nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒01‒15
100 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Monetary policy through production networks: evidence from the stock market By Ozdagli, Ali K.; Weber, Michael
  2. The Rise of Dollar Credit in Emerging Market Economies and US Monetary Policy By Huang, Anni; Kishor, N. Kundan
  3. Rethinking Stabilization Policy: Evolution or Revolution? By Olivier J. Blanchard; Lawrence H. Summers
  4. Forecasting Base Metal Prices with Commodity Currencies By Pincheira, Pablo; Hardy, Nicolas
  5. Macroeconomic Implications of Financial Imperfections: A Survey By Claessens, Stijn; Kose, Ayhan
  6. Optimal trend inflation By Adam, Klaus; Weber, Henning
  7. Mortgage Defaults, Expectation-Driven House Prices and Monetary Policy By BEKIROS, Stelios D.; NILAVONGSE, Rachatar; UDDIN, Gazi S.
  8. Bofinger and Ries versus Borio and Disyatat: macroeconomics after endogenous money. A brief note By Sergio Cesaratto
  9. Macroeconomic effects of delayed capital liquidation By Cui, Wei
  10. Financial variables and macroeconomic forecast errors By Barnes, Michelle L.; Olivei, Giovanni P.
  11. Asset Prices and Macroeconomic Outcomes: A Survey By Claessens, Stijn; Kose, Ayhan
  12. The effect of news shocks and monetary policy By Gambetti, Luca; Korobilis, Dimitris; Tsoukalas, John D.; Zanetti, Francesco
  13. The endogeneity of money and the securitizing system. Beyond shadow banking By Caverzasi, Eugenio; Botta, Alberto; Capelli, Clara
  14. Real Wages and Hours in the Great Recession: Evidence from Firms and their Entry-Level Jobs By Daniel Schaefer; Carl Singleton
  15. Credit card utilization and consumption over the life cycle and business cycle By Fulford, Scott L.; Schuh, Scott
  16. Countercyclical Endogenous Uncertainty Shocks, Efficiency Wages and Procyclical Precautionary Labor Productivity By Jean-Michel Grandmont
  17. Monetary policy rule and its performance under inflation targeting: the evidence of Thailand By Taguchi, Hiroyuki; Wanasilp, Mesa
  18. Effectiveness of monetary policy in stabilising food inflation: Evidence from advanced and emerging economies. By Bhattacharya, Rudrani
  19. Unconventional monetary olicy: interest rates and low inflation. A review of literature and methods By COMUNALE Mariarosaria; STRIAUKAS Jonas
  20. An overlapping generations model for monetary policy analysis By Samuel Huber; Jaehong Kim
  21. Uncertainty Fluctuations: Measures, Effects and Macroeconomic Policy Challenges By Laurent Ferrara; Stéphane Lhuissier; Fabien Tripier
  22. Tradability and productivity growth differentials across EU member states By Friesenbichler, Klaus; Glocker, Christian
  23. Some Evidence on Secular Drivers of US Safe Real Rates By Lunsford, Kurt Graden; West, Kenneth D.
  24. Managing the UK National Debt 1694-2017 By Ellison, Martin; Scott, Andrew
  25. How to deflate rigorously Economic Variables? By KHELIFI, Atef
  26. Do Prices Influence Economic Growth? By gebregergis, Cherkos Meaza; Mekuria, Abis Getachew
  27. Corporate tax incidence and its implications for the labor market By Olena, Sokolovska
  28. The Evolution of U.S. Monetary Policy By Hetzel, Robert L.
  29. Commodity booms and busts in emerging economies By Drechsel, Thomas; Tenreyro, Silvana
  30. An Historical Perspective on the Quest for Financial Stability and the Monetary Policy Regime By Michael D. Bordo
  31. Advanced economies and emerging markets: dissecting the drivers of business cycle synchronization By Aikaterini
  32. Unsurprising shocks: information, Premia, and the Monetary Transmission By Miranda-Agrippino, Silvia
  33. The Death of a Regulator: Strict Supervision, Bank Lending and Business Activity By João Granja; Christian Leuz
  34. Rational Heuristics ? Expectations and behaviours in evolving economies with heterogeneous interacting agents. By Giovanni Dosi; Mauro Napoletano; Andrea Roventini; Joseph Stiglitz; Tania Treibich
  35. An analysis of revisions in Indian GDP data. By Sapre, Amey; Sengupta, Rajeswari
  36. The making of a national currency. Spatial transaction costs and money market integration in Spain (1825-1874) By Aslanidis, Nektarios; Herranz-Loncán, Alfonso; Nogues-Marco, Pilar
  37. State-dependent risk taking and the transmission of monetary policy shocks By Fève, Patrick; Garcia, Pablo; Sahuc, Jean-Guillaume
  38. Deaths of Despair or Drug Problems? By Christopher J. Ruhm
  39. Market Work, Housework and Childcare: A Time Use Approach By Emanuela Cardia; Paul Gomme
  40. Interest on Reserves and Arbitrage in Post-Crisis Money Markets By Marco Macchiavelli; Thomas Keating
  41. Fixed on flexible rethink exchange rate regimes after the Great Recession By Corsetti, Giancarlo; Kuester, Keith; Müller, Gernot J.
  42. The DUAL Approach in an Infinite Horizon Model By Hans M. Amman; Marco P. Tucci
  43. Working Paper WP/16/05- Estimating a Time-Varying Phillips Curve for South Africa By Alain Kabundi; Eric Schaling; Modeste Some
  44. The volatility effect on precious metals prices in a stochastic volatility in mean model with time-varying parameters By Mehmet Balcilar; Zeynel Abidin Ozdemir
  45. Corporate Overseas Debt Issuance in the Context of Global Liquidity Transmission By Huang, Anni; Kishor, N. Kundan
  46. The theoretical basis of the CGIL's analysis of the Italian economic decline By Guglielmo Forges Davanzati; Nicolò Giangrande
  47. Explicando la brecha entre el salario real y la productividad laboral en la República Dominicana: Análisis macroeconómico y recomendaciones de políticas basadas en microsimulaciones By Jiménez Polanco, Miguel Alejandro; López Hawa, Nabil
  48. The Corridor's Width as a Monetary Policy Tool By Guillaume Khayat
  49. Capital-Goods Imports and US Growth By Michele Cavallo; Anthony Landry
  50. Working Paper– WP/17/01- The Quarterly Projection Model of the SARB By Byron Botha; Shaun de Jager; Franz Ruch; Rudi Steinbach
  51. Inequality and Imbalances : a Monetary Union Agent-Based Model By Alberto Cardaci; Francesco Saraceno
  52. The Recurrence of Long Cycles: Theories, Stylized Facts and Figures By Lefteris Tsoulfidis; Aris Papageorgiou
  53. The Rate of Return on Everything, 1870-2015 By Jordá, Óscar; Knoll, Katharina; Kuvshinov, Dmitry; Schularick, Moritz; Taylor, Alan M.
  54. Working Paper – WP/16/02- Estimating South Africa’s output gap and potential growth rate By Johannes Fedderke; Daniel Mengisteab
  55. Conspicuous Consumption and Within-Group Income Inequality By Li, Li; Mak, Eric; Pivovarova, Margarita
  56. Ignorance isn’t bliss: Uninformed voters drive budget cycles By Jan Janku; Jan Libich
  57. Fiscal Implications of the Federal Reserve's Balance Sheet Normalization By Michele Cavallo; Marco Del Negro; W. Scott Frame; Jamie Grasing; Benjamin A. Malin; Carlo Rosa
  58. The Effects of Land Markets on Resource Allocation and Agricultural Productivity By Chaoran Chen; Diego Restuccia; Raül Santaeulàlia-Llopis
  59. Premature mortality and poverty measurement in an OLG economy By LEFEBVRE Mathieu; PESTIEAU Pierre; PONTHIERE Gregory
  60. Fiscal implications of the Federal Reserve's balance sheet normalization By Cavallo, Michele; Del Negro, Marco; Frame, W. Scott; Grasing, Jamie; Malin, Benjamin A.; Rosa, Carlo
  61. Deflation in the Euro Zone: Overview and Empirical Analysis By Pedro Bação; António Portugal Duarte
  62. Allan Meltzer: How He Underestimated His Own Contribution to the Modern Concept of a Central Bank By Hetzel, Robert L.
  63. Regulatory Reform: A Scorecard By Cecchetti, Stephen G; Schoenholtz, Kermit
  65. Dynamic Openness and Finance in Africa By Asongu, Simplice; Minkoua N., Jules
  66. 'Credit Risk, Excess Reserves and Monetary Policy: The Deposits' By George J. Bratsiotis
  67. The Simple Economics of Sudden Stops By Muhammad, Ejaz
  68. Demand-led growth with endogenous innovation By Mauro Caminati; Serena Sordi
  69. Three essays on uncertainty: real and financial effects of uncertainty shocks By Lee, Seohyun
  70. The Economic Consequences of the Brexit Vote By Born, Benjamin; Müller, Gernot; Schularick, Moritz; Sedlacek, Petr
  71. The Economic Consequences of the Brexit Vote By Benjamin Born; Gernot Müller; Moritz Schularick; Petr SedláÄ ek
  72. Identification and Estimation in Non-Fundamental Structural VARMA Models By Christian Gouriéroux; Alain Monfort; Jean-Paul Renne
  73. Inferring Inequality with Home Production By Job Boerma; Loukas Karabarbounis
  74. Home values and firm behaviour By Bahaj, Saleem A.; Foulis, Angus; Pinter, Gabor
  75. The European Trust Crisis and the Rise of Populism By Algan, Yann; Guriev, Sergei; Papaioannou, Elias; Passari, Evgenia
  76. Inequality in 3-D : Income, Consumption, and Wealth By Jonathan D. Fisher; David Johnson; Timothy Smeeding; Jeffrey P. Thompson
  77. ICT Capital Spending, ICT Sector, and Firm Productivity: Evidence from Indonesian Firm-Level Data By Chaikal Nuryakin; Faisal Rachman; Ashintya Damayati; Nia Kurnia; Moslem Afrizal
  78. Residential investment and recession predictability By Knut Are Aastveit; Author-Name: André K. Anundsen; Eyo I. Herstad
  79. Expenditure cascades, low interest rates or property booms? Determinants of household debt in OECD countries By Stockhammer, Engelbert; Wildauer, Rafael
  80. Productivity and Pay: Is the link broken? By Anna M. Stansbury; Lawrence H. Summers
  81. Remittances and household investment in entrepreneurship: The case of Uzbekistan By Jakhongir Kakhkharov
  82. Understanding the Relationship between Public and Private Commercial Real Estate Markets By Kishor, N. Kundan
  83. Structural Change with Long-run Income and Price Effects By Comin, Diego; Lashkari, Danial; Mestieri, Martí
  84. Banking Crises and Investments in Innovation By Oana Peia
  85. Energy Efficiency and Economy-wide Rebound: Realising a Net Gain to Society? By L. (Lisa B.) Ryan; Karen Turner; Nina Campbell
  86. Preliminary Finding of Small and Micro Firms Resilience in Indonesia By Dhaniel Ilyas
  87. Redistribution and Economic Decline By Sven R Larson
  88. Income inequality and wealth concentration in the recent crisis By Goda, Thomas; Onaran, Özlem; Stockhammer, Engelbert
  89. Currency Mismatches and Vulnerability to Exchange Rate Shocks: Nonfinancial Firms in Colombia By Adolfo Barajas; Sergio Restrepo; Roberto Steiner; Juan Camilo Medellin; Cesar Pabon
  90. Working Paper – WP/16/01- Nowcasting Real GDP growth in South Africa By Alain Kabundi; Elmarie Nel; Franz Ruch
  91. Friedman's Presidential Address in the Evolution of Macroeconomic Thought By Mankiw, N Gregory; Reis, Ricardo
  92. Accelerators in macroeconomics: Comparison of discrete and continuous approaches By Valentina V. Tarasova; Vasily E. Tarasov
  93. Winning Connections? Special Interests and the Sale of Failed Banks By Igan, Deniz; Lambert, Thomas; Wagner, Wolf; Zhang, Quxian
  94. Political Distribution Risk and Business Cycles By Pablo Guerron-Quintana; Jesus Fernandez-Villaverde; Thorsten Drautzburg
  95. Working Paper – WP/16/03- Inflation in South Africa- An Assessment of Alternative Inflation Models By Johannes Fedderke; Yang Liu
  96. On the time-varying links between oil and gold: New insights from the rolling and recursive rolling approaches By Mehmet Balcilar; Zeynel Abidin Ozdemir; Muhammad Shahbaz
  97. Firm Size, Bank Size, and Financial Development By Grechyna, Daryna
  98. Innovation, Reallocation, and Growth By Acemoglu, Daron; Akcigit, Ufuk; Alp, Harun; Bloom, Nicholas; Kerr, William R.
  99. Fiscal Implications of the Federal Reserve’s Balance Sheet Normalization By Cavallo, Michele; Negro, Marco Del; Frame, W. Scott; Grasing, Jamie; Malin, Benjamin A.; Rosa, Carlo
  100. Colonial coinage and financial development By Dombou T., Dany R.; Tanga T., Achille; Tchoffo, Rodrigue; Kouladoum, Jean-Claude; Tchakounté, Josephine; Djekonbe, Djimoudjiel; Vasegmi, Carole

  1. By: Ozdagli, Ali K. (Federal Reserve Bank of Boston); Weber, Michael (University of Chicago)
    Abstract: Monetary policy shocks have a large impact on stock prices during narrow time windows centered around press releases by the FOMC. We use spatial autoregressions to decompose the overall effect of monetary policy shocks into a direct effect and a network effect. We attribute 50 to 85 percent of the overall impact to network effects. The decomposition is a robust feature of the data, and we confirm large network effects in realized cash-flow fundamentals. A simple model with intermediate inputs allows a structural interpretation of our empirical strategy. Our findings indicate that production networks might be an important mechanism for transmitting monetary policy to the real economy.
    Keywords: input-output linkages; spillover effects; asset prices; high frequency identification
    JEL: E12 E31 E44 E52 G12 G14
    Date: 2017–10–01
  2. By: Huang, Anni; Kishor, N. Kundan
    Abstract: This paper examines the hypothesis that the boom in dollar credit in the emerging market economies is associated with excessively low interest rate in the US. For this purpose, we use a multivariate correlated unobserved component model that allows for correlation between shocks to dollar credit, interest rates and dollar index both in the short-run and in the long-run. In addition, it also provides us a quantitative estimate of the permanent and transitory movements in dollar credit in emerging markets, US interest rate and the dollar index. The results from this model do suggest that a temporary decline in interest rate and dollar index below their long-run levels are associated with an increase in dollar credit with a very high degree of negative correlation. The estimate of the cyclical component of the dollar credit in emerging market from our model captures the recent boom and bust in this market and compares favorably to a univariate trend-cycle decomposition benchmark.
    Keywords: Dollar Credit, Emerging Market Economies, Monetary Policy Spillover, Trend-Cycle Decomposition, State-Space Model, Kalman Filter
    JEL: E32 E51 E58 F32 F34 F36 G15
    Date: 2017–05–01
  3. By: Olivier J. Blanchard; Lawrence H. Summers
    Abstract: The obvious lesson from the Great Financial Crisis is that the financial system matters and financial crises will probably happen again. The second, more general, lesson is that the economy is often not self-stabilizing. These two lessons, together with an environment where neutral interest rates are likely to remain low, have clear implications for the design of stabilization policies. At a minimum, they suggest that policies may need to become more aggressive, both ex-ante and ex-post, with a rebalancing of the roles of monetary, fiscal and financial policies. In particular, while low neutral rates decrease the scope for using monetary policy, they increase the scope for using fiscal policy. Think of such rebalancing as evolution. If however, neutral rates become even lower, or financial regulation turns out to be insufficient to prevent crises, more dramatic measures, including larger fiscal deficits, revised monetary policy targets, or sharper restrictions on the financial system, may be needed. Think of this as revolution. Time will tell.
    JEL: E02 E20 E31 E32 E42 E5 E62
    Date: 2017–12
  4. By: Pincheira, Pablo; Hardy, Nicolas
    Abstract: In this paper we show that the Chilean exchange rate has the ability to predict the returns of the London Metal Exchange Index and of the six primary non-ferrous metals that are part of the index: aluminum, copper, lead, nickel, tin and zinc. The economic relationship hinges on the present-value theory for exchange rates, a floating exchange rate regime and the fact that copper represents about a half of Chilean exports and nearly 45% of Foreign Direct Investment. Consequently, the Chilean peso is heavily affected by fluctuations in the copper price. As all six base metal prices show an important comovement, we test whether the relationship between copper prices and Chilean exchange rates also holds true when it comes to the six primary non-ferrous metals. We find interesting evidence of predictability both in-sample and out-of-sample. Our paper is part of a growing literature that in the recent years has evaluated and called into question the ability of commodity currencies to forecast commodity prices.
    Keywords: Forecasting, commodities prices, univariate time-series models, out-of-sample comparison, exchange rates, copper, primary non-ferrous metals.
    JEL: E3 E31 E32 E37 E5 E52 F0 F00 F01 F21 F31 F47 G1 G12 G14 G15 G17 Q3 Q32 Q4 Q41 Q47
    Date: 2018–01–02
  5. By: Claessens, Stijn; Kose, Ayhan
    Abstract: This paper surveys the theoretical and empirical literature on the macroeconomic implications of financial imperfections. It focuses on two major channels through which financial imperfections can affect macroeconomic outcomes. The first channel, which operates through the demand side of finance and is captured by financial accelerator-type mechanisms, describes how changes in borrowers' balance sheets can affect their access to finance and thereby amplify and propagate economic and financial shocks. The second channel, which is associated with the supply side of finance, emphasizes the implications of changes in financial intermediaries' balance sheets for the supply of credit, liquidity and asset prices, and, consequently, for macroeconomic outcomes. These channels have been shown to be important in explaining the linkages between the real economy and the financial sector. That said, many questions remain.
    Keywords: macro-financial linkages; real-financial linkages; financial accelerator
    JEL: D53 E21 E32 E44 E51 F36 F44 G01 G10 G12 G14 G15 G21
    Date: 2017–11
  6. By: Adam, Klaus; Weber, Henning
    Abstract: We present a sticky-price model incorporating heterogeneous Firms and systematic firm-level productivity trends. Aggregating the model in closed form, we show that it delivers radically different predictions for the optimal inflation rate than canonical sticky price models featuring homogenous Firms: (1) the optimal steady-state inflation rate generically differs from zero and, (2) inflation optimally responds to productivity disturbances. Using micro data from the US Census Bureau to estimate the inflation-relevant productivity trends at the firm level, we find that the optimal US inflation rate is positive. It was slightly above 2 percent in the year 1986, but continuously declined thereafter, reaching about 1 percent in the year 2013.
    Keywords: optimal inflation rate,sticky prices,firm heterogeneity
    JEL: E52 E31 E32
    Date: 2017
  7. By: BEKIROS, Stelios D.; NILAVONGSE, Rachatar; UDDIN, Gazi S.
    Abstract: We contribute to the literature on dynamic stochastic general equilibrium models with housing collaterals by including shocks to house price expectations. We incorporate endogenous mortgage defaults which are rarely included in DSGE models with housing collaterals. We show that our theoretical model of mortgage default is consistent with empirical evidence. We use this particular DSGE setup to study the effects of variations in house price expectations on macroeconomic dynamics and their implications for monetary policy. Extensive model simulations show that an increase in expected future house prices leads to a decline in mortgage default rates as well as in interest rates on loans, whereas it leads to an increase in house prices, household debt, bank leverage ratios and economic activity. As opposed to previous studies we find that inflation is low during a house price boom. Finally, we demonstrate that although monetary policy that reacts to household credit growth improves the stability of the real economy and enhances financial stability, yet it jeopardizes price stability.
    Keywords: House price expectations, Inflation dynamics, Monetary policy, Mortgage defaults
    JEL: E32 E44 E52
    Date: 2017
  8. By: Sergio Cesaratto
    Abstract: A paper by Peter Bofinger and Mathias Ries (2017a/b) strays from the recent rethinking in monetary analysis to criticise Summers’ “saving glut” explanation of the prevalence of low real interest rates. A similar critical perspective is held by Borio and Disyatat (e.g. 2011a/b, 2015), who are criticised, however, by Bofinger and Reis for their Wicksellian background. In this note, we compare and assess these two different views. Both Bofinger and Reis (B&R) and Borio and Disyatat (B&D) reject traditional “loanable fund theory” in favour of an endogenous money view of credit, but while B&R regard conventional marginalist (real) theory as inconsistent with the endogenous money view, B&D, following Wicksell, regard it as consistent. We sympathize with B&R’s criticism of conventional theory, especially their Keynesian view of the interest rate as a purely monetary phenomenon. Interestingly, B&R refer to the problems of marginalist capital theory as undermining the natural interest rate concept
    Keywords: Bofinger, Borio, Dysiatat, monetary theory, capital theory, Wicksell, natural interest rate
    JEL: B12 E11 E13 E4 E5
    Date: 2017–11
  9. By: Cui, Wei
    Abstract: This paper studies macroeconomic effects of financial shocks through the lens of delayed capital liquidation and reallocation among firms. I develop a model in which firms face idiosyncratic productivity risks, financial constraints, and random liquidation costs. Liquidation costs generate an option value of staying and a liquidation delay for unproductive firms. A novel feature arising from the delay is that unproductive firms have a higher debt-to-asset ratio than productive ones. I find that adverse financial shocks that tighten financial constraints can raise the option value. The financial shocks also have general equilibrium effects that further raise the option value and delay capital liquidation. Capital is thus persistently misallocated, leading to a long-lasting economic contraction. Using U.S. data from 1971-2015, I show that financial shocks can explain almost 67% of the variation in the capital liquidation-to-expenditures ratio and 72% of the variation in output.
    Keywords: financial constraints and financial shocks; capital liquidation; option value of staying
    JEL: E22 E32 E44 G11
    Date: 2017–07–31
  10. By: Barnes, Michelle L. (Federal Reserve Bank of Boston); Olivei, Giovanni P. (Federal Reserve Bank of Boston)
    Abstract: A large set of financial variables has only limited power to predict a latent factor common to the year-ahead forecast errors for real Gross Domestic Product (GDP) growth, the unemployment rate, and Consumer Price Index (CPI) inflation for three sets of professional forecasters: the Federal Reserve’s Greenbook, the Survey of Professional Forecasters (SPF), and the Blue Chip Consensus Forecasts. Even when a financial variable appears to be fairly robust across sample periods in explaining the latent factor, from an economic standpoint its contribution appears modest. Still, several financial variables retain economic significance over certain subsamples; when non-linear effects are accounted for, these variables have an improved ability to consistently predict the latent factor over the business cycle.
    Keywords: forecast errors; macroeconomy; financial variables; threshold estimation; business cycle
    JEL: C24 C53 E37 E44 E50 G01 G17
    Date: 2017–10–31
  11. By: Claessens, Stijn; Kose, Ayhan
    Abstract: This paper surveys the literature on the linkages between asset prices and macroeconomic outcomes. It focuses on three major questions. First, what are the basic theoretical linkages between asset prices and macroeconomic outcomes? Second, what is the empirical evidence supporting these linkages? And third, what are the main challenges to the theoretical and empirical findings? The survey addresses these questions in the context of four major asset price categories: equity prices, house prices, exchange rates and interest rates, with a particular focus on their international dimensions. It also puts into perspective the evolution of the literature on the determinants of asset prices and their linkages with macroeconomic outcomes, and discusses possible future research directions.
    Keywords: asset prices; equity prices; frictions; imperfections; macro-financial linkages; real-financial linkages
    JEL: D53 E21 E32 E44 E51 F36 F44 G01 G10 G12 G14 G15 G21
    Date: 2017–11
  12. By: Gambetti, Luca; Korobilis, Dimitris; Tsoukalas, John D.; Zanetti, Francesco
    Abstract: A VAR model estimated on U.S. data before and after 1980 documents systematic differences in the response of short- and long-term interest rates, corporate bond spreads and durable spending to news TFP shocks. Interest rates across the maturity spectrum broadly increase in the pre-1980s and broadly decline in the post-1980s. Corporate bond spreads decline significantly, and durable spending rises significantly in the post-1980 period while the opposite short-run response is observed in the pre-1980 period. Measuring expectations of future monetary policy rates conditional on a news shock suggests that the Federal Reserve has adopted a restrictive stance before the 1980s with the goal of retaining control over inflation while adopting a neutral/accommodative stance in the post-1980 period.
    Keywords: News shocks; Business cycles; VAR models; DSGE models
    JEL: E20 E32 E43 E52
    Date: 2017–09–01
  13. By: Caverzasi, Eugenio; Botta, Alberto; Capelli, Clara
    Abstract: Financialization is not just a phenomenon regarding the exponential growth of the financial sector with respect to the real side of the economy. This paper aims shedding some light on the nature and the systemic impact of new elements in the financial realm and particularly on the so-called shadow banking through a macroeconomic perspective. Our analysis shows how financial evolutions have had an impact on the monetary system and on the whole economy at multiple levels. It involved the channel through which money enters the economic system, the rise of new financial institutions and activities, the implementation of monetary policies, and the relation between the real and the financial sector. What we are witnessing is not the rise of a shady version of something old whereas the surge of new forms of financial accumulation.
    Keywords: endogenous money; securitization; shadow banking; inequality; financial instability;
    JEL: E12 E42 E44 E51 G21
    Date: 2018–01–09
  14. By: Daniel Schaefer; Carl Singleton
    Abstract: Using employer-employee panel data, we provide novel facts on how real wages and working hours within jobs responded to the UK’s Great Recession. In contrast to previous studies, our data enables us to address the cyclical composition of jobs. We show that firms were able to respond to the Great Recession with substantial real wage cuts and by recruiting more part-time workers. A one percentage point increase in the unemployment rate led to an average decline in real hourly wages of 2.8 per cent for new hires and 2.6 per cent for job stayers. Hours of new hires in entry-level jobs were also substantially procyclical, while job-stayer hours were nearly constant. Our findings suggest that models assuming rigid labour costs of new hires are not helpful for understanding the behaviour of unemployment over the business cycle.
    Keywords: wage rigidity, Great Recession, hours worked, job-level analysis
    JEL: E24 E32 J31
    Date: 2017
  15. By: Fulford, Scott L. (Consumer Financial Protection Bureau); Schuh, Scott (Federal Reserve Bank of Boston)
    Abstract: The revolving credit available to consumers changes substantially over the business cycle, life cycle, and for individuals. We show that debt changes at the same time as credit, so credit utilization is remarkably stable. From ages 20–40, for example, credit card limits grow by more than 700 percent, and yet utilization holds steadily at around 50 percent. We estimate a structural model of life-cycle consumption and credit use in which credit cards can be used for payments, precautionary smoothing, and life-cycle smoothing, uniting their monetary and revolving credit functions. Our estimates predict stable utilization closely matching the individual, life-cycle, and business-cycle relationships between credit and debt. The preference heterogeneity implied by the different uses of credit cards drives our results. The revealed preference that some people with credit cards borrow at high interest, while others do not, suggests that around half the population is living nearly hand to mouth.
    Keywords: credit cards; life cycle; consumption; saving; precaution; buffer stock
    JEL: D14 E21 E27
    Date: 2017–09–01
  16. By: Jean-Michel Grandmont (ICEF; Department of Economics, University Ca’ Foscari di Venezia; CREST; RIEB Fellow; University of Kobe)
    Abstract: This work introduces a new mechanism generating procyclical comovements of labor productivity, employment, through endogenous variations of workers' effort, in a simple model with efficiency wages, near a locally indeterminate steady state. A current endogenous countercyclical uncertainty shock makes risk averse workers more willing to provide imperfectly monitored "precautionary effort" by increasing their expected utility gain of not shirking. If workers' relative prudence is small and decreasing fast near the steady state, firms' efficiency wage contracts generate significant endogenous procyclical variations of effort, employment and labor productivity, in particularwhen the capital-efficient labor elasticity of substitution is smaller than and close to 1.
    Keywords: efficiency wages, unemployment, expectation driven business cycles, conditionally heteroskedastic sunspots, countercyclical uncertainty shocks, prudence, procyclical labor effort and productivity
    JEL: E00 E24 E32 J41
  17. By: Taguchi, Hiroyuki; Wanasilp, Mesa
    Abstract: This article reviews the Thailand monetary policy rule and its performance under the adoption of inflation targeting regime since 2000. The study estimates the policy reaction function to see if the inflation targeting has been linked with an inflation-responsive monetary policy rule, and investigates whether the monetary policy rule would actually have its transmission effect on inflation, through tracing the impulse responses of inflation rate to monetary policy shocks in vector autoregressive (VAR) and structural VAR models. The study contributes to the literature by updating the assessment of the Thailand monetary policy through covering the period after 2015, when the Bank of Thailand has upgraded its inflation targeting framework by transforming it from range target to point target to provide a clearer policy signal to the public. The main findings are as follows. The estimation outcomes of the policy reaction function show that the Thailand monetary policy rule under the inflation targeting is characterized as an inflation- and exchange-rate- responsive rule with forward-looking manner, which is countercyclical against inflation in the long run, but is accompanied with slow adjustment toward a target policy rate. The results from the impulse response analyses imply that the Thailand monetary policy under the inflation targeting has only a marginal transmission effect on inflation probably due to the slow adjustment of policy rate.
    Keywords: Monetary policy rule, Inflation targeting, The Bank of Thailand, Policy reaction function, and Vector autoregressive model
    JEL: E52 E58 O53
    Date: 2017–12
  18. By: Bhattacharya, Rudrani (National Institute of Public Finance and Policy)
    Abstract: In the backdrop of several episodes of high and volatile food inflationin emerging economies, a wealth of literature emphasises on broad range of monetary and exchange rate policies to stabilise food inflation by moderating demand pressure. While the theoretical literature mainly focus on welfare-maximising monetary policy, there exists hardly any empirical consensus on effectiveness of monetary policy to stabilise food inflation. Very recently, a limited strand of empirical literature has attempted to shed light in this arena. The present study attempts to contribute in this literature by analysing effectiveness of monetary policy shock to stabilise food inflation in a panel of developed and emerging economies. We find that an unexpected monetary tightening has a positive and significant effect on food inflation in both advanced and emerging economies. Our findings suggest that in the backdrop of inflationary pressure stemming from the food sector, a monetary tightening may turn out to be destabilising for the food as well as overall inflation in the economy.
    Keywords: Food inflation ; Monetary policy ; Emerging economies ; Panel Vector Auto-Regression
    JEL: E31 E52 E58 C51
    Date: 2017–10
  19. By: COMUNALE Mariarosaria (Bank of Lithuania); STRIAUKAS Jonas (CORE, Université catholique de Louvain)
    Abstract: n this paper, we review a range of approaches used to capture monetary policy in a period of Zero Lower Bound (ZLB). We concentrate here on methods closely linked to interest rates, which include: spreads, synthetic indices from principal component analys
    Keywords: unconventional monetary policy; zero lower bound; shadow rates; natural interest rate; inflation
    JEL: E43 E52 E58 F42
    Date: 2017–09–13
  20. By: Samuel Huber; Jaehong Kim
    Abstract: We integrate an overlapping generations model into a new monetarist framework and show that the Friedman rule is not optimal. This is because inflation makes saving for retirement less attractive, such that young agents optimally choose to increase their consumption at the expense of lower savings. On the other hand, old agents consume less due to the inflation tax. We show that for low inflation rates, the former effect dominates the latter, such that the Friedman rule is not optimal. However, this effect disappears for higher inflation rates such that the optimal rate is at an intermediate level.
    Keywords: Overlapping generations, monetary theory, Friedman rule
    JEL: D90 E31 E41 E50
    Date: 2017–12
  21. By: Laurent Ferrara; Stéphane Lhuissier; Fabien Tripier
    Abstract: “The outlook is subject to considerable uncertainty from multiple sources, and dealing with these uncertainties is an important feature of policymaking.” Janet L. Yellen, Chair of the Board of Governors of the Federal Reserve System, speech “Inflation, Uncertainty, and Monetary Policy” given the 26 September 2017. There has been a strong focus in recent policy debates, on the various types of uncertainty in the global economy from economic policy uncertainty to financial volatility. This Policy Brief presents the key challenges raised by this phenomena: How to measure uncertainty? Through which channels does uncertainty impact the economy? What are the implications of uncertainty for policy makers? We show evidence from the literature that uncertainty has adverse effects on the economic activity and draw three lessons for policy-makers facing increasing uncertainties. First, macroeconomic policies have a direct role to play in stabilizing policy-related uncertainty. Second, financial uncertainty should be modulated through financial regulation. Third, the effectiveness of economic stabilization policies depends on the state of uncertainty and should be adapted accordingly.
    Keywords: Uncertainty;Risk;Business Cycles;Monetary Policy; Fiscal Policy;Structural VAR
    JEL: C32 D80 E32 E44
    Date: 2017–12
  22. By: Friesenbichler, Klaus; Glocker, Christian
    Abstract: This study examines the lack of convergence among EU Member States from a structural perspective. We apply the tradable-nontradable framework (T-NT) to evaluate the heterogeneity in labour productivity before and after the great recession. We find that, across all countries, nontradables were less relevant for aggregate productivity. The low productivity growth in peripheral EU countries was accompanied by a specific structural change pattern: There was a sharp production increase of nontradables before the crisis relative to other EU countries. For most peripheral countries concerns about unfavourable sector structures remain, implying a continuation of unsustainable growth patterns. This has implications for the European Commission’s macroeconomic imbalance procedures, since it allows identifying patterns of real divergence on a disaggregated level. Finally, we identify a link between sectoral growth asymmetries and the quality of domestic governance institutions. Especially differences in the legal system help to explain the observed productivity growth differentials.
    Keywords: Tradability; Labour productivity; Growth; Institutions; EU; Imbalances
    JEL: E1 E2 E60 O43 O47
    Date: 2017–12–24
  23. By: Lunsford, Kurt Graden (Federal Reserve Bank of Cleveland); West, Kenneth D. (University of Wisconsin)
    Abstract: We study long-run correlations between safe real interest rates in the United States and over 20 variables that have been hypothesized to influence real rates. The list of variables is motivated by the familiar intertermporal IS equation, by models of aggregate savings and investment, and by reduced form studies. We use annual data, mostly from 1890 to 2016. We find that safe real interest rates are correlated as expected with demographic measures. For example, the long-run correlation with labor force hours growth is positive, which is consistent with overlapping generations models. For another example, the long-run correlation with the proportion of 40- to 64-year-olds in the population is negative. This is consistent with standard theory where middle-aged workers are high-savers who drive down real interest rates. In contrast to standard theory, we do not find productivity to be positively correlated with real rates. Most other variables have a mixed relationship with the real rate, with long-run correlations that are statistically or economically large in some samples and by some measures but not in others.
    Keywords: demographics; low-frequency correlation; lowpass filtered correlation; natural rate of interest; productivity; steady state interest rate;
    JEL: C32 E21 E22 E43
    Date: 2017–12–21
  24. By: Ellison, Martin; Scott, Andrew
    Abstract: We construct a new monthly dataset for UK government debt over the period 1694 to 2017 based on price and quantity data for each individual bond issued. This enables us to examine long run Öscal sustainability using the theoretically relevant variable of the market value of debt, and investigate the historical importance of debt management. We Önd the general implications of the tax smoothing literature are replicated in our data, especially around Önancing wars, although we Önd major shifts over time in how Öscal sustainability is achieved. Before the 20th century, governments continued to pay bond holders a high rate of return and achieved sustainability through running Öscal surpluses but since then governments have relied on low growth adjusted real interest rates. The optimal debt management literature tends to favour the use of long bonds but we Önd the government would have been better o§ over the 20th century issuing short bonds. The contrast with the literature occurs because of an upward sloping yield curve and long bonds rarely providing Öscal insurance. This is particularly true during periods of Önancial crises when falling interest rates lead to sharp rises in the price of long bonds, making them an expensive form of Önance. We examine the robustness of our conclusions to liquidity e§ects, rollover risks, buyback operations and leverage. In general, these do suggest a greater role for long bonds but do not overturn an issuance strategy based mainly on short term bonds.
    Keywords: Debt management; fiscal deficits; fiscal policy; government debt; inflation;maturity; yield curve
    JEL: E43 E62 H63
    Date: 2017–06–01
  25. By: KHELIFI, Atef
    Abstract: This brief technical note presents a judicious way to deflate rigorously economic variables by dissociating variations related to market fluctuations (or supply and demand) from monetary phenomenon driven by monetary policies.
    Keywords: inflation; deflate; monetary policy; Prices Indexes
    JEL: E01 E3 E31
    Date: 2018
  26. By: gebregergis, Cherkos Meaza; Mekuria, Abis Getachew
    Abstract: The study empirically examines the relationship between changes in the general price and economic growth in Ethiopia. The relevant macroeconomic variables are used in a quarterly dataset from 1992Q1 to 2015Q4 obtained from the National Bank of Ethiopia (NBE), Central Statistics Agency (CSA) , Ministry of Finance and Economic Corporation (MoFEC) and an international data sources including World penn Table and World Development Indictors (WDI). In assessing the relationship between prices and economic growth, an interesting policy issue arises. What is the threshold level of inflation for the Ethiopian economy? Real GDP growth used as a proxy for economic growth and general prices measured using the consumer price index (CPI), the study uses the Conditional Least Square (CLS) technique employed by Khan and Senhadji (2000). The estimation result suggests that 10% as the optimal level of inflation that facilitates economic growth. An inflation level higher than the estimated threshold level will affect the growth of the real GDP negatively. Likewise, if inflation rate is below the threshold level, it hurts the economy as real GDP could have grown more since inflation is positively related below the threshold point. Therefore, fiscal and monetary policy coordination is vital to keep inflation at its threshold level. This finding is useful for macroeconomic policy makers at the central bank as a guide for inflation targeting monetary policy.
    Keywords: Economic Growth, consumer price index, Conditional Least Square
    JEL: E3
    Date: 2016–01–01
  27. By: Olena, Sokolovska
    Abstract: The paper investigates the relationship between corporate taxation and labor market indicators. This research supports the idea that the increase in corporate income tax rates in the open economy will lead to the capital outflow to the low-tax jurisdictions, resulting in tax incidence on labor with consequent decrease in labor productivity. An empirical analysis demonstrated the negative relationship between labor freedom index and corporate tax rate. In countries with higher GDP per capita the strength of such relationship differs from countries where GDP per capita is relatively low. In terms of corporate tax incidence, this means that in developed countries the corporate tax burden is shifted onto workers in lesser extent compared with developing and emerging economies. The estimation of specific elements of labor freedom index allowed to identify main tendencies of impact of change of the corporate income tax rate on certain labor market indicators in countries with different GDP per capita. We suggested that corporate tax incidence diversely affects the labor productivity in countries with different GDP per capita, and the direction of such impact is determined by composition of labor force and openness of economy.
    Keywords: corporate income tax, labor, tax burden, tax incidence, comparative analysis, labor productivity
    JEL: C10 E1 E10 E24 H22 H25 O57
    Date: 2017–12
  28. By: Hetzel, Robert L. (Federal Reserve Bank of Richmond)
    Abstract: Since the establishment of the Federal Reserve System in 1913, policymakers have always pursued the goal of economic stability. At the same time, their understanding of the world and of the role of monetary policy has changed dramatically. This evolution of views provides a laboratory for understanding what kinds of monetary policy stabilize the economy and what kinds destabilize it.
    Keywords: federal reserve; monetary policy
    JEL: E52 E58
    Date: 2018–01–03
  29. By: Drechsel, Thomas; Tenreyro, Silvana
    Abstract: Emerging economies, particularly those dependent on commodity exports, are prone to highly disruptive economic cycles. This paper proposes a small open economy model for a net commodity exporter to quantitatively study the triggers of these cycles. The economy consists of two sectors, one of which produces commodities with prices subject to exogenous international fluctuations. These fluctuations affect both the competitiveness of the economy and its borrowing terms, as higher commodity prices are associated with lower spreads between the country’s borrowing rate and world interest rates. Both effects jointly result in strongly positive effects of commodity price increases on GDP, consumption and investment, and a negative effect on the total trade balance. Furthermore, they generate excess volatility of consumption over output and a large volatility of investment. The model structure nests various candidate sources of shocks proposed in previous work on emerging economy business cycles. Estimating the model on Argentine data, we find that the contribution of commodity price shocks to fluctuations in post-1950 output growth is in the order of 38%. In addition, commodity prices account for around 42% and 61% of the variation in consumption and investment growth, respectively. We find transitory productivity shocks to be an important driver of output fluctuations, exceeding the contribution of shocks to the trend, which is smaller, although not negligible.
    JEL: E13 E32 F43 O11 O16
    Date: 2017–08–21
  30. By: Michael D. Bordo
    Abstract: This paper surveys the co-evolution of monetary policy and financial stability for a number of countries across four exchange rate regimes from 1880 to the present. I present historical evidence on the incidence, costs and determinants of financial crises, combined with narratives on some famous financial crises. I then focus on some empirical historical evidence on the relationship between credit booms, asset price booms and serious financial crises. My exploration suggests that financial crises have many causes, including credit driven asset price booms, which have become more prevalent in recent decades, but that in general financial crises are very heterogeneous and hard to categorize. Two key historical examples stand out in the record of serious financial crises which were linked to credit driven asset price booms and busts: the 1920s and 30s and the Global Financial Crisis of 2007-2008. The question that arises is whether these two ‘perfect storms’ should be grounds for permanent changes in the monetary and financial environment.
    JEL: E3 E42 G01 N1 N2
    Date: 2017–12
  31. By: Aikaterini (Bank of Greece and University of East Anglia)
    Abstract: What are the divers of business cycle synchronization within and between advanced and emerging economies at the sector level? This question is addressed by analysing international co-movements of value added growth in a multi-sector dynamic factor model. The model contains a world factor, region factors, sector factors, country factors, and idiosyncratic components. The model is estimated using Bayesian methods for 9 disaggregated sectors in 5 developed economies (G5) and 19 emerging economies for the 1972-2009 period. The results suggest that, while there exists a common ‘regional business cycle’ in the G5, fluctuations in sectoral value added growth are dominated by country-specific factors in the emerging markets. Despite that, the international factor (the sum of world and sector factors) is more important than the region factor, suggesting that the emerging markets are more synchronized with the G5. A simple regression shows that (i) the world factor would be more important the larger the share of agriculture in output; (ii) in more open economies the sector factor is more important in explaining sectoral VA growth fluctuations; (iii) the region factors is more important the richer and the less volatile the economy. Finally, a comparison of the variance of sectoral value added growth accounted for by each factor from the pre- to the post-globalization period shows convergence of the business cycles within the G5 and EM, respectively. The changes in the contribution of the world, sector and region factor are due to changes in the importance of those factors within sectors. However, for the emerging markets, the fall in the importance of the country factors is dominated by changes in the structural composition of the economies. Therefore, the evolution of the structural composition in the emerging markets could be an important driver for more synchronised business cycles at the regional and international level.
    Keywords: dynamic factors; disaggregated business cycles; international co-movement; emerging markets
    JEL: C38 E32 F44
    Date: 2017–12
  32. By: Miranda-Agrippino, Silvia
    Abstract: This article studies the information content of monetary surprises, i.e. the reactions of financial markets to monetary policy announcements. We find that monetary surprises are predictable by past information, and can incorporate anticipatory effects. Surprises are decomposed into monetary policy shocks, forecast updates, and time-varying risk premia, all of which can change following the announcements. Hence, their use as identification devices is not warranted, and can have strong qualitative and quantitative implications for the estimated responses of variables to the shocks. We develop new measures for monetary policy shocks, independent of central banks’ forecasts and unpredictable by past information.
    Keywords: Monetary Surprises; Identification with External Instruments; Monetary Policy; Expectations; Information Asymmetries; Event Study; Proxy SVAR.
    JEL: E44 E52 G14
    Date: 2017–08–08
  33. By: João Granja; Christian Leuz
    Abstract: An important question in banking is how strict supervision affects bank lending and in turn local business activity. Forcing banks to recognize losses could choke off lending and amplify local economic woes, especially after financial crises. But stricter supervision could also lead to changes in how banks assess loans and manage their loan portfolios. Estimating such effects is challenging. We exploit the extinction of the thrift regulator (OTS) – a large change in prudential supervision, affecting ten percent of all U.S. depository institutions. Using this event, we analyze economic links between strict supervision, bank lending and business activity. We first show that the OTS replacement indeed resulted in stricter supervision of former OTS banks. We then analyze the lending effects of this regulatory change and show that former OTS banks increase small business lending by approximately 10 percent. This increase stems primarily from well-capitalized banks and those more affected by the new regime. These findings suggest that stricter supervision operates not only through capital but can also overcome frictions in bank management, leading to more lending and a reallocation of loans. Consistent with the latter, we find increases in business entry and exit in counties with greater expose to OTS banks.
    JEL: E44 E51 G21 G28 G32 G38 K22 K23 L51 M41 M48
    Date: 2017–12
  34. By: Giovanni Dosi (Scuola Superiore Sant'Anna Pisa Italy); Mauro Napoletano (OFCE Sciences PO Paris Franc); Andrea Roventini (Scuola Superiore Sant'Anna Pisa Italy also OFCE Sciences Po Paris); Joseph Stiglitz (Columbia University, New York, USA); Tania Treibich (Maastricht University and Scuola Superiore Sant'Anna,Pisa Italy & OFCE Sciences Po Paris France)
    Abstract: We analyze the individual and macroeconomic impacts of heterogeneous expectations and action rules within an agent-based model populated by heterogeneous, interacting firms. Agents have to cope with a complex evolving economy characterized by deep uncertainty resulting from technical change, imperfect information and coordination hurdles. In these circumstances, we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naïve learning rules. In fact, more sophisticated, e.g. recursive least squares (RLS) expectations produce less accurate individual forecasts and also considerably worsen the performance of the economy. Finally, we experiment with agents that adjust simply to technological shocks, and we show that individual and aggregate performances dramatically degrade. Our results suggest that fast and frugal robust heuristics are not a second-best option: rather they are “rational” in macroeconomic environments with heterogeneous, interacting agents and changing “fundamentals”.
    Keywords: Complexity, expectations, heterogeneity, heuristics, learning, agent based model, computational economics
    JEL: C63 E32 E6 G01 G21 O4
    Date: 2017–12–14
  35. By: Sapre, Amey (National Institute of Public Finance and Policy); Sengupta, Rajeswari (IGIDR)
    Abstract: In this paper we study revisions in the annual estimates of India’s GDP data. The objective of our analysis is to understand the revision policy adopted by the Central Statistical Organisation (CSO) and the issues therein. Using historic data, we study the magnitude and quality of revisions in the aggregate as well as the sectoral GDP series. We analyze the computation of the sectoral revised estimates and compare the extent of revision in growth rates from the first release to the final estimate. To understand the magnitude of revisions, we compute the standard deviation of revisions in growth rates for each sector and use that to build confidence bands around the initial estimates. The confidence bands provide a means to understand the extent of variation in the final growth rate estimate, and at the same time, provide a mechanism to contain revisions. Based on our analysis, we highlight some of the major issues in CSO’s revision policy. We outline possible solutions that can be implemented to improve the quality of GDP data revisions. We identify sectors with large variations in growth rates and argue that improving or changing the low quality indicators can help contain growth rate revisions and enhance the credibility of the estimates.
    Keywords: GDP ; National Accounts ; Revisions
    JEL: E00 E01 C18
    Date: 2017–11
  36. By: Aslanidis, Nektarios; Herranz-Loncán, Alfonso; Nogues-Marco, Pilar
    Abstract: This article analyses the integration of the Spanish money market in the 19th century. We use a Band-TAR model of prices in Madrid of bills of exchange on 9 Spanish cities to measure convergence and efficiency in the market between 1825 and 1875. While price gaps between cities were significantly reduced during the period, no progress took place in efficiency. We suggest that increasing convergence was associated to the reduction in transaction costs, which started before the railways through improvements in roads and postal services. By contrast, increases in efficiency were prevented by a very restrictive regulation of arbitrage.
    Keywords: Bills of Exchange; Financial Development; Legal Systems; Money Market Convergence; Money Market Efficiency; Money Market Integration; Real Bills Doctrine; Spanish National Currency; Specie-Point Mechanism; transaction costs
    JEL: E02 E42 F02 F15 F31 F36 K00 L10 N13 N73 R40
    Date: 2017–11
  37. By: Fève, Patrick; Garcia, Pablo; Sahuc, Jean-Guillaume
    Abstract: Is risk taking an important channel by which monetary policy shocks affect economic activity? On the basis of a nonlinear structural VAR including a new measure of risk sensitivity by economic agents, we show that the role of the risk-taking channel depends on the state of the economy. While it is irrelevant during recession or normal times, it acts as an amplifier by boosting output during expansion. It means that, as long as monetary policy does not actively "lean against the wind", it may exacerbate boom-bust patterns.
    Keywords: Risk-taking channel; Monetary policy; Boom-bust cycle
    JEL: C32 E52
    Date: 2017–12
  38. By: Christopher J. Ruhm
    Abstract: The United States is in the midst of a fatal drug epidemic. This study uses data from the Multiple Cause of Death Files to examine the extent to which increases in county-level drug mortality rates from 1999-2015 are due to “deaths of despair”, measured here by deterioration in medium-run economic conditions, or if they instead are more likely to reflect changes in the “drug environment” in ways that present differential risks to population subgroups. A primary finding is that counties experiencing relative economic decline did experience higher growth in drug mortality than those with more robust growth, but the relationship is weak and mostly explained by confounding factors. In the preferred estimates, changes in economic conditions account for less than one-tenth of the rise in drug and opioid-involved mortality rates. The contribution of economic factors is even less when accounting for plausible selection on unobservables, with even a small amount of remaining confounding factors being sufficient to entirely eliminate the relationship. These results suggest that the “deaths of despair” framing, while provocative, is unlikely to explain the main sources of the fatal drug epidemic and that efforts to improve economic conditions in distressed locations, while desirable for other reasons, are not likely to yield significant reductions in drug mortality. Conversely, the risk of drug deaths varies systematically over time across population subgroups in ways that are consistent with an important role for the public health environment related to the availability and cost of drugs. Put succinctly, the fatal overdose epidemic is likely to primarily reflect drug problems rather than deaths of despair.
    JEL: E32 I12 I18 J11
    Date: 2018–01
  39. By: Emanuela Cardia (Universite de Montreal and CIREQ); Paul Gomme (Concordia University and CIREQ)
    Abstract: Raising children takes considerable time, particularly for women. Yet, the role of childcare time has received scant attention in the macroeconomics literature. We develop a life-cycle model in which the time dimension of childcare plays a central role. An important contribution of the paper is estimation of the parameters of a childcare production function using data on primary and secondary childcare time as reported in the American Time Use Survey (2003--2015). The model does a better job matching the observed life-cycle patterns of womens' time use than a model without childcare. Our counterfactual experiments show that the increase in the relative wage of women since the 1960s is an important factor in the increase in womens' work time; changes in fertility associated with the baby boom play a smaller role, and changes in the price of durables are found to have a negligible effect. We consider the effects of cheaper daycare. Not surprisingly, this experiment leads to greater use of daycare and more time allocated to market work. A knock-on effect of cheaper daycare is a substantial decline in primary childcare time.
    Keywords: Household Technology; Childcare; Women Labor Force Participation; Home Production
    JEL: D13 E24 J13
    Date: 2017–12
  40. By: Marco Macchiavelli; Thomas Keating
    Abstract: Currently, Eurodollars and fed funds markets combined trade about $220 billion in funds daily, the vast majority of which with overnight tenor. In this paper, we document several features of these wholesale unsecured dollar funding markets. Using daily confidential data on wholesale unsecured borrowing and reserve balances, we show that foreign banks, which make up most of the trading volumes in these markets, keep around 99% of each additional Eurodollar and 80% of each fed fund borrowed as reserve balances. With these risk-free trades, banks earn the spread between interest on reserves and the borrowing rate. Relative to foreign banks, large domestic institutions borrow less often, but when they do, they keep around 99% of each additional Eurodollar or fed fund raised as reserves. Small domestic banks do not display any correlation between net borrowing and their reserves accumulation. We also discuss how regulatory costs affect trading patterns and interest rate differentials in wholesale dollar funding markets.
    Keywords: Arbitrage ; Eurodollars ; Fed funds ; Interest on reserves ; Monetary policy
    JEL: E43 E52 G21
    Date: 2017–12
  41. By: Corsetti, Giancarlo; Kuester, Keith; Müller, Gernot J.
    Abstract: We study how small open economies can escape from deflation and unemployment in a situation where the world economy is permanently depressed. Building on the framework of Eggertsson et al. (2016), we show that the transition to full employment and at-target inflation requires real and nominal depreciation of the exchange rate. However, because of adverse income and valuation effects from real depreciation, the escape can be beggar thy self, raising employment but actually lowering welfare. We show that as long as the economy remains financially open, domestic asset supply policies or reducing the effective lower bound on policy rates may be ineffective or even counterproductive. However, closing domestic capital markets does not necessarily enhance the monetary authorities’ ability to rescue the economy from stagnation.
    Keywords: External shock; Great Recession; Exchange rate; Zero lower bound; Exchange rate peg; Currency union; Fiscal Multiplier; Benign coincidence
    JEL: E31 F41 F42
    Date: 2017–07–28
  42. By: Hans M. Amman; Marco P. Tucci
    Abstract: In this paper we deliver the solution for the DUAL approach Kendrick (1981; 2002) with an infinite horizon. The results of this solutions form the basis for the paper Amman and Tucci (2017).
    Keywords: Optimal experimentation, value function, approximation method, adaptive control, active learning, time-varying parameters, numerical experiments.
    JEL: C63 E61 E62
    Date: 2017–12
  43. By: Alain Kabundi; Eric Schaling; Modeste Some
    Abstract: In this paper we estimate a Phillips curve for South Africa. The slope of the Phillips curve, the inflation persistence, the natural rate of unemployment and the central bank's inflation target band are time-varying. We find that the slope of the Phillips curve has flattened since the mid 2000s - particularly after the Great Recession - which is in line with the findings in most advanced countries. Our results indicate that inflation persistence increased from 1994 to 2001, remained constant from 2001 to 2008, and eventually decreased around 2008. This pattern is different from that of advanced countries where expectations became better anchored relatively early in the inflation targeting (IT) regime and stayed there. Finally, we suggest that the increased stability of inflation expectations after 2008 -- which coincides with the Great Financial crisis - may be a result of "good luck" not just a good policy framework.
    Date: 2016–04–18
  44. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Zeynel Abidin Ozdemir (Gazi University, Ankara, Turkey)
    Abstract: We use the time-varying parameter stochastic volatility (TVP-SV) model and monthly data from 1962 to 2017 to examine the effect of uncertainty in the precious metal markets (gold, silver, platinum, and palladium). We find evidence that uncertainty has a largely time-varying impact on the precious metal prices. The results also show significant variation in the level of volatility, with high volatility being associated with periods of large volatility shocks corresponding to known historical events. The results show that uncertainty has a significant negative impact on the precious metal prices and the impact is more negative during higher volatility periods, implying that large volatility increases cause crashes in the precious metals markets. The market volatility is also found to be extremely persistent, implying that strong policy measures might be required to restore equilibrium. The estimates also show that price level has a positive and significant effect on the volatility and, thus, higher precious metal prices generates increased future uncertainty.
    Keywords: Precious metals; Uncertainty; Stochastic volatility; State–space.
    JEL: C22 E32
    Date: 2018
  45. By: Huang, Anni; Kishor, N. Kundan
    Abstract: Given the rising importance of non-financial corporate overseas debt issuance in the overall international capital flow activities, this paper tries to understand the determinants of corporate overseas bond issuance in 32 countries during the sample period 1993-2015. The results suggest that the compression in risk premium in advanced economies has encouraged the corporates in emerging markets to borrow more from international bond markets. This effect is more prevalent in countries where policy makers impose tighter international capital control, so that corporates outside financial regulation serve as surrogate financial intermediaries at the border. Besides, corporates hold short-term assets in domestic currency as collateral for outstanding overseas debt, in expecting domestic currency appreciation, a behavior often phased as price arbitrage or carry trade position. Our results suggest a potential systematic shift in international financial risk transmission through corporate fixed-income markets and a possible external shock transmission channeled through the monetary policy spillover effect.
    Keywords: Corporate Overseas Debt, Global Liquidity, Carry Trade Hypothesis, Monetary Policy Spillover
    JEL: E44 F31 F32 F34 F36 G15
    Date: 2017–10–03
  46. By: Guglielmo Forges Davanzati; Nicolò Giangrande
    Abstract: This paper deals with the Italian economic decline from a double perspective. First, it provides a reconstruction of the main Post Keynesian arguments explaining the bad macroeconomic performance of the Italian economy, starting from the end of the “economic miracle”. Second, it proposes a re-reading of the CGIL’s view, showing that is it consistent with a theoretical approach based on the fundamental assumptions and policy prescriptions of the Post Keynesian framework.
    Keywords: Italian economic decline, labour market, unions
    JEL: E60 J50
    Date: 2018–01
  47. By: Jiménez Polanco, Miguel Alejandro; López Hawa, Nabil
    Abstract: This paper addresses the determinants and causes of the gap between real earnings and labor productivity in the Dominican Republic, using data from the National Labor Force Survey. Our estimates indicate that the main determinants of the gap between real earnings and labor productivity are the bargaining power of workers, the downward pressure the Dominican Republic receives from lower-wages exporting countries, and the level of education of the working population. Likewise, in order to evaluate possible solutions to close the real earnings-labor productivity gap, we run micro-simulations, in order to evaluate the impact of four specific public policies would have on real earnings: firstly, an increasing the formality rate of employment; secondly, an increase the bargaining power of employees; thirdly, an increase of higher education; and finally, an increase of vocational education in the working population. Our results suggest that increasing both the scope of higher education and vocational education, as well as increasing the bargaining power of the working population, would translate into gains in terms of real wages that would help to close the gap between real earnings and labor productivity.
    Keywords: Labor productivity, real earnings, labor markets, simulations, bargain power, education, Dominican Republic
    JEL: E24 J08 J24 J30
    Date: 2017–07–30
  48. By: Guillaume Khayat (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique - ECM - Ecole Centrale de Marseille)
    Abstract: Credit institutions borrow liquidity from the central bank’s lending facility and deposit (excess) reserves at its deposit facility. The central bank directly controls the corridor: the non-market interest rates of its lending and deposit facilities. Modifying the corridor changes the conditions on the interbank market and allows the central bank to set the short-term interest rate in the economy. This paper assesses the use of the corridor’s width as an additional tool for monetary policy. Results indicate that a symmetric widening of the corridor boosts output and welfare while addressing the central bank’s concerns over higher risk-taking in the economy.
    Keywords: monetary policy,interbank market,heterogeneous interbank frictions,the corridor,excess reserves,financial intermediation
    Date: 2017–10
  49. By: Michele Cavallo; Anthony Landry
    Abstract: Capital-goods imports have become an increasing source of growth for the U.S. economy. To understand this phenomenon, we build a neoclassical growth model with international trade in capital goods in which agents face exogenous paths of total factor and investment-specific productivity measures. Investment-specific productivity measures are reflected by the price of capital-goods imports, the price of domestic-equipment investment, and the price of IP products relative to the price of consumption. We use observed prices to solve for optimal investment decisions, and understand the underlying sources of output growth in the U.S. economy. Our findings suggest that the model allocation decisions coming from changes in relative prices explain well the dynamics of investment and U.S. output. Using the model economy, we show that: (i) capital-goods imports have contributed 14 percent to growth in U.S. output per hour since 1975, (ii) capital-goods imports played a small role in the recent weakness in equipment investment, (iii) U.S. output-per-hour growth could have been 18 percent lower without the capital-goods imports technology since 1975, and (iv) in the long run, the implementation of additional tariffs on capital-goods imports would have little impact on the expenditure share of capital-goods imports in equipment investment.
    Keywords: Productivity, Trade Integration
    JEL: E2 F2 F4 O3 O4
    Date: 2018
  50. By: Byron Botha; Shaun de Jager; Franz Ruch; Rudi Steinbach
    Abstract: The macroeconomic modelling and forecasting process at the South African Reserve Bank makes use of a suite of models. This paper provides an update of the Quarterly Projection Model (QPM) – a so-called gap model – which has played an integral role in the suite since 2007. Details of the structure and functioning of the QPM model, with particular focus on the four most important gaps – the output gap, real exchange rate gap, real interest rate gap, and inflation gap (or inflation from target) – are provided. The model is then used to decompose these four gaps in order to tell a coherent story of South Africa's macroeconomic dynamics since the inception of inflation targeting. From the perspective of the policy maker, the QPM provides a tool that quantifies the consequences of its actions on the economy, while adequately highlighting the trade-offs that are faced in the process.
    Date: 2017–09–26
  51. By: Alberto Cardaci (Universita Cattolica des Sacro Cuore, Via Lodovico Necchi, Milan, Italie); Francesco Saraceno (OFCE, Sciences Po Paris, France, LUISS-SEP, Rome, Italie)
    Abstract: Our paper investigates the impact of rising inequality in a two-country macroeconomic model with an agent-based household sector characterised by peer effects in consumption. In particular, the model highlights the role of inequality in determining diverging balance of payments dynamics within a currency union. Inequality may drive the two countries into different growth patterns: where peer effects in consumption interact with higher credit availability, rising income inequality leads to the emergence of a debt-led growth. Where social norms determine weaker emulation and credit availability is lower, an export-led regime arises. Eventually, a crisis emerges endogenously due to the sudden-stop of capital ows from the net lending country, triggered by the excessive risk associated to the dramatic amount of private debt accumulated by households in the borrowing country. Monte Carlo simulations for a wide range of calibrations confirm the robustness of our results.
    Keywords: Inequality, Current Account, Currency Union, Agent-based model
    JEL: C63 D31 E21 F32 F43
    Date: 2017–12–12
  52. By: Lefteris Tsoulfidis (Department of Economics, University of Macedonia); Aris Papageorgiou (Department of Economics, University of Macedonia)
    Abstract: Basic innovations and their diffusion, the expansion or contraction of the level of economic activity and the volume of international trade, rising sovereign debts and their defaults, conflicts and the outbreak of wars, are some of the major phenomena appearing during the downswing or upswing phases of long cycles. In this article, we examine the extent to which these phenomena constitute stylized facts of the different phases of long cycles which recur quite regularly in the turbulent economic history of capitalism. The main argument of this paper is that the evolution of long cycles is a result of the long-run movement of profitability. During the downswing of a long cycle, falling profitability induces innovation investment and the associated with it 'creative destruction' of the capital stock that eventually set the stage for the upswing phase of a new long cycle.
    Keywords: Long Cycles, Innovations, Profit rate.
    JEL: B14 B24 E11 E32
    Date: 2017–09
  53. By: Jordá, Óscar; Knoll, Katharina; Kuvshinov, Dmitry; Schularick, Moritz; Taylor, Alan M.
    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.
    Keywords: capital gains; dividends; household wealth; housing markets; interest rates; rents; return on capital; risk premiums; yields
    JEL: D31 E10 E44 G10 G12 N10
    Date: 2017–12
  54. By: Johannes Fedderke; Daniel Mengisteab
    Abstract: This paper estimates the potential output of the South African economy using several univariate filters as well as taking a production function approach. Our aim is to compare the sensitivity of the results to the different methodologies and different measures of output. We find that the potential output is sensitive to the different methodologies and different measurements of output. A Cobb-Douglas specification of the production function is employed, dividing the economy into eight sectors. We find that the production function produced results similar to the band-pass filters but with gaps of lower amplitudes. We then use the Hodrick-Prescott, Christiano-Fitzgerald, and a Kalman filter to observe the natural growth rate of the South African economy from 1960 to 2015. We find estimates of the natural growth rate in the 1.9% - 2.3 range. However, there is also evidence to suggest that the rate is under considerable downward pressure in the post-2010 period. The strongest decline is in the real sectors of the economy (Manufacturing, Mining), the greatest resilience in the service sectors (financial in particular).
    Date: 2016–03–03
  55. By: Li, Li; Mak, Eric; Pivovarova, Margarita
    Abstract: Individuals engage in conspicuous consumption to signal their income to their own reference groups, defined in a fine manner by observable identifiers such as race, gender, education, and occupation. The more income inequality within a reference group, the less prior information concerning the income of an individual, and hence the more effective the conspicuous consumption signal. Therefore, within-group income inequality causes substitution from non-conspicuous consumption to conspicuous consumption. We find strong evidence supporting this prediction regarding aggregate conspicuous consumption for all income percentiles. Disaggregating into smaller consumption categories, most consumption items categorized by the previous literature as conspicuous and non-conspicuous using survey methods agrees with this prediction as well.
    Keywords: Conspicuous Consumption, Within-Group Income Inequality
    JEL: E21
    Date: 2016–06–08
  56. By: Jan Janku; Jan Libich
    Abstract: The paper shows that blissful ignorance does not apply to fiscal policy. In countries with insufficiently informed voters, politicians attempt to ‘buy’ votes by substantially increasing government expenditures in election years and tightening the belt post election. This generates costly budget cycles and unnecessary macroeconomic fluctuations. Unlike much of the earlier literature that found this effect only in low income countries or new democracies, we demonstrate that it has occurred in many prosperous countries with an established political system. In particular, constructing an Informed-voter (INFOVOT) index, we show that only the top third of OECD countries with well-informed voters does not experience political budget cycles. In contrast, the bottom third of OECD countries with poorly-informed voters see a deterioration of the budget balance by 1% of GDP on average in election years, which represents an increase of more than 25% relative to their usual budget deficits. Interestingly, for the intermediate group of countries with moderately-informed voters, for example Austria, France, Germany, Japan, Luxembourg, the U.K. and the U.S., election deficit hikes (of 0.75% of GDP) are observed during the 1995-2008 period only, but not since. We discuss why their budget cycles may have disappeared after the Global financial crisis, unlike in countries with poorly-informed voters, drawing on the ‘rational inattention’ literature. We also offer some policy recommendations that could improve the voters’ incentives to acquire and process fiscal policy information, and thus avoid an ‘ignorance trap’.
    Keywords: Political Budget Cycle, Uninformed Voters, Elections, Rational Inattention, Generalized Method of Moments
    JEL: D72 E62 H62
    Date: 2018–01
  57. By: Michele Cavallo; Marco Del Negro; W. Scott Frame; Jamie Grasing; Benjamin A. Malin; Carlo Rosa
    Abstract: The paper surveys the recent literature on the fiscal implications of central bank balance sheets, with a special focus on political economy issues. It then presents the results of simulations that describe the effects of different scenarios for the Federal Reserve's longer-run balance sheet on its earnings remittances to the U.S. Treasury and, more broadly, on the government's overall fiscal position. We find that reducing longer-run reserve balances from $2.3 trillion (roughly the current amount) to $1 trillion reduces the likelihood of posting a quarterly net loss in the future from 30 percent to under 5 percent. Further reducing longer-run reserve balances from $1 trillion to pre-crisis levels has little effect on the likelihood of net losses.
    Keywords: Central bank balance sheets ; Monetary policy ; Remittances
    JEL: E58 E59 E69
    Date: 2018–01–08
  58. By: Chaoran Chen; Diego Restuccia; Raül Santaeulàlia-Llopis
    Abstract: We assess the role of land markets on factor misallocation in Ethiopia -where land is owned by the state- by exploiting policy-driven variation in land rentals across time and space arising from a recent land certification reform. Our main finding from detailed micro data is that land rentals significantly reduce misallocation and increase agricultural productivity. These effects are nonlinear across farms -impacting more those farms farther away from their efficient operational scale. The effect of land rentals on productivity is 70 percent larger when controlling for non-market rentals -those with a pre-harvest rental rate of zero. Land rentals significantly increase the adoption of new technologies, especially fertilizer use.
    Keywords: productivity, agriculture, land markets, rentals, misallocation, micro data
    JEL: E02 O11 O13 O55 Q1
    Date: 2017–12
  59. By: LEFEBVRE Mathieu (Université de Strasbourg); PESTIEAU Pierre (Université de Liège and CORE); PONTHIERE Gregory (Université Paris Est)
    Abstract: Following Kanbur and Mukherjee (2007), a solution to the “missing poor” problem (i.e. selection bias in poverty measures due to income-differentiated mortality) consists in computing hypothetical poverty rates while assigning a fictitious income to the prematurely dead. However, in a dynamic general equilibrium economy, doing “as if” the prematurely dead were still alive is likely to affect wages, output and capital accumulation, with an uncertain effect on poverty. We develop a 3-period OLG model with income-differentiated mortality, and compare actual poverty rates with hypothetical poverty rates that would have prevailed if everyone faced the survival conditions of the top income class. Including the prematurely dead has an ambiguous impact on poverty, since it affects income distribution through capital dilution, composition effets and horizon effects. Our results are illustrated by quantifying the impact of income-differentiated mortality on poverty measures for France (1820-2010).
    Keywords: income-differentiated mortality, poverty measures, missing poor, OLG models, capital accumulation
    JEL: E13 E21 I32
    Date: 2017–05–09
  60. By: Cavallo, Michele (Board of Governors of the Federal Reserve System); Del Negro, Marco (Federal Reserve Bank of New York); Frame, W. Scott (Federal Reserve Bank of Atlanta); Grasing, Jamie (University of Maryland); Malin, Benjamin A. (Federal Reserve Bank of Minneapolis); Rosa, Carlo (Federal Reserve Bank of New York)
    Abstract: The paper surveys the recent literature on the fiscal implications of central bank balance sheets, with a special focus on political economy issues. It then presents the results of simulations that describe the effects of different scenarios for the Federal Reserve's longer-run balance sheet on its earnings remittances to the U.S. Treasury and, more broadly, on the government's overall fiscal position. We find that reducing longer-run reserve balances from $2.3 trillion (roughly the current amount) to $1 trillion reduces the likelihood of posting a quarterly net loss in the future from 30 percent to under 5 percent. Further reducing longer-run reserve balances from $1 trillion to precrisis levels has little effect on the likelihood of net losses.
    Keywords: central bank balance sheets; monetary policy; remittances
    JEL: E58 E59 E69
    Date: 2018–01–01
  61. By: Pedro Bação (Grupo de Estudos Monetários e Financeiros (GEMF); Centre for Business and Economics Research (CeBER)); António Portugal Duarte (Grupo de Estudos Monetários e Financeiros (GEMF); Centre for Business and Economics Research (CeBER))
    Abstract: Two main issues, closely related to each other, have occupied the European Central Bank in recent years: the sovereign debt crisis and the possibility of deflation in the Euro Zone. In this paper we discuss the causes, the consequences and the policy options regarding deflation. In addition, we assess the magnitude of the risk of deflation in the Euro Zone. For this purpose, we will employ the methodology of Kilian and Manganelli (2007). Our results suggest that the threat of deflation in the Euro Zone is related to the international financial crisis and to the sovereign debt crisis in Europe. Thus, the probability of deflation in the Euro zone increased in recent years. Nevertheless, it appears to have subsided in 2017, justifying the view taken by the ECB’s Governing Council, according to which deflation is no longer a problem for the Euro zone.
    Keywords: deflation, debt crisis, Eurozone, GARCH model.
    JEL: E31 F47
    Date: 2017–12
  62. By: Hetzel, Robert L. (Federal Reserve Bank of Richmond)
    Abstract: In his great work A History of the Federal Reserve System, vol. 1, Allan Meltzer contended that monetary policymakers in the Depression simply ignored the quantity theoretic prescriptions that would have prevented contractionary monetary policy. Practically, he was arguing that the Fed should have accepted the responsibilities for economic stabilization now taken for granted with the modern concept of a central bank. In reality, decades of monetarist criticism had to pass before the Fed accepted both responsibility for the behavior of the price level and economic stabilization. In effect, Meltzer’s contention about the self-evident truth of quantity theory ideas ignored the monumental task that lay ahead for the monetarists.
    Keywords: federal reserve system; central bank; monetary policy
    JEL: E5 N2
    Date: 2018–01–09
  63. By: Cecchetti, Stephen G; Schoenholtz, Kermit
    Abstract: The financial crisis of 2007-09 revealed many deficiencies in the financial system. In response, authorities have implemented a wide range of regulatory reforms. We survey the reforms and offer our views on where there could be further improvements. While capital requirements and levels are far higher, they are not high enough. New liquidity requirements are useful, but need simplification. Shifting derivatives transactions to central counterparties has improved resilience, but also created indispensable financial market utilities that lack credible resolution and recovery regimes. And systemic (macroprudential) regulation lacks the metrics, policy tools, governance structure, and international cooperation needed to be effective.
    Keywords: Capital requirements; Central clearing; financial regulation; liquidity requirements; macro-financial linkages; macroprudential policy; Prudential regulation; recovery and resolution planing
    JEL: E58 G01 G18 G28 G38
    Date: 2017–11
  64. By: Marco Causi; Andrea Baldini
    Abstract: In this paper we describe the dynamics of Loans and Bad Loans in the Italian Non-Financial Sector during the period 1998:4 to 2014:4. We use a Factor Model approach to take into account all of the macroeconomic fac- tors that could a ect the cyclical dynamics of the credit market, and we try to capture the causal e ect of di erent variables at quarterly frequency, tak- ing into account the structural break of the Great Recession. We reach two main conclusions: rst, our evidence con rms the well-known negative rela- tion between GDP variation and Bad Loan ows, and moreover shows a strong infra-annual Bad Loan reaction triggered by a GDP shock within a period of six months. Second, if we correctly remove structural economic factors we nd that New Bad Loan Entry rate cause Loan variations. These facts are useful in formulating some policy conclusions.
    Keywords: empirical nance, non-performing loans, credit, factor models, favar.
    JEL: C22 C58 E51 G00 H81
    Date: 2018–01
  65. By: Asongu, Simplice; Minkoua N., Jules
    Abstract: This study assesses dynamics of openness and finance in Africa by integrating financial development dynamics of depth, activity and size in the assessment of how financial, trade, institutional, political and other openness policies (of second generation structural and institutional reforms) have affected financial development. The empirical evidence is based on Generalized Method of Moments with data from 28 African countries for the period 1996-2010. The following findings are established. (i) While the de jure (KAOPEN) indicator of financial openness improves financial depth, the de facto (FDI) measurement decreases it, with the effect of the latter measure positive on financial size. (ii) Whereas trade openness improves financial depth, its effect on financial activity and size is negative. (iii) Institutional openness has a positive effect on financial dynamics of depth and activity, while its effect on financial size is negative. (iv) Political openness and economic freedom are detrimental to financial depth and activity. Justifications for these nexuses are discussed.
    Keywords: Banking; Trade; Institutions; Politics; Africa
    JEL: E50 G20 O16 O17 O55
    Date: 2017–01
  66. By: George J. Bratsiotis
    Abstract: This paper examines the role of the precautionary demand for liquidity and the interest on reserves as two potential determinants of the deposits channel that can help explain the role of monetary policy, particularly at the near zero-bound. At high levels of precautionary liquidity hoarding the optimal policy response of a Taylor rule is shown to indicate a zero weight on inflation. This is a determinate outcome, despite the violation of the Taylor Principle, because of the effect that the demand for liquidity has on the deposit rate which determines the intertemporal choices of households. Similarly, through its effect on the deposits channel the interest on reserves can act as the main monetary policy tool that can provide determinacy and replace the Taylor rule. This result holds at the zero-bound and it is independent of precautionary demand for liquidity, or fiscal theory of the price level properties.
    Date: 2018
  67. By: Muhammad, Ejaz
    Abstract: This short note looks at the phenomenon of fear of floating -a term first introduced by Calvo (1998)-in case of Pakistan. The analysis shows that the phenomenon was indeed present in episode of volatile aned intermittent capital flows. This phenomenon has never been tested for Pakistan before.
    Keywords: Fear of Floating, Capital Flows
    JEL: E6 E65
    Date: 2017
  68. By: Mauro Caminati; Serena Sordi
    Abstract: This paper contributes to the recent macro-dynamics literature on demand-led growth, that borrows insights from the idea expressed long ago by J. Hicks (1950) that Harrodian instability may be tamed by a source of autonomous expenditure in the economy. Contrary to the other contributions in this literature, autonomous expenditure is not exogenous, but is driven by a flow of profit-seeking R&D and innovation expenditures, that raise labour productivity through time. If the state of distribution, hence the wage share, is exogenously fixed and constant, the model gives rise to a macro-dynamics in a two dimensional state space, that may converge to, or give rise to limit cycles around, an endogenous growth path. An exogenous rise of the profit share exerts negative e¤ects on long-run growth and employment, showing that growth is wage led.
    Keywords: wage-led growth; endogenous autonomous expenditure; labour-saving technological progress: limit cycles
    JEL: E11 E12 O41
    Date: 2017–11
  69. By: Lee, Seohyun
    Abstract: The thesis consists of three essays on real and financial effects of uncertainty shocks. The first chapter investigates two different news-based uncertainty indices, Economic Policy Uncertainty Index (EPU) and Relative Sentiment Shift Index (RSS). I employ reduced form VAR and local projections (Jordá, 2005) to explore the differences in wait-and-see effect of uncertainty on the real economy. Surprises in either index lead to significant declines in production and employment and the effect is larger and persistent in the case of RSS shocks than EPU. In the second chapter, the probabilistic approach is applied to uncover the dependence structure in inflation uncertainty for the countries bordering a major currency area, the UK and the euro area. Inflation uncertainty is measured by the conditional volatility removing entire forecastable variations by bivariate VAR GARCH model and joint distribution of uncertainties of two regions is estimated by using copula to account for non-linear association. The results show that the left tail events of inflation are positively correlated between the two regions. This implies that the appropriate monetary policy can be drawn if policymakers consider the interconnectedness of the deflationary pressures. Finally, the third chapter examines the long run relationship between gross capital flow and its determinants, focusing on the impact of uncertainty as global and contagion factors. I apply bounds testing approach by Pesaran, Shin, and Smith (2001) allowing for he underlying regressors being either I(0), I(1) or mutually cointegrated. Both gross capital inflows and outflows exhibit significant level relationship with global, contagion and domestic factors and uncertainty spillovers through financial linkages between the UK and the euro area play crucial role in predicting capital flows of the UK.
    Keywords: Uncertainty
    JEL: C53 E30
    Date: 2017–07
  70. By: Born, Benjamin; Müller, Gernot; Schularick, Moritz; Sedlacek, Petr
    Abstract: This paper introduces a data-driven, transparent and unbiased method to calculate the economic costs of the Brexit vote in June 2016. We let a matching algorithm determine a combination of comparison economies that best resembles the growth path of the UK economy before the Brexit referendum. The economic cost of the Brexit vote is the difference in output between the UK economy and and its synthetic doppelganger. We show that, contrary to public perception, by the third quarter of 2017 the economic costs of the Brexit vote are already 1.3% of GDP. The cumulative costs amount to almost 20 billion pounds and are expected to grow to more than 60 billion pounds by end-2018. We provide evidence that heightened policy uncertainty has already taken a toll on investment and consumption.
    Keywords: Brexit; European Union; policy uncertainty; synthetic control method
    JEL: E65 F13 F42
    Date: 2017–11
  71. By: Benjamin Born; Gernot Müller; Moritz Schularick; Petr SedláÄ ek
    Abstract: This paper introduces a data-driven, transparent and unbiased method to calculate the economic costs of the Brexit vote in June 2016. We let a matching algorithm determine a combination of comparison economies that best resembles the growth path of the UK economy before the Brexit referendum. The economic cost of the Brexit vote is the difference in output between the UK economy and and its synthetic doppelganger. We show that, contrary to public perception, by the third quarter of 2017 the economic costs of the Brexit vote are already 1.3% of GDP. The cumulative costs amount to almost 20 billion pounds and are expected to grow to more than 60 billion pounds by end-2018. We provide evidence that heightened policy uncertainty has already taken a toll on investment and consumption.
    Keywords: Brexit, European Union, policy uncertainty, synthetic control method
    JEL: E65 F13 F42
    Date: 2018
  72. By: Christian Gouriéroux (CREST; University of Toronto); Alain Monfort (CREST); Jean-Paul Renne (University of Lausanne)
    Abstract: The basic assumption of a structural VARMA model (SVARMA) is that it is driven by a white noise whose components are independent and can be interpreted as economic shocks, called "structural" shocks. When the errors are Gaussian, independence is equivalent to noncorrelation and these models face two kinds of identi?cation issues. The ?rst identi?cation problem is "static" and is due to the fact that there is an in?nite number of linear transformations of a given random vector making its components uncorrelated. The second identi?cation problem is "dynamic" and is a consequence of the fact that the SVARMA process may have a non invertible AR and/or MA matrix polynomial but, still, has the same second-order properties as a VARMA process in which both the AR and MA matrix polynomials are invertible (the fundamental representation). Moreover the standard Box-Jenkins approach [Box and Jenkins (1970)] automatically estimates the fundamental representation and, therefore, may lead to misspeci?ed Impulse Response Functions. The aim of this paper is to explain that these dif?culties are mainly due to the Gaussian assumption, and that both identi?cation challenges are solved in a non-Gaussian framework. We develop new simple parametric and semi-parametric estimation methods when there is non-fundamentalness in the moving average dynamics. The functioning and performances of these methods are illustrated by applications conducted on both simulated and real data.
    Keywords: Structural VARMA; Fundamental Representation; Identi?cation; Shocks; Impulse Response Function; Incomplete Likelihood; Composite Likelihood; Economic Scenario Generators
    JEL: C01 C15 C32 E37
  73. By: Job Boerma; Loukas Karabarbounis
    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.
    JEL: D10 D60 E21 J22
    Date: 2017–12
  74. By: Bahaj, Saleem A.; Foulis, Angus; Pinter, Gabor
    Abstract: The homes of those in charge of firms are an important source of finance for ongoing businesses. We use firm level accounting data, transaction level house price data and loan level residential mortgage data from the UK to show that a £1 increase in the value of the residential real estate of a firm’s directors increases the firm’s investment and wage bill by £0.03 each. These effects run through smaller firms and are similar in booms and busts. In aggregate, the homes of firm directors are worth 80% of GDP. Using this, a back of the envelope calculation suggests that a 1% increase in real estate prices leads, through this channel, to up to a 0.28% rise in business investment and a 0.08% rise in total wages paid. We complement this with evidence on how a firm responds to changes in the value of its own corporate real estate; we find that, in aggregate, the residential real estate of directors is at least as important for activity. We use an estimated general equilibrium model to quantify the importance of both types of real estate for the propagation of shocks to the macroeconomy.
    JEL: E32 R30
    Date: 2017–08–30
  75. By: Algan, Yann; Guriev, Sergei; Papaioannou, Elias; Passari, Evgenia
    Abstract: We study the implications of the Great Recession for voting for anti-establishment parties, as well as for general trust and political attitudes, using regional data across Europe. We find a strong relationship between increases in unemployment and voting for non-mainstream, especially populist parties. Moreover, increases in unemployment go in tandem with a decline in trust in national and European political institutions, while we find much attenuated effects of unemployment on interpersonal trust. The correlation between unemployment and attitudes towards immigrants is muted, especially for their cultural impact. To advance on causality, we extract the component of increases in unemployment explained by the pre-crisis structure of the economy, in particular the share of construction in regional value added, which is strongly related both to build-up and the burst of the crisis. Our results imply that crisis-driven economic insecurity is a substantial driver of populism and political distrust.
    Keywords: crisis; Europe; Immigration; industrial structure; populism; Trust; voting
    JEL: A13 E02 F02 F22 F33 J15 O43
    Date: 2017–11
  76. By: Jonathan D. Fisher; David Johnson; Timothy Smeeding; Jeffrey P. Thompson
    Abstract: We do not need to and should not have to choose amongst income, consumption, or wealth as the superior measure of well-being. All three individually and jointly determine well-being. We are the first to study inequality in three conjoint dimensions for the same households, using income, consumption, and wealth from the 1989-2016 Surveys of Consumer Finances (SCF). The paper focuses on two questions. What does inequality in two and three dimensions look like? Has inequality in multiple dimensions increased by less, by more, or by about the same as inequality in any one dimension? We find an increase in inequality in two dimensions and in three dimensions, with a faster increase in multi-dimensional inequality than in one-dimensional inequality. Viewing inequality through one dimension greatly understates the level and the growth in inequality in two and three dimensions. The U.S. is becoming more economically unequal than is generally understood.
    Keywords: Inequality ; Wealth ; Consumption
    JEL: D31 E21 I31
    Date: 2018–01–02
  77. By: Chaikal Nuryakin (Researcher, Institute for Economic and Social Research, Faculty of Economics, University of Indonesia, Jakarta); Faisal Rachman (Institute for Economic and Social Research, Faculty of Economics, University of Indonesia); Ashintya Damayati (Institute for Economic and Social Research, Faculty of Economics, University of Indonesia); Nia Kurnia (Researcher, Institute for Economic and Social Research, Faculty of Economics, University of Indonesia, Jakarta); Moslem Afrizal (Researcher, Institute for Economic and Social Research, Faculty of Economics, University of Indonesia, Jakarta)
    Abstract: This study examined the impact of ICT on firm productivity in Indonesia. Using unbalanced panel data of medium and large manufacturing firms, we performed two kinds of estimation. The first estimation is Cobb-Douglas production function with output as the dependent variable. Capital was grouped into non-ICT capital and ICT capital in order to determine the impact of ICT on firm’s output creation. The second estimation used total factor productivity as the dependent variable, where TFP was estimated using Levinsohn-Petrin productivity estimator. As other internal and external factors were added to the regression as control variable, the study provides early evidence that while the impact of R&D and innovation still needs to be further elaborated, ICT capital may have a positive, but not always significant, impact on firm’s production and productivity in Indonesia.
    Keywords: ICT — Productivity — TFP — R&D — Innovation
    JEL: E22 D24 O3
    Date: 2017–10
  78. By: Knut Are Aastveit; Author-Name: André K. Anundsen; Eyo I. Herstad
    Abstract: We assess the importance of residential investment in predicting economic recessions for an unbalanced panel of 12 OECD countries over the period 1960Q1–2014Q4. Our approach is to estimate various probit models with di?erent leading indicators and evaluate their relative prediction accuracy using the receiver operating characteristic curve. We document that residential investment contains information useful in predicting recessions both in-sample and out-of-sample. This result is robust to adding typical leading indicators, such as the term spread, stock prices, consumer confidence surveys and oil prices. It is shown that residential investment is particularly useful in predicting recessions for countries with high home-ownership rates. Finally, in a separate exercise for the US economy, we show that the predictive ability of residential investment is robust to employing real-time data.
    Keywords: Recession predictability, Housing, Leading indicators, Real-time data
    Date: 2017–12
  79. By: Stockhammer, Engelbert; Wildauer, Rafael
    Abstract: The past decades have witnessed a strong increase in household debt and high growth of private consumption expenditures in many countries. This paper empirically investigates four explanations: First, the expenditure cascades hypothesis argues that an increase in inequality induced lower income groups to copy the spending behaviour of richer peer groups and thereby drove them into debt (‘keeping up with the Joneses’). Second, the housing boom hypothesis argues that increasing property prices encourage household spending and household borrowing due to wealth effects, eased credit constraints and the prospect of future capital gains. Third, the low interest hypothesis argues that low interest rates encouraged households to take on more debt. Fourth, the financial deregulation hypothesis argues that deregulation of the financial sector boosted credit supply. The paper tests these hypotheses by estimating the determinants of household borrowing using a panel of 11 OECD countries (1980-2011). Results indicate that real estate prices and low interest rates were the most important drivers of household debt. In contrast the data does not support the expenditure cascades hypothesis as a general explanation of debt accumulation across OECD countries. Our results are consistent with the financial deregulation hypothesis, but its explanatory power for the 1995-2007 period is low.
    Keywords: household debt; income distribution; property prices
    Date: 2017–08–01
  80. By: Anna M. Stansbury; Lawrence H. Summers
    Abstract: Since 1973 median compensation has diverged starkly from average labor productivity. Since 2000, average compensation has also begun to diverge from labor productivity. These divergences lead to the question: to what extent does productivity growth translate into compensation growth for typical American workers? We investigate this, regressing median, average and production/nonsupervisory compensation growth on productivity growth in various specifications. We find substantial evidence of linkage between productivity and compensation: over 1973-2016, one percentage point higher productivity growth has been associated with 0.7 to 1 percentage points higher median and average compensation growth and with 0.4 to 0.7 percentage points higher production/nonsupervisory compensation growth. These results suggest that other factors orthogonal to productivity have been acting to suppress typical compensation even as productivity growth has been acting to raise it. Several theories of the cause of the productivity-compensation divergence focus on technological progress. These theories have a testable implication: periods of higher productivity growth should be associated with periods of faster productivity-pay divergence. We do not find substantial evidence of co-movement between productivity growth and the labor share or mean/median compensation ratio. This tends not to provide strong support for pure technology-based theories of the productivity-compensation divergence.
    JEL: E24 J24 J3
    Date: 2017–12
  81. By: Jakhongir Kakhkharov
    Keywords: Remittances, labour migration, investments, Uzbekistan
    JEL: O15 F24 E22
    Date: 2017–03
  82. By: Kishor, N. Kundan
    Abstract: This paper studies the dynamic relationship between public and private commercial real estate market in the U.S. To do so, we propose a correlatedcunobserved component model with a common trend and Markov-Switching heteroscedasticity. This model addresses the dichotomy in the relationship between these two markets in the short-run and the long-run by allowing for a common long-run trend and correlated short-run cycles. To take into account the non-linearity in the commercial real estate dynamics, we also allow Markov regime-switching in shocks to the trend and the cycles. Consistent with the findings of the literature, we find almost one-for-one comovement in these two markets in the long-run. However, our results suggest significant difference in the correlation of the cycles in low volatility and high volatility regimes. We find high degree of correlation between private and public commercial real estate cycles only in the high volatility regime. This explains the low correlation in the return of these two markets as has been widely reported in the literature. Moreover, we also find that the past movements in public commercial real estate cycle predict future movement in private commercial real estate cycles reflecting the forward-looking nature of the public commercial real estate market.
    Keywords: Commercial Real Estate, Unobserved Component Model, Markov-Switching
    JEL: C51 E44 G10 R30
    Date: 2017–10–05
  83. By: Comin, Diego; Lashkari, Danial; Mestieri, Martí
    Abstract: We present a new multi-sector growth model that features nonhomothetic, constantelasticity-of-substitution preferences, and accommodates long-run demand and supply drivers of structural change. The model generates a log-linear relationship between relative sectoral demand and real income, implying non-vanishing nonhomotheticities for all income levels. The model is consistent with the decline in agriculture, the hump-shaped evolution of manufacturing, and the rise of services over time. We estimate the demand system derived from the model using household-level data from the U.S. and India, as well as historical aggregate-level panel data for 39 countries during the postwar period. The estimated model parsimoniously accounts for the broad patterns of sectoral reallocation observed among rich, miracle and developing economies. Our estimates support the presence of strong nonhomotheticity that is stable across time, income levels, and countries. We find that income effects account for over 80% of the observed patterns of structural change.
    Keywords: Implicitly Additively Separable Preferences; Nonhomothetic CES preferences; structural transformation
    JEL: E2 O1 O4 O5
    Date: 2017–11
  84. By: Oana Peia
    Abstract: This paper proposes a new channel to explain the medium- to long-term effects of banking crises on the real economy. It embeds a banking sector prone to runs in a stylized growth model to show that episodes of bank distress affect not only the volume, but also the composition of firm investment, by disproportionally decreasing investments in innovation. Thishypothesis is confirmed empirically employing industry-level data on R&D spending around 13 recent banking crises episodes. Using difference-in-difference identification strategies, I show that industries that depend more on external finance, in more bank-based economies, invest disproportionally less in R&D following systemic banking crises. These industries also have a lower share of R&D spending in total investment, suggesting a shift in the composition of investment that is specific to recessions following banking crises and not other business cycle recessions.
    Keywords: Banking crises; R&D investment; Financial dependence; Global games
    JEL: G01 G21 E22
    Date: 2017–12
  85. By: L. (Lisa B.) Ryan; Karen Turner; Nina Campbell
    Abstract: Economy-wide rebound in energy use is often presented as a necessary ‘evil’ accompanying economic expansion triggered by energy efficiency improvements. We challenge this position in two, inter-related ways. First, we question the emphasis on potential technical energy savings and losses due to rebound in energy efficiency policy evaluation. This abstracts from the wider economic and societal impacts of energy efficiency improvements that are often positive and valuable to policy makers. Second, we propose that economic expansion and economy-wide rebound need not be highly correlated. We argue that energy efficiency actions targeted at improving the competitiveness of less energy-intensive means of providing services, such as heat and transport, may provide opportunities to boost economic activity while minimising rebound effects. This perspective involves a change in current policy and research thinking, particularly in terms of the type of substitution possibilities that we should focus on in enhancing energy efficiency, economic expansion and rebound relations.
    Keywords: Energy policy; Energy economics; Economy-wide rebound; Energy efficiency
    JEL: Q43 Q48 E2
    Date: 2017–11
  86. By: Dhaniel Ilyas (Researcher, Institute for Economic and Social Research, Faculty of Economics, University of Indonesia, Jakarta)
    Abstract: Survivability (resilience) of Indonesia small and micro firms seems to have a strong relation with firm’s size. Smaller firms have higher probability to operate longer due to their flexibility. These resilience is related to their choice of using only their owned self-capital without making any bank/non-bank loans. The characteristic make them tougher in facing economic crisis and easier for them to re-organize their business. Female owner tends to choose this ‘no-loan’ strategy in Indonesia case. These preliminary findings needs further investigation using more details data.
    Keywords: SMFs — Indonesia — Firm Survival — Firm Resilience — Economic Crises
    JEL: E22 L10 O10
    Date: 2017–12
  87. By: Sven R Larson (Hill City Skunkworks, LLC, USA)
    Abstract: Economic activity is kept stable by means of explicit and implicit contracts. These contracts, in turn, carry the confidence of economic decision makers as far into the future as the free market will trust them. A change in the trust of an implicit contract leads to a decline in economic activity; if that decline, while unexpected, is manageable, the resulting macroeconomic downturn will be a recession. If, on the other hand, the negative changes are beyond what the present system of explicit and implicit contracts can manage, the recession can escalate into a depression. The line between a recession and a depression is more easily crossed when government fails as an above-market carrier of confidence.
    Keywords: decision makers, free market, recession, depression
    Date: 2017
  88. By: Goda, Thomas; Onaran, Özlem; Stockhammer, Engelbert
    Abstract: This article shows that the increase of income inequality and global wealth concentration was an important driver for the financial and Eurozone crisis. The high levels of income inequality resulted in balance of payment imbalances and growing debt levels. Rising wealth concentration contributed to the crisis because the increasing asset demand from the rich played a key role in the growth of the structured credit market and enabled poor and middle-income households to accumulate increasing amounts of debt. This analysis is the first that puts both income and wealth inequality to the epicentre of the recent crisis, and is crucial for social scientists researching on not just the effects but also the causes of the crisis related to inequality. Our findings strongly suggest that the policy response to the crisis must not be limited to financial regulation but should involve policies to address inequality by increasing the bargaining power of labour as well as redistributive tax policies.
    Keywords: Financial crisis; Eurozone crisis; distribution; income inequality; wealth concentration
    JEL: D31 E25 G01
    Date: 2016–12–21
  89. By: Adolfo Barajas; Sergio Restrepo; Roberto Steiner; Juan Camilo Medellin; Cesar Pabon
    Abstract: After building up foreign currency denominated (FC) liabilities over several years, Colombian firms might be vulnerable to a shift in external conditions. We undertake three empirical exercises to better understand these vulnerabilities. First, we identify the determinants of FC borrowing. Second, we investigate the implications for real activity, finding a balance sheet effect that transmits exchange rate fluctuations to investment and is asymmetric, much stronger for depreciations than for appreciations. Finally, we find that foreign exchange derivatives are not used solely for hedging, due in part to monetary authority intervention to smooth exchange rate volatility. However, a full explanation remains open for future research.
  90. By: Alain Kabundi; Elmarie Nel; Franz Ruch
    Abstract: This paper uses nowcasting to forecast real GDP growth in South Africa from 2010Q1 to 2014Q3 in real time. Such an approach exploits the flow of high-frequency information underlying the state of the economy. It overcomes one of the major challenges faced by forecasters, policymakers, and economic agents - having a clear view of the state of the economy in real time. This is often not the case as many economic variables are only available at low frequency and with considerable lags, making it difficult to have information on the state of the economy even after the end of the quarter. The pseudo out-of-sample forecasts show that the nowcasting model’s performance is comparable to those of professional forecasters even though the latter enhance their forecasting accuracy with judgement. The nowcast model also outperforms all other benchmark models by a significant margin.
    Date: 2016–02–03
  91. By: Mankiw, N Gregory; Reis, Ricardo
    Abstract: This essay discusses the role of Milton Friedman's presidential address to the American Economic Association, which was given a half century ago and helped set the stage for modern macroeconomics. We discuss where macroeconomics was before the address, what insights Friedman offered, where researchers and central bankers stand today on these issues, and (most speculatively) where we may be heading in the future.
    Date: 2017–11
  92. By: Valentina V. Tarasova; Vasily E. Tarasov
    Abstract: We prove that the standard discrete-time accelerator equation cannot be considered as an exact discrete analog of the continuous-time accelerator equation. This leads to fact that the standard discrete-time macroeconomic models cannot be considered as exact discretization of the corresponding continuous-time models. As a result, the equations of the continuous and standard discrete models have different solutions and can predict the different behavior of the economy. In this paper, we propose a self-consistent discrete-time description of the economic accelerators that is based on the exact finite differences. For discrete-time approach, the model equations with exact differences have the same solutions as the corresponding continuous-time models and these discrete and continuous models describe the same behavior of the economy. Using the Harrod-Domar growth model as an example, we show that equations of the continuous-time model and the suggested exact discrete model have the same solutions and these models predict the same behavior of the economy.
    Date: 2017–12
  93. By: Igan, Deniz; Lambert, Thomas; Wagner, Wolf; Zhang, Quxian
    Abstract: We study how lobbying affects the resolution of failed banks, using a sample of FDIC auctions between 2007 and 2014. We show that bidding banks that lobby regulators have a higher probability of winning an auction. In addition, the FDIC incurs higher costs in such auctions, amounting to 16.4 percent of the total resolution losses. We also find that lobbying winners have worse operating and stock market performance than their non-lobbying counterparts, suggesting that lobbying results in a less efficient allocation of failed banks. Our results provide new insights into the bank resolution process and the role of special interests.
    Keywords: bank resolution; failed banks; financial crisis; Lobbying; rent seeking
    JEL: D72 E65 G18 G21
    Date: 2017–11
  94. By: Pablo Guerron-Quintana (Boston College); Jesus Fernandez-Villaverde (University of Pennsylvania); Thorsten Drautzburg (Federal Reserve Bank of Philadelphia)
    Abstract: We argue that one important determinant of the variation in income shares is political risk. To that end, we document significant changes in the capital share after political events such as the introduction of right-to-work legislation in U.S. states and international events such as the Carnation Revolution in Portugal. These policy changes are often associated with significant fluctuations in output and asset prices. To quantify the importance of these political shocks for the U.S., we extend an otherwise standard neoclassical growth model. We model political shocks as exogenous changes in the bargaining power of workers in a labor market with search unemployment. We calibrate the model to the U.S. corporate non-financial business sector with a standard process for productivity. A one standard deviation redistribution shock reduces the capital share up 0.2 percentage point on impact and leads to a drop in output of 0.6 percent. Our calibration also implies that political distribution risk can explain 15 to 25% of the observed volatility of U.S. gross capital shares -- and 35 to 45 percent of output volatility, depending on the elasticity of substitution between capital and labor. Eliminating political redistribution risk in the U.S. would raise the welfare of the representative household by 1.6 percent of steady state consumption.
    Date: 2017
  95. By: Johannes Fedderke; Yang Liu
    Abstract: We consider the relative empirical performance of a range of inflation models for South Africa. Model coverage is of Phillips-curve, New Keynesian Phillips curve, monetarist, and structural models of inflation. Our core findings are that the single most robust covariate of inflation is unit labour cost. We further decompose unit labour cost into changes in the nominal wage and real labour productivity. The principal association is a strong positive relationship between inflation and nominal wages, while improvements in real labour productivity report only a relatively weak negative association with inflation. Supply side shocks also consistently report an association with inflation. As to demand-side shocks, the output gap does not return a robust statistical association with inflation. Instead, it is growth in the money supply and government expenditure which return robust and theoretically consistent associations with inflationary pressure.
    Date: 2016–04–04
  96. By: Mehmet Balcilar (Department of Economics, Eastern Mediterranean University); Zeynel Abidin Ozdemir (Gazi University, Ankara, Turkey); Muhammad Shahbaz (Montpellier Business School, Montpelier, France)
    Abstract: This study analyzes the dynamic linkages between oil and gold prices for the spot and 1- to 12-month futures markets using monthly data over the period 1983-2016. To do this, we use the rolling and recursive rolling Granger causality approaches. The distinguishing feature of this study from the previous studies is that this is the first study investigating the causal links between oil and gold using time-varying causality tests. The findings show that the causality links between oil and gold display strong time variation. Although causal links are not detected for most of the study period, strong bi-directional or unidirectional causality is found in several subsamples. The duration of the periods with causality links vary from a few months to three years, while the duration for the non-causality periods might be 15 years long. By date-stamping the causality links between oil and gold, our paper discovers that causality from oil to gold is related to large oil price changes, while causality from gold to oil is related to large financial crises. The evidence obtained in the paper points out the dangers of assuming a constant causality link between oil and gold markets because these links might break down unexpectedly.
    Keywords: Gold and oil prices, Time-varying Granger causality, Rolling estimation, Recursive rolling estimation.
    JEL: C22 Q02 E31
    Date: 2018
  97. By: Grechyna, Daryna
    Abstract: Financial intermediation facilitates economic development by providing entrepreneurs with external finance. The relative costs of financing depend on the relative efficiency of the financial sector and the sector using financial intermediation services, the real sector. These costs determine the occupational choices and the set of active firms in the financial and real sectors. A model of firm-size distributions in the financial and real sectors results. This model is calibrated to match facts about the U.S. economy, such as the interest-rate spread and the establishment-size distributions in the financial and real sectors. It is then used to evaluate the importance of the relative technological progress in the financial and real sectors for the dynamics of the average establishment size in the financial sector. The model accounts for 58\% of the reduction in the average establishment size in the U.S. financial sector over 1986-2006 and for a 4.5 persons per establishment decline in the average size of the financial sector establishment in Taiwan over 1971-2011.
    Keywords: economic development; financial development; technological progress; firm-size distributions; interest-rate spreads.
    JEL: E13 O11 O16 O41
    Date: 2017–12–07
  98. By: Acemoglu, Daron; Akcigit, Ufuk; Alp, Harun; Bloom, Nicholas; Kerr, William R.
    Abstract: We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A new and central economic force is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using US Census micro data on firm-level output, R&D and patenting. The model provides a good fit to the dynamics of firm entry and exit, output and R&D. Taxing the continued operation of incumbents can lead to sizable gains (of the order of 1.4% improvement in welfare) by encouraging exit of less productive firms and freeing up skilled labor to be used for R&D by high-type incumbents. Subsidies to the R&D of incumbents do not achieve this objective because they encourage the survival and expansion of low-type firms.
    Keywords: Entry; growth; industrial policy; Innovation; R&D; reallocation; selection
    JEL: E2 L1 O31 O32 O33
    Date: 2017–11
  99. By: Cavallo, Michele; Negro, Marco Del; Frame, W. Scott; Grasing, Jamie; Malin, Benjamin A.; Rosa, Carlo
    Abstract: This Note summarizes analysis conducted in our recent FEDS working paper that seeks to understand the fiscal implications of the Federal Reserve's balance sheet normalization program.
    Date: 2018–01–09
  100. By: Dombou T., Dany R.; Tanga T., Achille; Tchoffo, Rodrigue; Kouladoum, Jean-Claude; Tchakounté, Josephine; Djekonbe, Djimoudjiel; Vasegmi, Carole
    Abstract: Until the 21st century, Africa remains the only region in the world where there are countries whose currency is derived from the colonial system. Very far from political and geostrategic considerations, the question has always been asked in order to know the effect of this lack of monetary sovereignty on the evolution of economic activity. Therefore, this study investigates the relationship between Colonial coinage and financial development by applying Generalised Method of Moments. The importance of this approach, is to correct heterogeneity and endogeneity problems. The sample consist of 48 African countries data over 10 years. This study findings are like-minded with those of economic literature around the law, finance and endowment theory. They suggest that in sub-Saharan Africa, the quality of institutions has a very large influence on access to domestic credit. Moreover, the main enclave for the development of the financial system due to colonial coinage is the sluggish stability of the latter colonial coinage in Africa.
    Keywords: Colonial coinage; Money; Financial development; Institutions.
    JEL: E5 G2 K4
    Date: 2017–12

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