nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒02‒12
eighty-six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Redefining Liquidity for Monetary Policy By Kim, Kyunghun; Lee, Il Houng; Shim, Won
  2. Dynamic Analysis of a Disequilibrium Macroeconomic Model with Dual Labor Markets By Ogawa, Shogo
  3. Asymmetry of the Interest Rate Pass-through in Zambia By Chileshe, Patrick Mumbi; Akanbi, Olusegun Ayodele
  4. Credit shocks and the European labour market By Katalin Bodnár; Ludmila Fadejeva; Marco Hoeberichts; Mario Izquierdo Peinado; Christophe Jadeau; Eliana Viviano
  5. Banks’ leverage behaviour in a two-agent New Keynesian model. By Andrea Boitani; Chiara Punzo
  6. Fiscal Shocks and Helicopter Money in Open Economy By Giorgio Di Giorgio; Guido Traficante
  7. Gender and Age Group Differences in Employment Responses to Monetary Policy Shocks (in Korean) By Sungyup Chung
  8. Should We Use Linearized Models To Calculate Fiscal Multipliers? By Lind�, Jesper; Trabandt, Mathias
  9. Which Banks Smooth and at What Price? By Sotirios Kokas; Dmitri Vinogradov; Marios Zachariadis
  10. The government spending multiplier at the zero lower bound: International evidence from historical data By KLEIN, Mathias; WINKLER, Roland
  11. GDP-linked Bonds: Some Simulations on EU Countries By Nicolas Carnot; Stéphanie Pamies Sumner
  12. Has the Grexit news affected euro area financial markets? By Wildmer, Gregori; Agnese, Sacchi
  13. US Interest Rate Policy Spillover and International Capital Flow: Evidence from Korea By Jieun Lee; Jung-Min Kim; Jong Kook Shin
  14. Monetary policy and speculative stock markets By Boehl, Gregor
  15. Small and Large Firms Over the Business Cycle By Nicolas Crouzet; Neil R. Mehrotra
  16. US Inflation 1980 - 2016. A Good Old Quantity Theory Approach By Olivo, Victor
  17. Uncertainty and the Macroeconomy: Evidence from an Uncertainty Composite Indicator By Amélie Charles; Olivier Darné; Fabien Tripier
  18. Endogeneity of Inflation Target By Soyoung Kim; Geunhyung Yim
  19. The drivers of household indebtedness re-considered: an empirical evaluation of competing arguments on the macroeconomic determinants of household indebtedness in OECD countries By Glennie Lauren Moore; Engelbert Stockhammer
  20. Monetary policy spillovers, global commodity prices and cooperation By Andrew Filardo; Jacopo Lombardi; Carlos Montoro
  21. Monetary policy and inequality under household heterogeneity and incomplete markets By Villarreal, Francisco G.
  22. The international transmission of US fiscal shocks By Natoli, Filippo; Metelli, Luca
  23. Home Equity Extraction and the Boom-Bust Cycle in Consumption and Residential Investment By Xiaoqing Zhou
  24. Pass-Through of Imported Input Prices to Domestic Producer Prices: Evidence from Sector-Level Data By JaeBin Ahn; Chang-Gui Park; Chanho Park
  25. Non-Performing Loans and Universal Bank’s Profitability By Mwinlaaru, Peter Yeltulme; Ofori, Isaac Kwesi; Adiyiah, Kwadwo Agyeman; Idun, Anthony Adu-Asare
  26. The Relation Between Monetary and Macroprudential Policy By Jong Ku Kang
  27. The Macroeconomic Implications of Firm Selection By Dudley Cooke; Tatiana Damjanovic
  28. Evaluating Medium Term Forecasting Methods and their Implications for EU Output Gap Calculations By Kieran Mc Morrow; Werner Roeger; Valerie Vandermeulen
  29. Global vs. group-specific business cycles: The importance of defining the groups By Berger, Tino; Wortmann, Marcus
  30. Price Stabilizing Effects of the FTAs: The Case of Korea (in Korean) By Noh-Sun Kwark; Hosung Lim
  31. A short-term forecasting model for the Spanish economy: GDP and its demand components By Ana Arencibia Pareja; Ana Gómez Loscos; Mercedes de Luis López; Gabriel Pérez Quirós
  32. An Empirical Analysis of Macroeconomic Resilience: The Case of the Great Recession in the European Union By Jan Bruha; Oxana Babecka Kucharcukova
  33. Which Monetary Shocks Matter in Small Open Economies? Evidence from SVARs By Jongrim Ha; Inhwan So
  34. Government financing, inflation, and the financial sector By Bernardino Adao; Andre C. Silva
  35. NAWRU Estimation Using StructuralLabour Market Indicators By Atanas Hristov; Christophe Planas; Werner Roeger; Alessandro Rossi
  36. The Effects of Macro-prudential Policies on House Prices Using Real Transaction Data: Evidence from Korea (in Korean) By Hosung Jung; Jieun Lee
  37. The mightier, the stingier: Firms’ market power, capital intensity, and the labor share of income By Adrjan, Pawel
  38. Monetary System of Georgia in XI-XII centuries and its Effect on Economic Activity By Abuselidze, George
  39. The Rise and Fall of Consumption in the '00s. A Tangled Tale. By Demyanyk, Yuliya; Hryshko, Dmytro; Luengo-Prado, Maria; S�rensen, Bent E
  40. Fiscal fault, financial fix? Capital Markets Union and the quest for macroeconomic stabilization in the euro area By Braun, Benjamin; Hübner, Marina
  41. A Cross-Country Comparison of Dynamics in the Large Firm Wage Premium By Colonnelli, Emanuele; Tåg, Joacim; Webb, Michael; Wolter, Stefanie
  42. Monetary policy operating procedures, lending frictions, and employment By David Florian Hoyle; Chris Limnios; Carl E. Walsh
  43. Paradigmele istoriei. Datoria publică a României în ultimii 100 de ani By Georgescu, George
  44. Macroeconomic indicators of determination on tax behaviour of OECD countries By Sokolovskyi, Dmytro
  45. The Rise and Fall of Unproductive Activities in the US Economy 1964-2015: Facts, Theory and Empirical Evidence By Tsoulfidis, Lefteris; Tsimis, Achilleas; Paitaridis, Dimitris
  46. State-dependent Forward Guidance and the Problem of Inconsistent Announcements By Julian A. Parra-Polania
  47. Some Unpleasant Euro Arithmetic By Guillaume Gaulier; Vincent Vicard
  48. Portugal and the Euro By António Mendonça
  49. Social Security: Progressive Benefits but Regressive Outcome? By Monisankar Bishnu; Nick L. Guo; Cagri S Kumru
  50. Business cycle effect on leverage: A study of Indian non-financial firms By Pattanaik, Arpita; Rajeswari Sengupta
  51. How the Economics Profession Got It Wrong on Brexit By Ken Coutts; Graham Gudgin; Jordan Buchanan
  52. Estimating Unequal Gains across U.S. Consumers with Supplier Trade Data By Colin J. Hottman; Ryan Monarch
  53. Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks By Baumeister, Christiane; Hamilton, James
  54. Turbulence and Unemployment in Matching Models By Isaac Baley; Lars Ljungqvist; Thomas J. Sargent
  55. Impact of Macroeconomic and Demographic Variables on the Stock Market: Evidence from Tunisian Crisis By Ben Yaala, sirine; Henchiri, jamel E.
  56. Employment protection legislation impacts on capital and skill composition By Cette Gilbert; Lopez Jimmy; Mairesse Jacques
  57. A search for Theory of Financial Market Failure in Lower Income Countries (LICs) and implication for Financial Exclusion. By Agyekum, Francis; Locke, Stuart; Hewa-Wellalage, Nirosha
  58. Demographics and FDI: Lessons from China's One-Child Policy By John B. Donaldson; Christos Koulovatianos; Jian Li; Rajnish Mehra
  59. The real value of China’s stock market By Carpenter, Jennifer N.; Lu, Fangzhou; Whitelaw, Robert F.
  60. The real value of China’s stock market By Carpenter, Jennifer N.; Lu, Fangzhou; Whitelaw, Robert F.
  61. The Effects of Household Debt on Consumption and Economic Growth (in Korean) By Joung Ku Kang
  62. The Recent Reform of the Labour Market in Italy: A Review By Dino Pinelli; Roberta Torre; Lucianajulia Pace; Laura Cassio; Alfonso Arpaia
  63. Divergent EME Responses to Global and Domestic Monetary Policy Shocks By Woon Gyu Choi; Byongju Lee; Taesu Kang; Geun-Young Kim
  64. The fall and rise of market power in Europe By John P. Weche; Achim Wambach
  65. The fall and rise of market power in Europe By Weche Gelübcke, John P.; Wambach, Achim
  66. Economic Analysis of Social Security Survivors Insurance By Li, Yue
  67. Rational Models for Inflation-Linked Derivatives By Henrik Dam; Andrea Macrina; David Skovmand; David Sloth
  68. Sophisticated and small versus simple and sizeable: When does it pay off to introduce drifting coefficients in Bayesian VARs? By Martin Feldkircher; Florian Huber; Gregor Kastner
  69. Fiscal multipliers in South Africa: The importance of financial sector dynamics By Konstantin Makrelov; Channing Arndt; Rob Davies; Laurence Harris
  70. Time-Consistently Undominated Policies By Martin Ellison; Charles Brendon
  71. Prospects for progressive tax reform in Asia and the Pacific By Zheng Jian; Daniel Jeongdae
  72. QAIDS Model Based on Russian Pseudo - Panel Data: Impact of 1998 and 2008 Crises By Ermolova, Maria D.; Penikas, Henry I.
  73. The productivity slowdown and the declining labor share: a neoclassical exploration By Grossman, Gene M.; Helpman, Elhanan; Oberfield, Ezra; Sampson, Thomas
  74. Natural, effective and BOP-constrained rates of growth: Adjustment mechanisms and closure equations By Porcile, Gabriel; Sartorello Spinola, Danilo
  75. Exploring the Linkage between Corruption and Economic Development in Case of Selected Developing and Developed Nations By Audi, Marc; Ali, Amjad
  76. Interpreting sustainable development goals for 2030: implications for Malawi By Chirwa, Themba
  77. What finance for what investment? Survey-based evidence for European companies By Ferrando, Annalisa; Preuss, Carsten
  78. Is there a trade-off between free capital mobility, financial stability and fiscal policy flexibility in the EMU? By Canale, Rosaria Rita; de Grauwe, Paul; Foresti, Pasquale; Napolitano, Oreste
  79. Rainfall Inequality, Political Power, and Ethnic Conflict in Africa By Andrea Guariso; Thorsten Rogall
  80. Clower’s Dual-Decision Hypothesis is economics By Wu, Cheng
  81. From Firm-level Imports to Aggregate Productivity: Evidence from Korean Manufacturing Firms Data By JaeBin Ahn; Moon Jung Choi
  82. Population Aging and the Real Interest Rate in the Last and Next 50 Years -- A tale told by an Overlapping Generations Model -- By Nao Sudo; Yasutaka Takizuka
  83. Inequality, employment and public policy By S. Mahendra Dev
  84. What Drives Interbank Loans? Evidence from Canada By Narayan Bulusu; Pierre Guérin
  85. Optimal policy design: A CGE approach By Martin Cicowiez; Bernard Decaluwé; Mustapha Nabli
  86. Failures of the national policy for sustainable development of Bulgaria – economic dimensions By Nozharov, Shteryo; Koralova, Petya

  1. By: Kim, Kyunghun (Korea Institute for International Economic Policy); Lee, Il Houng (Bank of Korea); Shim, Won (Bank of Korea)
    Abstract: This paper proposes a monetary aggregate “Liquidity” that could serve as a useful indicator for gauging the appropriateness of monetary policy. If liquidity rises above a certain threshold, it is signaling that monetary policy is losing traction due to structural and other impediments even when the inflation gap remains open. This indicator supplements the financial cycle approach but adds value by providing a benchmark that is derived from the national account, and not based on its own trend. Over the last two decades, each time this measure rose above the threshold range, it was followed by a decline in GDP growth. The latter was greater when accompanied by a high physical asset value to GDP, e.g., an elevated property market.
    Keywords: Liquidity; Monetary policy; Inflation targeting; Financial stability
    JEL: E31 E32 E52 G01
    Date: 2018–01–19
  2. By: Ogawa, Shogo
    Abstract: We extend the general disequilibrium model of Malinvaud(1980) by using dual labor market theory. By considering two tiers of workers, we find that while the duality of the labor market expands an equilibrium regime in the short term, it does not always keep an equilibrium in the medium term. In the medium term, the business cycle converges toward a disequilibrium regime unless the goods market is potentially in equilibrium. Employment and wages at the steady state are affected by the size of the government, and the stability of wage bargaining is only a sufficient condition of the local stability of our dynamic system. Therefore, involuntary unemployment can be remedied only when goods demand is sufficiently large.
    Keywords: Disequilibrium macroeconomics; Non-Walrasian analysis; Segmented labor markets; Business cycles
    JEL: E12 E24 E32 J42
    Date: 2018–01–23
  3. By: Chileshe, Patrick Mumbi; Akanbi, Olusegun Ayodele
    Abstract: This study undertook to investigate interest rate pass-through in Zambia with a focus on unravelling evidence on the asymmetric response of retail and bond yield rates to monetary policy controlled rates. The study utilise a non-linear ARDL model to investigate the relationship between policy-controlled rates and retail rates as well as bond yield rates. Based on the single-equation error correction model and the associated dynamic multipliers, the study is able to model asymmetries in both the long-run relationship and the pattern of dynamic adjustment simultaneously and in a coherent manner. In addition, the study present results from a symmetrical ARDL model. Results from the study support evidence to the existence of asymmetry in the response of retail and bond yield rates to changes in policy-controlled interest rates (interbank and 3-month rate). Specifically, there is a negative asymmetry in the response of deposit rates to changes in the interbank and 3-month rates while there is a positive asymmetry with regard to lending and bond yield rates.
    Keywords: Asymmetry; Symmetry; Interest rate Pass-through; ARDL; Non-linear ARDL; Zambia
    JEL: E00 E43 E51 E52
    Date: 2016–10
  4. By: Katalin Bodnár (Central Bank of Hungary and European Central); Ludmila Fadejeva (LatvijaS Banka); Marco Hoeberichts (De Nederlandsche Bank); Mario Izquierdo Peinado (Banco de España); Christophe Jadeau (Banque de France); Eliana Viviano (Bank of Italy)
    Abstract: More than five years after the start of the Sovereign debt crisis in Europe, its impact on labour market outcomes is not clear. This paper aims to fill this gap. We use qualitative firm-level data for 24 European countries, collected within the Wage Dynamics Network (WDN) of the ESCB. We first derive a set of indices measuring difficulties in accessing the credit market for the period 2010-13. Second, we provide a description of the relationship between credit difficulties and changes in labour input both along the extensive and the intensive margins as well as on wages. We find strong and significant correlation between credit difficulties and adjustments along both the extensive and the intensive margin. In the presence of credit market difficulties, firms cut wages by reducing the variable part of wages. This evidence suggests that credit shocks can affect not only the real economy, but also nominal variables.
    Keywords: credit difficulties, labour input adjustment, intensive margin
    JEL: D53 E24 E44 G31 G32
    Date: 2017–12
  5. By: Andrea Boitani (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore); Chiara Punzo (Università Cattolica del Sacro Cuore; Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)
    Abstract: In a NK model with two types of rational agents, savers and capitalists, and non- maximizing banks, nancial shocks do a¤ect the macroeconomic dynamics depending on banksbehaviour as for their leverage ratio. We rst show that the level of banks leverage - which may be imposed by banks regulation - a¤ects the steady state level of output, employment and consumption, as might be expected in a non-Modigliani- Miller world. Di¤erent banks behaviour after a shock has widely di¤erent e¤ects on the macroeconomic dynamics: passive leverage results to be shock absorbing and capable of neutralizing an initial nancial shock, whilst procyclical behaviour implies higher and more persistent instability and distributive e¤ects than the constant lever- age behaviour. Finally, we show that the interaction of procyclical leverage with hysteresis in output and employment stregthens the persistence of nancial shocks.
    Keywords: Leverage, Procyclicality; Two-agent model; Non-maximising banks.
    JEL: E32 E44 G01
    Date: 2018–01
  6. By: Giorgio Di Giorgio (LUISS Guido Carli and CASMEF); Guido Traficante (European University of Rome and CASMEF)
    Abstract: We study the effects of expansionary fiscal shocks in a two-country DSGE model with perpetual youth. We consider two alternative financing regimes, monetary financing and debt financing, and find that a money-financed fiscal stimulus is more expansionary on output and infl ation. We investigate how the transmission mechanism is related to the open-economy dimension and how structural parameters affect macroeconomic dynamics.
    Keywords: Exchange Rate, Fiscal Shocks, Helicopter Drop.
    JEL: E32 E52 F41 F42
    Date: 2018–01
  7. By: Sungyup Chung (Macroeconomics Team, Economic Research Institute, The Bank of Korea)
    Abstract: Most previous empirical studies on the effects of monetary policy on employment fail to take care of the "price puzzle," concluding that the estimated response of inflation is positive to the contractionary monetary policy shock. This paper aims to resolve this problem by using a factor augmented vector autoregressive (FAVAR) model suggested by Bernanke et al. (2005). Additionally, a small-open economy structure is imposed on the FAVAR model to separately identify the domestic and foreign interest rate shocks. The results suggest that a raise in the key rate by the Bank of Korea decreases the employment-to-population ratio (EPR) of young male workers while other worker groups do not respond in a similar fashion. This implies that a labor demand channel of monetary policy works only in the young male workers market. This finding is also in concord with the fact that young workers confront a relatively high unemployment rate compared to other population groups since a larger reserve labor force means a bigger sensitivity to a change in labor demand change.
    Keywords: Employment, Monetary policy impact, FAVAR
    JEL: E24 E52 E58
    Date: 2016–04–07
  8. By: Lind�, Jesper; Trabandt, Mathias
    Abstract: We calculate the magnitude of the government consumption multiplier in linearized and nonlinear solutions of a New Keynesian model at the zero lower bound. Importantly, the model is amended with real rigidities to simultaneously account for the macroeconomic evidence of a low Phillips curve slope and the microeconomic evidence of frequent price changes. We show that the nonlinear solution is associated with a much smaller multiplier than the linearized solution in long-lived liquidity traps, and pin down the key features in the model which account for the difference. Our results caution against the common practice of using linearized models to calculate fiscal multipliers in long-lived liquidity traps.
    Keywords: Fiscal policy; liquidity trap; monetary policy; zero lower bound
    JEL: E52 E58
    Date: 2017–12
  9. By: Sotirios Kokas; Dmitri Vinogradov; Marios Zachariadis
    Abstract: By adjusting their lending, banks can smooth or amplify the macroeconomic impact of deposit fluctuations. This may however lead to extended periods of disproportionately high lending relative to deposit intake, resulting in the accumulation of risk in the banking system. Using bank-level data for 8,477 banks in 129 countries for the 24-year period from 1992 to 2015, we examine how individual banks' market power and other characteristics may contribute to smoothing or amplification of shocks and to the accumulation of risk. We find that the higher their market power the lower is the growth rate of lending relative to deposits. As a result, in periods of falling deposits, higher market power for the average bank would be associated with a greater fall in lending resulting in amplification of adverse effects as deposits fall during relatively bad times. Strikingly, at very high levels of market power there is a threshold past which the effect of market power on the growth rate of lending relative to deposits turns positive so that “superpower” banks contribute to smoothing of adverse effects when deposits are falling. In periods of rising deposits, however, such banks lead to amplification and accumulation of risk in the economy.
    Keywords: smoothing; amplification; risk accumulation; market power; competition; crisis
    JEL: E44 E51 F3 F4 G21
    Date: 2018–01
  10. By: KLEIN, Mathias; WINKLER, Roland
    Abstract: Based on a large historical panel dataset, this paper provides robust evidence that the government spending multiplier is significantly higher when interest rates are at, or near, the zero lower bound. We estimate fiscal multipliers that are around 1.5 during zero lower bound episodes and significantly below unity outside of it. We show that the difference in multipliers is not driven by multipliers being higher during periods of economic slack.
    Keywords: Government spending multiplier, Zero lower bound, Local projections
    JEL: E32 E62 E65
    Date: 2018–01
  11. By: Nicolas Carnot; Stéphanie Pamies Sumner
    Abstract: The economic and fiscal outlook has recently improved for European economies, raising the odds that high public debts inherited from the crisis will be gradually wound down in line with EU fiscal rules. This will however take time and future debt trajectories remain exposed to significant uncertainties. In this context, this paper explores some implications of GDP-linked bonds (GLBs), an instrument for national debt management that has recently sparked growing interest. Based on the data and tools of the Commission Debt Sustainability Monitor, our results suggest significant potential benefits from GLBs in reducing debt uncertainties for all European economies. These benefits would be notably large in countries characterised by medium-to-high debt, high macroeconomic volatility and limited alternative tools to smoothen shocks. A risk premium would not eliminate the debt-stabilisation benefits brought by GLBs. The fall in the probability of explosive debt paths could also reduce the premium demanded by investors on conventional bonds in high-debt countries. The issuance of a fraction of GLBs can however be no substitute for pursuing sound economic and budgetary policies curbing national debts.
    JEL: H63 F34 E62
    Date: 2017–12
  12. By: Wildmer, Gregori (European Commission – JRC); Agnese, Sacchi (Sapienza University of Rome)
    Abstract: This paper investigates whether rumours about Greek exit from the euro area have spilled over into other European countries’ sovereign bond yields. Our empirical analysis is based on more than 64,000 daily news items on Grexit between December 2014 and October 2015. We build a Grexit intensity index based on the daily change of Grexit news items to capture policy uncertainty about the euro area break-up. Our results suggest that higher intensity of Grexit news drives up government bond yields in peripheral countries (Italy, Portugal, and Spain, excluding Ireland), but that there are no effects on core countries. The asymmetric reaction to Grexit news seems to support a more general ‘market-based fiscal disciplining’ mechanism at work in monetary unions.
    Keywords: Grexit; financial markets; government bond; news; euro area; GARCH
    JEL: E43 E62 G12 G14
    Date: 2017–12
  13. By: Jieun Lee (Economic Research Institute, The Bank of Korea); Jung-Min Kim (University of Seoul); Jong Kook Shin (Newcastle University Business School)
    Abstract: Using the novel high frequency capital flow dataset from the EPFR Global, this study empirically investigates the spillover effects of the US Fed's monetary policy on the international capital flow in South Korea. Around the Fed's monetary policy announcement (event) week, we find that equity investors appear to temporarily increase (decrease) their portfolio holdings in South Korea upon a more-than-expected contractionary (expansionary) interest rate policy, while bond investors do not change their portfolio holdings much. This result is robust to the exclusion of influential observations, alternative estimation methods as well as inclusion of an additional explanatory variable which explicitly controls for possible endogeneity. Additionally, we conduct the full sample regression analysis including event and non-event weeks after controlling for the pull and push factors that are likely to be associated with the international capital flow. Our empirical evidence shows that unexpected US policy shocks have a significant negative impact on certain types of international capital flow. Specifically, the unexpected US contractionary monetary policy appears to be associated with equity fund outflow from the US, passive and institutional investors and bond fund outflow from retail investors.
    Keywords: US monetary policy, Interest rate policy, Spillover, Capital flow, High frequency identification, Event study
    JEL: E44 E52 E58 F32
    Date: 2016–12–30
  14. By: Boehl, Gregor
    Abstract: Financial market interactions can lead to large and persistent booms and recessions. Instability is an inherent threat to economies with speculative financial markets. A central bank's interest rate setting can amplify the expectation feedback in the financial market and this can lead to unstable dynamics and excess volatility. The paper suggests that policy institutions may be well-advised to handle tools like asset price targeting with care since such instruments might add a structural link between asset prices and macroeconomic aggregates. Neither stock prices nor indices are a good indicator to base decisions on.
    Keywords: monetary policy,asset pricing,nonlinearity,heterogeneous expectations,credit constraints
    JEL: E44 E52 C63
    Date: 2017
  15. By: Nicolas Crouzet; Neil R. Mehrotra
    Abstract: Drawing on a new, con dential Census Bureau dataset of financial statements of a representative sample of 80000 manufacturing firms from 1977 to 2014, we provide new evidence on the link between size, cyclicality, and financial frictions. First, we only find evidence of lower cyclicality among the very largest firms (the top 1% by size). Second, due to high and rising concentration of sales and investment, the lower sensitivity of the top 1% firms dominates the behavior of aggregate fluctuations. Third, we show that this differential sensitivity does not appear to be driven by financial frictions. The higher sensitivity of the bottom 99% does not disappear after controlling for measures of financial strength, is not statistically significant after identified monetary policy shocks, and does not appear in debt financing flows. Evidence from 3-digit industries suggests a non-financial explanation: the largest 1% of firms are less sensitive due to a more diversified customer base.
    Keywords: Firm size, business cycles, financial accelerator.
    JEL: E23 E32 G30
  16. By: Olivo, Victor
    Abstract: This paper presents and discusses the econometric estimation of several models of inflation that follow the New Keynesian (NK) approach, and compares the results with those obtained with a model based on the quantity theory. The period of estimation is from the first quarter of 1980 until the fourth quarter of 2016. The main finding of the paper is that modeling inflation following a quantity theory approach produces a better overall explanation of the dynamics of the US inflation for the period under analysis than the ubiquitous New Keynesian models. Additionally, the quantity theory approach beats the New Keynesian models in offering a more coherent narrative of the relative deceleration that inflation has exhibited since the financial crisis (the so-called inflation puzzle).
    Keywords: Central banks,inflation, monetary policy, Phillips curve, money supply, velocity of money, interest rates
    JEL: E31 E52
    Date: 2018–01–22
  17. By: Amélie Charles; Olivier Darné; Fabien Tripier
    Abstract: This paper proposes an uncertainty composite indicator (UCI) based on three distinct sources of uncertainty (namely financial, political, and macroeconomic) for the US economy on the period 1985-2015. For that, we use the dynamic factor model proposed by Doz et al. (2012), summarizing efficiently six individual uncertainty proxies, namely two macroeconomic and financial uncertainty factors based on the unpredictability, a measure of (micro)economic uncertainty, the implied volatility index, the corporate bond spreads, and an index of economic policy uncertainty. We then compare the effects of uncertainty on economic activity when the UCI is used instead of individual uncertainty proxies in structural VAR models. The interest of our UCI is to synthesize theses effects within one measure of uncertainty. Overall, the UCI was able to account for the most important dynamics of uncertainty which play an important role in business cycles. We found that the individual uncertainty proxies based macro unpredictability and corporate bond spread are also important source in explaining the volatility of the macroeconomic variables. However, these two individual proxies are not the dominant source of fluctuations (compared to the other uncertainty variables) in some cases.
    Keywords: Uncertainty;Dynamic Factor Model;Business Cycle
    JEL: C38 C32 E32
    Date: 2017–12
  18. By: Soyoung Kim (Department of Economics, Seoul National University); Geunhyung Yim (Economic Research Institute, The Bank of Korea)
    Abstract: Under inflation targeting, central banks set an inflation target in advance and then try to make an actual inflation hit the target. However, central banks may have an incentive to adjust the target to actual inflation rates such as past inflation rates, to make the actual inflation rate close to the target. This paper examines this issue of "endogeneity of inflation target" by using various empirical methods with the sample of 19 inflation targeting countries. Empirical results show that an inflation rate has significantly positive effect on the inflation target of the next period. Empirical results further suggest that this endogeneity of the inflation target is found more strongly in central banks with low credibility or weak performance than in central banks with high credibility or strong performance.
    Keywords: Inflation targeting, Inflation rate, Inflation target, Endogeneity
    JEL: E31 E58
    Date: 2016–12–19
  19. By: Glennie Lauren Moore; Engelbert Stockhammer
    Abstract: Household debt is at a record high in most OECD countries and it played a crucial role in the recent financial crisis. Several arguments on the macroeconomic drivers of household debt have been put forward, and most have been empirically tested, albeit in isolation of each other. This paper empirically tests seven competing arguments on the macroeconomic determinants of household indebtedness together in one econometric study. The arguments are that residential house prices, upward movements in the prices of assets demanded by households, the income share of the top 1%, falling wages, the rolling back of the welfare state, the age structure of the population and the short-term interest rate drive household indebtedness. We test these arguments for a panel of 13 OECD countries over the period 1993 - 2011 using error correction models. We also investigate whether effects differ in boom and bust phases of the debt and house price cycles. The results show that the most robust macroeconomic determinant of household debt is real residential house prices, and that the phase of the debt and house price cycles plays a role in household debt accumulation.
    Keywords: household debt, house prices, cycles
    JEL: E19 E21 R20
    Date: 2018–02
  20. By: Andrew Filardo; Jacopo Lombardi; Carlos Montoro
    Abstract: How do monetary policy spillovers complicate the trade-offs faced by central banks face when responding to commodity prices? This question takes on particular relevance when monetary authorities find it difficult to accurately diagnose the drivers of commodity prices. If monetary authorities misdiagnose commodity price swings as being driven primarily by external supply shocks when they are in fact driven by global demand shocks, this conventional wisdom - to look through the first-round effects of commodity price fluctuations - may no longer be sound policy advice. To analyse this question, we use the multi-country DSGE model of Nakov and Pescatori (2010) which breaks the global economy down into commodity-exporting and non-commodity-exporting economies. In an otherwise conventional DSGE setup, commodity prices are modelled as endogenously changing with global supply and demand developments, including global monetary policy conditions. This framework allows us to explore the implications of domestic monetary policy decisions when there is a risk of misdiagnosing the drivers of commodity prices. The main findings are: i) monetary authorities deliver better economic performance when they are able to accurately identify the source of the shocks, ie global supply and demand shocks driving commodity prices; ii) when they find it difficult to identify the supply and demand shocks, monetary authorities can limit the deterioration in economic performance by targeting core inflation; and iii) the conventional wisdom approach of responding to global commodity price swings (as external supply shocks when they are truly global demand shocks) results in an excessive procyclicality of global inflation, output and commodity prices. In light of recent empirical studies documenting a significant role of global demand in driving commodity prices, we conclude that the systematic misdiagnoses inherent in the conventional wisdom applied at the country level have contributed to destabilising procyclicality at the global level. These findings support calls for greater attention to global factors in domestic monetary policymaking and highlight potential gains from greater monetary policy cooperation focused on accurate diagnoses of domestic and global sources of shocks.
    Keywords: commodity prices, monetary policy, spillovers, global economy
    JEL: E52 E61
    Date: 2018–01
  21. By: Villarreal, Francisco G.
    Abstract: Motivated by the evidence of the effects of monetary policy on the evolution of inequality, and the importance of insurance mechanisms to deal with idiosyncratic risks, the paper explores the relationship between household inequality and monetary policy in the context of a dynamic stochastic general equilibrium model. In contrast to the traditional approach where the demand-side of the economy is summarised by a single representative agent, the model considers heterogeneous households which face idiosyncratic shocks which they can not fully insure against. The model, which is calibrated using data from Mexico, is able to capture the main features that characterise both the business cycle dynamics, as well as the distribution of income and wealth across households. The results stemming from a series of counterfactual experiments indicate that the the presence of heterogeneity impinges upon the transmission of monetary policy, and that the design of monetary policy has important distributive effects.
    Keywords: Monetary Policy, Heterogeneous Agents, Redistribution
    JEL: D31 D53 E12 E52 O11
    Date: 2016–11
  22. By: Natoli, Filippo; Metelli, Luca
    Abstract: We investigate the international propagation of fiscal policy shocks originated in the United States using a Global VAR framework. We identify shocks to US tax rates and government spending by using narrative series as external instruments, following the proxy SVAR methodology. The main results of the paper are the following: (1) the domestic effects of tax shocks are stronger than those of a government spending shock (2) spillovers are in most cases positive and significant, albeit of small size; (3) the boost to exports in recipient economies, stimulated both by stronger US demand and by real exchange rate depreciation vis-à-vis the US dollar, is the main transmission channel; financial channels (through long-term interest rates and equity prices) also play a role.
    Keywords: international fiscal spillovers, proxy SVAR, GVAR
    JEL: C22 C25 E62 F42
    Date: 2018–01–17
  23. By: Xiaoqing Zhou
    Abstract: The consumption boom-bust cycle in the 2000s coincided with large fluctuations in the volume of home equity borrowing. Contrary to conventional wisdom, I show that homeowners largely borrowed for residential investment and not consumption. I rationalize this empirical finding using a calibrated two-goods, multiple-assets, heterogeneous-agent life-cycle model with borrowing frictions. The model replicates key features of the household-level and aggregate data. The model offers an alternative explanation of the consumption boom-bust cycle. This cycle is caused by large fluctuations in the number of borrowers and hence in total home equity borrowing, even though the fraction of borrowed funds spent on consumption is small.
    Keywords: Credit and credit aggregates, Economic models, Housing
    JEL: D1 E2 E3
    Date: 2018
  24. By: JaeBin Ahn (Research Department, International Monetary Fund); Chang-Gui Park (Economic Research Team, Daejeon & Chungnam Branch, the Bank of Korea); Chanho Park (International Finance Division, International Department, the Bank of Korea)
    Abstract: Motivated by stylized facts pointing to a dominant role of imported inputs in transmitting external price shocks to domestic prices, this paper zooms in to study the pass-through of imported input costs to domestic producer prices. Our approach constructs effective input price indices from sector-level price data combined with sector-level information on input-output linkages. Applying an error correction model specification to sector-level output and input prices, the long-run pass-through rate of effective imported input costs to domestic producer prices is estimated to be around 70 percent in Korea and almost 100 percent in selected European countries.
    Keywords: Exchange rate pass-through, Imported input cost pass-through, Inflation
    JEL: E3 F3 F4
    Date: 2016–01–20
  25. By: Mwinlaaru, Peter Yeltulme; Ofori, Isaac Kwesi; Adiyiah, Kwadwo Agyeman; Idun, Anthony Adu-Asare
    Abstract: ABSTRACT The maintenance of asset quality, efficiency and profitability is a vital requirement for the survival and development of Universal Banks. Loans constitute the main asset class from which banks generate their major portion of income and also signify the greatest risk to banks. Recently, the default rate of loan in the country has been on the increase and perturbing to all. Due to the detrimental effect that Non-Performing Loans (NPLs) have on a bank’s revenue and the economic welfare of a country, the study sort to determine the impact of NPLs on Universal Banks profitability based on a quarterly data from 2000 to 2014. The study employed the ARDL bounds test of co-integration as an estimation technique to show the evidence of long run relationship among the variables. The study found that NPLs had a significant negative impact on Universal Banks profitability in both the short run and long run The study recommends that Universal Banks should revise their lending policy depending on the situation and economic condition of the country as well as minimising their periodic loans targets by not engaging in risky loaning practices.
    Keywords: Auto Regressive Distributed Lag (ARDL), Gross Domestic Product Growth, Non-Performing Loans, Unemployment rate, Universal Banks Profitability
    JEL: E02 E2 E21 G2
    Date: 2016–10–10
  26. By: Jong Ku Kang (Economic Research Institute, The Bank of Korea)
    Abstract: This paper analyzes the interaction between monetary and macroprudential policies with different levels of cooperation among policy authorities: non-cooperation, full cooperation, and leader-follower relation. In non-cooperation, each policy authority's optimal response is to tighten its policy measures when the inflation gap, the output gap and the credit gap expand, and when other authorities' policy measures are loosened. This indicates that the two policies are substitutes for each other. The condition for the response functions to converge to a Nash equilibrium and the speed of convergence depend on the authorities' preferences and the economic structure. If the financial supervisory authority (FSA) puts greater importance on the output gap, the probability of non-convergence increases and the speed of convergence declines even when the condition of convergence is satisfied. When the policy authorities fully cooperate with each other, they can establish an optimal combination of policy responses to each of the three gaps.
    Keywords: Monetary policy, Central banking, Financial regulation
    JEL: E52 E58 G28
    Date: 2016–06–24
  27. By: Dudley Cooke (University of Exeter); Tatiana Damjanovic (Durham Business School)
    Abstract: This paper studies the macroeconomic implications of firm selection in a model with monopolistic competition and translog preferences. Firm selection magnifies the impact of aggregate technology shocks. Magnification 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: 2018–01
  28. By: Kieran Mc Morrow; Werner Roeger; Valerie Vandermeulen
    Abstract: This paper sheds light on two specific, but interlinked, questions – firstly, how do the EU's, medium term actual GDP growth rate forecasts compare, in terms of accuracy and biasedness, with those of the EU's Member States, in their annual Stability and Convergence Programme (SCP) updates; and secondly, should medium term forecasts be allowed to influence the short run output gap and structural balance calculations used in the EU’s fiscal surveillance procedures. Regarding the first question, the paper concludes that the EU's medium term forecasts are equally as good, and arguably better, than those of the SCP's both with respect to accuracy and biasedness. Regarding the second question, due to the relatively rapid loss in forecast accuracy as the time horizon lengthens; the paper suggests that using more forecast information should be avoided in the output gap and structural balance calculations. Extending the forecast horizon to be used in the output gap calculations could exacerbate an existing optimistic bias with respect to the supply side health of the EU’s economy, thereby enlarging the risk of procyclicality problems, especially in the upswing phase of cycles, where most of the large fiscal policy errors tend to occur.
    JEL: C10 E60 O10
    Date: 2017–10
  29. By: Berger, Tino; Wortmann, Marcus
    Abstract: The literature on international business cycles has employed dynamic factor models to disentangle global from group-specific and national factors in countries' macroeconomic aggregates. Therefore, the countries have simply been classified ex ante as belonging to the same region or the same level of development. This paper estimates a DFM for a sample of 106 countries and three variables (output, consumption, investment) over the period 1960 to 2014, in which the countries are classified according to the outcome of a cluster analysis. By comparing the results with those obtained by the previous grouping approaches, we show substantial deviations in the importance of global and group-specific factors. Remarkably, when the groups are defined properly, the 'global business cycle' accounts for only a very small fraction of macroeconomic fluctuations, most evidently in the industrialized world. The group-specific factors, on the other hand, play a much greater role for national business cycles than previously thought - also in the pre-globalization period.
    Keywords: international business cycles,globalization,regionalization,dynamic factormodels,cluster analysis
    JEL: C32 C38 E32 F44
    Date: 2018
  30. By: Noh-Sun Kwark (Department of Economics, Sogang University); Hosung Lim (Economic Research Institute, The Bank of Korea)
    Abstract: This study empirically estimates how much FTAs affect domestic inflation rates. Most previous studies have been interested in the economic effects of FTAs such as the effects on economic growth, income distribution across industries, price competitiveness for international trade, trade volume, and the price of a commodity. The purpose of this study is an econometric estimation of the price stabilization due to FTAs and an analysis of how FTAs affect inflation rates based on panel data estimations. The main results are summarized as follows. First, from an analysis on 72 detailed items which estimates the pricing equations for the 72 detailed items, calculates the but-for-price after FTAs started, and gets the weighted price index, we find that FTAs reduce the CPI inflation rate by 0.76%p at an annual basis from the second quarter of 2004 to the second quarter of 2015. Second, the aggregate data analysis estimates the effect of FTAs on the CPI inflation rate as -0.52%p and the effect of the global financial crisis on the CPI inflation rate as -0.47%p. Third, the panel data analysis for the OECD countries also shows a significant and consistent inflation reduction effect of FTAs, such effect is more significant than the effect of traditional openness on inflation rates. The inflation reduction effect of FTAs is more significant in countries with a low level of openness.
    Keywords: FTA, Price stabilization, Panel data analysis
    JEL: E31 F15
    Date: 2017–01–23
  31. By: Ana Arencibia Pareja (Banco de España); Ana Gómez Loscos (Banco de España); Mercedes de Luis López (Banco de España); Gabriel Pérez Quirós (Banco de España)
    Abstract: This document describes the key aspects of the extended and revised version of Spain-STING (Spain, Short-Term Indicator of Growth), which is a tool used by the Banco de España for the short-term forecasting of the Spanish economy’s GDP and its demand components. Drawing on a broad set of indicators, several dynamic factor models are estimated. These models allow the forecasting of GDP, private consumption, public expenditure, investment in capital goods, construction investment, exports and imports in a consistent way. We assess the predictive power of the GDP and its demand components for the period 2005- 2017. With regard to the GDP forecast, we find a slight improvement on the previous version of Spain-STING. As for the demand components, we show that our proposal is better than other possible time series models.
    Keywords: business cycles, spanish economy, dynamic factor models.
    JEL: E32 C22 E27
    Date: 2018–02
  32. By: Jan Bruha; Oxana Babecka Kucharcukova
    Abstract: In this paper, we analyse macroeconomic developments in European economies since the Great Recession. We present evidence that macroeconomic developments in the EU countries can be classified into latent classes. Countries in a given class exhibit a similar pattern of economic and labour market developments during and after the crisis. We then present evidence that the latent classes of countries differ in terms of quality of institutions and regulation. Based on this, we conclude that quality of institutions and regulation are crucial for the resilience of countries to shocks. The most important country characteristics associated with a quick recovery after the initial shock are low protection of temporary contracts, political stability, regulatory quality and pre-crisis fiscal space. On the other hand, other types of employment protection and generosity of unemployment benefits seem to not influence resilience.
    Keywords: Great Recession, institutions, regulation, resilience
    JEL: C14 E02 E65
    Date: 2017–12
  33. By: Jongrim Ha (Development Economics Prospects Group (DECPG), World Bank); Inhwan So (Economics Research Institute, The Bank of Korea)
    Abstract: This paper investigates the nature of monetary policy transmission in the U.S. and selected small open economies by estimating SVAR models using the external instrument identification method. Differing from related studies on the U.S., which employ high-frequency futures data on Federal Funds rates, we exploit alternative sets of external instruments for the focal economies. We find that U.S. monetary policy plays an important role in monetary transmission in SOE interest rates, presumably hampering the effectiveness of domestic monetary policy. We also provide some evidence that foreign exchange rates in this process respond to monetary shocks as Dornbusch (1976)'s overshooting hypothesis.
    Keywords: Monetary policy transmission, External instrument identification, Structural VAR model
    JEL: E44 E52
    Date: 2017–01–19
  34. By: Bernardino Adao; Andre C. Silva
    Abstract: We calculate the effects of an increase in government spending financed with labor income taxes or inflation. We consider government spending in the form of government consumption or transfers. We use a model in which agents increase the use of financial services to avoid losses from inflation, as empirically the financial sector increases with inflation. The financial sector size is constant in standard cash-in-advance models, which implies optimal positive inflation. We reverse this result when we take into account the increase in the financial sector. In our framework, it is optimal to use taxes to finance the government. This result is robust to alternative specifications and definitions of seigniorage and government spending. JEL codes: E52, E62, E63
    Keywords: fiscal policy, monetary policy, government financing, demand for money, financial sector
    Date: 2018
  35. By: Atanas Hristov; Christophe Planas; Werner Roeger; Alessandro Rossi
    Abstract: The use of unobserved component models to estimate the NAWRU has been strongly criticized due to some excessive pro-cyclicality at the sample end, especially in the neighbourhood of turning points. To address this criticism, the European Commission now uses a model-based approach where the information set is augmented with a structural indicator of the labour market to which the NAWRU is supposed to converge in a certain number of years. The resulting NAWRU estimates mixes information about the business cycle and the labour market characteristics. The application to the EU Member States shows that besides moderating pro-cyclicality, this approach also reduces the first revision to the one- and two-year-ahead forecasts of the NAWRU in four-fifth of the countries considered.
    JEL: E31 E32 J0 O4
    Date: 2017–10
  36. By: Hosung Jung (Economic Research Institute, The Bank of Korea); Jieun Lee (Economic Research Institute, The Bank of Korea)
    Abstract: We investigate the effects of macro-prudential policies on house prices using event study approaches and dynamic panel models. We construct a unique dataset with house price index based on real transactions and newly estimated loan-to-value (LTV) and debt-to-income (DTI) limits for a monthly panel of 98 districts across Seoul, the Gyeonggi Province and six metropolitan cities covering the period from March 2006 to June 2015. We show that DTI limits appear to be more effective in stabilizing house prices than LTV limits. Both tightening and loosening DTI and only loosening LTV limits are effective. Overall, the results indicate that macro-prudential policies could be a useful tool in curbing excessive household debts and the subsequent house price bubbles. This is the first study to estimate LTV and DTI limits at the district level and analyze the effects of macro-prudential policies on house prices. Our study would provide important lessons for the policy authorities that are implementing LTV and DTI regulations with an aim to cope with a surge in house prices and credit extension.
    Keywords: Macro-prudential policies, Household debt, House prices, LTV, DTI
    JEL: E30 E44 E58 G28
    Date: 2016–07–15
  37. By: Adrjan, Pawel
    Abstract: What determines the proportion of a firm’s income that workers receive as compensation? This paper uses longitudinal firm data from a period of substantial labor share variation to understand the firm-level determinants of the labor share of income—a question that has so far only been addressed with country- and sector-level data. Firms with greater market power and a higher ratio of capital to labor allocate a smaller proportion of their value added to workers. These results suggest that firm-level drivers play a key role in the evolution of the aggregate labor share, which have declined significantly since the 1970s.
    Keywords: Labor Share, Employee Compensation, Factor Income Distribution, Market Power, Capital Intensity
    JEL: D33 E25 J24 J30
    Date: 2018–01–13
  38. By: Abuselidze, George
    Abstract: This works covers peculiarities of formation of Georgian monetary system in XI-XII centuries and their effect on the international financial and economic relations. In this works we have researched the matters of formation of monetary policy of feudal age and their effect on development of foreign trade, methods of money formation important for the present world, which correct choice may provide increase of production volume and economic activity. Currency policy, geopolitical and geostrategic localization proved the country to turn into one of the economically strong economic states with high standard of life, developed system of socioeconomic relations approached to the international standards and democratic institutions.
    Keywords: History of Economy; Economic Development; Monetary Policy; Monetary System; Economic Activity.
    JEL: E42 E52 N13 N15 O1
    Date: 2018–01–21
  39. By: Demyanyk, Yuliya; Hryshko, Dmytro; Luengo-Prado, Maria; S�rensen, Bent E
    Abstract: U.S. consumption has gone through steep ups and downs since 2000. We quantify the statistical impact of income, unemployment, house prices, credit scores, debt, financial assets, expectations, foreclosures, and inequality on county-level consumption growth for four subperiods: the "dot-com recession'' (2001--2003), the "subprime boom'' (2004--2006), the Great Recession (2007--2009), and the "tepid recovery'' (2010--2012). Consumption growth cannot be explained by a few factors; rather, it depends on a large number of variables whose explanatory power varies by subperiod. Growth of income, growth of housing wealth, and fluctuations in unemployment are the most important determinants of consumption, significantly so in all subperiods, while fluctuations in financial assets and expectations are important only during some subperiods. Lagged variables, such as the share of subprime borrowers, are significant but less important.
    JEL: E21
    Date: 2017–12
  40. By: Braun, Benjamin; Hübner, Marina
    Abstract: This paper argues that Capital Markets Union - the EU's attempt to establish a more marketbased financial system - is a result less of financial policymaking than of macroeconomic governance in a politically fractured polity. The current governance structure of Economic and Monetary Union (EMU) severely limits the capacity of both national and supranational actors to provide a core public good, macroeconomic stabilization. While member states have institutionalized fiscal austerity and abandoned other macroeconomic levers, the European polity lacks the fiscal resources necessary to achieve stable macroeconomic conditions: smoothing the business cycle, ensuring growth and job creation, and mitigating the impact of asymmetric output shocks on consumption. Capital Markets Union, we argue, is an attempt by European policymakers to devise a financial fix for this structural capacity gap. Using its regulatory powers, the European Commission, supported by the European Central Bank (ECB), seeks to harness private financial markets and instruments to provide the public policy good of macroeconomic stabilization. We trace how technocrats, think tanks, and financial-sector lobbyists, through the strategic use of knowledge and expertise, established securitization and market-based finance as solutions to EMU's governance problems.
    Keywords: regulation,securitization,euro area,fiscal policy,financial markets,European Commission,ECB,Regulierung,Kreditverbriefung,Euroraum,Steuerpolitik,Finanzmärkte,Europäische Kommission,Europäische Zentralbank
    Date: 2017
  41. By: Colonnelli, Emanuele (Stanford University); Tåg, Joacim (Research Institute of Industrial Economics (IFN)); Webb, Michael (Stanford University); Wolter, Stefanie (Institute for Employment Research)
    Abstract: We provide stylized facts on the existence and dynamics over time of the large firm wage premium for four countries. We examine matched employer-employee micro-data from Brazil, Germany, Sweden, and the UK, and find that the large firm premium exists in all these countries. However, we uncover substantial differences among them in the evolution of the wage premium over the past several decades. Moreover, we find no clear evidence of common cross-country industry trends. We conclude by discussing potential explanations for this heterogeneity, and proposing some questions for future work in the area.
    Keywords: ynamics; Large Firm Wage Premium
    JEL: E24 J01 J31 J33
    Date: 2018–01–19
  42. By: David Florian Hoyle (Central Reserve Bank of Peru); Chris Limnios (Providence College); Carl E. Walsh (University of California, Santa Cruz)
    Abstract: This paper studies a channel system for implementing monetary policy when bank lending is subject to frictions. These frictions affect the spread between the interbank rate and the loan rate. We show how the width of the channel, the nature of random payment flows in the interbank market and the presence of frictions in the loan market affect the propagation of financial shocks that originate either in the interbank market or in the loan market. We study the transmission mechanism of two different financial shocks: 1) An increase in the volatility of the payment shock that banks face once the interbank market has closed and 2) An exogenous termination of loan contracts that directly affects the probability of continuation of credit relationships. Both financial shocks are propagated through the interaction of the marginal value of having excess reserves as collateral relative to other bank assets, the real marginal cost of labor for all active firms and the reservation productivity that selects the mass of producing firms. Our results suggest that financial shocks produce a reallocation of bank assets towards excess reserves as well as intensive and extensive margin effects over employment. The aggregation of those effects produce deep and prolonged recessions that are associated to fluctuations in the endogenous component of total factor productivity that appears as an additional input in the aggregate production function of the economy. We show that this wedge depends on aggregate credit conditions and on the mass of producing firms.
    Keywords: Monetary policy implementation, channel system, central bank, credit frictions
    JEL: E4 G21
    Date: 2018–02
  43. By: Georgescu, George
    Abstract: The study focuses on the analysis of Romania’s public debt over the last 100 years, on three distinct historical periods (interwar, under communist regime, and the transition to the market economy), characterized, despite essential system differencies, by the same paradigm of a sinusoidal trajectory of the economic development, fundamentally affected by the overindebtedness costs and/or, paradoxically, by those of debt liquidation. The paper highlights the main causes of the public debt accumulation, the destinations of loans, trying to assess the sustainability parameters thoughout the last century. It was found that, in terms of debt sustainability, Romania had, in most of the time, an excessive indebtedness degree, accentuated by heavy financial and political consequences of the two world wars before 1990 and, after this, by the transition costs and the global crisis effects, which impacted the macroeconomic situation of the country.
    Keywords: B22, E44, E62, F34, H63, N44
    JEL: B22 E44 E62 F34 H63 N44
    Date: 2017–10
  44. By: Sokolovskyi, Dmytro
    Abstract: The article deals with investigation of principles, factors and conditions of the government’s tax behavior, notably by means of changing the tax burden. We define a set of potential indicators of the economic efficiency, based on GDP and FDI, nominal and per capita, as well as the ratio of FDI to GDP. By using the statistical analysis techniques we found the statistical dependence between government’s behavior and each of the selected indicators. We argued that the factor GDP per capita has the biggest impact on the government’s tax decisions. Also it showed that the governments mostly act as satisfiers. The obtained results allow to understand the principles of governments’ decision-making, and, therefore, to forecast in some way their behavior in certain economic conditions. Moreover, it could help to understand the reasons why the “race to the bottom” situation appears. The present paper differs from previous studies both by the topic, studying the relations between government’s tax behavior and efficiency of countries economies and by the approach to define this dependence, since the latest can be observed only when each variant of government’s tax reaction is analyzed separately.
    Keywords: economic efficiency; tax burden; tax behavior; satisfier; CIT; GDP; FDI; per capita
    JEL: C12 E22 H30
    Date: 2018–01–20
  45. By: Tsoulfidis, Lefteris; Tsimis, Achilleas; Paitaridis, Dimitris
    Abstract: The general idea about unproductive labour and the associated with it activities is that they tend to expand and by expanding reduce the investible product and the growth potential of the economy, however little is known about the determinants of their movement. In this study, we take a closer look at the US unproductive labour and activities in general during the long enough 1964-2015 period. As possible determinants of the movement of unproductive activities we consider the economy-wide average rate of profit, the real interest rate and the degree of capacity utilization. The Toda Yamamoto causality tests, as well as the ARDL econometric model, lend support to the view that the unproductive expenditures and activities are determined rather than determine the above variables. Furthermore, the error correction term indicates that a long-run equilibrium relationship exists and it is attainable after the passage of not too long time.
    Keywords: Unproductive expenditures, rate of profit, Great recession, ARDL
    JEL: B12 B13 B14 B19 B2 B22 B5 C51 D33 E11 N12 O40
    Date: 2018–01–20
  46. By: Julian A. Parra-Polania (Banco de la República de Colombia)
    Abstract: Florez-Jimenez and Parra-Polania (2016) show that unconditional forward guidance (FG) performs poorly except in the most extreme zero lower-bound (ZLB) events and that for any ZLB situation it is better to resort to state-dependent (threshold-based) FG. The model of that paper is solved under the assumption that the threshold (to revert to the optimal discretionary policy) is announced in terms of an exogenous variable (the demand shock). The present paper shows that, taking full credibility as given, the solution does not change when the threshold is announced in terms of an endogenous variable (output or inflation). However, the paper also illustrates the fact that an endogenous-variable threshold gives rise to inconsistency: the action taken may not conform to the central bank announcement. Consistency imposes limits on the policy rate that can be set since reverting to the optimal discretionary rate can be incompatible with exceeding the threshold. Classification JEL: E52, E58, E37
    Keywords: forward guidance; zero-lower bound; central bank announcements; monetary policy; threshold
    Date: 2018–01
  47. By: Guillaume Gaulier; Vincent Vicard
    Abstract: Current estimates of misalignments in real effective exchange rates show that euro area imbalances are still large: Germany exhibits a 20 percentage point undervaluation compared to the rest of the euro area (EA). Within a monetary union, rebalancing requires price adjustments through differentials in inflation rates. The rebalancing process therefore involves a 2 percentage point higher inflation in Germany than in the rest of the EA over a decade, or a 1 pp over two decades. It also requires above 2% inflation in surplus countries to meet the 2% ECB inflation target. At the current pace, rebalancing is a 20 year process and requires sustained very low inflation rates in the rest of the euro area.
    Keywords: Current account imbalances;Euro area;Exchange rates misalignments
    JEL: E31 F32
    Date: 2018–01
  48. By: António Mendonça
    Abstract: This paper is divided in two parts. In the first part, we present some data of the Portuguese economy aiming to capture some of its main long trends and the way it reacts to the introduction of the single currency in Europe. Since Portugal follow a similar path with Spain in what concerns the European economic integration process, we developed a comparative analysis between the two Iberian countries trying to capture some dynamics that can aid to understand the different ways how the two economies reacted to the introduction of the euro and, in this phase of the economic integration in Europe, how they suffered the 2007-2008 international crisis and reacted to its effects. To evaluate and compare the two countries paths we use some fundamental macroeconomic indicators as, output and employment, investment, external accounts, budget balances and government debts. The comparison with Europe's average economic performance is also present, trying to understand which country follow a more “European path”. In the second part, we concentrate on the euro system crisis trying to give some contributes to the ongoing discussion about the role and effectiveness of the euro as an internal adjustment variable. Not only in terms of the pre-creation of the better conditions for the European economy to respond to cyclical and structural crisis processes, but also in terms of dealing with the developments of the real crisis process that explode in Europe in 2007-2008 and gave origin to what was called the “sovereign debt crisis” that deeply harmed the most week economies, like Portugal but also like Spain. In particular, we discuss the issue of the effectiveness versus the exhaustion of monetary policy followed by the ECB in response to the Eurozone effects of the global economic and financial crisis.
    Keywords: Portugal, Spain, Euro, Financial Crisis, Unconventional Monetary Policy.
    JEL: E50 E52
    Date: 2018–02
  49. By: Monisankar Bishnu; Nick L. Guo; Cagri S Kumru
    Abstract: In this paper, we study under what conditions a Pay As You Go (PAYG) type social security program can have regressive outcomes even though the benefits of this program are designed to be progressive. Since a PAYG social security program collects payroll taxes whenever agents are working, and it pays retirement benefits as long as retirees are alive, each individual's well being depends on how long they contribute to and receive payments from this program as well as how much. Empirical evidence suggests that agents who have low income tend to start working earlier and have shorter longevity than those with middle or high income. Implications of the low income groups' shorter mortality are examined both analytically and quantitatively in this paper. We find the conditions under which a PAYG social security program may have a regressive outcome in a simple two period partial equilibrium model. Afterwards, we created a large scale quantitative OLG model calibrated to the US economy to compare aggregate and welfare implications of the US type PAYG, a no progressive PAYG, and a means tested pension program. Our results indicate that incorporating differential mortality into account change the welfare implications.
    JEL: E21 E43 G11
    Date: 2017–12
  50. By: Pattanaik, Arpita (Indira Gandhi Institute of Development Research); Rajeswari Sengupta (Indira Gandhi Institute of Development Research)
    Abstract: In this paper we analyse the effect of business cycle fluctuations on firms' capital structure using a large panel of non-financial firms in India. In particular, we explore the dynamics of firm leverage across business cycle expansions and recessions for financially constrained and unconstrained firms. We find that the leverage of unconstrained firms exhibits counter-cyclical dynamics. Leverage of financially constrained firms does not show any cyclical pattern. These results are robust across different empirical methods of estimation. A healthy financial system is one where all firms are able to access the external debt market especially in a downturn. Our analysis shows that in the Indian financial system, external capital goes only to a certain category of firms. This has important policy implications for further developing the domestic financial markets and institutions.
    Keywords: Capital structure, Firm leverage, Financial constraints, Business cycle, Leverage determinants, Indian firms
    JEL: E32 G32 G1
  51. By: Ken Coutts; Graham Gudgin; Jordan Buchanan
    Abstract: A wide range of reports from official bodies and academics have estimated the impact of Brexit. These influenced the outcome of the Brexit referendum and remain influential in informing views on the potential long-term consequences of a range of Brexit trade arrangements. This paper builds on a previous CBR working paper in examining the most influential of these reports, from HM Treasury, and the OECD. In this paper the work of the LSE’s Centre for Economic Performance is also included. Each of these reports base their analyses either on gravity models or a computable general equilibrium models. The addition in this paper a review of the link between trade and productivity, which plays an important role in these reports. We also examine three reports which take a direct approach to measuring the impact by assessing the likely prices increases across a large range of commodities due to the imposition of tariff and non-tariff barriers, and using elasticities to estimate the potential changes in the volume of trade. We find important flaws in both the application of gravity model results to a Brexit context, and in the knock-on impacts from trade to productivity. The flaws always have the result of exaggerating the negative impact of Brexit. The direct approaches involve partial rather than full equilibrium models but provide an important check on results from more complex models. However, the choice of elasticities can result in widely different results from ostensibly similar approaches. The paper starts by looking at the view, supported in the academic literature and widely repeated in the financial media, that accession to the EEC in 1973 improved the economic growth performance of the UK. The evidence suggests that this view is incorrect.
    Keywords: Brexit; Gravity Model; computable general equilibrium; HM Treasury; IMF; trade; macroeconomic forecasts; OECD
    JEL: C54 E24 E44 H24
    Date: 2018–01
  52. By: Colin J. Hottman; Ryan Monarch
    Abstract: Using supplier-level trade data, we estimate the effect on consumer welfare from changes in U.S. imports both in the aggregate and for different household income groups from 1998 to 2014. To do this, we use consumer preferences which feature non-homotheticity both within sectors and across sectors. After structurally estimating the parameters of the model, using the universe of U.S. goods imports, we construct import price indexes in which a variety is defined as a foreign establishment producing an HS10 product that is exported to the United States. We find that lower income households experienced the most import price inflation, while higher income households experienced the least import price inflation during our time period. Thus, we do not find evidence that the consumption channel has mitigated the distributional effects of trade that have occurred through the nominal income channel in the United States over the past two decades.
    Keywords: import price index, non-homotheticity, real income inequality, product variety, markups
    JEL: D12 E31 F14
    Date: 2018–01
  53. By: Baumeister, Christiane; Hamilton, James
    Abstract: Traditional approaches to structural vector autoregressions can be viewed as special cases of Bayesian inference arising from very strong prior beliefs. These methods can be generalized with a less restrictive formulation that incorporates uncertainty about the identifying assumptions themselves. We use this approach to revisit the importance of shocks to oil supply and demand. Supply disruptions turn out to be a bigger factor in historical oil price movements and inventory accumulation a smaller factor than implied by earlier estimates. Supply shocks lead to a reduction in global economic activity after a significant lag, whereas shocks to oil demand do not.
    Keywords: Bayesian inference; Measurement error; oil prices; sign restrictions; vector autoregressions
    JEL: C32 E32 Q43
    Date: 2017–12
  54. By: Isaac Baley; Lars Ljungqvist; Thomas J. Sargent
    Abstract: Ljungqvist and Sargent (1998, 2008) show that worse skill transition probabilities for workers who suffer involuntary layoffs (i.e., increases in turbulence) generate higher unemployment in a welfare state. den Haan, Haefke and Ramey (2005) challenge this finding by showing that if higher turbulence means that voluntary quits are also exposed to even a tiny risk of skill loss, then higher turbulence leads to lower unemployment within their matching model. We show (1) that there is no such brittleness of the positive turbulence-unemployment relationship in the matching model of Ljungqvist and Sargent (2007) even if we add such \quit turbulence", and (2) that if den Haan et al. had calibrated their productivity distribution to fit observed unemployment patterns that they miss, then they too would have found a positive turbulence-unemployment relationship in their model. Thus, we trace den Haan et al.'s finding to their assuming a narrower productivity distribution than Ljungqvist and Sargent had. Because den Haan et al. assume a distribution with such narrow support that it implies small returns to reallocating labor, even a small mobility cost shuts down voluntary separations. But that means that the imposition of a small layoff cost in tranquil times has counterfactually large unemployment suppression effects. When the parameterization is adjusted to fit historical observations on unemployment and layoff costs, a positive relationship between turbulence and unemployment reemerges.
    Keywords: matching model, skills, turbulence, unemployment, layoffs, quits, layoff costs
    JEL: E24 J63 J64
    Date: 2018–02
  55. By: Ben Yaala, sirine; Henchiri, jamel E.
    Abstract: This study aims to analyze the long-run as well as the short-run relationship between macroeconomic, demographic variables and the Tunisian stock market for the period subsequent to the financial crisis. Monthly data over the period 2008-2014 and ARDL model have been employed. Results indicate that the Tunisian stock market index, macroeconomic and demographic indicators are cointegrated and, therefore, a long-run relationship exists between them. The long-run coefficients suggest that budget deficit, inflation rate and the number of unemployed graduates had a negative effect, otherwise, money supply and the number of non-resident entries had a positive effect on the Tunisian stock market. Moreover, results from the error correction model show that the Tunisian stock market index is influenced positively by money supply and second order difference of the number of unemployed graduates and negatively by first and second order difference of money supply, inflation rate, first order difference of number of non-resident entries and the number of unemployed graduates.
    Keywords: macroeconomic variables, demographic variables, Tunisian stock market, ARDL
    JEL: G1 G11 G14
    Date: 2016–07
  56. By: Cette Gilbert (Aix-Marseille School of Economics; CNRS; EHESS); Lopez Jimmy (Banque de France ; Université de Bourgogne Franche-Comté (LEDi)); Mairesse Jacques (CREST-ENSAE ; Maastricht University (UNU-MERIT) ; Banque de France ; NBER)
    Abstract: Research and Development (R&D) expenses and Information and Communication Technology (ICT) diffusion are key factors of modern growth and competitiveness. This study proposes an original investigation of the effects of the OECD Employment Protection Legislation (EPL) indicator on four capital and three labour skill components. Grounded on a country*industry unbalanced panel data sample for 14 OECD countries and 18 industries covering the years 1988 to 2007 and relying on a difference-in-difference econometric approach, we find that a change in EPL impacts differently the type and skill composition of respectively capital and labour. Strenthening EPL lowers ICT capital and, even more severily, R&D capital relatively to non-ICT and construction capital; it also works at the disadvantage of low-skill workers relatively to high-skill workers employment. These results confirm that a strenthening of EPL can be an impediment to the organizational change and a break to the risk taking so important to capture shares of globalized markets, thus driving to more regulation harmonization. An illustrative policy simulation based on our estimates suggests that structural reforms for more labour flexibility, weakening employment protection legislation for countries where it is particularly strong, could have a favourable impact on firms’ ICT and R&D investment and on the hiring of low-skill workers.
    Keywords: regulation, capital, R&D, ICT, skill
    JEL: E22 E24 O30 L50 O43 O47 C23
    Date: 2017–12–31
  57. By: Agyekum, Francis; Locke, Stuart; Hewa-Wellalage, Nirosha
    Abstract: We demonstrate in this paper using transdisciplinary approach that the same theory of information asymmetry that explains the raison d’être of financial intermediaries also explains why financial exclusion exists. This paper synthesises some elements of theories of finance and economics in developing a theoretical framework towards the understanding of why financial exclusion exists, and appears to be widespread in lower-income countries (LICs). The paradigm emphasises that financial market frictions that generate information asymmetry, risk and transaction cost associated with lending, contribute significantly to why exclusion occurs. The role fiscal deficit financing that crowds-out the private sector completely plays towards exclusion is also emphasised. The model predicts that excessive fiscal borrowing, market imperfection that allows ‘arbitrage value’ to be exploited, and excessive taxation, tend to widen the financial exclusion gap for the private agent. In contrast, growth in income and private investments tend to reduce the exclusion gap, hence, inclusion stimulating. The policy direction is curved towards choices that will minimise the tendencies and prevalence of financial exclusion in economies, especially the developing world.
    Keywords: Financial Exclusion, LICs, Information Asymmetry, arbitrage value, crowding-out effect, QAT
    JEL: D82 E44 G21 G28
    Date: 2016–12–12
  58. By: John B. Donaldson; Christos Koulovatianos; Jian Li; Rajnish Mehra
    Abstract: Lucas (1990) argues that the neoclassical adjustment process fails to explain the relative paucity of FDI inflows from rich to poor countries. In this paper we consider a natural experiment: using China as the treated country and India as the control, we show that the dynamics of the relative FDI flows subsequent to the implementation of China's one-child policy, as seen in the data, are consistent with neoclassical fundamentals. In particular, following the introduction of the one-child policy in China, the capital-labor (K/L) ratio of China increased relative to that of India, and, simultaneously, relative FDI inflows into China vs. India declined. These observations are explained in the context of a simple neoclassical OLG paradigm. The adjustment mechanism works as follows: the reduction in the (urban) labor force due to the one-child policy increases the savings per capita. This increases the K/L ratio and reduces the marginal product of capital (MPK). The reduction in MPK (relative to India) reduces the relative attractiveness of investment in China and is thus associated with lower FDI/GDP ratios. Our paper contributes to the nascent literature exploring demographic transitions and their effects on FDI flows.
    JEL: E13 F11 F12 J11 O11
    Date: 2018–01
  59. By: Carpenter, Jennifer N.; Lu, Fangzhou; Whitelaw, Robert F.
    Abstract: This paper shows that, counter to common perception, stock prices in China are strongly linked to firm fundamentals. Since the reforms of the early 2000s, stock prices are as informative about future profits as they are in the US. Although the market is segmented from international equity markets, Chinese investors price individual stock characteristics like other global investors: they pay up for size, growth, liquidity, and long shots, while they discount for systematic risk. Price informativeness is significantly correlated with corporate investment e ciency. For international investors, China's stock market offers high average returns and low correlation with other equity markets.
    JEL: E44 F30 G12 G14 G15 O16 O53 P21 P34
    Date: 2018–01–19
  60. By: Carpenter, Jennifer N.; Lu, Fangzhou; Whitelaw, Robert F.
    Abstract: This paper shows that, counter to common perception, stock prices in China are strongly linked to firm fundamentals. Since the reforms of the early 2000s, stock prices are as informative about future profits as they are in the US. Although the market is segmented from international equity markets, Chinese investors price individual stock characteristics like other global investors: they pay up for size, growth, liquidity, and long shots, while they discount for systematic risk. Price informativeness is significantly correlated with corporate investment e ciency. For international investors, China's stock market offers high average returns and low correlation with other equity markets.
    JEL: E44 F30 G12 G14 G15 O16 O53 P21 P34
    Date: 2018–01–19
  61. By: Joung Ku Kang (Economic Research Institution, The Bank of Korea)
    Abstract: This paper discusses the effects of household debt in the aspects of 'flow effect' arising in the course of changes in household debt size and 'stock effect' occuring due to the level of household loans, and then, empirically analyzes the effects using the Korean time series data and the OECD panel data. The result of empirical estimation with GMM reveals that the flow effect of household debt facilitates consumption and economic growth while the stock effect hinders them. It is also found that the contribution of the flow effect on raising consumption and economic growth has decreased since 2000, however the contribution of the stock effect on impeding consumption and economic growth has expanded. The coefficients of flow effect and stock effect may change over time. Since the global financial crisis, the coefficient of flow effect has been scaled down, mainly because of the expansion of household mortgage loans that brought about a reduction in the share of household borrowing for consumption. The coefficient of stock effect has also decreased in size as the burden of household loan repayment was mitigated due to a fall in interest rates on household loans.
    Keywords: Household debt, Consumption, Economic growth
    JEL: E21 O40 R20
    Date: 2017–01–16
  62. By: Dino Pinelli; Roberta Torre; Lucianajulia Pace; Laura Cassio; Alfonso Arpaia
    Abstract: Italy undertook a major reform of the labour market in 2014-2015 (Jobs Act). This paper provides a compendium of the key changes introduced. The analysis shows that the Jobs Act has contributed to bringing Italian labour market institutions more closely into line with international benchmarks and with the principles of flexicurity. Employment protection legislation for permanent contracts has been brought into line with that of major European partners, although it remains more restrictive than the OECD average. The focus of passive labour market policies has shifted from job to worker protection, which will facilitate the reallocation of workers to more productive occupations. The designed strengthening of active labour market policies would improve job matching and reduce structural unemployment, but thorough implementation remains the key factor for achieving this critical goal. Extending the new rules on employment protection legislation also to existing permanent contracts and the strengthening of the collective bargaining framework could be considered as a follow up to the recent reform. Flanking measures to open product markets and reform the public sector are crucial to deliver the entire potential impact of the reform.
    JEL: J08 E24
    Date: 2017–12
  63. By: Woon Gyu Choi (IMF Institute); Byongju Lee (Economic Research Institute, The Bank of Korea); Taesu Kang (Research Department, The Bank of Korea); Geun-Young Kim (Research Department, The Bank of Korea)
    Abstract: We assess the effect of tighter monetary policy in the U.S. and emerging market economies (EMEs) on EMEs using a panel factor-augmented VAR model. We find that a U.S. policy rate hike outstrips an equivalent domestic rate hike in its impacts on EMEs. In addition, EMEs show divergent policy responses and their macro-financial responses differ depending upon their economic fundamentals in the face of tighter U.S. policy. In particular, we find that high-inflation than low-inflation EMEs are more susceptible to the shock stemming from a U.S. federal funds rate hike.
    Keywords: Global liquidity, Monetary transmission, Divergent responses, Panel factor-augmented VAR
    JEL: F32 F42
    Date: 2016–11–15
  64. By: John P. Weche (Leuphana University Lueneburg, Germany; Monopolies Commission, Bonn, Germany); Achim Wambach (Monopolies Commission, Bonn, Germany; Centre for European Economic Research (ZEW), Mannheim, Germany)
    Abstract: This paper presents an analysis of the recent developments of average market power in Europe by using a broad firm-level database for EU member states. To indicate competitive pressure at the firm-level, markups are estimated following De Loecker (2011), and De Loecker and Warzynski (2012). The analysis reveals a sharp drop in markups during the crisis, followed by a post-crisis increase. The European average has not yet reached its pre-crisis level, which is in contrast to results for the US, where average markups have climbed to pre-crisis levels already in 2011. There is significant heterogeneity among European economies and the pre-crisis levels do have been exceeded in some countries.
    Keywords: Market Power, Markups, Europe, Crisis
    JEL: E2 D2 D4 L1
    Date: 2018–01
  65. By: Weche Gelübcke, John P.; Wambach, Achim
    Abstract: This paper presents an analysis of the recent developments of average market power in Europe by using a broad firm-level database for EU member states. To indicate competitive pressure at the firm-level, markups are estimated following De Loecker (2011), and De Loecker and Warzynski (2012). The analysis reveals a sharp drop in markups during the crisis, followed by a post-crisis increase. The European average has not yet reached its pre-crisis level, which is in contrast to results for the US, where average markups have climbed to pre-crisis levels already in 2011. There is significant heterogeneity among European economies and the pre-crisis levels do have been exceeded in some countries.
    Keywords: Market Power,Markups,Europe,Crisis
    JEL: E2 D2 D4 L1
    Date: 2018
  66. By: Li, Yue
    Abstract: This paper develops a heterogeneous agents model to analyze the effects of Social Security survivors insurance. The model features a negative mortality-income gradient, asymmetric information of individual mortality rates, and a warm-glow bequest motive that varies by age and family structure. The model matches lifecycle changes in life insurance coverage, and generates advantageous selection in the insurance market. For male agents, reducing survivors benefits for dependent children generates welfare losses, while reducing survivors benefits for aged spouses produces welfare gains. The opposing welfare results are explained by differences in the timing of benefits and in the funding cost.
    Keywords: Social Security, bequest motive, life insurance, asymmetric information
    JEL: D1 D82 E21 G22 H55
    Date: 2017–10
  67. By: Henrik Dam; Andrea Macrina; David Skovmand; David Sloth
    Abstract: We construct models for the pricing and risk management of inflation-linked derivatives. The model is rational in the sense that affine payoffs written on the consumer price index have prices that are rational functions of the state variables. The nominal pricing kernel is constructed in a multiplicative manner that allows for closed-form pricing of vanilla inflation products suchlike zero-coupon swaps, caps and floors, year-on-year swaps, caps and floors, and the exotic limited price index swap. The model retains the attractive features of a nominal multi-curve interest rate model such as closed-form pricing of nominal swaptions. We conclude with examples of how the model can be calibrated to EUR data.
    Date: 2018–01
  68. By: Martin Feldkircher (Oesterreichische Nationalbank (OeNB)); Florian Huber (Department of Economics, Vienna University of Economics and Business); Gregor Kastner (Department of Mathematics and Statistics, Vienna University of Economics and Business)
    Abstract: We assess the relationship between model size and complexity in the time-varying parameter VAR framework via thorough predictive exercises for the Euro Area, the United Kingdom and the United States. It turns out that sophisticated dynamics through drifting coefficients are important in small data sets while simpler models tend to perform better in sizeable data sets. To combine best of both worlds, novel shrinkage priors help to mitigate the curse of dimensionality, resulting in competitive forecasts for all scenarios considered. Furthermore, we discuss dynamic model selection to improve upon the best performing individual model for each point in time.
    Keywords: Global-local shrinkage priors, density predictions, hierarchical modeling, stochastic volatility, dynamic model selection
    JEL: C11 C30 C53 E52
    Date: 2018–01
  69. By: Konstantin Makrelov; Channing Arndt; Rob Davies; Laurence Harris
    Abstract: We analyse implications of financial sector dynamics for fiscal expenditure multipliers in recessionary conditions. We employ a stock-and-flow-consistent model for South Africa with four financial instruments and detailed balance sheets for the household, government, financial, non-financial, and foreign sectors, and the Reserve Bank. The increase in government expenditure positively affects the probability of default, valuations, and perceptions of risk. Higher inflows of foreign savings can increase the multiplier further by reducing the domestic savings constraint. The size of the fiscal multipliers is also dependent on the actions of domestic and foreign monetary authorities, thus emphasizing the importance of policy co-ordination.
    Date: 2018
  70. By: Martin Ellison; Charles Brendon
    Abstract: Abstract This paper proposes and characterises a new normative solution concept for Kydland and Prescott problems, allowing for a commitment device. A policy choice is dominated if either (a) an alternative exists that is superior to it in a time-consistent subdomain of the constraint set, or (b) an alternative exists that Pareto-dominates it over time. Policies may be time-consistently undominated where time-consistent optimality is not possible. We derive necessary and sufficient conditions for this to be true, and show that these are equivalent to a straightforward but significant change to the first-order conditions that apply under Ramsey policy. Time-consistently undominated policies are an order of magnitude simpler than Ramsey choice, whilst retaining normative appeal. This is illustrated across a range of examples.
    Keywords: Time Consistency; Undominated Policy; Ramsey Policy
    JEL: D02 E61
    Date: 2018–01–31
  71. By: Zheng Jian (Macroeconomic Policy and Financing for Development Division, ESCAP); Daniel Jeongdae (Macroeconomic Policy and Development Division, ESCAP)
    Abstract: Progressive tax policies are important measures to narrow the inequality gaps and maintain a balanced distribution of income and wealth in a society. However, the potentials of such policies have yet to be fully realized in Asia-Pacific developing countries, where direct taxes remain a smaller component in the overall tax mix and redistributive tax tools such as the personal income tax and wealth taxes are under-utilized. As Asia-Pacific developing countries become middle-income and higher-middle income economies, they are experiencing the negative impacts of rapidly rising income and wealth inequalities that have come with fast economic growth. Therefore, a transition towards a more balanced strategy that emphasizes inclusive development needs to happen and progressive tax policies would have an important role in facilitating such a transition. However, implementing progressive tax reforms in developing countries is a challenging task, where the local institutional, historical, and social-economic contexts could be deciding factors for success or failure. This paper advocates for a differentiated, pragmatic and prudent approach for progressive tax reforms in Asia-Pacific. First, countries at different stages of development should follow different strategies. Second, countries need to anchor their policy making on the actual outcomes rather than on theoretical assumptions, and should always be prepared to adjust their policies according to local context and realities. Last but not least, policy makers and to some extent also the general public need to understand that there is a learning curve of policy design and implementation when it comes to progressive taxation, and therefore should allow the policies to improve and mature over time.
    Keywords: Fiscal policy, public expenditure, revenues, taxation
    JEL: E62 H20 H50
  72. By: Ermolova, Maria D.; Penikas, Henry I.
    Abstract: The aim of this work is to compare shifts in the consumer behaviour of Russian households since the mid - nineties till nowadays. The research considers the consumer behaviour of the Russians over almost the maximum possible available data RLMS period, focusing on the crisis years. Special attention is paid to analysis of the effects of crises in 1998 and 2008. To reveal effects as shifts in consumer behaviour in the aftermath of two crises panel data analysis is used to estimate QAIDS model. Due to the complete sample attrition observed in RLMS dataset since 1994, pseudo-panel approach is used.
    Keywords: QAIDS, RLMS, pseudo-panel, consumer behaviour, crisis
    JEL: D12 E21
    Date: 2016–07–18
  73. By: Grossman, Gene M.; Helpman, Elhanan; Oberfield, Ezra; Sampson, Thomas
    Abstract: We explore the possibility that a global productivity slowdown is responsible for the widespread decline in the labor share of national income. In a neoclassical growth model with endogenous human capital accumulation a la Ben Porath (1967) and capital-skill complementarity a la Grossman et al. (2017), the steady-state labor share is positively correlated with the rates of capital-augmenting and labor-augmenting technological progress. We calibrate the key parameters describing the balanced growth path to U.S. data for the early post-war period and find that a one percentage point slowdown in the growth rate of per capita income can account for between one half and all of the observed decline in the US labor share
    Keywords: neoclassical growth; balanced growth; technological progress; capital-skill complementarity; labor share; capital share
    JEL: E25 O40
    Date: 2017–10–01
  74. By: Porcile, Gabriel (Economic Commission for Latin America and the Caribbean (ECLAC) and Federal University of Parana (UFPR), Brazil); Sartorello Spinola, Danilo (UNU-MERIT, Maastricht University)
    Abstract: The interaction between the effective (yE) and the natural rates of growth (yN) is a central part-implicitly or explicitly addressed-in all growth models. A stable equilibrium requires these two rates to converge; otherwise, one or more key macroeconomic variables would be rising or falling without bounds. In addition, the Keynesian tradition stressed the key role of the Balance-of-Payments constraint as a determinant of the equilibrium growth rate in the long run (yBP). This paper discusses alternative mechanisms through which these three growth rates converge and relates them to different theoretical approaches to the determinants of growth. With this objective, we extend the model suggested by Setterfield (2010) to include the evolution of the North-South technology gap and the pattern of specialisation as key components of the Kaldorian productivity regime. The importance of the National System of Innovation in shaping the learning parameters and outcomes of the model is stressed, drawing from the Schumpeterian literature. A successful development strategy may emerge when the NSI enhances indigenous technological capabilities that allow the South economy to catch-up with the technological frontier.
    Keywords: BOP-constrained growth models, Growth Models, Structural Change, Technological Capabilities
    JEL: E12 F43 O30
    Date: 2018–01–16
  75. By: Audi, Marc; Ali, Amjad
    Abstract: Corruption is like an epidemic that has the power to destroy a country’s socio-economic, financial, human and political environment. It has severe consequences in developing countries. This study has examined the impact of existing human, political, financial and economic factors on corruption for a set of panel countries. The data from 1995 to 2004 is used to serve this purpose. For examining the stationarity of the variables, Levin- Lin-Chu (2002), Fisher-ADF and Fisher-PP tests are applied. Pedroni Residual based Co-integration and FMOLS by Phillips and Hansen (1990) test has been used for examining the co-integration among the variables of the model. The speed of adjustment and short-run relationship has been tested through VECM. The estimated results show that exports, GDP per capita and political stability have a negative impact on corruption whereas imports, financial development, human development index, bureaucracy, democracy and rule of law have a positive relationship with corruption. The simplified procedures of import and export will help in reducing the practice of bribes and corruption. The governments should take necessary steps not only to increase the income but also to improve the people’s standard of living. There should be improvements in the political system. Democracy is also helpful to get rid of corruption.
    Keywords: Corruption, Economic Development Financial Development, Human Development,
    JEL: D73 E44 O15
    Date: 2016–10
  76. By: Chirwa, Themba
    Abstract: The paper assesses the likelihood of Malawi achieving its post-2015 sustainable development goals by 2030, especially goal number 1 of eradicating extreme poverty. The results show that for Malawi to eliminate extreme poverty of less than $1.25 a day from an estimated 74.4% in 2015 to as low as 1.0% in 2030; real GDP per capita is expected to grow at a rate of 21% p.a. If this is to be achieved, Malawi will be expected to invest approximately US$136 billion within the post-2015 period in order for real incomes to increase to levels that eliminate extreme poverty. These are extreme and very hard growth conditions to be achieved for a low-income economy like Malawi; especially when the average growth in real GDP per capital during the period 2010-2014 averaged 1.6% p.a. The study concludes that concerted efforts and significant financial support from the global community is required and needs to be put in place as quickly as possible if countries with high poverty incidences like Malawi are to achieve this ambitious goal of eliminating extreme poverty by 2030.
    Keywords: Malawi; Post-2015 Sustainable Development Goals; Extreme Poverty; Economic Growth
    JEL: E17 N17 O11
    Date: 2016–04–07
  77. By: Ferrando, Annalisa; Preuss, Carsten
    Abstract: We examine the link between corporate financing and investment decisions of European firms by using a novel firm-level survey of the European Investment Bank (EIBIS). The survey provides rich quantitative information of a wide range of financing sources and tangible and intangible investment types for a representative sample of EU28 firms in 2016. We provide new evidence and contribute to previous research in the following ways: first we consider the heterogeneous effect of internal and external finance on different tangible and intangible investment types. Second, our analysis focuses on a broad spectrum of nonfinancial corporations across size classes from different countries. By using a multinomial fractional response model to estimate the finance-investment link, we find that SMEs and large enterprises show a different financing behaviour for their investment activity. The results suggest that SMEs' tangible asset investment is positively related to the use of bank finance, whereas internal finance is preferred for intangible asset investments.
    Keywords: tangible and intangible investment,internal and external finance,R&D investment,SME finance,multivariate fractional response model
    JEL: D22 E22 G32 L25
    Date: 2018
  78. By: Canale, Rosaria Rita; de Grauwe, Paul; Foresti, Pasquale; Napolitano, Oreste
    Abstract: The recent dynamics characterizing the Eurozone economy suggest the existence of a new policy trilemma faced by its member countries. According to this policy trilemma, there is a trade-off between free capital mobility, financial stability and fiscal policy flexibility. In this paper, we analyze the foundations of such a trade-off and, based on the data for 11 Eurozone countries, present an empirical investigation on the existence of the trilemma. The results highlight the existence of the trade-off, with some differences between member countries. The existence of this trilemma in the Eurozone provides arguments for implementing centralized financial supervision together with fiscal and monetary reforms that should strengthen the currency union.
    Keywords: EMU; policy trilemma; Eurozone; free capital mobility; fiscal policy; financial stability; financial crisis
    JEL: C21 C23 E61 F41
    Date: 2018–02–01
  79. By: Andrea Guariso; Thorsten Rogall
    Abstract: Does higher resource inequality between ethnic groups lead to ethnic conflict? In this paper, we empirically investigate this question by constructing a new measure of inequality using rainfall on ethnic homelands during the plant-growing season. Our dataset covers the period 1982-2001 and includes 214 ethnicities, located across 42 African countries. The analysis at the country level shows that one standard-deviation increase in rainfall-based inequality between ethnic groups increases the risk of ethnic conflict by 16 percentage points (or 0.43 standard deviations). This relationship depends on the power relations between the ethnic groups. More specifically, the analysis at the ethnicity level shows that ethnic groups are more likely to engage in civil conflicts whenever they receive less rain than the leading group. This effect does not hold for ethnic groups that share some political power with the leading group and is strongest for groups that have recently lost power. Our findings are consistent with an increase in resource inequality leading to more ethnic conflicts by exacerbating grievances in groups with no political power.
    Keywords: Conflict, Ethnic Inequality, Rainfall, Africa, Ethnic Power Relations
    JEL: D63 D74 E01
    Date: 2017
  80. By: Wu, Cheng
    Abstract: Though Wu (2017) has shown Clower’s Dual Decision Hypothesis leading to Keynes’ change in saving (and disequilibrium) conclusion, it is important to compare Clower’s budget constraint approach with other models, including those found in Hall’s consumption theorem and similar approach. In Clower, by assuming that, consumers may not satisfy the budget constraint, one cannot automatically assume Hall’s consumption theorem to hold. And, by showing how households need to optimize contingent on the satisfaction of their budget constraint, Clower was, in effect, creating a feedback mechanism.
    Keywords: Keynes; Clower; Keynesian; disequilibrium; Dual Decision Hypothesis; consumption; martingale; saving; growth; income; trade; feedback
    JEL: A10 B20 C0 D1 E2 N0 O4 P0
    Date: 2018–01–21
  81. By: JaeBin Ahn (Research Department, International Monetary Fund); Moon Jung Choi (Economic Research Institute, Bank of Korea)
    Abstract: Using the Korean manufacturing firm-level data, this paper confirms that three stylized facts on importing hold in Korea: the ratio of imported inputs in total inputs tends to be pro-cyclical; the use of imported inputs increases productivity; and larger firms are more likely to use imported inputs. As a result, we find that firm-level import decisions explain a non-trivial fraction of aggregate productivity fluctuations in Korea over the period between 2006 and 2012. Main findings of this paper suggest a possible link between the recent global productivity slowdown and the global trade slowdown.
    Keywords: Firm-level imports, Productivity pro-cyclicality, Aggregate TFP of manufacturing sector
    JEL: E3 F1 F4 O4
    Date: 2016–04–28
  82. By: Nao Sudo (Bank of Japan); Yasutaka Takizuka (Bank of Japan)
    Abstract: Population aging, along with a secular decline in real interest rates, is an empirical regularity observed in developed countries over the last few decades. Under the premise that population aging will deepen further in coming years, some studies predict that real interest rates will continue to be depressed further to a level below zero. In the present paper, we address this issue and explore how changes in demographic structures have affected and will affect real interest rates, using an overlapping generations model calibrated to Japan's economy. We find that the demographic changes over the last 50 years reduced the real interest rate. About 270 out of the 640 basis points decline in real interest rates during this period was attributed to declining labor inputs and higher saving, which themselves stemmed from the lower fertility rate and increased life expectancy. As for the next 50 years, we find that demographic changes alone will not substantially increase or decrease the real interest rate from the current level. These changes reflect the fact that the size of demographic changes in years ahead will be minimal, but that downward pressure arising from the past demographic changes continue to bite in the years ahead. As Japan is not unique in terms of this broad picture of changes in demographic landscapes over the last 50 years and in the next 50 years, our results suggest that, sooner or later, a demography-induced decline in real interest rates may be contained in other developed countries as well.
    Keywords: Declining Real Interest Rates; Population Aging; Overlapping Generations Model
    JEL: E20 J11
    Date: 2018–01–31
  83. By: S. Mahendra Dev (Indira Gandhi Institute of Development Research)
    Abstract: This paper examines dimensions of inequality including labour market inequalities and discusses public policies needed for reduction in inequalities. It discusses both inequality of outcomes and inequality of opportunities. In terms of income, India is the second highest inequality country in the world next to South Africa. Wealth inequalities are also high in India. Most of the inequalities will have labour market dimension. Labour market inequalities can be found across sectors, wages and earnings, quality of work, labour market access and, between organised and unorganised sectors. On public policies and inequalities, the paper discusses redistribution measures, macro policies, sectoral policies and impact on employment, social policies such as education, health, hunger and malnutrition, social protection, corruption, gender disparities and climate change. The paper argues for fundamentals change to human capital and universal basic services. Investments in social infrastructure, health, education, affirmative action and provision of public services can lead to the creation of egalitarian society.
    Keywords: Inequality of outcomes, inequality of opportunities, consumption, income, wealth, labour market, wage inequality, fiscal policy, monetary policy, trade policy, human capital, health, education, informal sector, inclusive growth, gender, climate change
    JEL: D63 E24 J28
    Date: 2018–01
  84. By: Narayan Bulusu; Pierre Guérin
    Abstract: We identify the drivers of unsecured and collateralized loan volumes, rates and haircuts in Canada using the Bayesian model averaging approach to deal with model uncertainty. Our results suggest that the key friction driving behaviour in this market is the collateral reallocation cost faced by borrowers. Borrowers therefore adjust unsecured lending in response to changes in short-term cash needs, and use repos to finance persistent liquidity demand. We also find that lenders set rates and haircuts taking into account counterparty credit risk and collateral market price volatility.
    Keywords: Financial markets; Wholesale funding
    JEL: E43 G23
    Date: 2018
  85. By: Martin Cicowiez; Bernard Decaluwé; Mustapha Nabli
    Abstract: In this paper we extend an existing computable general equilibrium (CGE) model to perform optimal policy design exercises. Specifically, to an otherwise standard CGE model, we add an objective function that allows us to compute optimal values for selected policy variables. In turn, the CGE model operates as the constraint of the optimization problem. In addition, we illustrate the usefulness of the proposed approach to optimal policy design. For this purpose, we develop an exercise with real data from Argentina.
    Keywords: Computable General Equilibrium, Optimal Policy Design
    JEL: D58 E61
    Date: 2017
  86. By: Nozharov, Shteryo; Koralova, Petya
    Abstract: Bulgaria is a member of the EU since 2007. The country has issues with its economic policy, which issues could have negative impact over the EU’s policies as a whole. When the economic policy of a Member State is blemished by a systematic strategic misconceptions, it is necessary this to be analysed in depth. The debate, about the future of the EU after Brexit and the concept about multi-speed Europe is consequence of the efficiency of the economic and political systems in each individual Member States. Economic challenges arising by the failure of Bulgarian’s national policy for sustainable development for the period 2000-2015, are examined in this publication. In terms of the economic globalization and energy and ecological regulations, remedies for the identified strategic misconceptions are proposed.
    Keywords: European Union; economic policy, sustainable development
    JEL: E02 O21 Q56
    Date: 2017–11–17

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