nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒02‒05
ninety-six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Are Uncertainty Shocks Aggregate Demand Shocks? By Stefano Fasani; Lorenza Rossi
  2. Bank Asset Quality & Monetary Policy Pass-Through By Byrne, David; Kelly, Robert
  3. The Effect of Oil Prices on Break-Even Inflation Rates of the United States (in Korean) By Jinyong Kim; Junecheol Kim; Hyung Joon Lim
  4. A Monetary Conditions Index and its Application on Tunisian Economic Forecasting By Mna, Ali; Younsi, Moheddine
  5. Unclogging the Credit Channel: On the Macroeconomics of Banking Frictions By Sweder (S.J.G.) van Wijnbergen; Egle Jakucionyte
  6. The Overshooting of Firms Destruction, Banks and Productivity Shocks By Lorenza Rossi
  7. "Functional Finance: A Comparison of the Evolution of the Positions of Hyman Minsky and Abba Lerner" By L. Randall Wray
  8. A model of FED'S view on inflation By Thomas Hasenzagl; Filippo Pellegrino; Lucrezia Reichlin; Giovanni Ricco
  9. Bank Globalization and Monetary Policy Transmission in Small Open Economies By Inhwan So
  10. Forecasting the Growth Cycles of the Turkish Economy By H. Murat Ozbilgin
  11. Measuring monetary policy deviations from the Taylor rule By Madeira, João; Palma, Nuno Pedro G.
  12. Determinants of low inflation in an emerging, small open economy. A comparison of aggregated and disaggregated approaches By Karol Szafranek; Aleksandra Hałka
  13. Macroeconomic impacts of the 2010 earthquake in Haiti By Rohan Best; Paul J Burke
  14. Credit controls as an escape from the trilemma. The Bretton Woods experience. By Monnet, Eric
  15. Price Points and Price Dynamics By Volker Hahn; Michal Marencak
  16. The Combination of Monetary and Fiscal Policy Shocks: A TVP-FAVAR Approach By Molteni, Francesco; Pappa, Evi
  17. The Macroeconomic Effects of Trade Tariffs: Revisiting the Lerner Symmetry Result By Lind�, Jesper; Pescatori, Andrea
  18. Labor market institutions in a shopping economy By Paweł Borys; Paweł Doligalski; Paweł Kopiec
  19. Mortgage Supply and Housing Rents By Gete, Pedro; reher, Michael
  20. Financial Intermediation, Capital Accumulation and Crisis Recovery By Gersbach, Hans; Rochet, Jean-Charles; Scheffel, Martin
  21. Credit Cycles and Capital Flows : Effectiveness of the Macroprudential Policy Framework in Emerging Market Economies By Salih Fendoglu
  22. Imbalances and policies in the Eurozone By Schilirò, Daniele
  23. The Efficiency Wage Hypothesis and monetary policy channels of transmission: developments and progress of Basel III leverage ratios By DiGabriele, Jim; Ojo, Marianne
  24. The Programmable Economy: Envisaging an Entire Planned Economic System as a Single Computer through Blockchain Networks By Hegadekatti, Kartik; S G, Yatish
  25. A Neoclassical Theory of Liquidity Traps By Sebastian Di Tella
  26. Are Macroprudential Policies Effective Tools to Reduce Credit Growth in Emerging Markets? By Fatma Pinar Erdem; Etkin Özen; Ibrahim Unalmis
  27. Banking structure and the bank lending channel of monetary policy transmission: evidence from panel data methods By Chileshe, Patrick Mumbi
  28. Towards Regional Monetary Unions through Blockchain Networks By Hegadekatti, Kartik
  29. Disaggregated Evidence for Exchange Rate and Import Price Pass-through in the Light of Identification Issues, Aggregation Bias and Heterogeneity By Mustafa Utku Ozmen; Meltem Topaloglu
  30. A fire department for the Euro area: reflections on a fiscal risk-sharing capacity By Gabrisch, Hubert
  31. A Financial Connectedness Analysis for Turkey By Ferhat Camlica; Didem Gunes; Etkin Ozen
  32. Demographic Change and Long Term Trend of Inflation: The Case of South Korea (in Korean) By Hwan Koo Kang
  33. The mystery of TFP By Nicholas Oulton
  34. Some Like It Hot: Assessing Longer-Term Labor Market Benefits from a High-Pressure Economy By Hotchkiss, Julie L.; Moore, Robert E.
  35. Crowding out in a Dual Currency Regime? Digital versus Fiat Currency By KiHoon Hong; Kyounghoon Park; Jongmin Yu
  36. The Effects of Credit Supply Shocks on Durable and Nondurable Consumption (in Korean) By Kwanghwan Kim; Sukgee Choi
  37. Fiscal devaluation and economic activity in the EU By Piotr Ciżkowicz; Bartosz Radzikowski; Andrzej Rzońca; Wiktor Wojciechowski
  38. The K-Y Paradox: Problems in Creating a Centralised Sovereign Backed Cryptocurrency on a Decentralised Platform By Hegadekatti, Kartik
  39. Monetary Policy, Macroprudential Regulation and Inequality By Pierre Monnin
  40. Propagation of Commodity Market Shocks By Dudley Cooke; Tatiana Damjanovic
  41. Structural Budget Balances in Oil-Rich Countries: The Cases of Azerbaijan, Kazakhstan, and Russia By Vugar Ahmadov; Ulvi Sarkarli; Ramiz Rahmanov
  42. The Recurrence of Long Cycles: Theories, Stylized Facts and Figures By Tsoulfidis, Lefteris; Papageorgiou, Aris
  43. ECB Interventions in Distressed Sovereign Debt Markets: The Case of Greek Bonds By Jeromin Zettelmeyer; Christoph Trebesch
  44. Output Costs of Currency Crises: Shocks, Policies and Cycles By Nakatani, Ryota
  45. Business cycle patterns in European regions By Gomez-Loscos, Ana; Gadea, M. Dolores; Bandres, Eduardo
  46. A Model of the Fed's View on Inflation By Hasenzagl, Thomas; Pellegrino, Filippo; Reichlin, Lucrezia; Ricco, Giovanni
  47. News, Noise and Oil Price Swings By Gambetti, Luca; Moretti, Laura
  48. Impact of Total, Internal and External Government Debt on Interest Rate in Pakistan By Perveen, Asma; Munir, Kashif
  49. Bank Market Power and the Risk Channel of Monetary Policy By Elena Afanasyeva; Jochen Guntner
  50. Retreat from mandatory pension funds in countries of the Eastern and Central Europe in result of financial and fiscal crisis: Causes, effects and recommendations for fiscal rules By Bielawska, Kamila; Chłoń-Domińczak, Agnieszka; Stańko, Dariusz
  51. A Sufficient Statistics Approach for Aggregating Firm-Level Experiments By David Sraer; David Thesmar
  52. Underground Activities and Labour Market Performance By Kolm, Ann-Sofie; Larsen, Birthe
  53. A Balanced Approach to Monetary Policy By Kaplan, Robert S.
  54. The role of China in the world economy: evidence from global VAR model By Anna Sznajderska
  55. A Tautologies-Founded IS-LM Model By Hiermeyer, Martin
  56. Bond Convenience Yields and Exchange Rate Dynamics By Rosen Valchev
  57. Beef Price Volatility in Turkey: Can Import Policy Affect the Price and Its Uncertainty? By Meltem Gulenay Chadwick; Emine Meltem Bastan
  58. Paralyzed by Fear: Rigid and Discrete Pricing under Demand Uncertainty By Cosmin Ilut; Rosen Valchev; Nicolas Vincent
  59. Evidence for the Explosive Behavior of Food and Energy Prices: Implications in Terms of Inflation Expectations By Aytul Ganioglu
  60. Elasticity of substitution between labor and capital: robust evidence from developed economies By Jakub Mućk
  61. Population Aging, Labor Market Frictions, and PAYG Pension By Takaaki Morimoto; Yuta Nakabo; Ken Tabata
  62. Dopo il keynesismo: teorie economiche per una (non-) politica economica By Russo, Alberto
  63. Policy Uncertainty and the Demand for Money in Australia: An Asymmetry Analysis By BAHMANI-OSKOOEE, Mohsen; Maki Nayeri, Majid
  64. The anatomy of inflation: An economic history perspective By Martin T. Bohl; Pierre L. Siklos
  65. Fiscal Rules and Discretion in a World Economy By Halac, Marina; Yared, Pierre
  66. Do-it-yourself digital: the production boundary and the productivity puzzle By Diane Coyle
  67. Impacts of Aging on Households Assets and Liabilities (in Korean) By Se-Hyung Jo; Yong-Min Lee; Jeong-Hoon Kim
  68. Macroeconomic Nowcasting and Forecasting with Big Data By Bok, Brandyn; Caratelli, Daniele; Giannone, Domenico; Sbordone, Argia; Tambalotti, Andrea
  69. Volatility : As a Driving Factor of Stock Market Co-movement By Ali Gencay Ozbekler
  70. A model of the market for bank credit: The case of Germany By Bofinger, Peter; Maas, Daniel; Ries, Mathias
  71. Statistical Discrimination and Duration Dependence in the Job Finding Rate By Gregor Jarosch; Laura Pilossoph
  72. Structural Scenario Analysis with SVARs By Antolin-Diaz, Juan; Petrella, Ivan; Rubio-Ramírez, Juan Francisco
  73. Improving Forecast Accuracy of Financial Vulnerability: Partial Least Squares Factor Model Approach By Hyeongwoo Kim; Kyunghwan Ko
  74. Impact of Ageing on the Public Finance (in Korean) By Hosin Song; Joonyoung Hur
  75. Factors and Risks of Household Over-indebtedness Using a New Measure based on Conditional Quantiles (in Korean) By Dong Jin Lee; Jin Hyeon Han
  76. A Comparison of Approaches to Deflating Telecoms Services Output By Mo Abdirahman; Diane Coyle; Richard Heys; Will Stewart
  77. Keynote Address: The Economic Outlook By Harker, Patrick T.
  78. The Role of Macroeconomic, Policy, and Forecaster Uncertainty in Forecast Dispersion By Li, You; Tay, Anthony
  79. Trade Credit and Product Market Power during a Financial Crisis By Adalto Barbaceia Gonçalves; Rafael Schiozer; Hsia Hua Sheng
  80. Wage Inequality and structural change By Joanna Tyrowicz; Magdalena Smyk
  81. Determinants of FDI in South Africa: Do macroeconomic variables matter? By Dondashe, Nandipha; Phiri, Andrew
  82. Preventing type 2 diabetes: systematic review of studies of cost-effectiveness of lifestyle programmes and metformin, with and without screening, for pre-diabetes By Roberts, Samantha; Barry, Eleanor; Craig, Dawn; Airoldi, Mara; Bevan, Gwyn; Greenhalgh, Trisha
  83. Global spillovers and coordination of monetary and macroprudential policies in the Pacific Alliance economies By Quispe, Zenon; Rodriguez, Donita; Toma, Hiroshi; Vasquez, Cesar
  84. A Welfare Analysis of Macroprudential Policy Rules in the Euro Area By Jean-Christophe Poutineau; Gauthier Vermandel
  85. The rise of meritocracy and the inheritance of advantage By David Comerford; Jose V Rodriguez Mora; Michael J Watts
  86. Preventing Self-fulfilling debt crises By Szkup, Michal
  87. Improved Matching, Directed Search, and Bargaining in the Credit Card Market By Gajendran Raveendranathan
  88. Blockchains and Extra-Terrestrial Nations: Role of Blockchains in the Socio-Political Milieu of Future Extra-Terrestrial Settlements By Hegadekatti, Kartik
  89. Countercyclical school attainment and intergenerational mobility By ARENAS, Andreu,; MALGOUYRES, Clément,
  90. Is there hysteresis in South African unemployment? Evidence from the post-recessionary period By Pikoko, Vuyokazi; Phiri, Andrew
  91. The Effect of Population Aging on Growth (in Korean) By Byung Kwun Ahn; Ki-Ho Kim; Seung Whan Ryuk
  92. Individual Drivers for Direct and Indirect Rebound Effects: A Survey Study of Electric Vehicles and Building Insulation in Austria By Seebauer, Sebastian
  93. Financial Shocks and the Erosion of Interpersonal Trust: Evidence from Longitudinal Data By Jetter, Michael; Kristoffersen, Ingebjørg
  94. Impact of Population Aging on the Financial Sector (in Korean) By Kyoungsoo Yoon; Jae Hoon Cha; Sohee Park; Sun Young Kang
  95. Do Subsidized Export Loans Increase Exports? By Y.Emre Akgunduz; S.Hilmi Kal; Huzeyfe Torun
  96. Cambodia Macroeconomic Impacts of Public Consumption on Education: A Computable General Equilibrium Approach By Ear Sothy; Sim Sokcheng; Khiev Pirom

  1. By: Stefano Fasani (University of Milan Bicocca); Lorenza Rossi (Department of Economics and Management, University of Pavia)
    Abstract: This note considers the Leduc and Liu (JME, 2016) model and studies the effects of their uncertainty shock under different Taylor-types rules. It shows that both the responses of real and nominal variables highly depend on the Taylor rule considered. Remarkably,in?flation reacts positively so that uncertainty shocks look more like supply shocks, once an empirically plausible degree of interest rate smoothness is taken into account. This result is reinforced with less reactive monetary rules. Overall, these rules bring about a less severe recession.
    Keywords: Uncertainty Shocks, DSGE Model, Search and Matching frictions, Taylor rules, In?flation Dynamics
    JEL: E12 E21 E22 E24 E31 C32
    Date: 2018–01
  2. By: Byrne, David (Central Bank of Ireland); Kelly, Robert (Central Bank of Ireland)
    Abstract: The funding mix of European firms is heavily weighted towards bank credit, underscoring the importance of efficient pass-through of monetary policy actions to lending rates faced by firms. Euro area pass-through has shifted from being relatively homogenous to fragmented and incomplete since the financial crisis. Distressed loan books are a crisis hangover with direct implications for profitability, hampering banks ability to supply credit and lower loan pricing in response to reductions in the policy rate. This paper presents a parsimonious model to decompose the cost of lending and highlight the role of asset quality in diminishing pass-through. Using bank level data over the period 2008-2014, we empirically test the implications of the model, with results showing that asset quality, measured through a one percentage point increase in the impairment ratio have a significant negative impact, lowering immediate pass-through by 3 per cent. For impairment rates greater than 17 per cent, we find that pass-though is not significantly different from zero. We derive a measure of the hidden bad loan problem, the NPL gap, which we define as the excess of NPLs over impaired loans. We show it played a significant role in the fragmentation of euro area pass-through post-crisis.
    Keywords: Monetary Policy Pass-through, Impaired Loans, Non-Performing Loans, Interest Rates
    JEL: D43 E51 E52 E58 G21
    Date: 2017–12
  3. By: Jinyong Kim (Secretariat, The Bank of Korea); Junecheol Kim (Reserve Management Group, The Bank of Korea); Hyung Joon Lim (Gangneung Branch, The Bank of Korea)
    Abstract: This article is an empirical study on the effect of changes in oil prices on break-even inflation rates (BEIs) of Treasury Inflation Protected Securities (TIPS) of the United States. The results of this analysis show that oil prices make a statistically significant effect on the BEIs with maturities of 2 year, 5 year, and 10 year. These sensitivities are salient in the BEIs with shorter maturities. These implies that the changes in oil prices can affect inflation expectations in the short term but this effect gets diminished to the extinction because inflation expectations depend on the inflation target of a monetary policy. Notably, the 5Y5Y BEI has a statistically significant relation with the changes in oil prices only when the slope of oil futures curve flattens and oil prices are falling. This observation reveals that financial market participants adjust their inflation expectations with confidence only in case of the simultaneous drop of the slope of oil futures curve and oil prices. Assuming the BEI is a reasonable estimator of inflation expectations extracted from financial market, oil prices make a limited impact on medium and long term inflation expectations (5Y5Y BEI). From these results we can make an inference that current movements of oil prices and financial market participants’expectation of oil price path make joint contribution to the formation of medium and long term inflation expectations.
    Keywords: Treasury inflation protected securities (TIPS), Break-even inflation rate, Inflation expectations, Oil prices
    JEL: E31 E43 E44 Q43
    Date: 2017–03–20
  4. By: Mna, Ali; Younsi, Moheddine
    Abstract: The main purpose of this article is to find out the extent of the influence of internal and external monetary conditions on Tunisian macroeconomic aggregates by constructing a synthetic index. Our contribution is, firstly, to calculate the weights assigned to domestic interest rate and the exchange rate based on the estimated coefficients respectively for these two indicators over the period 1965-2015. Secondly, based on the VAR model, we confirm the long-run dynamic between the selected variables. The analysis of shocks indicates that monetary conditions have a particular importance via their influence on economic activity and inflation. The latter is characterized by its significant negative impact on economic growth and by its contribution in linking between internal and external interest rates. Thirdly, we attempt, through a SVAR model, to examine the short run structural dynamics between the selected variables. Results reveal that the Tunisian economy is highly influenced by external monetary conditions. This influence is demonstrated through the dynamics of structural monetary policy shocks and exchange rate. In conclusion, our findings reflect that the exchange rate plays an increasing role in transmitting the monetary policy effect to the inflation rate and thus the real economy.
    Keywords: Monetary conditions index, SVAR approach, Structural monetary shocks
    JEL: E43 E51 E52
    Date: 2018–01–04
  5. By: Sweder (S.J.G.) van Wijnbergen (UvA, CEPR, DNB); Egle Jakucionyte (Central UvA, Bank of Lithuania)
    Abstract: We explore the consequences of different financial frictions on the corporate and banking level for macroeconomic policy responsiveness to major policy measures. We show that both corporate and bank debt overhang greatly reduce the effectiveness of fiscal policy: multipliers turn negative with debt overhang in either sector. The negative impact of banking frictions on macro outcomes increases when a larger part of working capital is financed through credit in addition to investment. Debt overhang in banks leads to positive NPV loans being rejected; after an increase in equity, lending will increase in a debt overhang situation. But after banks increase their equity ratio and subsequently engage less in risk shifting behavior, a decline in lending emerges. Thus the macroeconomic response to higher capital requirements depends on which friction is dominant: when there is debt overhang in banks higher capital leads to more, not less loans and is expansionary; while higher capital requirements lower loan volumes and have a recessionary impact when risk shifting is the problem in banks.We trace the differential importance of corporate versus banking debt overhang back to the different approaches followed on each side of the Atlantic in response to the undercapitalization of the banks after the onset of the financial crisis. We similarly trace macrodevelopment differences in the Southern periphery of Europe and the Northern European countries to differences in the problems and policies in their financial sector.
    Keywords: Banking frictions; Fiscal Policy; Capital Requirements; volatility Shocks
    JEL: E44 E58 E62 G18 G21
    Date: 2018–01–17
  6. By: Lorenza Rossi (Department of Economics and Management, University of Pavia)
    Abstract: Using U.S.quarterly data we show that in response to a positive productivity shock:i) firms creation increases ii) firms destruction reduces at impact,it then overshoots its long run level,peaking three years later above its steady state. iii) banks markup reduces.To address these three facts,we provide an NK-DSGE model where firms dynamics is endogenous, the banking sector is monopolistic competitive and defaulting firms do not repay loans to banks. We show that the interaction between firms and banks is key to replicate the empirical evidence. Contrary to the conventional wisdom,in the baseline model thee efects of the shock are dampened with respect to a model without banks.
    Keywords: firms creation, firms destruction, monopolistic banks,countercyclical banks, markup, productivity shocks,overshooting of firms destruction, BVAR.
    JEL: E32 E44 E52 E58
    Date: 2018–01
  7. By: L. Randall Wray
    Abstract: This paper examines the views of Hyman Minsky and Abba Lerner on the functional finance approach to fiscal policy. It argues that the main principles of functional finance were relatively widely held in the immediate postwar period. However, with the rise of the Phillips curve, the return of the Quantity Theory, the development of the notion of a government budget constraint, and accelerating inflation at the end of the 1960s, functional finance fell out of favor. The paper compares and contrasts the evolution of the views of Minsky and Lerner over the postwar period, arguing that Lerner’s transition went further, as he embraced a version of Monetarism that emphasized the use of monetary policy over fiscal policy. Minsky’s views of functional finance became more nuanced, in line with his Institutionalist approach to the economy. However, Minsky never rejected his early beliefs that countercyclical government budgets must play a significant role in stabilizing the economy. Thus, in spite of some claims that Minsky should not be counted as one of the “forefathers†of Modern Money Theory (MMT), this paper argues that it is Minsky, not Lerner, whose work remains essential for the further development of MMT.
    Keywords: Functional Finance; Hyman Minsky; Abba Lerner; Deficit Owl; Budget Deficits; Government Budget Constraint; Phillips Curve; Sovereign Currency; Modern Money Theory
    JEL: B10 B15 B22 B25 B31 B5 E12 E32 E62 H62
    Date: 2018–01
  8. By: Thomas Hasenzagl (Now-casting Economics); Filippo Pellegrino (London School of Economics & Now-Casting Economics); Lucrezia Reichlin (London Business School, Now-Casting Economics, and CEPR); Giovanni Ricco (University of Warwick and OFCE, Sciences Po Paris)
    Abstract: A view often expressed by the Fed is that three components matter in inflation dynamics: a trend anchored by long run inflation expectations; a cycle connecting nominal and real variables; and oil prices. This paper proposes an econometric structural model of inflation formalising this view. Our findings point to a stable expectational trend, a sizeable and well identified Phillips curve and an oil cycle which, contrary to the standard rational expectation model, affects inflation via expectations without being reflected in the output gap. The latter often overpowers the Phillips curve. In fact, the joint dynamics of the Phillips curve cycle and the oil cycles explain the inflation puzzles of the last ten years.
    Keywords: Philipps curve, output gap, unobserved components, Bayesian estimation
    JEL: C11 C32 C53 E31 E32 E52
    Date: 2018–01–16
  9. By: Inhwan So (International Department, The Bank of Korea)
    Abstract: This paper investigates how the openness of banking sector influences the transmission channels of home and foreign monetary policy shocks in small open economies. For the analysis, I construct a small open economy DSGE model enriched with a banking sector. I consider two forms of bank globalization: international bank capital finance and foreign loan account import. From the analysis, I find that bank globalization leads to a significant attenuation of domestic monetary policy transmission. On the other hand, opening of the banking sector intensifies the impact of foreign interest rate shocks on the local bank activities.
    Keywords: Bank globalization, Monetary policy, Dynamic stochastic general equilibrium model, Small open economies
    JEL: E32 E44 E52 E58 F36
    Date: 2017–11–20
  10. By: H. Murat Ozbilgin
    Abstract: This paper first specifies the medium-term growth cycles for the Turkish economy. The impact of the frequency transformation methods and the time-serious filters on cycles and potential output are discussed. Then a composite leading indicator (CLI) is constructed that is correlated with the third lead of the GDP with a coefficient of 0.9. The CLI signals 11 out of 13 turning points in the Turkish growth cycle in the 1993-2016 period. The CLI is coincident with the remaining two turning points, hence still providing early warning. Within the same period, only two false signals are generated by the CLI. Finally, building on the seminal paper by Neftci (1982), a method for computation of the turning point probabilities is developed. The virtue of the method is that it takes into account the observed deepness and steepness in the series.
    Keywords: Time-series filters, Growth cycles, Composite leading indicators, Turning point probabilities
    JEL: E32 E37 E66
    Date: 2017
  11. By: Madeira, João; Palma, Nuno Pedro G.
    Abstract: We estimate deviations of the federal funds rate from the Taylor rule by taking into account the endogeneity of output and inflation to changes in interest rates. We do this by simulating the paths of these variables through a DSGE model using the estimated time series for the exogenous processes except for monetary shocks. We then show that taking the endogeneity of output and inflation into account can make a significant quantitative difference (which can exceed 40 basis points) when calculating the appropriate value of interest rates according to the Taylor rule.
    Keywords: Bayesian estimation; Business Cycles; DSGE; interest rates; New Keynesian models; sticky prices
    JEL: E32 E37 E50
    Date: 2018–01
  12. By: Karol Szafranek (Narodowy Bank Polski, Warsaw School of Economics); Aleksandra Hałka (Narodowy Bank Polski)
    Abstract: We analyse the determinants of the protracted period of exceptionally low inflation in the emerging, small open economy of Poland. We consider a fairly standard set of macroeconomic variables and establish a structural VAR model estimated using Bayesian methods and disentangle the influence of the global and domestic, supply and demand factors affecting headline and core inflation by means of the mixture of zero and sign restrictions. Next, we extend the analysis on a battery of inflation components and construct inflation indices sensitive to the global and domestic factors. We find that the excessive disinflation has been primarily caused by the deteriorating domestic conditions whilst deflation has resulted from the convolution of waning global demand and plummeting oil prices. Disaggregated analysis corroborates the conclusion of the aggregated approach but reveals considerable heterogeneities in the sensitivity of inflation components to the identified shocks. We conclude that the disaggregated analysis brings important information for the monetary policy conduct.
    Keywords: low inflation, small open economy, Bayesian Vector Autoregression, sign restrictions
    JEL: C32 E31 E52
    Date: 2017
  13. By: Rohan Best; Paul J Burke
    Abstract: In this paper we use the synthetic control method to estimate the macroeconomic losses from the 2010 earthquake in Haiti, one of the most severe natural disasters in the modern era. The macroeconomic effects of the earthquake were equal to an average loss of up to 12 percent of gross domestic product over the period 2010–2015. While surges in imports and foreign aid supported a temporary increase in aggregate consumption, aggregate investment and services-sector output experienced large contractions. The road transport sector was severely affected. Impacts on electricity use have been less pronounced. The data suggest that macroeconomic losses may be permanent. The earthquake is thus a case of an extreme natural disaster contributing to divergence in development outcomes.
    Keywords: macroeconomic impact, Haiti, earthquake, synthetic control method
    JEL: E21 E22 E23 O11 O54
    Date: 2017
  14. By: Monnet, Eric
    Abstract: The macroeconomic policy "trilemma" is widely used as a framework to discuss the rationale for capital controls and monetary policy autonomy under the Bretton Woods system (1944-1971). Without denying its usefulness, I highlight two facts at odds with assumptions underlying the "trilemma" argument. First, conflicts between internal and external objectives were uncommon. Second, using quantitative credit controls allowed central banks to disconnect their interest rate from the domestic monetary policy stance. They assigned the interest rate to the external side while managing domestic credit expansion with direct quantitative controls. This paper documents that such mechanism was explicitly considered by contemporary economists and central bankers as a way to escape international financial constraints. In such an environment, capital controls were used to complement credit controls. Interest rate spreads were neither a good measure of capital controls nor of central bank autonomy.
    Keywords: Bretton Woods; capital controls; central banking; credit controls; macroprudential policies; reserve requirements; trilemma
    JEL: E58 F32 N20
    Date: 2017–12
  15. By: Volker Hahn (Department of Economics, University of Konstanz); Michal Marencak (Department of Economics, Graduate School of Decision Science, University of Konstanz)
    Abstract: This paper proposes a macroeconomic model with positive trend inflation that involves an important role for price points as well as sticky information. We argue that, in particular, a variant of our model that allows for a general distribution of price points is more successful in explaining several stylized facts of individual price setting than a benchmark model that is based on Calvo price-setting. More specifically, it makes empirically reasonable predictions with regard to the duration of price spells, the sizes of price increases and decreases, the shape of the hazard function, the fraction of price changes that are price increases, and the relationship between price changes and inflation. Moreover, our model implies plausible aggregate effects of monetary policy in contrast with a model with a prominent role for price points but no information rigidities.
    Keywords: price stickiness; price point; sticky information
    JEL: E31 E37
    Date: 2018–01–23
  16. By: Molteni, Francesco; Pappa, Evi
    Abstract: We analyze the joint effects of monetary and fiscal policy shocks in the U.S. economy using a factor augmented vector autoregressive model with drifting coefficients and stochastic volatility. The time varying structure of the model allows us to assess whether the transmission of monetary policy shocks differ when combined with exogenous expansionary and contractionary fiscal shocks, identified with the narrative approach. Government spending and temporary fiscal transfers weaken the effects of monetary policy shocks; permanent transfers are less effective to counteract the demand effects of monetary policy changes; while tax shocks do not alter the propagation of monetary policy shocks.
    Keywords: fiscal policy shocks; monetary policy shocks; narrative evidence; TVP-FAVAR
    JEL: C32 E52 E62 E63 E65
    Date: 2017–12
  17. By: Lind�, Jesper; Pescatori, Andrea
    Abstract: We study the robustness of the Lerner symmetry result in an open economy New Keynesian model with price rigidities. While the Lerner symmetry result of no real effects of a combined change in import tariff and export subsidy holds up approximately for a number of alternative assumptions, we obtain quantitatively important long-term deviations under complete international asset markets. Direct pass-through of tariffs and subsidies to prices and slow exchange rate adjustment can also generate significant short-term deviations from Lerner. Deviations from symmetry, however, do not necessarily imply an impact on global output and are often limited to a redistribution of production and consumption across countries. Finally, we quantify the macroeconomic costs of a trade war and find that they can be substantial, with permanently lower income and trade volumes. However, a fully symmetric retaliation to a unilaterally imposed border adjustment tax can prevent any sizable adverse real or nominal effects.
    Keywords: Border Adjustment Tax; Import Tariffs and Export Subsidies; Lerner Condition; Incomplete and Complete Markets; New Keynesian open-economy model; Trade War
    JEL: E52 E58
    Date: 2017–12
  18. By: Paweł Borys (SGH Warsaw School of Economics, Narodowy Bank Polski); Paweł Doligalski (University of Bristol); Paweł Kopiec (Narodowy Bank Polski)
    Abstract: Modeling labor markets in a search and matching framework became a standard approach in DSGE studies. However, there is an expanding strand of literature arguing that similar frictions characterize the product market. When households are required to exert costly shopping effort in order to enjoy consumption, shifts in households preferences tend do have a larger impact on product and employment than in otherwise standard RBC model. We construct a general equilibrium model with frictions both in the labor and the product markets and confirm that in case of the US, preference shocks are the main driver of the business cycle. Moreover, we verify if presence of shopping frictions affects the relation between labor market institutions and unemployment, both in terms of its steady-state level and volatility. However, we find that most results are qualitatively in line with studies treating the product market as frictionless. Higher unemployment benefits and wage rigidity tend to increase variance of unemployment, while benefits also promote higher unemployment in the long run. Firing taxes contribute to lower level and volatility of unemployment. Surprisingly, while effects of recruitment cost on steady state allocation are comparable to the impact of firing cost, the former rises the volatility of unemployment in our simulations for the US.
    Keywords: Unemployment, Labor Market Institutions, Business Cycle.
    JEL: D50 E02 E32 J65
    Date: 2018
  19. By: Gete, Pedro; reher, Michael
    Abstract: We show that a contraction of mortgage supply after the Great Recession has increased housing rents. Our empirical strategy exploits heterogeneity in MSAs' exposure to regulatory shocks experienced by lenders over the 2010-2014 period. Tighter lending standards have increased demand for rental housing and have led to higher rents, depressed homeownership rates and an increase in rental supply. Absent the credit supply contraction, annual rent growth would have been 2.1 percentage points lower over 2010-2014 in MSAs where lending standards rose from their 2008 levels.
    Keywords: Credit Supply, Homeownership, Mortgage Markets, Regulation, Rents.
    JEL: E31 E32 E65 G2 G20 G21 G28 G29 R3 R31 R39
    Date: 2017–11
  20. By: Gersbach, Hans; Rochet, Jean-Charles; Scheffel, Martin
    Abstract: This paper integrates banks into a two-sector neoclassical growth model to account for the fact that a fraction of firms relies on banks to finance their investments. There are four major contributions to the literature: First, although banks’ leverage amplifies shocks, the endogenous response of leverage to shocks is an automatic stabilizer that improves the resilience of the economy. In particular, financial and labor market institutions are essential factors that determine the strength of this automatic stabilization. Second, there is a mix of publicly financed bank re-capitalization, dividend payout restrictions, and consumption taxes that stimulates a Pareto-improving rapid build-up of bank equity and accelerates economic recovery after a slump in the banking sector. Third, the model replicates typical patterns of financing over the business cycle: procyclical bank leverage, procyclical bank lending, and countercyclical bond financing. Fourth, the framework preserves its analytical tractability wherefore it can serve as a macro-banking module that can be easily integrated into more complex economic environments.
    Keywords: Financial intermediation; capital accumulation; banking crisis; macroeconomic shocks; business cycles; bust-boom cycles; managing recoveries
    JEL: E21 E32 G21 G28
    Date: 2018–01
  21. By: Salih Fendoglu
    Abstract: I assess the effectiveness of macroprudential policy tools in containing credit cycles per se or the impact of portfolio inflows on the cycles in major emerging market economies. The results show that borrower-based tools, measures with a domestic focus, and domestic reserve requirements are particularly effective. The findings are, in most cases, stronger for the recent period during which most of the macroprudential actions are undertaken, and generally hold for alternative definitions of credit cycle, the monetary policy stance, and portfolio inflows. Moreover, the analyses focusing on the recent period and the regional analyses suggest that foreign-currency based measures are effective. Still, these measures being implemented in a few countries or only recently makes it harder to draw general conclusions. Lastly, financial-institutions-based measures are found to be effective for the Emerging Europe which has resorted to these policies relatively frequently. This result hints at the importance of building up experience in implementing macroprudential measures.
    Keywords: Credit cycles, Capital flows, Macroprudential policies, Reserve requirements, Emerging market economies
    JEL: E58 F32 G18 G28
    Date: 2017
  22. By: Schilirò, Daniele
    Abstract: The present paper highlights the imbalances that have characterized the Eurozone during the crisis. The contribution focuses on the issue of current account imbalances and the factors that caused them. It also examines the banking union as an important step toward a better management of the Eurozone financial imbalances. Furthermore, the paper discusses and assesses the policies, especially monetary policy, implemented in the Eurozone, stressing the limits of the strategy pursued by the European authorities. The main purpose of the paper is to point out possible solutions in order to correct the imbalances and discuss changes in Eurozone policies.
    Keywords: imbalances; current account balance; monetary and fiscal policies; banking union
    JEL: E50 E58 E62 F30 O52
    Date: 2017–08
  23. By: DiGabriele, Jim; Ojo, Marianne
    Abstract: It is argued that “ the ascendency of the emerging economies changed the relative returns to labor and capital – and that because these economies’ global integration has made labor more abundant, workers in developed countries have lost some of their bargaining power – thus putting downward pressure on real wages.” Central bankers’ misunderstanding of certain monetary implications have also been highlighted in that by keeping interest rates too low, they allowed a build up of excess liquidity which flowed into the prices of assets such as homes – contributing to the build up leading to the 2007-2009 global Financial Crisis. The introduction of the 2010 Basel III leverage ratios was intended not only to address shortcomings of the previous Basel capital framework, but also intended to serve as a complement to the risk based capital adequacy framework. However, as with many implementation challenges, other issues which involve calibration between the risk based and leverage based frameworks continue to constitute areas of concern for regulators – and supervisors. So also matters relating to disclosures – as evidenced by ongoing initiatives in respect of Pillar 3. This paper aims to highlight progress and developments being made since 2010 – as well as accentuate challenges still being encountered by the leverage based framework. Herein lies the importance of continued collaborative efforts aimed at facilitating comparability, consistency, understanding and communication between national and federal regulators and supervisors from different jurisdictions – in efforts aimed at realizing Basel III initiatives and objectives.
    Keywords: monetary policy; leverage ratios; risk based capital adequacy measures; disclosures; Efficiency wage Hypothesis
    JEL: E3 E5 E58 G3 G38 K2 M4
    Date: 2017–11
  24. By: Hegadekatti, Kartik; S G, Yatish
    Abstract: Since the dawn of the concept of nation-states, many nations have been planning their economies to increase people’s prosperity and standard of living. All economies have a centralized feature where decisions are taken. But data collection and plan implementation has been cumbersome because of the manual nature of economic planning. Centralized systems, even when digitized, are prone to single point failures. Controlled Blockchains allow for an economic system to be decentralized, yet having central supervision i.e. quasi-decentralization. This paper deals with shifting a national economy to a network of Blockchains and creating a Programmable Economy (P.E) where the whole economic system behaves like a single computer, taking in certain inputs and providing the desired outputs. We discuss the various factors that are needed to bring about such a transformation. We also analyse the impact this will have on various aspects of the economy and people’s lives. Finally the paper concludes by summarizing the purpose, methodology and impact of a Programmable Economy (P.E).
    Keywords: blockchain, K-Y Protocol, planned economy, bitcoin
    JEL: C53 C63 C81 C82 C87 D04 D72 D78 D81 E27 E37 E47 E61 F17 F37 F47
    Date: 2017–03–30
  25. By: Sebastian Di Tella
    Abstract: This paper provides an equilibrium theory of liquidity traps and the real effects of money. Money provides a safe store of value that prevents interest rates from falling enough during downturns, and the economy enters a persistent slump with depressed investment. This is an equilibrium outcome—prices are flexible, markets clear, and inflation is on target—but it’s not efficient. Investment is too high during booms and too low during liquidity traps. Although money has large real effects, monetary policy is ineffective—the zero lower bound is not binding, money is superneutral, and Ricardian equivalence holds. The optimal allocation requires the Friedman rule and a tax/subsidy on capital.
    JEL: E3 E4 E5
    Date: 2018–01
  26. By: Fatma Pinar Erdem; Etkin Özen; Ibrahim Unalmis
    Abstract: Macroprudential policies (MPPs) have become a part of the policy toolkit, especially in the aftermath of the 2008 global financial crisis both in advanced and emerging market economies. Hence, there is a growing body of literature investigating effectiveness of such policies. In this paper, using a data set of 30 countries and panel VAR approach, we contribute to this literature by testing whether MPPs are effective in controlling domestic credit growth in emerging markets and developing countries in the wake of a positive global liquidity shock. Results indicate that MPPs are effective to limit domestic credit growth especially during the expansion phase of the credit cycle. Second, the number of MPP tools matter to better manage the domestic credit growth, since insufficient number of measures are unable to prevent leakages and reduce the effectiveness of MPPs under a global liquidity shock.
    Keywords: Macroprudential policies, Credit growth, Global liquidity, Credit cycle, Panel VAR
    JEL: E43 E58 G18 G28
    Date: 2017
  27. By: Chileshe, Patrick Mumbi
    Abstract: This study examines comprehensively the bank-lending channel of monetary policy for Zambia using a bank-level panel data covering the period Q1 2005 to Q4 2016. Specifically, the study investigates the effects of monetary policy changes on loan supply by commercial as well as the effect of bank-specific factors on response of loan supply to monetary policy shocks. In addition, the study investigates whether the level of bank competition does affect the bank-lending channel. Using a dynamic panel data approaches developed by Arellano-Bond (1991), the results indicate that a bank-lending channel exists in Zambia. In particular, the results show that is loan supply is negatively correlated with policy rate implying that following monetary policy tightening loan supply shrinks. Further, the results indicate that size, liquidity and bank-competiveness have effects on credit supply while capitalization has no effect. Specifically, the results show that bank size has negative effect on credit supply while liquidity and market power are found to enhance credit supply. Most importantly, the results showed that bank-specific factors and bank-competiveness is responsible for the asymmetrical response of banks to monetary policy. Specifically, the results showed that larger banks, banks with more market power, well-capitalized banks and liquid banks respond less to monetary policy tightening and vice-versa.
    Keywords: Monetary Policy Transmission, Bank Lending Channel, Panel Data, Generalized Method of Moments, Zambia
    JEL: E44 E52 G3
    Date: 2017–09
  28. By: Hegadekatti, Kartik
    Abstract: The concept of political and economic integration has not progressed beyond the concept of a Nation-state. The primary reason is the trust deficit among citizens in a supra-national entity. We can use Blockchain systems-which are trustless networks-to resolve this issue. We can float a Regional Cryptocurrency (RCC) which can bring about a successful Regional Monetary Unions (RMU) amongst a group of nations in a transparent manner. This paper deals with the idea of realizing a monetary union through Blockchain networks. Firstly I describe the basics of cryptocurrencies and RSBCs. Then we shall evaluate how RMUs have failed due trust deficit among citizens of members of RMU. We then analyse as to how Blockchain networks can be a solution to these problems. The paper concludes by summarizing the difficulties and solutions regarding successful formation of Regional Monetary Unions.
    Keywords: Monetary Union, Common Currency, Trade Agreement, Euro
    JEL: E42 E51 E58 F02 F15 F33 F36 N15 N16 N17
    Date: 2017–04–01
  29. By: Mustafa Utku Ozmen; Meltem Topaloglu
    Abstract: For emerging market economies, changes in import prices and exchange rate are among the major determinants of inflation. In general, studies analyzing the pass-through of foreign prices into inflation consider the headline inflation. However, such an approach may suffer from aggregation bias and may not reveal the differences in pass-through due to heterogeneous nature of the CPI. In this paper, we try to investigate the impact of such issues on the pass-through analysis for Turkey over the sample period of 2005-2015. We propose a disaggregated approach and run an extended VAR model for each of 152 subcomponents of the CPI separately. Then, we aggregate the individual impulse-responses of those components with significantly positive response to exchange rate and import prices. Our results reveal a significant heterogeneity in pass-through coefficients across subcomponents of the CPI. We show that the foreign price pass-through is also sizeable in food and services, as well as in core goods and energy. Our findings further point to a clear aggregation bias. Once the disaggregated approach is used, we report a higher pass-through from the exchange rate to the headline inflation.
    Keywords: Inflation, Pass-Through, Exchange-Rate, Import Prices, VAR Analysis, Turkey
    JEL: E31 E58 F31
    Date: 2017
  30. By: Gabrisch, Hubert
    Abstract: This essay investigates the necessity of and options for a central fiscal risk-sharing capacity in the Euro area. How can these aims be reconciled with the member countries’ responsibility for sound fiscal policy that also considers constitutional sovereignty, institutional efficiency and economic effectiveness? As a result, such a capacity can be created as an overlay over the existing fiscal framework without treaty changes and can complement it according to the distinct features of the monetary union. A stabilization fund dedicated to investment appears to be the best solution in light of the applied criteria.
    Keywords: risk-sharing, EU budget, monetary union
    JEL: E62 H77
    Date: 2018–01–18
  31. By: Ferhat Camlica; Didem Gunes; Etkin Ozen
    Abstract: This paper investigates the structure of financial connectedness in Turkey between 2002 and 2017 by using the Diebold and Yilmaz variance decomposition method. We aim to uncover financial connectedness among major subcomponents in Turkish financial markets, and whether there has been a change in directional connectedness over time, and which markets were shock senders and receivers. Our results of average analysis show that the equity market is the highest net stress contributor, followed by money and foreign exchange markets, while bond and banking markets are net receivers. Our dynamic spillover analysis indicates that during heightened volatility periods, net sources of stress are mainly equity, foreign exchange, and, in a lesser context, the bond markets. On the other hand, the banking sector is a net receiver of financial stress. The dynamic analysis also indicates that the spillover index for the Turkish financial markets was at its highest during the financial stress episode starting in mid-2013 and ending in mid-2014, followed by 2006 FED tightening period and idiosyncratic domestic shocks. Spillover spikes in other well-known episodes tended to remain lower, which can also be attributed to Turkish macroeconomic policy regime aiming to mitigate external and domestic shocks. Finally, the policymaking bodies responsible for macroprudential oversight in Turkey are broadly capable of monitoring and evaluating financial market spillover dynamics.
    Keywords: Spillovers, Systemic stress, Connectedness analysis, Vector autoregression, Variance decomposition
    JEL: C53 E44 F42
    Date: 2017
  32. By: Hwan Koo Kang (Economic Research Institute, The Bank of Korea)
    Abstract: Since the global financial crisis, long term trend of global inflation remains low in spite of the fact that major developed countries implemented long-lasting intensively accommodating policies. One possible explanation is that demographic change such as population aging has affected the long term trend of inflation. Japanese 'lost decades' could be a persuasive evidence of the effect of demographic change on long term inflation. Recent literature on this topic provides much evidence that population aging could affect growth and inflation rate through the various and complicated channels such as labor supply, savings rate, real wage, labor productivity, asset prices and fiscal burdens. However, a unified conclusion is not reached from the theoretical and empirical literature since the direction and extent of the effects are different from country to country depending on the stage and type of the demographic change. This study presents some simulation results based on a dynamic general equilibrium monetary model in which demographic changes are captured by the change of working population ratio. The simulation results show that in case of South Korea where the working population ratio is starting to decline from this year, the effect of population aging on long term trend of inflation is being realized since mid 2020's as a weak but long-lasting downside pressure. These results tell us that the effects of demographic changes on long term inflation should be considered when making a long term inflation target. They also gives an implication that those effects could not be counter-acted by the short term demand management policy. As a result, it would be better to focus on the policies for structural reform to minimize the negative consequences of the demographic change.
    Keywords: Demographic change, Long term trend of inflation, Inflation target, Cash-in-advance constraint
    JEL: E30 E58 J11
    Date: 2017–04–05
  33. By: Nicholas Oulton
    Abstract: I analyse TFP growth at the sectoral and aggregate level, using data for 10 industry groups covering the market sector for 18 countries over the period 1970-2007 drawn from the EU KLEMS dataset. TFP growth displays persistence at the aggregate level but not at the industry level, suggesting industry outputs are measured with error. In all countries resources have been shifting away from industries with high TFP growth towards industries with low TFP growth. Nevertheless I find that structural change (as measured by changes in value added shares) has favoured growth in most countries. Errors in measuring capital or in measuring the elasticity of output with respect to capital are unlikely to substantially reduce the role of TFP in explaining growth. The pattern of growth in these 18 countries is more consistent with an underlying two-sector model than with the one-sector (Solow) model. Standard theory suggests that TFP growth induces capital accumulation, at least in the long run. This is not the case with the raw EU KLEMS data used here. But standard theory finds some support when the data are smoothed to remove cyclical effects.
    Keywords: Total factor productivity, TFP, structural change, measurement error
    JEL: E01 O47 O11 E24
    Date: 2017–10
  34. By: Hotchkiss, Julie L. (Federal Reserve Bank of Atlanta); Moore, Robert E. (Georgia State University)
    Abstract: This paper explores the evidence for positive hysteresis in the labor market. Using data from the National Longitudinal Surveys of Youth, we find that negative labor market outcomes during high-unemployment periods are mitigated by exposure to a high-pressure economy during the preceding expansion. Breaking total exposure into average intensity and duration suggests that these two dimensions have differing impacts depending on the outcome. Additionally, benefits are typically only statistically significantly different from no exposure for only a relatively few demographic groups.
    Keywords: hysteresis; unemployment; labor market gaps; labor force participation; wage gaps
    JEL: E24 E60 J31 J64
    Date: 2018–01–01
  35. By: KiHoon Hong (College of Business, Hongik University); Kyounghoon Park (Economic Research Institute, The Bank of Korea); Jongmin Yu (School of Economics, Hongik University)
    Abstract: In this paper, we analyse a dual currency regime with fiat currency and digital currency and investigate potential crowding-out effects of fiat currency or digital currency under the framework of the traditional monetary economic model. We find that crowding out only occurs under extreme assumptions, i.e. extremely high costs associated with the use (medium of exchange and store of value) of one currency and extremely low costs associated with the use of the other currency.
    Keywords: Bitcoin, Digital currency, Dual currency, Crowding out
    JEL: E00 E41 E42
    Date: 2017–04–24
  36. By: Kwanghwan Kim (School of Economics, Yonsei University); Sukgee Choi (Monetary Policy Department, The Bank of Korea)
    Abstract: This paper shows the role of wage stickiness in the transmission of credit supply shock in a two-sector New Keynesian model with a collateral constraints. In the vector autoregression(VAR) analysis, durable goods and nondurable goods comove in response to a credit supply shock. However, in a two-sector New Keynesian model with flexible wage, the output of nondurables decreases, while the output of durables and total output increase in response to a negative credit supply shock(LTV ratio tightening). Therefore, the comovement problem in two-sector New Keynesian model arises to a credit supply shock. If we introduce the nominal wage stickiness, the output of nondurables and durables decrease together and, as a result, total output also decreases. This result is robust to the degree of wage stickiness and to durable price stickiness. The share of borrowers also does not influence the main result.
    Keywords: Credit supply shock, Durable goods, Comovement, Sticky wage
    JEL: E32 E51
    Date: 2017–03–09
  37. By: Piotr Ciżkowicz (Warsaw School of Economics); Bartosz Radzikowski (Center for Social and Economic Research); Andrzej Rzońca (Warsaw School of Economics); Wiktor Wojciechowski (Warsaw School of Economics)
    Abstract: In the aftermath of the global financial crisis, a fiscal devaluation (hereafter: FD), understood as a shift in taxation from labor to consumption, has been debated as a possible tool of restoring competitiveness in peripheral countries of the Euro area. We contribute to this debate. Based on a set of panel and spatial panel models for the EU 27 over the period 1995 – 2014, we find that FD increases value added in exports, improves net exports, accelerates GDP and employment growth, and decelerates labour costs growth. These effects are nonlinear: stronger in the members of the Euro area and weaker in countries with either more coordinated or more centralised wage bargaining process, or more generous unemployment benefits. Most importantly, FD turns out not to be a beggar thy neighbour policy, at least in the EU. In our sample ‘cooperative effect’ of unilateral FD, which is beneficial for neighbouring countries, dominates by far ‘competitive effect’, which goes at the expense of other countries’ competitiveness. Admittedly, FD implemented in one country can benefit other countries, provided that they are strongly integrated in global value chains. These findings are robust to changes in the estimation methods, the sample composition, the set of explanatory variables and the selection of a spatial weight matrix.
    Keywords: fiscal devaluation, fiscal policy, tax structure, economic growth, labor market institutions, panel data models, spatial panel data models
    JEL: C30 C33 E62 E63 E65 H30 H60 J32 J51
    Date: 2017
  38. By: Hegadekatti, Kartik
    Abstract: Cryptocurrency networks and Blockchains are decentralized systems, functioning on distributed consensus. Fiat currencies on the other hand are issued, maintained and supervised by a sovereign central authority. RSBCs are Regulated And Sovereign Backed Cryptocurrencies (based on the K-Y Protocol) i.e. they are essentially decentralized cryptocurrencies floated by a central (sovereign) authority; it presents a paradox; known as the K-Y paradox. This paper explores the various dimensions of the K-Y paradox and its resolution.
    Keywords: K-Y Protocol, blockchain, cryptocurrency, bitcoin
    JEL: C88 D02 E42 E51 E52
    Date: 2017–03–29
  39. By: Pierre Monnin (Council on Economic Policies)
    Abstract: The 2008 global financial crisis profoundly changed the role of central banks in the economy. First, central banks engaged in strong expansionary monetary policy, using new unconventional tools to boost economic activity. Second, they were key to containing financial instability, which led them to implement new macroprudential policies to foster future financial stability. The debate about whether these policies have been effective is still ongoing, and often neglects two other crucial issues: What has been the impact of these policies on income and wealth distribution? Does inequality of income and wealth affect whether central bank policies reach their targets? This note highlights research on these two questions presented during a CEP IMF workshop on “Monetary Policy, Macroprudential Regulation and Inequality” and puts them into perspective with other recent theoretical and empirical results. Evidence shows that monetary policy and macroprudential regulation are not neutral in terms of income and wealth distribution. Conventional and unconventional expansive monetary policy both appear to decrease income inequality, mainly through their impact on the labor market, and to increase wealth inequality. Theoretically, macroprudential regulation could also affect inequality, but empirical studies exploring this hypothesis are scarce. Income and wealth distribution also influences the transmission of monetary policy impulses to the aggregate economy. To design effective monetary policy, it is crucial to assess whether the current income and wealth structures in a country accentuate or dampen monetary impulses, and to what extent they do so. Moreover, theoretical and empirical evidence points to an effect of inequality on financial stability. A thorough understanding of this impact is key to shaping optimal monetary policy and macroprudential regulation.
    Date: 2017–04
  40. By: Dudley Cooke (Department of Economics, University of Exeter); Tatiana Damjanovic (Department of Economics, Durham University)
    Abstract: This paper studies the macroeconomic implications of firm selection in a model with monopolistic competition and translog preferences. Firm selection magni es the impact of aggregate technology shocks. Magni cation is limited by diminishing returns to new varieties and misallocation. We provide analytical results linking selection, diminishing returns, and misallocation with measured total factor productivity (TFP) and the distribution of firm-level productivity. A calibrated version of our model suggests the contribution of firm selection to variations in TFP is over 20 percent.
    Keywords: Firm Selection, Translog Preferences, Productivity Distribution
    JEL: E32 L11
    Date: 2017
  41. By: Vugar Ahmadov (Central Bank of the Republic of Azerbaijan); Ulvi Sarkarli (Central Bank of the Republic of Azerbaijan); Ramiz Rahmanov (Central Bank of the Republic of Azerbaijan)
    Abstract: This study aims to analyse the discretionary fiscal policy of Azerbaijan, Kazakhstan, and Russia for the period 2003-2015 using the structural budget balance (SBB). The SBB considers the permanent component of oil revenue and therefore clearly defines the discretionary fiscal position and the aggregate demand effect of fiscal policy. The SBBs in Azerbaijan and Russia experience a deficit for most of the analysed period. A moderate SBB surplus is observed in Kazakhstan. The estimated SBBs also demonstrate that fiscal policies tend to be mainly pro-cyclical in Kazakhstan and Russia. Azerbaijan conducted a counter-cyclical fiscal policy for half of the investigated period. Moreover, governments placed more importance on economic stabilization in 2009 due to the global financial crisis.
    Keywords: fiscal policy, structural budget balance, oil-rich countries, Azerbaijan, Kazakhstan, Russia
    JEL: E62 H60
    Date: 2018–01
  42. By: Tsoulfidis, Lefteris; Papageorgiou, Aris
    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 Logistic regression Stagnation Kondratiev Schumpeter
    JEL: B14 B25 E11 E3 E32 N0 N1 N10 O3 O31
    Date: 2017–06–10
  43. By: Jeromin Zettelmeyer (Peterson Institute for International Economics); Christoph Trebesch (Kiel University)
    Abstract: We study central bank interventions in times of severe distress (mid-2010), using a unique bond-level dataset of ECB purchases of Greek sovereign debt. ECB bond buying had a large impact on the price of short and medium maturity bonds, resulting in a remarkable "twist" of the Greek yield curve. However, the effects were limited to those sovereign bonds actually bought. We find little evidence for positive effects on market quality, or spillovers to close substitute bonds, CDS markets, or corporate bonds. Hence, our findings attest to the power of central bank intervention in times of crisis but also suggest that in highly distressed situations, this power may not extend beyond those assets actually purchased.
    Keywords: Central Bank Asset Purchases, Securities Markets Programme, Eurozone Crisis, Sovereign Risk, Market Segmentation
    JEL: E43 E58 F34 G12
    Date: 2018–01
  44. By: Nakatani, Ryota
    Abstract: This paper studies output declines during currency crises based on the theoretical model by Nakatani (2016, 2017a), highlighting the role of shocks that trigger crises. Using panel data on 49 developing countries, we find that both productivity shocks in the real sector and shocks to the country’s risk premium in financial markets affect the output costs of currency crises, which are 4% of GDP on average and 8% for severe crises. During severe currency crises in Asian and Latin-American countries, both productivity shocks and exchange rate overvaluation were found to be important factors in explaining large output losses.
    Keywords: Growth; Currency Crisis; Productivity; Risk Premium; Exchange Rate Overvaluation; Developing Countries
    JEL: E32 F41 F43 G15 O47
    Date: 2018–01–01
  45. By: Gomez-Loscos, Ana; Gadea, M. Dolores; Bandres, Eduardo
    Abstract: The aim of this paper is threefold. First, we analyze the comovements of the business cycles of European regions. Second, we date these business cycles, for the first time in the literature, and identify clusters of regions with similar business cycle behavior, using Finite Mixture Markov models. Third, we develop a new index to measure within-country homogeneity. We find that comovement among regions is, on average, quite low, although it increased during the convergence process prior to the euro cash changeover and after the onset of the Great Recession. We identify five different groups of European regions. We also find heterogeneity in the size of border effects.
    Keywords: Business cycle dating, comovements, clusters, regions, Finite Mixture Markov models.
    JEL: C32 E32 R11
    Date: 2018–01
  46. By: Hasenzagl, Thomas; Pellegrino, Filippo; Reichlin, Lucrezia; Ricco, Giovanni
    Abstract: A view often expressed by the Fed is that three components matter in inflation dynamics: a trend anchored by long run inflation expectations; a cycle connecting nominal and real variables; and oil prices. This paper proposes an econometric structural model of inflation formalising this view. Our findings point to a stable expectational trend, a sizeable and well identified Phillips curve and an oil cycle which, contrary to the standard rational expectation model, affects inflation via expectations without being reflected in the output gap. The latter often overpowers the Phillips curve. In fact, the joint dynamics of the Phillips curve cycle and the oil cycles explain the inflation puzzles of the last ten years.
    Keywords: Expectations; inflation; oil prices; Phillips curve
    Date: 2018–01
  47. By: Gambetti, Luca (Universitat Autonoma de Barcelona); Moretti, Laura (Central Bank of Ireland)
    Abstract: We interpret oil price fluctuations as the result of agents reaction to news about oil market fundamentals. Agents form expectations about future developments in oil production with limited information, and they only observe a noisy signal about its possible changes. We find that a large part of oil price swings is attributable to shocks that do not have any effect on oil production or global demand indexes. The finding is obtained using a VAR with dynamic rotations. We interpret this shock, through the lenses of a simple imperfect information rational expectations framework, as a noise shock in the oil market.
    Keywords: Oil price shocks, Bubbles, Nonfundamentalness, SVAR, Imperfect Information.
    JEL: C32 E32 E62
    Date: 2017–11
  48. By: Perveen, Asma; Munir, Kashif
    Abstract: The objective of the study is to examine impact of total, internal and external government debt on nominal interest rate in Pakistan. To attain these objectives, the study used annual time series data from 1973 to 2016. The study used loanable fund theory as theoretical model and ARDL bound testing approach for cointegration and Granger causality test to estimate the results. The results of the study found negative relation between total government debt, external debt and nominal interest rate in long run, while the study found no evidence of long run relation between internal government debt and nominal interest rate. In short run, positive relation exists between total government debt and nominal interest rate, while negative relation exists between external government debt and nominal interest rate. The results found unidirectional causality between total government debt and nominal interest rate. Government decrease nominal interest rate to lessen the repayment of government borrowing, which lead to decrease in interest rate. Reforms should be made to lessen the burden of government debt and to stabilize the interest rate.
    Keywords: Total Debt, External Debt, Internal Debt, Interest Rate, ARDL, Pakistan
    JEL: C22 E43 E62
    Date: 2017–10–30
  49. By: Elena Afanasyeva; Jochen Guntner
    Abstract: This paper investigates the risk channel of monetary policy through banks' lending standards. We modify the classic costly state verification (CSV) problem by introducing a risk-neutral monopolistic bank, which maximizes profits subject to borrower participation. While the bank can diversify idiosyncratic default risk, it bears the aggregate risk. We show that, in partial equilibrium, the bank prefers a higher leverage ratio of borrowers, when the profitability of lending increases, e.g. after a monetary expansion. This risk channel persists when we embed our contract in a standard New Keynesian DSGE model. Using a factor-augmented vector autoregression (FAVAR) approach, we find that the model-implied impulse responses to a monetary policy shock replicate their empirical counterparts.
    Keywords: Lending standards ; Credit supply ; Costly state verification ; Risk channel ; Monetary policy
    JEL: D53 E44 E52
    Date: 2018–01–19
  50. By: Bielawska, Kamila; Chłoń-Domińczak, Agnieszka; Stańko, Dariusz
    Abstract: The aim of this book is to assess in various dimensions the causes and effects of the reduction of mandatory pension funds in selected countries of Central-Eastern Europe and to propose changes to existing fiscal rules so that they could respond to the challenge of population ageing impact on public finances. We review the changes made in 2008-2011 in the multi-pillar pension systems CEE region: Hungary, Poland, Lithuania, Latvia, Estonia, Bulgaria, Slovakia and Romania. All of these countries in the course of late 1990s and early 2000s introduced multi-pillar pension systems that replaced traditional PAYG ones. All countries are also EU member states and are subject to the European policy with regards to the coordination of economic government including public finance situation. However, as analysis reveals they have different social and economic contexts, relevant from the pension systems’ perspective. We make a comprehensive assessment of consequences of limiting the role of funded pillar in societies’ pension security of selected countries of Central and Eastern Europe from macro perspective (public finance) and micro perspective (pension levels of individuals), also combining the two approaches. This helped to determine the costs and benefits of current developments in the short and long term for various stakeholders. The book comprises of seven chapters. The first chapter presents the design and changes in the multi-pillar pension systems in the CEE countries in the light of their public finance situation and broader socio-economic context. Chapter 2 analyses how the pension fund markets functioned due to the pension changes introduced recently by the governments. Chapter 3 makes an assessment of the short-term effects of reduction of pension funds sectors on the public finance situation and the public pension system in each of the analysed countries. Chapter 4 analyses the impact of changes in pension system on the level of pension wealth of individuals. Chapter 5 provides an assessment of the long-term impact of changes in funded systems for the stability of public finances and pension systems. Chapter 6 presents the recommendations on how to strike the balance between fiscal tensions and the need to maintain the role of pension funds in developing sustainable and adequate pensions in the future. The last chapter summarises the findings of the project with regards to the formulated hypotheses. The authors gratefully acknowledge the financing of this project by the National Science Centre, the decision number DEC-2012/05/B/HS4/04206.
    Keywords: pension reforms, reversals, funded pensions, pension funds, CEE countries, mandatory pension funds, stability of public finances, stability of pension systems, public finance, performance evaluation
    JEL: E6 E62 G23 H53 H55 I38 J1
    Date: 2017
  51. By: David Sraer; David Thesmar
    Abstract: We consider a dynamic economy populated by heterogeneous firms subject to generic capital frictions: adjustment costs, taxes and financing constraints. A random subset of firms in this economy receives an empirical "treatment", which modifies the parameters governing these frictions. An econometrician observes the firm-level response to this treatment, and wishes to calculate how macroeconomic outcomes would change if all firms in the economy were treated. Our paper proposes a simple methodology to estimate this aggregate counterfactual using firm-level evidence only. Our approach takes general equilibrium effects into account, requires neither a structural estimation nor a precise knowledge on the exact nature of the experiment and can be implemented using simple moments of the distribution of revenue-to-capital ratios. We provide a set of sufficient conditions under which these formulas are valid and investigate the robustness of our approach to multiple variations in the aggregation framework.
    JEL: E2 E22 G0 G3 G30 G32
    Date: 2018–01
  52. By: Kolm, Ann-Sofie (Stockholm University); Larsen, Birthe (Department of Economics, Copenhagen Business School)
    Abstract: We build a general equilibrium model in terms of a search and matching model with an informal sector. We consider the impact of the traditional policy instruments considered in the tax evasion literature, such as changes in the tax- and punishment system as well as changes in the employment protection legislation and concealment costs, on labour market outcomes. To this end, we set-up a model which allows workers to allocate their search for formal and informal sector jobs optimally. We calibrate and simulate the model to fit the North and the South of Europe, where the share of informal sector workers is equal to three percent in the North and more than 4 times as high in the South. We consider the impact of concealment costs, as there are large differences in terms of tax administration procedures between the South and the North, in terms of that Northern countries make more extensively use of third-party reporting. We also examine whether stricter employment protection legislation in Southern Europe may explain the observed fact.
    Keywords: informal economy; tax policy; tax evasion; Northern Europe; Southern Europe;
    JEL: E24 E26 H26
    Date: 2018–01–29
  53. By: Kaplan, Robert S. (Federal Reserve Bank of Dallas)
    Abstract: An essay by Dallas Fed President Robert S. Kaplan from November 27, 2017.
    Date: 2017–11–27
  54. By: Anna Sznajderska (Warsaw School of Economics, Narodowy Bank Polski)
    Abstract: Since the 1980’s China has experienced very high economic growth and its share in global trade has increased rapidly. Nowadays, however, the Chinese economy is rebalancing and its growth is slowing. The paper investigates the spillover effects of a negative demand shock and negative stock price shock in the Chinese economy on other countries. We apply a GVAR model, that enables us to model international linkages between countries. Our results show that a one percent negative China GDP shock reduces global growth by 0.22% in the short run. We find that GDP shock affects emerging economies more strongly than advanced economies. We also show that stock prices shock affects only emerging economies and does not affect advanced economies.
    Keywords: global VAR, China’s slowdown, spillovers
    JEL: C32 E32 F10 O53
    Date: 2017
  55. By: Hiermeyer, Martin
    Abstract: The paper combines five tautologies to come up with a model that is structurally similar to the IS-LM model but has five advantages vis-à-vis the IS-LM model. The model also has seven advantages vis-à-vis simple New Keynesian models such as Romer's IS-MP model or Carlin's and Soskice's IS-MR model.
    Keywords: Teaching of economics; fiscal policy; monetary policy;
    JEL: A2 E5 E6
    Date: 2018–01–06
  56. By: Rosen Valchev (Boston College)
    Abstract: This paper proposes a new explanation for the failure of Uncovered Interest Parity (UIP) that rationalize both the classic UIP puzzle and the evidence that the puzzle reverses direction at longer horizons. In the model, excess currency returns arise as compensation for endogenous fluctuations in bond convenience yield differentials. Due to the interaction of monetary and fiscal policy, the impulse response of the equilib- rium convenience yield is non-monotonic, which generates the reversal of the puzzle. The model fits exchange rate dynamics very well, and I also find direct evidence that convenience yields indeed drive excess currency returns.
    Keywords: Uncovered Interest Rate Parity, Exchange Rates, Open Economy Macroeconomics, Bond Convenience Yield, Monetary-Fiscal Interaction, Government Debt Dynamics
    JEL: F31 F41 F42 E43 E52 E63
    Date: 2017–10–16
  57. By: Meltem Gulenay Chadwick; Emine Meltem Bastan
    Abstract: This study aims to examine the monthly volatility of consumer and producer beef prices for Turkey, using both univariate and multivariate models and investigate whether beef imports can stabilize the volatility and high inflation level in beef market. To do so, first we decide on the best volatility model for both consumer and producer beef inflation using a variety of different univariate symmetric and asymmetric GARCH models. Second, we check if the quantity of imported beef is significant in our best volatility model for consumer and producer beef prices. Lastly we compare our univariate analysis with a multivariate DCC-GARCH model. Our results reveal that while univariate GARCH models do not successfully capture the effect of import policy on the producer and consumer beef inflation, multivariate model is superior in illustrating the effect of import policy on beef inflation.
    Keywords: Beef prices, Price volatility, Univariate GARCH models, Beef import policy, DCC-GARCH model
    JEL: C32 C58 E31 Q13
    Date: 2017
  58. By: Cosmin Ilut (Duke University); Rosen Valchev (Boston College); Nicolas Vincent (HEC Montreal)
    Abstract: Price rigidity is central to many predictions of modern macroeconomic models, yet, standard models are at odds with certain robust empirical facts from micro price datasets. We propose a new, parsimonious theory of price rigidity, built around the idea of demand uncertainty, that is consistent with a number of salient micro facts. In the model, the monopolistic firm faces Knightian uncertainty about its competitive environment, which has two key implications. First, the firm is uncertain about the shape of its demand function, and learns about it from past observations of quantities sold. This leads to kinks in the expected profit function at previously observed prices, which act as endogenous costs of changing prices and generate price stickiness and a discrete price distribution. Second, the firm is uncertain about how aggregate prices relate to the prices of its direct competitors, and the resulting robust pricing decision makes our rigidity nominal in nature.
    Keywords: price rigidity, demand uncertainty
    Date: 2016–03–01
  59. By: Aytul Ganioglu
    Abstract: In this paper, using the recent recursive unit root tests proposed by Phillips et al. (2015), we identify and date-stamp the periods where processed food and energy prices deviate explosively from core inflation and analyze its implications in terms of anchoring inflation expectations. During the period of January 2003-March 2017, we identify existence of three such episodes. Identifying these explosive periods is particularly important, since the evidence reveals that consumers change, i.e., revise their inflation expectations during periods when processed food and energy prices deviate explosively from core inflation. Results indicate that when forming inflation expectations, consumers rely on macroeconomic variables as well as past inflation both in normal and explosive periods. A particularly important policy implication of these findings is that periods of explosive deviations of processed food and energy prices from core inflation should be monitored while designing policies to anchor inflation expectations.
    Keywords: Explosive behavior, Food prices, Inflation expectations, Generalized sup ADF test, Inflation, Core inflation
    JEL: C5 E31
    Date: 2017
  60. By: Jakub Mućk
    Abstract: This paper provides estimates of the aggregate elasticity of substitution between labor and capital (σ) in developed economies. Our empirical strategy consists in estimating two- and three-equation supply-side systems which combine a normalized CES production function and first order conditions for factors of production. Using a panel of 12 advanced economies between 1980 and 2006, it is found that capital and labor are gross complements and σ is on average around 0.7. Moreover, we also document net labor-augmenting technical progress. Our main findings remain robust to various assumptions on time-varying factor-augmenting technical change. Furthermore, we replicate the benchmark results with two alternative datasets. To strengthen these findings a systematic evidence of capital-labor substitution is provided at the country level. Although substantial cross-country variation in σ can be found, a wide range of estimates confirms that labor and capital are gross complements and technical change is net labor-augmenting.
    Keywords: normalized CES production function, elasticity of substitution between labor and capital, factor-augmenting technical change, factor shares
    JEL: C22 C23 E23 E25 O47
    Date: 2017
  61. By: Takaaki Morimoto (Graduate School of Economics, Osaka University); Yuta Nakabo (Graduate School of Economics, Osaka University); Ken Tabata (School of Economics, Kwansei Gakuin University)
    Abstract: Employing a two-period OLG model with labor market frictions and PAYG pension, this paper examines the effects of population aging on the unemployment rate and the per capita output of the economy. We show that in economies in which the population growth rate is already low and the size of PAYG pension is relatively large, a further decline in the population growth rate reduces the unemployment rate and increases the per capita output of the economy in the short run, but it increases the unemployment rate and reduces the per capita output of the economy in the long run.
    Keywords: Population aging, Labor market frictions, Unemployment, PAYG pension
    JEL: D91 E24 H55 O41
    Date: 2018–01
  62. By: Russo, Alberto
    Abstract: This paper presents a brief discussion on the evolution of macroeconomics and economic policy after Keynes. Particularly, we describe the emergence of a new standard of economic research, after the «stagflation» of the 1970s, which resurrects the (pre-Keynesian) confidence in the self-correcting properties of the market economy. It also considers economic policy as a potential obstacle for the economic system in reaching the «natural» equilibrium. Finally, some perspectives for macroeconomics in the aftermath of the Great Recession are discussed.
    Keywords: John Maynard Keynes; NAIRU; New Classical Macroeconomics; Great Recession; Financialization.
    JEL: B22 E60
    Date: 2017–12–18
  63. By: BAHMANI-OSKOOEE, Mohsen; Maki Nayeri, Majid
    Abstract: Previous research considered impacts of monetary and output uncertainty on the demand for money in Australia using a linear model and found that while output volatility has significantly positive effects, money supply volatility does not. Furthermore, predictive power of the linear model was very low. In this paper we use a nonlinear model and a new measure of uncertainty known as policy uncertainty and show that this new measure has significantly long-run asymmetric effects on the demand for money in Australia. Due to nonlinear adjustment of policy uncertainty measure, the new nonlinear model has a very high predictive power. The adjusted R2 moves from 0.30 in the linear model to 0.80 in the nonlinear model.
    Keywords: Money Demand, Australia, Policy Uncertainty, Asymmetry, Nonlinear ARDL
    JEL: E41
    Date: 2017–04–01
  64. By: Martin T. Bohl; Pierre L. Siklos
    Abstract: In an important sense the present survey reaches a conclusion similar to the one highlighted by Laidler and Parkin (1975) over forty years ago. Inflation, if fully anticipated, produces modest social costs. We are no closer to knowing what is ‘optimal’ inflation except that low and stable inflation come closest to reducing the loss of purchasing power of money. Because prices of goods and services incorporate elements that are difficult to measure precisely we cannot even be sure what the actual level of inflation really is. Hence, what is deemed low may well differ across countries and across time. Nevertheless, avoiding inflation is not only desirable because it represents a form of taxation without representation but, in theory at least, low and stable inflation ought to be more easily forecasted thereby reducing the likelihood of large and persistent forecast errors.
    Date: 2018–01
  65. By: Halac, Marina; Yared, Pierre
    Abstract: Governments are present-biased toward spending. Fiscal rules are deficit limits that trade off commitment to not overspend and flexibility to react to shocks. We compare coordinated rules -- chosen jointly by a group of countries -- to uncoordinated rules. If governments' present bias is small, coordinated rules are tighter than uncoordinated rules: individual countries do not internalize the redistributive effect of interest rates. However, if the bias is large, coordinated rules are slacker: countries do not internalize the disciplining effect of interest rates. Surplus limits enhance welfare, and increased savings by some countries or outside economies can hurt the rest.
    Keywords: Asymmetric and Private Information; institutions; Macroeconomic Policy; political economy; Structure of Government
    JEL: D02 D82 E60 H10 P16
    Date: 2018–01
  66. By: Diane Coyle
    Abstract: Part of the debate about the ‘productivity puzzle’ concerns the potential mismeasurement of digital activities. Specific measurement adjustments explored in previous research appear not to make a quantitatively large difference to real GDP or productivity growth estimates. However, although these potential adjustments may be small individually, taken together they could be wide in scope and quantitatively significant. This paper sets out a taxonomy of the range of potential measurement artefacts arising from digital innovations. It also specifically considers digitally-enabled substitutions in activity across the production boundary. I argue that these, along with other substitutions occurring within the production boundary, go beyond the effects of digital considered in earlier research; and may be making a meaningful contribution to the productivity puzzle as measured on existing statistical definitions.
    Keywords: digital, production boundary, productivity
    JEL: E01 C82 O40
    Date: 2017–06
  67. By: Se-Hyung Jo (Market Intelligence Unit, Financial Markets Department, The Bank of Korea); Yong-Min Lee (Financial Markets Affairs Team, Financial Markets Department, The Bank of Korea); Jeong-Hoon Kim (Market Intelligence Unit, Financial Markets Department, The Bank of Korea)
    Abstract: This paper looks into the impacts of the progress of aging on the financial markets from the perspective of changes in households' asset and liability portfolios. To identify these impacts empirically, this paper sets up a hypothesis and conducts an analysis through a macroeconomic panel model using economic indicators from OECD member countries, and through a microeconomic panel model using Korean labor and income panel data. The results of empirical analysis show that, as the level of population aging increases, the household savings ratio and the share of households' investment in risky assets decline. The financial debt-to-financial assets ratio is found to fall as the level of aging rises, but this fall was statistically insignificant. In the microeconomic panel model, considering the cohort effect, the baby-boomer generation that experienced a period of high economic growth is found to have been able to build up more real and financial assets than the generations before them. In addition, the elderly are found to maintain their financial assets to some extent, rather than reducing them, owing mainly to the precautionary savings and bequest motives, while their real assets show modest downward movements. However, it is estimated that high-income elderly people, belonging to the fifth income quintile group, will reduce their real assets to repay their debts, hold financial assets for retirement savings, and so on. This paper is significant in that it verifies not only the impacts of aging on households' asset and liability structures but also the impacts of factors such as the retirement of baby-boomers in Korea through microeconomic panel data. This is expected to have implications for us in coming up with policy solutions related to aging.
    Keywords: Population aging, household assets, household liabilities, financial markets, panel analysis
    JEL: E60 G10
    Date: 2017–08–03
  68. By: Bok, Brandyn; Caratelli, Daniele; Giannone, Domenico; Sbordone, Argia; Tambalotti, Andrea
    Abstract: Data, data, data ... Economists know their importance well, especially when it comes to monitoring macroeconomic conditions -- the basis for making informed economic and policy decisions. Handling large and complex data sets was a challenge that macroeconomists engaged in real-time analysis faced long before "big data" became pervasive in other disciplines. We review how methods for tracking economic conditions using big data have evolved over time and explain how econometric techniques have advanced to mimic and automate best practices of forecasters on trading desks, at central banks, and in other market-monitoring roles. We present in detail the methodology underlying the New York Fed Staff Nowcast, which employs these innovative techniques to produce early estimates of GDP growth, synthesizing a wide range of macroeconomic data as they become available.
    Keywords: business cycle analysis; high-dimensional data; monitoring economic conditions; real-time data flow
    JEL: C32 C53 E3
    Date: 2018–01
  69. By: Ali Gencay Ozbekler
    Abstract: There is a strand of finance literature showing that correlation between markets increases during times of high volatility. This paper revisits this finding by comparing contribution of relative volatility to correlations between S&P 500 Index returns and global equity markets' returns before and after the Global Financial Crisis. Our results show that degree and direction of contribution of volatility to correlation has changed in some countries after the crisis. It has implications in the context of international portfolio diversification to reduce portfolio risks. In addition, introducing an extended version of contagion analysis helps to identify contagion and interdependence effects in more detail.
    Keywords: Stock markets, Market volatility, Co-movement, Spillover, Contagion, Interdependence, Portfolio risk
    JEL: E44 F30 G15
    Date: 2017
  70. By: Bofinger, Peter; Maas, Daniel; Ries, Mathias
    Abstract: Since the financial crisis there exists a widespread discussion about the role of banking in a monetary economy. We contribute to this discussion by presenting a basic model of the banking sector which models banks as originators of credit without owning pre-collected savings or reserves beforehand. Additionally, we estimate an empirical model of the German credit market for non-financial corporations in a disequilibrium framework. Empirically, we detect a significant role for the variables that are chosen on the basis of our price-theoretic model.
    Keywords: Credit,Money Supply,Money Multiplier
    JEL: E51
    Date: 2017
  71. By: Gregor Jarosch; Laura Pilossoph
    Abstract: This paper models a frictional labor market where employers endogenously discriminate against the long term unemployed. The estimated model replicates recent experimental evidence which documents that interview invitations for observationally equivalent workers fall sharply as unemployment duration progresses. We use the model to quantitatively assess the consequences of such employer behavior for job finding rates and long term unemployment and find only modest effects given the large decline in callbacks. Interviews lost to duration impact individual job-finding rates solely if they would have led to jobs. We show that such instances are rare when firms discriminate in anticipation of an ultimately unsuccessful application. Discrimination in callbacks is thus largely a response to dynamic selection, with limited consequences for structural duration dependence and long term unemployment.
    JEL: E24 J64
    Date: 2018–01
  72. By: Antolin-Diaz, Juan; Petrella, Ivan; Rubio-Ramírez, Juan Francisco
    Abstract: In the context of vector autoregressions, conditional forecasts are typically constructed by specifying the future path of one or more variables while remaining silent about the structural shocks that might have caused the path. However, in many cases, researchers may be interested in identifying a structural vector autoregression and choosing which structural shock is driving the path of the conditioning variables. This would allow researchers to create a ''structural scenario'' that can be given an economic interpretation. In this paper we show how to construct structural scenarios and develop efficient algorithms to implement our methods. We show how structural scenario analysis can lead to results that are very different from, but complementary to, those of the traditional conditional forecasting exercises. We also propose an approach to assess and compare the plausibility of alternative scenarios. We illustrate our methods by applying them to two examples: comparing alternative monetary policy options and stress testing the reaction of bank profitability to an economic recession.
    Keywords: Bayesian methods; Conditional forecasts; probability distribution; SVARs
    JEL: C32 C53 E47
    Date: 2018–01
  73. By: Hyeongwoo Kim (Department of Economics, Auburn University); Kyunghwan Ko (Economic Research Team, Jeju Branch, The Bank of Korea)
    Abstract: We present a factor augmented forecasting model for assessing the financial vulnerability in Korea. Dynamic factor models often extract latent common factors from a large panel of time series data via the method of the principal components (PC). Instead, we employ the partial least squares (PLS) method that estimates target specific common factors, utilizing covariances between predictors and the target variable. Applying PLS to 198 monthly frequency macroeconomic time series variables and the Bank of Korea's Financial Stress Index (KFSTI), our PLS factor augmented forecasting models consistently outperformed the random walk benchmark model in out-of-sample prediction exercises in all forecast horizons we considered. Our models also outperformed the autoregressive benchmark model in short-term forecast horizons. We expect our models would provide useful early warning signs of the emergence of systemic risks in Korea's financial markets.
    Keywords: Partial least squares, Principal component analysis, Financial stress index, Out-of-sample forecast, RRMSPE, DMW statistics
    JEL: C38 C53 E44 E47 G01 G17
    Date: 2017–05–02
  74. By: Hosin Song (Department of Economics, Ewha Woman's University); Joonyoung Hur (Division of Economics, Hankuk University of Foreign Studies)
    Abstract: In this study, we analyze the impact of ageing on the public finance of Korea economy. Both government revenue and government expenditure are considered to take into account the effect of ageing. Specifically, Park (2012) and Hur and Lee (2017) are used to analyze the impact of ageing on the government revenue. It is found that Korea economy has some fiscal space in revenue side. For the analysis of the expenditure side, the probability choice model using aggregate data is used. As to the expenditure, it is empirically found that ageing has significant effect on the government expenditure through the ageing related expenditure such as social protection and health. The impact is expected to continue as long as ageing persists.
    Keywords: Demographic shift, Tax revenue, Government spending, DSGE models, Probability choice models
    JEL: J11 H20 H50 E62
    Date: 2017–08–11
  75. By: Dong Jin Lee (Research Department, The Bank of Korea); Jin Hyeon Han (Research Department, The Bank of Korea)
    Abstract: This paper suggests a new measure of household over-indebtedness based on the concept of conditional quantiles, and use the measure to examine the factors and the risks of the over-indebtedness. We first consider a distribution of household debt conditional on the overall payment ability, and specify the over-indebted household as the one whose debt exceeds θ-quantile of the conditional distribution. The overall payment ability is set to cover a variety of factors such as disposable income, assets, expected income, and consumption backgrounds. θ-quantile is estimated using Chernozhukov and Hong (2002)'s three step estimator for censored quantile regression. The empirical analysis shows a clear evidence of heterogeneous behavior of the over-indebted households compared to the others. We find that over-indebted households' income and real estate elasticities of debt are significantly higher and their debt/income ratio has increased faster in recent periods of low interest rates. Simulation study shows that these distinctive properties cause over-indebted households facing far greater default risks under macroeconomic shocks such as interest rate hikes and house price drops. We also find that lower-income and elderly-headed households' over-indebtedness problem is more serious in that they have significantly higher debt/income ratio compared to the other age and income groups.
    Keywords: Household over-indebtedness, Debt/income ratio, Default risk, Conditional censored quantile regression
    JEL: D14 E20 G21 R20
    Date: 2017–04–18
  76. By: Mo Abdirahman; Diane Coyle; Richard Heys; Will Stewart
    Abstract: The telecommunications services industry has experienced very large technological progress in the past decades, as measured by technological output metrics. However, the industry’s economic output statistics do not appear to reflect this. Between 2010 and 2015, for example, data usage in the UK expanded by around 900% but real Gross Value Added (GVA) for the industry fell by 4%. While the direction of growth in Telecoms GVA is not the same for all countries, there nonetheless appears to be a wider disconnect between the technological performance and economic measurement of the industry in the UK. This paper argues this can be primarily resolved through strengthening the deflators that are applied to nominal output to produce real GVA. This paper contrasts two methodologically distinct options to estimate the potential bias in the current deflator, informed by both an economic and engineering perspective. Our findings indicate that the current deflator is upward biased and that telecommunications services prices could have fallen between 35% and 90% between 2010 and 2015, considerably more than the current deflator, suggesting the need for continued research in this area.
    Keywords: Deflators, telecommunications and productivity
    JEL: E31 L96 O47 L15
    Date: 2017–12
  77. By: Harker, Patrick T. (Federal Reserve Bank of Philadelphia)
    Abstract: Speaking before an audience in Bucks County, PA, Philadelphia Fed President Patrick Harker said that a "new normal" in the economy may mean rethinking policy targets. "Things are unlikely to return to what we considered their relative norms before the recession," he said.
    Keywords: economy; policy; policy targets
    Date: 2018–01–12
  78. By: Li, You (School of Economics, Singapore Management University); Tay, Anthony (School of Economics, Singapore Management University)
    Abstract: We explore the role of uncertainty in explaining dispersion in professional forecasters’ density forecasts of real output growth and inflation. We consider three separate notions of uncertainty: general macroeconomic uncertainty (the fact that macroeconomic variables are easier to forecast at some times than at others), policy uncertainty, and forecaster uncertainty. We find that dispersion in individual density forecasts is related to overall macroeconomic uncertainty and policy uncertainty, while forecaster uncertainty (which we define as the average in the uncertainty expressed by individual forecasters) appears to have little role in forecast dispersion.
    Date: 2017–11–01
  79. By: Adalto Barbaceia Gonçalves; Rafael Schiozer; Hsia Hua Sheng
    Abstract: This paper investigates whether product market power affects trade credit decisions. We exploit the 2007-08 credit crisis in the U.S. as a source of variation in the importance of product market power for trade credit. We find that a one standard deviation increase in market power is associated to a decrease in payables of approximately four days during the crisis, showing that high market power firms alleviate financial constraints from their suppliers to avoid the loss of monopoly rents. Our inferences are robust to structural and non-structural measures of market power, both at the firm and at the industry levels, and the inclusion of controls to address potential confounding effects deriving from other firm features, including financial constraints, industry specific shocks and macroeconomic effects.
    Keywords: trade credit; financial crisis; market power; monopoly rents; liquidity provision
    JEL: G00 G30 G32 D43
    Date: 2018–01–11
  80. By: Joanna Tyrowicz (Institute for Labour Law and Industrial Relations in the European Union IAAEU), Trier University); Magdalena Smyk (Group for Research in Applied Economics)
    Abstract: Income inequality in the context of large structural change has received a lot of attention in the literature, but most studies relied on household post-transfer inequality measures. This study utilizes a novel and fairly comprehensive collection of micro data sets from between 1980’s and 2010 for both advanced market economies and economies undergoing transition from central planning to market based system. We show that wage inequality was initially lower in transition economies and immediately upon the change of the economic system surpassed the levels observed in advanced economies. We find a very weak link between structural change and wages in both advanced and post-transition economies, despite the predictions from skill-biased technological change literature. The decomposition of changes in wage inequality into a part attributable to changes in characteristics (mainly education) and a part attributable to changes in rewards does not yield any leading factors
    Keywords: wage inequality, structural change, transition, skill biased technological change
    JEL: E24 D31 N34 O57 P36 P51
    Date: 2018–01
  81. By: Dondashe, Nandipha; Phiri, Andrew
    Abstract: In this study we examine the macroeconomic determinants of FDI for the South African economy using data collected between 1994 and 2016 using the ARDL model for cointegration. The specific macroeconomic determinants which are used in the study are per capita GDP, the inflation rate, government size, real interest rate variable, and terms of trade. With the exception of inflation the remaining macroeconomic determinants employed in the study are positively and significantly related with FDI. However, in the short-run all variables are positively and significantly correlated with FDI. Collectively, these results have important implications for policymakers.
    Keywords: FDI; ARDL cointegration; Financial crisis; South Africa.
    JEL: C13 C22 C51 C52 F21
    Date: 2018–01–04
  82. By: Roberts, Samantha; Barry, Eleanor; Craig, Dawn; Airoldi, Mara; Bevan, Gwyn; Greenhalgh, Trisha
    Abstract: Objective Explore the cost-effectiveness of lifestyle interventions and metformin in reducing subsequent incidence of type 2 diabetes, both alone and in combination with a screening programme to identify high-risk individuals. Design Systematic review of economic evaluations. Data sources and eligibility criteria Database searches (Embase, Medline, PreMedline, NHS EED) and citation tracking identified economic evaluations of lifestyle interventions or metformin alone or in combination with screening programmes in people at high risk of developing diabetes. The International Society for Pharmaco-economics and Outcomes Research’s Questionnaire to Assess Relevance and Credibility of Modelling Studies for Informing Healthcare Decision Making was used to assess study quality. Results 27 studies were included; all had evaluated lifestyle interventions and 12 also evaluated metformin. Primary studies exhibited considerable heterogeneity in definitions of pre-diabetes and intensity and duration of lifestyle programmes. Lifestyle programmes and metformin appeared to be cost effective in preventing diabetes in high-risk individuals (median incremental cost-effectiveness ratios of £7490/quality-adjusted life-year (QALY) and £8428/QALY, respectively) but economic estimates varied widely between studies. Intervention-only programmes were in general more cost effective than programmes that also included a screening component. The longer the period evaluated, the more cost-effective interventions appeared. In the few studies that evaluated other economic considerations, budget impact of prevention programmes was moderate (0.13%–0.2% of total healthcare budget), financial payoffs were delayed (by 9–14 years) and impact on incident cases of diabetes was limited (0.1%–1.6% reduction). There was insufficient evidence to answer the question of (1) whether lifestyle programmes are more cost effective than metformin or (2) whether low-intensity lifestyle interventions are more cost effective than the more intensive lifestyle programmes that were tested in trials. Conclusions The economics of preventing diabetes are complex. There is some evidence that diabetes prevention programmes are cost effective, but the evidence base to date provides few clear answers regarding design of prevention programmes because of differences in denominator populations, definitions, interventions and modelling assumptions
    JEL: J50 E6
    Date: 2017–11–15
  83. By: Quispe, Zenon (Banco Central de Reserva del Perú); Rodriguez, Donita (Apoyo Consultoría); Toma, Hiroshi (Banco Central de Reserva del Perú); Vasquez, Cesar (Banco Central de Reserva del Perú)
    Abstract: In recent times the Pacific Alliance member economies (Chile, Colombia, Mexico and Peru) have managed to achieve trade integration, have made an important progress in their financial integration and have withstood the spillovers from the global shocks that had risen from abroad. But, would the Pacific Alliance members be better off if they coordinated their monetary and macro prudential policy responses when facing the spillovers from these external global shocks? To test this we propose a framework based on the Global Projection Model (GPM) of the International Monetary Fund (IMF), which features real and financial linkages between countries. We introduce additional equations for terms of trade, commodities, portfolio inflows, foreign direct investment inflows, lending, lending interest rates and macro prudential policy with the objective of having a more comprehensive model. In the no-coordination case, we consider six countries: the four member economies of the Pacific Alliance acting separately, China and USA. The coordination case involves three parties: the Pacific Alliance acting as one country, China and USA. In this case of full coordination among Pacific Alliance countries, the members act as if they followed the same monetary and macroprudential policies. We find that upon global shocks spillovers coming from China and the United States, the Pacific Alliance member economies are mostly better off when coordinating monetary and macro prudential policy responses than when not.
    Date: 2017–12
  84. By: Jean-Christophe Poutineau (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - CNRS - Centre National de la Recherche Scientifique); Gauthier Vermandel (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine)
    Abstract: In an estimated DSGE model of the European Monetary Union that accounts for financial differences between core and peripheral countries, we find that country-adjusted macroprudential measures lead to significant welfare gains with respect to a uniform macroprudential policy rule that reacts to union-wide financial developments. However, peripheral countries are the winners from the implementation of macroprudential measures while core countries incur welfare losses, thus questioning the interest of adopting coordinated macroprudential measures with peripheral countries.
    Abstract: A l'aide d'un modèle MEGIS estimé pour la zone euro tenant compte des différences économiques entre le coeur et la périphérie de la zone Euro, nous constatons que les mesures macroprudentielles conduites à l'échelle national mènent à des gains de bien-être importants par rapport à une règle de politique uniforme qui réagit aux développements financiers à l'échelle fédérale. Cependant, ces mesures macroprudentielles ne sont pas bénéfiques pour tous les participants: les gains de bien-être sont principalement obtenus pour les pays périphériques alors que les pays du coeur peuvent être perdants suite à la mise en place cette nouvelle politique de stabilité financière.
    Keywords: Macroprudential policy,Euro Area,Financial Accelerator,DSGE Two-Country Model,Bayesian Estimation
    Date: 2017
  85. By: David Comerford (Department of Economics, University of Strathclyde); Jose V Rodriguez Mora (University of Edinburgh, School of Economics); Michael J Watts (University of Edinburgh, School of Economics)
    Abstract: We present a model where more accurate information on the background of individuals facilitates statistical discrimination, increasing inequality and intergenerational persistence in income. Surprisingly, more accurate information on the actual capabilities of workers leads to the same result - firms give increased weight to the more accurate information, increasing inequality and fostering discrimination. The rich take advantage of this through educational investments in their children, lowering mobility. Using our model to interpret the data suggests that a country like the US might be a land of opportunity for the sufficiently able but where (for endogenous reasons) ability is strongly correlated with background.
    Keywords: intergenerational mobility, inequality
    JEL: E24 J62
    Date: 2017–07
  86. By: Szkup, Michal
    Abstract: This paper asks whether a government can implement policies that help to avert a crisis driven by self-fulfilling expectations. I consider two policies that are often at the center of political discussions, namely austerity and fiscal stimulus. I find that under plausible conditions austerity tends to decrease the probability of a debt crisis, while stimulus tends to increase it. I also show that endogenous expectations amplify the effects of government policies so that even a small policy adjustment can have significant effects. Finally, I find that policy uncertainty further increases the attractiveness of austerity versus stimulus, but tends to decrease the overall impact of both policies.
    Keywords: sovereign debt crises, expectations, policy uncertainty, taxes, fiscal stimulus
    JEL: D84 F34
    Date: 2017–06
  87. By: Gajendran Raveendranathan
    Abstract: I build a model of revolving credit in which consumers face idiosyncratic earnings risk, and credit card firms direct their search to consumers. Upon a match, they bargain over borrowing limits and borrowing interest rates — fixed for the duration of the match. Using the model, I show that improved matching between consumers and credit card firms, calibrated to match the rise in the population with credit cards, accounts for the rise in revolving credit and consumer bankruptcies in the United States. I also provide empirical evidence consistent with the two key features in my model: directed search and bargaining. The lifetime consumption gains from improved matching are 3.55 percent— substantially larger than those previously estimated by alternative explanations for the rise in revolving credit and consumer bankruptcies (0.03-0.57 percent). Finally, I analyze how the credit card firm’s bargaining power impacts the welfare of introducing stricter bankruptcy laws.
    Keywords: revolving credit, consumer bankruptcy, matching, directed search, bargaining
    JEL: E20 G20
    Date: 2018–01
  88. By: Hegadekatti, Kartik
    Abstract: Humanity is on the cusp of a great wave of space exploration and colonization of Extra-Terrestrial Bodies (ETB). This paper deals with the socio–political issues that may arise between Earth and E.T Settlements and the possible ways to resolve them. Firstly we discuss as to how early maritime explorations compare to present day space voyages. Based on the lessons learnt, we will analyse the socio–political relation between Earth and Extra-Terrestrial Settlements (ETS) and how some possibilities of conflicts can arise. We then evaluate as to how Blockchain systems can potentially keep earth and ETS tethered to each other and provide a way for harmonious co-existence. The paper concludes by summarizing the possible Socio–Political and Economic conflicts between Earth and future ETS and ways to resolve them.
    Keywords: space exploration, mars mission, moon mission, astronomy, science
    JEL: D72 E52 F33 F51 F52 F53 F54 F55 F59 G18 G21 O38 P48
    Date: 2017–04–01
  89. By: ARENAS, Andreu, (CORE, Université catholique de Louvain); MALGOUYRES, Clément, (Banque de France)
    Abstract: We study how economic conditions at the time of choosing post-compulsory education affect intergenerational mobility. Exploiting local variation in birthplace unemployment rate at age 16 across 23 cohorts in France, we find that cohorts deciding on post-compulsory education in bad economic times are more educationally mobile - their level of education is less related to having a white-collar father. These cohorts are also more occupationally mobile; and a large fraction of this effect is explaiend by business cycle-induced differences in educational attainment. Accounting for differential spatial mobility between birth and age 16 by parental background confirms the results.
    Keywords: intergenerational mobility, business cycle, human capital, occupational choice
    JEL: J24 I21 E24
    Date: 2017–12–22
  90. By: Pikoko, Vuyokazi; Phiri, Andrew
    Abstract: High unemployment in South Africa possess as the country’s most problematic economic issue faced by South African policymakers and hence is considered an overriding priority within the design of large scale government expenditure programmes. In this study, we investigate the hysteresis hypothesis for 8 categories of unemployment in South Africa using a battery of individual and panel unit root testing procedures applied to quarterly data collected in the post-recession period of 2008:q1 to 2017:q2. Indeed our empirical results confirm the hysteresis hypothesis for a majority of unemployment classifications with the exception of unemployment associated with persons aged 55 to 64 years old. Overall, our obtained empirical results hold far reaching ramifications towards domestic policymakers
    Keywords: Unemployment; Hysteresis; Unit root tests; Stationarity; tests; South Africa; Sub Saharan Africa (SSA).
    JEL: C22 C23 C51 E24
    Date: 2018–01–17
  91. By: Byung Kwun Ahn (Economic Research Institute, The Bank of Korea); Ki-Ho Kim (Economic Research Institute, The Bank of Korea); Seung Whan Ryuk (Economic Research Institute, The Bank of Korea)
    Abstract: Population aging has a profound influence on the overall economic variables, such as inflation, current account and public finance, as well as economic growth. However, more specifically, how and to what extent population aging affects economy is considerably influenced by economic system, agents' behaviour, and policy maker's policies. Thus, the effect of population aging will be decided by our response to this challenge. This paper estimates the effect of population aging on economic growth based on a simple growth accounting model, reflecting the demographic projection released by the National Statistics Office. The result shows that the economic growth rate of Korea is estimated to gradually decline from 3.9% (2000 to 2015) to 1.9% (2016 to 2025) to 0.4% (2026 to 2035) on annual average. However, if Korea implements comprehensive measures (e.g. extending retirement age, encouraging women’s economic participation, along with improving productivity and fertility rates) responding to population aging, the economic growth rate is predicted to maintain between 2.5~3.0% in 10 years and around 1.5% in 20 years on annual average. Since the effect of population aging on economy may be dramatically changed according to policy responses, comprehensive measures should be set up at the national level to reduce the population aging speed and to alleviate negative effects, followed by more detailed action plans in each sector.
    Keywords: Population aging, Growth Accounting Model, Dynamic CGE
    JEL: E30 E58 J11
    Date: 2017–07–07
  92. By: Seebauer, Sebastian (JOANNEUM RESEARCH Forschungsgesellschaft mbH)
    Abstract: Rebound effects may undermine current energy policy pathways centred on more energy efficient technologies. The present study analyses why household-level rebound occurs after purchasing an electric vehicle or installing building insulation. Direct and indirect rebound behaviour are operationalised as rearrangements of consumption patterns over time, drawing on concepts of mental accounting and compensatory behaviours. Structural equation modelling is applied to survey data on adopters of electric cars (n=575) and building insulation (n=1,455) in Austria. A complementary longitudinal sample of adopters of electric bicycles (n=111) validates the findings. Pro-environmental values and, albeit more weakly, personal norms for environmentally conscious consumption counteract rebound behaviour. Social norms for environmentally conscious consumption increase rebound. Values of frugality and modesty show no discernible impact. These drivers apply similarly to all energy efficiency technologies investigated. In the case of building insulation, low-income and energy-poor households are more liable to rebound; moreover, habitual heating practices increase rebound. Policy design could leverage the drivers studied here to combat rebound, for instance by prioritising consumer segments with a lower risk of rebound, or by supporting rebound-averse mindsets in public communication. Future research should conduct longitudinal studies to strengthen causal inferences about changes in consumption patterns over time.
    Keywords: Rebound effect; technology adoption; behavioural change; negative spillover; moral licensing
    JEL: E21 Q41
    Date: 2017–11
  93. By: Jetter, Michael (University of Western Australia); Kristoffersen, Ingebjørg (University of Western Australia)
    Abstract: This paper evaluates the effect of financial shocks on interpersonal trust levels, exploiting longitudinal survey data from 22,112 Australians. Using within-individual level variation, we find that trust does not change meaningfully following a positive financial shock (e.g., winning the lottery). However, trust falls sharply following a negative financial shock (e.g., bankruptcy). In terms of magnitude, this effect is approximately equivalent to the effect observed after one reports being the victim of physical violence or a property crime, but significantly larger than effects from a range of other individual-level shocks (e.g., being fired or getting divorced). We then explore a potential explanation of this finding related to locus of control, which relates to the extent to which people believe they are in control of their circumstances. Indeed, we find evidence consistent with this hypothesis as locus of control tends to change, and become less internal, following a negative financial shock. In turn, locus of control is closely associated with interpersonal trust levels.
    Keywords: financial shocks, trust levels, locus of control
    JEL: D90 E32 Z1
    Date: 2017–12
  94. By: Kyoungsoo Yoon (Financial Stability Department, The Bank of Korea); Jae Hoon Cha (Financial Stability Department, The Bank of Korea); Sohee Park (Financial Stability Department, The Bank of Korea); Sun Young Kang (Financial Stability Department, The Bank of Korea)
    Abstract: This paper investigates the main channels through which population aging affects the financial sector. Based on the results, we conjecture possible changes in the structure of the financial sector due to the aging. Empirical evidence from international panel data shows that population aging is associated with a higher growth rate of household net assets and does not suppress household debt growth. In addition, the insurance, pension and asset management industries are expected to increase their shares in the financial sector. Furthermore, population aging causes lower longer-term interest rates which leads to a flatter yield curve, while it affects stock prices positively because of higher asset demand by households. To complement the international panel data analysis, we also implement a simulation of household balance sheets based on Korea-specific data, 'The Survey of Household Finance and Living Conditions.' The main findings are as follows. First, the financial industry is expected to keep growing until the late 2020s thanks to increasing household financial assets, which would also contribute to higher long-term financial asset demand. Second, aging-induced low economic growth and low interest rates together with flattened yield curves will likely lead to lower profitability for financial institutions. Third, under low interest rates, households would increase their stock or fund investments to seek higher yields. Fourth, if elderly-headed households keep their asset allocations biased towards real assets, population aging could increase the concentration of household assets into real assets. These findings imply that the supply of long-term bonds needs to be increased to meet increased demand from the financial institutions where households accumulate their assets. Furthermore, financial institutions should diversify their income sources and strengthen their risk management to cope with lower profitability. Finally, authorities need to help households to reduce liquidity and price risk related to real estate by making reverse mortgages more accessible.
    Keywords: Population aging, Household saving, Household assets and liabilities, Interest rates Stock prices, Financial sector
    JEL: D14 E2 E4 G11 G2 J1
    Date: 2017–08–18
  95. By: Y.Emre Akgunduz; S.Hilmi Kal; Huzeyfe Torun
    Abstract: Turkey's export rediscount credit programme provides credit to exporting firms that is both easy to acquire and is offered at a low interest rate. We follow the performance of firms that first received the credit in 2012 when the amount of credit provided went up dramatically in 2012. We use propensity score mathing to construct a control group of firms with which we compare the credit-receiving firms before and after 2012 in a difference-in-differences framework. These firms have increased their exports substantially in the following years compared to the matched firms with similar propensities to receive the rediscount credit. We find that firms that received the rediscount credit increased their exports by 65% and total sales by 19% compared to matched firms. We find no statistically significant effects on domestic sales and profits. We also find suggestive evidence that the effects fade away after a certain amount of credits.
    Keywords: Subsidized credits, Exporting firms, Central banking, Propensity score matching
    JEL: F13 F14 L25 O24 E58
    Date: 2017
  96. By: Ear Sothy; Sim Sokcheng; Khiev Pirom
    Abstract: Employing the available social accounting matrix, this paper examines the impacts of different public education consumption schemes on Cambodian macroeconomics, the labour market and household welfare. The results from the simulation scenarios in the CGE model revealed that the reallocation of public spending from primary and secondary education to higher education produced a negative impact on the wage rate of low and fairly educated labour, dropped outputs, and reduced household welfare, which had adverse effects on macroeconomic variables in general. However, the shift of public spending from administration to the three education sectors, showed positive impacts on the economy, household income and welfare. Given the factor endowment structure of the Cambodian education sector, the policy that focuses on higher education by providing more spending to this sector did not yield results as good as keeping the initial education spending structure.
    Keywords: Public education spending, labour market, household Welfare, CGE, simulation modeling
    JEL: C63 C67 C68
    Date: 2017

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