|
on Macroeconomics |
|
Issue of 2017‒11‒19
sixty papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Alice, Albonico; Roberta, Cardani; Patrizio, Tirelli |
| Abstract: | We investigate the drivers of EMU big fours' business cycles in a DSGE model. Our approach allows to disentangle the role of demand and technology shocks, where the latter may generate permanent consequences on national productivity levels. For the years before the financial crisis we cannot find evidence of a demand-driven boom in Spain and Italy relative to what happened in France and Germany. The aftermath of the sovereign bond crisis was characterized by a sequence of adverse permanent technology shocks both in Spain and in Italy. These latter results are consistent with recent theoretical developments that emphasize the adverse supply-side effects of a credit crunch. |
| Keywords: | Asymmetric Euro crisis, two-country DSGE, Bayesian estimation |
| JEL: | C11 C13 C32 E21 E32 E37 |
| Date: | 2017–11–05 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:373&r=mac |
| By: | Gilberto Tadeu Lima; Mark Setterfield, Jaylson Jair da Silveira |
| 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: | 2017–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2017wpecon26&r=mac |
| By: | Choi, Hyelin (Korea Institute for International Economic Policy); Jung, Sung Chun (Korea Institute for International Economic Policy); Kim, Su Bin (Korea Institute for International Economic Policy) |
| Abstract: | Productivity is considered one of the most important factors for economic growth. Total productivity grows through technological progress or reallocation of resources. This paper analyses their contribution to economic growth for total economy and by sectors. The main finding is that economy-wide increases but this is mainly due to internal technological improvements. On the one hand, inter-sector reallocation of labor negatively contributes to economic growth as employment moves to service sectors with low productivity. Further, when looking at the sectoral-level productivity growth, both internal and external restructuring make positive contributions to aggregate economic growth. However, internal technological progress and reallocation of employment appear to similarly contribute to the sectoral-level economic growth in the manufacturing sector, whereas internal restructuring makes a larger contribution to economic growth in the service sector. This suggests that there is more room for reallocation of resources to contribute to the productivity growth in service sectors. Therefore, the productivity growth of the service sector would foster economy-wide productivity and it can be achieved by the mitigation of misallocation of resources in service sectors. |
| Keywords: | Productivity; Employment; Labor reallocation |
| JEL: | E01 E20 E22 E23 E24 |
| Date: | 2017–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:ris:kiepwp:2017_004&r=mac |
| By: | EO, Yunjong; LIE, Denny |
| Abstract: | How and under what circumstances can adjusting the inflation target serve as a stabilization-policy tool and contribute to welfare improvement? We answer these questions quantitatively with a standard New Keynesian model that includes cost-push type shocks which create a trade-o↵ between inflation and output gap stabilization. We show that this trade-o↵ leads to a non-trivial welfare cost under a standard Taylor rule, even with optimized policy coefficients. We then propose an additional policy tool of an inflation target rule and find that the optimal target needs to be adjusted in a persistent manner and in the opposite direction to the realization of a cost-push shock. The inflation target rule, combined with a Taylor rule, significantly reduces fluctuations in inflation originating from the cost-push shocks and mitigates the policy trade-o↵, resulting in a similar level of welfare to that associated with the Ramsey optimal policy. The welfare implications of the inflation target rule are more pronounced under a flatter Phillips curve. |
| Keywords: | Welfare analysis, Monetary policy, Cost-push shocks, Medium-run inflation, targeting, Flat Phillips curve |
| JEL: | E12 E32 E58 E61 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hiasdp:hias-e-58&r=mac |
| By: | Oleksandr Fàrynà (Monetary Policy and Economic Analysis Department, National Bank of Ukraine) |
| Abstract: | This paper aims to estimate the degree of exchange rate pass-through (ERPT) to domestic prices in Ukraine considering nonlinearities with respect to the size and direction of exchange rate movements, inflation environment, and business cycles. We use disaggregated consumer price data and employ a panel autoregressive distributed lag model including threshold parameters to account for nonlinearities in the ERPT mechanism. Estimation results suggest that the pass-through effect is higher from currency depreciation than in the case of appreciation for most price groups. We also find that price responsiveness to small, medium, and large exchange rate changes is nonlinear. In particular, we provide evidence that prices are sensitive to small changes, but the pass-through effect is insignificant if exchange rate movements are moderate. Furthermore, the degree of ERPT is higher in periods of extremely large depreciations, high inflationary environment, and economic slumps. |
| Keywords: | Exchange rate pass-through, inflation, Ukraine, nonlinear ERPT, Autoregressive Distributed Lag model |
| JEL: | E31 E52 E58 F31 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:ukb:wpaper:01/2016&r=mac |
| By: | Dingela, Siyasanga; Khobai, Hlalefang |
| Abstract: | ABSTRACT: This study investigates the dynamic impact of broad money supply (m3) on economic growth (GDP) per capita in South Africa using time-series data from 1980 to 2016. The study has employed the autoregressive distributed lag (ARDL)-bounds testing approach to cointegration and error correction model to investigate the impact of m3 on GDP per capita. The model is specified with four macroeconomics variables, namely, Gross Domestic Product (GDP) per capita, Broad money supply (M3), Interest rate (INT), Inflation rate (INF). The findings reveal that there is statistically significant positive relationship between money supply and economic growth both in short run and long run. The government of South Africa should maintain consistency and follow “the Taylor rule” to allow money supply to increase at a steady rate keeping pace with the economic growth. In respect to such rule will help South Africa Reserve Bank to avoid the inefficiencies that caused by execution of discretionary policy. |
| Keywords: | Keywords: Economic growth; Money supply; Inflation rate; Interest rate; Autoregressive Distributed Lag (ARDL). |
| JEL: | B22 C22 E51 E52 E58 O40 |
| Date: | 2017–11–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82539&r=mac |
| By: | Di Casola, Paola (Monetary Policy Department, Central Bank of Sweden); Sichlimiris, Spyridon (Örebro University) |
| Abstract: | Why do countries tend to repay their domestic and external debt, even though the legal enforcement of the sovereign debt contract is limited? Contrary to conventional wisdom, we argue that temporary market exclusion after default is costly. When the domestic financial market is characterized by a scarcity of private saving instruments, a government can partition its debt market into domestic and external segments, by restricting capital flows, to exploit its market power. The government's market power mitigates the problem of limited commitment, by making default a more costly option. Consequently, it extends the government's external debt capacity. We replicate the domestic and external sovereign debt for non-advanced economies, by unveiling their link to financial repression. |
| Keywords: | sovereign debt; sovereign default; financial repression; financial development; capital controls |
| JEL: | E21 E44 E60 F34 G15 G18 H63 O16 |
| Date: | 2017–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0345&r=mac |
| By: | Alexius, Annika (Dept. of Economics, Stockholm University) |
| Abstract: | Numerous explanations for the low World real interest rate have been discussed in the literature, but only a handful of studies attempt to disentangle the relative importance of the different factors. Sign restrictions are useful for analyzing this problem since shocks to the supply of savings can be separated from shocks to investment demand using the fact that these shocks have effects of opposite signs on the equilibrium real interest rate. The bivariate model with only the real interest rate and investment indicates that shocks to investment demand have been twice as important to the recent decline in real interest rates as shocks to savings. When more shocks are included, we find that 1.26 percent of the low real interest rate 2012-2015 is due to negative business cycle shocks and 1.11 percent is due to low productivity. According to these structural VARs with sign restrictions, high savings has not been a major factor behind the recent decline in World real interest rates. |
| Keywords: | Real interest rate; sign restrictions; global savings and investment |
| JEL: | E43 E44 |
| Date: | 2017–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2017_0006&r=mac |
| By: | Dominguez, Begona; Gomis-Porqueras, Pedro |
| Abstract: | We analyze how trading in secondary markets for public debt change the inherent links between monetary and fiscal policy, by studying both inflation and debt dynamics. When agents do not trade in these markets, there exists a unique steady state and traditional passive/active policy prescriptions are useful in delivering determinate equilibria. In contrast, when agents trade in secondary markets and bonds are scarce, there exist a liquidity premium on public debt and bonds affect inflation dynamics and vice versa. Then, in a monetary equilibrium, the government budget constraint can be satisfied for different combinations of inflation and debt. Thus, self-fulfilling beliefs that deliver multiple steady states are possible. Moreover, traditional passive/active policy prescriptions are not always useful in delivering determinate equilibria. However, monetary and fiscal policies can be used as an equilibrium selection device. We find that, with a low inflation target, active monetary policies are more likely to deliver real and nominal determinacy and further amplify the effectiveness of these policies in reducing steady state inflation. |
| Keywords: | taxes; inflation; secondary markets, liquidity premium. |
| JEL: | E4 E61 E62 H21 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82448&r=mac |
| By: | Dominguez, Begona; Gomis-Porqueras, Pedro |
| Abstract: | We analyze how trading in secondary markets for public debt change the inherent links between monetary and fiscal policy, by studying both inflation and debt dynamics. When agents do not trade in these markets, there exists a unique steady state and traditional passive/active policy prescriptions are useful in delivering determinate equilibria. In contrast, when agents trade in secondary markets and bonds are scarce, there exist a liquidity premium on public debt and bonds affect inflation dynamics and vice versa. Then, in a monetary equilibrium, the government budget constraint can be satisfied for different combinations of inflation and debt. Thus, self-fulfilling beliefs that deliver multiple steady states are possible. Moreover, traditional passive/active policy prescriptions are not always useful in delivering determinate equilibria. However, monetary and fiscal policies can be used as an equilibrium selection device. We find that, with a low inflation target, active monetary policies are more likely to deliver real and nominal determinacy and further amplify the effectiveness of these policies in reducing steady state inflation. |
| Keywords: | taxes; inflation; secondary markets, liquidity premium. |
| JEL: | E4 E61 E62 H21 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82444&r=mac |
| By: | Bocola, Luigi (Federal Reserve Bank of Minneapolis); Lorenzoni, Guido (Northwestern University) |
| Abstract: | We study financial panics in a small open economy with floating exchange rates. In our model, bank runs trigger a decline in domestic wealth and a currency depreciation. Runs are more likely when banks have dollar debt. Dollar debt emerges endogenously in response to the precautionary motive of domestic savers: dollar savings provide insurance against crises; so when crises are possible it becomes relatively more expensive for banks to borrow in local currency, which gives them an incentive to issue dollar debt. This feedback between aggregate risk and savers’ behavior can generate multiple equilibria, with the bad equilibrium characterized by financial dollarization and the possibility of bank runs. A domestic lender of last resort can eliminate the bad equilibrium, but interventions need to be fiscally credible. Holding foreign currency reserves hedges the fiscal position of the government and enhances its credibility, thus improving financial stability. |
| Keywords: | Financial crises; Dollarization; Lending of last resort; Foreign reserves |
| JEL: | E44 F34 G11 G15 |
| Date: | 2017–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:557&r=mac |
| By: | Ricardo Reis |
| Abstract: | While there is much that is wrong with macroeconomics today, most critiques of the state of macroeconomics are off target. Current macroeconomic research is not mindless DSGE modelling filled with ridiculous assumptions and oblivious of data. Rather, young macroeconomists are doing vibrant, varied, and exciting work, getting jobs, and being published. Macroeconomics informs economic policy only moderately and not more nor all that differently than other fields in economics. Monetary policy has benefitted significantly from this advice in keeping inflation under control and preventing a new Great Depression. Macroeconomic forecasts perform poorly in absolute terms and given the size of the challenge probably always will. But relative to the level of aggregation, the time horizon, and the amount of funding, they are not so obviously worse than those in other fields. What is most wrong with macroeconomics today is perhaps that there is too little discussion of which models to teach and too little investment in graduate-level textbooks. |
| JEL: | E00 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6446&r=mac |
| By: | Anders Aslund |
| Abstract: | A conundrum this paper aims to explain is how Russia, a country that pursues such rigorous and conservative macroeconomic policies can be so tolerant of state and crony capitalism. The key issue is what Putin’s economic model amounts to, which is being presented already in section one. Section two reviews Russia’s recent economic performance, while the three ensuing sections examine three key aspects of the Russian economy, namely the eminent macroeconomic policy, the role of energy, and the impact of the Western sanctions since 2014. The final section attempts to answer the likelihood of serious market reforms. |
| Keywords: | Russia, crony capitalism, corruption, macroeconomic policy, economic growth, gas and oil |
| JEL: | D72 D73 E01 E60 E65 H63 P48 Q43 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:sec:bresem:0148&r=mac |
| By: | Fida Hussain (State Bank of Pakistan); Asif Mahmood (State Bank of Pakistan) |
| Abstract: | This paper presents the empirical evidences on the predictability of yield spread, particularly with respect to inflation and output growth in Pakistan. To our knowledge, this study is the first of its kind in case of Pakistan. We also test the role of foreign interest rates such as of the US in influencing the domestic interest rates in Pakistan and their contribution towards predicting inflation and output growth as well. Our results indicate that the yield spread in Pakistan do contain information about future changes in output growth but not for inflation. Both in-sample and out-of-sample forecasts for output growth show that the predictive content span from 6 to 24 months in future across the yield spreads. Use of the US yield spread further increases the predictability of domestic yield spread for output growth. In case of inflation, the results are found to be insignificant across different horizons and measures of yield spreads. |
| Keywords: | Yield curve, inflation, Output, Forecasting |
| JEL: | E43 O47 E31 C53 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:sbp:wpaper:93&r=mac |
| By: | Aikaterini Karadimitropoulou (University of East Anglia) |
| Abstract: | What are the divers of business cycle synchronization within and between advanced and emerging economies at the sector level? This question is addressed by analysing international co-movements of value added growth in a multi-sector dynamic factor model. The model contains a world factor, region factors, sector factors, country factors, and idiosyncratic components. The model is estimated using Bayesian methods for 9 disaggregated sectors in 5 developed economies (G5) and 19 emerging economies for the 1972-2009 period. The results suggest that, while there exists a common 'regional business cycle' in the G5, fluctuations in sectoral value added growth are dominated by country-specific factors in the emerging markets. Despite that, the international factor (the sum of world and sector factors) is more important than the region factor, suggesting that the emerging markets are more synchronized with the G5. A simple regression shows that (i) the world factor would be more important the larger the share of agriculture in output; (ii) in more open economies the sector factor is more important in explaining sectoral VA growth fluctuations; (iii) the region factors is more important the richer and the less volatile the economy. Finally, a comparison of the variance of sectoral value added growth accounted for by each factor from the pre- to the post-globalization period shows convergence of the business cycles within the G5 and EM, respectively. The changes in the contribution of the world, sector and region factor are due to changes in the importance of those factors within sectors. However, for the emerging markets, the fall in the importance of the country factors is dominated by changes in the structural composition of the economies. Therefore, the evolution of the structural composition in the emerging markets could be an important driver for more synchronised business cycles at the regional and international level. |
| Keywords: | dynamic factors, disaggregated business cycles, international co-movement, emerging markets |
| JEL: | C38 E32 F44 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:uea:ueaeco:2017_05&r=mac |
| By: | António Afonso; Michael G. Arghyrou; María Dolores Gadea; Alexandros Kontonikas |
| Abstract: | This paper investigates the role of unconventional monetary policy as a source of time-variation in the relationship between sovereign bond yield spreads and their fundamental determinants. We use a two-step empirical approach.First, we apply a time-varying parameter panel modelling framework to determine shifts in the pricing regime characterising sovereign bond markets in the euro area over the period January 1999 to July 2016.Second, we estimate the impact of ECB policy interventions on the time-varying risk fact or sensitivities of spreads. Our results provide evidence of a new bond-pricing regime following the announcement of the Outright Monetary Transactions (OMT) programmein August 2012.This regime is characterised by a weakened link between spreads and fundamentals, but with higher spreads relative to the pre-crisis period and residual redenomination risk. We also find that unconventional monetary policy measures affect the pricing of sovereign risk not only directly, but also indirectly through changes in banking risk.Overall, the actions of the ECB have operated as catalysts for reversing the dynamics of the European sovereign debt crisis. |
| Keywords: | euro area, spreads, crisis, time-varying relationship, unconventional monetary policy |
| JEL: | E43 E44 F30 G01 G12 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0022017&r=mac |
| By: | Tom Krebs; Martin Scheffel |
| Abstract: | This paper studies the effect of two labor market institutions, unemployment insurance (UI) and job search assistance (JSA), on the output cost and welfare cost of recessions. The paper develops a tractable incomplete-market model with search unemployment, skill depreciation during unemployment, and idiosyncratic as well as aggregate labor market risk. The theoretical analysis shows that an increase in JSA and a reduction in UI reduce the output cost of recessions by making the labor market more fluid along the job finding margin and thus making the economy more resilient to macroeconomic shocks. In contrast, the effect of JSA and UI on the welfare cost of recessions is in general ambiguous. The paper also provides a quantitative application to the German labor market reforms of 2003-2005, the so-called Hartz reforms, which improved JSA (Hartz III reform) and reduced UI (Hartz IV reform). According to the baseline calibration, the two labor market reforms led to a substantial reduction in the output cost of recessions and a more moderate reduction in the welfare cost of recessions in Germany. |
| Keywords: | labor market institutions, cost of recessions, German labor market reform |
| JEL: | E21 E24 D52 J24 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6262&r=mac |
| By: | David Turner (OECD) |
| Abstract: | Forecasts of GDP growth are typically over-optimistic for horizons beyond the current year, particularly because they fail to predict the occurrence or severity of future downturns. Macroeconomic forecasters have also long been under pressure to convey the uncertainty surrounding their forecasts, particularly since the financial crisis. The current paper proposes a method to address both these issues simultaneously by constructing fan charts which are parameterised on the basis of the historical forecasting track record, but distinguish between a "safe" regime and a "downturn-risk" regime. To identify the two regimes, use is made of recent OECD work on early warning indicators of a prospective downturn, relating to housing market or credit developments. Thus, when an early warning indicator is “flashing", the associated fan chart is not only wider to reflect increased uncertainty, but is also skewed to reflect greater downside risks using a two-piece normal distribution of the form used by central banks to provide fan charts around inflation forecasts. Conversely, in a safe regime, when the early warning indicators are not flashing, as well as being symmetric, the fan chart is narrower both relative to the downturn-risk regime and relative to what the fan chart would be if the dispersion was calculated with respect to the entire forecast track record with no distinction between regimes. The method is illustrated by reference to OECD GDP forecasts for the major seven economies made just prior to the global financial crisis, with fan charts calibrated using the track record of forecasts published in the OECD Economic Outlook. Fan charts which take account of early warning indicators in this way are much better at encapsulating the outturns associated with a downturn than a symmetrical fan chart calibrated indiscriminately on all forecast errors. |
| Keywords: | downturn, economic forecasts, Fan charts, risk, uncertainty |
| JEL: | E17 E58 E65 E66 G01 |
| Date: | 2017–11–17 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1428-en&r=mac |
| By: | Muhammad Farooq Arby (State Bank of Pakistan); Amjad Ali (State Bank of Pakistan) |
| Abstract: | Inflation is usually considered to have a non-linear relationship with economic growth: a positive relationship when it is low and stable, and negative when it is high and volatile. It is therefore an important research question: what is that threshold level of inflation beyond which it affects growth negatively? This paper addresses this question in case of Pakistan. We have used two models: one a quadratic model and the other a regression kink model, with unknown threshold. We find the threshold inflation at 6.05 percent and 5.67 percent respectively (on the basis of annual data from 1976 to 2017). |
| Keywords: | Inflation, threshold effects, Economic growth |
| JEL: | E31 E22 O40 O47 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:sbp:wpaper:94&r=mac |
| By: | Debasis Bandyopadhyay (Faculty of Business and Economics, University of Auckland); Ian King (School of Economics, The University of Queensland); Xueli Tang (Deakin University) |
| Abstract: | We analyse the impact of income inequality and redistribution on the misallocation of resources and TFP, in economies with financial market imperfections. We calibrate a model based on Benaboui's (2002) model of human capital, but with the addition of physical capital. In the absence of a credit market TFP losses due to misallocation can be signifcant and are comparable in size to those found in Hsieh and Klenow (2009). However, redistributive policies aimed at reducing these TFP losses have only small positive effects on TFP but large negative e§ects on per capita output. |
| Keywords: | heterogeneous agents, misallocation, TFP, redistribution |
| JEL: | E13 E25 E62 O11 O47 |
| Date: | 2017–11–08 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:585&r=mac |
| By: | Olivier Coibion (University of Texas at Austin; The National Bureau of Economic Research); Yuriy Gorodnichenko (University of California, Berkeley; The National Bureau of Economic Research); Mauricio Ulate (University of California, Berkeley) |
| Abstract: | The fact that most of the persistent declines in output since the Great Recession have parlayed into equivalent declines in measures of potential output is commonly interpreted as implying that output will not return to previous trends. Using a variety of estimates of potential output for the U.S. and other countries, we show that these estimates respond gradually not only to supply-side shocks but also respond to demand shocks that have only transitory effects on output. Observing a revision in measures of potential output therefore says little about whether concurrent changes in actual output are likely to be permanent or not. |
| Keywords: | potential output, output persistence, secular stagnation |
| JEL: | E2 E3 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:ukb:wpaper:01/2017&r=mac |
| By: | Antonio Rodriguez-Lopez |
| Abstract: | This paper introduces a framework to study the links between the supply of liquid assets for the financial market and the international allocation of economic activity. Private assets’ liquidity properties - their usefulness as collateral or media of exchange in financial transactions - affect assets’ values and interest rates, with consequences on firm entry, production, aggregate productivity, and total market capitalization. In a closed economy, the liquidity market increases the size and productivity of the sector of the economy that generates liquid assets. In an open economy, however, cross-country differences in financial development|as measured by the degree of liquidity of a country’s assets - generate an allocation of real economic activity that favors the country that supplies the most liquid assets. In such a setting, trade liberalization magnifies the gap in economic activity between the countries. |
| Keywords: | liquidity, trade, financial development, interest rates |
| JEL: | E43 E44 F12 F40 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6286&r=mac |
| By: | Paul De Grauwe; Yuemei Ji |
| Abstract: | We use a behavioral macroeconomic model to analyze how structural reforms affect the economy in the short and in the long run. We consider two types of structural reforms. The first one increases the flexibility of wages and prices; the second one raises potential output in the economy. We find that structural reforms that increase the flexibility of wages and prices can have profound effects on the dynamics of the business cycle. In addition, a structural reform program that raises potential output has a stronger long-term effect on output and tends to reduce the price level more in a flexible than in a rigid economy. Finally, we analyze how structural reforms change the tradeoffs between output and inflation variability. Our main finding here is that there is an optimal level of flexibility (produced by structural reforms). |
| Keywords: | animal spirits, structural reforms, monetary policy |
| JEL: | E00 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6518&r=mac |
| By: | Hugo Correia (Nova School of Business and Economics); Ana Fontoura Gouveia (GPEARI/Ministry of Finance and Nova SBE) |
| Abstract: | This paper examine the impact of labour and product market reforms on sectoral employment and productivity, following a difference-in-differences approach. Using industry-level data for the period 1997-2013, we show that employment protection deregulation has a positive effect on sectoral employment for industries more exposed to labour market legislation, despite having a non-positive impact on productivity. Upstream product market deregulation also increases sectoral employment for the downstream sectors more dependent on upstream inputs. Nevertheless, it has mixed effects on sectoral productivity: while upstream sectors face productivity losses, the downstream sectors more exposed to the deregulated sectors grasp productivity gains. |
| Keywords: | Labour Market Reforms; Product Market Reforms; Employment; Productivity |
| JEL: | C23 E23 E24 J23 L16 O47 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:mde:wpaper:0084&r=mac |
| By: | Iskandar, Azwar |
| Abstract: | The objective of this study is to measure the persistence of inflation level in South Sulawesi. In addition, this study intends to find out the source of inflation persistence. The analysis of the regional inflation behavior developed in this paper is explored to commodities level. Using quarterly data from Bank Indonesia from 2006.I to 2015.III, this study was conducted to make estimation by applying Univariate Autoregressive (AR) Model. The empirical result indicates that the level of inflation persistence in South Sulawesi is relatively high. This result indicates that inflation requires a long time to return to its natural value after shocks. The high degree of inflation persistence reflected by the length of the time period required to absorb of 50% of shocks occurred before returning to its natural value i.e. 13 months. Using the estimation results of Partial Adjustment Model (PAM), it shows that high inflation persistence in South Sulawesi mainly caused by inflation rate of groups of prepared food as proxy of volatile foods group and housing, water, electrical, gas and fuel as proxy of administered price group. Moreover, the existence of TIPD in South Sulawesi as an effort to coordinate monetary and regional fiscal policy in order to control the regional inflation, proved has a negative effect on regional inflation in South Sulawesi. |
| Keywords: | persistensi, inflasi, sulsel |
| JEL: | E31 |
| Date: | 2017–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82693&r=mac |
| By: | Hegadekatti, Kartik; S G, Yatish |
| Abstract: | NationCoins are cryptocurrencies backed by Sovereign Authority (Simply put, they are Government issued Bitcoin-like cryptocurrencies). In this paper, we explain the generation, security and distribution of NationCoins by a Sovereign Authority. We begin by 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 envision a scenario where cryptocoins are a main medium of exchange in an economy. The generation, security and distribution of NationCoins by a Sovereign Authority are deliberated. Finally, the paper concludes by outlining the functions of the Sovereign Authority vis-a-vis NationCoins. |
| Keywords: | NationCoins, K-Y Protocol, Bitcoin, Cryptocurrencies |
| JEL: | E41 E42 E51 O14 O31 O38 |
| Date: | 2016–12–21 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82621&r=mac |
| By: | Eichler, Stefan; Littke, Helge C. N. |
| Abstract: | We analyze the effect of monetary policy transparency on bilateral exchange rate volatility. We test the theoretical predictions of a stylized model using panel data for 62 currencies from 1998 to 2010. We find strong empirical evidence that an increase in the availability of information about monetary policy objectives decreases exchange rate volatility. Using interaction models, we find that this effect is more pronounced for countries with a lower flexibility of goods prices, a lower level of central bank conservatism, and a higher interest rate sensitivity of money demand. |
| Keywords: | central bank transparency,exchange rate volatility,panel model |
| JEL: | E58 F31 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:222017&r=mac |
| By: | Buchheim, Lukas; Link, Sebastian |
| Abstract: | This paper studies a new aspect of firms’ expectation formation by asking whether expectations primarily reflect aggregate, industry-wide information (e.g., industry trends) or disaggregate information (e.g., firm-specific information). First, we show that disaggregate information is strongly associated with expectations even when controlling for aggregate information at high-dimensional industry levels. Moreover, aggregate and disaggregate information explain comparable shares of the variance in expectations. Second, we exploit a natural experiment to identify the causal effect of new information on expectations. The predictable demand effects for durable goods due to the German VAT increase of 2007 implied that, at the time, durable goods retailers had access to more reliable information about their future demand than non-durable goods retailers. Utilizing this observation in a difference-in-differences design, we find that “treated” firms were significantly more forward-looking ahead of the VAT-induced demand shifts. Overall, our results suggest that firms rationally incorporate disagreggate information into their expectations. |
| Keywords: | Expectation Formation; Firm Behavior; Survey Data; Natural Experiments in Macroeconomics; Heterogeneity in Expectations |
| JEL: | D84 D22 E20 E32 E65 |
| Date: | 2017–11–09 |
| URL: | http://d.repec.org/n?u=RePEc:lmu:muenec:41214&r=mac |
| By: | Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw) |
| Abstract: | GDP forecasts for 2017 have been revised upwards for all Central and East European EU Member States (EU-CEE). Farther east, especially in Russia, but also in the Western Balkans, the post-crisis recovery has been much weaker. Private consumption is the main growth driver, underpinned by rising wages and household incomes. Nonetheless, CESEE labour cost competitiveness is not yet endangered. Gradually, along with expanding private consumption, investments have also gained strength and have increasingly emerged as a driver of growth. Trade balances have improved, and many EU-CEE countries (as well as Russia) also report current account surpluses. Growth is thus becoming broader based, more robust, and probably also more sustainable. Improvements in labour markets are spectacular, with rising employment levels mirrored by declining unemployment. Simultaneously, emerging labour shortages are acting as a potential constraint on future growth. In terms of current GDP growth prospects, the CESEE region is split into three sub-regions the EU-CEE, with average annual growth close to 4% in the forecasting period; the Western Balkans, with GDP growing by around 3% per year; and finally, the Commonwealth of Independent States (CIS) and Ukraine, where growth will be around 2% annually in the medium term. The EU-CEE region is thus catching up again with Western Europe, and the process of economic convergence has resumed at a greater pace than previously expected. This catching-up process will continue probably for the rest of the decade. Importantly, economic convergence is not expected to resume in Russia, where the lack of structural change, lasting investment climate deficiencies and geopolitical conflicts impose a burden on growth. Meagre growth in Russia adversely affects the growth prospects of her CIS partners. But there are several other CESEE countries where recent political developments are not very conducive to growth and European integration in the medium term. However, for the moment, economic growth seems to be unaffected by domestic political instability. Globally, economic resilience persists, regardless of the elevated geopolitical risks. The Forecast Report also includes three special topics (on income convergence with Western Europe, on euro accession and on higher yields on hard currency sovereign debt in CESEE). The key findings of these reports are Convergence in terms of per capita GDP levels in CESEE is a long-term process; by 2050, most of the region will only have bridged half the current gap with the EU-28 level; during the next decade, no country in the region will catch up with average EU-28 wealth levels, and advanced EU-CEE countries like Poland and Hungary will not even reach the 80% mark. Despite sustained criticism since its inception, the euro may yet survive and attract new members in the EU-CEE; it is in the interests of Croatia and Bulgaria to join, and is potentially advantageous for Hungary and Poland; the case is less clear cut for the Czech Republic and Romania, although in neither case would accession be harmful. Many CESEE sovereigns are not in a markedly better shape to deal with a sharp rise in debt yields than they were 10 years ago, and in some cases they are in a worse position; for countries with heavy debt loads and little apparent prospect of achieving high and sustained growth, bond markets could panic, leading to funding difficulties; Ukraine stands out as particularly vulnerable from a sovereign risk perspective, while we conclude that Belarus and many countries in the Western Balkans are also in a weak position. |
| Keywords: | CESEE, economic forecast, Europe, Central and Eastern Europe, Southeast Europe, Western Balkans, new EU Member States, CIS, Belarus, Russia, Ukraine, Kazakhstan, Turkey, growth convergence, political uncertainties, external risks, EU funds, investment, consumption-led growth, unemployment, employment, wage growth, inflation, competitiveness, industrial production |
| JEL: | E20 O47 O52 O57 P24 P27 P33 P52 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:wii:fpaper:fc:autumn2017&r=mac |
| By: | Heidorn, Thomas; Van Huellen, Sophie; Ruehl, C.; Woebbeking, F. |
| Abstract: | In the context of the recent slump in global oil prices, the paper investigates the effect of oil price shocks on the economic performance of 51 individual OECD and OPEC economies. We propose an error correction model which allows us to differentiate between short- and longrun price effects. For robustness, structural breaks and potential asymmetries are incorporated. Our approach is particularly interesting, since economic performance is not only measured by GDP, but also by equity indices from the MSCI family. The equity indices provide valuable insights into financial transmission mechanisms, in addition to macroeconomic channels, at much higher frequency than conventional GDP data. We are able to present robust estimates for the severity of oil price shocks for individual economies and thereby identify winners and losers under the current oil price regime. |
| JEL: | C32 E31 F43 Q32 Q43 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fsfmwp:225&r=mac |
| By: | Mahamudu Bawumia; Håvard Halland |
| Abstract: | This paper analyses the evolution of fiscal and monetary variables in Ghana, from the discovery of oil in 2007 through to 2014. It documents the deterioration of fiscal and monetary discipline over this period, which resulted in a rebound of debt, a deterioration of the external balance, and a decrease in public investment. The paper goes on to analyse the potential causes of this deterioration, including the political economy context, and the fiscal and monetary institutional framework. The suggested causes include the politics of Ghana’s dominant two-party system. Finally, the paper discusses what Ghana could have done differently to avoid the various damaging effects associated with the oil discovery. It does not aim to provide specific fiscal policy recommendations for Ghana, but rather to give an empirical account of Ghana’s experience that may be useful for other countries that discover oil. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2017-185&r=mac |
| By: | Mauro Bambi; Siritas Kettanurak |
| Abstract: | The existing contributions on endogenous taxation, and balanced budget rules, suggest that countercyclical taxes should be avoided, because they may lead to aggregate instability (i.e. sunspot equilibria); on the other hand, procyclical taxes have always been praised for their stabilizing role. In this paper, we re-examine this issue in an endogenous growth model with productive government investment, and we prove that an economy with procyclical taxes, and a sufficiently large income effect, can still be characterized by i) global indeterminacy because two balanced growth paths may exist; ii) aggregate instability around the balanced growth path with the lowest growth rate. Finally, we show that this dynamics may emerge for reasonable choices of the parameters. |
| Keywords: | Endogenous growth, time-varying consumption tax, local and global indeterminacy. |
| JEL: | C62 E32 H20 O41 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:17/15&r=mac |
| By: | Yoshihiro Hashiguchi (OECD); Norihiko Yamano (OECD); Colin Webb (OECD) |
| Abstract: | Conventional studies on the impacts of economic shocks using global input-output tables (sensitivity analyses) assume stable production structures and thus, only reveal the marginal impacts of changes in final demand. However, when economic shocks occur, whether at home or abroad, economic agents are expected to react to reduce the negative impact or amplify the positive effects. The ability of a country to contain economic losses can be defined as the resilience to economic shocks. Using the OECD's annual Inter-Country Input-Output (ICIO) tables, 1995 to 2011, this paper investigates the relationship between changes in final demand and production structures for 61 economies. Our findings are summarised as follows. Production and final demand structures tend to change to reduce the negative feedbacks from final demand shocks. During economic downturns, structures tend to change so that the dependence on domestic services increases, while the dependence on domestic demand for goods, and the dependence on foreign demand for domestic goods and services, both decrease. Therefore, the domestic service sector seems to play a key role in temporarily containing the negative feedback. Countries that are able to prop up their economy by domestic service sectors instead of domestic goods and foreign sectors are more resilient to negative economic shocks. |
| Keywords: | economic resilience, global value chains, input-output, structural changes |
| JEL: | C14 D57 E12 F47 |
| Date: | 2017–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:oec:stiaaa:2017/09-en&r=mac |
| By: | Claudius Gräbner; Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw); Jakob Kapeller; Bernhard Schütz |
| Abstract: | This paper analyses economic developments in the eurozone since its inception in 1999. In doing so, we document a process of economic divergence and polarisation among those countries that joined the eurozone during its first two years, which fits a typical ‘core – periphery’ pattern. We show how this polarisation process first manifested in increasing current account imbalances before the crisis, before it translated unto the level of general macroeconomic development after the crisis. Empirically, we demonstrate how this divergence is tied to a ‘structural polarisation’ in terms of the sectoral composition of eurozone countries specifically, the emergence of export-driven growth in core countries and debt-driven growth in the European periphery coincides with differences in technological capabilities and firm performance. Pushing for convergence within Europe requires the implementation of three intertwined policy programmes macroprudential financial regulation, active industrial policies aiming at a technological catch-up process in periphery countries, and progressive re‑distributional policies to sustain adequate levels of aggregate demand throughout the eurozone. |
| Keywords: | polarisation, European Monetary Union, industrial policy, financial regulation, growth trajectories |
| JEL: | B5 E6 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:wii:wpaper:136&r=mac |
| By: | Mark Mink; Jan Jacobs; Jakob de Haan |
| Abstract: | We argue that if currency union member states have different potential output per capita, output growth rates, or trade balances, the common monetary policy may not be optimal for all of them. Euro area imbalances for potential output and for trade balances are quite large, while output growth imbalances are more modest. Member states with larger imbalances of one type also have larger imbalances of both other types, but a decline of one imbalance need not coincide with a decline of the others. We also show that imbalances are fairly persistent, and are larger in poorer and smaller member states. |
| Keywords: | euro area macroeconomic imbalances, common monetary policy, economic convergence, business cycle synchronization, euro crisis |
| JEL: | E30 O47 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6291&r=mac |
| By: | Jochen Andritzky; Désirée I. Christofzik; Lars P. Feld; Uwe Scheuering |
| Abstract: | To make the no-bailout clause credible and enhance the effectiveness of crisis assistance, a consistent institutional and legal framework is needed to ensure that private creditors contribute to crisis resolution. Getting activated as part of ESM crisis assistance, we propose a two-stage mechanism that allows to postpone the fateful distinction between liquidity and solvency crises: At the onset of a ESM programme, the framework demands an immediate maturity extension if the debt burden is high, followed by deeper debt restructuring if post-crises debt proves unsustainable. The mechanism is easily implemented by amending ESM guidelines and compelling countries to issue debt with Creditor Participation Clauses (CPCs). As debt is rolled over, the mechanism gradually phases in, leaving countries time to reduce debt. Given that private sector in-volvement reduces financing needs, the ESM could provide longer programmes and more time for reforms. |
| Keywords: | sovereign debt restructuring mechanism, no-bailout clause, creditor participation clauses, ESM |
| JEL: | E62 F36 H63 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6038&r=mac |
| By: | Kämpfe, Martina; Knedlik, Tobias |
| Abstract: | The experience of Central and Eastern European countries (CEEC) during the global financial crisis and in the resulting European debt crises has been largely different from that of other European countries. This paper looks at the specifics of the CEEC in recent history and focuses in particular on the appropriateness of the Macroeconomic Imbalances Procedure for this group of countries. In doing so, the macroeconomic situation in the CEEC is highlighted and macroeconomic problems faced by these countries are extracted. The findings are compared to the results of the Macroeconomic Imbalances Procedure of the European Commission. It is shown that while the Macroeconomic Imbalances Procedure correctly identifies some of the problems, it understates or overstates other problems. This is due to the specific construction of the broadened surveillance procedure, which largely disregarded the specifics of catching-up economies. |
| Keywords: | macroeconomic imbalances procedure,Central and Eastern European countries,signals approach,early warning system |
| JEL: | E60 F53 G01 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:162017&r=mac |
| By: | Carolina Manzano; Xavier Vives |
| Abstract: | We analyze a divisible good uniform-price auction that features two groups each with a finite number of identical bidders. Equilibrium is unique, and the relative market power of a group increases with the precision of its private information but declines with its transaction costs. In line with empirical evidence, we find that an increase in transaction costs and/or a decrease in the precision of a bidding group.s information induces a strategic response from the other group, which thereafter attenuates its response to both private information and prices. A “stronger†bidding group -which has more precise private information, faces lower transaction costs, and is more oligopsonistic- has more market power and so will behave competitively only if it receives a higher per capita subsidy rate. When the strong group values the asset no less than the weak group, the expected deadweight loss increases with the quantity auctioned and also with the degree of payoff asymmetries. Market power and the deadweight loss may be negatively associated. |
| Keywords: | demand/supply schedule competition, private information, liquidity auctions, treasury auctions, electricity auctions |
| JEL: | D44 D82 G14 E58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6261&r=mac |
| By: | Bordo, Michael D; Monnet, Eric; Naef, Alain |
| Abstract: | The Gold Pool (1961-1968) was one of the most ambitious cases of central bank cooperation in history. Major central banks pooled interventions - sharing profits and losses- to stabilize the dollar price of gold. Why did it collapse? From at least 1964, the fate of the Pool was in fact tied to sterling, the first line of defense for the dollar. Sterling's unsuccessful devaluation in November 1967 spurred speculation and massive losses for the Pool. Contagion occurred because US policies were inflationary and insufficiently credible as well. The demise of the Pool provides a striking example of contagion between reserve currencies. |
| Keywords: | Bretton Woods; central bank cooperation; Gold Pool; international monetary system; reserve currencies; sterling crisis |
| JEL: | E42 F31 F33 N14 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12425&r=mac |
| By: | Michel Guillard; Hubert Kempf |
| Abstract: | We offer a new methodology for the assessment of public debt sustainability in a stochastic economy when sovereign default taken into account. The default threshold differs from the no-Ponzi condition and depends on the post-default debt recovery rule. We distinguish sustainability and unsustainability conditions, related to alternative scenarios on the future sequence of shocks. We highlight the role of the debt recovery ratio on the whole dynamics of public debt. When a sovereign default occurs, the sustainability of the post-default debt is ensured when the haircut is sufficiently large. Lastly we provide an explanation of serial defaults. |
| Keywords: | public debt, sovereign default, recovery rate, debt sustainability |
| JEL: | E60 F40 H63 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6554&r=mac |
| By: | Peter A. Diamond; Aysegül Sahin |
| Abstract: | The aggregate matching (hiring) function relates gross hires to labor market tightness. Decompositions of aggregate hires show how the hiring process differs across different groups of workers and of firms. Decompositions include employment status in the previous month, age, gender and education. Another separates hiring between part-time and full-time jobs, which show different patterns in the current recovery. Shift-share analyses are done based on industry, firm size and occupation to show what part of the residual of the aggregate hiring function can be explained by the composition of vacancies. The hiring process appears to shift as a recovery starts, coinciding with shifts in the Beveridge curve. The paper also discusses some issues in the modeling of the labor market. |
| Keywords: | beveridge curve, unemployment matching function, hiring function, vacancies, worker flows |
| JEL: | E24 J60 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6266&r=mac |
| By: | Peilin, Liu (Asian Development Bank Institute); Shen, Jia (Asian Development Bank Institute); Xun, Zhang (Asian Development Bank Institute) |
| Abstract: | Certain stylized facts are common among successful economic latecomers: an inverse U-shaped gross domestic product and capital per capita growth rate, high growth rates during the catch-up period, and rapid structural changes. We propose, for the first time, a general equilibrium framework to document the catch-up cycle that a successful latecomer is likely to experience. We argue that technology adoption and imitation, and diminishing marginal returns to capital are the two driving forces of the catch-up cycle. The technological gap and speed/efficiency of technological catching-up are two fundamental factors for successful catching-up. This paper concludes with a case study for the People’s Republic of China and sheds light on the different policy choices at various stages of the catch-up cycle. |
| Keywords: | Catch-up cycle; Latecomers; General Equilibrium; Total Factor Productivity (TFP); China |
| JEL: | E13 E60 O11 |
| Date: | 2017–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0660&r=mac |
| By: | Niimi, Yoko (Asian Development Bank Institute); Horioka, Charles Yuji (Asian Development Bank Institute) |
| Abstract: | To help shed light on the implications of intergenerational transfers for wealth inequality, we use data for Japan and the United States to examine whether individuals who receive intergenerational transfers from their parents are more likely to leave bequests to their children than those who do not. The estimation results show that the receipt of intergenerational transfers from parents and/or parents-in-law increases the likelihood of individuals leaving bequests to their children in both Japan and the United States, which in turn is likely to contribute to the persistence or widening of wealth disparities. However, such a tendency is found to be stronger among less-better-off households in both countries, and this may help alleviate the disequalizing effect of intergenerational transfers on the distribution of wealth, at least to some extent. |
| Keywords: | bequests; education; inheritances; intergenerational transfers; inter vivos transfers; wealth distribution; wealth inequality; US |
| JEL: | D10 D31 D64 E21 I24 |
| Date: | 2017–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0655&r=mac |
| By: | Li, Jieying (Financial Stability Department, Central Bank of Sweden); Zhang, Xin (Research Department, Central Bank of Sweden) |
| Abstract: | Using a monthly panel dataset of individuals' debt composition including mortgage and non-mortgage consumer credit, we show that house price changes can explain a significant fraction of personal debt composition dynamics. We exploit the variation in local house price growth as shocks to homeowners' housing wealth to study the consequential adjustment of personal debt composition. To account for local demand shocks and disentangle the housing collateral channel from the wealth effect, we use renters and non-equity-withdrawal homeowners in the same region as control groups. We present direct evidence that homeowners reoptimize their debt structure by using withdrawn home equity to pay down comparatively expensive short-term non-mortgage debt during a housing boom, unsecured consumer loans in particular. We also find that homeowners withdraw home equity to finance their entrepreneurial activities. Our study sheds new light on the dynamics of personal debt composition in response to changes in house prices. |
| Keywords: | Household Decision; Personal Debt Management; Credit Constraint; Cash-out Re nancing; Entrepreneurship |
| JEL: | D14 G21 L26 R31 |
| Date: | 2017–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0343&r=mac |
| By: | Frieling, Julius (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)) |
| Abstract: | We analyze the relationship between factor augmenting technical change and factor substitution through a nested CES function using capital, labor, and energy inputs. We use US aggregate data on output, factor use, and factor prices for the years 1929–2015 to show the interdependence and coevolution of the different input factors. We demonstrate the robustness of the system of equations approach for estimating such a production function. We find that the input factors are gross complements, and that in the time period considered, technical change was mostly labor saving, while the linear time trend of energy augmenting technical change was zero. |
| Keywords: | aggregate production; technical change; multi-factor production; energy demand |
| JEL: | C13 C32 E23 O33 Q43 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:ris:fcnwpa:2017_002&r=mac |
| By: | Ricardo Sabbadini |
| Abstract: | Emerging markets increasingly rely on external debt denominated in local currency. In order to understand if this is a better situation than using US dollar denominated debt, I present a small open economy model with two sectors, and endogenous determination of both default risk and real exchange rate. Using a calibrated version of the model that replicates default frequency and debt level of emerging economies, I compare the two possibilities of debt denomination: local or foreign currency. I find that welfare gains from issuing debt in local currency derive from less frequent defaults, higher sustainable debt levels, and less volatile consumption and real exchange rates. However, even an economy issuing debt in local currency still faces counter-cyclical interest rate spread and real depreciations around default episodes. |
| Keywords: | external debt; sovereign default; debt denomination; real exchange rate. |
| JEL: | E43 F31 F34 F41 |
| Date: | 2017–10–31 |
| URL: | http://d.repec.org/n?u=RePEc:spa:wpaper:2017wpecon27&r=mac |
| By: | Becker, Christian; Ossandon Busch, Matias; Tonzer, Lena |
| Abstract: | This paper examines whether intra-group dynamics matter for the transmission of macroprudential policy. Using novel bank-level data on the Brazilian banking system, we investigate the effect of reserve requirements targeting headquarter banks' deposit share on credit supply by their municipal bank branches. For identification purposes, we exploit that reserve requirements are adjusted following global economic cycles. Our results reveal a lending channel of reserve requirements for branches whose parent banks are more exposed to targeted deposits. Branch ownership and exposure to internal liquidity are central in explaining the results. Our findings reveal limitations in current macroprudential policy frameworks. |
| Keywords: | macroprudential regulation,financial intermediation,intra-group dynamics |
| JEL: | F30 G21 G28 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:212017&r=mac |
| By: | Yoshino, Naoyuki (Asian Development Bank Institute); Aoyama, Naoko (Asian Development Bank Institute) |
| Abstract: | Since 1998, sales channels for investment trusts have expanded in Japan. We expected this to result in greater demand for investment trusts but these expectations have yet to be met. The underlying causes of investment trusts’ slow growth may be due to negative net returns to individual investors during the economic downturn—i.e., after deducting costs from dividends. When the Japanese economy is sluggish, asset management companies should invest in high-growth Asia, among other regions, rather than the domestic market. And when domestic financial markets are strong, companies should invest more in Japanese markets. Investment trusts are the vehicle for seizing world economic trends. However, the performance of Japan’s investment trusts has not been as good as that of the United States (US). To further enhance demand for investment trusts, their fee structure must be changed so that asset management companies, distributors, and individual investors seek the same goals. In other words, the interest of distributors and asset management companies would need to be better aligned. |
| Keywords: | investment trusts; fee structure; sales load; asset management |
| JEL: | E44 G11 |
| Date: | 2017–02–06 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:0658&r=mac |
| By: | Hans-Werner Sinn |
| Abstract: | Marx made significant contributions to macroeconomics, laying the grounds for both Keynes’s theory of aggregate demand and Schumpeter’s theory of creative destruction. His law of the tendency of the rate of profit to fall parallels Alvin Hansen’s theory of secular stagnation which has recently received much attention among scholars studying the financial crises in Japan, the US and the Eurozone. This article argues that part of the new stagnation does not result from a natural exhaustion of investment possibilities, but from an overly loose central bank monetary policy that keeps zombie banks and their zombie clients alive and blocks the emergence of new start-up firms. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6463&r=mac |
| By: | Gadatsch, Niklas; Mann, Lukas; Schnabel, Isabel |
| Abstract: | We propose a new identification strategy to assess the efficacy of macroprudential measures. We propose a novel instrumental variable that is based on the idea that a politically sensitive macroprudential measure is more likely to be implemented if a politically independent institution, such as a central bank, is in charge. Our results show that borrower-based macroprudential measures have had a strong and statistically significant dampening effect on credit growth in the European Union. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:svrwwp:052017&r=mac |
| By: | Isai Quispe (Central Reserve Bank of Peru); ; |
| Abstract: | Recently, a large literature has been developed from the production network models, to be applied in a diversity of fields as financial contagion, trade comovements or the aggregation of micro shocks. Thus, one theoretical implication introduced by Acemoglu et al. (2015), argue that demand-side shocks (i.e. government spending) spread through the production networks following upstream propagation with greater intensity downstream. This paper empirically evaluates the international transmission of government purchase shocks through a production network. Using industry-level data about international input-output linkages, I extend the empirical approach in Acemoglu et al. (2015) to examine employment responses to government purchases. I find that fiscal shocks have a significant and positive impact on the employment, through the international production network. |
| Keywords: | network; upstream; input-output; global; fiscal spillovers |
| Date: | 2017–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp20-2017&r=mac |
| By: | Jed Armstrong; Nicholas Mulligan (Reserve Bank of New Zealand) |
| Abstract: | Deposits are an important part of the New Zealand financial system. Deposits play a large role in funding bank lending – banks try to attract deposits in order to build up funds to lend out to borrowers. Over the past couple of years, lending has been growing faster than deposits, requiring banks to source funding from offshore wholesale funding markets. External funding can increase risks in the financial sector, as deposits are typically a more stable (“core”) source of funding than offshore wholesale funding. This paper explores deposit growth in New Zealand in order to answer two questions: 1.What factors drive deposit growth in New Zealand, particularly in the past few years? 2.Can banks increase deposits by increasing interest rates? We use two models to explore the dynamics of household deposits in New Zealand’s banking system in order to answer these questions. The first model uses bank-specific data from New Zealand’s four largest banks, while the second uses aggregate data for the entire banking system. The paper highlights that the rate of domestic deposit growth has varied significantly since the Global Financial Crisis, and sharply slowed over 2016. We provide evidence that a range of supply and demand factors influence deposit growth, and that the recent slowing was largely driven by a reduction in supply (that is, households wanting to allocate less money to deposit products). We also find that banks increased their demand for deposits in late 2016 in an effort to close the gap between deposit growth and lending We also consider the degree to which banks are able to increase deposit growth materially by raising interest rates. We find that a 1 percentage point increase in the six-month deposit rate can increase the level of household deposits by about 1 percent after four quarters, and by 1.3 percent in the long-run. As we find that deposits are not strongly responsive to interest rates, if banks wish to maintain robust funding profiles by not becoming too reliant on offshore wholesale funding, they may need moderate credit growth or use a combination of approaches to bring deposit growth in line with credit growth. |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbans:2017/05&r=mac |
| By: | Philipp Renner; Simon Scheidegger |
| Abstract: | We propose a generic method for solving infinite-horizon, discrete-time dynamic incentive problems with hidden states. We first combine set-valued dynamic programming techniques with Bayesian Gaussian mixture models to determine irregularly shaped equilibrium value correspondences. Second, we generate training data from those pre-computed feasible sets to recursively solve the dynamic incentive problem by a massively parallelized Gaussian process machine learning algorithm. This combination enables us to analyze models of a complexity that was previously considered to be intractable. To demonstrate the broad applicability of our framework, we compute solutions for models of repeated agency with history dependence, many types, and varying preferences. |
| Keywords: | Dynamic Contracts, Principal-Agent Model, Dynamic Programming, Machine Learning, Gaussian Processes, High-performance Computing |
| JEL: | C61 C73 D82 D86 E61 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:203620397&r=mac |
| By: | Mendez-Guerra, Carlos |
| Abstract: | This paper studies the cross-section dynamics of the proximate determinants of labor productivity: physical capital, human capital, and aggregate efficiency. Using a panel data set for 74 countries covering the 1950-2010 period, it first documents that labor productivity of the median country has been mostly stagnant, while cross-country differences have drastically increased. An evaluation of proximate sources points to a similar pattern of stagnation and increasing dispersion in both physical capital and aggregate efficiency. Human capital is the only variable where median progress and inequality reduction can be observed. Next, the paper shows how standard regression methods consistently overestimate the fraction of the variation in labor productivity that is explained by physical capital. The source of this upward bias appears is the unaccounted covariance between capital accumulation and aggregate efficiency. Taking this covariance into account, most of the variation in labor productivity turns out to be explained by differences in aggregate efficiency. Finally, the paper concludes arguing that allocative inefficiencies at the sectoral level, such as those predicted by dual-economy type models, are important for understanding the large and increasing differences in aggregate efficiency across countries. |
| Keywords: | labor productivity, capital accumulation, aggregate efficiency, stylized facts |
| JEL: | E01 O4 O47 |
| Date: | 2017–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:82461&r=mac |
| By: | Christa N. Brunnschweiler (University of East Anglia); Pietro F. Peretto (Duke University); Simone Valente (University of East Anglia) |
| Abstract: | Wealth creation driven by R&D investment and wealth dilution caused by disconnected generations interact with households' fertility decisions, delivering a theory of sustained endogenous output growth with a constant endogenous population level in the long run. Unlike traditional theories, our model fully abstracts from Malthusian mechanisms and provides a demography-based view of the long run where the ratios of key macroeconomic variables - consumption, labor incomes and financial assets - are determined by demography and preferences, not by technology. Calibrating the model parameters on OECD data, we show that negative demographic shocks induced by barriers to immigration or increased reproduction costs may raise growth in the very long run, but reduce the welfare of a long sequence of generations by causing permanent reductions in the mass of firms and in labor income shares, as well as prolonged stagnation during the transition. |
| Keywords: | R&D-based growth, overlapping generations, endogenous fertility, population level, wealth dilution |
| JEL: | O41 J11 E25 |
| Date: | 2017–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:uea:ueaeco:2017_04&r=mac |
| By: | Yuan Liao; Xiye Yang |
| Abstract: | It has been well known in financial economics that factor betas depend on observed instruments such as firm specific characteristics and macroeconomic variables, and a key object of interest is the effect of instruments on the factor betas. One of the key features of our model is that we specify the factor betas as functions of time-varying observed instruments that pick up long-run beta fluctuations, plus an orthogonal idiosyncratic component that captures high-frequency movements in beta. It is often the case that researchers do not know whether or not the idiosyncratic beta exists, or its strengths, and thus uniformity is essential for inferences. It is found that the limiting distribution of the estimated instrument effect has a discontinuity when the strength of the idiosyncratic beta is near zero, which makes usual inferences fail to be valid and produce misleading results. In addition, the usual "plug-in" method using the estimated asymptotic variance is only valid pointwise. The central goal is to make inference about the effect on the betas of firms' instruments, and to conduct out-of-sample forecast of integrated volatilities using estimated factors. Both procedures should be valid uniformly over a broad class of data generating processes for idiosyncratic betas with various signal strengths and degrees of time-variant. We show that a cross-sectional bootstrap procedure is essential for the uniform inference, and our procedure also features a bias correction for the effect of estimating unknown factors. |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1711.04392&r=mac |
| By: | Hassan, Tarek; Hollander, Stephan; Tahoun, Ahmed; van Lent, Laurence |
| Abstract: | We adapt simple tools from computational linguistics to construct a new measure of political risk faced by individual US firms: the share of their quarterly earnings conference calls that they devote to political risks. We validate our measure by showing that it correctly identifies calls containing extensive conversations on risks that are political in nature, that it varies intuitively over time and across sectors, and that it correlates with the firm's actions and stock market volatility in a manner that is highly indicative of political risk. Firms exposed to political risk retrench hiring and investment and actively lobby and donate to politicians. Interestingly, we find that the incidence of political risk across firms is far more heterogeneous and volatile than previously thought. The vast majority of the variation in our measure is at the firm-level rather than at the aggregate or sector-level, in the sense that it is neither captured by time fixed effects and the interaction of sector and time fixed effects, nor by heterogeneous exposure of individual firms to aggregate political risk. The dispersion of this firm-level political risk increases significantly at times with high aggregate political risk. Decomposing our measure of political risk by topic, we find that firms that devote more time to discussing risks associated with a given political topic tend to increase lobbying on that topic, but not on other topics, in the following quarter. |
| Keywords: | firm-level; Lobbying; Political uncertainty; quantification |
| JEL: | D80 E22 G18 G38 H32 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12436&r=mac |
| By: | Walter blocher (Universitaet Kassel); Andreas Hanl (Universitaet Kassel); Jochen Michaelis (Universitaet Kassel) |
| Abstract: | The development of cryptocurrencies such as Bitcoin after the global financial crises from 2007 onwards has put the financial sector into trouble. Some voices even speak of the possibility of abolishing cash. This article shows, first, whether and to what extent cryptocurrencies can replace cash, second, to what extent they change non-cash payment systems, and third, which obstacles have to be overcome on the way to large acceptance. We shall first scrutinize the financial sector's response to the multifaceted phenomenon of the Distributed Ledger Technology (“blockchain”). |
| Keywords: | Bitcoin, Cryptocurrency, digital Currency, Blockchain, Distributed Ledger Technology, Payment System |
| JEL: | E42 G20 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:201748&r=mac |
| By: | Tasso Adamopoulos; Loren Brandt; Jessica Leight; Diego Restuccia |
| Abstract: | We use household-level panel data from China and a quantitative framework to document the extent and consequences of factor misallocation in agriculture. We find that there are substantial frictions in both the land and capital markets linked to land institutions in rural China that disproportionately constrain the more productive farmers. These frictions reduce aggregate agricultural productivity in China by affecting two key margins: (1) the allocation of resources across farmers (misallocation) and (2) the allocation of workers across sectors, in particular the type of farmers who operate in agriculture (selection). We show that selection can substantially amplify the static misallocation effect of distortionary policies by affecting occupational choices that worsen the distribution of productive units in agriculture. |
| Keywords: | Agriculture, misallocation, selection, productivity, China. |
| JEL: | O11 O14 O4 E02 Q1 |
| Date: | 2017–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-593&r=mac |
| By: | Chaoran Chen; Diego Restuccia; Raul Santaeulalia-Llopis |
| Abstract: | We assess the role of land markets on factor misallocation in Ethiopia--where land is owned by the state--by exploiting policy-driven variation in land rentals across time and space arising from a recent land certification reform. Our main finding from detailed micro data is that land rentals significantly reduce misallocation and increase agricultural productivity. These effects are nonlinear across farms--impacting more those farms farther away from their efficient operational scale. The effect of land rentals on productivity is 70 percent larger when controlling for non-market rentals--those with a pre-harvest rental rate of zero. Land rentals significantly increase the adoption of new technologies, especially fertilizer use. |
| Keywords: | Productivity, agriculture, land markets, rentals, misallocation, micro data. |
| JEL: | E02 O11 O13 O55 Q1 |
| Date: | 2017–11–11 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-592&r=mac |