nep-mac New Economics Papers
on Macroeconomics
Issue of 2017‒12‒11
106 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  2. Asset Prices and Macroeconomic Outcomes: A Survey By Stijn Claessens; M. Ayhan Kose
  3. Asset prices and macroeconomic outcomes: a survey By Stijn Claessens; M Ayhan Kose
  4. Macroeconomic implications of financial imperfections: a survey By Stijn Claessens; M Ayhan Kose
  5. Non-core liabilities and monetary policy transmission in Indonesia during the post-2007 global financial crisis By Victor Pontines; Reza Y. Siregar
  6. Monetary Policy, Target Inflation and the Great Moderation: An Empirical Investigation By Qazi Haque
  7. A Real-Business-Cycle model with reciprocity in labor relations and a government sector By Aleksandar Vasilev
  8. The long-run real effects of banking crises: Firm-level investment dynamics and the role of wage rigidity By Wix, Carlo
  9. Household Credit, Global Financial Cycle, and Macroprudential Policies: Credit Register Evidence from an Emerging Country By Mircea Epure; Irina Mihai; Camelia Minoiu; José-Luis Peydró
  10. The Continuing Validity of Monetary Policy Autonomy Under Floating Exchange Rates By Edward Nelson
  11. The Determinants of Disagreement Between the FOMC and the Fed's Staff: New Insights Based on a Counterfactual Interest Rate By Hamza Bennani; Tobias Kranz; Matthias Neuenkirch
  12. El costo de uso del capital y la inversión en Colombia 2001-2016 By Efraín Araxue Ramírez; Nicolás Martínez Patiño
  13. Anemic economic growth in advanced economies: structural factors and the impotence of expansionary macroeconomic policies By Luigi Bonatti
  15. Do Fiscal Rules Lower Government Financing Costs? By António Afonso; João Jalles
  16. Non-bank Financial Institutions at the Ground Zero of Next Crisis By Xing, Victor
  17. Zambia; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Zambia By International Monetary Fund
  18. The L-Shaped Phillips Curve: Theoretical Justification and Empirical Implications By Narayana R. Kocherlakota
  19. Market Structure and Monetary Non-neutrality By Mongey, Simon
  20. On the Interaction of Growth, Trade and International Macroeconomics By Clemens C Struck; Clemens C. Struck
  21. Central Bank Digital Currency: Motivations and Implications By Walter Engert; Ben Fung
  23. Internal Rationality, Heterogeneity, and Complexity in the New Keynesian Model By Cars Hommes; Robert Calvert Jump; Paul Levine
  24. The Welfare Costs of Self-Fulfilling Bank Runs By Elena Mattana; Ettore Panetti
  25. Four essays on central banking in Latin America under balance of payments dominance By Malagón González, Jonathan
  26. Ghana; 2017 Article IV Consultation, Fourth Review Under the Extended Credit Facility Arrangement, Request for Waiver for Nonobservance of Performance Criteria, and Request for Extension and Rephasing of the Arrangement-Press Release; Staff Report; Staff Supplement; and Statement by the Executive Director for Ghana By International Monetary Fund
  27. Monetary policy communication: Evidence from Survey Data By Neda Popovska – Kamnar
  28. European Monetary Union reform preferences of French and German parliamentarians By Blesse, Sebastian; Boyer, Pierre C.; Heinemann, Friedrich; Janeba, Eckhard; Raj, Anasuya
  29. Perfect Public Offering: A Process to Provide Perfect Ownership of Businesses to the Entire Public By Williams, Ronald
  30. National Fiscal Stimulus Packages And Consolidation Strategies In A Monetary Union By Christoph Bierbrauer
  31. Volatility Spillovers across Global Asset Classes: Evidence from Time and Frequency Domains By Aviral Kumar Tiwari; Juncal Cunado; Rangan Gupta; Mark E. Wohar
  32. Fiscal Consolidation Programs and Income Inequality By Brinca, Pedro; Ferreira, Miguel; Franco, Francesco; Holter, Hans; Malafry, Laurence
  33. Sweat Equity in U.S. Private Business By McGrattan, Ellen R.; Bhandari, Anmol
  34. Uncertainty across volatility regimes By Angelini, Giovanni; Bacchiocchi, Emanuele; Caggiano, Giovanni; Fanelli, Luca
  35. Tests of Policy Interventions in DSGE Models By M Hashem Pesaran; Ron P Smith
  36. Identification of Monetary Policy Shocks with External Instrument SVAR By Kyungmin Kim
  37. The Recent Increase in Dual-Income Households and Its Impact on Consumption Expenditure By Ko Miura; Masato Higashi
  38. The Bahamas; 2017 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  39. Price Stability and the Origins and Early Impact of the Phillips Curve: Contextual Analysis and New Evidence from the British Archives By Carlo Cristiano; Paolo Paesani
  40. It’s not austerity. Or is it? Assessing the effect of austerity on growth in Europe, 2010-15 By Matteo Fragetta; Roberto Tamborini
  41. ESBies as a Basis for a TARGET2 Settlement Mechanism By Pasche, Markus
  42. Trend Inflation and Evolving Inflation Dynamics: A Bayesian GMM Analysis of the Generalized New Keynesian Phillips Curve By Yasufumi Gemma; Takushi Kurozumi; Mototsugu Shintani
  43. Microfoundations of the New Keynesian Phillips Curve in an Open Emerging Economy. By Zouhair Aït Benhamou
  44. What Explains the Post-2004 U.S.Productivity Slowdown? By Alexander Murray
  45. Kingdom of Swaziland; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Kingdom of Swaziland By International Monetary Fund
  46. Are fiscal rules helpful in mitigating the impact of oil market fluctuations? By Fuad Mammadov; Adigozalov Shaig;
  47. Why are inflation forecasts sticky? Theory and application to France and Germany By F. Bec; R. Boucekkine; C. Jardet
  48. The Fiscal Theory of the Price Level in a World of Low Interest Rates By Bassetto, Marco; Cui, Wei
  49. Who Creates Jobs and Who Creates Productivity? Small versus Large versus Young versus Old By Heyman, Fredrik; Norbäck, Pehr-Johan; Persson, Lars
  50. Eurosystem’s asset purchases and money market rates By W. Arrata; B. Nguyen; I. Rahmouni-Rousseau; M. Vari
  51. Was the Deflation of the Depression Anticipated? An Inference Using Real-time Data By Gabriel Mathy; Herman O. Stekler
  52. 'Till Debt Do Us Part': Financial Implications of the Divorce of the Irish Free State from the UK, 1922-6 By FitzGerald, John; Kenny, Seán
  53. Interest Rate Uncertainty and Sovereign Default Risk By Shahed Khan; Alok Johri; Cesar Sosa-Padilla
  54. Dominican Republic; 2017 Article IV Consultation- Press Release; Staff Report; and Statement by the Executive Director for the Dominican Republic By International Monetary Fund
  55. Learning to forecast, risk aversion, and microstructural aspects of financial stability By Biondo, Alessio Emanuele
  56. ‘Till Debt Do Us Part’:Financial Implications of the Divorce of the Irish Free State from the UK, 1922-6. By John Fitzgerald; Seán Kenny
  57. Brazil; Technical Assistance Report-Supporting Implementation of the Expenditure Rule Through Public Financial Management Reforms By International Monetary Fund
  58. The Contribution of Aboriginal People To Future Labour Force Growth In Canada By Don Drummond, Andrew Sharpe, Alexander Murray and Nicolas Mask
  59. Economic Sectors and the Risk-taking Channel of Monetary Policy By Martha López
  60. Morocco; Second Review Under the Arrangement Under the Precautionary and Liquidity Line(PLL)-Press Release; Staff Report; and Statement by the Executive Director for Morocco By International Monetary Fund
  61. Islamic Republic of Mauritania; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Islamic Republic of Mauritania By International Monetary Fund
  62. Capital misallocation and financial development: A sector-level analysis By Daniela Marconi; Christian Upper
  63. Republic of Serbia; 2017 Article IV Consultation, Seventh Review Under the Stand-by Arrangement and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Serbia By International Monetary Fund
  64. Forecasting Macedonian Inflation: Evaluation of different models for short-term forecasting By Magdalena Petrovska; Gani Ramadani; Nikola Naumovski; Biljana Jovanovic
  65. Identification and Generalized Band Spectrum Estimation of the New Keynesian Phillips Curve By Junjie Guo; Juan Carlos Escanciano; Jinho Choi
  66. Global temperature, R&D expenditure, and growth By Donadelli, Michael; Grüning, Patrick; Jüppner, Marcus; Kizys, Renatas
  67. Saudi Arabia; 2017 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  68. Foreign Investment and Domestic Productivity: Identifying Knowledge Spillovers and Competition Effects By Vadym Volosovych; Carolina Villegas Sanchez; Bent Sorensen; Sebnem Kalemli-Ozcan
  69. Paraguay: Análisis del sistema fiscal y su impacto en la pobreza y la equidad By Lea Gimenez; María Ana Lugo; Sandra Martinez; Humberto Colman; Juan Jose Galeano; Gabriela Farfan
  70. Montenegro; 2017 Article IV Consultation-Press Release;Staff Report; and Statement by the Executive Director for Montenegro By International Monetary Fund
  71. A Capital Flight-Growth Nexus in Sub-Saharan Africa: The Role of Macroeconomic Uncertainty By Afees A. Salisu; Kazeem Isah
  72. The Human Development Index In Canada: Ranking the Provinces and Territories Internationally, 2000-2015: An Update By James Uguccioni, Andrew Sharpe and Richard Beard
  73. Uncertainty Shocks and Firm Dynamics: Search and Monitoring in the Credit Market By Brand, Thomas; Isoré, Marlène; Tripier, Fabien
  74. Price Search, Consumption Inequality, and Expenditure Inequality over the Life Cycle By Bulent Guler
  75. Inequality and Growth in the 21st Century By Weijie Luo
  76. The lost race against the machine: Automation, education, and inequality in an R&D-based growth model By Prettner, Klaus; Strulik, Holger
  77. Cash Versus Card: Payment Discontinuities and the Burden of Holding Coins By Heng Chen; Kim Huynh; Oz Shy
  78. The Macroeconomic Drivers of Stock Market Development: Evidence from Hong Kong By Ho, Sin-Yu; Odhiambo, Nicholas
  79. Sri Lanka; Second Review under the Extended Arrangement under the Extended Fund Facility, Request for Waivers of Applicability and Nonobservance of Performance Criterion, and Request for Modification of Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Sri Lanka By International Monetary Fund
  80. Federated States of Micronesia; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Federated States of Micronesia By International Monetary Fund
  81. Montenegro; Technical Assistance Report-Macroprudential Policy Framework By International Monetary Fund
  82. "Jamaika": Analyse und Bewertung der programmatischen Schnittmengen der möglichen neuen Bundesregierung By Bardt, Hubertus; Beznoska, Martin; Engels, Barbara; Geis, Wido; Henger, Ralph; Hentze, Tobias; Klös, Hans-Peter; Kochskämper, Susanna; Matthes, Jürgen; Pimpertz, Jochen; Plünnecke, Axel; Puls, Thomas; Röhl, Klaus-Heiner; Rusche, Christian; Schäfer, Holger; Schneider, Helena; Stettes, Oliver; Tischler, Benjamin; Voigtländer, Michael
  83. Keynes’s Trading on Wall Street: Did He Follow the Same Behavior When Investing for Himself and for King’s? By Eleonora Sanfilippo
  84. Belize; 2017 Article IV Consultation-Press Release; Staff Report; Informational Annex; Statement by the Executive Director for Belize By International Monetary Fund
  85. Uganda; Technical Assistance Report-Report on the Quarterly National Accounts Statistics Mission By International Monetary Fund
  86. Fiscal Reaction Functions Across the World: A Battle of Statistical (In-) Significance By António Afonso; João Jalles
  87. The Inclusion Of Natural Resource Wealth In The Index Of Economic Well-Being: Results For OECD Countries, 1980-2013 By Richard Beard
  88. Cambodia; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Cambodia By International Monetary Fund
  89. Techno-Globalisierung, Leitmärkte und Strukturwandel in wirtschaftspolitischer Sicht By Paul J.J. Welfens
  90. Uganda; Technical Assistance Report-Improving GDP Forecasting By International Monetary Fund
  91. ob Displacement during the Great Recession: Tight Bounds on Distributional Treatment Effect Parameters using Panel Data By Brantly Callaway
  92. One Market, One Money – A Mistaken Argument (post factum)? By Gros, Daniel
  93. Essays on Pay-as-you-go Pension Schemes, Demographics, Fiscal Policy, Credit Rationing and House Prices By Heeringa, Willem
  94. Climate change and monetary policy: Dealing with disruption By Warwick McKibbin; Adele Morris; Augustus J. Panton; Peter J. Wilcoxen
  95. Analysing the Macroeconomic Drivers of Stock Market Development in the Philippines By Ho, Sin-Yu; Odhiambo, Nicholas
  96. House Price Beliefs And Mortgage Leverage Choice By Bailey, Michael; Dávila, Eduardo; Kuchler, Theresa; Ströbel, Johannes
  97. Bolivia’s Green National Accounts through a Commodity Super Cycle By Luis Carlos Jemio; Lykke E. Andersen; Agnes Medinaceli
  98. Morocco; Ex-Post Evaluation of Exceptional Access Under the 2014 Precautionary and Liquidity Line Arrangement-Press Release; Staff Report; and Statement by the Executive Director for Morocco By International Monetary Fund
  99. Uganda; Technical Assistance Report-Drafting the Public Finance Management Regulations By International Monetary Fund
  100. Luxembourg: Financial Sector Assessment Program:; Technical Note-Macroprudential Framework And Policies By International Monetary Fund
  101. Households’ Mortgage-Rate Expectations: More Realistic than at First Glance? By Hjalmarsson, Erik; Österholm, Pär
  102. The True Cost of BREXIT for the UK: A Research Note By Paul J.J. Welfens
  103. Welfare Levels of the Rural Population in Murcia, 1769-1895. Mortality and Demographic and Economic Instability By Enrique Llopis; Elvira Alonso; Paloma Fontanillo; Belén Hípola; Sara Méndez; Javier Ramos
  104. Macro-financial linkages: the role of liquidity dependence By Alexey Ponomarenko; Anna Rozhkova; Sergei Seleznev
  105. Household Inequality and the Consumption Response to Aggregate Real Shocks By Gene Amromin; Mariacristina De Nardi; Karl Schulze
  106. Diagnosing the Italian Disease By Bruno Pellegrino; Luigi Zingales

  1. By: Marco Bernardini; Selien De Schryder; Gert Peersman (-)
    Abstract: We use a novel quarterly dataset of U.S. states to examine the dynamics and determinants of relative government spending multipliers in the decade surrounding the Great Recession. We find average multipliers that are similar to those that have been reported for the decades preceding the crisis, but this masks substantial heterogeneity. First, average cumulative multipliers were around 2 in the impact quarter, but declined to less than 1 after one year. Second, implied relative multipliers ranged between 0 and more than 4 across states at particular points in time, as well as for the same state at different moments within the sample period depending on the individual state's stance of the business cycle, household indebtedness and the interaction of both conditions. Finally, we provide evidence that, controlling for total expenditures, a mere redistribution of government spending across states did also had a significant infl uence on the aggregate U.S. economy due to cross-state heterogeneity of the effects.
    Keywords: fiscal multiplier, household debt, Great Recession, regional redistribution
    JEL: C23 E32 E44 E62
    Date: 2017–04
  2. By: Stijn Claessens (Monetary and Economic Department, Bank for International Settlements; CEPR); M. Ayhan Kose (Development Prospects Group, World Bank; Brookings Institution; CEPR; CAMA)
    Abstract: This paper surveys the literature on the linkages between asset prices and macroeconomic outcomes. It focuses on three major questions. First, what are the basic theoretical linkages between asset prices and macroeconomic outcomes? Second, what is the empirical evidence supporting these linkages? And third, what are the main challenges to the theoretical and empirical findings? The survey addresses these questions in the context of four major asset price categories: equity prices, house prices, exchange rates and interest rates, with a particular focus on their international dimensions. It also puts into perspective the evolution of the literature on the determinants of asset prices and their linkages with macroeconomic outcomes, and discusses possible future research directions.
    Keywords: Equity prices, exchange rates, house prices, interest rates, credit, output, consumption, investment, real-financial linkages, macro-financial linkages, imperfections, frictions.
    JEL: D53 E21 E32 E44 E51 F36 F44 G01 G10 G12 G14 G15 G21
    Date: 2017–11
  3. By: Stijn Claessens; M Ayhan Kose
    Abstract: This paper surveys the literature on the linkages between asset prices and macroeconomic outcomes. It focuses on three major questions. First, what are the basic theoretical linkages between asset prices and macroeconomic outcomes? Second, what is the empirical evidence supporting these linkages? And third, what are the main challenges to the theoretical and empirical findings? The survey addresses these questions in the context of four major asset price categories: equity prices, house prices, exchange rates and interest rates, with a particular focus on their international dimensions. It also puts into perspective the evolution of the literature on the determinants of asset prices and their linkages with macroeconomic outcomes, and discusses possible future research directions.
    Keywords: equity prices, exchange rates, house prices, interest rates, credit, output, consumption, investment, real-financial linkages, macrofinancial linkages, imperfections, frictions
    JEL: D53 E21 E32 E44 E51 F36 F44 G01 G10 G12 G14 G15 G21
    Date: 2017–11
  4. By: Stijn Claessens; M Ayhan Kose
    Abstract: This paper surveys the theoretical and empirical literature on the macroeconomic implications of financial imperfections. It focuses on two major channels through which financial imperfections can affect macroeconomic outcomes. The first channel, which operates through the demand side of finance and is captured by financial accelerator-type mechanisms, describes how changes in borrowers' balance sheets can affect their access to finance and thereby amplify and propagate economic and financial shocks. The second channel, which is associated with the supply side of finance, emphasises the implications of changes in financial intermediaries' balance sheets for the supply of credit, liquidity and asset prices, and, consequently, for macroeconomic outcomes. These channels have been shown to be important in explaining the linkages between the real economy and the financial sector. That said, many questions remain.
    Keywords: asset prices, balance sheets, credit, financial accelerator, financial intermediation, financial linkages, international linkages, leverage, liquidity, macrofinancial linkages, output, real-financial linkages
    JEL: D53 E21 E32 E44 E51 F36 F44 G01 G10 G12 G14 G15 G21
    Date: 2017–11
  5. By: Victor Pontines; Reza Y. Siregar
    Abstract: The policy importance of non-core liabilities has risen to prominence in recent years with the studies of Shin and Shin (2010), Hahm, et al., (2010) and Hahm, et al., (2013) highlighting it as a useful indicator of financial procyclicality and vulnerability. In this paper, we look at non-core liabilities in relation to its role in the transmission of monetary policy, particularly by examining how the interest rate channel of monetary policy is affected by non-deposit liabilities. We analyse this issue in the context of an emerging economy experience of Indonesia, which in recent years, has seen an increased reliance of its banking sector on non-core funding. Our investigation employs available bank-level data on non-core liabilities and lending rates in Indonesia over the period October 2011 to July 2016. We find that including non-core liabilities in the estimation has an effect, relative to the baseline, of stronger overall and immediate pass-through, albeit with a more sluggish adjustment towards correction of disequilibrium in the next period. The overall effect is that non-core liabilities make the duration lengthier for the monetary policy rate to transmit to bank lending rates in Indonesia.
    Keywords: non-core liabilities, lending rates, policy rates, interest rate channel, monetary policy transmission, dynamic panel
    JEL: C33 E43 E52 G21
    Date: 2017–12
  6. By: Qazi Haque (School of Economics, University of Adelaide)
    Abstract: This paper compares the empirical fit of a Taylor rule featuring constant versus time-varying inflation target by estimating a Generalized New Keynesian model under positive trend inflation while allowing for indeterminacy. The estimation is conducted over two different periods covering the Great Inflation and the Great Moderation. We find that the rule embedding time variation in target inflation turns out to be empirically superior and determinacy prevails in both sample periods. Counterfactual simulations point toward both `good policy' and `good luck' as drivers of the Great Moderation. We find that better monetary policy, both in terms of a more active response to inflation gap and a more anchored inflation target, has resulted in the decline in inflation gap volatility and predictability. In contrast, the reduction in output growth variability is mainly explained by reduced volatility of technology shocks.
    Keywords: Monetary policy; Great Inflation; Great Moderation; Equilibrium Indeterminacy; Generalized New Keynesian Phillips curve; Taylor rules; Time-varying inflation target; Good policy; Good luck; Sequential Monte Carlo
    JEL: C11 C52 C62 E31 E32 E52 E58
    Date: 2017–11
  7. By: Aleksandar Vasilev
    Abstract: In this paper we introduce reciprocity in labor relations and government sector to in- vestigate how well the real wage rigidity that results out of that arrangement explains business cycle fluctuations in Bulgaria. The reciprocity mechanism described in this paper follows Danthine and Kurmann (2010) and is generally consistent with micro- studies, e.g. Lozev, Vladova, and Paskaleva (2011) and Paskaleva (2016). Rent-sharing considerations, and worker’s own past wages turn out to be the most important as- pects of how labor contracting happens. In contrast, aggregate economic conditions, as captured by the employment rate, are not found to be quantitatively important for wage dynamics. Overall, the model with reciprocity and fiscal policy performs well vis-a-vis data, especially along the labor market dimension.
    Keywords: General equilibrium, reciprocity, gift exchange, efficiency wages, unemployment, fiscal policy, Bulgaria.
    JEL: E24 E32 J41
    Date: 2017–11–09
  8. By: Wix, Carlo
    Abstract: This paper studies the long-run effects of credit market disruptions on real firm outcomes and how these effects depend on nominal wage rigidities at the firm level. I trace out the long-run investment and growth trajectories of firms which are more adversely affected by a transitory shock to aggregate credit supply. Affected firms exhibit a temporary investment gap for two years following the shock, resulting in a persistent accumulated growth gap. I show that affected firms with a higher degree of wage rigidity exhibit a steeper drop in investment and grow more slowly than affected firms with more flexible wages.
    Keywords: Financial Crises,Bank Lending,Real Effects,Firm Investment,Wage Rigidity,Labor Hoarding
    JEL: E22 E24 E51 G01 G21 G31
    Date: 2017
  9. By: Mircea Epure; Irina Mihai; Camelia Minoiu; José-Luis Peydró
    Abstract: We analyze the effects of macroprudential policies on local bank credit cycles and interactions with international financial conditions. For identification, we exploit the comprehensive credit register containing all bank loans to individuals in Romania, a small open economy subject to external shocks, and the period 2004-2012, which covers a full boom-bust credit cycle when a wide range of macroprudential measures were deployed. Although household leverage is known to be a key driver of financial crises, to our knowledge this is the first paper that employs a household credit register to study leverage and macroprudential policies over a full economic cycle. Our results show that tighter macroprudential conditions are associated with a significant decline in household credit, with substantially stronger effects for FX loans than for local currency loans. The effects on FX loans are higher for: (i) ex-ante riskier borrowers proxied by higher debt-service-to-income ratios and (ii) banks with greater exposure to foreign funding. Moreover, tighter macroprudential policy has stronger dampening effects on FX lending when global risk appetite is high and foreign monetary policy is expansionary. Finally, quantitative effects are in general larger for borrower rather than lender macroprudential policies. Overall, the results suggest that macroprudential policies are effective in mitigating bank risk-taking in household lending over the local bank credit and global financial cycles, and therefore have important implications for policy and bank risk management.
    Keywords: macroprudential policies, global financial cycle, cross-border spillovers, household credit, bank loans
    JEL: E58 F0 F40 G21 G28 D14
    Date: 2017–12
  10. By: Edward Nelson
    Abstract: Economic research in recent years has given considerable prominence to the issue of whether a floating exchange rate provides autonomy with regard to monetary policy to a central bank whose economy is highly open. In particular, Rey (2016) has argued that inflation-targeting advanced economies lack monetary policy autonomy by pointing to results suggesting that U.S. monetary policy shocks matter for the behavior of key financial variables in these economies. In contrast, it is argued in this paper that monetary autonomy does prevail in inflation-targeting advanced economies, notwithstanding the reaction of these economies’ asset prices to U.S. monetary policy developments. The reason is that the monetary-autonomy argument, as advanced by Milton Friedman and as embedded in new open-economy models, rests on the fact that the monetary base is insulated from foreign influences under floating rates. This fact allows the home monetary authority to pursue a stabilization policy in which it has a decisive influence on nominal variables in the long run, as well as a short-run influence on real variables. The result that rest-of-world monetary policy is among the other factors affecting the short-run behavior of real variables (including real asset prices) in a small, floating-rate open economy turns out to be consistent with the traditional and appropriate concept of monetary policy autonomy under floating exchange rates. It follows that such effects of rest-of-world monetary policy on the home economy are consistent with the celebrated open-economy trilemma.
    Keywords: Monetary policy autonomy ; Trilemma ; Floating exchange rates ; Inflation targeting
    JEL: E51 E52 F41
    Date: 2017–11–27
  11. By: Hamza Bennani; Tobias Kranz; Matthias Neuenkirch
    Abstract: We examine the degree and sources of disagreement between the Federal Open Market Committee (FOMC) and the Federal Reserve’s (Fed’s) staff about the appropriate policy rate for the period 1987–2011. For that purpose, we compute a counterfactual interest rate for the Fed’s staff, based on its own Greenbook forecasts and a Taylor (1993) rule, and compare it with the actual target rate. First, we find that the FOMC behaved more hawkish (dovish) during the 1990s (during the early 2000s) compared to the suggestions of the Fed’s staff. Second, we reveal that a higher share of hawkish dissents, a higher share of voting women, a more experienced FOMC, and a higher share of members with a background in finance, the government, or the Bank staff are associated with relatively more hawkish monetary policy. In addition, the FOMC is found to prefer tighter monetary policy under a Democratic President, if there is a clear majority in the Congress, and during tranquil times.
    Keywords: Disagreement, Federal Open Market Committee, Federal Reserve Staff, Monetary Policy, Taylor Rule
    JEL: E52 E58
    Date: 2017
  12. By: Efraín Araxue Ramírez; Nicolás Martínez Patiño
    Abstract: El costo del uso del capital (CUC) es una variable que recoge algunos determinantes tributarios y monetarios de las decisiones de inversión a nivel agregado. Dentro de la literatura encontrada para Colombia, las estimaciones de esta variable no abarcan el periodo que presentó las tasas de inversión más altas en los últimos treinta años. Al aplicar la metodología de Botero et al. (2007) se encuentra que el CUC bajó de un promedio de 23.4% entre 1990 y 2001 a un promedio de 14.2% entre 2002 y 2016. El último periodo coincide con la adopción del esquema de inflación objetivo. En el último año, el CUC creció de 8% a 13% por la reforma tributaria, la inflación fuera del rango meta y, en consecuencia, la política contractiva del banco central. Según los resultados del modelo estimado por el método MCO, un aumento de 1% del CUC disminuye en un 0.24% la inversión como proporción del PIB en Colombia.
    Keywords: Costo de Uso del Capital, Inversión
    JEL: E22 E30 E62 E40
    Date: 2017–11–30
  13. By: Luigi Bonatti
    Abstract: This paper assesses the role of some structural factors in determining the current anemic growth of the advanced economies, especially focusing on Southern Europe. It discusses what macroeconomic policies can do for reviving growth and illustrates some hypotheses: policy makers’ attempts to push GDP growth above its sustainable long-term rate through expansionary policies, excessive leverage and rising private and public debt generate instability and imbalances; economic fundamentals and easy credit push up the price of residential land and urban rents, thus crowding out investment in productive assets and depressing long-run growth; supporting asset prices, central banks may end up exacerbating the causes making growth anemic; Summers’ secular stagnation and its policy implications do not appear very plausible; the persistency of wide competitiveness imbalances among different areas determines an unequal spatial distribution of high value-added activities, which collides with the worldwide tendency towards the equalization of workers’ education levels and aspirations.
    Keywords: Secular stagnation, competitiveness, global imbalances, Sovereign debt crisis
    JEL: E60 E65 F01 F43 O40
    Date: 2016
  14. By: Boris Hofmann; Gert Peersman (-)
    Abstract: This study shows that, in the United States, the effects of monetary policy on credit and housing markets have become considerably stronger relative to the impact on GDP since the mid-1980s, while the effects on inflation have become weaker. Macroeconomic stabilization through monetary policy may therefore have become associated with greater fluctuations in credit and housing markets, whereas stabilizing credit and house prices may have become less costly in terms of macroeconomic volatility. These changes in the aggregate impact of monetary policy can be explained by several important changes in the monetary transmission mechanism and in the composition of macroeconomic and credit aggregates. In particular, the stronger impact of monetary policy on credit is driven by a much higher responsiveness of mortgage credit and a larger share of mortgages in total credit since the 1980s.
    Keywords: monetary policy trade-offs, monetary transmission mechanism, inflation, credit, house prices.
    JEL: E52
    Date: 2017–10
  15. By: António Afonso; João Jalles
    Abstract: We assess the effect of fiscal rules on sovereign bond yields over the short and medium-term, for 34 advanced countries and 21 emerging market economies, over the period 1980-2016. Our results, based on impulse response functios, show that the dynamic impact of fiscal rules on bond yields is negative and statistically significant, implyinglower government’s borrowing costs. This is a result stemming essetially from the advanced economies subsample. Moreover, in times of recession, a fiscal rule leads financial markets toreduce the risk premia on government bonds. Finally, when it comes to design features of fiscalrules, independent monitoring of compliance to the rule also reduces sovereign yields.
    Keywords: fiscal rules, sovereign yields, financing costs, impulse response functions, local projection
    JEL: C33 E44 E62
    Date: 2017–11
  16. By: Xing, Victor
    Abstract: • Non-bank financial institutions (“shadow banks”) filled the funding gap following banks’ retreat in the wake of the post-crisis regulatory tightening and amid pressure to bolster returns in response to central banks’ low rates policy • “Shadow banks” such as investment managers, insurance companies and pension funds reacted to policy-induced volatility suppression by moving up the risk ladder: longer term bonds, high yield debt, equities, and direct lending • Prolonged volatility dampening induced investors to forgo volatility hedging and fueled the growth of passive funds, and rising concentration of “flighty asset” in passive funds increased probability for a “shadow bank run” • Non-banks are becoming increasingly reliant on monetary authorities to continue volatility suppression, and many “reach for yield” and risk-parity strategies hinge on prolonged policy accommodation to ward against redemption • Looming increase in Fed balance sheet reinvestment cap and ECB QE taper will threaten years of non-bank risk accumulation made viable by low volatility, and a decline in asset prices will likely trigger a systemic VaR shock
    Keywords: Shadow banks, systemic risk, financial risk contagion, volatility, non-bank financial institutions
    JEL: E52 G12 G22 G23
    Date: 2017–11–26
  17. By: International Monetary Fund
    Abstract: The Zambian economy has started recovering from a marked slowdown in growth. In 2015Q4 and most of 2016, it was in near-crisis, reflecting the impacts of exogenous shocks and lax fiscal policy in the lead up to general elections. Tight monetary policy helped to stabilize the exchange rate and lower inflation, but the ensuing liquidity crunch combined with government arrears and subdued economic activity caused a rise in non-performing loans and put the financial system under substantial stress. Public debt has been rising at an unsustainable pace, crowding out lending to the private sector. The government has initiated bold reforms of subsidies in the agriculture and energy sectors, and is scaling up spending on social protection programs. However, ambivalence on key measures is creating uncertainties about its commitment to fiscal consolidation, with potential adverse effects on private investment and growth.
    Date: 2017–10–25
  18. By: Narayana R. Kocherlakota
    Abstract: This paper has two parts. In the first part, I demonstrate that, in the absence of price and wage bounds, monetary models do not have current equilibria - and so lack predictive content - for a wide range of possible policy rules and/or beliefs about future equilibrium outcomes. This non-existence problem disappears in models in which firms face (arbitrarily loose) finite upper bounds on prices or positive lower bonds on nominal wages. In the second part, I study the properties of a class of dynamic monetary models with these kinds of bounds on prices/wages. Among other results, I show that these models imply that the Phillips curve is L-shaped, are consistent with the existence of permanently inefficiently low output (secular stagnation), and do not imply that forward guidance is surprisingly effective. I show too that economies with lower nominal wage floors have even worse equilibrium outcomes in welfare terms. It follows that models with arbitrarily low but positive nominal wage floors are not well approximated by models without wage floors.
    JEL: E10 E12 E31 E43 E52
    Date: 2017–11
  19. By: Mongey, Simon (Federal Reserve Bank of Minneapolis)
    Abstract: I propose an equilibrium menu cost model with a continuum of sectors, each consisting of strategically engaged firms. Compared to a model with monopolistically competitive sectors that is calibrated to the same data on good-level price flexibility, the dynamic duopoly model features a smaller inflation response to monetary shocks and output responses that are more than twice as large. The model also implies (i) four times larger welfare losses from nominal rigidities, (ii) smaller menu costs and idiosyncratic shocks are needed to match the data, (iii) a U-shaped relationship between market concentration and price flexibility, for which I find empirical support.
    Keywords: Oligopoly; Menu costs; Monetary policy; Firm dynamics
    JEL: E30 E39 E51 L11 L13
    Date: 2017–10–31
  20. By: Clemens C Struck; Clemens C. Struck
    Abstract: Standard economic theories have severe difficulties in simultaneously explaining a number of key aggregate empirical facts: i) there are substantial differences in capital-labor ratios across time ii) despite continuously increasing capital-labor ratios, both factors still earn non-negligible shares in income iii) labor hours per capita are rather stable amid expanding consumption possibilities iv) price levels are higher in more developed countries v) there are no large gains from factor-proportions trade vi) the world trade-to-output ratio increases over time. I argue that standard economic theories ignore the vast improvements in goods quality and new products. I present an augmented standard model that incorporates these features and jointly rationalizes these six empirical facts.
    Keywords: Engel's law; Product quality and varieties; Structural change; Growth; Trade; Price levels
    JEL: E23 E24 F11 F31 O41
    Date: 2017–11
  21. By: Walter Engert; Ben Fung
    Abstract: The emergence of digital currencies such as Bitcoin and the underlying blockchain and distribution ledger technology have attracted significant attention. These developments have raised the possibility of considerable impacts on the financial system and perhaps the wider economy. This paper addresses the question of whether a central bank should issue digital currency that could be used by the general public. It begins by discussing the possible motivations for a central bank to issue a digital currency. The paper then sets out a benchmark central bank digital currency (CBDC) with features that are similar to cash. The implications of such a digital currency are explored, focusing on central bank seigniorage, monetary policy, the banking system and financial stability, and payments. Finally, a CBDC that differs from the benchmark digital currency in a significant way is considered.
    Keywords: Bank notes, Digital Currencies, Financial services, Payment clearing and settlement systems
    JEL: E E4 E41 E42 E5
    Date: 2017
  22. By: Eda Gülşen (Central Bank of the Republic of Turkey, Research Department, Ankara, Turkey); Erdal Özmen (Middle East Technical University, Department of Economics, Ankara, Turkey)
    Abstract: We empirically investigate the validity of the monetary policy trilemma postulation for emerging market (EME) and advanced (AE) economies under different exchange rate and monetary policy regimes before and after the recent global financial crisis (GFC). Consistent with the dilemma proposition, domestic interest rates are determined by global financial conditions and the FED rate even under floating exchange rate regimes (ERR) in the long-run. The impact of the FED rates is higher in EME than AE and EME are much more sensitive to global financial cycle under managed than floating ERR. The spillover from the FED rate substantially increases after the GFC in EME with floating ERR and AE. The results from the monetary policy reaction functions based on equilibrium correction mechanism specifications suggest that domestic interest rates respond to inflation and output gaps especially under inflation targeting (IT) in the short-run. The response to inflation gap tends to be smaller in IT AE after the GFC.
    Keywords: Exchange rate regimes, Global financial crisis, Inflation targeting, Monetary policy, Policy trilemma
    JEL: E50 E52 F30 F33 F42
    Date: 2017–11
  23. By: Cars Hommes (University of Amsterdam); Robert Calvert Jump (University of the West of England); Paul Levine (University of Surrey)
    Abstract: This paper studies the dynamic behaviour of a workhorse New Keynesian model in which households and rms can be fully rational or internally rational. First, we derive the model with a xed proportion n of agents fully rational and a xed proportion (1-n) of agents internally rational, in a similar manner to Massaro (2013). In this model, we establish two propositions. First, a decrease in the proportion of fully rational agents does not destabilise the system if the rational expectations determinacy condition for the monetary rule holds. Second, the rational expectations determinacy condition is identical to the stability condition for the model in which all agents are internally rational. We then extend the model to include predictor selection along the lines of Branch and McGough (2010). In this model, we establish two further propositions. First, the rational expectations determinacy condition ensures local determinacy and stability as the cost of being fully rational becomes in nitely negative. Second, if the model starts from a position of indeterminacy, an increase in the xed cost of being fully rational can lead to the loss of local stability via a Hopf bifurcation. A rational route to randomness follows from this, which we explore numerically. Taken as a whole, these results indicate that complex dynamics in the internally rational New Keynesian model are closely associated with monetary policy failures. Finally, we consider the robustness of our results to changes in the monetary policy rule.
    JEL: E12 E32
    Date: 2017–11
  24. By: Elena Mattana; Ettore Panetti
    Abstract: We study the welfare implications of self-fulfilling bank runs and liquidity require-ments, in a neoclassical growth model where banks, facing long-lasting possible runs, can choose in any period a run-proof asset portfolio. In this framework, runs distort banks’insurance provision against idiosyncratic liquidity shocks, and liquidity requirements re-solve this distortion by forcing a credit tightening. Quantitatively, the welfare costs of self-fulfilling bank runs are equivalent to a constant consumption loss of up to 2.5 percent of U.S. GDP. Depending on fundamentals, liquidity requirements might generate small welfare gains, but also increase the welfare costs by up to 1.8 percent.
    Keywords: financial intermediation, bank runs, regulation, welfare
    JEL: E21 E44 G01 G20
    Date: 2017–11
  25. By: Malagón González, Jonathan (Tilburg University, School of Economics and Management)
    Abstract: Flexible inflation targeting was the choice of five of the seven largest Latin American economies in the late 1990s/early 2000s. This was combined with the prior choice for more open capital accounts and greater exchange rate flexibility, which had been adopted as part of the market liberalization policies spread throughout Latin America since the mid-1980s. However, most Latin American economies are characterized by balance of payments dominance: a condition in which the short-term macroeconomic dynamics is mainly determined by the external shocks that periodically hit these economies, particularly procyclical capital flows and terms of trade shocks. One of the major complications of the region is that these shocks tend to induce procyclical responses from fiscal and monetary authorities. This dissertation consists of four empirical essays that study key elements of central banking in Latin America in a context of balance of payment dominance. The first essay analyses the exchange rate policy throughout the concept of fear of floating. The second paper examines the impact of external shocks on financial stability and the role of Basel regulations on its mitigation. The third paper measures the financial spillovers of developed economies’ conventional and unconventional monetary policy over the Latin American financial markets. The last paper assesses the effectiveness and determinants of monetary policy rate under balance of payments dominance.
    Date: 2017
  26. By: International Monetary Fund
    Abstract: Ghana’s macroeconomic performance has been mixed, as over the years recurrent policy slippages have amplified the impact of external and domestic shocks, created persistent imbalances, and contributed to high inflation, exchange rate volatility, and unfavorable debt dynamics. The new government thus faces significant challenges, including a large fiscal slippage that occurred in 2016. Addressing these challenges calls for an ambitious adjustment and reform agenda.
    Keywords: Ghana;Sub-Saharan Africa;
    Date: 2017–09–06
  27. By: Neda Popovska – Kamnar (National Bank of the Republic of Macedonia)
    Abstract: This paper summarizes the results of a Survey on Monetary policy Communication conducted among central banks in Central Eastern and South-Eastern Europe and the euro area. The main objective of this Survey was to draw evidence on the level of transparency and communication strategies of the central banks. The results of the Survey reveal that today the central banks pay much attention to the proper transparency and provide significant information about their decisions and policy making process. The overall conclusion of the Monetary policy communication Survey is that the communication and the transparency of the 15 central banks included in the Survey is on satisfactory level. Still, there is always a room for improvement, especially in the area of introducing forward guidance by the central banks and more “proactive ways” of communication with the public.
    Keywords: survey data, central banks, monetary policy, communication, transparency
    JEL: E52 E58 E66
    Date: 2017
  28. By: Blesse, Sebastian; Boyer, Pierre C.; Heinemann, Friedrich; Janeba, Eckhard; Raj, Anasuya
    Abstract: This study analyzes results from an original survey of members of the French and German parliaments (Assemblée Nationale, Sénat and Bundestag) on economic policies and institutions of the Eurozone. We find that French politicians are significantly more supportive of Eurobonds, a European unemployment insurance scheme, and an active monetary policy by the ECB than German politicians. At the same time, there are significant differences along party lines, which are often quantitatively more important than differences in nationality. Left-leaning members of parliaments are in favor of new policy instruments at the European or Eurozone level, but are skeptical about the fiscal constraints of the Fiscal Compact. There is widespread consensus across parties and countries that more investment at national levels is warranted.
    Keywords: EMU reforms,policy preferences,elite survey,members of national parliament,comparative politics
    JEL: E60 E62 F15 H60
    Date: 2017
  29. By: Williams, Ronald
    Abstract: A process to provide perfect ownership and direction of businesses to the entire public, via non-profit universities. The process enables a nonprofit university to acquire and administer businesses and other important infrastructures within society in a manner where faculty and students of the university can more efficiently and effectively administer their infrastructures to produce and allocate their goods and services to society in a socially and economically competitive manner which provides the greater public education system the leverage to acquire and administer the entire for-profit sector, as well as other important infrastructures within society. The mechanism relies on an iterated prisoner’s dilemma (game theory scenario) established amongst all businesses, created by global externalities produced from the localized interactions of a group of purely reasonable and competitive businesses acquired and administered by a nonprofit university, and those which are undergoing their acquisition process, via the nonprofit university. The results more efficiently and effectively produce and allocate the goods, services, amenities, knowledge, resources and opportunities of society to the public in a manner which reduces and eliminates the operating costs of society and the regular living expenses of the public, while maintaining and nurturing the social and economic order of society via the natural infrastructures and routines of nonprofit universities.
    Keywords: Applied Physics, Psychology and Behaviour, Socioeconomic Scenarios, Education, Nonprofit Universities, Social Policy, Public Policy, Monetary Policy, Fiscal Policy,
    JEL: C1 C7 C71 C73 E5 E6 G1 G18 H4 I2 I25 P3 P35
    Date: 2017–09–08
  30. By: Christoph Bierbrauer (Hochschule Darmstadt)
    Abstract: We present a two-country New Open Economy Macroeconomics model of a currency union featuring an overlapping generations structure of the Blanchard (1985)-Yaari (1965) type as well as monopolistic frictions and staggered adjustment in the goods and labor market. We allow for public investment and distortionary taxation. We study the effects of fiscal policy measures such as public spending, tax cuts targeted to households and public investment as suggested by the European Commission (2008). In particular, we explore the effects of fiscal policy as a function of the financing decision of the implementing government. We find that the impact of fiscal measures on national variables as well as the spillovers depend on the assumed degree of household myopia and again, the financing decision of the government. However, the introduction of a complex fiscal sector which enables the government to choose between alternative financing schemes is an important determinant of the effects of fiscal expansions on key macroeconomic variables such as, output and consumptions. Thus, modeling a complex fiscal sector on both sides of the budgets is crucial for the results and therefore the effectiveness of fiscal stimulus packages.
    Keywords: Overlapping generations; New open economy macroeconomics; Public Debt; Decentralized fiscal policy; Monetary union
    JEL: E62 F33 F41 H31 H50 H63
    Date: 2017–11–22
  31. By: Aviral Kumar Tiwari (Center for Energy and Sustainable Development (CESD), Montpellier Business School, Montpellier, France); Juncal Cunado (University of Navarra, School of Economics, Edificio Amigos, Pamplona, Spain); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha USA, and School of Business and Economics, Loughborough University)
    Abstract: This paper analyzes the volatility spillovers across four global asset classes namely, stock, sovereign bonds, credit default swaps (CDS) and currency from September 2009 to September 2016, using both a time-domain and a frequency-domain framework. When the Diebold and Yilmaz (2012) methodology is applied, the estimated total connectedness index is 3.67%, suggesting a low level of connection among the four markets. Furthermore, the results show that the stock and CDS markets are net transmitters of volatility, while foreign exchange and bond markets are net receivers of the spillovers. When the Barunik and Krehlik (2017) frequency-domain analysis is carried out, the results indicate, first, that at higher frequencies, the degree of connectedness increases, and, second, that the stock market becomes the only net transmitter of volatility spillovers across the markets.
    Keywords: Volatility Spillovers, Financial Markets
    JEL: C32 E44 G10 G11
    Date: 2017–12
  32. By: Brinca, Pedro (Center for Economics and Finance); Ferreira, Miguel (Nova School of Business and Economics); Franco, Francesco (Nova School of Business and Economics); Holter, Hans (Department of Economics); Malafry, Laurence (Dept. of Economics, Stockholm University)
    Abstract: Following the Great Recession, many European countries implemented fiscal consolidation policies aimed at reducing government debt. Using three independent data sources and three different empirical approaches, we document a strong positive relationship between higher income inequality and stronger recessive impacts of fiscal consolidation programs across time and place. To explain this finding, we develop a life-cycle, overlapping generations economy with uninsurable labor market risk. We calibrate our model to match key characteristics of a number of European economies, including the distribution of wages and wealth, social security, taxes and debt, and study the effects of fiscal consolidation programs. We find that higher income risk induces precautionary savings behavior, which decreases the proportion of credit-constrained agents in the economy. Credit-constrained agents have less elastic labor supply responses to fiscal consolidation achieved through either tax hikes or public spending cuts, and this explains the relationship between income inequality and the impact of fiscal consolidation programs. Our model produces a cross-country correlation between inequality and the fiscal consolidation multipliers, which is quite similar to that in the data.
    Keywords: Fiscal Consolidation; Income Inequality; Fiscal Multipliers; Public Debt; Income Risk
    JEL: E21 E62 H31 H50
    Date: 2017–11–27
  33. By: McGrattan, Ellen R. (Federal Reserve Bank of Minneapolis); Bhandari, Anmol (Federal Reserve Bank of Minneapolis)
    Abstract: This paper uses theory disciplined by U.S. national accounts and business census data to measure private business sweat equity, which is the value of time to build customer bases, client lists, and other intangible assets. We estimate an aggregate sweat equity value of 0.65 times GDP, with little cross-sectional dispersion in valuations when compared to business net incomes and large cross-sectional dispersion in rates of return. Our estimate of sweat equity is close to the estimate of marketable fixed assets used in production by private businesses, implying a high ratio of intangible to total assets. We use the model to evaluate the impact of greater tax compliance of private businesses and lower tax rates on the net income of both privately held and publicly traded businesses.
    Keywords: Intangibles; Business valuation
    JEL: E13 E22 H25
    Date: 2017–11–20
  34. By: Angelini, Giovanni; Bacchiocchi, Emanuele; Caggiano, Giovanni; Fanelli, Luca
    Abstract: We propose a new non-recursive identification scheme for uncertainty shocks, which exploits breaks in the unconditional volatility of macroeconomic variables. Such identification approach allows us to simultaneously address two major questions in the empirical literature on uncertainty: (i) Does the relationship between uncertainty and economic activity change across macroeconomic regimes? (ii) Is uncertainty a major cause or effect (or both) of decline in economic activity? Empirical results based on a small-scale VAR with US monthly data for the period 1960-2015 suggest that (i) the effects of uncertainty shocks are regime-dependent, and (ii) uncertainty is an exogenous source of decline of economic activity, rather than an endogenous response to it.
    JEL: C32 C51 E44 G01
    Date: 2017–11–30
  35. By: M Hashem Pesaran (University of Southern California; Trinity College, Cambridge); Ron P Smith (Birkbeck, University of London)
    Abstract: This paper considers tests of the effectiveness of a policy intervention, defined as a change in the parameters of a policy rule, in the context of a macroeconometric dynamic stochastic general equilibrium (DSGE) model. We consider two types of intervention, First the standard case of a parameter change that does not alter the steady state, and second one that does alter the steady state, e.g. the target rate of inflation. We consider two types of test, one a multi-horizon test, where the post-intervention policy horizon, H, is small and fixed, and a mean policy effect test where H is allowed to increase without bounds. The multi-horizon test requires Gaussian errors, but the mean policy effect test does not. It is shown that neither of these two tests are consistent, in the sense that the the power of the tests does not tend to unity as H tends to infinity, unless the intervention alters the steady state. This follows directly from the fact that DSGE variables are measured as deviations from the steady state, and the effects of policy change on target variables decay exponentially fast. We investigate the size and power of the proposed mean effect test by simulating a standard three equation New Keynesian DSGE model. The simulation results are in line with our theoretical findings and show that in all applications the tests have the correct size; but unless the intervention alters the steady state, their power does not go to unity with H.
    Keywords: counterfactuals, policy analysis, policy ineffectiveness test, macroeconomics.
    JEL: C18 C54 E65
    Date: 2017–10
  36. By: Kyungmin Kim
    Abstract: We explore the use of external instrument SVAR to identify monetary policy shocks. We identify a forward guidance shock as the monetary shock component having zero instant impact on the policy rate. A contractionary forward guidance shock raises both future output and price level, stressing the relative importance of revealing policymakers' view on future output and price level over committing to a policy stance. We also decompose non-monetary structural shocks, and find that positive shocks to output and price level lead to monetary contraction. Since information on output and price level is revealed through both monetary and non-monetary channels, some monetary and non-monetary shocks can look alike, leading to linear dependence and violating usual instrument SVAR assumptions. We show that some of the main findings are robust to such dependence.
    Keywords: Forward guidance ; Instrument VAR ; Monetary policy
    JEL: E52 E44
    Date: 2017–11–28
  37. By: Ko Miura (Bank of Japan); Masato Higashi (Bank of Japan)
    Abstract: In recent years, the increase in dual-income households has been remarkable. The main factor in this increase has been the successful efforts of the government and firms in promoting female labor force participation in a tight labor market. In addition, negative factors such as the heightened concern of mainly middle-aged people regarding their financial situation in old age has also affected the increase in dual-income households. Looking at the effects of the increase on dual-income households' consumption expenditure and savings, it is clear that the increase in income corresponds with an increase in consumption expenditure. Meanwhile, the increase in dual-income households also contributes to a rise in the savings rate (a decline in propensity to consume), which is considered to be one reason why macroeconomic propensity to consume has declined since about 2013.
    Keywords: dual-income household; labor force participation; saving rate; propensity to consume
    JEL: C25 E21 J12 J21
    Date: 2017–11–30
  38. By: International Monetary Fund
    Abstract: A prolonged period of stagnation has resulted in declining income relative to neighboring countries, concerns about fiscal sustainability, and a severe household debt overhang problem. Elevated public debt, limited external buffers, and a pegged exchange rate regime, constrain the policy space to respond to shocks. A stronger U.S. economy and the opening of a mega resort are expected to lift real GDP growth to 1¾ percent this year and 2½ percent in 2018, but potential growth remains low, reflecting structural impediments. A new administration—in office since mid-May— has pledged a strong commitment to revive growth and restore fiscal accountability and discipline.
    Keywords: Western Hemisphere;Bahamas, The;
    Date: 2017–10–06
  39. By: Carlo Cristiano; Paolo Paesani
    Abstract: Moving from conflicting opinions regarding the relevance of A.W. Phillips’ contribution, and of the Phillips curve in particular, this paper provides a contextual analysis in which Phillips (1958) is seen as part of a wider research effort, aimed at exploring how to reconcile price stability with levels of unemployment that were higher than current rates but politically acceptable. We label this proposal ‘reverse trade-off’, to mark its distance from standard textbook accounts, which regard the Phillips curve as justifying inflationary Keynesian policies in the 1960s and 1970s. Moreover, our reconstruction suggests that what really mattered with Phillips (1958) was that it provided a quantitative estimate of the unique (and low) level of the unemployment rate which was compatible with price stability. However, even though the British Treasury and the LSE colleague of Phillips F. Paish conducted independent researches along the lines proposed by Phillips, the curve met with early opposition from some prominent British policy and academic circles. At Cambridge, Kahn and Kaldor in particular attacked the neoclassical underpinnings as well as the policy implications of the curve. Parallel to this, Lipsey (1960), while contributing to popularize the Phillips hypothesis within the broad scientific community, had the opposite effect in the restricted academic and top level policy circles within which Phillips’ curve article was born and moved its first steps. First, Lipsey’s empirical results and rightly cautious attitude weakened the case for bringing the unemployment rate up at the level consistent with price stability. Second, Lipsey (1960) weakened also the belief in the possibility itself of identifying the unique unemployment rate consistent with price stability.
    Keywords: Phillips curve, unemployment, inflation, stabilization
    JEL: B22 E24 E31
    Date: 2017–09
  40. By: Matteo Fragetta; Roberto Tamborini
    Abstract: While the debate over the relationship between austerity and growth in Europe has been lively and intense, systematic and rigours empirical analysis has remained underdeveloped. With this econometric study of a panel of European countries and the US from 2010 to 2015, we have sought to fill this gap. In particular, our study is organised as a "test" of the "it’s not austerity" hypothesis, i.e. that austerity cannot be regarded as the explanatory variable of the post-crisis poor growth in Europe. To this end, we have articulated this hypothesis in four control variables of the growth-austerity relationship accounting for external competitiveness, the sovereign debt crisis, the general efficiency of the economy, and the composition effect of aus- terity between (less) expenditure and (more) taxation. As further control variable we have also considered one-year official forecasts of austerity. Austerity has been identified as a year-to-year increase in the structural primary balance relative to potential GDP. Upon estimating a static relationship using year-to-year changes in the variables with two methods (two-way fixed effects and Pesaran’s PCCE (2006)), and a dynamic one, aimed at capturing longer-run effects, with the Arellano-Bond difference panel estimator, our main conclusion is that the "it’s not austerity" hypothesis does not pass our test. The austerity coefficient is significant in all estimated relationships (except one) with the "Keynesian" theoretical sign, i.e. a negative ef- fect on GDP growth in a range between 0.7 and 0.9 in the static specification and slightly lower in the dynamic one. On the other hand, the evidence also indicates that austerity cannot be regarded as the single negative factor impinging on growth in the panel under examination. The general efficiency of the economy has also played a role, but what emerges as the more significant co-determinant is the increase in the debt/GDP ratio, with an effect on growth comparable to austerity (or larger in some specifications). However, this fact should be reconsidered carefully, because the "excess austerity" hypothesis may be corroborated, according to which it is growth-depressing austerity which causes the debt/GDP ratio to grow, hypothesis enhanced by the finding that the real value of debt and its real interest rate are both non-significant.
    Keywords: EMU, fiscal consolidation, panel time series
    JEL: E62 C33
    Date: 2017
  41. By: Pasche, Markus
    Abstract: The broadly discussed TARGET2 imbalances in the European Monetary Union result from the fact that there is no settlement mechanism such like the Interdistrict Settlement Accounts (ISA) in the Fed system. The proposal of Brunnermeier at al. (2011, 2017) of so-called European Safe Bonds (ESBies), although designed for different purposes, could be used as a remedy of this problem. In this brief note I suggest to use ESBies as a standardized safe asset for settling cross-border transfers of deposits.
    Keywords: TARGET2 imbalances; ESBies; ISA
    JEL: E42 F32 F33 F36
    Date: 2017–11–29
  42. By: Yasufumi Gemma (Deputy Director and Economist, Institute for Monetary and Economic Studies (currently Research and Statistics Department), Bank of Japan (E-mail:; Takushi Kurozumi (Director and Senior Economist, Institute for Monetary and Economic Studies (currently Monetary Affairs Department), Bank of Japan (E-mail:; Mototsugu Shintani (Professor, RCAST, University of Tokyo and Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: Inflation dynamics in the U.S. and Japan are investigated by estimating a “generalized” version of the Galí and Gertler (1999) New Keynesian Phillips curve (NKPC) with Bayesian GMM. This generalized NKPC (GNKPC) differs from the original only in that, in line with the micro evidence, each period some prices remain unchanged even under non-zero trend inflation. Yet the GNKPC has features that are significantly distinct from those of the NKPC. Model selection using quasi-marginal likelihood shows that the GNKPC empirically outperforms the NKPC in both the U.S. and Japan. Moreover, it explains U.S. inflation dynamics better than a constant-trend-inflation variant of the Cogley and Sbordone (2008) GNKPC. According to our selected GNKPC, when trend inflation fell after the Great Inflation of the 1970s in the U.S., the probability of no price change rose. Consequently, the GNKPC’s slope flattened and its inflation- inertia coefficient decreased. As for Japan, when trend inflation turned slightly negative after the late 1990s (until the early 2010s), the fraction of backward-looking price setters increased; therefore, the GNKPC’s inflation-inertia coefficient increased and its slope flattened.
    Keywords: Inflation Dynamics, Trend Inflation, Generalized New Keynesian Phillips Curve, Bayesian GMM Estimation, Quasi-marginal Likelihood
    JEL: C11 C26 E31
    Date: 2017–11
  43. By: Zouhair Aït Benhamou
    Abstract: In an open economy setting, the slope in the New Keynesian Phillips Curve (NKPC) becomes sensitive to openness to trade, particularly so in emerging economies. The literature tends to overlook the underlying issues of this aspect, a shortcoming which we seek to address in this paper. We argue that a new Keynesian model framework with real rigidities can remedy to this limitation. To the literature's use of a constant domestic bias parameter, we substitute the concept of imperfect access to consumption goods. Our model incorporates real rigidities in the New Keynesian framework through domestic firm-level investment schedule, which determines aggregate openness to trade. We argue that capital-intensive goods are more integrated in global trade. The proposed model in this paper formulates a micro-founded Phillips curve augmented with an openness to trade component, which captures its ambiguous effects on inflation: strategic complementarity between domestic and foreign goods increases price stickiness, whereas competitive foreign products drive aggregate prices down. Finally, the paper describes welfare changes following different monetary policy regimes in an open economy setting. The welfare results implied by the usual tradeoff facing monetary authorities between exchange rate and inflation stability becomes sensitive to openness to trade.
    Keywords: International Trade, Neo-Keynesian Model, Emerging Economies, Monetary Policy, Welfare Effects, Strategic Interactions
    JEL: F12 F41 E52
    Date: 2017
  44. By: Alexander Murray
    Abstract: Based on original data analysis and a review of existing literature, this report summarizes the state of knowledge on the causes of the post-2004 slowdown in U.S. productivity growth.
    Keywords: Economic Theory, Labour Productivity, Living Standards, Growth, U.S., Recession, Academics, Literature,
    JEL: E24 J24 J11 F43
    Date: 2017–08
  45. By: International Monetary Fund
    Abstract: Swaziland has experienced a period of macroeconomic stability, but faces formidable policy challenges and structural issues. A drought and a sharp decline in SACU revenue have hit the economy, and an expansionary fiscal policy has worsened fiscal and external imbalances. Public debt is rising, domestic arrears accumulating, and reserve coverage is below adequate levels. Banks are well capitalized, but links between government and financial institutions pose macro-financial risks. Structural impediments have limited growth and contributed to keep poverty and inequality too high.
    Keywords: Swaziland;Sub-Saharan Africa;
    Date: 2017–09–11
  46. By: Fuad Mammadov (Center for Research and Development); Adigozalov Shaig (Central Bank of Azerbaijan);
    Abstract: In this paper we empirically examined the role of fiscal rules in mitigating the impact of oil market fluctuations in resource-rich economies using a structural panel VAR framework following P. Pedroni (2013) and incorporating identification scheme of Kilian (2009). Our key findings can be summarized as: l) oil exporting developing countries exhibit procyclical respond to positive oil market specific demand shock, 2) there are significant crosscountry differences in the way governments respond to the oil market shocks, 3) fiscal rules mitigate the shocks and generate fiscal discipline only if when all fiscal rules are imposed simultaneously, 4) we couldn’t identify any significant role of wealth funds as a budget stabilization policy.
    Keywords: fiscal rule; structural panel VAR; oil shocks
    JEL: C12 C22 C23 E62
    Date: 2017–11–18
  47. By: F. Bec; R. Boucekkine; C. Jardet
    Abstract: This paper proposes a theoretical model of forecasts formation which implies that in presence of information observation and forecasts communication costs, rational professional forecasters might find it optimal not to revise their forecasts continuously, or at any time. The threshold timeand state-dependence of the observation reviews and forecasts revisions implied by this model are then tested using inflation forecast updates of professional forecasters from recent Consensus Economics panel data for France and Germany. Our empirical results support the presence of both kinds of dependence, as well as their threshold-type shape. They also imply an upper bound of the optimal time between two information observations of about six months and the coexistence of both types of costs, the observation cost being about 1.5 times larger than the communication cost.
    Keywords: Forecast revision, binary choice models, information and communication costs.
    JEL: C23 D8 E31
    Date: 2017
  48. By: Bassetto, Marco (Federal Reserve Bank of Chicago); Cui, Wei (University College London and Center for Macroeconomics)
    Abstract: A central equation for the fiscal theory of the price level (FTPL) is the government budget constraint (or "government valuation equation"), which equates the real value of government debt to the present value of fiscal surpluses. In the past decade, the governments of most developed economies have paid very low interest rates, and there are many other periods in the past in which this has been the case. In this paper, we revisit the implications of the FTPL in a world where the rate of return on government debt may be below the growth rate of the economy, considering different sources for the low returns: dynamic inefficiency, the liquidity premium of government debt, or its favorable risk profile.
    Keywords: Debt; fiscal policy; interest rates
    JEL: E43 E62 E63 H6
    Date: 2017–11–16
  49. By: Heyman, Fredrik (Research Institute of Industrial Economics (IFN)); Norbäck, Pehr-Johan (Research Institute of Industrial Economics (IFN)); Persson, Lars (Research Institute of Industrial Economics (IFN))
    Abstract: This paper examines employment and productivity dynamics in the Swedish business sector during the period 1996–2013. In order to analyze employment and productivity in a consistent way we apply a novel implementation of a method, which previously has been used extensively to analyze job dynamics, on both job and productivity dynamics. Our results, based on detailed matched employer-employee data for Sweden, indicate substantial heterogeneity in terms of job and productivity dynamics for different types of firms. We find that most of the net jobs were created in young, small firms, but at the same time we also find that most of the productivity gains were created in large old incumbent firms, thus suggesting a division of labor between the two. Our analysis provides new insights into the importance of age and size of firms in the restructuring process, stressing the dichotomy between employment growth and productivity growth in different types of firms.
    Keywords: Job dynamics; Productivity; Matched employer-employee data; Industrial structure and structural change
    JEL: E24 J23 L16 L25 L26
    Date: 2017–11–20
  50. By: W. Arrata; B. Nguyen; I. Rahmouni-Rousseau; M. Vari
    Abstract: Some Euro area money market rates have been standing below the deposit facility rate since 2015, which coincided with the start of the Eurosystem’s public sector purchase program (PSPP). In this paper, we explore empirically the interactions between the PSPP and short term secured money market rates (repo rates). We document different channels through which asset purchases may affect the various segments of the Euro area repo market. Using proprietary data from the PSPP purchases and transactions made on the repo market for specific securities (“special”), our results show that the PSPP has contributed to push down repo rate, in particular prior to January 2017. On average, purchasing 1% of a bond outstanding is associated with a decline in its repo rate of -0.78 bps.
    Keywords: specialness, repo market, asset purchases, money market.
    JEL: E52 E58 G10
    Date: 2017
  51. By: Gabriel Mathy (American University); Herman O. Stekler (The George Washington University)
    Abstract: Theories that explain the behavior of the economy during the Depression are based on assumptions about agents’ expectations about future price trends. This paper uses an alternative methodological approach which utilizes real-time information from the Depression period to infer whether deflation was anticipated. The information includes the forecasting methodology of that time as well as projections about anticipated output that were obtained from the textual analysis of business statements, converting qualitative to quantitative data. We infer that deflation was not anticipated because agents did not expect economic output to consistently decrease.
    Keywords: decision processes;
    Date: 2017–12
  52. By: FitzGerald, John (Trinity College, Dublin); Kenny, Seán (Department of Economic History, Lund University)
    Abstract: In this paper, we discuss the unresolved apportionment of national debt when Ireland exited the UK in 1922. Using archival sources and contemporary accounts, we estimate that the British claim on Ireland in 1925 amounted to between 80 and 100 per cent of GNP at a time when the political stability of Ireland was already fragile. We describe the process of how this contingent liability, arising from the Anglo-Irish Treaty of 1921, was ultimately waived in a Financial Agreement in 1925 at the expense of an unchanged border with Northern Ireland. The Irish government also sought, but failed, to secure protection against discrimination for Catholics in Northern Ireland as part of the agreement. While for the Irish Government, this settlement may have represented a political failure, the economic outcome of the agreement transformed the economic position of the new Irish State from one of potential insolvency into one of viability.
    Keywords: contingent liability; public debt; secession; independence; Ireland; United Kingdom; Financial Agreement; political economy; border
    JEL: E62 F50 H60 H77 N00
    Date: 2017–12–01
  53. By: Shahed Khan (McMaster University); Alok Johri (McMaster University); Cesar Sosa-Padilla (University of Notre Dame)
    Abstract: As the United States emerged from the Great Recession, there was considerable uncer- tainty around the future direction of US monetary policy exemplified by the chatter and speculation around tapering of quantitative easing by the US Fed in the financial press. The increased uncertainty around the timing and speed of the tapering coincided with a sharp spike in the sovereign bond yields of several emerging economies. We explore the impact of an increase in interest rate uncertainty on the borrowing costs of a small open economy in an otherwise standard model of sovereign default, where spread is endogenous. We find that introducing time-varying volatility in the world interest rate (i.e. uncertainty shocks) the model predicts a mean sovereign spread that is 115% larger and 126% more volatile. The model also predicts that countries default more than twice as frequently. Moreover, the equilibrium debt-to-income ratio is 19% lower. The welfare gains from eliminating uncertainty about the world interest rate amount up to a 1.8% permanent increase in consumption. Overall, we find quantitative support for the widespread con- cerns regarding the uncertainty about when and how the Fed will unwind its quantitative easing.
    Date: 2017
  54. By: International Monetary Fund
    Abstract: The Dominican economy continues to grow rapidly, buoyed by low energy prices, strengthening labor markets, dynamic investment, and the recovery in the U.S. Lower oil prices have balanced the effects of strong domestic demand on inflation and the external position. The outlook is favorable: the pace of expansion—which averaged around 7 percent over the past three years—is tapering off towards potential, inflation is set to increase to target as commodity prices recover, and a healthy financial sector is well poised to support growth.
    Keywords: Dominican Republic;Western Hemisphere;
    Date: 2017–08–16
  55. By: Biondo, Alessio Emanuele
    Abstract: This paper presents a simulative model of a financial market, based on a fully operating order book with limit and market orders. The heterogeneity of traders is characterized not only with regards to their trading rules, but also by introducing a behavioral individual risk aversion and a learning ability influencing the process of expectations formation. Results show that individual learning may play a role in stabilizing the aggregate market dynamics, whereas risk aversion can, counterintuitively, have perverse consequences on it.
    Keywords: order book,learning to Forecast,risk aversion,agent based models
    JEL: E44 E47 C63
    Date: 2017
  56. By: John Fitzgerald (Department of Economics, Trinity College Dublin); Seán Kenny (Lund University)
    Abstract: In this paper, we discuss the unresolved apportionment of national debt when Ireland exited the UK in 1922. Using archival sources and contemporary accounts, we estimate that the British claim on Ireland in 1925 amounted to between 80 and 100 per cent of GNP at a time when the political stability of Ireland was already fragile. We describe the process of how this contingent liability, arising from the Anglo-Irish Treaty of 1921, was ultimately waived in a Financial Agreement in 1925 at the expense of an unchanged border with Northern Ireland. The Irish government also sought, but failed, to secure protection against discrimination for Catholics in Northern Ireland as part of the agreement. While for the Irish Government, this settlement may have represented a political failure, the economic outcome of the agreement transformed the economic position of the new Irish State from one of potential insolvency into one of viability.
    Keywords: Contingent liability, public debt, secession, independence, Ireland, United Kingdom, Financial Agreement, political economy, border.
    JEL: E62 F50 H60 H77 N00
    Date: 2017–11
  57. By: International Monetary Fund
    Abstract: Faced with significant economic and fiscal challenges, the Brazilian government is reforming its fiscal framework to promote fiscal sustainability and reduce debt. Since 2015, Brazil has struggled with its deepest economic recession in decades and ongoing political tensions. The fiscal situation has deteriorated sharply with a significant drop in revenues and debt increasing above the emerging market average. Within the past year, the government has made significant progress in reforming its fiscal framework. In late 2016, a new expenditure rule was established and a new IFI was created. Reforms are also ongoing in several areas, including a new public financial management (PFM) law currently with the legislature.
    Keywords: Western Hemisphere;Brazil;
    Date: 2017–10–04
  58. By: Don Drummond, Andrew Sharpe, Alexander Murray and Nicolas Mask
    Abstract: The objective of this report is to contribute to the debate on closing socio-economic gaps between Aboriginal and non-Aboriginal people by projecting the contribution of Aboriginal people to future labour force growth in Canada as a whole and by region under various scenarios over the 2011-2036 period.
    Keywords: Labour Force, Growth, Aboriginal, Canada, Trends, contributions, Ethnic Mobility, Population, Age Demographics, Labour Force Participation Rates
    JEL: J21 N1 J11 E24 I31 F00 I2 J17 O15 F43
    Date: 2017–10
  59. By: Martha López (Banco de la República de Colombia)
    Abstract: The recent financial crises brought about a new string of theoretical and empirical studies about the so-called risk-taking channel of monetary policy. There is strong empirical evidence of the channel in terms of local and in terms of the international spillovers of the mechanism. In this paper we contribute to this empirical literature and enhance the range of the analysis by studying which economic sectors are more vulnerable to the channel. We use loan level micro-data for 3019 Colombian firms between 2005:1 and 2014:3. The identification technique used for our estimations is the one developed in Jimenez et al. (2014). Our results show strong evidence of a risk-taking channel for the economy as a whole and a stronger effect in the agriculture and services sectors than in the others. This results are supported in terms not only of ex ante credit risk but also in terms of ex post credit risk. The firms more affected are the less profitable and the less leveraged. Classification JEL: E44, E51, E52, G10, G20.
    Keywords: Monetary policy, credit risk, supply of credit, bank capital, financial stability.
    Date: 2017–11
  60. By: International Monetary Fund
    Abstract: Growth prospects for 2017 have improved, but nonagricultural growth is subdued. Inflation is low. The current account deficit is projected to decline and international reserves are at a comfortable level. The outlook is still subject to significant domestic and external risks, including weak growth in the euro area and geopolitical risks in the region.
    Keywords: Middle East;Morocco;
    Date: 2017–09–08
  61. By: International Monetary Fund
    Abstract: Mauritania continues to face a challenging external environment with low and volatile metal prices. A steep decline in iron ore prices in 2014–15 took away half of exports, widened the fiscal deficit, put pressure on reserves, and exposed bank vulnerabilities. In response, the authorities adjusted the budget significantly in 2016 (by 3 percent of GDP), allowed the exchange rate to depreciate, and mobilized foreign grants and loans. These efforts were successful in reducing external imbalances and maintaining macroeconomic stability, but growth slowed considerably, external debt continued to rise (to 72 percent of GDP, with a high risk of debt distress), and financial stability risks heightened. In parallel, the authorities are preparing a national strategy for accelerated and inclusive growth covering 2016–30, including structural reforms and large foreign-financed infrastructure investments to support growth and diversification.
    Date: 2017–10–16
  62. By: Daniela Marconi; Christian Upper
    Abstract: This study investigates how financial development affects capital allocation across industries in a panel of countries at different stages of development (China, India, Mexico, Korea, Japan and the US) over the period 1980-2014. Following the approach proposed by Chari et al (2007) and Aoki (2012), we compute wedges for capital and labour inputs for 26 industrial sectors in the six countries and add them up to economy-wide measures of capital and labour misallocation. We find that more developed financial systems allocate capital investment more efficiently than less developed ones. If financial development is low, faster capital accumulation is associated with a worsening of allocative efficiency. This effect reverses for higher levels of financial development. Sectors with high R&D expenditures or high capital investment benefit most from financial development. These effects are not only statistically significant, they are also large in economic terms.
    Keywords: factor allocation, total factor productivity, financial development
    JEL: E22 E23 O16 O47
    Date: 2017–11
  63. By: International Monetary Fund
    Abstract: Serbia continues to make good progress in addressing macroeconomic imbalances, supported by the Stand-By Arrangement (SBA), contributing to improved confidence and stronger growth. However, structural challenges remain, and it is important to continue the reform momentum, taking advantage of synergies with the EU accession process.
    Keywords: Europe;Serbia;
    Date: 2017–09–06
  64. By: Magdalena Petrovska (National Bank of the Republic of Macedonia); Gani Ramadani (National Bank of the Republic of Macedonia); Nikola Naumovski (National Bank of the Republic of Macedonia); Biljana Jovanovic (National Bank of the Republic of Macedonia)
    Abstract: The primary goal of this paper is to describe several models that are currently used at the National Bank of the Republic of Macedonia (NBRM) for short-term forecasting of inflation - Autoregressive integrated moving average models (aggregated and disaggregated approach), three equation structural model and a dynamic factor model. Additionally, we evaluate models’ out-of-sample forecasting performance for the period 2012 q3 to 2016 q2 by using a number of forecast evaluation criteria such as the Root Mean Squared Error, the Mean Absolute Error, the Mean Absolute Percentage Error and the Theil’s U Statistics. Additionally, we constructed several composite forecasts in order to test whether a combination forecast is superior to individual models’ forecasts. Our results point to three important conclusions. First, the forecasting accuracy of the models is highest when they are used for forecasting one quarter ahead i.e. the errors increase as the forecasting horizon increases. Second, the disaggregated ARIMA model has the smallest forecasting errors. Third, majority of the forecast evaluation criteria suggest that composite forecasts are superior in comparison to the individual models.
    Keywords: Inflation, forecasting, forecast evaluation, composite forecast
    JEL: C52 C53 E37
    Date: 2017
  65. By: Junjie Guo (Indiana University); Juan Carlos Escanciano (Indiana University); Jinho Choi (AMRO and Bank of Korea)
    Abstract: This article proposes a new identification strategy and a new estimation method for the hybrid New Keynesian Phillips curve (NKPC). Unlike the predominant Generalized Method of Moments (GMM) approach, which leads to weak identification of the NKPC with U.S. postwar data, our nonparametric method exploits nonlinear variation in inflation dynamics and provides supporting evidence of point-identification. This article shows that identification of the NKPC is characterized by two conditional moment restrictions. This insight leads to a quantitative method to assess identification in the NKPC. For estimation, the article proposes a closed-form Generalized Band Spectrum Estimator (GBSE) that effectively uses information from the conditional moments, accounts for nonlinear variation, and permits a focus on short-run dynamics. Applying the GBSE to U.S postwar data, we find a significant coefficient of marginal cost and that the forward-looking component and the inflation inertia are both equally quantitatively important in explaining the short-run inflation dynamics, substantially reducing sampling uncertainty relative to existing GMM estimates.
    Keywords: Point-identification, New Keynesian Phillips curve, Weak instruments, Nonlinear dependence, Generalized spectrum
    Date: 2017–11
  66. By: Donadelli, Michael; Grüning, Patrick; Jüppner, Marcus; Kizys, Renatas
    Abstract: We shed new light on the macroeconomic effects of rising temperatures. In the data, a shock to global temperature dampens expenditures in research and development (R&D). We rationalize this empirical evidence within a stochastic endogenous growth model, featuring temperature risk and growth sustained through innovations. In line with the novel evidence in the data, temperature shocks undermine economic growth via a drop in R&D. Moreover, in our endogenous growth setting temperature risk generates non-negligible welfare costs (i.e., 11% of lifetime utility). An active government, which is committed to a zero fiscal deficit policy, can offset the welfare costs of global temperature risk by subsidizing the aggregate capital investment with one-fifth of total public spending.
    Keywords: Global Temperature,R&D,Welfare Costs
    JEL: E30 G12 Q00
    Date: 2017
  67. By: International Monetary Fund
    Abstract: Saudi Arabia has embarked on a bold reform program under Vision 2030. Reform momentum is strong, and good progress is being made in reform implementation. Saudi Arabia has reduced oil production under the OPEC+ agreement. Non-oil growth is expected to pick-up this year, but overall GDP growth will be close to zero given the decline in oil production. Growth is expected to strengthen over the medium-term as structural reforms are implemented. Risks mainly come from uncertainties about future oil prices and how ongoing reforms will impact the economy.
    Date: 2017–10–05
  68. By: Vadym Volosovych (Erasmus University Rotterdam); Carolina Villegas Sanchez (ESADE Business School); Bent Sorensen (University of Houston); Sebnem Kalemli-Ozcan (University of Maryland)
    Abstract: We identify knowledge spillovers from foreign investment to domestic firms using novel measures of ``closeness'' of foreign-owned and domestic and domestic firms in product space and in technology space. We rely on a new data set that spans six advanced countries connecting firms internationally in order to, a) separate competition effects on domestic firms from knowledge spillovers when domestic and foreign-owned firms are close in product space, and b) identify spillovers from foreign-owned firms that are close to domestic firms in technology space. We find strong negative competition effects on domestic firms that produce in the same {four-digit} sector as the foreign firms and positive knowledge spillovers to domestic firms operating in the same {two-digit} sector (but in different four-digit sectors). Using a measure of ``technological closeness,'' building on the work of Bloom, Schankerman, and van Reenen (2013), we find significant knowledge spillovers to firms which are close in technology space. On average, knowledge spillovers explain 60 percent of the total factor productivity improvement for domestic firms that are technologically close to foreign firms.
    Date: 2017
  69. By: Lea Gimenez; María Ana Lugo; Sandra Martinez; Humberto Colman; Juan Jose Galeano; Gabriela Farfan
    Abstract: A pesar de los importantes avances experimentados en Paraguay en los últimos años en lo que respecta a crecimiento económico y mejoras en la calidad de vida, reducir la pobreza y la desigualdad continúan siendo objetivos centrales de la política del Gobierno Nacional. En esta línea, el presente documento realiza un diagnóstico del impacto de la política fiscal en la desigualdad y pobreza de Paraguay para el año 2014. Los resultados indican que el sistema fiscal es igualador y reductor de pobreza, pero que ambos efectos son pequeños a pesar de existir una buena focalización tanto en impuestos como en transferencias. El efecto redistributivo se encuentra significativamente por debajo del promedio regional, y más aún, al promedio de América del Sur, mientras el impacto sobre la pobreza se encuentra en el promedio regional, aunque se mantiene por debajo del promedio de América del Sur. El análisis sugiere que el bajo nivel de impuestos directos y transferencias directas, si bien progresivo y relativamente bien focalizado, es un factor importante a la hora de explicar el limitado efecto de la política fiscal en reducir la pobreza y la desigualdad.
    Keywords: Paraguay, política fiscal, pobreza, desigualdad
    JEL: E62 H22 I32 I38 D31 D63
    Date: 2017–10
  70. By: International Monetary Fund
    Abstract: After a protracted period of consolidation following the global financial crisis, the economy is growing, bolstered by large investment projects. Banking-sector conditions are improving, with credit to the private sector growing, following years of deleveraging. The large cost of constructing the first phase of a highway (one quarter of annual GDP), however, is pushing government debt to high levels. The authorities took significant steps to bolster fiscal sustainability with the 2017 budget and are currently implementing a well-specified fiscal adjustment strategy in line with staff advice. Outlook
    Keywords: Europe;Montenegro;
    Date: 2017–09–14
  71. By: Afees A. Salisu (Centre for Econometric and Allied Research, University of Ibadan); Kazeem Isah (Centre for Econometric and Allied Research, University of Ibadan)
    Abstract: In this paper, we investigate capital flight-growth nexus and the role of macroeconomic uncertainty in 28 Sub-Saharan African countries for the period 1986 to 2010. We utilize the newly updated estimates of capital flight from SSA by Boyce and Ndikumana (2012). Using heterogeneous panel methods, we find that the adverse effects of capital flight on growth of SSA seem incontrovertible and these effects may be escalated by macroeconomic uncertainty. In addition, capital flight has more devastating effects on long run growth of the oil exporting region than their non-oil counterpart when confronted with macroeconomic uncertainty. We also establish that the inflow of foreign direct investment and foreign aid are not adequate to compensate for capital flight from SSA. On this basis, fiscal and monetary authorities need to show serious commitments towards addressing the prevalent macroeconomic uncertainty in SSA to mitigate its influence on capital flight and growth in the region.
    Keywords: Capital flight, Macroeconomic uncertainty, Growth, Sub-Saharan Africa (SSA), Heterogeneous panels
    JEL: C23 F21 F32 O40 O55
    Date: 2017–11
  72. By: James Uguccioni, Andrew Sharpe and Richard Beard
    Abstract: Overall, our report highlights the diverse human development experiences of Canadians that are concealed by Canada’s overall HDI.
    Keywords: Human Development Index, International Index, Income, Life expectancy, Education, Well-Being, Canada,
    JEL: E24 I31 F00 I2 J17 O15
    Date: 2017–08
  73. By: Brand, Thomas; Isoré, Marlène; Tripier, Fabien
    Abstract: We develop a business cycle model with gross flows of firm creation and destruction. The credit market is characterized by two frictions. First, entrepreneurs undergo a costly search for intermediate funding to create a firm. Second, upon a match, a costly-state-verification contract is set up. When defaults occurs, banks monitor firms, seize their assets, and a fraction of financial relationships are severed. The model is estimated using Bayesian methods for the U.S. economy. Among other shocks, uncertainty in productivity turns out to be a major contributor to both macro-financial aggregates and firm dynamics.
    Keywords: Uncertainty shocks, Financial frictions, Search and Matching, Business Cycles, Firm Dynamics
    Date: 2017–12
  74. By: Bulent Guler (Indiana University)
    Abstract: In this paper, we incorporate price search decision into an otherwise standard life-cycle model with incomplete markets and an endogenous labor supply, differentiating consumption from expenditure. In our model, consumers can allocate part of their time to searching for low prices, and this leads to an endogenous price dispersion. We have three contributions. First, we analytically study the determinants of price search and its relation to consumption and expenditure inequalities in a static model. Second, we study quantitatively the role of price search in a dynamic version of the model. A plausible calibration implies that the life-cycle increase in the cross-sectional variance of log consumption is about 40 percent lower than the increase in the cross-sectional variance of log expenditure. Third, we show that price search provides an additional quantitatively significant partial insurance mechanism against adverse income shocks.
    Keywords: Consumption inequality, price search, incomplete markets, life cycle models, partial insurance
    Date: 2016–09
  75. By: Weijie Luo
    Abstract: This paper distinguishes between income inequality induced by differences in labor productivity and induced by differences in capital income. Persson and Tabellini (1994) argue that productivity-induced income inequality leads to lower growth since distortionary taxes increase and harm capital accumulation. However, if income inequality stems from differences in capital income, then labor tax rates fall, leading to higher growth. Using OECD data, increased capital income inequality (proxied by the top 1% income share) has a significant positive relationship with subsequent economic growth. Controlling for capital income inequality yields a negative relationship between labor income inequality and growth, as originally conjectured.
    Keywords: capital income, inequality, growth
    JEL: D31 E62 O40
    Date: 2017–12
  76. By: Prettner, Klaus; Strulik, Holger
    Abstract: We analyze the effects of automation and education on economic growth and inequality in an R&D-based growth model with two types of labor: high-skilled labor that is complementary to machines and low-skilled labor that is a substitute for machines. The model predicts that innovation-driven growth leads to increasing automation, an increasing skill premium, an increasing population share of college graduates, increasing income and wealth inequality, and a declining labor share. In contrast to conventional wisdom, our theory predicts that faster economic growth promotes inequality. Because education and technology are endogenous, redistribution to low-skilled individuals may actually not improve disposable low-skilled income, irrespective of whether it is financed by taxes on labor income or machine input in production. We extend the model by fair wage concerns and show how automation implies involuntary low-skilled unemployment.
    Keywords: Automation,R&D-Based Growth,Inequality,Wealth Concentration,Unemployment,Redistribution
    JEL: E23 E25 O31 O33 O40
    Date: 2017
  77. By: Heng Chen; Kim Huynh; Oz Shy
    Abstract: Cash is the preferred method of payment for small value transactions generally less than $25. We provide insight to this finding with a new theoretical model that characterizes and compares consumers’ costs of paying with cash to paying with cards for each transaction. Our novel method accounts for how much change is received in the form of banknotes and metal coins, assuming that the weight and size of coins are inconvenient to carry. We use the regression discontinuity design (RDD) approach to estimate the model using the 2013 Bank of Canada Method-of-Payments (MOP) Survey and find a significant number of cash users who switch to paying with debit or credit cards at transaction values marginally above $5 and $10. We attribute this finding to the burden of receiving coins as change associated with the currency denomination structure. Our proposed methodology is general and can be applied to other countries and institutional details.
    Keywords: Bank notes, Econometric and statistical methods
    JEL: D03 E42
    Date: 2017
  78. By: Ho, Sin-Yu; Odhiambo, Nicholas
    Abstract: This paper examines the macroeconomic drivers of stock market development in Hong Kong during the period 1992Q4 to 2016Q3. Specifically, it investigates the impact of banking sector development, economic growth, the inflation rate, the exchange rate, trade openness and stock market liquidity on stock market development. By employing autoregressive distributed lag (ARDL) bounds testing procedure, we find that banking sector development and economic growth have positive impacts on stock market development, whereas the inflation rate and the exchange rate have negative impacts on stock market development both in the long and short run. In addition, the results show that trade openness has a positive long-run impact but a negative short-run impact on stock market development. Policy recommendations are provided based on these findings.
    Keywords: macroeconomic drivers, determinants, stock market development, Hong Kong, ARDL bounds testing
    Date: 2017–11
  79. By: International Monetary Fund
    Abstract: Sri Lanka’s economic reform program is supported by an Extended arrangement under the Extended Fund Facility (EFF) that was approved in June 2016 for the amount of SDR 1.1 billion (185 percent of quota and about US$ 1.5 billion) over 36 months. So far two purchases equivalent to SDR 239.788 million have been made, and another purchase equivalent to SDR 119.894 million will be made available upon completion of the second review. Economic growth held up in 2016 despite the fiscal consolidation and weather-related shocks. Growth was supported by robust activity in the industry and service sectors, and improved confidence following the EFF program agreement in June. Despite some delay in passing the VAT amendments, the authorities met the program targets on tax revenues and the primary balance. However, the end-2016 reserve target was missed reflecting the resumption of portfolio outflows late in the year and intervention to limit currency depreciation. Progress has been made in most fiscal-structural reforms, but energy pricing reforms have stalled due to political resistance.
    Keywords: Asia and Pacific;Sri Lanka;
    Date: 2017–08–10
  80. By: International Monetary Fund
    Abstract: Federated States of Micronesia (FSM) is a small and sparsely-populated state vulnerable to climate change. Over the medium term, the country needs to prepare for the expiration of U.S. Compact grants from FY2024 onward, adapt to climate change, facilitate sustainable private-sector growth, and promote safe financial inclusion. A new national government was formed in mid-2015.
    Keywords: Asia and Pacific;Micronesia, Federated States of;
    Date: 2017–09–15
  81. By: International Monetary Fund
    Abstract: Montenegro faces a number of important country-specific factors in its work towards establishing a macroprudential policy framework. First, its small size and short history as a sovereign state limit the availability of resources, including human capital. For example, there are many information gaps around financial soundness indicators (FSIs) that will take a long time to close. Second, the principal policy objective of the central bank is financial stability given the euroization, implying no independent monetary policy. Third, Montenegro is in the process of aligning its policies and practices with those of the European Union (EU), with the aim of achieving EU accession by 2020. This will extend to the implementation of a macroprudential policy framework in line with EU and European Systemic Risk Board (ESRB) standards and regulations.
    Keywords: Europe;Montenegro;
    Date: 2017–10–19
  82. By: Bardt, Hubertus; Beznoska, Martin; Engels, Barbara; Geis, Wido; Henger, Ralph; Hentze, Tobias; Klös, Hans-Peter; Kochskämper, Susanna; Matthes, Jürgen; Pimpertz, Jochen; Plünnecke, Axel; Puls, Thomas; Röhl, Klaus-Heiner; Rusche, Christian; Schäfer, Holger; Schneider, Helena; Stettes, Oliver; Tischler, Benjamin; Voigtländer, Michael
    Keywords: Wahlen,Regierungsbildung,Wirtschaftspolitik
    JEL: D72 E61
    Date: 2017
  83. By: Eleonora Sanfilippo
    Abstract: In the last few years Keynes’s activity as an investor has attracted attention in the specialized literature. Very recently his investments at Wall Street, in particular – both on his own account (Cristiano, Marcuzzo, Sanfilippo 2017) and on behalf of King’s College (Chambers and Kabiri 2016) – have been analyzed, and the evident connection with his theoretical analysis of the functioning of the financial markets contained in Chapter 12 of the General Theory has been duly stressed. The aim of this paper is to make detailed comparison of Keynes’s investment choices and strategies in the US stock market when he traded for himself and for King’s. As might be expected, there are similarities but also significant differences, well worth investigating. As far as the differences are concerned, one of the most striking is to be seen in his attitude when, after a period of bull market in 1936, he had to face the 1937 burst of the speculative bubble and subsequent recession. Detailed analysis of his behavior reveals that this event took him by surprise but his reaction differed with regard to his personal investments and the King’s investments. The prevalence of a ‘buy and hold’ strategy which, according to Chambers and Kabiri (2016), seemed to characterize his behavior in general when investing for King’s, was not always the typical choice when the investments were undertaken on his own account.
    Keywords: Keynes, investment, King’s College, Wall Street, 1937 recession
    JEL: B26 B31 G11 N22
    Date: 2017–11
  84. By: International Monetary Fund
    Abstract: The macroeconomic outlook remains weak. Public debt remains elevated, at around 100 percent of GDP, despite a recent debt restructuring agreement with private external bondholders. Growth is projected at just under 2 percent over the medium term. The envisaged tightening of the fiscal stance reflected in the budget for FY2017/18, of 4 percentage points of GDP, is an important first step toward fiscal consolidation, but would not be sufficient to put public debt on a decisive downward trajectory. Withdrawal of Correspondent Banking Relationships (CBRs) and low capital buffers, particularly in a systemic bank, are key threats to financial stability.
    Keywords: Western Hemisphere;Belize;
    Date: 2017–09–19
  85. By: International Monetary Fund
    Abstract: The Ugandan Bureau of Statistics (UBOS) is responsible for producing national accounts statistics (NAS). Estimates of gross domestic product (GDP) by economic activity and expenditure share are compiled on an annual basis and disseminated via the quarterly Key Economic Indicators and annual Statistical Abstract publications. Summary estimates are released in the government budget papers and via the UBOS website. UBOS commenced disseminating improved quarterly constant price GDP estimates through its website in October 2011. The GDP estimates are broadly consistent with the System of National Accounts 1993 standards.
    Keywords: Sub-Saharan Africa;Uganda;
    Date: 2017–10–06
  86. By: António Afonso; João Jalles
    Abstract: We estimate fiscal reaction functions for a panel of 173 countries using data between 1970-2014. Most notably, we assess the existence of non-Ricardian regimes, as postulated in the Fiscal Theory of the Price Level (FTPL), or, contrarily, the possibility of Ricardian regimes. By means of several, well established and state-of-the-art, panel data techniques, we find that: governments have on average increased the primary balance as a response to higher previous government indebtedness, implying a Ricardian fiscal regime, contradicting the FTPL. In addition, the Ricardian results are confirmed for the advanced countries and for the euro area group, but are less clear for the other country groups, lacking statistical significance. A more Ricardian fiscal regime emerged essentially after 1995 and notably in the sub-period 2008-2014, after the Global Financial Crisis (before that statistical insignificance is the norm) From a P-VAR analysis, we find that increases in government indebtedness increase primary balances, supporting overall the existence of an average Ricardian fiscal regime.
    Keywords: fiscal regimes, FTPL, panel data, panel VAR, panel stationarity, cross-sectional dependence, global financial crisis
    JEL: C23 E62 H62
    Date: 2017–11
  87. By: Richard Beard
    Abstract: This report presents augmented estimates of the Index of Economic Well-being (IEWB) for 14 OECD countries for the 1980-2013 period
    Keywords: Index, Economic Well-being, OECD Countries, Canada, Natural resources, wealth, resource wealth
    JEL: E10 F02 I31 C43 Q00
    Date: 2017–07
  88. By: International Monetary Fund
    Abstract: Cambodia continues to grow at an impressive pace. Looking ahead, the outlook is positive, although there are near-term downside risks. Financial sector vulnerabilities stemming from rapid financial deepening remain elevated despite a recent slowdown in credit growth. Revenue performance has been strong, but spending pressures are contributing to larger fiscal deficits. Medium-term prospects are favorable, though important challenges remain.
    Date: 2017–10–20
  89. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: Die Globalisierung der Wirtschaftsbeziehungen – inklusive hat in Verbindung mit der Digitalisierung der Wirtschaft neuen Anpassungsdruck erzeugt. Mit der zunehmenden grenzüberschreitenden Entwicklung von Forschungsaktivitäten von multinationalen Unternehmen und der grenzüberschreitenden Kooperation forschender Firmen – der Technoglobalisierung – hat die Globalisierung der Wirtschaft eine zusätzliche Dimension entwickelt. Chinas ökonomischer Aufstieg sorgt dabei für globale Mehrnachfrage, aber auch eine verschärfte internationale Innovationskonkurrenz und zumindest zeitweise wurde u.a. von daher auch der Anreiz zu internationaler F&E-Kooperation gerade in OECD-Ländern gestärkt. Die Internationalisierung gibt einer internationalen Auswahl von Leitmärkten für Produktinnovationen neue Optionen und zugleich stellt sich die Frage, wie die Politik auf die veränderte Dynamik reagieren soll. Am Beispiel Österreichs sieht man mit Blick auf die Technoglobalisierung, dass auch kleine Länder durch gezielte Innovationsinternationalisierung via mehr Direktinvestitionen technologisch und ökonomisch aufholen können – ein möglicher Ansatzpunkt für eine neue Wachstumspolitik etwa der ostdeutschen Länder, aber auch von osteuropäischen EU-Beitrittsländern bietet sich an. Für Deutschlands westliche Bundesländer wäre eine stärkere Weltmarktorientierung und Fokussierung der Innovationsförderung wichtig, insbesondere in NRW. Eine Schwäche Deutschlands ist das Zurückhängen beim digitalen Breitbandausbau. Österreichs Probleme in der EU-Passivhaus-Vermarktung zeigen exemplarisch ökologisch-industriepolitische Defizite im EU-Binnenmarkt bzw. bei der EU-Leitmarktpolitik und der EU2020-Agenda. Innovationsorientierte Beschaffungsprogramme in EU-Ländern sind bislang wenig untersucht, dürften allerdings am ehesten in Verbindung mit Cluster-Initiativen erfolgversprechend sein. Technoglobalisierung erscheint als ein anhaltender Prozess, in den Deutschlands Wirtschaft eingebunden ist – mit besonderen Chancen, wenn es gelingt, mehr Hochtechnologiefirmen aus dem Ausland anzuziehen.
    Keywords: Wirtschaftspolitik, Strukturwandel, Techno-Globalisierung, Leitmärkte, EU
    JEL: E60 L16 O33 O52
    Date: 2017–08
  90. By: International Monetary Fund
    Abstract: MoFPED is responsible for producing baseline macro-fiscal forecasts to develop the medium-term fiscal framework in support of the annual budgetary exercise and to monitor in-year fiscal developments. To enhance the credibility of the budget and avoid frequent in-year budget adjustments, the authorities are keen to improve the quality of revenue forecasts.
    Keywords: Uganda;Sub-Saharan Africa;
    Date: 2017–09–15
  91. By: Brantly Callaway (Department of Economics, Temple University)
    Abstract: Late prime-age workers who were displaced during the Great Recession lost on average 39% of their earnings relative to their counterfactual earnings had they not been displaced. But the average effect masks substantial heterogeneity across workers. This paper develops new techniques to bound distributional treatment effect parameters that depend on the joint distribution of potential outcomes -- an object not identified by standard identifying assumptions such as selection on observables or even when treatment is randomly assigned. I show that panel data and an additional assumption on the dependence between untreated potential outcomes for the treated group over time (i) provide more identifying power for distributional treatment effect parameters than existing bounds and (ii) provide a more plausible set of conditions than existing methods that obtain point identification.
    Keywords: Joint Distribution of Potential Outcomes, Distribution of the Treatment Effect, Quantile of the Treatment Effect, Copula Stability Assumption, Panel Data, Job Displacement
    JEL: C14 C31 C33 J63
    Date: 2017–08
  92. By: Gros, Daniel
    Abstract: Why should Europe opt for monetary union? ‘One Market needs one Money'! This is, at first sight, the key argument of the influential report by the European Commission entitled “One Market, One Money”, published in 1990. But after closer examination of the report, Daniel Gros considers its rather more agnostic subtitle: “An evaluation of the potential benefits and costs of forming an economic and monetary union” and concludes that the key argument was in fact the other way round: one money would create one market. Unfortunately, the authors of 1990 did not recognise that ‘one money’ would foster huge cross-border financial flows that would one day lead to a very costly financial crisis.
    Date: 2017–02
  93. By: Heeringa, Willem (Tilburg University, School of Economics and Management)
    Abstract: The four essays collected in this PhD thesis concern pay-as-you-go pension schemes, demographics, fiscal policy, credit constraints and house prices. The first essay shows how a pay-as-you-go pension scheme affects an individual’s optimal investment portfolio over the lifecycle. The second essay investigates policy options to keep the pay-as-you-go pension scheme in the Netherlands (AOW scheme) sustainable in the face of increasing longevity, declining fertility rates and changes in labour participation. The third essay demonstrates how tax-benefit policies impact aggregate consumption in a world of heterogeneous consumers, profit maximizing banks and imperfect information about future income shocks. The fourth essay studies the joint effect of changes in credit constraints, user cost and demographic factors on regional house prices in the Netherlands in conjunction with changes in the housing stock.
    Date: 2017
  94. By: Warwick McKibbin; Adele Morris; Augustus J. Panton; Peter J. Wilcoxen
    Abstract: This paper explores the interaction of monetary policy and climate change as they jointly influence macroeconomic outcomes. In bringing together the literatures on climate change and monetary policy, we seek to alert policymakers in each realm to the implications of the other.
    Date: 2017–12
  95. By: Ho, Sin-Yu; Odhiambo, Nicholas
    Abstract: This paper analyses the macroeconomic drivers of stock market development in the Philippines during the period 2001Q4 to 2016Q4. In particular, the paper examines the impact of banking sector development, inflation rate, exchange rate, economic growth, trade openness, and stock market liquidity on the development of the Philippine stock market. Theoretical and empirical literature reveals diverse views on the relationship between each determinant and stock market development. In addition, the Philippine stock market has experienced remarkable growth in recent decades. However, there is no similar study on this country in the literature. The paper, therefore, enriches the literature by investigating the macroeconomic drivers of stock market development in the Philippines using ARDL bounds testing procedure. The results show that, trade openness has had a negative impact on Philippine stock market development in the long run, whereas the banking sector development and exchange rate have had positive impacts on the development of the Philippine stock market in the short run.
    Keywords: macroeconomic drivers; stock market development; the Philippines; ARDL bounds testing
    Date: 2017–11
  96. By: Bailey, Michael; Dávila, Eduardo; Kuchler, Theresa; Ströbel, Johannes
    Abstract: We study the relationship between homebuyers' beliefs about future house price changes and their mortgage leverage choices. From a theoretical perspective, whether more pessimistic homebuyers choose more or less leverage is ambiguous and depends on their willingness to reduce the size of their housing investment. When households primarily maximize the levered return of their property investment, more pessimistic homebuyers reduce their leverage to purchase smaller houses. On the other hand, when considerations such as family size pin down the desired property size, pessimistic homebuyers reduce their financial exposure to the housing market by making smaller downpayments to buy similarly-sized homes. To determine which scenario better describes the data, we empirically investigate the cross-sectional relationship between beliefs and leverage choices in the U.S. housing market. Our data combine mortgage financing information and a housing market expectations survey with anonymized social network data from Facebook. The survey shows that an individual's belief distribution about future house price changes is affected by the recent house price experiences of her geographically distant friends, allowing us to use these experiences as quasi-exogenous shifters of individuals' house price beliefs. We find that more pessimistic homebuyers make smaller downpayments and choose higher leverage, in particular in states where default costs are relatively low, as well as during periods when house prices are expected to fall on average. Overall, our results provide evidence for an important role of heterogeneous beliefs in explaining individuals' financial decision-making.
    Keywords: disagreement; heterogeneous beliefs; leverage; Mortgage Choice
    JEL: D12 D84 E44 G12 R21
    Date: 2017–12
  97. By: Luis Carlos Jemio (Institute for Advanced Development Studies); Lykke E. Andersen (Institute for Advanced Development Studies); Agnes Medinaceli (Institute for Advanced Development Studies)
    Abstract: This paper calculates and analyzes key indicators from Bolivia’s Green National Accounts during the period 1990 – 2015, which covers an entire Commodity Super Cycle. The first half includes the Great Commodities Depression while the second half of the period is characterized by an unprecedented commodities boom. We show that the contribution of ecosystem goods and services to the Bolivian economy remain relatively stable over the cycle, while the contribution of non-renewable resources increases by a factor of four between the bottom of the cycle (1993) and the top of the cycle (2011). Similarly, the differences between Net Capital Formation and Environmentally-adjusted Net Capital formation is small at the bottom of the Commodity Super Cycle (2.3% of GDP) but much larger at the top of the cycle (7.7% of GDP).
    Keywords: Green Accounting, Natural Resource Rents, Bolivia
    JEL: Q56 Q01 Q32 Q51
    Date: 2017–10
  98. By: International Monetary Fund
    Abstract: The Executive Board approved a two-year Precautionary and Liquidity Line (PLL) arrangement with Morocco in July 2014. The arrangement followed the 2012–14 PLL arrangement, and sought to build on the progress made in the previous two years. The authorities kept their objective of strengthening macroeconomic stability and promoting stronger and more job-rich growth. They committed to use the backstop provided by the PLL-supported program to help continue reducing vulnerabilities in the fiscal and external sectors, notably by reducing the fiscal and current account deficits. Per the authorities’ request, access was lower than under the previous PLL arrangement, equivalent to 550 percent of quota (about SDR 3.24billion).
    Keywords: Middle East;Morocco;
    Date: 2017–09–08
  99. By: International Monetary Fund
    Abstract: The Public Finance Management (PFM) Bill 2012 introduces new concepts designed to strengthen fiscal responsibility, accountability and control in the management of public funds and is at the final stages of approval by parliament. The March 2014 mission highlighted a number of weaknesses in the provisions of the bill, such as those relating to categories of entities, in-year adjustments and Contingencies Fund, commitment controls, financial reporting, oversight of general government subsectors and public enterprises, and petroleum revenue management, which in the view of the Ministry of Finance should be addressed to the extent possible through supporting regulations.1 This report proposes draft regulations to address those issues and to clarify some of the concepts introduced in the bill.
    Keywords: Sub-Saharan Africa;Uganda;
    Date: 2017–09–15
  100. By: International Monetary Fund
    Abstract: Luxembourg has a large financial system which contributes a significant share of GDP and is globally interconnected. The investment fund industry, which is central to the business model of large depositary banks in Luxembourg, is the second largest in the world after the United States (U.S.). The banking system is also large relative to GDP, with banks active in activities ranging from private banking and wealth management, depositary and custodian activities, treasury operations for large and systemic banking groups, and traditional retail and commercial banking serving the domestic economy. The size and breadth of financial activities conducted in Luxembourg means the quality of regulation and surveillance, from both a microprudential and macroprudential perspective, is of paramount importance.
    Keywords: Europe;Luxembourg;
    Date: 2017–08–28
  101. By: Hjalmarsson, Erik (University of Gothenburg); Österholm, Pär (Örebro University School of Business)
    Abstract: Household expectations of future mortgage rates elicited over the last few years might appear unrealistically low. However, taking explicit account of the high persistence in interest rates, we find that Swedish households’ implied long-term expectation of mortgage rates is around 4.7 percent. This number lines up well with the long-term expectation that can be deduced from the Riksbank’s assessment of the repo rate in the long run and the typical spread between the mortgage rate and the repo rate. Our analysis makes use of household mortgage rate expectations at three different horizons, which enables an explicit modelling of the “term-structure” of household forecasts.
    Keywords: Survey data; Household expectations; Mortgage rates.
    JEL: E40 G21
    Date: 2017–12–01
  102. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: The HM Treasury analysis (2016) of the long-term benefits of EU membership for the UK implicitly argues that the associated output loss of BREXIT is 10%, while Patrick Minford has argued that a 4% output increase could be expected. More recent analysis from Rabobank suggests an output loss of 18 % for the UK in the event of a ‘no-deal’ BREXIT. The subsequent rough estimate presented here shows that real national income is likely to fall by 16% in a no-deal BREXIT – where a 2% income gain from a possible US-UK transatlantic trade and investment partnership treaty and 1% gain resulting from zero tariffs on the import of agricultural products have been included. The cumulated income loss – based on a present value-analysis – is almost three times as large as the UK output decline during the Great Depression; however, the BREXIT-related output decline would be spread over a period of about 15 years. For the lower strata of society serious problems will emerge in such a setting; it is strange that the Remainers in the UK have almost no voice in terms of political party representation. As regards power in Brussels: based on Banzhaf values (game theory), the big countries in the EU will be the winners of BREXIT; even if Scotland joins later.
    Keywords: Brexit, UK, Global Britain, EU, Disintegration
    JEL: E00 F15 E6 F5 O52
    Date: 2017–11
  103. By: Enrique Llopis (Universidad Complutense de Madrid, Spain); Elvira Alonso (Universidad Complutense de Madrid, Spain); Paloma Fontanillo (Universidad Complutense de Madrid, Spain); Belén Hípola (Universidad Complutense de Madrid, Spain); Sara Méndez (Universidad Complutense de Madrid, Spain); Javier Ramos (Universidad Complutense de Madrid, Spain)
    Abstract: The main objective of this study is to make an estimation of the welfare levels of the Murcian population between the last third of the eighteenth century and the end of the nineteenth century. In order to tackle this topic, we have built several indicators for general mortality, catastrophic mortality, and economic and demographic instability. The main sources that have been used for the development of this research are baptism and burial parish registers, as well as the mercurial of Murcia city. The most relevant conclusions that can be drawn from this essay are: 1st) Murcian welfare levels went through important ups and downs between 1769 and 1889: in the first fifteen years of the 19th century their situation worsened dramatically; there was an improvement between 1815 and 1839 that drove welfare levels above the ones attained during the last quarter of the 18th century; and they deteriorated again from the 1840s till the 1880s, but not as sharply as between 1800 and 1814. 2nd) Almost all the indicators used in this research suggest that the well-being of the regional population had not improved substantially by 1865-1889 when compared with the last quarter of the eighteenth century.
    Keywords: Welfare Levels; Mortality; Economic and Demographic Instability; Murcia; Eighteenth and Nineteenth Centuries
    JEL: E32 I31 N33 R11
    Date: 2017–12
  104. By: Alexey Ponomarenko (Bank of Russia, Russian Federation); Anna Rozhkova (Bank of Russia, Russian Federation); Sergei Seleznev (Bank of Russia, Russian Federation)
    Abstract: We estimate a panel Bayesian vector autoregression model for a cross-section of seven advanced European economies and produce out-of-sample forecasts of GDP conditionally on observed developments of interest rates and credit. We show that by using a smooth transition version of the model and allowing the parameters to vary across economies conditionally on their liquidity dependence, it is possible to improve the accuracy of the forecasts. We conclude that the degree of liquidity dependence is likely to be among the important predictors of heterogeneity in macro-financial linkages across countries.
    Keywords: liquidity dependence, macro-financial linkages, Smooth Transition Bayesian VAR
    JEL: G2 O16 C32
    Date: 2017–12
  105. By: Gene Amromin; Mariacristina De Nardi; Karl Schulze
    Abstract: To what extent does household inequality affect the response of aggregate consumption to aggregate real shocks? We first review two state-of-the-art papers with household heterogeneity and aggregate uncertainty. They teach us that having a larger fraction of poor and borrowing constrained households, who have a high marginal propensity to consume, amplifies the drop in aggregate consumption in response to a negative aggregate real shock. We then move on to the Panel Study of Income Dynamics (PSID) and Equifax data to quantify the fraction of people that are constrained in their consumption choices and to study how that fraction has changed before and after the Great Recession. We argue that the role of constraints cannot be adequately captured by only having a large share of households with no wealth before a recession. We find that, for all of the measures that we consider, the fraction of households that are borrowing constrained has drastically increased since the onset of the Great Recession and that it has remained high, or even increased, all the way through 2012, the last year for which we currently have PSID data. Thus, it is not surprising that aggregate consumption has experienced such a large drop and remained depressed for a long time.
    JEL: E21
    Date: 2017–11
  106. By: Bruno Pellegrino; Luigi Zingales
    Abstract: We try to explain why Italy’s labor productivity stopped growing in the mid-1990s. We find no evidence that this slowdown is due to trade dynamics, Italy’s inefficient governmental apparatus, or excessively protective labor regulations. By contrast, the data suggest that Italy’s slowdown was more likely caused by the failure of its firms to take full advantage of the ICT revolution. While many institutional features can account for this failure, a prominent one is the lack of meritocracy in the selection and rewarding of managers. Familyism and cronyism are the ultimate causes of the Italian disease.
    JEL: D24 E22 M14 M15
    Date: 2017–10

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