economic research has considered Private Debt a determinant of GDP growth for years. By keeping this perspective, the objective of this work is to understand how much of the GDP response to a monetary shock is due to the variation of private debt. This is the marginal contribution of private debt, which we relate to an increase of the aggregate demand. We study the USA, the UK and Germany in the period 1980q1-2015q4. Our approach is based on the comparison of one baseline structural VAR with one counterfactual for each country. The analysis is developed using the two main constituents of private debt: households and corporations debt. |
| Keywords: | private debt, GDP, monetary policy, structural VAR |
| JEL: | O11 O16 O51 O52 E44 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6500&r=mac |
| By: | Nicolas Philiponnet; Alessandro Turrini |
| Abstract: | Booms and busts in house prices may have major macro-financial implications. Accordingly, monitoring developments in house prices plays an important role in the assessment of macroeconomic risks. This paper provides a methodology to estimate benchmarks for the assessment of developments in house prices in the EU context. A number of approaches are developed, based on (i) long-term averages for price-to-income ratios, (ii) long-term averages for price-to-rent ratios (iii) predictions from cointegration relationships between real house prices and their demand and supply determinants. With the latter approach, cointegration analysis is carried out both on individual countries' time series and on a panel of EU countries. The paper makes alternative proposals for computing long-term averages for price-to-income and price-to-rent ratios with a view to combining cross-country comparability with representativeness. The various benchmarks are combined to define a single synthetic benchmark based on model averaging techniques. |
| JEL: | R21 R31 C32 E37 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:euf:dispap:048&r=mac |
| By: | Anna Kruglova (Bank of Russia, Russian Federation); Yulia Ushakova (Bank of Russia, Russian Federation) |
| Abstract: | We assess the effect of the banking sector resolution policy conducted by the Bank of Russia on competition and stability in the banking sector. We use the rate spread to measure competition and volatility in loan portfolio growth, set against volatility in growth of the banking sector’s aggregate loan portfolio, to measure the system’s stability. Our findings are as follows: After the launch of the banking sector resolution, a significant break in competition, as measured by the rate spread, was observed only in household deposits maturing in one to three years and household and corporate loans maturing in more than three years. This kind of structural break, however, is associated with macroeconomic factors rather than the Bank of Russia’s banking sector resolution. Other banking markets failed to see any significant change in competition after the launch of the banking sector resolution. After the launch of the Bank of Russia’s banking sector resolution, growth in corporate and retail lending showed a decline in volatility. This decline was observed both in a cluster of banks characterised by relatively low overdue debt, and in banks characterised by relatively high levels. Thereby, the reduction in the number of banks resulting from the Bank of Russia’s banking sector resolution had no considerable negative effect of competition in the period under review. At the same time, lower volatility in lending growth boosted banking system stability. We estimate that banking sector stability has grown by 4% in retail lending and 41% in corporate lending |
| Keywords: | Russian banking sector, banking licence, banking sector resolution, competition, banking sector stability |
| JEL: | G28 G21 E43 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps22&r=mac |
| By: | Ferroni, Filippo (Federal Reserve Bank of Chicago); Grassi, Stefano (University of Rome); Leon-Ledesma, Miguel A. (University of Kent) |
| Abstract: | DSGE models are typically estimated assuming the existence of certain primal shocks that drive macroeconomic fluctuations. We analyze the consequences of estimating shocks that are "non-existent" and propose a method to select the primal shocks driving macroeconomic uncertainty. Forcing these non-existing shocks in estimation produces a downward bias in the estimated internal persistence of the model. We show how these distortions can be reduced by using priors for standard deviations whose support includes zero. The method allows us to accurately select primal shocks and estimate model parameters with high precision. We revisit the empirical evidence on an industry standard medium-scale DSGE model and find that government and price markup shocks are innovations that do not generate statistically significant dynamics. |
| Keywords: | Reduced rank covariance matrix; DSGE models; stochastic dimension search |
| JEL: | C10 E27 E32 |
| Date: | 2017–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2017-20&r=mac |
| By: | Rosenbaum, Aaron (Board of Governors of the Federal Reserve System); Baughman, Garth (Board of Governors of the Federal Reserve System); Manuszak, Mark D. (Board of Governors of the Federal Reserve System); Stewart, Kylie (Board of Governors of the Federal Reserve System); Hayashi, Fumiko (Federal Reserve Bank of Kansas City); Stavins, Joanna (Federal Reserve Bank of Boston) |
| Abstract: | The U.S. payments industry is in the process of developing ubiquitous, safe, faster electronic solutions for making a broad variety of business and personal payments. How this market for faster payments will evolve will be shaped by a range of economic forces, such as economies of scale and scope, network effects, switching costs, and product differentiation. Emerging technologies could alter these forces and lead to new organizational arrangements or market structures that are different from those in legacy payment markets to date. In light of this uncertainty, this paper examines three hypothetical market structures that may emerge: a dominant operator environment, a multi-operator environment, and a decentralized environment. Each of these market structures has different implications for the public policy objectives of efficiency, safety, and ubiquity. The paper also considers tools to promote positive outcomes in each market structure. |
| Keywords: | faster payments; market structure; competition; payment system improvement; public policy; retail payments |
| JEL: | D4 E42 G2 L1 |
| Date: | 2017–09–21 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbcq:2017_004&r=mac |
| By: | Angrisani, Marco (University of Southern California); Foster, Kevin (Federal Reserve Bank of Boston); Hitczenko, Marcin (Federal Reserve Bank of Boston) |
| Abstract: | This document serves as the technical appendix to the 2012 Diary of Consumer Payment Choice administered by the RAND Corporation. The Diary of Consumer Payment Choice (DCPC) is a study designed primarily to collect data on financial transactions over a three-day period by consumers over the age of 18 in the United States. In this data report, we detail the technical aspects of the survey design, implementation, and analysis. |
| Keywords: | survey design; samples election; raking; survey cleaning; poststratification estimates |
| JEL: | D12 D14 E4 |
| Date: | 2017–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbdr:17-5&r=mac |
| By: | Michele Piffer; Maximilian Podstawski |
| Abstract: | We propose a new instrument to identify uncertainty shocks in a SVAR model with external instruments. The instrument is constructed by exploiting variations in the price of gold around events that capture periods of changes in uncertainty. The variations in the price of gold around the events correlate with the underlying uncertainty shocks, due to the perception of gold as a safe haven asset. To control for possible news-related effects associated with the events, we identify uncertainty and news shocks jointly, developing a set-identified proxy SVAR with restrictions on the correlations between shocks and proxies. We find that the recursive approach, extensively used in the literature, underestimates the effects of uncertainty shocks and delivers shocks that have more in common with news shocks than with uncertainty shocks. |
| Keywords: | economic uncertainty, external proxy SVAR, safe haven assets, news shocks, set-identification |
| JEL: | E32 C32 D81 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6327&r=mac |
| By: | Clymo, AJ |
| Abstract: | The Great Recession manifested itself mostly as a decline in hours and employment in the US, but a decline in Total Factor Productivity in the UK. Why did these two economies experience the crisis differently? I argue that a third fact, that real wages fell further during the crisis in the UK, may provide an explanation. I show that how a financial crisis manifests in the real economy in standard heterogeneous firm models depends crucially on assumptions on wage adjustment, and use this result to explain the divergent experiences of the two countries during the recent financial crisis. Theoretically, while a decline in wages protects the labour market, I show that, in the presence of financial frictions, it also causes a fall in TFP by misallocating resources across firms. Financially unconstrained firms are able to take greater advantage of a decline in wages than constrained firms, leading to a relative reallocation of resources towards the unconstrained, which I show must always reduce TFP in my model. On the other hand, if wages are fully rigid, I show that a financial crisis will have no effect on TFP. Quantitatively, the model is able to explain the greater fall in hours during the crisis in the US, the lack of a significant fall in TFP in the US, and 1/3 of the UK's TFP decline, or "productivity puzzle". |
| Keywords: | financial crises, misallocation, employment, productivity, heterogeneity |
| Date: | 2017–10–08 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:20572&r=mac |
| By: | Bholat, David (Bank of England); Brookes, James (Bank of England); Cai, Chris (Bank of England); Grundy, Katy (Bank of England); Lund, Jakob (Bank of England) |
| Abstract: | Our paper analyses confidential letters sent from the Bank of England’s Prudential Regulation Authority (PRA) to banks and building societies it supervises. These letters are a ‘report card’ written to firms annually, and are arguably the most important, regularly recurring written communication sent from the PRA to firms it supervises. Using a mix of methods, including a machine learning algorithm called random forests, we explore whether the letters vary depending on the riskiness of the firm to whom the PRA is writing. We find that they do. We also look across the letters as a whole to draw out key topical trends and confirm that topics important on the post-crisis regulatory agenda such as liquidity and resolution appear frequently. And we look at how PRA letters differ from the letters written by the PRA’s predecessor, the Financial Services Authority. We find evidence that PRA letters are different, with a greater abundance of forward-looking language and directiveness, reflecting the shift in supervisory approach that has occurred in the United Kingdom following the financial crisis of 2007–09. |
| Keywords: | Bank of England Prudential Regulation Authority; banking supervision; text mining; machine learning; random forests; Financial Services Authority; central bank communications |
| JEL: | C80 E58 G28 |
| Date: | 2017–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0688&r=mac |
| By: | Hegadekatti, Kartik; S G, Yatish; T J, Satish |
| Abstract: | Mobile App based market is rapidly becoming popular. As such, it is an opportunity to bring hassle-free transactions to people’s mobile phones. But the multi-billion dollar App market pays a great amount of money in transaction costs and banking services. This paper provides a solution by integrating BlockChain technology with Mobile-App based economy. We first describe the various concepts involved in BlockChain and App technology. Then we deliberate on how the two can be brought together without a glitch in either of the systems. This model is named as the SKY Model, each letter in the word SKY respectively standing for the initials of the authors. We also discuss the various merits of a BlockChain amalgamated with Mobile App based economy. We then go on to show how a decentralised economic system can be brought about on Mobile Apps through The SKY Model of Limited BlockChain. |
| Keywords: | Blockchain, Apps, Decentralise |
| JEL: | E51 E52 E58 G18 O38 P11 P12 P13 |
| Date: | 2016–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82101&r=mac |
| By: | Hegadekatti, Kartik; S G, Yatish |
| Abstract: | In this paper, we examine the Taxation aspects of Fiat money and Bitcoins vis-a-vis Regulated Cryptocurrencies. We start off by briefly explaining the concept of cryptocurrencies (also referred to as cryptocoins in this paper). We then discuss the concept of Regulated and Sovereign Backed Cryptocurrencies (RSBCs). Then we envisage a scenario where cryptocoins are the main medium of exchange. The taxation aspects of Paper money, Bitcoins and RSBCs are then deliberated with the pros and cons of taxation for each currency format. The currency that can support an Automated Tax Regime is also debated. Finally, the paper concludes by arranging in ascending order, the currencies which are easily amenable to and compliant with taxation policies and laws. |
| Keywords: | Taxation, Bitcoins, K-Y Protocol, NationCoins, RSBC |
| JEL: | E42 E52 H21 H24 H26 |
| Date: | 2016–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82073&r=mac |
| By: | Tjeerd M. Boonman; Jan P. A. M. Jacobs; Gerard H. Kuper; Alberto Romero |
| Abstract: | This paper investigates the performance of early warning systems for currency crises in real-time, using forecasts of indicators that are available at the moment predictions are to be made. We focus on 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 model. For bothmethods we nd that using early estimates in the predictions worsens the ability of early warning systems to signal crises compared to the most recently available information. |
| JEL: | F31 E47 G01 C23 E58 |
| Date: | 2017–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2017s-18&r=mac |
| By: | Leandro Magalhaes; Raül Santaeulàlia-Llopis |
| Abstract: | We provide new empirical insights on the joint distribution of consumption, income, and wealth using cross-sectional and panel data from three of the poorest countries in the world—Malawi, Tanzania, and Uganda—all located in Sub-Saharan Africa (SSA). While income inequality in SSA is similar to that of the United States, consumption and wealth inequality are substantially lower in SSA. This gives rise to our two main findings for SSA: (i) a low transmission from income inequality to wealth inequality related to a low ability to accumulate wealth; and (ii) a low transmission from income inequality to consumption inequality related to a high ability to insure consumption. These results suggest a trade-off between accumulation and consumption insurance for SSA. Our results are more salient in the rural areas than in the urban areas of SSA. |
| Keywords: | macroeconomy, consumption, income, Wealth, Sub-Saharan Africa, Inequality, cross-sectional data, panel data |
| JEL: | O10 O55 I32 E21 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1000&r=mac |
| By: | Lukas Buchheim; Martin Watzinger |
| Abstract: | We estimate the causal impact of a sizable German infrastructure investment program on employment at the county level. The program focused on improving the energy efficiency of school buildings, making it possible to use the number of schools as an instrument for investments. We find that the program was effective, creating one job for one year for each €25’000 of investments. The employment gains reached their peak after nine months and dropped to zero quickly after the program’s completion. The reductions in unemployment amounted to two-thirds of the job creation, and employment grew predominately in the construction and non-tradable industries. |
| Keywords: | infrastructure investments, job creation, employment dynamics, countercyclical fiscal policy |
| JEL: | E24 E62 H72 J23 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6383&r=mac |
| By: | Guglielmo Maria Caporale; Luis A. Gil-Alana |
| Abstract: | This paper revisits the Fisher hypothesis by estimating fractional integration and cointegration models that are more general than the standard ones based on the classical I(0)/I(1) dichotomy. Two sets of results are obtained under the alternative assumptions of white noise and Bloomfield (1973) autocorrelated errors respectively. The univariate analysis suggests than the differencing parameter is higher than 1 for most series in the former case, whilst the unit root null cannot be rejected for the majority of them in the latter case. The multivariate results imply that there exists a positive relationship, linking nominal interest rates to inflation; however, there is no evidence of the full adjustment of the former to the latter required by the Fisher hypothesis. |
| Keywords: | Fisher effect, fractional integration, long memory, G7 countries |
| JEL: | C22 C32 E43 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6482&r=mac |
| By: | Potter, Simon M. (Federal Reserve Bank of New York) |
| Abstract: | Keynote Remarks for ECB Workshop: Money Markets, Monetary Policy Implementation, and Central Bank Balance Sheets, Frankfurt am Main, Germany. |
| Keywords: | asset purchases; balance sheet; normalization; zero lower bound; forward guidance; large-scale asset purchase programs (LSAPs); reserve balances; reinvestment of principal payments; portfolio runoff; FOMC; portfolio size; portfolio composition; longer-term holding; prevention of market dysfunction; Joseph E. Gagnon |
| Date: | 2017–11–06 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsp:259&r=mac |
| By: | Igor Goncharov; Vasso Ioannidou; Martin C. Schmalz |
| Abstract: | We document that central banks are significantly more likely to report slightly positive profits than slightly negative profits. The discontinuity in the profit distribution is (i) more pronounced amid greater political or public pressure, the public’s receptiveness to more extreme political views, and agency frictions arising from governor career concerns, but absent when no such factors are present, and (ii) correlated with more lenient monetary policy inputs and greater inflation. These findings indicate that profitability concerns, while absent from standard theoretical models of central banking, are both present and effective in practice, and inform a theoretical debate about monetary stability and the effectiveness and riskiness of non-traditional central banking. |
| Keywords: | central banks, profitability, non-traditional central banking, monetary stability |
| JEL: | E58 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6546&r=mac |
| By: | Schnabl, Gunther; Müller, Sebastian |
| Abstract: | Der Artikel untersucht die Auswirkungen der sehr lockeren Geldpolitik der Europäischen Zentralbank auf die Wirtschaftsordnung und den europäischen Integrationsprozess aus ordnungspolitischer Perspektive. Es wird argumentiert, dass lange Zeit die von Deutschland geprägte Wirtschaftsordnung nach Eucken (1952) ein Grundpfeiler für Wachstum, Wohlstand und sozialen Zusammenhalt in Europa war. Es wird gezeigt, dass die Geldpolitik der Europäischen Zentralbank mit Euckens (1952) konstituierenden Prinzipien den wirtschaftlichen Grundpfeiler des europäischen Integrationsprozesses untergraben hat. Da die geldpolitischen Rettungsaktionen negative Verteilungseffekte haben und das Wachstum bremsen, wird mit einer daraus resultierenden wachsenden politischen Polarisierung die Akzeptanz des europäischen Integrationsprozesses geschwächt. Es wird ein zeitnaher Ausstieg aus der sehr lockeren Geldpolitik empfohlen, um die Zukunft der Europäischen Union zu sichern. |
| Keywords: | Europäische Integration,Wirtschaftliche Ordnung,Soziale Marktwirtschaft,Walter Eucken,Friedrich August von Hayek,Ungleichheit,Geldpolitik,politische Polarisierung |
| JEL: | B25 E58 E65 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:leiwps:150&r=mac |
| By: | Hartman-Glaser, Barney (UCLA); Lustig, Hanno (Stanford University); Zhang, Mindy X. (University of TX) |
| Abstract: | Although the aggregate capital share for U.S. firms has increased, the firm-level capital share has decreased on average. The divergence is due to the largest firms. While these mega-firms now produce a larger output share, their labor compensation has not increased proportionately. We develop a model in which firms insure workers against firm-specific shocks. More productive firms allocate more rents to shareholders, while less productive firms endogenously exit. Increasing firm-level risk delays the exit of less productive firms and increases the measure of mega-firms, raising the aggregate capital share and lowering it on average. We present evidence supporting this mechanism. |
| JEL: | E25 G31 G35 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3534&r=mac |
| By: | Francis Leni Anguyo (School of Economics, University of Cape Town); Rangan Gupta (Department of Economics, University of Pretoria); Kevin Kotze (School of Economics, University of Cape Town) |
| Abstract: | This paper considers the measurement of inflation persistence in Uganda and how this has changed over time. As the data does not follow a normal distribution, we make use of the quantile regression approach to investigate how various shocks may affect the rate of inflation within different quantiles. The measures of inflation include headline inflation, the current measure of core inflation, and an alternative measure of core inflation. The results suggest that while a unit root is found in many of the upper quantiles of headline inflation, there is evidence of mean reversion within the lower quantiles. In addition, we find higher levels of persistence after 2006 and during the inflation-targeting period. When considering the degree of persistence in the current measure of core inflation, the results suggest that there is a unit root in this measure during the inflation-targeting period. In addition, the alternative measure of core inflation, which is derived from a wavelets transformation, provides similar results. However, this measure is less volatile and more correlated with headline inflation. All the results suggest that large positive deviations from the mean would influence the permanent behaviour of inflation, while small negative deviations are relatively short-lived. |
| Keywords: | Inflation persistence, Quantile regression, Structural break, Monetary policy |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ctn:dpaper:2017-07&r=mac |
| By: | Margarita Rubio |
| Abstract: | In a globally interconnected banking system, there can be spillovers from domestic macroprudential policies to foreign banks and vice versa, for example, through the presence of foreign branches in the domestic economy. The lack of reciprocity of some macroprudential instruments may result in an increase in bank flows to those banks with lower regulatory levels, a phenomenon known as "leakage." This may decrease the effectiveness of macroprudential policies in the pursuit of financial stability. To explore this topic, I consider a two-country DSGE model with housing and credit constraints. Borrowers can choose whether to borrow from domestic and foreign banks. Macroprudential policies are conducted at a national level and are represented by a countercyclical rule on the loan-to-value ratio. Results show that when there are some sort of reciprocity agreements on macroprudential policies across countries, financial stability and welfare gains are larger than in a situation of non reciprocity. An optimal policy analysis shows that, in order to enhance the effectiveness of macroprudential policies, reciprocity mechanisms are desirable although the foreign macroprudential rule does not need to be as aggressive as the domestic one. |
| Keywords: | Macroprudential Policies, Spillovers, Banking Regulation, Foreign |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcfc:17/09&r=mac |
| By: | Kisu Simwaka |
| Abstract: | This paper examines progress and prospects of macroeconomic convergence in SADC. The study uses descriptive analysis and statistical tools to establish convergence. Under statistical tools, we use gap analysis and box-whisker plots to observe the general behaviour of relevant variables over time, as well as convergence at individual level towards the targets. Empirical analysis indicates that performance of SADC countries against macroeconomic convergence targets has been rather mixed, largely because some targets are overly ambitious. The majority of the countries are not converging to the set macroeconomic convergence criteria, although overall performance is better over the years. Performance of public debt against its target has been the best amongst all of the targets, with 12 of the 14 member states within the target in 2011. The worst performance is with regard to import cover, with inflation, fiscal deficit and real GDP growth somewhere in between. There is a clear tendency of convergence in monetary policy across SADC countries, as reflected in substantial decline in inflation rates over the past two decades. Most countries have made good progress in bringing inflation rates towards single digits. Most importantly, for most SADC member states, public finances are in a much better state than previously, with fiscal deficits at manageable levels in many countries, and public debt at sustainable levels. However, despite evidence of the tendency for macroeconomic convergence, this has not led to sustainable economic growth. The majority of the countries are not converging to the set MEC, although overall performance is better over the years. Countries are progressing towards the criteria at different rates, so convergence per se may not be the most important issue. |
| Date: | 2016–09 |
| URL: | http://d.repec.org/n?u=RePEc:aer:rpaper:rp_325&r=mac |
| By: | Peter, Benczur (European Commission – JRC); Stylianos, Karagiannis (European Commission – JRC); Virmantas, Kvedaras (European Commission – JRC) |
| Abstract: | There is growing evidence that the impact of financial development on economic growth might be non-linear and hump-shaped, exhibiting a turning point. However, such findings are typically established using total finances (mostly: credit), and the apparent non-linear impact of totals can stem from a substantial structural change in the composition of finances, that has been taking place during the recent decades. Though there are some studies going beyond total finances, they usually look at the impact of certain financing components separately or using ratios, which may bias the estimation and lead to incorrect conclusions. Finally, the findings are typically based on a global pool of countries, and may be driven by a developing versus developed country differential. Focusing on groups of high-income countries (from the OECD, EU, and EMU), this study shows that the finding of a non-linear, hump-shaped impact of financing on economic growth is robust to controlling for financing composition in terms of the sources (bank credit, debt securities, stock market) and the recipients of finances (households, non-financial and financial corporations), or both. In particular, we obtain the following results. (1) The non-linear impact of total bank credit is more pronounced than that of either household credit alone, or the sum of bank credit, debt securities, and stock market financing. (2) Credit to non-financial corporations tends to have a positive, while credit to households a negative impact on growth, even after allowing for non-linearities. (3) Debt-securities and stock market-based financing have a different impact on growth. (4) The estimated turning point of the non-linear relationship is close to that found by Cournède and Denk (2015) for the OECD countries, and lower than that established by Arcand et al. (2015) for a broad set of countries. |
| Keywords: | financial development; economic growth; finance-growth nexus; non-linearity; bank credit; debt securities; stock markets |
| JEL: | E44 G2 O4 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:jrs:wpaper:201707&r=mac |
| By: | Pierre ALDAMA (Paris School of Economics,Un. Paris I); Jérôme Creel (OFCE, Sciences Po Paris, France) |
| Abstract: | Historical data on US debt and primary surplus suggest the existence of different fiscal regimes which imply that, from time to time, US fiscal policy may have violated the government’s intertemporal budget constraint. But does evidence of locally unsustainable regimes eventually jeopardize the global sustainability of US public debt? We apply a Regime-Switching Model-Based Sustainability test which derives sufficient conditions on a regime-switching fiscal policy feeback rule such that fiscal policy can globally be sustainable while allowing for persistent unsustainable regimes. We find significant evidence of a globally Ricardian US fiscal policy, despite periodic and persistent unsustainable fiscal regimes. This conclusion remains valid after controlling for the reverse causality between the primary balance and the output gap. |
| Keywords: | Fiscal rules, Fiscal regimes, Public debt sustainability, Time-varying parameters, Markov-switching models, Model-based sustainability |
| JEL: | E6 H6 |
| Date: | 2017–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1723&r=mac |
| By: | F. J. Escribá-Pérez (Universitat de València (Spain), Department of Economic Analysis); M. J. Murgui-García (Universitat de València (Spain), Department of Economic Analysis); J. R. Ruiz-Tamarit (Universitat de València (Spain), Department of Economic Analysis and UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)) |
| Abstract: | Empirical studies in macroeconomics and economic growth literature are highly dependent on the measure of the physical capital stock. The variables that contribute to explain the major problems in these areas of research always appear related, whether directly or indirectly, to capital stock and depreciation. The standard measurements of capital and depreciation are statistical measures based on assumptions about the average service life of capital goods, which are accumulated according to the perpetual inventory method. In this paper we propose an alternative method based on the equations that solve the dynamic optimization problem of the neoclassical firm. This method enables us to endogenously calculate the variables rate of depreciation and capital stock, yielding an economic estimation based on indicators of profitability such as the distributed profits and the Tobin's q ratio. This represents a change of paradigm in measuring capital and depreciation, which we supply along with an application to the Spanish economy. The results show an economic depreciation rate (endogenous) that fluctuates around the statistical rate (exogenous), and two time profiles for the economic and statistical capital stocks that are markedly different. In the context of a growth accounting exercise we show how capital intensity and total factor productivity play different roles in explaining growth over the past fifty years, depending on whether we are using statistical or economic measures. Finally, we analyze the paradox of productivity and conclude that the absence of positive correlation between investment in information and communication technologies and the rate of growth of total factor productivity may be due to a combination of the delay effect associated with such investment and the under-estimation of the true economic depreciation. |
| Keywords: | Capital, Depreciation, Growth, Slowdown, Total Factor Productivity |
| JEL: | C61 D92 E22 O47 |
| Date: | 2017–11–02 |
| URL: | http://d.repec.org/n?u=RePEc:ctl:louvir:2017020&r=mac |
| By: | Koen Breemersch (University of Leuven); Jože P. Damijan (University of Ljubljana); Jozef Konings (Nazarbayev University) |
| Abstract: | This paper explores the effects of offshoring, technology and Chinese import competition on labor market polarization in European countries. We find that polarization occurs mostly as a result of polarization within individual industries, while the reallocation of employment away from less polarized industries towards more highly polarized industries also contributed to a lesser extent. In manufacturing, within-industry polarization is mostly associated with technological change, but we also find some tentative evidence that Chinese import competition contributed as well. In other private industries outside of manufacturing, technological change and offshoring are the most relevant forces affecting within-industry polarization. The process of between-industry polarization is driven by widespread deindustrialization in developed countries. We find that Chinese import competition contributed to the decline of employment in the less polarized manufacturing industries. Differences in labor market institutions only explain a limited amount of cross-country variation in the association of polarization and the three forces we consider. |
| JEL: | E24 F14 F16 J23 J31 L60 O47 |
| Date: | 2017–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:oec:elsaab:197-en&r=mac |
| By: | Mardi Dungey; Renée Fry-McKibbin; Verity Todoroski; Vladimir Volkov |
| Abstract: | Dutch Disease is thought to have ongoing negative effects on resource rich open economies. There is little evidence on how economies recover. We document the Australian case in the aftermath of the commodities price boom resulting from high input demand from China. We show that where the boom is contained in an export-oriented, small-employment sector of the economy and driven by external demand rather than price shocks, the economy recovers to its equilibrium relatively quickly. To show this we add a new tool to the SVAR toolbox which enables us to assess the source of deviations in the observed outcomes from an empirical steady-state implied by the model. |
| Keywords: | Dutch Disease, Australia, China, SVAR, historical decomposition, empirical steady-state gap. |
| JEL: | C51 E32 F43 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2017-69&r=mac |
| By: | Carolina Laureti; Ariane Szafarz |
| Abstract: | Time-consistent savers require compensation for holding savings accounts that are illiquid rather than liquid. In equilibrium, banks subject to reserve requirements for liquidity management are keen to offer that compensation. Yet the presence of time-inconsistent agents, who value illiquidity as a commitment device to discipline their future selves, reshuffles the deck. Our model determines the equilibrium liquidity premium––the interest spread between illiquid and liquid deposits––offered by a bank to a pool comprising known proportions of time-consistent and time-inconsistent savers, under the assumption that individual time consistency or inconsistency is private information. We characterize pooling and separating equilibria, and uncover two asymmetric externalities: time-inconsistent agents obtain a higher premium than they would request ex ante for holding illiquid accounts, while time-inconsistent agents make it harder for their time-consistent counterparts to get illiquid accounts. We also deliver insights on reserve requirements for banking regulation. |
| Keywords: | Behavioral economics; banking; savings account; liquidity premium; time inconsistency; commitment; quasi-hyperbolic discounting. |
| JEL: | G21 E21 D53 D91 G28 |
| Date: | 2017–10–26 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/260066&r=mac |
| By: | Ksenia Yakovleva (Bank of Russia, Russian Federation) |
| Abstract: | This paper outlines the methodology for calculating a high-frequency indicator of economic activity in Russia. News articles taken from Internet resources are used as data sources. The news articles are analysed using text mining and machine learning methods, which, although developed relatively recently, have quickly found wide application in scientific research, including economic studies. This is because news is not only a key source of information but a way to gauge the sentiment of journalists and survey respondents about the current situation and convert it into quantitative data. |
| Keywords: | economic activity estimates, text mining, machine learning. |
| JEL: | E37 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:bkr:wpaper:wps25&r=mac |
| By: | Asjad Naqvi; Engelbert Stockhammer |
| Abstract: | This paper presents a post-Keynesian ecological macro model that combines three strands of literature: the directed technological change mechanism developed in mainstream endogenous growth theory models, the ecological economic literature which highlights the role of green innovation and material flows, and the post-Keynesian school which provides a framework to deal with the demand side of the economy, financial flows, and inter- and intra-sectoral behavioral interactions. The model is stock-flow consistent and introduces research and development (R&D) as a component of GDP funded by private firm investment and public expenditure. The economy uses three complimentary inputs – Labor, Capital, and (non-renewable) Resources. Input productivities depend on R&D expenditures, which are determined by relative changes in their respective prices. Two policy experiments are tested; a Resource tax increase, and an increase in the share of public R&D on Resources. Model results show that policy instruments that are continually increased over a long-time horizon have better chances of achieving a "green" transition than one-off climate policy shocks to the system, that primarily have a short-run effect. |
| Keywords: | directed technological change, research and development, green transition, ecological economics, post-Keynesian economics, stock-flow consistency |
| JEL: | E12 O33 Q57 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:pkwp1714&r=mac |
| By: | Guschanski, Alexander; Stockhammer, Engelbert |
| Abstract: | This paper analyses the emergence of current account imbalances as a result of the co-existence of trade flows and financial flows. The literature has tended to view these factors in isolation: Many post-Kaleckian models, as well as Net-saving approaches assume that financial flows will adjust to trade flows. Models focusing on financial crises feature a strong role for financial flows but ignore drivers of trade flows. Similarly, empirical analyses either ignore drivers of financial flows or insufficiently capture determinants of trade flows. The paper, first, proposes a simple macroeconomic framework of the current account which gives equal emphasis to trade flows, determined by price competitiveness, and financial flows, determined by asset prices. Second, we test a reduced form of the model for 28 OECD countries for the period 1971-2014. Our results indicate that cost competitiveness as well as asset prices play a role in the determination of current accounts, but asset prices have dominated in the last two decades. |
| Keywords: | current account, financial flows, competitiveness, asset prices, |
| JEL: | E12 F32 F41 |
| Date: | 2017–10–28 |
| URL: | http://d.repec.org/n?u=RePEc:gpe:wpaper:17935&r=mac |
| By: | Yoshiyasu Ono |
| Abstract: | Using a dynamic two-country two-commodity Ricardian model where preference for money (or wealth) leads to aggregate demand deficiency, this paper examines the relationship between the two countries’ relative population size and their specialization patterns, employment and consumption. When the countries have similar population sizes, they specialize in respective commodities with comparative advantage. In this case a larger foreign, or a smaller home, population raises the relative price of the home commodity. It raises home real income and consumption per capita if full employment prevails in the home country. If unemployment appears, however, home employment and consumption per capita decrease. |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1017&r=mac |
| By: | Jean-Marc Bourgeon; Margot Hovsepian |
| Abstract: | We analyze the adoption of green technology in a dynamic economy affected by random shocks where demand spillovers are the main driver of technological improvements. Firms’ beliefs and consumers’ anticipations drive the path of the economy. We derive the optimal policy of investment subsidy and the expected time and likelihood of reaching a targeted level of environmental quality under economic uncertainty. This allows us to estimate the value that should be given to the environment in order to avoid an environmental catastrophe as a function of the strength of spillover effects. |
| Keywords: | growth, sustainability, uncertainty |
| JEL: | E30 O30 O44 Q50 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6485&r=mac |
| By: | K. Peren Arin; Elias Braunfels; Gernot Doppelhofer |
| Abstract: | Motivated by the mixed evidence in previous literature, we reexamine the effects of various types of government spending and taxes, as well as overall budget surplus/deficit, on economic growth. To address the model uncertainty issue that may have plagued earlier studies we employ a Bayesian Model Averaging (BMA) approach. We use a panel data set for OECD countries for the 1990-2013 period, control for country and time specific effects, and allow for a wide range of other potential growth determinants. The results suggest a robust link between only some fiscal variables and economic growth. On the spending side, productive public spending has a robust positive effect on growth. On the revenue side, we document a robust negative effect for the top corporate tax rate, but, maybe surprisingly, not for any income tax variable. Finally, our results suggest that a budget surplus has a robust positive effect on economic performance. We also analyze the timing of effects and conclude that most effects occur with a lag of two years. |
| Keywords: | Fiscal Policy, Public Spending, Taxes, Economic Growth. |
| JEL: | E62 H20 O40 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2017-68&r=mac |
| By: | Sarah Guillou (OFCE-Sciences PO Paris, France); Tania Treibich (Maastricht University and Sant'Anna school of Advanced Studies) |
| Abstract: | The objective of this paper is to show that part of the fixed cost of firms’ trade expansion is due to the acquisition of new internal capabilities (e.g. technology, production processes or skills), which imply a costly change in the firm’s internal labor organisation. We investigate the relationship between a firm’s structure of labor, in terms of relative number of managers, and the scope of its export portfolio, in terms of product-destination varieties. The empirical analysis is based on a matched employer- employee dataset covering the population of French firms from tradable sectors over theperiod 2009-2014. Our analysis suggests that market expansion, and in particular export diversification, is associated with a change in the firm’s workforce composition, namely an increase in the number of managerial layers and in the ratio of managers. We show how these results are consistent with a simple model where the complexity of a firm’s operations increases in the number of product-destination couples exported, and where managers’ role is to address the unsolved problems arising from such increased complexity of operations. |
| Keywords: | Export diversification, Managers, Occupations, Employer-Employee data. |
| JEL: | F16 E24 C14 D22 |
| Date: | 2017–10–09 |
| URL: | http://d.repec.org/n?u=RePEc:fce:doctra:1722&r=mac |
| By: | Guillou, Sarah; Treibich, Tania (General Economics 2 (Macro)) |
| Abstract: | The objective of this paper is to show that part of the fixed cost of firms' trade expansion is due to the acquisition of new internal capabilities (e.g. technology, production processes or skills), which imply a costly change in the firm's internal labor organisation. We investigate the relationship between a firm's structure of labor, in terms of relative number of managers, and the scope of its export portfolio, in terms of product-destination varieties. The empirical analysis is based on a matched employer-employee dataset covering the population of French firms from tradable sectors over the period 2009-2014. Our analysis suggests that market expansion, and in particular export diversification, is associated with a change in the firm's workforce composition, namely an increase in the number of managerial layers and in the ratio of managers. We show how these results are consistent with a simple model where the complexity of a firm's operations increases in the number of product-destination couples exported, and where managers' role is to address the unsolved problems arising from such increased complexity of operations. |
| JEL: | F16 E24 C14 D22 |
| Date: | 2017–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2017026&r=mac |
| By: | Todd E Clark; Michael W McCracken; Elmar Mertens |
| Abstract: | We develop uncertainty measures for point forecasts from surveys such as the Survey of Professional Forecasters, Blue Chip, or the Federal Open Market Committee's Summary of Economic Projections. At a given point of time, these surveys provide forecasts for macroeconomic variables at multiple horizons. To track time-varying uncertainty in the associated forecast errors, we derive a multiple-horizon speci cation of stochastic volatility. Compared to constant-variance approaches, our stochastic-volatility model improves the accuracy of uncertainty measures for survey forecasts. |
| Keywords: | stochastic volatility, survey forecasts, fan charts |
| JEL: | E37 C53 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:bis:biswps:667&r=mac |
| By: | Christopher F. Baum (Boston College; DIW Berlin); Madhavi Pundit (Asian Development Bank); Arief Ramayandi (Asian Development Bank) |
| Abstract: | There is mixed evidence for the impact of international capital flows on financial sector's stability. This paper investigates the relationship between components of gross capital flows and various financial stability indicators for 16 emerging and newly industrialized economies. Departing from panel data methods, for each financial stability proxy, we employ systems of seemingly unrelated regression estimators to allow variation in the estimated relationship across countries, while permitting crossequation restrictions to be imposed within a country. The findings suggest that, after controlling for macroeconomic factors, there are significant effects of different gross capital flow measures on the financial stability proxies. However, the effects are not homogeneous across our sample economies and across flows. Country-specific financial and macroeconomic characteristics help to explain some of these differences. |
| Keywords: | emerging economies, financial stability, international capital flows |
| JEL: | E44 F41 |
| Date: | 2017–10–30 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:936&r=mac |
| By: | Guillermo Le Fort Varela; Bastián Gallardo; Felipe Bustamante |
| Abstract: | El trabajo explora relaciones entre crecimiento del PIB y estabilidad macroeconómica, real, nominal y externa, utilizando datos anuales de la base del WEO del FMI para 185 paísed en el periodo 1980-2015. Se analizan las relaciones entre crecimiento del PIB y distintas dimensiones de la estabilidad macroeconómica, utilizando estadísticas descriptivas y regresiones de panel que consideran efectos fijos por países y por año de estudio. Los resultados desmitifican ciertas ideas presentes en la discusiones de política económica como que más inflación genera más crecimiento, que la estabilización conlleva costos reales de mediano y largo plazo, o que la entrada de grandes flujos de capital permiten estimular consistentemente el crecimiento de una economía. Los resultados muestran que, la inflación persistente, en valores de dos dígitos, conllevan impactos negativos tangibles sobre el crecimiento del PIB, así como también, existen "umbrales", tanto de inflación como de volatilidad inflacionaria, que suponen mayores costos de la inflación. Una mayor inflación se asocia significativamente a mayor volatilidad de la mima, y esta a su vez presenta una relación positiva, pero no lineal, con la volatilidad real o cíclica del PIB. La volatilidad externa o de la cuenta corriente y sus reversiones contribuye también significativamente a la volatilidad real. Finalmente, se muestra que empíricamente la volatilidad cíclica o de la brecha del PIB incide negativamente sobre el crecimiento tendencial, por lo que la volatilidad, sea nominal o externa, no contribuye a un mayor crecimiento tendencial. |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:udc:wpaper:wp456&r=mac |
| By: | Ricardo Correa; Rochelle M. Edge; J. Nellie Liang |
| Abstract: | Governance structures are a critical part of a framework for implementing macroprudential policy, alongside methodologies for measuring and monitoring systemic risk, and analyses to understand the impact of policies that may be used to mitigate risk. As part of various research projects to study macroprudential policy frameworks, we have compiled a new dataset of governance structures in 58 countries. This note documents the construction of our dataset, including the decisions that we made concerning the countries and governance-structure facts to record in our dataset, and it discusses the approach that we followed for collecting this information. |
| Date: | 2017–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgin:2017-11-07&r=mac |
| By: | Chad Fulton |
| Abstract: | This paper presents a general framework for constructing and solving the multivariate static linear quadratic Gaussian (LQG) rational inattention tracking problem. We interpret the nature of the solution and the implied action of the agent, and we construct representations that formalize how the agent processes data. We apply this infrastructure to the rational inattention price-setting problem, confirming the result that a conditional response to economics shocks is possible, but casting doubt on a common assumption made in the literature. We show that multiple equilibria and a social cost of increased attention can arise in these models. We consider the extension to the dynamic problem and provide an approximate solution method that achieves low approximation error for many applications found in the LQG rational inattention literature. |
| Keywords: | Rational inattention ; Information acquisition ; Signal extraction |
| JEL: | D81 D83 E31 |
| Date: | 2017–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2017-109&r=mac |