nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒01‒08
99 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Real Rigidities and Optimal Stabilization at the Zero Lower Bound in New Keynesian Economies By Adiya Belgibayeva; Michal Horvath
  2. Inflation Targeting as a Shock Absorber By M. Fratzscher; C. Grosse Steffen; M. Rieth
  3. Country Size, Specialization Patterns and Secular Demand Stagnation By Yoshiyasu Ono
  4. Capital controls, macroprudential measures and monetary policy interactions in an emerging economy By Valerio Nispi Landi
  5. The Effect of Interest Rates on Economic Growth By Drobyshevsky Sergey; Bozhechkova Alexandra; Trunin Pavel; Sinelnikova-Muryleva Elena
  6. Macroprudential Policy, Central Banks and Financial Stability: Evidence from China By Jan Klingelhöfer; Rongrong Sun
  7. The Government Spending Multiplier at the Zero Lower Bound: Evidence from the United States By DI SERIO, Mario; FRAGETTA, Matteo; GASTEIGER, Emanuel
  8. A Macroeconomic Model with Financial Panics By Gertler, Mark; Kiyotaki, Nobuhiro; Prestipino, Andrea
  9. The Credit Channel Transmission of Monetary Policy in Tunisia By Mna, Ali; Younsi, Moheddine
  10. Public investment and monetary policy stance in the euro area By Lorenzo Burlon; Alberto Locarno; Alessandro Notarpietro; Massimiliano Pisani
  11. Micro-level Price Setting Behaviour in India: Evidence from Group and Sub-Group Level CPI-IW Data. By Banerjee, Shesadri; Bhattacharya, Rudrani
  12. The Macroeconomic Determinants of the Pass-Through from the Market Interest Rate to the Bank Lending Rate in Mozambique By Machava, Agostinho
  13. Time-varying fiscal multipliers in an agent-based model with credit rationing By Napoletano, Mauro; Roventini, Andrea; Gaffard, Jean Luc
  14. Secular stagnation, R&D, public investment and monetary policy: a global-model perspective By Pietro Cova; Patrizio Pagano; Alessandro Notarpietro; Massimiliano Pisani
  15. Do Fiscal Multipliers Vary with Different Character of Monetary-Fiscal Interactions? By Michal Bencik
  16. Real-time forecast evaluation of DSGE models with stochastic volatility By Diebold, Francis X.; Schorfheide, Frank; Shin, Minchul
  17. Inflation dynamics during the financial crisis in Europe: Cross-sectional identification of long-run inflation expectations By Dany-Knedlik, Geraldine; Holtemöller, Oliver
  18. History dependence in wages and cyclical selection: Evidence from Germany By Bauer, Anja; Lochner, Benjamin
  19. La demanda de crédito a nivel de personas: RCC conoce a ENAHO By Nikita Céspedes Reynaga
  20. Credit Crunches from Occasionally Binding Bank Borrowing Constraints By Tom D. Holden; Paul Levine; Jonathan M. Swarbrick
  21. Liquidity provision as a monetary policy tool: The ECB's non-standard measures after the financial crisis By Quint, Dominic; Tristani, Oreste
  22. Financial Frictions in Macroeconomic Models By Alfred Duncan; Charles Nolan
  23. The Optimal Inflation Target and the Natural Rate of Interest By Philippe Andrade; Jordi Galí; Hervé Le Bihan; Julien Matheron
  24. The macroeconomic effects of asset purchases revisited By Henning Hesse; Boris Hofmann; James Weber
  25. Long shadows of financial shocks: an endogenous growth perspective By Marcin Bielecki
  26. Inequality in an OLG economy with heterogeneous cohorts and pension systems By Krzysztof Makarski; Joanna Tyrowicz; Marcin Bielecki
  27. Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-Based Model with Credit Rationing By Elisa Palagi; Mauro Napoletano; Andrea Roventini; Jean-Luc Gaffard
  28. Communication of monetary policy in unconventional times By Coenen, Günter; Ehrmann, Michael; Gaballo, Gaetano; Hoffmann, Peter; Nakov, Anton; Nardelli, Stefano; Persson, Eric; Strasser, Georg H.
  29. The Impact of Forward Guidance on Inflation Expectations: Evidence from the ECB By Marc de la Barrera; Juraj Falath; Dorian Henricotc; Jean-Alexandre Vaglio
  30. Fiscal policy uncertainty and the business cycle: time series evidence from Italy By Alessio Anzuini; Luca Rossi; Pietro Tommasino
  31. Innovation and endogenous growth over business cycle with frictional labor markets By Marcin Bielecki
  32. Mandatory Spending, Political Polarization, and Macroeconomic Volatility By Grechyna, Daryna
  33. A Short Walk on the Wild Side: Agent-Based Models and their Implications for Macroeconomic Analysis By Mauro Napoletano
  34. Optimal monetary policy and fiscal interactions in a non-Ricardian economy By Massimiliano Rigon; Francesco Zanetti
  35. Endogenous growth and the Taylor principle By Micheli, Martin
  36. A Tale of Four Tails: Inflation, the Policy Rate, Longer-Term Rates, and Stock Prices By Anene, Dominic; D'Amico, Stefania
  37. Market fragility and the paradox of the recent stock-bond dissonance By Koulovatianos, Christos; Li, Jian; Weber, Fabienne
  38. The Social Value of Information: A Test of a Beauty and Non-Beauty Contest By Thomas Lustenberger; Enzo Rossi
  39. Monetary Policy Transmission and Trade-offs in the United States: Old and New By Boris Hofmann; Gert Peersman
  40. Appropriate monetary policy and forecast disagreement at the FOMC By Schultefrankenfeld, Guido
  41. Empresas Zombie em Portugal - Os sectores não transacionáveis da Construção e dos Serviços By Gabriel Osório de Barros; Filipe Bento Caires; Dora Xarepe Pereira
  42. Price Dispersion, Private Uncertainty, and Endogenous Nominal Rigidities By G. Gaballo
  43. Monetary Policy Stretched to the Limit: How Could Governments Support the European Central Bank? By van Riet, Ad
  44. US financial shocks and the distribution of income and consumption in the UK By Mumtaz, Haroon; Theodoridis, Konstantinos
  45. Understanding the Size of the Government Spending Multiplier: It's in the Sign By Barnichon, Regis; Matthes, Christian
  46. Oil price shocks, monetary policy and current account imbalances within a currency union By Baas, Timo; Belke, Ansgar
  47. Valuing Government Obligations When Markets are Incomplete By Jasmina Hasanhodzic; Laurence J. Kotlikoff
  48. The Effect of Disaggregate Information on the Expectation Formation of Firms By Lukas Buchheim; Sebastian Link
  49. China Monetary Policy Transmission in China: Dual Shocks with Dual Bond Markets By Makram El-Shagi; Lunan Jiang
  50. Will wealth become more concentrated in Europe? Evidence from a calibrated neo-Kaleckian model By Stefan Ederer; Miriam Rehm
  51. Constraints on LTV as a Macroprudential Tool: A Precautionary Tale By José García-Montalvo; Josep M. Raya
  52. The Rate of Return on Everything, 1870–2015 By Jorda, Oscar; Knoll, Katharina; Kuvshinov, Dmitry; Schularick, Moritz; Taylor, Alan M.
  53. Stock price related financial fragility and growth patterns By Aßmuth, Pascal
  54. Saving Behavior of Non-Financial Firms in Turkey By Hamza Demircan; Sumru Oz
  55. How far does monetary policy reach? Evidence from factor-augmented vector autoregressions for Poland By Mariusz Kapuściński
  56. International Transmission of the Business Cycle and Environmental Policy By Barbara Annicchiarico; Francesca Diluiso
  57. Nowcashing: Using Daily Fiscal Data for Real-Time Macroeconomic Analysis By Florian Misch; Brian Olden; Marcos Poplawski-Ribeiro; Lamya Kejji
  58. Inferring Inequality with Home Production By Boerma, Job; Karabarbounis, Loukas
  59. The impact of population ageing on public debt. A panel analysis for eighteen european countries By Nicolas Afflatet
  60. Exit Strategies, Capital Flight and Speculative Attacks: Europe's Version of the Trilemma By Andreas Steiner; Sven Steinkamp; Frank Westermann
  61. Market Concentration and Sectoral Inflation under Imperfect Common Knowledge By Ryo Kato; Tatsushi Okuda
  62. Did the American Recovery and Reinvestment Act Help Those Most in Need? A County-Level Analysis By Mario J. Crucini; Nam T. Vu
  63. Monetary Policy and the Economic Outlook: A Fine Balancing Act By Williams, John C.
  64. Fiscal Spillovers in the Euro Area: Letting the Data Speak By Era Dabla-Norris; Pietro Dallari; Tigran Poghosyan
  65. Employment Adjustment and Financial Constraints - Evidence from Firm-level Data By Gregor Bäurle; Sarah M. Lein; Elizabeth Steiner
  66. The output employment elasticity and the increased use of temporary contracts: evidence from Poland By Krzysztof Bartosik; Jerzy Mycielski
  67. Parameter Bias in an Estimated DSGE Model By Yasuo Hirose; Takeki Sunakawa
  68. A Lower VAT Rate on Electricity in Portugal: Towards a Cleaner Environment, Better Economic Performance, and Less Inequality By Alfredo Marvão Pereira; Rui Manuel Pereira
  69. Improving productivity and job quality of low-skilled workers in the United Kingdom By Sanne Zwart; Mark Baker
  70. Unemployment Invariance Hypothesis, Added and Discouraged Worker Effects in Canada? By Aysit Tansel; Zeynel Abidin Ozdemir
  71. The Macroeconomic Effects of Longevity Risk under Private and Public Insurance and Asymmetric Information By Ben J. Heijdra; Yang Jiang; Jochen O. Mierau
  72. La heterogeneidad de la dolarización de créditos a nivel de personas By Nikita Céspedes Reynaga
  73. Low Homeownership in Germany - A Quantitative Exploration By Leo Kaas; Georgi Kocharkov; Edgar Preugschat; Nawid Siassi
  74. Which Model to Forecast the Target Rate? By Maarten van Oordt
  75. Building Resilience to Natural Disasters: An Application to Small Developing States By Ricardo Marto; Chris Papageorgiou; Vladimir Klyuev
  76. Loanable funds vs money creation in banking: A benchmark result By Faure, Salomon A.; Gersbach, Hans
  77. Money Demand in China: A Meta-Study By Makram El-Shagi; Yizhuang Zheng
  78. Inspecting the relation of search cost and search duration for new hires By Carbonero, Francesco; Gartner, Hermann
  79. Financial Spillovers and Macroprudential Policies By Joshua Aizenman; Menzie D. Chinn; Hiro Ito
  80. Income inequality and the Great Recession in Central and Eastern Europe By Michal Brzezinski
  81. The Granular Origins of Macroeconomic Fluctuations in Europe By Christian H Ebeke; Kodjovi M. Eklou
  82. Alternative Land Price Indexes for Commercial Properties in Tokyo By Diewert, Erwin; Shimizu, Chihiro
  83. Measuring Global and Country-Specific Uncertainty By Ezgi O. Ozturk; Xuguang Simon Sheng
  84. Behavioral Inattention By Xavier Gabaix
  85. Can macroprudential measures make cross-border lending more resilient? By Előd Takáts; Judit Temesvary
  86. A Term Structure Model of Interest Rates with Quadratic Volatility By TAKAMIZAWA, Hideyuki
  87. Fiscal Federalism and Regional Performance By Gabriel Di Bella; Oksana Dynnikova; Francesco Grigoli
  88. Credit Supply Shocks, Network Effects, and the Real Economy By Laura Alfaro; Manuel García; Enrique Moral-Benito
  89. Wage Risk and the Skill Premium By Ctirad Slavik; Hakki Yazici
  90. Essays in empirical finance and monetary policy By van Holle, Frederiek
  91. Global Liquidity Transmission to Emerging Market Economies, and Their Policy Responses By Woon Gyu Choi; Taesu Kang; Geun-Young Kim; Byongju Lee
  92. Countercyclical Income Risk and Portfolio Choices over the Life-Cycle By Catherine, Sylvain
  93. Quantitative easing and bank risk taking: evidence from lending By John Kandrac; Bernd Schlusche
  94. Pairwise trading in the money market during the European sovereign debt crisis By Edoardo Rainone
  95. Money Markets and Exchange Rates in Pre-Industrial Europe By Nogues-Marco, Pilar
  96. Austerity and the rise of the Nazi party By Gregori Galofré-Vilà; Christopher M. Meissner; Martin McKee; David Stuckler
  97. Banks’ maturity transformation: risk, reward, and policy By Pierluigi Bologna
  98. Self-employment and Okun’s Law relationship: the Spanish case By Porras, María Sylvina; Martín-Román, Ángel L.
  99. The Macro-Fiscal Aftermath of Weather-Related Disasters: Do Loss Dimensions Matter? By Kerstin Gerling

  1. By: Adiya Belgibayeva (Birkbeck, University of London); Michal Horvath (University of York)
    Abstract: The paper re-visits the literature on real rigidities in New Keynesian models in the context of an economy at the zero lower bound. It identifies strategic interaction among price- and wage-setting agents in the economy as an important determinant of both optimal policy and economic dynamics in deep recessions. In particular, labour market segmentation is shown to have a significant influence on the length of the forward commitment to keep interest rates at zero, the magnitude of the fiscal policy responses as well as inflation volatility in the economy under optimal policy.
    Keywords: zero lower bound, strategic complementarity, labour market, inflation, income tax, government spending.
    JEL: E31 E32 E52 E61 E62
    Date: 2017–02
  2. By: M. Fratzscher; C. Grosse Steffen; M. Rieth
    Abstract: We study the characteristics of inflation targeting as a shock absorber in response to large shocks in the form of natural disasters for a sample of 76 countries over the period 1970-2015. We find that inflation targeting improves macroeconomic performance following such shocks as it lowers inflation, raises output growth, and reduces inflation and growth variability compared to alternative monetary regimes. This performance is mostly due to a stronger response of monetary policy and fiscal policy under inflation targeting. Finally, we show that only hard but not soft targeting reaps the fruits: deeds, not words, matter for successful monetary stabilization.
    Keywords: Monetary policy, Central banks, Monetary regimes, Dynamic effects.
    JEL: E42 E52 E58
    Date: 2017
  3. By: Yoshiyasu Ono
    Abstract: Using a dynamic two-country two-commodity Ricardian model where preference for money (or wealth) leads to aggregate demand deficiency, this paper examines the relationship between the two countries’ relative population size and their specialization patterns, employment and consumption. When the countries have similar population sizes, they specialize in respective commodities with comparative advantage. In this case a larger foreign, or a smaller home, population raises the relative price of the home commodity. It raises home real income and consumption per capita if full employment prevails in the home country. If unemployment appears, however, home employment and consumption per capita decrease.
    Keywords: secular demand stagnation, liquidity trap, unemployment, population, specialization pattern
    JEL: F41 E24 E32
    Date: 2017
  4. By: Valerio Nispi Landi (Bank of Italy)
    Abstract: Are capital controls and macroprudential measures desirable in an emerging economy? How do these instruments interact with monetary policy? I address these questions in a DSGE model for an emerging economy whose banks are indebted in foreign currency. The model is augmented with financial frictions. The main results are as follows. First, capital controls and macroprudential policies are able to mitigate the adverse effects of an increase in the foreign interest rate. Second the desirability of these measures is shock dependent. Third, capital controls and monetary policy are complementary in addressing the trade-off between inflation and financial fluctuations.
    Keywords: financial markets, monetary policy, small open economy
    JEL: E44 E52 E58 F41
    Date: 2107–12
  5. By: Drobyshevsky Sergey (Gaidar Institute for Economic Policy); Bozhechkova Alexandra (Gaidar Institute for Economic Policy); Trunin Pavel (Gaidar Institute for Economic Policy); Sinelnikova-Muryleva Elena (Gaidar Institute for Economic Policy)
    Abstract: This paper explores the mechanisms, direction and extent to which interest rates can affect economic growth. The authors analyze theoretical concepts and international economic practices in high-interest-rate environments to justify that high nominal and real interest rates may not dampen economic growth if there are mechanisms such as low inflation expectations, economy’s attractiveness to foreign investors, the technological transfer effect, the accumulation of domestic savings. By using a structural vector autoregression (VAR) to evaluate econometrically the effectiveness of the interest rate channel of Bank of Russia’s monetary policy transmission mechanism, the paper provides evidence to suggest that interest rate policy is partially efficient after the global financial crisis.
    Keywords: monetary policy, inflation, inflation expectations, nominal interest rate, real interest rate, economic growth, interest rate channel, SVAR model
    JEL: E20 E31 E52 E58 G15
    Date: 2017
  6. By: Jan Klingelhöfer; Rongrong Sun (Center for Financial Development and Stability at Henan University, Kaifeng, Henan)
    Abstract: We study the Chinese experience and provide evidence that central banks can play an active role in safeguarding financial stability. The narrative approach is used to disentangle macropudential policy actions from monetary actions. We show that reserve requirements, window guidance, supervisory pressure and housing-market policies can be used for macroprudential purposes. Our VAR stimates suggest that well-targeted macroprudential policy has immediate and persistent impact on credit, but no statistically significant impact on output. Macroprudential policy can be used to retain financial stability without triggering an economic slowdown, or as a complement to monetary policy to offset the buildup of financial vulnerabilities arising from monetary easing. The multi-instrument framework enables central banks to achieve both macroeconomic and financial stability.
    Keywords: macroprudential policy, monetary policy, credit, financial stability, China
    JEL: E52 E58 E44
    Date: 2017–12
  7. By: DI SERIO, Mario (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy); FRAGETTA, Matteo (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy); GASTEIGER, Emanuel (Freie Universität Berlin, Department of Economics)
    Abstract: We estimate state-dependent government spending multipliers for the United States. We use an Interacted Vector Autoregression (IVAR) model to capture the time-varying monetary policy characteristics including the recent zero interest rate lower bound (ZLB) state. We identify government spending shocks by sign restrictions and use a government spending growth forecast series to account for the effects of anticipated fiscal policy. In our baseline specification we find that government spending multipliers range from 3.4 to 3.7 at the ZLB. Away from the ZLB, multipliers range from 1.5 to 2.7. Next, we address the limited information problem typically inherent in VARs by the help of a Factor-Augmented IVAR (FAIVAR). We find that multipliers are lower in this case, ranging from 2.0 to 2.1 at the ZLB and between 1.5 and 1.8 away from it. Thus, in both specifications we find that multipliers are higher, when the interest rate is lower. Our results are consistent with recent theories that predict larger multipliers at the ZLB.
    Keywords: Interacted VAR; Fiscal Policy; Government Spending; Zero Interest Rate Lower Bound
    JEL: C32 E21 E32 E52 E62 H50
    Date: 2017–12–06
  8. By: Gertler, Mark; Kiyotaki, Nobuhiro; Prestipino, Andrea
    Abstract: This paper incorporates banks and banking panics within a conventional macroeconomic framework to analyze the dynamics of a financial crisis of the kind recently experienced. We are particularly interested in characterizing the sudden and discrete nature of the banking panics as well as the circumstances that makes an economy vulnerable to such panics in some instances but not in others. Having a conventional macroeconomic model allows us to study the channels by which the crisis affects real activity and the effects of policies in containing crises.
    Keywords: Bank Runs; Financial Crisis; New Keynesian DSGE
    JEL: E23 E32 E44 G01 G21 G33
    Date: 2017–12–15
  9. By: Mna, Ali; Younsi, Moheddine
    Abstract: The purpose of this paper is to evaluate the importance of the credit channel in the monetary policy transmission mechanism in Tunisia. Using a VAR approach, we attempt to empirically examine the responses of the main aggregates of the Tunisian economy to monetary policy shocks over the period 1965-2015. Our empirical results showed that credit has a significant effect on investment and inflation. Indeed, the cointegration relationship, coupled with the weak exogeneity test, shows that credit is an endogenous variable and therefore the long-term equation found is a credit equation. The crucial role of credit channel is argued by the goal of price stability expected by any monetary policy. The analysis of monetary shocks shows the importance of exchange rate policy and the local currency devaluation on the financing mode. It is observed that Tunisian economy is dominated by external conditions. This dominance is confirmed by extensive using of external debts and trade agreements with the dominant countries. Ultimately, our findings suggest that policymakers should act on the level of economic activity and inflation, on two terms. The first is in short-run, by acting on the interest rate and the second is in long-run, by controlling the exchange rate.
    Keywords: Credit channel, monetary policy transmission, VAR approach, impulse analysis, monetary shocks
    JEL: E43 E51 E52
    Date: 2017–12–28
  10. By: Lorenzo Burlon; Alberto Locarno (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Massimiliano Pisani (Bank of Italy)
    Abstract: This paper evaluates the macroeconomic impact of a programme for public infrastructure spending in the euro area (EA) under alternative assumptions about funding sources and the monetary policy stance. The quantitative assessment is made by simulating a dynamic general equilibrium model of a monetary union with region-specific fiscal policy. The main results are the following. First, EA-wide stimuli are more effective than unilateral (region-specific) stimuli. Second, under EA-wide stimulus, the fiscal multiplier is close to 2 if the forward guidance (FG) on the short-term policy rate holds. Third, if the monetary authority keeps down both the policy rates (with FG) and the long-term interest rates (with quantitative easing), the fiscal multiplier exceeds 3 at peak and investment spending is self-financing. Fourth, the financing method is relevant: debt financing, particularly under an accommodative monetary policy stance and if the sovereign spreads do not increase, is more growth-friendly than tax financing in the short-term (but not in the long-term). Fifth, the effectiveness of the fiscal stimulus is larger if government spending is directed towards productive goods and its implementation occurs efficiently and without delays.
    Keywords: public investment, fiscal policy, monetary policy, euro area
    JEL: E52 E62 F41 F42
    Date: 2017–12
  11. By: Banerjee, Shesadri (Madras School of Development Studies); Bhattacharya, Rudrani (National Institute of Public Finance and Policy)
    Abstract: In the contemporary literature on macroeconomics, the mainstream frameworks for policy evaluation have recognized the significance of price rigidities emerging from the micro-level pricing behaviour of firms for explaining the short and medium run effects of monetary policy interventions. In this study, we evaluate stickiness in price adjustment for the aggregate Consumer Price Index for Industrial Workers (CPI-IW) and its major components in the context of Indian economy. Our findings broadly suggest greater monthly frequency of price changes and lower duration of price spell for food group, compared to non-food group. After controlling for small price changes due to sector-specific idiosyncratic shocks, stickiness in price adjustment increases drastically for food components, corroborating to the high inflation persistence observed in the food sector in India in the recent past. We also find evidence of exogenous versus menu-cost driven pricing behaviour in India.
    Keywords: Price stickiness ; Time-dependent, State-dependent ; Dip test ; Silverman test ; Indian economy
    JEL: E31 E52 E58
    Date: 2017–12
  12. By: Machava, Agostinho (Department of Economics, Umeå University)
    Abstract: This paper employs a linear regression with interaction terms, impulse response functions, and analysis of multiplier effects to identify the macroeconomic determinants of the market-to-bank interest rate pass-through in Mozambique. This paper also looks at how these macroeconomic fundamentals affect the interest rate pass-through mechanism. The study finds incomplete market-to-bank interest rate pass-through and shows that it takes approximately five months for the money market rate to be fully transmitted to the bank lending rate. There is evidence indicating the existence of asymmetry in the interest rate transmission mechanism, and the empirical findings also highlight that GDP growth and inflation are the most important macroeconomic variables influencing the degree of the interest rate pass-through in both the short and long run.
    Keywords: Mozambique; cointegration; interaction terms; asymmetry; interest rate pass-through; money market rate; bank lending rate
    JEL: E43 E44 G21
    Date: 2017–12–18
  13. By: Napoletano, Mauro; Roventini, Andrea; Gaffard, Jean Luc
    Abstract: The authors build a simple agent-based model populated by households with heterogenous and time-varying financial conditions in order to study how fiscal multipliers can change over the business cycle and are affected by the state of credit markets. They find that deficit-spending fiscal policy dampens the effect of bankruptcy shocks and lowers their persistence. Moreover, the size and dynamics of government spending multipliers are related to the degree and persistence of credit rationing in the economy. On the contrary, in presence of balanced-budget rules, output permanently falls below pre-shock levels and the ensuing multipliers fall below one and are much lower than the ones emerging from the deficit-spending policy. Finally, the authors show that different conditions in the credit market significantly affect the size and the evolution of fiscal multipliers.
    Keywords: fiscal multipliers,agent-based models,credit-rationing,balance-sheet recession,bankruptcy shocks
    JEL: E63 E21 C63
    Date: 2017
  14. By: Pietro Cova (Bank of Italy); Patrizio Pagano (Bank of Italy); Alessandro Notarpietro (Bank of Italy); Massimiliano Pisani (Bank of Italy)
    Abstract: We evaluate the global macroeconomic effects of fiscal and monetary policy measures to counterbalance secular stagnation by simulating a five-region New Keynesian model of the world economy, calibrated to the United States (US), the euro area (EA), Japan (JP), China (CH), and the rest of the world (RW). The model includes investment in research and development (R&D) as a factor that affects global growth. Our main findings are as follows. First, a negative efficiency shock to R&D in the main advanced economies partially replicates the observed slowdown in long-term global growth and the decrease in interest rates. Second, in the medium- and long-term, the increase in US public investment favours global growth; in the short-term, it stimulates US economic activity but reduces foreign activity. Third, in the US an accommodative monetary stance, which provokes the crowding-in effect, amplifies the short-term macroeconomic effectiveness of public investment, without inducing additional negative spillovers. Fourth, EA, JP, and CH, by simultaneously increasing public investment and adopting an accommodative monetary policy, counterbalance US short-run negative spillovers and further enhance long-term world growth.
    Keywords: DSGE models, secular stagnation, open-economy macroeconomics, public investment, monetary policy
    JEL: E43 E44 E52 E58
    Date: 2017–12
  15. By: Michal Bencik (National Bank of Slovakia)
    Abstract: We investigate the fiscal multiplier in normal times and in the presence of a binding zero lower bound on interest rates with SVARs. We construct special shocks to interest rates that compensate their reactions to fiscal expansion and hold them constant and apply it to the Euro area and the United States. We find that for the former, the multiplier increases sharply in the ZLB, but it decreases in the ZLB for the latter. The sign of its change is determined by the coordination of fiscal and monetary policy i.e. whether the interest rates rise or drop in response to fiscal expansion. We applied this method to Slovak Republic as well and found that the change of the multiplier in ZLB in Slovak Republic is analogous to that in the Euro area.
    Keywords: monetary-fiscal interactions, fiscal multipliers, zero lower bound, VAR models, compensating shocks
    JEL: E62 E63 C32
    Date: 2017–12
  16. By: Diebold, Francis X.; Schorfheide, Frank; Shin, Minchul
    Abstract: Recent work has analyzed the forecasting performance of standard dynamic stochastic general equilibrium (DSGE) models, but little attention has been given to DSGE models that incorporate nonlinearities in exogenous driving processes. Against that background, we explore whether incorporating stochastic volatility improves DSGE forecasts (point, interval, and density). We examine real-time forecast accuracy for key macroeconomic variables including output growth, inflation, and the policy rate. We find that incorporating stochastic volatility in DSGE models of macroeconomic fundamentals markedly improves their density forecasts, just as incorporating stochastic volatility in models of financial asset returns improves their density forecasts.
    Keywords: Dynamic Stochastic General Equilibrium Model,Prediction,Stochastic Volatility
    JEL: E17 E27 E37 E47
    Date: 2017
  17. By: Dany-Knedlik, Geraldine; Holtemöller, Oliver
    Abstract: We investigate drivers of Euro area inflation dynamics using a panel of regional Phillips curves and identify long-run inflation expectations by exploiting the crosssectional dimension of the data. Our approach simultaneously allows for the inclusion of country-specific inflation and unemployment-gaps, as well as time-varying parameters. Our preferred panel specification outperforms various aggregate, uni- and multivariate unobserved component models in terms of forecast accuracy. We find that declining long-run trend inflation expectations and rising inflation persistence indicate an altered risk of inflation expectations de-anchoring. Lower trend inflation, and persistently negative unemployment-gaps, a slightly increasing Phillips curve slope and the downward pressure of low oil prices mainly explain the low inflation rate during the recent years.
    Keywords: inflation dynamics,inflation expectations,trend inflation,nonlinear state space model,panel UCSV model,Euro area
    JEL: C32 E5 E31
    Date: 2017
  18. By: Bauer, Anja; Lochner, Benjamin
    Abstract: Using employer-employee data from Germany, this paper analyzes the relationship between wages and past and contemporaneous labor market conditions. Specifically, we test the implications of implicit contract models (Beaudry and DiNardo, 1991) and an on-the-job search model (Hagedorn and Manovskii, 2013) for the wage formation of different worker types over the business cycle. The results are mixed: On the one hand, the data suggest that wages depend on labor market conditions when a match is formed - as contract theories postulate. On the other hand, past labor market conditions also affect contemporaneous wages through the evolution of match quality over a worker's job history - the main hypothesis of the on-the-job-search model. Using cyclical variation in labor market tightness to control for match quality, as in Hagedorn and Manovskii (2013), we find that previous evidence for the excess wage cyclicality of job changers can be entirely explained by cyclical variation of match quality. Refining the selection model by taking into account occupational mobility within employer-employee matches, we also find no excess wage cyclicality for new hires from unemployment - the key worker type's wage for understanding unemployment fluctuations in matching models.
    Keywords: Business Cycle,Wage,Wage Rigidity,Implicit Contracts,Match Quality
    JEL: E24 E32 J31 J41
    Date: 2017
  19. By: Nikita Céspedes Reynaga (Banco Central de Reserva del Perú)
    Abstract: En este documento se estudia la demanda de crédito a nivel de personas en Perú. Se emplea una base de datos única que resulta de la fusión entre datos administrativos de los créditos bancarios incluidos en el Registro Consolidado de Créditos (RCC) y la Encuesta Nacional de Hogares (ENAHO). Los datos permiten identificar de manera ideal el monto del crédito y la tasa de interés así como las características de la oferta y demanda de cada crédito otorgado en el sistema bancario peruano. La elasticidad de la demanda de crédito respecto a la tasa de interés es aproximadamente -0,29, este valor implica que un incremento de 1% en la tasa de interés de mercado hace que la demanda de crédito sea menor en 0,29 %. Esta elasticidad es ligeramente inferior a la evidencia internacional y es heterogénea según el tipo de crédito, según la moneda en la cual se otorga el crédito y según el nivel de ingreso y la educación de las personas que acceden al crédito.
    Keywords: Demanda de crédito, Efecto hoja de balance, Heterogeneidad
    JEL: E21 E44 E51 E52
    Date: 2017–12
  20. By: Tom D. Holden; Paul Levine; Jonathan M. Swarbrick
    Abstract: We present a model in which banks and other financial intermediaries face both occasionally binding borrowing constraints and costs of equity issuance. Near the steady state, these intermediaries can raise equity finance at no cost through retained earnings. However, even moderately large shocks cause their borrowing constraints to bind, leading to contractions in credit offered to firms, and requiring the intermediaries to raise further funds by paying the cost to issue equity. This leads to the occasional sharp increases in interest spreads and the countercyclical, positively skewed equity issuance that are characteristic of the credit crunches observed in the data.
    Keywords: Business fluctuations and cycles, Credit and credit aggregates, Economic models, Financial markets
    JEL: E22 E32 E51 G2
    Date: 2017
  21. By: Quint, Dominic; Tristani, Oreste
    Abstract: We study the macroeconomic consequences of the money market tensions associated with the financial crisis in the euro area. In a structural VAR, we identify a liquidity shock rooted in the interbank market and use its impulse response functions to calibrate key parameters of a Smets and Wouters (2003) closed-economy model augmented with a banking sector à la Gertler and Kiyotaki (2010). We highlight two main results. First, an identified liquidity shock causes a sizable and persistent fall in investment. The shock can account for one third of the observed, large fall in euro area aggregate investment in 2008-09. Second, the liquidity injected in the market by the ECB played an important role in attenuating the macroeconomic impact of the shock. According to our counterfactual simulations based on the structural model, in the absence of ECB liquidity injections interbank spreads would have been at least 200 basis points higher and their adverse impact on investment would have been more than twice as severe.
    Keywords: ECB,euro area,financial crisis,financial frictions,interbank market,non-standard monetary policy
    JEL: E44 E58
    Date: 2017
  22. By: Alfred Duncan; Charles Nolan
    Abstract: In this chapter we: (i) Review the core DSGE workhorse models of financial frictions that existed ahead of the recent financial crisis. (ii) Summarize the recent empirical literature on the history of financial crises. (iii) Summarize the key modelling developments around credit intermediation in DSGE models since the crisis. (iv) Identify gaps in the literature that are especially important for policymakers and modelers.
    Keywords: Financial Frictions; Credit Intermediation; Macroeconomics
    JEL: E32 E44
    Date: 2017–12
  23. By: Philippe Andrade; Jordi Galí; Hervé Le Bihan; Julien Matheron
    Abstract: We study how changes in the value of the steady-state real interest rate affect the optimal inflation target, both in the U.S. and the euro area, using an estimated New Keynesian DSGE model that incorporates the zero (or effective) lower bound on the nominal interest rate. We find that this relation is downward sloping, but its slope is not necessarily one-for-one: increases in the optimal inflation rate are generally lower than declines in the steady-state real interest rate. Our approach allows us not only to assess the uncertainty surrounding the optimal inflation target, but also to determine the latter while taking into account the parameter uncertainty facing the policy maker, including uncertainty with regard to the determinants of the steady-state real interest rate. We find that in the currently empirically relevant region for the US as well as the euro area, the slope of the curve is close to -0.9. That finding is robust to allowing for parameter uncertainty.
    Keywords: macroeconomia, economia internacional
    JEL: E31 E52 E58
    Date: 2017–12
  24. By: Henning Hesse; Boris Hofmann; James Weber
    Abstract: This paper revisits the macroeconomic effects of the large-scale asset purchase programmes launched by the Federal Reserve and the Bank of England from 2008. Using a Bayesian VAR, we investigate the macroeconomic impact of shocks to asset purchase announcements and assess changes in their effectiveness based on subsample analysis. The results suggest that the early asset purchase programmes had significant positive macroeconomic effects, while those of the subsequent ones were weaker and in part not significantly different from zero. The reduced effectiveness seems to reflect in part better anticipation of asset purchase programmes over time, since we find significant positive macroeconomic effects when we consider shocks to survey expectations of the Federal Reserve's last asset purchase programme. Finally, in all estimations we find a significant and persistent positive impact of asset purchase shocks on stock prices.
    Keywords: unconventional monetary policy, asset purchases, monetary transmission
    JEL: E50 E51 E52
    Date: 2017–12
  25. By: Marcin Bielecki (Faculty of Economic Sciences, University of Warsaw; Narodowy Bank Polski)
    Abstract: The Great Recession has resulted in a seemingly permanent level shift in many macroeconomic variables. This paper presents a microfounded general equilibrium model featuring frictional labor markets and financial frictions that generates procyclical R&D expenditures and replicates business cycle features of establishment dynamics. This allows demonstrating the channels through which productivity and financial shocks influence the aggregate endogenous growth rate of the economy, creating level shifts in its balanced growth path. I find that financial shocks are an important driver of the aggregate fluctuations and their influence is especially pronounced for establishment entry. Since the growth rate of the economy can in principle be affected by policy measures, I examine the macroeconomic and welfare effects of applying several subsidy schemes.
    Keywords: business cycles, establishment dynamics, endogenous growth, working capital, financial shocks
    JEL: E32 G01 J63 J64 O3 O40
    Date: 2017
  26. By: Krzysztof Makarski (Narodowy Bank Polski; Warsaw School Economics; Group for Research in Applied Economics (GRAPE)); Joanna Tyrowicz (Group for Research in Applied Economics (GRAPE); University of Warsaw; Institut für Arbeitsrecht und Arbeitsbeziehungen in der Europäischen Union (IAAEU); Institute of Labor Economics (IZA)); Marcin Bielecki (University of Warsaw; Narodowy Bank Polski)
    Abstract: We analyze the consumption and wealth inequality in an OLG model with obligatory pension systems. Our framework features within cohort heterogeneity of endowments (individual productivities) and heterogeneity of preferences (preference for leisure and time preference). We allow for population aging and gradual productivity slowdown. We show four main results. First, longevity increases substantially aggregate consumption inequality and wealth inequality, regardless of the pension system features. Second, the effect of a pension system reform from a defined benefit to a defined contribution works to reinforce the consumption inequality and reduce the wealth inequality. Third, minimum pension benefits are able to counteract a part of that increase in inequality, at a fiscal cost. Fourth the minimum pension benefit guarantee addresses mostly the inequality which stems from differentiated endowments and not that which stems from heterogeneous preferences.
    Keywords: majority voting, pension system reform, welfare
    JEL: E32 E44 E58
    Date: 2017
  27. By: Elisa Palagi (Scuola Superiore Sant'Anna, Pisa (Italy)); Mauro Napoletano (OFCE Sciences-Po; SKEMA Business School); Andrea Roventini (University of Verona (Italy); Scuola Superiore Sant'Anna, Pisa (Italy)); Jean-Luc Gaffard (OFCE Sciences-Po; Université Côte d'Azur; GREDEG CNRS; Institut Universitaire de France)
    Abstract: We build an agent-based model populated by households with heterogenous and time-varying financial conditions in order to study how different inequality shocks affect income dynamics and the e ects of different types of fiscal policy responses. We show that inequality shocks generate persistent falls in aggregate income by increasing the fraction of credit-constrained households and by lowering aggregate consumption. Furthermore, we experiment with different types of fiscal policies to counter the effects of inequality-generated recessions, namely deficit-spending direct government consumption and redistributive subsidies financed by different types of taxes. We find that subsidies are in general associated with higher fiscal multipliers than direct government expenditure, as they appear to be better suited to sustain consumption of lower income households after the shock. In addition, we show that the effectiveness of redistributive subsidies increases if they are financed by taxing financial incomes or savings.
    Keywords: income inequality, fiscal multipliers, redistributive policies, credit-rationing, agent-based models
    JEL: E63 E21 C63
    Date: 2017–12
  28. By: Coenen, Günter; Ehrmann, Michael; Gaballo, Gaetano; Hoffmann, Peter; Nakov, Anton; Nardelli, Stefano; Persson, Eric; Strasser, Georg H.
    Abstract: Monetary policy communication is particularly important during unconventional times, because high uncertainty about the economy, the introduction of new policy tools and possible limits to the central bank's toolkit could hamper the predictability of policy actions. We study how monetary policy communication should and has worked under such circumstances. Our main results relate to announcements of asset purchase programmes and the use of forward guidance. We show that announcements of asset purchase programmes have lowered market uncertainty, particularly when accompanied by a contextual release of implementation details such as the envisaged size of the programme. We also show that forward guidance reduces uncertainty more effectively when it is state-contingent or when it provides guidance about a long horizon than when it is open-ended or covers only a short horizon, and that the credibility of forward guidance is strengthened if the central bank also has embarked on an asset purchase programme.
    Keywords: Central Bank Communication,Unconventional Monetary Policy,Asset Purchase Programme,Forward Guidance
    JEL: E43 E52 E58
    Date: 2017
  29. By: Marc de la Barrera; Juraj Falath; Dorian Henricotc; Jean-Alexandre Vaglio
    Abstract: This paper empirically investigates the impact of forward guidance announcements on inflation expectations in the Eurozone. We identify forward guidance shocks as changes in the 2-year nominal ECB yield on specific announcement days to measure changes in daily inflation swaps of different maturities. In the process, we also separately identify the effect of quantitative easing and interest rate change announcement shocks. We find that forward guidance was successful in reviving inflation expectations across maturities. Analyzing the transmission channels of forward guidance, we find evidence that both a reanchoring channel and a portfolio effect might have been at play.
    JEL: E31 E52 E65
    Date: 2017–12
  30. By: Alessio Anzuini (Bank of Italy); Luca Rossi (Bank of Italy); Pietro Tommasino (Bank of Italy)
    Abstract: Economic uncertainty is an important factor behind macroeconomic fluctuations: in an uncertain environment, firms reduce hiring and investment, financial intermediaries are more reluctant to lend and households increase their propensity to save. In the present paper, we study the effects of the uncertainty which arises from fiscal policy decisions. We propose a new measure of fiscal policy uncertainty (FPU). In particular, we estimate a fiscal reaction function, allowing the volatility of the shocks to be time-varying. The time series of this volatility is our proxy for FPU. Looking at Italian data over the period 1981-2014, we find that an unexpected increase in our FPU measure has a negative impact on the economy. One implication of this result is that the same change in the government budget can have different effects depending on whether it is associated with a reduction or an increase in FPU. Therefore, the neglect of FPU may partly explain why the size (and sign) of fiscal multipliers differs so much across existing empirical studies.
    Keywords: fiscal policy, uncertainty
    JEL: C2 E3
    Date: 2017–12
  31. By: Marcin Bielecki (Faculty of Economic Sciences, University of Warsaw; Narodowy Bank Polski)
    Abstract: This paper proposes a microfounded model featuring frictional labor markets that generates procyclical R&D expenditures as a result of optimizing behavior by heterogeneous monopolistically competitive firms. This allows to show that business cycle fluctuations affect the aggregate endogenous growth rate of the economy. Consequently, transitory shocks leave lasting level effects. This mechanism is responsible for economically significant hysteresis effects that increase the welfare cost of business cycles by two orders of magnitude relative to the exogenous growth model. I show that this has serious policy implications and creates ample space for policy intervention. I find that several static and countercyclical subsidy schemes are welfare improving.
    Keywords: business cycles, firm dynamics, search and matching, innovation, endogenous growth
    JEL: E32 J63 J64 O3 O40
    Date: 2017
  32. By: Grechyna, Daryna
    Abstract: Political polarization combined with political turnover have been shown to amplify economic fluctuations (Azzimonti and Talbert, 2014). This paper analyzes a fiscal policy institution capable of reducing the volatility caused by these political frictions. We introduce the distinction between mandatory and discretionary public spending in a political model of optimal fiscal policy. We show that different legislative nature of these components of government spending leads to a divergent impact of mandatory and discretionary spending on politically-driven macroeconomic volatility. Increasing the fraction of mandatory spending in total government spending reduces the volatility; increasing the fraction of discretionary spending has the opposite effect. The presence of the legislative requirements behind the changes in mandatory public spending can explain simultaneous rise in political polarization and decline in the U.S output volatility after the 1980s.
    Keywords: business cycles; optimal fiscal policy; mandatory and discretionary public spending; macroeconomic volatility; political economy; political polarization.
    JEL: E62 H11 H30 H40
    Date: 2017–09
  33. By: Mauro Napoletano (OFCE Sciences-Po; SKEMA Business School)
    Abstract: I discuss recent advances in agent-based modelling applied to macroeconomic analysis. I first present the building blocks of agent- based models. Furthermore, by relying on examples taken from recent works, I argue that agent-based models provide complementary or new lights with respect to more standard models on key macroeconomic issues like endogenous business cycles, the interactions between business cycles and long-run growth, and the role of price vs. quantity adjustments in the return to full employment. Finally, I discuss some limits of agentbased models and how they are currently addressed in the literature.
    Keywords: agent-based models, macroeconomic analysis, endogenous business-cycles, short and long-run dynamics, monetary and fiscal policy, price vs. quantity adjustments
    JEL: B41 B50 E32 E52
    Date: 2017–12
  34. By: Massimiliano Rigon (Bank of Italy); Francesco Zanetti (University of Oxford)
    Abstract: This paper studies optimal discretionary monetary policy and its interaction with fiscal policy in a New Keynesian model with finitely-lived consumers and government debt. Optimal discretionary monetary policy involves debt stabilization to reduce consumption dispersion across cohorts of consumers. The welfare relevance of debt stabilization is proportional to the debt-to-output ratio and inversely related to the households probability of survival that affects the household’s propensity to consume out financial wealth. Debt stabilization bias implies that discretionary optimal policy is suboptimal compared with the inflation targeting rule that fully stabilizes the output gap and the inflation rate while leaving debt to freely fluctuate in response to demand shocks.
    Keywords: optimal monetary policy, fiscal and monetary policy interaction
    JEL: E53 E63
    Date: 2017–12
  35. By: Micheli, Martin
    Abstract: This paper analyzes conditions for determinacy in a new Keynesian model with endogenous growth. Endogenous growth shrinks the determinacy region considerably. Complying with the Taylor principle is not sufficient for determinacy, which decreases in the spillovers from actual on potential output. Monetary policy therefore has to be more aggressive than in an exogenous growth setup to ensure determinacy.
    Keywords: Endogenous growth,business cycle,monetary policy,Taylor principle
    JEL: E32 E52 O42
    Date: 2017
  36. By: Anene, Dominic (Northwestern University); D'Amico, Stefania (Federal Reserve Bank of Chicago)
    Abstract: We analyze empirical links between the perceived tail-risk of inflation, the policy rate, longer-term interest rates, and equity prices in the U.S. Their simultaneous changes enable us to distinguish between a systematic and "exogenous" response to monetary-policy news. And, those tail risks' co-movements are accounted for in quantifying the magnitude and persistence of their responses to key shocks. We find that: (i) in the medium-term, all four tail risks respond significantly and contemporaneously to domestic and foreign monetary-policy announcements, except for the equity tail risk to foreign policy; (ii) all four tail risks rarely change in response to other U.S. macroeconomic news; (iii) the directional pattern of their simultaneous reactions to policy announcements is often consistent with the systematic response to new information about the economic outlook rather than with the response to an exogenous shock; (iv) the few notable instances of the latter response are always in reaction to Fed announcements; and, (v) our impulse responses demonstrate that odds of extreme inflation outcomes and extreme policy-rate outcomes are tightly linked, and that both determine tail outcomes for longer-term interest rates but not for stock prices.
    Keywords: Downside risk; derivatives; inflation; monetary policy
    JEL: C32 E52 E58 G12 G14
    Date: 2017–12–19
  37. By: Koulovatianos, Christos; Li, Jian; Weber, Fabienne
    Abstract: After the Lehman-Brothers collapse, the stock index has exceeded its pre-Lehman-Brothers peak by 36% in real terms. Seemingly, markets have been demanding more stocks instead of bonds. Yet, instead of observing higher bond rates, paradoxically, bond rates have been persistently negative after the Lehman-Brothers collapse. To explain this paradox, we suggest that, in the post-Lehman-Brothers period, investors changed their perceptions on disasters, thinking that disasters occur once every 30 years on average, instead of disasters occurring once every 60 years. In our asset-pricing calibration exercise, this rise in perceived market fragility alone can explain the drop in both bond rates and price-dividend ratios observed after the Lehman-Brothers collapse, which indicates that markets mostly demanded bonds instead of stocks.
    Keywords: asset pricing,disaster risk,price-dividend ratio,bond returns
    JEL: G12 G01 E44 E43
    Date: 2017
  38. By: Thomas Lustenberger; Enzo Rossi
    Abstract: We develop and apply a procedure to test the welfare implications of a beauty and non-beauty contest based on survey forecasts of interest rates and yields in a large country sample over an extended period of time. In most countries, interest-rate forecasts are unbiased and consistent with both models, but are rarely supported by yield forecasts. In half of the countries, a higher precision of public information regarding interest rates increases welfare. During forward guidance, public information is less precise than private information.
    Keywords: Value of information, beauty contest, interest rate forecasts, bond yield forecasts, strategic forecasts, central bank transparency, forward guidance
    JEL: D8 E43 E52 E58 G1 G29
    Date: 2017
  39. 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
  40. By: Schultefrankenfeld, Guido
    Abstract: I assess how dissenting views on appropriate monetary policy result in disagreement about the macroeconomic outlook of Federal Open Market Committee members. FOMC members that voted for a higher Fed Funds Rate than the majority of voters also forecast higher inflation rates, while they forecast lower unemployment rates relative to the consensus view on the future economy. Voters that tighten their stance revise inflation forecasts to the upside and unemployment forecasts to the downside. Members that switched their voting status between forecasting rounds, i.e., switched from voting with the majority to being a dissenting minority voter, or switched vice versa, are significantly more hesitant in revising their macroeconomic forecasts.
    Keywords: Federal Reserve System,Federal Open Market Committee,Federal Funds Rate,Dissent,Forecast Disagreement
    JEL: C12 E52
    Date: 2017
  41. By: Gabriel Osório de Barros (Gabinete de Estratégia e Estudos do Ministério da Economia); Filipe Bento Caires; Dora Xarepe Pereira
    Abstract: O fenómeno das empresas zombie foi já profundamente analisado, em particular quanto ao caso do Japão. Vários autores associam a crise económica vivida na década de 1990 e a estagnação que o Japão tem vindo a verificar à deterioração do sistema bancário japonês, o qual terá contribuído atribuiu de forma continuada crédito a empresas mais fracas, muitas das quais em situação de insolvência, evitando que essas empresas tivessem que encerrar ou reestruturar, por um lado, e que o crédito pudesse ser canalizado para sectores mais produtivos. Sendo certo que o fenómeno das empresas zombie no caso do Japão comprometeu o crescimento daquele país no século XX, é relevante identificar o peso desse tipo de entidades no tecido empresarial português e qual tem sido a sua evolução ao longo do tempo. O presente estudo mostra que, entre 2008 e 2015, nos sectores portugueses não transacionáveis da Construção e Serviços, entre 5% (2008) e 12% (2013) das empresas no mercado eram zombies. Confirmamos ainda as previsões teóricas e os resultados empíricos anteriores de que uma maior presença zombie na Construção e nos Serviços tem implicações significativamente negativas nas empresas saudáveis a operar no mesmo sector, nomeadamente reduzindo o investimento e o emprego e aumentando o hiato de produtividade entre as empresas mais e menos produtivas de cada sector.
    Keywords: Empresas Zombie; Construção; Serviços; Sectores Não Transacionáveis; Afetação de Recursos; Financiamento; Investimento; Emprego
    JEL: E22 E24 G32 L25 O47
    Date: 2017–12
  42. By: G. Gaballo
    Abstract: This paper shows that when agents learn from prices, large private uncertainty may result from a small amount of heterogeneity. As in a Phelps-Lucas island model, final producers look at the prices of their local inputs to infer aggregate conditions. However, market linkages between islands make the informativeness of local prices endogenous to general equilibrium relations. In this context, I show that a vanishingly small heterogeneity in local conditions is enough to generate an equilibrium in which prices are rigid to aggregate shocks and transmit only partial information. I use this insight as a microfoundation for price rigidity in an otherwise frictionless monetary model and show that even a tiny amount of dispersion in fundamentals can lead to large non-neutrality of money.
    Keywords: learning from prices, expectational coordination, dispersed information.
    JEL: D82 D83 E3
    Date: 2017
  43. By: van Riet, Ad
    Abstract: New-style central banking in many advanced economies, involving the use of unconventional monetary policy instruments and forward guidance at the effective lower bound for interest rates, has raised questions about the appropriate role of fiscal policy – also in the euro area, where a fiscal counterpart to the European Central Bank (ECB) and the Eurosystem is missing. This paper considers three areas where euro area governments could act as the ‘joint sovereign’ behind the euro and support the ECB in its task of maintaining price stability, staying within the boundaries of the Maastricht Treaty. First, member countries could coordinate a growth-friendly aggregate economic policy mix that is supportive of the single monetary policy, with the help of a central fiscal capacity subject to common decision-making. Second, they could introduce a safe sovereign asset for the eurozone without assuming common liability in order to anchor financial integration and facilitate monetary policy implementation. Third, the significant benefits for the Eurosystem from a lower burden on monetary policy and a reduced exposure to sovereign risk could make it acceptable for euro area governments to indemnify it against potential large losses on its much expanded balance sheet. The fundamental solution, however, lies in advancing with fiscal integration to address the ‘institutional loneliness’ of the Eurosystem with full respect for its independent status.
    Keywords: Maastricht Treaty; new-style central banking; supportive fiscal policies; capital loss insurance; safe sovereign asset
    JEL: E5 E63 H63
    Date: 2017–10
  44. By: Mumtaz, Haroon (Queen Mary University); Theodoridis, Konstantinos (Cardiff Business School)
    Abstract: We show that US financial shocks have an impact on the distribution of UK income and consumption. Households with higher income and higher levels of consumption are affected more by this shock than households located towards the lower end of these distributions. An estimated multiple agent DSGE model suggests that the heterogeneity in the household responses can be explained by the different levels of access to financial markets. We find that this heterogeneity magnifies the effect of this shock on aggregate output.
    Keywords: FAVAR, DSGE model, Financial Shock
    JEL: D31 E32 E44
    Date: 2017–12
  45. By: Barnichon, Regis (Federal Reserve Bank of San Francisco); Matthes, Christian (Federal Reserve Bank of Richmond)
    Abstract: The literature on the government spending multiplier has implicitly assumed that an increase in government spending has the same (mirror-image) effect as a decrease in government spending. We show that relaxing this assumption is important to understand the effects of fiscal policy. Regardless of whether we identify government spending shocks from (i) a narrative approach, or (ii) a timing restriction, we find that the contractionary multiplier—the multiplier associated with a negative shock to government spending—is above 1 and even larger in times of economic slack. In contrast, the expansionary multiplier—the multiplier associated with a positive shock—is substantially below 1 regardless of the state of the cycle. These results help understand seemingly conflicting results in the literature.
    Keywords: government spending;
    JEL: C32 E62
    Date: 2017–12–15
  46. By: Baas, Timo; Belke, Ansgar
    Abstract: For more than two decades now, current-account imbalances are a crucial issue in the international policy debate as they threaten the stability of the world economy. More recently, the government debt crisis of the European Union shows that internal current account imbalances inside a currency union may also add to these risks. Oil price fluctuations and a contracting monetary policy that reacts on oil prices, previously discussed to affect the current account may also be a threat to the currency union by changing internal imbalances. Therefore, in this paper, we analyze the impact of oil price shocks on current account imbalances within a currency union. Differences in institutions, especially labor market institutions and trade result in an asymmetric reaction to an otherwise symmetric shock. In this context, we show that oil price shocks can have a long-lasting impact on internal balances, as the exchange rate adjustment mechanism is not available. The common monetary policy authority, however, can reduce such effects by specifying an optimum monetary policy target. Nevertheless, we also show that there is no single best solution. CPI, core CPI or an asymmetric CPI target all come at a cost either regarding an increase in unemployment or increasing imbalances.
    Keywords: Current account deficit,Oil price shocks,DSGE models,Search and matching labor market,Monetary policy
    JEL: E32 F32 Q43
    Date: 2017
  47. By: Jasmina Hasanhodzic; Laurence J. Kotlikoff
    Abstract: Determining how to value net government obligations is a long-standing and fundamental question in public finance. Its answer is critical to cost-benefit analysis, the assessment of fiscal sustainability, generational accounting, and other economic issues. This paper posits and simulates a ten-period overlapping generations model with aggregate shocks to price safe and risky government net obligations, including options. Agents can't trade with future generations to hedge the model's productivity and depreciation shocks. Nor can they invest in anything other than one-period bonds and risky capital. Our results are surprising. We find that the pricing of short- as well as long-dated riskless obligations is anchored to the prevailing one-period risk-free return. More surprising, the prices of obligations whose values are proportional to the prevailing wage (e.g., Social Security benefits under a pay-go system with a fixed tax rate) are essentially identical to those of safe obligations, i.e., there is little risk adjustment. This is true notwithstanding our assumption of very large macro shocks. In contrast, government obligations provided in the form of options entail significant risk adjustment. We also show that the value of obligations to unborn generations depends on the nature of the compensating variation. Another finding is that the one-period bond market matters, but less than expected, to valuing obligations. Finally, our model lets us test the ability of arbitrage pricing to get prices right. Surprisingly, with the right specification, it comes close. Although highly stylized, our model suggests the potential of detailed, largescale CGE OLG models to price government obligations as well as non-marketed private securities in the presence of incomplete markets and macro shocks.
    JEL: E61 E62 E69 H00 H20 H43
    Date: 2017–12
  48. By: Lukas Buchheim; Sebastian Link
    Abstract: This paper studies a new aspect of firms’ expectation formation by asking whether expectations primarily reflect aggregate, industry-wide information (e.g., industry trends) or disaggregate information (e.g., firm-specific information). First, we show that disaggregate information is strongly associated with expectations even when controlling for aggregate information at high-dimensional industry levels. Moreover, aggregate and disaggregate information explain comparable shares of the variance in expectations. Second, we exploit a natural experiment to identify the causal effect of new information on expectations. The predictable demand effects for durable goods due to the German VAT increase of 2007 implied that, at the time, durable goods retailers had access to more reliable information about their future demand than non-durable goods retailers. Utilizing this observation in a difference-in-differences design, we find that “treated” firms were significantly more forward-looking ahead of the VAT-induced demand shifts. Overall, our results suggest that firms rationally incorporate disagreggate information into their expectations.
    Keywords: expectation formation, firm behavior, survey data, natural experiments in macroeconomics, heterogeneity in expectations
    JEL: D84 D22 E20 E32 E65 H32
    Date: 2017
  49. By: Makram El-Shagi; Lunan Jiang (Center for Financial Development and Stability at Henan University, Kaifeng, Henan)
    Abstract: Although China's monetary and financial system differs drastically from its Western counterpart, empirical studies covering this vast economy (the largest by some accounts) have often been simple reestimations or recalibrations of models that have originally been designed to describe US or European monetary policy. In this paper, we aim to provide an assessment of Chinese monetary policy and in particular monetary policy transmission through the bond market into the real economy, which takes into account the peculiarities of the Chinese market. Namely, our model includes both China's modern attempts at a market based policy shock as well as the "authority" based monetary policy that is a relic of the original banking system; it considers the special nature of the Chinese treasury bond market which is separated in two independent markets with very limited direct arbitrage opportunities between almost identical assets, and finally it incorporates the role of real estate, which played an essential role in China during the last decade.
    Keywords: monetary policy, yield curve, market segmentation
    JEL: E52 E43
    Date: 2017–12
  50. By: Stefan Ederer; Miriam Rehm (Federal Chamber of Labour Vienna (AT))
    Abstract: We develop and calibrate an analytical growth model in the neo-Kaleckian tradition with an endogenous wealth distribution and differential returns to wealth between workers and capitalists. We show that a long-run equilibrium allows for non-zero wealth owned by workers, even as the model contains the “triumph of the rentier” predicted by Piketty’s r > g as a special case. The model’s calibration to ten European countries shows that the distribution of wealth is likely to become more unequal in all cases, barring political countermeasures.
    Keywords: inequality, wealth, income, neo-Kaleckian theory, model calibration
    JEL: D31 E12 E21
    Date: 2017–12
  51. By: José García-Montalvo; Josep M. Raya
    Abstract: The introduction of limits or regulatory penalties on high LTV ratios for residential mortgages is one of the most frequently used tools of macroprudential policy. The available evidence seems to indicate that this instrument can reduce the feedback loop between credit and house prices. In this paper, we show that these constraints on LTV ratios, used by Spanish banking regulators before the onset of the housing crisis of 2008, did not prevent that feedback loop. In the Spanish case, the fact that appraisal companies were mostly owned by banks led to a situation in which the LTV limits were used to generate appraisal values adjusted to the needs of the clients, rather than trying to appropriately represent the value of the property. This tendency towards over-appraisals produced important externalities in terms of a higher than otherwise demand for housing, and intensification of the feedback loop between credit and house prices.
    JEL: E52 E58 G28
    Date: 2017–12
  52. By: Jorda, Oscar (Federal Reserve Bank of San Francisco); Knoll, Katharina (Deutsche Bundesbank); Kuvshinov, Dmitry (University of Bonn); Schularick, Moritz (University of Bonn); Taylor, Alan M. (University of California, Davis)
    Abstract: This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long-run? Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but oft ignored, component of household wealth, housing. The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.
    JEL: D31 E10 E44 G12 N10
    Date: 2017–12–20
  53. By: Aßmuth, Pascal
    Abstract: The total output of an economy usually follows cyclical movements which are accompanied by similar movements in stock prices. The common explanation relies on the demand side. It points out that stock market wealth drives consumption which triggers production afterwards. This paper focuses on influences via the supply side of the economy. The aim of the paper is to explore channels where stock price patterns influence the amount of credit taken by firms. The author examines trend and volatility cycles on the stock market. There are three channels addressed: the stock market valuation as piece of information for the assessment of a firm's creditworthiness, the influence on restructuring prospects in times of financial distress and the stock market related remuneration of the top management affecting capital demand. He asks to which extent a channel may contribute to the stock price-output relation when there is mutual feedback. A model à la Delli Gatti et al. (A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility, 2005) drives the results. Firms take credit to finance their production which determines their financial fragility. If their stochastic revenue is too low, they are bankrupt and leave the economy. The capital loss hurts the bank's equity base and future credit supply is diminished. This causes business cycles. Results show that if the bank assesses creditworthiness according to the stock price then idiosyncratic stock price fluctuations have only a slight effect as they disturb selection and hinder growth. If stock market optimism matters for bankruptcy ruling the level of stock owners' influence does not matter. If optimism is wide spread among stock investors however, investment behaviour is also correlated through the stock prices and this results in huge real economy cycles without any long-term growth. If volatility is considered in the decision ofmanagers they act more prudently and this fosters growth.
    Keywords: heterogeneous agents models,financial fragility,stock prices,business cycles
    JEL: E32 G30 C63
    Date: 2017
  54. By: Hamza Demircan (Koc University-TUSIAD Economic Reserch Forum and Koc University); Sumru Oz (Koc University-TUSIAD Economic Reserch Forum)
    Abstract: This paper proposes a method to calculate undistributed profits, thus saving rates of non-financial firms using only the information given in their balance sheets. This allows us to analyze the saving behavior of non-financial firms even in the absence of their statement of cash flows, which contains "dividend payments" data. The balance sheets of non-financial firms are provided by TurkStat only for 2013 and 2014, so this paper is confined to the cross sectional analysis of the saving behavior of non-financial firms in Turkey. We find that the saving rate increases as past net profit margin increases for firms with profits in the preceding year. For the firms which declare loss in the preceding year, saving rate increases as the past value of net profit margin decreases. Our findings for the rest of the firm-level determinants are consistent with the previous studies: Firm size plays a role on corporate savings; leverage ratio has a negative impact on the saving rate; and the positive impact of export orientation is higher for SMEs.
    Keywords: Firm Behavior, Savings of non-financial firms, Turkey.
    JEL: D22 E21 E22 C21 O16
    Date: 2017–12
  55. By: Mariusz Kapuściński
    Abstract: This study applies factor-augmented vector autoregressions to identify the effects of monetary policy shocks in a small, open, emerging market economy. It uses data on 132 variables for Poland, ‘compressing’ them to either structural (having an economic interpretation) or economically uninterpretable factors, also known as diffusion indices. The tightening of monetary policy is found to have broad, contractionary effects. Among other things, production, building permits, retail trade, employment, job offers, prices, wages, loans and stock prices decrease, unemployment and non-performing loans increase. However, a rise in the interest rate does not appear to be associated with an appreciation of the exchange rate. But this result is not robust among studies using vector autoregressions, which calls for a different strategy to identify the causal effect. As one of extensions, the effects of changes in global and foreign factors are investigated. Domestic prices are found to respond to global prices of commodities and foreign prices. Domestic production and interest rates – to their foreign counterparts.
    Keywords: factor analysis, vector autoregressions, factor-augmented vector autoregressions, high-frequency identification, monetary transmission mechanism
    JEL: C38 C32 E43 E52
    Date: 2017
  56. By: Barbara Annicchiarico (CEIS & DEF, University of Rome "Tor Vergata"); Francesca Diluiso (DEF, University of Rome "Tor Vergata")
    Abstract: This paper presents a baseline dynamic general-equilibrium model of environmental policy for a two-country economy and studies the international transmission of several asymmetric shocks considering three different economy-wide greenhouse gases (GHG) emission regulations: (i) national cap-and-trade, (ii) carbon tax, and (iii) international cap-and-trade system allowing for cross-border allocation of emission permits. We find that international spillovers of shocks originated in one country are strongly influenced by the environmental regime put in place. We show that, while a national cap-and-trade system diminishes the international spillovers by dampening the response of the country hit by shocks, the cross-border reaction to supply-side shocks is found to be magnified under an international cap-and-trade system, while demand shocks are more intensively transmitted under a carbon tax. The pattern of trade and the underlying monetary regime in uence the cross-border transmission channels interacting with the environmental policy adopted.
    Keywords: Open Economy Macroeconomics, GHG Emission Control, Macroeconomic Dynamics
    JEL: F41 F42 E32 Q58
    Date: 2017–12–19
  57. By: Florian Misch; Brian Olden; Marcos Poplawski-Ribeiro; Lamya Kejji
    Abstract: Traditionally, fiscal data for policy analysis are derived from official reports that, depending on the country, are published either monthly, quarterly or annually, often with significant time lags. However, innovations in digitalization of government payments and accounting systems mean that real-time daily fiscal data exist in many countries. In this paper, we argue that these data contain valuable, but underutilized and underexploited information. Possible uses include (i) realtime fiscal surveillance which allows for much more timely responses to emerging signs of fiscal stress, and (ii) nowcasting economic activity, which is especially useful in countries where higher frequency GDP statistics are unavailable.
    Keywords: Fiscal policy;JEL Classification Numbers: E01, E32, H68 Keywords: Nowcashing, Real-time data, Nowcasting, Nowcashing, Forecasts of Budgets, Deficits, and Debt
    Date: 2017–11–06
  58. By: Boerma, Job (Federal Reserve Bank of Minneapolis); Karabarbounis, Loukas (Federal Reserve Bank of Minneapolis)
    Abstract: We revisit the causes, welfare consequences, and policy implications of the dispersion in households' labor market outcomes using a model with uninsurable risk, incomplete asset markets, and a home production technology. Accounting for home production amplifies welfare-based differences across households meaning that inequality is larger than we thought. Using the optimality condition that households allocate more consumption to their more productive sector, we infer that the dispersion in home productivity across households is roughly three times as large as the dispersion in their wages. There is little scope for home production to offset differences that originate in the market sector because productivity differences in the home sector are large and the time input in home production does not covary with consumption expenditures and wages in the cross section of households. We conclude that the optimal tax system should feature more progressivity taking into account home production.
    Keywords: Home production; Labor supply; Consumption; Inequality
    JEL: D10 D60 E21 J22
    Date: 2017–12–22
  59. By: Nicolas Afflatet
    Abstract: Population ageing is one of the major long-term challenges industrialized countries face. Forecasts predict that public debt is going to rise sharply for most countries due to population ageing. However, until now there has been little research on how population ageing already affects public debt. Based on a panel data analysis for 18 European countries it is shown that there is only little empirical evidence for an impact until 2015. This does certainly not mean that it will not have an effect on public debt in the future. Governments are well-advised to benefit from the breathing space the still moderate total dependency ratio offers to adapt their social security systems.
    Keywords: Population ageing, public debt, social security systems, demographic dividend
    JEL: E62 H63 J11
    Date: 2016–12
  60. By: Andreas Steiner; Sven Steinkamp; Frank Westermann
    Abstract: In the winter 2011/12 a wave of internal capital flight prompted the ECB to abandon its exit strategy and to announce an unprecedented monetary expansion. We analyze this episode in several dimensions: (i) by providing an event-study analysis covering key variables from national central banks’ balance sheets, (ii) by rationalizing their patterns in a portfolio balance model of the exchange rate, augmented by institutional characteristics of the TARGET2 system, and (iii) by proposing a theory-based index of exchange market pressure within the euro area. We argue that the euro area entails an inherent policy trilemma that makes it prone to speculative attacks.
    Keywords: currency union, exchange market pressure, policy trilemma, speculative attack, TARGET2
    JEL: E42 F36 F41
    Date: 2017
  61. By: Ryo Kato (@ Head of Economic Studies Group, Institute for Monetary and Economic Studies (currently Head of Global Economic Research Division, International Department), Bank of Japan (E-mail:; Tatsushi Okuda (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: We show empirical evidence that sectoral inflation persistence, measured by autocorrelation of monthly changes in US producer prices, is starkly dispersed and negatively correlated with market concentration across sectors. To account for such empirical observation, we develop a dynamic stochastic model of firms' pricing strategy in which monopolistically competitive firms set their prices while receiving private signals on cost shocks. In the model, an increase in the number of competing firms raises strategic complementarity among the firms in the same sector. Using the model, we analytically show that, under imperfect common knowledge, sectoral inflation persistence is monotonically decreasing in market concentration.
    Keywords: Imperfect common knowledge, Inflation persistence, Market concentration
    JEL: E31 D40 D82 L16
    Date: 2017–12
  62. By: Mario J. Crucini; Nam T. Vu
    Abstract: One of the statements of purpose of the American Recovery and Reinvestment Act (ARRA) was “to assist those most impacted by the recession.” The ARRA is assessed along this dimension using theoretical concepts from the risk-sharing literature. We estimate a model of income dynamics using a county-level panel of wage income in order to isolate the innovation to income. We then regress these income shocks on ARRA transfers and find 13.1% of the shock is offset by the transfer. While this is a long way from complete risk-sharing, the impacts are economically and statistically significant. Surprisingly, there are large state-contingent effects in the second and third quartiles 25.6% and 15.7% versus a mere 8.5% in the first quartile. By this metric, the policy of helping those most in need was not achieved.
    JEL: D31 E3 E62
    Date: 2017–12
  63. By: Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Presentation to the 54th Annual Economic Forecast Luncheon, Phoenix, Arizona, John C. Williams, President and CEO, Federal Reserve Bank of San Francisco, November 29, 2017.
    Date: 2017–11–29
  64. By: Era Dabla-Norris; Pietro Dallari; Tigran Poghosyan
    Abstract: We estimate a panel VAR model that captures cross-country, dynamic interlinkages for 10 euro area countries using quarterly data for the period 1999-2016. Our analysis suggests that fiscal spillovers are significant and tend to be larger for countries with close trade and financial links as well, as for fiscal shocks originating from larger countries. The current account appears to be the main channel of transmission, although strong trade integration among countries in the euro area and spillback effects tend to zero-out the net trade impact in some cases. A subsample analysis shows that the effects of fiscal policy have changed over time, with larger estimated domestic multipliers and spillovers between 2011 and 2014.
    Date: 2017–11–15
  65. By: Gregor Bäurle; Sarah M. Lein; Elizabeth Steiner
    Abstract: Firms adjust their employment to changes in output. But they tend to adjust employment only partially. Typically, labor is hoarded in downturns and subsequently firms have to hire less in upturns. Investment in labor hoarding may therefore be influenced by factors that impede investments, such as financial constraints. Using firm-level data, we show that financial constraints increase the sensitivity of employment to fluctuations in output considerably. When output changes, financially constrained firms resize their labor force substantially more than firms that have abundant funding. Limited internal funding opportunities turn out to be just as important as the reduced access to external finance. The strongest impact, however, is observed when internal and external constraints occur jointly. In that case, firms lay off two-and-a-half times more employees than unconstrained firms. The amplifying effect of financial constraints is similar in upturns and downturns, implying that financially constrained firms not only reduce their workforce more when demand decreases, but they also hire more labor when demand increases.
    Keywords: Financial constraints, employment, labor hoarding
    JEL: E24 E3
    Date: 2017
  66. By: Krzysztof Bartosik (Institute of Economics of the Polish Academy of Sciences); Jerzy Mycielski (Faculty of Economic Sciences, University of Warsaw)
    Abstract: The paper investigates how increased use of temporary contracts has affected employment elasticity with respect to output in Poland. Our empirical analysis covers the period of 1996-2016, with particular focus on the years 2001-2016. Several econometric tools are used to explore the relation between growth in GDP and employment. Our study shows that widespread adoption of temporary contracts contributes positively to total employment elasticity. However, what we have observed is that the share of temporary contracts has increased, but the total employment elasticity has decreased. We related this to an inverse relationship between the growth of permanent and temporary employment and the opposite trends in output elasticities of temporary and permanent employment.
    Keywords: labour demand, temporary contracts, economic growth, labour market institutions
    JEL: J21 J23 E32 J41
    Date: 2017
  67. By: Yasuo Hirose (Keio University); Takeki Sunakawa (The University of Tokyo, CEAFJP - Centre d’études avancées franco-japonais de Paris - FFJ - Fondation France-Japon de l'EHESS - EHESS - École des hautes études en sciences sociales)
    Abstract: How can parameter estimates be biased in a dynamic stochastic general equilibrium model that omits nonlinearity in the economy? To answer this question, we simulate data from a fully nonlinear New Keynesian model with the zero lower bound constraint and estimate a linearized version of the model. Monte Carlo experiments show that significant biases are detected in the estimates of monetary policy parameters and the steady-state inflation and real interest rates. These biases arise mainly from neglecting the zero lower bound constraint rather than linearizing equilibrium conditions. With fixed parameters, the variance-covariance matrix and impulse response functions of observed variables implied by the linearized model substantially differ from those implied by its nonlinear counterpart. However, we find that the biased estimates of parameters in the estimated linear model can make most of the differences small.
    Keywords: Nonlinearity,Zero lower bound,DSGE Model,Bayesian estimation
    Date: 2016–09
  68. By: Alfredo Marvão Pereira (Department of Economics, The College of William and Mary, Williamsburg VA 23187); Rui Manuel Pereira (Department of Economics, The College of William and Mary, Williamsburg VA 23187)
    Abstract: This article determines the budgetary, economic, distributional and environmental impact of permanently increasing the value-added tax on electricity in Portugal. The analysis is carried out in the context of a new multi-sector and multi-household dynamic general equilibrium model. Simulation results suggest that a permanent increase from 6% to 23% in the statutory VAT on electricity improves the public budget as well as the environment, but both gains have detrimental economic and distributional effects. As the economy in Portugal begins to recover in the aftermath of the Great Financial Crisis, and the public budgetary situation becomes less constraining, pressure is mounting for this VAT increase on electricity to be reversed. This mixed bag of results is an important element for the debate. Reverting to a tax of 6% on electricity is desirable, as it would improve economic performance and have positive distributional effects. The question, then, is how to compensate for the loss of tax revenue and, at the same time, protect the environment. To offset the adverse budgetary and environmental effects of a lower VAT, we propose to increase the tax on petroleum products. This proves to be a dominant strategy from all relevant perspectives – economic, distributional, and environmental.
    Keywords: Value-Added Tax on Electricity, Tax on Petroleum Products, Macroeconomic Effects, Distributional Effects, Environmental Effects, Portugal
    JEL: C68 E62 H23 Q43 Q48
    Date: 2017–07
  69. By: Sanne Zwart; Mark Baker
    Abstract: More than a quarter of adults in the United Kingdom have low basic skills, which has a negative impact on career prospects, job quality and productivity growth. Furthermore, unlike most other countries, young adults do not have stronger basic skills than the generation approaching retirement. The lack of skills development starts at young ages and continues in secondary education; despite a modest reduction in recent years, the educational attainment gap between disadvantaged and non-disadvantaged students remains high. The low participation in lifelong learning of low-skilled individuals puts them at risk of falling behind in meeting the changing skill demands of the dynamic labour market. Ongoing reforms to the vocational education and training (VET) system and apprenticeship system should have a positive impact on low-skilled productivity, enabling students to gain the necessary basic skills and for workers to find quality jobs. Improving the targeting of active labour market policies, and ensuring that the ongoing increases in the national living wage are delivered in a sustainable way will also play an important role in improving job quality and reducing the high rate of youth neither employed or in education or training. Policy responses to the rise of non-standard work will also be essential in improving the job quality of the low-skilled.
    Keywords: job quality, low-skilled, Productivity, social mobility
    JEL: E24 H75 J24 J62
    Date: 2018–01–10
  70. By: Aysit Tansel (Department of Economics, Middle East Technical University, Ankara, Turkey; Institute for the Study of Labor (IZA) Bonn, Germany; Economic Research Forum (ERF) Cairo, Egypt); Zeynel Abidin Ozdemir (Department of Economics, Gazi University, Besevler, 06500, Ankara, Turkey Economic Research Form (ERF), Cairo, Egypt)
    Abstract: This article explores the long-run relationship between unemployment rate and labor force participation rate for men and women in Canada. The co-integration analysis vindicates the existence of a long-run relationship between these two variables. This finding leads us to doubt the pertinence of the unemployment invariance hypothesis for Canada. This is consistent with the empirical studies for Japan, Sweden and the United States, but contradicts the empirical studies for Australia, Romania and Turkey. Further, we find discouraged worker effect for women and added worker effect for men and we elaborate on the possible explanations for this seemingly contradictory finding.
    Keywords: Unemployment Invariance; Unemployment; Labor Force Participation; Discouraged Worker Effect; Added Worker Effect; Co-integration; Canada
    JEL: E24 J21 J64
    Date: 2016–08
  71. By: Ben J. Heijdra; Yang Jiang; Jochen O. Mierau
    Abstract: We study the impact of a fully-funded social security system in an economy with heterogeneous consumers. The unobservability of individual health conditions leads to adverse selection in the private annuity market. Introducing social security—which is immune to adverse selection—affects capital accumulation and individual welfare depending on its size and on the pension benefit rule that is adopted. If this rule incorporates some implicit or explicit redistribution from healthy to unhealthy individuals then the latter types are better off as a result of the pension system. In the absence of redistribution the public pension system makes everybody worse off in the long run. Though attractive to distant generations, privatization of social security is not generally Pareto improving to all generations.
    Keywords: social security, annuity market, adverse selection, overlapping generations, redistribution
    JEL: D91 E10 H55 J10
    Date: 2017
  72. By: Nikita Céspedes Reynaga (Banco Central de Reserva del Perú)
    Abstract: En este documento se estudia la heterogeneidad de la dolarización de créditos a nivel de personas en Perú. La dolarización de créditos se caracteriza utilizando una base de datos única que resulta de la fusión entre el Registro Consolidado de Créditos (RCC) y la Encuesta Nacional de Hogares (ENAHO), esta base de datos resultante permite identificar el monto y las características observables de cada crédito y de cada persona que accede a este. Se encuentra que la dolarización es heterogénea según las características de las personas, siendo mayor entre las personas de altos ingresos, de mayor edad y más educadas. A nivel regional, Lima tiene los más altos ratios de dolarización, y según tipo de empleo, los trabajadores formales son los más dolarizados en sus créditos.
    Keywords: Dolarización, Crédito, Efecto hoja de balance, Heterogeneidad
    JEL: E5 G11
    Date: 2017–12
  73. By: Leo Kaas; Georgi Kocharkov; Edgar Preugschat; Nawid Siassi
    Abstract: The homeownership rate in Germany is one of the lowest among advanced economies. To better understand this fact, we analyze the role of three specific policies which discourage homeownership in Germany: an extensive social housing sector with broad eligibility criteria, high transfer taxes when buying real estate, and no tax deductions for mortgage interest payments by owner-occupiers. We build a lifecycle model with uninsurable income risk and endogenous homeownership in order to quantify the policy effects on homeownership and welfare. We find that all three policies have sizable effects on the homeownership rate. At the same time, household welfare would be reduced by moving to a policy regime with low transfer taxes and mortgage interest tax deductions, but it would improve in the absence of social housing, in particular when coupled with housing subsidies for low-income households.
    Keywords: homeownership, housing markets
    JEL: E21 R21 R38
    Date: 2017
  74. By: Maarten van Oordt
    Abstract: Specifications of the Federal Reserve target rate that have more realistic features mitigate in-sample over-fitting and are favored in the data. Imposing a positivity constraint and discrete increments significantly increases the accuracy of model out-of-sample forecasts for the level and volatility of the Federal Reserve target rates. In addition, imposing the constraints produces different estimates of the response coefficients. In particular, a new and simple specification, where the target rate is the maximum between zero and the prediction of an ordered-choice Probit model, is more accurate and has higher response coefficients to information about inflation and unemployment.
    Keywords: Financial markets, Interest rates
    JEL: E43
    Date: 2017
  75. By: Ricardo Marto; Chris Papageorgiou; Vladimir Klyuev
    Abstract: We present a dynamic small open economy model to explore the macroeconomic impact of natural disasters. In addition to permanent damages to public and private capital, the disaster causes temporary losses of productivity, inefficiencies during the reconstruction process, and damages to the sovereign's creditworthiness. We use the model to study the debt sustainability concerns that arise from the need to rebuild public infrastructure over the medium term and analyze the feasibility of ex ante policies, such as building adaptation infrastructure and fiscal buffers, and contrast these policies with the post-disaster support provided by donors. Investing in resilient infrastructure may prove useful, in particular if it is viewed as complementary to standard infrastructure, because it raises the marginal product of private capital, crowding in private investment, while helping withstand the impact of the natural disaster. In an application to Vanuatu, we find that donors should provide an additional 50% of pre-cyclone GDP in grants to be spent over the following 15 years to ensure public debt remains sustainable following Cyclone Pam. Helping the government build resilience on the other hand, reduces the risk of debt distress and at lower cost for donors.
    Keywords: Debt sustainability;Disaster aid;Foreign aid;Natural Disastes, Resilience, Adaptation, Small States, International Lending and Debt Problems, Infrastructures, Fiscal and Monetary Policy in Development
    Date: 2017–10–30
  76. By: Faure, Salomon A.; Gersbach, Hans
    Abstract: We establish a benchmark result for the relationship between the loanablefunds and the money-creation approach to banking. In particular, we show that both processes yield the same allocations when there is no uncertainty and thus no bank default. In such cases, using the much simpler loanablefunds approach as a shortcut does not imply any loss of generality.
    Keywords: money creation,bank deposits,capital regulation,monetary policy,loanable funds
    JEL: D50 E4 E5 G21
    Date: 2017
  77. By: Makram El-Shagi; Yizhuang Zheng (Center for Financial Development and Stability at Henan University, Kaifeng, Henan)
    Abstract: In this paper we reexamine the literature on money demand in China published both in English and Chinese language. Over the past 30 years - starting with the paper by Chow (1987) there has been a regular stream of papers assessing the Chinese money demand function. The literature is mostly focusing on income elasticity, stability, and - which is special for China - the adequate choice and quality of data. In particular regarding stability of money demand, we find a substantial publication bias towards rejecting stability. When controlling for publication bias, and focusing on longer time periods, our paper strongly suggests stable long run money demand in China.
    Keywords: inflation, exchange rate, forecast performance, terror- ism, market forecast, expert forecast
    JEL: C53 E37 F37 F51
    Date: 2017–12
  78. By: Carbonero, Francesco; Gartner, Hermann
    Abstract: Fixed search costs, i.e. costs that don't vary with search duration, can amplify the cyclical volatility of the labor market. To assess the size of fixed costs, we analyse the relation of search costs and search duration with data from Germany. Using an OLS regression we find that fixed search costs are nearly half of total search costs. If we use an instrumental variable estimation, it turns out that search costs are mainly fixed costs. Furthermore, we show that a search and matching model calibrated for Germany with fixed costs close to 100 percent can generate a labor market volatility that is consistent with the data.
    Keywords: search costs,search duration,unemployment volatility puzzle
    JEL: E32 J32 J63 J64
    Date: 2017
  79. By: Joshua Aizenman; Menzie D. Chinn; Hiro Ito
    Abstract: We investigate whether and to what extent macroprudential policies affect the financial link between the center economies (CEs, i.e., the U.S., Japan, and the Euro area), and the peripheral economies (PHs). We first estimate the correlation of the policy interest rates between the CEs and the PHs and use that as a measure of financial sensitivity. We then estimate the determinants of the estimated measure of financial sensitivity as a function of country-specific macroeconomic conditions and policies. The potential determinant of our focus is the extensity of macroprudential policies. From the estimation exercise, we find that a more extensive implementation of macroprudential policies would lead PHs to (re)gain monetary independence from the CEs when the CEs implement expansionary monetary policy; when PHs run current account deficit; when they hold lower levels of international reserves (IR); when their financial markets are relatively closed; when they are experiencing an increase in net portfolio flows; and when they are experiencing credit expansion.
    JEL: F4 F41 F42
    Date: 2017–12
  80. By: Michal Brzezinski (Faculty of Economic Sciences, University of Warsaw)
    Abstract: This paper uses the European Union Statistics on Income and Living Conditions (EU-SILC) data to study the changes in income inequality in Central and Eastern Europe during the Great Recession (2008-2012) and its determinants. Inequality changes are decomposed using an Oaxaca-Blinder-like decomposition analysis based on the Recentered Influence Function (RIF) methodology, which allows to split the overall change in inequality into endowment effects associated with changes in the distribution of inequality covariates and coefficient effects, which are related to the changing returns to these covariates. Our results show that the Gini for disposable incomes has increased over 2008-2012 in a statistically significant way for Bulgaria, Estonia, Hungary and Slovenia. For most of the countries with significant inequality increases, falling full-time employment rate played the biggest role in explaining changes in inequality. It accounted for about 50-60% of the Gini change for disposable incomes and for about 60-80% of the Gini change for market incomes. The fall in full-time employment rate had a smaller inequality-increasing effect for disposable incomes in Hungary (about 15% of the Gini increase). Increased part-time employment during the recession had either no impact on inequality or was rather inequality-decreasing. We did not find evidence that changes in the incidence of temporary jobs had any impact on income inequality.
    Keywords: income inequality, decomposition, RIF regression, Great Recession, Central and Eastern Europe
    JEL: D63 E32 G01 P24 P36
    Date: 2017
  81. By: Christian H Ebeke; Kodjovi M. Eklou
    Abstract: This paper investigates the microeconomic origins of aggregate economic fluctuations in Europe. It examines the relevance of idiosyncratic shocks at the top 100 large firms (the granular shocks) in explaining aggregate macroeconomic fluctuations. The paper also assesses the strength of spillovers from large firms onto SMEs. Using firm-level data covering over 14 million firms and eight european countries (Austria, Belgium, Finland, France, Germany, Italy, Portugal and Spain), we find that: (i) 40 percent of the variance in GDP in the sample can be explained by idiosyncratic shocks at large firms; (ii) positive granular shocks at large firms spill over to domestic SMEs’ output, especially if SMEs’ balance sheets are healthy and if SMEs belong to the services and manufacturing sectors.
    Date: 2017–11–07
  82. By: Diewert, Erwin; Shimizu, Chihiro
    Abstract: The SNA (System of National Accounts) requires separate estimates for the land and structure components of a commercial property. Using transactions data for the sales of office buildings in Tokyo, a hedonic regression model (the Builder’s Model) was estimated and this model generated an overall property price index as well as subindexes for the land and structure components of the office buildings. The Builder’s Model was also estimated using appraisal data on office building REITs for Tokyo. These hedonic regression models also generate estimates for net depreciation rates which can be compared. Finally, the Japanese Ministry of Land, Infrastructure, Transport and Tourism constructs annual official land prices for commercial properties based on appraised values. The paper compares these official land prices with the land prices generated by the hedonic regression models based on transactions data and on REIT data. The results show that the Builder’s Model using transactions data can be used to estimate Tokyo office market indexes with a reasonable level of precision. The results also revealed that commercial property indexes based on appraisal and assessment prices lag behind the indexes based on transaction prices.
    Keywords: Commercial property price indexes, System of National Accounts, the builder’s model, transaction-based indexes, appraisal prices, assessment prices, land and structure price indexes, hedonic regressions, depreciation rates
    JEL: C2 C23 C43 D12 E31 R21
    Date: 2017–12
  83. By: Ezgi O. Ozturk; Xuguang Simon Sheng
    Abstract: Motivated by the literature on the capital asset pricing model, we decompose the uncertainty of a typical forecaster into common and idiosyncratic uncertainty. Using individual survey data from the Consensus Forecasts over the period of 1989-2014, we develop monthly measures of macroeconomic uncertainty covering 45 countries and construct a measure of global uncertainty as the weighted average of country-specific uncertainties. Our measure captures perceived uncertainty of market participants and derives from two components that are shown to exhibit strikingly different behavior. Common uncertainty shocks produce the large and persistent negative response in real economic activity, whereas the contributions of idiosyncratic uncertainty shocks are negligible.
    Date: 2017–10–30
  84. By: Xavier Gabaix
    Abstract: Inattention is a central, unifying theme for much of behavioral economics. It permeates such disparate fields as microeconomics, macroeconomics, finance, public economics, and industrial organization. It enables us to think in a rather consistent way about behavioral biases, speculate about their origins, and trace out their implications for market outcomes. This survey first discusses the most basic models of attention, using a fairly unified framework. Then, it discusses the methods used to measure attention, which present a number of challenges on which much progress has been done. It then examines the various theories of attention, both behavioral and more Bayesian. It finally discusses some applications. For instance, inattention offers a way to write a behavioral version of basic microeconomics, as in consumer theory, producer theory, and Arrow-Debreu. A last section is devoted to open questions in the attention literature. This chapter is a pedagogical guide to the literature on attention. Derivations are self-contained.
    JEL: D03 D11 D51 G02 H2
    Date: 2017–12
  85. By: Előd Takáts; Judit Temesvary
    Abstract: We study the effect of macroprudential measures on cross-border lending during the taper tantrum, which a saw strong slowdown in cross-border bank lending to some jurisdictions. We use a novel dataset combining the BIS Stage 1 enhanced banking statistics on bilateral cross-border lending flows with the IBRN's macroprudential database. Our results suggest that macroprudential measures implemented in borrowers' host countries prior to the taper tantrum significantly reduced the negative effect of the tantrum on cross-border lending growth. The shock-mitigating effect of host country macroprudential rules are present both in lending to banks and non-banks, and are strongest for lending flows to borrowers in advanced economies and to the non-bank sector in general. Source (lending) banking system measures do not affect bilateral lending flows, nor do they enhance the effect of host country macroprudential measures. Our results imply that policymakers may consider applying macroprudential tools to mitigate international shock transmission through cross-border bank lending.
    Keywords: taper tantrum, cross-border claims, macroprudential policy, diff-in-diff analysis
    JEL: F34 F42 G21 G38
    Date: 2017–12
  86. By: TAKAMIZAWA, Hideyuki
    Abstract: This study proposes a no-arbitrage term structure model that can capture the volatility of interest rates without sacrificing the goodness-of-_t to the cross-section and predictive ability about the level of interest rates. The key feature of the model is the covariance matrix of changes in factors, which is specified as quadratic functions of factors. The quadratic specification can capture intense volatility even with spanned factors, which is not the case for the affine specification. Furthermore, since the quadratic specification guarantees the positive definiteness of the covariance matrix without restricting the sign of factors, it allows for a flexible specification of the physical drift as does the Gaussian term structure model, contributing also to accurate level prediction.
    Keywords: Term structure, Interest rate, Volatility, Affine model, Prediction
    JEL: C58 E43 G12 G17
    Date: 2017–12–09
  87. By: Gabriel Di Bella; Oksana Dynnikova; Francesco Grigoli
    Abstract: Sound regional policies are essential for balanced and sustained economic growth. The interaction of federal and regional policies with cross-regional structural differences affect human and physical capital formation, the business climate, private investment, market depth, and competition. This paper summarizes the main elements of Russia's fiscal federalism, describes the channels through which it operates, and assesses the effectiveness of regional transfers in reducing regional disparities. The results suggest that federal transfers to regions contributed to reducing disparities arising from heterogeneous regional tax bases and fi scal revenues. This allowed regions with initially lower per capita income to increase human and physical capital at higher rates. There is little evidence for transfers contributing to increased cross-regional growth synchronization. The results also suggest that federal transfers did not signifi cantly improve regional fi scal sustainability, a conclusion that is supported by the lack of convergence in per capita real income across Russian regions in the last 15 years.
  88. By: Laura Alfaro (Harvard Business School, Business, Government and the International Economy Unit); Manuel García (Universitat Pompeu Fabra); Enrique Moral-Benito (Banco de Espana)
    Abstract: We consider the real effects of bank lending shocks and how they permeate the economy through buyer-supplier linkages. We combine administrative data on all firms in Spain with a matched bank-firm-loan dataset incorporating information on the universe of corporate loans for 2003-2013. Using methods from the matched employer-employee literature for handling large data sets, we identify bank-specific shocks for each year in our sample. Combining the Spanish Input-Output structure and firm-specific measures of upstream and downstream exposure, we construct firm-specific exogenous credit supply shocks and estimate their direct and indirect effects on real activity. Credit supply shocks have sizable direct and downstream propagation effects on investment and output throughout the period but no significant impact on employment during the expansion period. Downstream propagation effects are quantitatively larger in magnitude than direct effects. The results corroborate the importance of network effects in quantifying the real effects of credit shocks and show that real effects vary during booms and busts.
    Keywords: bank-lending channel, matched employer-employee, input-output linkages.
    JEL: E44 G21 L25
    Date: 2017–12
  89. By: Ctirad Slavik; Hakki Yazici
    Abstract: The skill premium has increased significantly in the United States in the last five decades. During the same period, individual wage risk has also increased. This paper proposes a mechanism through which a rise in wage risk increases the skill premium. Intuitively, a rise in uninsured wage risk increases precautionary savings, thereby boosting capital accumulation, which increases the skill premium due to capital-skill complementarity. Using a quantitative macroeconomic model, we find that the rise in wage risk observed between 1967 and 2010 increases the skill premium significantly. This finding is robust across a variety of model specifications.
    Keywords: skill premium; wage risk; capital-skill complementarity; precautionary savings
    JEL: E25 J31
    Date: 2017–12
  90. By: van Holle, Frederiek (Tilburg University, School of Economics and Management)
    Abstract: This dissertation consists of three essays. In the first paper, “Stock-Bond Correlations, Macroeconomic Regimes and Monetary Policy”, we link the evolution of stock-bond correlations for an international sample to both local and global regimes in inflation, the output gap and monetary policy. We find that negative stock-bond correlations only occur during regimes of low to medium inflation, combined with an accommodating monetary policy. This observation is highly relevant in the current environment of potential policy normalization by central banks. Normalizing policy could push stock-bond correlations back into positive territory resulting in a higher volatility of balanced investment portfolios. The second paper, “The Dynamic Risk Profile of Currency Carry Strategies”, contributes to a better understanding of the time-varying risk exposure of the currency carry strategy applied on the G10 currencies. Risk factor migration over time is captured using Bayesian model averaging techniques. The third paper, “Monetary Policy Transmission and the Impact on Financial Assets, the Real Economy and Inflation”, studies the different dimensions of conventional and unconventional monetary policy. The recent unfolding of unconventional policy measures like QE and forward guidance and the presence of the so-called zero lower-bound on nominal interest rates further complicate the transmission. I show that asymmetrical policy transmission challenges the current focus on policy normalization after a decade of ultra-loose monetary policy.
    Date: 2017
  91. By: Woon Gyu Choi; Taesu Kang; Geun-Young Kim; Byongju Lee
    Abstract: This paper distills and identifies global liquidity (GL) momenta from the macro-financial data of advanced economies through a factor model with sign restrictions as policy-driven, market-driven, and risk averseness factors. Using a panel factor-augmented VAR, we investigate responses of emerging market economies (EMEs) to GL shocks. A policy-driven liquidity increase boosts growth in EMEs, elevating stock prices and currency values, while a risk averseness rise has an opposite effect. A market-driven GL expansion boosts stock markets and lowers funding costs, promoting competitiveness and current account. Inflation targeting EMEs fare better than EMEs under alternative regimes with respect to macrofinancial volatility.
    Keywords: Global liquidity;Inflation targeting;Panel Factor-Augmented VAR, International Policy Coordination and Transmission
    Date: 2017–10–30
  92. By: Catherine, Sylvain
    Abstract: This paper presents a life-cycle model that incorporates the cyclical skewness of labor income shocks. Cyclical skewness can explain the limited stock market participation of households with modest financial wealth and the positive age trend in conditional equity shares. Structural estimation reveals that a relative risk aversion of 5 and a yearly participation cost of $290 fits the US data. Omitting cyclical skewness leads to a three-fold overestimation of participation costs and generates a counterfactual decline of conditional equity shares. As its portfolio implications are smaller for wealthy households, cyclical skewness reduces aggregate demand for equity by only 15%.
    Keywords: Household finance; Labor income risk; Portfolio choices; Human capital; Life-cycle model; Simulated method of moments
    JEL: D14 D91 G11 G12 H60 J24
    Date: 2017–05–01
  93. By: John Kandrac; Bernd Schlusche
    Abstract: We empirically assess the effect of reserve accumulation as a result of quantitative easing (QE) on bank-level lending and risk taking activity. To overcome the endogeneity of bank-level reserve holdings to banks' other portfolio decisions, we employ instruments made available by a regulatory change that strongly influenced the distribution of reserves in the banking system. Consistent with theories of the portfolio substitution channel in which the transmission of QE depends in part on reserve creation itself, we document that reserves created in two distinct QE programs led to higher total loan growth and an increase in the share of riskier loans, such as commercial real estate, construction, C&I, and consumer loans, within banks' loan portfolios.
    Keywords: Monetary policy ; QE ; bank lending ; reserve balances
    JEL: G21 E52 E58 G28
    Date: 2017–10–12
  94. By: Edoardo Rainone (Bank of Italy)
    Abstract: This paper studies over-the-counter (OTC) trading in the unsecured interbank market for euro funds. The goal of our analysis is to identify the determinants of the probability of trading, the bilateral rate and the quantity exchanged during the European sovereign debt crisis. We show how the specific features of this market bring to a non-standard estimation framework. A dyadic econometric model with shadow rates is proposed to control for possibly endogenous matching with the counterparty. A unique dataset containing banks characteristics and bilateral trades is built and used to study the evolution of trading patterns. The estimates bring mild evidence towards the existence of shadow rates. Active monitoring decreased market access to low equity and illiquid borrowers, while dispersion in rates and quantities is mainly driven by banks' nationality, especially during the peak of the crisis.
    Keywords: interbank networks, payment systems, sample selection models, two-step estimation, over-the-counter market, money, dyadic model, financial crisis
    JEL: E50 E40 C30 G01 G10 D40
    Date: 2017–12
  95. By: Nogues-Marco, Pilar
    Abstract: This chapter focuses on money markets and exchange rates in preindustrial Europe. The foreign exchange market was mostly based on bills of exchange, the instrument used to transfer money and provide credit between distant centers in pre-industrial Europe. In this chapter, first I explain bill of exchange operations, money market integration, usury regulations and circumventions to hide the market interest rate as well as the evolution of bills of exchange in history, focusing mainly on the most relevant features generalized during the first half of the 17th century: endorsement and the joint liability rule, which facilitated the full expansion of the foreign exchange market beyond personal networks. Then, I describe the European geography of money in the mid-18th century, characterized by a very high degree of multilateralism with the triangle of Amsterdam, London and Paris as the backbone of the European settlement system. Finally, I measure the cost of capital and relate it to liquidity. I show evidence of interest rates in the 18th century for Amsterdam, London, Paris and Cadiz. While Amsterdam, London and Paris presented low and similar interest rates, Cadiz had higher interest rates, mostly being double the cost of capital. These results seem to show a high inverse correlation between liquidity and interest rates, suggesting that the share in international trade of European centers might have been a powerful driver of international monetary leadership. While more empirical evidence and further research is needed, this approach opens the scope of the analysis beyond the national institutional explanation.
    Keywords: Money market, Bills of exchange, Monetary geography, Usury regulations, Cost of capital, Exchange rates, Interest rates, Specie-point mechanism
    JEL: E42 F31 G15 N23
    Date: 2017
  96. By: Gregori Galofré-Vilà; Christopher M. Meissner; Martin McKee; David Stuckler
    Abstract: The current historical consensus on the economic causes of the inexorable Nazi electoral success between 1930 and 1933 suggests this was largely related to the Treaty of Versailles and the Great Depression (high unemployment and financial instability). However, these factors cannot fully account for the Nazi’s electoral success. Alternatively it has been speculated that fiscally contractionary austerity measures, including spending cuts and tax rises, contributed to votes for the Nazi party especially among middle- and upper-classes who had more to lose from them. We use voting data from 1,024 districts in Germany on votes cast for the Nazi and rival Communist and Center parties between 1930 and 1933, evaluating whether radical austerity measures, measured as the combination of tax increases and spending cuts, contributed to the rise of the Nazis. Our analysis shows that chancellor Brüning’s austerity measures were positively associated with increasing vote shares for the Nazi party. Depending on how we measure austerity and the elections we consider, each 1 standard deviation increase in austerity is associated with a 2 to 5 percentage point increase in vote share for the Nazis. Consistent with existing evidence, we find that unemployment rates were linked with greater votes for the Communist party. Our findings are robust to a range of specifications including a border-pair policy discontinuity design and alternative measures of radicalization such as Nazi party membership. The coalition that allowed a majority to form government in March 1933 might not have been able to form had fiscal policy been more expansionary.
    JEL: E6 N1 N14 N44
    Date: 2017–12
  97. By: Pierluigi Bologna (Banca d'Italia)
    Abstract: The aim of this paper is twofold: first, to study the determinants of banks’ net interest margin with a particular focus on the role of maturity transformation, using a new measure of maturity mismatch; second, to analyse the implications for banks of the relaxation of a binding prudential limit on maturity mismatch, in place in Italy until the mid-2000s. The results show that maturity transformation is an important driver of the net interest margin, as higher maturity transformation is typically associated with higher net interest margin. However, there is a limit to this positive relationship as ‘excessive’ maturity transformation — even without leading to systemic vulnerabilities — has some undesirable implications in terms of higher exposure to interest rate risk and lower net interest margin.
    Keywords: banks, profitability, maturity transformation, interest rates, macroprudential, microprudential
    JEL: E43 G21 G28
    Date: 2017–12
  98. By: Porras, María Sylvina; Martín-Román, Ángel L.
    Abstract: The present research provides evidence on the determinants driving the differences in the unemployment-output relationship in Spanish regions. We followed a two-step approach. First, we estimated a set of time-varying Okun’s coefficients (rolling-window) for the autonomous communities in Spain (1981-2013) showing significant regional differences as well as important changes over time. At the second step, we estimated FMOLS and DOLS models to explain regional differences in Okun’s law. The results obtained lead to the conclusion that differences in the weight of self-employment and its variations over time prove relevant when accounting for differences in Okun’s law between Spanish regions, and its effect (in standard deviations) is greater than that of variations in labour productivity per worker, which so far had been considered the main driver of regional discrepancies. The economic policy implications of this outcome are huge due to the fact that Spanish regional and national authorities are promoting self-employment.
    Keywords: Okun’s Law,self-employment,unemployment,GDP,Spanish regions
    JEL: C23 R11 R23 E24 J64
    Date: 2017
  99. By: Kerstin Gerling
    Abstract: Weather-related natural disasters and climate change pose interrelated macro-fiscal challenges. Using panel-VARX studies for a sample of 19 countries in Developing Asia during 1970 to 2015, this paper contributes new empirical evidence on the dynamic adjustment path of growth and key fiscal variables after severe weather-related disasters. It does not only show that output loss can be permanent, but even twice as large for cases of severe casualties or material damages than people affected. Meanwhile, key fiscal aggregates remain surprisingly stable. Event and case studies suggest that this can reflect both a deliberate policy choice or binding constraints. The latter can make governments respond through mitigating fiscal policy efforts such as ad hoc fiscal rebalancing and reprioritization. The findings help better customize disaster preparedness and mitigation efforts to countries’ risk exposure along a particular loss dimension.
    Date: 2017–11–08

This nep-mac issue is ©2018 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.