nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒02‒19
99 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Probability Based Independence Sampler for Bayesian Quantitative Learning in Graphical Log-Linear Marginal Models By Ioannis Ntzoufras; Claudia Tarantola; Monia Lupparelli
  2. Shadow Bank run: The Story of a Recession By Hamed Ghiaie
  3. Unconventional Fiscal Policy By Francesco D’Acunto; Daniel Hoang; Michael Weber
  4. Real Keynesian Models and Sticky Prices By Paul Beaudry; Franck Portier
  5. Trade-offs between Inflation Targeting and Financial Stability Objectives: Drivers of Gains from Coordinating Monetary and Macroprudential Policies By Jessica Roldán-Peña; Mauricio Torres-Ferro; Alberto Torres
  6. The Pass-Through of Monetary Policy Rate to Lending Rates: The Role of Macro-financial Factors By Gregor, Jiri; Melecky, Martin
  7. Will Robots Automate Your Job Away? Full Employment, Basic Income, and Economic Democracy By Ewan McGaughey; Centre for Business Research
  8. Inefficiencies in Search Models: The Case for Islamic Finance By Al-Jarhi, Mabid
  9. Banks’ leverage behaviour in a two-agent New Keynesian model By Andrea Boitani; Chiara Punzo
  10. Firms Dynamics and Business Cycle: New Disaggregated Data By Lorenza Rossi; Emilio Zanetti Chini
  11. The Shifts in Lead-Lag Properties of the US Business Cycle By; Hashmat Khan
  12. The Policy Mix in the US and EMU: Evidence from a SVAR Analysis By António Afonso; Luís Gonçalves
  13. Fiscal consolidations and heterogeneous expectations By Hommes, Cars H.; Lustenhouwer, Joep; Mavromatis, Kostas
  14. Does Communicating a Numerical Inflation Target Anchor Inflation Expectations? Evidence & Bond Market Implications By Bundick, Brent; Smith, Andrew Lee
  15. Forward Guidance and Heterogeneous Beliefs By Andrade, Philippe; Gaballo, Gaetano; Mengus, Eric; Mojon, Benoit
  16. Sovereign stress, banking stress, and the monetary transmission mechanism in the Euro area By Holtemöller, Oliver; Scherer, Jan-Christopher
  17. Is the financial cycle a leading indicator of real output during expansions and contractions? A quantile analysis for Greece By Costas Karfakis; Eftychia Karfaki
  18. A Trendy Approach to UK Inflation Dynamics By Forbes, Kristin; Kirkham, Lewis; Theodoridis, Konstantinos
  19. Uninsured Unemployment Risk and Optimal Monetary Policy By Edouard Challe
  20. Owner Occupied Housing in the CPI and Its Impact On Monetary Policy During Housing Booms and Busts By HILL Robert J.; STEURER Miriam; WALTL Sofie R.
  21. Unemployment, Borrowing Constraints and Stabilization Policies By Auray Stéphane; Eyquem Aurélien
  22. Are Interest Rates Really Low? By Daniel R. Feenberg; Clinton Tepper; Ivo Welch
  23. The impact of uncertainty shocks in the United Kingdom By Redl, Chris
  24. Pushing on a String: State-Owned Enterprises and Monetary Policy Transmission in China By Hongyi Chen; Ran Li; Peter Tillmann
  25. Does Central Bank Transparency and Communication Affect Financial and Macroeconomic Forecasts? By Thomas Lustenberger; Enzo Rossi
  26. An interdisciplinary model for macroeconomics By haldane, Andrew; Turrell, Arthur
  27. The Ramsey Cooperative and Non-Cooperative Unconventional Monetary Policy By Shifu Jiang
  28. Explaining Inflation with a Classical Dichotomy Model and Switching Monetary Regimes: Mexico 1932-2013 By Garcés Díaz Daniel
  29. Fiscal consolidations and finite planning horizons By Lustenhouwer, Joep; Mavromatis, Kostas
  30. Stock Market Returns and Consumption By Marco Di Maggio; Amir Kermani; Kaveh Majlesi
  31. Monetary Policy and Asset Price Bubbles By Christophe Blot; Paul Hubert; Fabien Labondance
  32. Do macro shocks matter for equities? By Dison, Will; Theodoridis, Konstantinos
  33. The Social Value of Information: A Test of a Beauty and Non-Beauty Contest By Thomas Lustenberger; Enzo Rossi
  34. Informality and the Labor Market Effects of Financial Crises By Emilio Colombo; Lorenzo Menna; Patrizio Tirelli
  35. Financial shocks, credit spreads and the international credit channel By Cesa Bianchi, Ambrogio; Sokol, Andrej
  36. Risks in China’s Financial System By Zheng Michael Song; Wei Xiong
  37. Managing unanchored, heterogeneous expectations and liquidity traps By Hommes, Cars H.; Lustenhouwer, Joep
  38. Progressive Taxation and Macroeconomic Stability in Two‐sector Models with Social Constant Returns By Been-Lon Chen; Mei Hsu; Yu-Shan Hsu
  39. The Bank of England as lender of last resort: new historical evidence from daily transactional data By Anson, Mike; Bholat, David; Kang, Miao; Thomas, Ryland
  40. The Impact of Various Economic Factors in accessing Finance within the Business Sector: Cases from UK Financial Services Companies By Saghir, Marouan; Aston, John
  41. Hysteresis in Employment among Disadvantaged Workers By Fallick, Bruce C.; Krolikowski, Pawel
  42. Structural vector autoregression with time varying transition probabilities: identifying uncertainty shocks via changes in volatility By Wenjuan Chen; Aleksei Netsunajev
  43. Monetary System of Georgia in XI-XII centuries and its Effect on Economic Activity By Abuselidze, George
  44. Firms’ financial surpluses in advanced economies:the role of net foreign direct investments By Tatiana Cesaroni; Riccardo De Bonis; Luigi Infante
  45. Shale oil revolution: Implications for oil dependent countries By Afees A. Salisu; Lateef O. Akanni
  46. Why are inflation forecasts sticky? By Frédérique Bec; Raouf Boucekkine; Caroline Jardet
  47. Loss Aversion at the Aggregate Level Across Countries and its Relation to Economic Fundamentals By Reto Foellmi; Adrian Jaeggi; Rina Rosenblatt-Wisch
  48. Measuring Geopolitical Risk By Dario Caldara; Matteo Iacoviello
  49. The Grand Tour: Keynes and Goodwin go to Greece By Eduardo A. Haddad; Natalia Q. Cotarelli, Thiago C. Simonato, Vinicius A. Vale; Jaqueline C. Visentin
  50. Financial stability: To Regulate or Not? A public choice inquiry By Le, Vo Phuong Mai; Meenagh, David; Minford, Patrick
  51. Employment Adjustment and Financial Constraints - Evidence from Firm-level Data By Gregor Bäurle; Sarah M. Lein; Elisabeth Steiner
  52. The Impact of Fiscal Consolidations on Growth in Sub-Saharan Africa By Francisco Arizala; Jesus R Gonzalez-Garcia; Charalambos G Tsangarides; Mustafa Yenice
  53. Do natural disasters influence long-term saving?: Assessing the impact of the 2008 Sichuan earthquake on household saving rates using synthetic control By Kevin Luo; Tomoko Kinugasa
  54. What to Expect from the Lower Bound on Interest Rates: Evidence from Derivatives Prices By Mertens, Thomas M.; Williams, John C.
  55. House Prices and Household Consumption: The Case of the Czech Republic By Jan Bruha; Michal Hlavacek; Lubos Komarek
  56. Household Time Use Among Older Couples: Evidence and Implications for Labor Supply Parameters By Richard Rogerson; Johanna Wallenius
  57. Core and periphery in the European Monetary Union: Bayoumi and Eichengreen 25 years later By Campos, Nauro F.; Macchiarelli, Corrado
  58. International Monetary Policy Spillovers: Evidence from a TVP-VAR By Nikolaos Antonakakis; David Gabauer; Rangan Gupta
  59. Social Insurance and Occupational Mobility By German Cubas; Pedro Silos
  60. Saving and Dissaving with Hyperbolic Discounting By Dan Cao; Iván Werning
  61. Goods and factor market integration: a quantitative assessment of the EU enlargement By Caliendo, Lorenzo; Opromolla, Luca David; Parro, Fernando; Sforza, Alessandro
  62. Turbulence and unemployment in matching models By Isaac Baley; Lars Ljungqvist; Thomas J. Sargent
  63. How Large is the Corporate Tax Base Erosion and Profit Shifting? A General Equilibrium Approach By Alvarez-Martinez, Maria; Barrios, Salvador; d'Andria, Diego; Gesualdo, Maria; Nicodème, Gaëtan; Pycroft, Jonathan
  64. What will Brexit mean for the British and euro-area economies? A model-based assessment of trade regimes By Massimiliano Pisani; Filippo Vergara Caffarelli
  65. The Choice of Technology and Equilibrium Wage Rigidity By Zhou, Haiwen
  66. Monnaie, crédit et inflation : l'analyse de Le Bourva revisitée By Jean-Luc Gaffard
  67. Ethnic and Racial Disparities in Saving Behavior By Dal Borgo Mariela
  68. Changing Business Dynamism and Productivity: Shocks vs. Responsiveness By Ryan A. Decker; John C. Haltiwanger; Ron S. Jarmin; Javier Miranda
  69. Market Structure in Bitcoin Mining By June Ma; Joshua S. Gans; Rabee Tourky
  70. Non‐separable Utilities and Aggregate Instability By Been-Lon Chen; Shun‐Fa Lee; Xavier Raurich
  71. Financial realities for farms in the European Union: Relationships between farming and governmental interactions within the Triple Helix concept By Martinho, Vítor João Pereira Domingues
  72. Optimism, Pessimism, and Short-Term Fluctuations By Gabriel Di Bella; Francesco Grigoli
  73. Issues paper on tax policy and public expenditure management in Asia and the Pacific By Zheng Jian; Alberto Isgut
  74. Australia’s Fiscal Framework: Revisiting Options for a Fiscal Anchor By Allan Dizioli; Philippe D Karam; Dirk V Muir; Siegfried Steinlein
  75. Identification and Estimation of Dynamic Causal Effects in Macroeconomics Using External Instruments By James H. Stock; Mark W. Watson
  76. Expecting the Expected: Staying Calm When the Data Meet the Forecasts By Williams, John C.
  77. Consumption Dynamics, Housing Collateral and Stabilisation Policies: A Way Forward for Policy Co-Ordination? By Jagjit S Chadha; Germana Corrado; Luisa Corrado
  78. Somalia Economic Update, July 2017 By World Bank Group
  79. Some Insights into the Development of Cryptocurrencies By Andreas Hanl
  80. Oil Price Shocks and Economic Growth: The Volatility Link By Maheu, John M; Song, Yong; Yang, Qiao
  81. Unemployment Insurance Take-up Rates in an Equilibrium Search Model By Auray Stéphane; Fuller David; Lkhagvasuren Damba
  82. Determinants of Deposit and Credit Euroization in Eastern Europe: A Bayesian Model Averaging Evidence By Petr Vanek; Petr Korab
  83. Job Protection Deregulation in Good and Bad Times By Romain A Duval; Davide Furceri; João Tovar Jalles
  84. Developing a shared environmental responsibility principle for distributing cost of restoring marine habitats destroyed by industrial harbors By Mateo Cordier; Thomas Poitelon; Walter Hecq
  85. Dynamic Comparative Advantage, Directed Mobility Across Sectors, and Wages By Auray Stéphane; Fuller David; Lkhagvasuren Damba; Terracol Antoine
  86. Continuous education and training of adults – purpose of an active life on the labour market By Mergeani, Nicea; Dănciulescu, Andreea-Gabriela; Romeo, Dănciulescu
  87. The impact of financialisation on the wage share: a theoretical clarification and empirical test By Karsten Kohler; Alexander Guschanski; Engelbert Stockhammer
  88. Rwanda Economic Update, August 2017 By World Bank
  89. Impacto de los subsidios estatales sobre el mercado laboral en Colombia By Stefano Farne; David Arturo Rodríguez Guerrero; Paola Ríos
  90. Testing a model of UK growth - a causal role for R&D subsidies By Minford, Lucy; Meenagh, David
  91. The present work proposes a framework for the analysis of inequality in income composition. Hinging on the recent work by Ranaldi (2017), we here propose a metric of income-factor polarization, the Income-Factor Polarization Index If, that captures the extent to which two income sources, notably profits and wages, are polarized across the distribution of income. We measure income-factor polarization as the distance between the Polarization Curve of Income Source and the Zero-polarization Curve, suitably normalized. The former is the cumulative distribution of income source across the population with individuals being indexed by their income rank, and the latter is the benchmark of zero inequality in income composition, defined as the situation in which each individual has the same population share of profits and wages (Ranaldi, 2017). The greater the distance, the higher the polarization. We show that the index narrows down to a single one the two conditions for the rising share of capital income to increase overall income Gini introduced by Milanovic (2017), which is : If > 0. The methodology is finally illustrated via an empirical application on the case of Italy By Marco Ranaldi
  92. Taking Stock, July 2017 By World Bank
  93. Are lenders using risk-based pricing in the consumer loan market? The effects of the 2008 crisis By Silvia Magri
  94. New-Structuralist Exchange-Rate Policy and the Pattern of Specialization in Latin American Countries By Dvoskin, Ariel; Feldman, Germán David; Ianni, Guido
  95. The determinants of German exports: An analysis of intra- and extra-EMU trade By Heinze, Henriette
  96. Financial contagion in the laboratory: Does network structure matter? By John Duffy; Aikaterini Karadimitropoulou; Melanie Parravano
  97. Contribution de l’immigration à la demande des biens et services finaux en France By Ndeye Penda Sokhna
  98. Prudential Regulation, Currency Mismatches and Exchange Rates in Latin America and the Caribbean By Tobal Martín
  99. International Commodity Prices and Civil War Outbreak: New Evidence for Sub-Saharan Africa and Beyond By Antonio Ciccone

  1. By: Ioannis Ntzoufras (Department of Statistics, Athens University of Economics and Business); Claudia Tarantola (Department of Economics and Management, University of Pavia); Monia Lupparelli (Department of Statistical Sciences, University of Bologna)
    Abstract: Bayesian methods for graphical log-linear marginal models has not been developed in the same extend as traditional frequentist approaches. In this work, we introduce a novel Bayesian approach for quantitative learning for such models. They belong to curved exponential families that are difficult to handle from a Bayesian perspective. Furthermore, the likelihood cannot be analytically expressed as a function of the marginal log-linear interactions, but only in terms of cell counts or probabilities. Posterior distributions cannot be directly obtained, and MCMC methods are needed. Finally, a well-defined model requires parameter values that lead to compatible marginal probabilities. Hence, any MCMC should account for this important restriction. We construct a fully automatic and efficient MCMC strategy for quantitative learning for graphical log-linear marginal models that handles these problems. While the prior is expressed in terms of the marginal log-linear interactions, we build an MCMC algorithm which employs a proposal on the probability parameter space. The corresponding proposal on the marginal log-linear interactions is obtained via parameter transformations. By this strategy, we achieve to move within the desired target space. At each step we directly work with well-defined probability distributions. Moreover, we can exploit a conditional conjugate setup to build an efficient proposal on probability parameters. The proposed methodology is illustrated by a simulation study and a real dataset.
    Keywords: Graphical Models, Marginal Log-Linear Parameterisation, Markov Chain Monte Carlo Computation.
    JEL: E12 E21 E22 E24 E31 C32
    Date: 2018–01
  2. By: Hamed Ghiaie (Université de Cergy-Pontoise, THEMA)
    Abstract: This paper proposes a DSGE model of liquidity mismatch and bank runs, which incorporates housing and credit markets. The paper shows that a real shock is amplified by the financial sector through household balance sheets, bank balance sheets and market liquidity channels. The shock, depending on macroeconomic fundamentals, may shift the economy from a no-bank run to a bank run equilibrium. In the case of bank run equilibrium, households stop rolling over their deposits and banks are forced to liquidate their assets at fire sale prices. This paper shows that introducing the housing and credit markets shortens the sunspots’ lifetime while asset liquidity prices reduce. In addition, this paper comprehensively details the consequences of economic crises, namely the output downward spiral, home price double-dip and lengthy recovery period. Here, it is indicated that macropruential policy tools in the form of capital adequacy buffers and loan-to-value ratios safeguard the economy against extreme busts and help mitigate systemic risks by insulating asset prices.
    Keywords: Shadow banking, Bank run, Recession, Sunspot equilibrium, Double-dip.
    JEL: E23 E32 E44 G21 G33
    Date: 2018
  3. By: Francesco D’Acunto; Daniel Hoang; Michael Weber
    Abstract: Unconventional fiscal policy uses announcements of future increases in consumption taxes to generate inflation expectations and accelerate consumption expenditure. It is budget neutral and time consistent. We provide preliminary evidence for the effectiveness of such policies using changes in value-added tax (VAT) and household survey data for Poland. We find households increased their inflation expectations and willingness to purchase durables before the increase in VAT. Future research has to ensure income, wealth effects, or intratemporal substitution channels cannot explain these results and ideally exploit exogenous variation in VAT in a fixed nominal interest rate environment.
    JEL: D12 D84 D91 E21 E31 E32 E52 E62
    Date: 2018–01
  4. By: Paul Beaudry; Franck Portier
    Abstract: In this paper we present a generalized sticky price model which allows, depending on the parameterization, for demand shocks to maintain strong expansionary effects even in the presence of perfectly flexible prices. The model is constructed to incorporate the standard three-equation New Keynesian model as a special case. We refer to the parameterizations where demand shocks have expansionary effects regardless of the degree of price stickiness as Real Keynesian parameterizations. We use the model to show how the effects of monetary policy–for the same degree of price stickiness–differ depending whether the model parameters are within the Real Keynesian subset or not. In particular, we show that in the Real Keynesian subset, the effect of a monetary policy that tries to counter demand shocks creates the opposite tradeoff between inflation and output variability than under more traditional parameterizations. Moreover, we show that under the Real Keynesian parameterization neo-Fisherian effects emerge even though the equilibrium remains unique. We then estimate our extended sticky price model on U.S. data to see whether estimated parameters tend to fall within the Real Keynesian subset or whether they are more in line with the parameterization generally assumed in the New Keynesian literature. In passage, we use the model to justify a new SVAR procedure that offers a simple presentation of the data features which help identify the key parameters of the model. The main finding from our multiple estimations, and many robustness checks is that the data point to model parameters that fall within the Real Keynesian subset as opposed to a New Keynesian subset. We discuss both how a Real Keynesian parametrization offers an explanation to puzzles associated with joint behavior of inflation and employment during the zero lower bound period and during the Great Moderation period, how it potentially changes the challenge faced by monetary policy if authorities want to achieve price stability and favor employment stability.
    JEL: E24 E3 E32
    Date: 2018–01
  5. By: Jessica Roldán-Peña; Mauricio Torres-Ferro; Alberto Torres
    Abstract: This paper studies the trade-offs that can arise between inflation targeting and financial stability objectives. We use a simple framework to conduct macroeconomic policy analysis under three strategies: (1) a benchmark case where monetary policy pursues traditional price stability objectives; (2) monetary policy leaning against the wind; and (3) a case of policy coordination between monetary and macroprudential instruments. We find that, under certain circumstances, having financial stability objectives as an additional macroeconomic policy increases the volatility of inflation. We identify cases in which the tradeoffs in terms of macroeconomic volatility between policy objectives create scope for improvement when monetary and macroprudential policies are coordinated. These improvements are generally larger when financial shocks are the main driver of macroeconomic fluctuations.
    Keywords: Price and Financial Stability;Leaning Against the Wind;Monetary and Macroprudential Policy Coordination
    JEL: E44 E52 E61 G28
    Date: 2017–12
  6. By: Gregor, Jiri; Melecky, Martin
    Abstract: This paper assesses how changes in the monetary policy rate transmit to the lending rates for the consumer, mortgage, SME, and corporate loans in the Czech Republic. It further examines whether this interest rate pass-through is stable or could vary at different levels of bank competition, leverage, non-performing loans, and foreign exchange (FX) interventions. Using the ARDL modelling approach, we find a significant and complete pass-through for SME lending rates. Significant structural shifts are estimated in the pass-through for mortgage and corporate rates. These shifts can be entirely or largely explained by bank deleveraging. We do not find any stable pass through for consumer lending rates. A greater spread between government bond and monetary policy rates increases the markup for all lending rates but corporate rates. FX interventions affected most the markups for corporate and SME rates; however, in a puzzling direction.
    Keywords: Monetary Policy Rate, Bank Lending Rates, Interest Rate Pass-Through, Foreign Exchange Interventions, Time Series Analysis, Czech Republic.
    JEL: E4 E43 E44 E5
    Date: 2018–01
  7. By: Ewan McGaughey; Centre for Business Research
    Abstract: Will the internet, robotics and artificial intelligence mean a 'jobless future'? A recent narrative says tomorrow's technology will fundamentally differ from cotton mills, steam engines, or washing machines. Automation will be less like post-WW2 demobilisation for soldiers, and more like the car for horses. Driverless vehicles will oust truckers and taxi drivers. Hyper-intelligent clouds will oust financial advisers, doctors, and journalists. We face more 'natural' or 'technological' unemployment than ever. Government, it is said, must enact a basic income, because so many jobs will vanish. Also, maybe robots should become 'electronic persons', the subjects of rights and duties, so they can be taxed. This narrative is endorsed by prominent tech-billionaires, but it is flawed. Everything depends on social policy. Instead of mass unemployment and a basic income, the law can achieve full employment and fair incomes. This article explains three views of the causes of unemployment: as 'natural', as stemming from irrationality or technology, or as caused by laws that let people restrict the supply of capital to the job market. Only the third view has any credible evidence to support it. After WW2, 42% of UK jobs were redundant (actually, not hypothetically) but social policy maintained full employment, and it can be done again. Unemployment is driven by inequality of wealth and of votes in the economy. Democratic governments should reprogramme the law: for full employment and universal fair incomes. The owners of the robots will not automate your job away, if we defend economic democracy.
    Keywords: Robots, automation, inequality, democracy, unemployment, basic income, NAIRU, sheep, Luddites, washing machines, flying skateboards
    JEL: E62 E6 E52 E51 E50 E32 E12 E00 E02 D6 J01 K1 J20 K31 J23 J32 K22 J41 J51 J58 J6
    Date: 2018–03
  8. By: Al-Jarhi, Mabid
    Abstract: In economies without friction, where money as a means of exchange has no role, the existence of the rate of interest would have no efficiency consequence. Once a friction that justifies the use of a means of exchange is introduced in the macroeconomic model, the inefficiencies resulting from the presence of the rate of interest become exposed. In search models, where money has a raison d’être, the use of money in trade when accompanied with conventional finance, is associated with two important inefficiencies. The first is the Friedman-Samuelson inefficiency. The payment of a positive (interest) rate of return on money, with guaranteed principle and return, motivates agents to economize on the use of cash in transactions. This reduces the volume of transactions below optimum. The substitution of real resources for cash would further reduce output. The second is Hosios inefficiency which results from the existence of externalities in search activities by agents. Failure to internalize such externalities would also reduce the volume of transactions below optimum. The paper argues that the switch to Islamic finance removes both inefficiencies.
    Keywords: search models, Samuelson-Friedman inefficiency, Hosios inefficiency, synchronization of wants, International Financial Crisis, conventional finance, interest rate, islamic finance.
    JEL: E4 E42 E43
    Date: 2017–04
  9. By: Andrea Boitani (Department of Economics and Finance, Università Cattolica del Sacro Cuore); Chiara Punzo (Department of Economics and Finance, Università Cattolica del Sacro Cuore)
    Abstract: In a NK model with two types of rational agents,savers and capitalists, and non-maximizing banks, fi?nancial shocks do affect the macroeconomic dynamics depending on banks ?behaviour as for their leverage ratio. We fi?rst show that the level of banks' leverage - which may be imposed by banks regulation - affects the steady state level of output, employment and consumption, as might be expected in a non-Modigliani-Miller world. Different banks? behaviour after a shock has widely different effects on the macroeconomic dynamics:passive leverage results to be shock absorbing and capable of neutralizing an initial fi?nancial shock,whilst procyclical behaviour implies higher and more persistent instability and distributive effects than the constant leverage behaviour. Finally, we show that the interaction of procyclical leverage with hysteres is in output and employment stregthens the persistence of fi?nancial shocks.
    Keywords: Leverage, Procyclicality, Two-agent model, Non-maximising banks
    JEL: E32 E44 G01
    Date: 2018–01
  10. By: Lorenza Rossi (Department of Economics and Management, University of Pavia); Emilio Zanetti Chini (Department of Economics and Management, University of Pavia)
    Abstract: We provide stylized facts on firms dynamics by disaggregating U.S. yearly data from 1977 to 2013. To this aim, we use an unobserved component-based method, encompassing several classical regression-based techniques currently in use. Our series of entry and exit of firms at establishment level are feasible proxies of business cycle. Exit is a leading and countercyclical indicator, while entry is lagging and pro-cyclical. According to a standard structural econometric analysis, exit overshoots its average level in the medium-run. Several robustness checks confirm these results, hence supporting the most recent theoretical literature.
    Keywords: Bayesian VAR, Entry, Exit, Productivity, State Space Models.
    JEL: C13 C32 C40 E30 E32
    Date: 2018–02
  11. By: (Department of Economics, Carleton University); Hashmat Khan (Department of Economics, Carleton University)
    Abstract: We document novel shifts in the lead-lag properties of the US business cycle since the mid-1980s that have gone unnoticed in contemporary research. Speci?cally, (i) the well-known inverted-leading-indicator-property of real interest rates has completely vanished; (ii) labour productivity switched from leading positively to lagging negatively over the cycle; (iii) Labour input measures shifted from lagging labour productivity pos-itively to leading negatively; (iv) Unemployment rate shifted from lagging productivity negatively to leading positively. Many contemporary business cycle models produce counterfactual cross-correlations. Determining the underlying sources of these shifts in the lead-lag properties is challenging yet a promising direction for future research.
    Keywords: Business Cycles, Cross-Correlations, DSGE Models, Interest Rates, Productivity, Hours, Employment, Unemployment
    JEL: E24 E32 E43
  12. By: António Afonso; Luís Gonçalves
    Abstract: We use a SVAR approach to the effects of fiscal and monetary policies, as well as their interactions (policy mix) for the US and the Euro Area (EMU). Overall, our results show that these two cases are different from each other. First, while in the case of the US there is evidence of Keynesian monetary policy, the same is not true in the case of the EMU. Second, considering the effects of the global economic and financial crisis, there is evidence of non-Keynesian fiscal policy in the case of the EMU (expansionary fiscal consolidation), while it does not hold in the case of the US. Third, there is evidence supporting the traditional inverse relationship between monetary policy interest rates and inflation in the case of the US, whereas in the case of the EMU there is a price puzzle (frequent in SVAR studies). Fourth, the baseline model seems to be robust in the case of the US, when considering the effects of the economic and financial crisis 2007-2009, while the opposite holds in the case of the EMU. However, in both cases, the policies seem to act as complements. Another similarity appears when analysing the relationship between public spending and taxation, where there is evidence supporting a fiscal retrenchment.
    Keywords: Fiscal Policy, Monetary Policy, Crisis, Unconventional Monetary Policy, US, EMU
    JEL: E52 E61 E62 E63 H50 H60
    Date: 2018–02
  13. By: Hommes, Cars H.; Lustenhouwer, Joep; Mavromatis, Kostas
    Abstract: We analyze fiscal consolidations using a New Keynesian model where agents have heterogeneous expectations and are uncertain about the composition of consolidations. We look at spending-based and tax-based consolidations and analyze their effects separately. We find that the effects of consolidations and the output multipliers are sensitive to heterogeneity in expectations before and after implementation of a specific fiscal plan. Depending on the beliefs about the type of consolidation prior to implementation, we show that heterogeneity in expectations may lead to optimism in the economy, improving thus the performance of a specific fiscal plan, or can work towards the opposite direction leading to pessimism, amplifying the contractionary effects of the consolidation. In general, we find that spending-based consolidations last longer and lead to deeper recessions when agents are boundedly rational compared to the rational expectations benchmark, while the opposite holds for tax-based consolidations.
    Keywords: fiscal policy,uncertainty,heterogeneous expectations,bounded rationality
    JEL: H60 D83 E32 E62 E63 H30
    Date: 2017
  14. By: Bundick, Brent (Federal Reserve Bank of Kansas City); Smith, Andrew Lee (Federal Reserve Bank of Kansas City)
    Abstract: High-frequency empirical evidence suggests that inflation expectations in the United States became better anchored after the Federal Reserve began communicating a numerical inflation target. Using an event-study approach, we find that forward measures of inflation compensation became unresponsive to news about current inflation after the adoption of an explicit inflation target. In contrast, we find that forward measures of nominal compensation in Japan continued to drift with news about current inflation, even after the Bank of Japan adopted a numerical inflation target. These empirical findings have implications for the term structure of interest rates in the United States. In a calibrated macro-finance model, we show that the apparent anchoring of inflation expectations implies lower term premiums in longer-term bond yields and decreases the slope of the yield curve.
    Keywords: Monetary Policy; Inflation; Structural Breaks; Term Structure of Interest Rates
    JEL: E31 E52 E58
    Date: 2018–01–01
  15. By: Andrade, Philippe; Gaballo, Gaetano; Mengus, Eric; Mojon, Benoit
    Abstract: Central banks' announcements that future rates are expected to remain low for some time could signal either a weak macroeconomic outlook - which is bad news - or a more accommodative policy stance - which is good news. We use the Survey of Professional Forecasters to show that, when the Fed gave date-based forward guidance between 2011Q3 and 2012Q4, these two interpretations coexisted despite a consensus that rates would stay low for long. We rationalize these facts in an otherwise standard New-Keynesian model where agents: (i) are uncertain about the length of the trap, (ii) have different priors on the commitment ability of the central bank, and (iii) perceive central bank announcements of expected rates as accurate. This heterogeneity of beliefs introduces a trade-off in forward guidance policy: leveraging on the optimism of those who believe the central bank can commit comes at the cost of inducing excess pessimism in non-believers. When pessimistic views prevail, forward guidance can even be detrimental.
    Keywords: disagreement; optimal policy; signaling channel; survey forecasts.; zero lower bound
    JEL: E31 E52 E65
    Date: 2018–01
  16. By: Holtemöller, Oliver; Scherer, Jan-Christopher
    Abstract: In this paper, we investigate to what extend sovereign stress and banking stress have contributed to this increase in the level and in the heterogeneity of nonfinancial firms' refinancing costs in the Euro area during the European debt crisis and how they did affect the monetary transmission mechanism. Employing a large firm-level data set containing two million observations, we are able to identify the increasing effect of government bond yield spreads (sovereign stress) and the share of non-performing loans (banking stress) on firms' financing costs in a panel model by assuming that idiosyncratic shocks to individual firms are uncorrelated with country-specific variables. Moreover, we estimate both sources of stress to have significantly impaired the monetary transmission mechanism between 2005 and 2013. This finding suggests that the ECB's asset purchase programmes during that period have helped to improve firms' financing conditions in stressed countries but that monetary policy transmission was still impaired due to the elevated level of banking stress in these countries.
    Keywords: banking stress,firms' financing conditions,government bond yields,interest rate channel,monetary policy transmission,sovereign stress
    JEL: E43 E44 E52
    Date: 2018
  17. By: Costas Karfakis (Department of Economics, University of Macedonia); Eftychia Karfaki (Department of Economics, University of Macedonia)
    Abstract: This paper examines the relationship between the financial cycle and real output in Greece. The quantile analysis indicates that the financial cycle is a leading indicator of real output in the upper and lower tails of its conditional distribution, given the presence of other explanatory variables. In addition, in the lower quantile, the real output is driven by changes in perceptions about the performance of the Greek economy. Thus, a rise in the financial cycle along with positive expectations of the private sector about the future prospects of the real economy seems to represent the main driving forces of the Greek economy out of the current depression.
    Keywords: Financial cycle, real output, quantile analysis, Granger causality test.
    JEL: C22 E32 E51 E52 F41
    Date: 2018–02
  18. By: Forbes, Kristin; Kirkham, Lewis; Theodoridis, Konstantinos
    Abstract: This paper uses a "trendy" approach to understand UK inflation dynamics. It focuses on the time series to isolate a low-frequency and slow moving component of inflation (the trend) from deviations around this trend. We find that this slow-moving trend explains a substantial share of UK inflation dynamics. International prices are significantly correlated with the short-term cyclical movements in inflation around its trend, and the exchange rate is significantly correlated with movements in the slow-moving, persistent trend. Other variables emphasized in standard inflation models-such as slack and inflation expectations-may also play some role, but their significance varies and the magnitude of their effects is substantially smaller than for commodity prices and the exchange rate. These results highlight the sensitivity of UK inflation dynamics to events in the rest of the world. They also provide guidance on when deviations of inflation from target are more likely to be temporary, and when (and how quickly) a monetary policy response is appropriate.
    Keywords: Exchange rate; inflation; Inflation expectations; monetary policy; Phillips curve; slack; UCSV; UK
    JEL: E31 E5
    Date: 2018–01
  19. By: Edouard Challe (CREST; CNRS; Ecole Polytechnique)
    Abstract: I study optimal monetary policy in a New Keynesian economy wherein households precautionary-save against uninsured, endogenous unemployment risk. In this economy greater unemployment risk raises desired savings, causing aggregate demand to fall and feedback to greater unemployment risk. I show this de?flationary feedback loop to be constrained-inefficient and to call for an accommodative monetary policy response: after a contractionary aggregate shock the policy rate should be kept signifi?cantly lower and for longer than in the perfect-insurance benchmark. For example, the usual prescription obtained under perfect insurance of a hike in the policy rate in the face of a bad supply (i.e., productivity or cost-push) shock is easily overturned. If implemented, the optimal policy effectively breaks the defl?ationary feedback loop and takes the dynamics of the imperfect-insurance economy close to that of the perfect-insurance benchmark.
    Keywords: Unemployment risk; imperfect insurance; optimal monetary policy
    JEL: E21 E32 E52
    Date: 2017–11–01
  20. By: HILL Robert J.; STEURER Miriam; WALTL Sofie R.
    Abstract: The treatment of owner-occupied housing (OOH) is probably the most important unresolved issue in inflation measurement. The European Union has been grappling with this problem for over a decade. We argue for measuring OOH costs using a particular version of the user cost method. We then compare the impact of eight different treatments of OOH on the consumer price index (CPI), using quantile hedonic regression. The impact on the CPI is large, and the treatment of OOH emerges as an essential prerequisite to discussions over how an inflation targeting central bank should respond to housing booms and busts.
    Keywords: Measurement of inflation; Owner occupied housing; User cost; Quantile regression; Hedonic imputation; Housing booms and busts; Inflation targeting
    JEL: C31 C43 E01 E31 E52 R31
    Date: 2018–02
  21. By: Auray Stéphane (CREST-ENSAI ; ULCO); Eyquem Aurélien (ENSAI-CREST ; Université Lumière Lyon 2 ; CNRS (GATE))
    Abstract: In this paper, we develop a tractable incomplete-market model with unemployment and borrowing constraints. We analyze the effects of ?scal and unemployment insurance policies in reaction to a large economic downturn. Policy instruments are government spending and the unemployment replacement rate. First, our incomplete-market model magnifies ?uctuations in the unemployment rate after various shocks, compared to a standard complete-market model. Second, in response to a large shock that replicates the effects of a crisis, we find that government spending should increase substantially and that the replacement rate should drop. The sign and size of government interventions are quite different in a model with complete markets. Unemployment and borrowing constraints happen to matter quite a lot in determining the aggregate effects of large shocks, the design of optimized policies in response to these shocks and the corresponding welfare gains/losses.
    Keywords: unemployment, borrowing constraints, incomplete markets, unemployment insurance, public spending
    JEL: D52 E21 E62 J64 J65
    Date: 2017–09–01
  22. By: Daniel R. Feenberg; Clinton Tepper; Ivo Welch
    Abstract: Contrary to common perception, many fixed-income investors have not suffered unusually low real interest rates in and after the Great Recession of 2008. This is because taxable investors must first pay taxes on nominal interest returns, before inflation further reduces their earned real interest rates. To obtain the same real after-tax yield, investors need more than one-to-one compensation for inflation. As a result, long-term Treasury bonds have been no less attractive for taxable investors in 2016 (with a 1.0% post-tax real yield) than they were in 2006 (0.5%), 1976 (–1.7%), 1966 (0.9%), and 1956 (0.8%), although they have been less attractive than they were in 1996 (2.4%) and 1986 (2.9%). Short-term Treasury bond yields have been on the low side but have also not been particularly unusual.
    JEL: E0 E21 G0 G12 H0 H2 H24
    Date: 2018–01
  23. By: Redl, Chris (Bank of England)
    Abstract: This paper uses a data-rich environment to produce direct econometric estimates of macroeconomic and financial uncertainty in the United Kingdom for the period 1991–2016. These indices exhibit significant independent variation from popular proxies for macroeconomic and financial uncertainty. We identify the impact of uncertainty shocks using narrative sign restrictions, which allow us to exploit individual historic events to separate the impact of macroeconomic, financial and credit shocks on real variables. Using only traditional sign restrictions, we find that the real effects of macroeconomic uncertainty shocks are generally weaker than proxies suggest and that the effects depend on a subsequent rise in financial uncertainty and credit spreads to have a negative impact on GDP. Exploiting narrative events such as the disorderly exit from the Exchange Rate Mechanism, the dot-com recession and the financial crisis support this finding. However, conditioning on narrative events more closely associated with political uncertainty, ie tight general elections, suggests a stronger impact response of GDP to macro uncertainty shocks. We find these results are robust to controlling for both financial and global uncertainty.
    Keywords: Economic uncertainty; business cycles; United Kingdom
    JEL: D80 E32
    Date: 2017–11–29
  24. By: Hongyi Chen (Hong Kong Institute for Monetary Research); Ran Li (Bank for International Settlements); Peter Tillmann (Justus-Liebig-University Giessen)
    Abstract: This paper studies whether monetary transmission in China is asymmetric. While researchers found an asymmetric transmission in the U.S. and other economies, China offers a specific rationale for asymmetries: the presence of state-owned enterprises (SOEs) enjoying preferential access to financing. To study the consequences of SOEs for policy transmission, we differentiate between expansionary and restrictive policy shocks and argue that SOEs should suffer less from a policy tightening and benefit more from a policy easing. Based on sector-specific macroeconomic time series and a large firm-level data set, we provide evidence of a systematic and sizable asymmetry in the transmission of monetary policy shocks in China. The nature of the asymmetry is consistent with the notion of explicit or implicit government-guarantees of SOEs and has consequences for the adjustment of aggregate variables. In contrast to other central banks, the People’s Bank of China seems to be able to “push on a string”.
    Keywords: monetary transmission, state-owned enterprises, financial system, VAR, state-dependent local projections, firm-level data
    JEL: E32 E44 G32
    Date: 2018
  25. By: Thomas Lustenberger; Enzo Rossi (University of Basel)
    Abstract: In a large sample of countries across different geographic regions andover a long period of time, we find limited country- and variable-specific effectsof central bank transparency on forecast accuracy and their dispersionamong a large set of professional forecasts of financial and macroeconomicvariables. More communication even increases forecast errors and dispersion.
    Keywords: Central bank transparency, central bank communication, central bank independence, inflation targeting, forward guidance, macroeconomic forecasts, financial forecasts, panel data models with truncated data
    JEL: C23 C53 E37 E58 D8
    Date: 2018
  26. By: haldane, Andrew (Bank of England); Turrell, Arthur (Bank of England)
    Abstract: Macroeconomic modelling has been under intense scrutiny since the Great Financial Crisis, when serious shortcomings were exposed in the methodology used to understand the economy as a whole. Criticism has been levelled at the assumptions employed in the dominant models, particularly that economic agents are homogeneous and optimising and that the economy is equilibrating. This paper seeks to explore an interdisciplinary approach to macroeconomic modelling, with techniques drawn from other (natural and social) sciences. Specifically, it discusses agent-based modelling, which is used across a wide range of disciplines, as an example of such a technique. Agent-based models are complementary to existing approaches and are suited to answering macroeconomic questions where complexity, heterogeneity, networks, and heuristics play an important role.
    Keywords: Macroeconomics; modelling; agent-based model
    JEL: A12 C60 E17 E60
    Date: 2017–11–17
  27. By: Shifu Jiang
    Abstract: I study the Ramsey problem for three unconventional monetary policies in a twocountry model. An equity injection into financial intermediaries is the most efficient policy. Due to precautionary effects of future risk, a central bank should exit from these policies in accordance with but slower than the speed of deleveraging in the financial sector. The optimal policy is changed considerably if cross-country policy cooperation is not imposed. In this case, the unconventional interventions tend to be too strong in one country but too weak in the other. The cooperation gain is a function of policy cost. At last, I evaluate several simple rules and find that the rule responding to gaps in asset prices mimics the optimal policy very well.
    JEL: E44 E58 F41 F42 C63
    Date: 2017–12
  28. By: Garcés Díaz Daniel
    Abstract: This paper applies a novel approach to study the impact of different shocks on the price level. It uses a classical dichotomy model with monetary policy regime shifts at known dates. First, there was a regime dominated by money, afterwards a regime driven by the exchange rate and a third one with inflation targeting. The result is a CVAR with constant long-run parameters but regime-dependent adjustment coefficients. This overcomes the challenge of explaining, within a single theoretical framework, inflation dynamics in Mexico since the country abandoned the gold standard. The model encompasses known results, offers new insights and clarifies decades-old debates on key aspects of the inflationary process such as inertia, the role of money, the exchange rate pass-through and the impact profile of other variables. The model proposed here is very parsimonious, it does not require inflation lags nor dummy variables. It also displays a very good pseudo out-of-sample forecasting performance.
    Keywords: Money Velocity;Exchange Rate;Inflation;PPP;Fiscal Deficit;Cointegration;Monetary Regimes;Unbalanced Regressions
    JEL: C32 E41 E42 E52
    Date: 2017–12
  29. By: Lustenhouwer, Joep; Mavromatis, Kostas
    Abstract: We analyze fiscal consolidations using a New-Keynesian model where agents have finite planning horizons and are uncertain about the future state of the economy. Both consumers and firms are infinitely lived, but only plan and form expectations up to a finite number of periods into the future. The length of agents' planning horizons plays an important role in determining how spending cuts or tax increases affect output and inflation. We find that for low degrees of relative risk aversion spending-based consolidations are less costly in terms of output losses, in line with empirical evidence. A stronger response of monetary policy to inflation makes spending-based consolidations more favorable as well. Interestingly, for short planning horizons, our model captures the positive comovement between private consumption and government spending observed in the data.
    Keywords: Fiscal policy,Finite planning horizons,Bounded rationality
    JEL: E60 E62 E63 H63
    Date: 2017
  30. By: Marco Di Maggio; Amir Kermani; Kaveh Majlesi
    Abstract: This paper employs Swedish data containing security level information on households' stock holdings to investigate how consumption responds to changes in stock market returns. We exploit households’ portfolio weights in previous years as an instrument for actual capital gains and dividends payments. We find that unrealized capital gains lead to a marginal propensity to consume (MPC) of 13 percent for the bottom 50% of the wealth distribution but a flat 5 percent for the rest of the distribution. We also find that households’ consumption is significantly more responsive to dividend payouts across all parts of the wealth distribution. Our findings are broadly consistent with near-rational behavior in which households optimize their consumption with respect to capital gains and dividends income as if they were separate sources of income.
    JEL: E2 E21 G02 G1
    Date: 2018–01
  31. By: Christophe Blot; Paul Hubert; Fabien Labondance
    Abstract: This paper assesses the linear and non-linear dynamic effects of monetary policy on asset price bubbles. We use a Principal Component Analysis to estimate new bubble indicators for the stock and housing markets in the United States based on structural, econometric and statistical approaches. We find that the effects of monetary policy are asymmetric so the responses to restrictive and expansionary shocks must be differentiated. Restrictive monetary policy is not able to deflate asset price bubbles contrary to the “leaning against the wind†policy recommendations. Expansionary interest rate policies would inflate stock price bubbles whereas expansionary balance-sheet measures would not.
    Keywords: Booms and busts, Mispricing, Price deviations, Interest rate policy, Unconventional monetary policy, Quantitative Easing, Federal Reserve
    JEL: E44 G12 E52
    Date: 2018
  32. By: Dison, Will (Bank of England); Theodoridis, Konstantinos (Bank of England)
    Abstract: We investigate the role of macroeconomic shocks in driving equity price dynamics, focusing in particular on the United Kingdom as a small open economy. Using a vector error correction model estimated on 34 macroeconomic and financial time series, we show that shocks to demand, supply, monetary policy and total factor productivity account for a significant proportion of the variation in both UK and US equity prices. In contrast to some of the earlier literature, we find that shocks to total factor productivity play a particularly important role in explaining equity price movements, particularly at longer horizons. Reflecting the international nature of the FTSE All-Share, we find that most of the variation in UK equity prices is accounted for by foreign shocks, even for relatively UK-focused sectors.
    Keywords: Asset prices; stock markets; open economy macroeconomics; small open economies; international financial markets; financial forecasting
    JEL: E44 F41 G15 G17
    Date: 2017–11–10
  33. By: Thomas Lustenberger; Enzo Rossi (University of Basel)
    Abstract: We develop and apply a procedure to test the welfare implications of abeauty and non-beauty contest based on survey forecasts of interest ratesand yields in a large country sample over an extended period of time. Inmost countries, interest rate forecasts are unbiased and consistent with bothmodels, but are rarely supported by yield forecasts. In half of the countries,a higher precision of public information regarding interest rates increaseswelfare. During forward guidance, public information is less precise thanprivate information.
    Keywords: Value of information, beauty contest, interest rate forecasts, bond yield forecasts, strategic forecasts, central bank transparency, forward guidance
    JEL: D8 E43 E52 E58 G1 G29
    Date: 2018
  34. By: Emilio Colombo; Lorenzo Menna; Patrizio Tirelli
    Abstract: We provide evidence, based on a large sample of countries, on the effects of financial crises on key labor market indicators, including official and unofficial employment, unemployment and the participation rate. Crises are followed by a drop in the official market participation rate and by an increase in informal employment. These responses are strongly persistent. Empirical results are then interpreted with a DSGE model which accounts for informality and for financial and labor market frictions. In this framework the informal sector acts as a buffer which absorbs workers in bad times and vice versa. Our simulations suggest the informal sector also is a crisis amplifier for the official economy. In fact, the larger the pre-crisis informal sector, the stronger the labor reallocation, i.e. the fall in the participation rate, necessary to equilibrate the labor market.
    JEL: E26 E32 G01
    Date: 2018
  35. By: Cesa Bianchi, Ambrogio (Bank of England); Sokol, Andrej (Bank of England)
    Abstract: Recent empirical evidence on the cross-country synchronization of credit spreads in response to US monetary policy shocks has led to the notion of an ‘international credit channel’ of US monetary policy. This paper provides novel evidence on the existence of an international credit channel for the transmission of US financial shocks across borders, and compares their impact to US monetary policy shocks. We identify monetary policy and financial shocks by combining the external instruments approach with sign restrictions in a two-country SVAR for the United States and the United Kingdom. Adverse US financial shocks trigger a sharp and persistent contraction in the US economy, and an increase in US credit spreads. Crucially, this tightening in US credit conditions is quickly transmitted internationally, leading to an increase in credit spreads and a slowdown in economic activity in the United Kingdom. Unlike financial shocks, monetary policy shocks do not seem to induce as much international co-movement. Our results are in line with general equilibrium open economy models with credit market imperfections and a high degree of financial integration.
    Keywords: SVAR; credit channel; international transmission; external instruments; sign restrictions; financial shocks; monetary policy
    JEL: C32 E44 F44
    Date: 2017–11–15
  36. By: Zheng Michael Song; Wei Xiong
    Abstract: Motivated by growing concerns about the risks and instability of China’s financial system, this article reviews several commonly perceived financial risks and discusses their roots in China’s politico-economic institutions. We emphasize the need to evaluate these risks within China’s unique economic and financial systems, in which the state and non-state sectors coexist and the financial system serves as a key tool of the government to fund its economic policies. Overall, we argue that: (1) financial crisis is unlikely to happen in the near future, and (2) the ultimate risk lies with China’s economic growth, as a vicious circle of distortions in the financial system lowers the efficiency of capital allocation and economic growth and will eventually exacerbate financial risks in the long run.
    JEL: E00 E02 G00 G01
    Date: 2018–01
  37. By: Hommes, Cars H.; Lustenhouwer, Joep
    Abstract: We study the possibility of (almost) self-fulfilling waves of pessimism and selfreinforcing liquidity traps in a New Keynesian model with heterogeneous expectations. We explicitly focus on the "anchoring" of expectations that is modeled as the range of deviations from the central bank targets (and from the rational expectation equilibrium) that agents are willing to consider. We find that when the zero lower bound on the nominal interest rate is not binding, aggressive monetary policy can prevent waves of pessimism and exclude near unit root dynamics, even when expectations are unanchored. However, as shocks bring the economy to a situation with a binding zero lower bound, there is a danger of a long lasting self-reinforcing liquidity trap that arises because of the existence of multiple steady states. It turns out that in a model where the anchoring of expectations evolves endogenously, the anchoring of expectations at the time the bad shocks hit is crucial in determining whether the economy can recover from the liquidity trap. Furthermore, a higher inflation target reduces the probability that self-reinforcing liquidity traps arise.
    Keywords: Interest Rate Rules,Liquidity Traps,Heterogeneous Expectations,Bounded Rationality,Multiple Steady States
    JEL: E52 E32 C62
    Date: 2017
  38. By: Been-Lon Chen (Institute of Economics, Academia Sinica, Taipei, Taiwan); Mei Hsu (College of Management, National Taiwan Normal University); Yu-Shan Hsu (Department of Economics, National Chung Cheng University)
    Abstract: It has been shown that, in the two‐sector Benhabib‐Farmer‐Guo model with technologies of social increasing returns that exhibits indeterminacy, progressive income taxes de‐stabilize the economy. This paper revisits the robustness of the tax implication in the two‐sector Benhabib‐Nishimura model with technologies of social constant returns that exhibits indeterminacy. We show that a progressive income tax stabilizes the economy against sunspot fluctuations, and thus the tax implication based on the two‐sector Benhabib‐Farmer‐Guo model is not robust.
    Keywords: : two‐sector model, progressive income taxes, indeterminacy, no‐income‐effect utility, social constant returns
    JEL: E32 O41
    Date: 2018–01
  39. By: Anson, Mike (Bank of England); Bholat, David (Bank of England); Kang, Miao (Bank of England); Thomas, Ryland (Bank of England)
    Abstract: We use daily transactional ledger data from the Bank of England’s Archive to test whether and to what extent the Bank of England during the mid-nineteenth century adhered to Walter Bagehot’s rule that a central bank in a financial crisis should lend cash freely at a penalty rate in exchange for ‘good’ securities. The archival data we use provides granular, loan-level insight on the price and quantity of credit, and information on its distribution to particular counterparties. We find that the Bank’s behaviour during this period broadly conforms to Bagehot’s rule, though with variation across the crises of 1847, 1857 and 1866. Using a new, higher frequency series on the Bank’s balance sheet, we find that the Bank did lend freely, with the number of discounts and advances increasing during crises. These loans were typically granted at a rate above pre-crisis levels and, in 1857 and 1866, typically at a spread above Bank Rate, though we also find some instances in the daily discount ledgers where individual loans were made below Bank rate in 1847. Another set of customer ledgers shows that the securities the Bank purchased were debts owed by a geographically and industrially diverse set of debtors. And using new data on the Bank’s income and dividends, we find the Bank and its shareholders profited from lender of last resort operations. We conclude our paper by relating our findings to contemporary debates including those regarding the provision of emergency liquidity to shadow banks.
    Keywords: Bank of England; lender of last resort; financial crises; financial history; central banking
    JEL: E58 G01 G18 G20 H12
    Date: 2017–11–10
  40. By: Saghir, Marouan; Aston, John
    Abstract: This paper investigates the impact of various economic factors such as inflation, interest rate, financial crises, and government regulations on the access to finance in the business sector specifically considering the financial experts' perspective operating in the UK financial services companies. The study examines the relationship between variables of interest in post recession period. Total five out of top fifty British Financial Services' Companies were selected through convenience sampling. Additionally, 38 respondents were selected through purposive sampling, based on their knowledge, level of management, and experiences in the sector. The findings showed that interest rate, government regulations, and financial crises have significant relationship in accessing financial resource. Interestingly, 83% remain neutral about the relationship between inflation and raising funds.
    Keywords: Inflation, interest rate, government regulation, financial crises, economic factors
    JEL: D0 D04 E6 E69 F32
    Date: 2017–04–20
  41. By: Fallick, Bruce C. (Federal Reserve Bank of Cleveland); Krolikowski, Pawel (Federal Reserve Bank of Cleveland)
    Abstract: We examine hysteresis in employment-to-population ratios among less-educated men using state-level data. Results from dynamic panel regressions indicate a moderate degree of hysteresis: The effects of past employment rates on subsequent employment rates can be substantial but essentially dissipate within three years. This finding is robust to a number of variations. We find no substantial asymmetry in the persistence of high vs. low employment rates. The cumulative effect of hysteresis in the business cycle surrounding the 2001 recession was mildly positive, while the effect in the cycle surrounding the 2008–09 recession was, through 2016, decidedly negative. Additional simulations suggest that the employment benefits of temporarily running a “high-pressure” economy are small.
    Keywords: hysteresis; employment persistence; labor market tightness; unemployment;
    JEL: E24 J21 J24
    Date: 2018–02–06
  42. By: Wenjuan Chen; Aleksei Netsunajev
    Keywords: structural vector autoregression; Markov switching; time varying transition probabilities; identification via heteroscedasticity; uncertainty shocks; unemployment dynamics
    JEL: C32 D80 E24
    Date: 2018–02–13
  43. 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,Monetary History,Economic Activity,Europe: Pre-1913,Asia including Middle East
    JEL: E42 E52 N13 N15 O1
    Date: 2018
  44. By: Tatiana Cesaroni (Bank of Italy); Riccardo De Bonis (Bank of Italy); Luigi Infante (Bank of Italy)
    Abstract: According to macroeconomic predictions firms are expected to be net borrowers: the net change of their financial assets should be smaller than the net change of their financial liabilities. However, since the mid-1990s, the non–financial sector has been on average a net lender in countries such as Japan, the UK, Germany and the Netherlands. Conversely firms remained on average net borrowers in countries such as France, Italy and the US. Using financial accounts, we investigate the sources of corporate sector surpluses and deficits applying panel data techniques. Our statistics include 18 industrial countries over the period 1995-2014. We find that firms’ surpluses are structurally linked to net foreign direct investments. The econometric results are robust to the use of variables that control for the business cycle, such as the output gap, the ratio of corporate investment to GDP, firms’ profits and leverage, and taxation.
    Keywords: Net lending/net borrowing, corporate sector, global saving glut, panel data
    JEL: E2 G3
    Date: 2018
  45. By: Afees A. Salisu; Lateef O. Akanni (Department of Economics, University of Lagos,Akoka, Lagos, Nigeria)
    Abstract: The International Energy Agency (IEA) recently announces that the explosive increases in the United States oil output, particularly from shale oil, would make the country become world’s top oil producer and eventually exporter ahead of Saudi Arabia and Asia in the coming years. Motivated by this projection, we therefore examine the implications of the US shale oil on oil exports of OPEC and selected non-OPEC countries using the Structural Vector Autoregressive (SVAR) approach. Our results reveal that the US oil supply shocks particularly those due to shale oil are critical in the output and supply decisions of OPEC and major non-OPEC oil exporters. Underestimating the potential consequences of US overtaken the current world oil giants and failure to put in place critical structural shifts by these countries, especially alternative revenue sources, pose a potential threat to their growth prospects.
    Keywords: Shale Oil, Crude Oil, Oil Supply Shocks, OPEC, Shale Revolution
    JEL: E31 E32 Q31 Q43
    Date: 2018–02
  46. By: Frédérique Bec (Thema; University of Cergy-Pontoise;CREST); Raouf Boucekkine (Aix-Marseille University; CNRS; EHESS; Centrale Marseille; AMSE and IMéra); Caroline Jardet (Banque de France, DGEI-DCPM)
    Abstract: This paper proposes a theoretical model of forecasts formation which implies that in presence of information observation and forecasts communication costs, rational professional forecasters might find it optimal not to revise their forecasts continuously, or at any time. The threshold time- and state-dependence of the observation reviews and forecasts revisions implied by this model are then tested using inflation forecast updates of professional forecasters from recent Consensus Economics panel data for France and Germany. Our empirical results support the presence of both kinds of dependence, as well as their threshold-type shape. They also imply an upper bound of the optimal time between two information observations of about six months and the co-existence of both types of costs, the observation cost being about 1.5 times larger than the communication cost.
    Keywords: Forecast revision, binary choice models, information and communication costs.
    JEL: C23 D8 E31
    Date: 2017–11–07
  47. By: Reto Foellmi; Adrian Jaeggi; Rina Rosenblatt-Wisch
    Abstract: Preferences are important when thinking about macroeconomic problems and questions. Differences in preferences might, for example, explain cross-country variations in economic fundamentals.In recent years, differences in preferences across countries and cultures have been studied more frequently, usually concentrating on micro evidence. However, it is an open question as to how differences in average preferences affect the aggregate economy. Coming from a macroeconomic perspective, we test whether preferences stated in Kahneman and Tversky’s prospect theory, namely, reference point dependence and loss aversion, prevail on the aggregate and whether the average degree of loss aversion differs across countries.We find evidence of loss aversion for a broad set of OECD countries, while the average loss aversion clearly differs across these countries. We find little evidence that these differences could be explained by micro evidence. Furthermore, we analyse whether the different degrees of loss aversion correlate with economic fundamentals such as the level of GDP and consumption per capita. We find that indeed loss aversion is negatively correlated with GDP and consumption per capita and positively correlated with consumption smoothing.
    Keywords: Preferences, loss aversion, prospect theory, GMM
    JEL: E21 O41
    Date: 2018
  48. By: Dario Caldara; Matteo Iacoviello
    Abstract: We present a monthly indicator of geopolitical risk based on a tally of newspaper articles covering geopolitical tensions, and examine its evolution and effects since 1985. The geopolitical risk (GPR) index spikes around the Gulf War, after 9/11, during the 2003 Iraq invasion, during the 2014 Russia-Ukraine crisis, and after the Paris terrorist attacks. High geopolitical risk leads to a decline in real activity, lower stock returns, and movements in capital flows away from emerging economies and towards advanced economies. When we decompose the index into threats and acts components, the adverse effects of geopolitical risk are mostly driven by the threat of adverse geopolitical events. Extending our index back to 1900, geopolitical risk rose dramatically during the World War I and World War II, was elevated in the early 1980s, and has drifted upward since the beginning of the 21st century.
    Keywords: Geopolitical Risk ; Economic Uncertainty ; War ; Terrorism ; Business Cycles
    JEL: C1 D80 E32 H56
    Date: 2018–02–02
  49. By: Eduardo A. Haddad; Natalia Q. Cotarelli, Thiago C. Simonato, Vinicius A. Vale; Jaqueline C. Visentin
    Abstract: The impact of the crisis in the Greek economy was not uniform among the regions, threatening socioeconomic cohesion. In this paper, we explore the concept of the income multiplier in a multi-regional setting, in the context of the Greek recession, showing empirical evidence for the increasing magnitude of the multiplier during the recession period. The main results reveal a complex system of interregional relations on some of whose structural characteristics the cyclical reaction paths of the regions depends. In this case, the use of fiscal instruments to stimulate local activity in the regions may bring about important implications for regional inequality in Greece
    Keywords: Keynesian multiplier; recessions; Greece; austerity policy; countercyclical regional policy
    JEL: E12 E62 R11
    Date: 2018–02–06
  50. By: Le, Vo Phuong Mai (Cardiff Business School); Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School)
    Abstract: The paper takes the stand that the central banks as financial regulators have their own interest in imposing more regulations. It models the institutional behaviour for the central bank and government using the Indirect Inference testing and estimation method as it finds a set of coefficients of the model that can generate the actual observed behaviour for the US. The paper establishes that good monetary policy can reduce instability. Regulation at worse destabilises the economy and at best contributes little to stabilise the economy. After the financial crisis, financial regulations were too severe and thus actually increased instability.
    Keywords: DSGE, Regulations, Financial Stability, Monetary Policy
    JEL: E10 E58 G28
    Date: 2018–01
  51. By: Gregor Bäurle; Sarah M. Lein; Elisabeth Steiner (University of Basel)
    Abstract: Firms adjust their employment to changes in output. But they tend to adjust it onlypartially. Typically, labor is hoarded in downturns and subsequently rms have to hireless in upturns. Investment in labor hoarding may therefore be inuenced by factorsthat impede investments, such as nancial constraints. Using rm-level data, weshow that nancial constraints increase the sensitivity of employment to uctuationsin output considerably. When output changes, nancially constrained rms resizetheir labor force substantially more than rms that have abundant funding. Limitedinternal funding opportunities turn out to be just as important as the reduced accessto external nance. The strongest impact, however, is observed when internal andexternal constraints occur jointly. In that case, rms lay o two-and-a-half times moreemployees than unconstrained rms. The amplifying e ect of nancial constraints issimilar in upturns and downturns, implying that nancially constrained rms not onlyreduce their workforce more when demand decreases, but they also hire more laborwhen demand increases.
    Keywords: Financial constraints, employment, labor hoarding
    JEL: E24 E3
    Date: 2018
  52. By: Francisco Arizala; Jesus R Gonzalez-Garcia; Charalambos G Tsangarides; Mustafa Yenice
    Abstract: This paper examines the output effects of changes in public expenditure and revenue in sub-Saharan African countries during 1990–2016. Fiscal multipliers in sub-Saharan Africa are somewhat smaller than those in advanced and emerging economies. The effect of changes in fiscal policy on output depends on the composition: cutting public investment has a larger effect on output than cutting public consumption or raising revenue. Episodes of fiscal consolidation have short- and medium-term output effects, but here, too, composition matters: fiscal consolidations based on reducing public investment have the largest effect on output, while fiscal consolidations based on revenue mobilization are less harmful than those based on public investment cuts. These findings suggest that the negative impact on growth can be mitigated through the design of fiscal adjustment and the accompanying policy environment.
    Keywords: Africa;Africa;Growth, fiscal consolidations, fiscal multipliers, local projections, General
    Date: 2017–12–14
  53. By: Kevin Luo (Graduate School of Economics, Kobe University); Tomoko Kinugasa (Graduate School of Economics, Kobe University)
    Abstract: In this study, employing the synthetic control method (Abadie et al., 2003), we examine the short- and long-term effects of the 2008 Sichuan earthquake on saving behaviors. The results indicate that, in the short-run, the earthquake has caused drastic declines in household saving rates—from 24% to 7% and from 23% to 21% for rural and urban populations, respectively. However, household saving rates recovered to the baseline shortly after the shock, and they exactly match their counterfactual counterparts in the period ahead. The estimates imply that, at the aggregate level, the earthquake has no discernible long-run impact on the saving propensity of the affected population.
    Keywords: Natural disaster, Sichuan earthquake, Saving, Synthetic control method, long-term impact
    JEL: Q54 D81 E21
    Date: 2018–02
  54. By: Mertens, Thomas M. (Federal Reserve Bank of San Francisco); Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: This paper analyzes the effects of the lower bound for interest rates on the distributions of expectations for future inflation and interest rates. We use a stylized model economy where the policy instrument is subject to a lower bound to motivate the empirical analysis. Two equilibria emerge: In the “target equilibrium,” policy is unconstrained most or all of the time, whereas in the “liquidity trap equilibrium,” policy is mostly or always constrained. We use options data on future interest rates and inflation to study whether the decrease in the natural rate of interest leads to forecast densities consistent with the theoretical model. We develop a lower bound indicator that captures the effects of the lower bound on the distribution of interest rates. Qualitatively, we find that evidence is largely consistent with the theoretical predictions in the target equilibrium and find no evidence in favor of the liquidity trap equilibrium. Quantitatively, while the lower bound has a sizable effect on the distribution of future interest rates, its impact on forecast densities for inflation is relatively modest.
    JEL: E52
    Date: 2018–01–18
  55. By: Jan Bruha; Michal Hlavacek; Lubos Komarek
    Abstract: In this paper, we investigate whether movements in property prices have detectable effects on Czech households' consumption and saving decisions. We concentrate on three episodes of movements in house and apartment prices and ask whether property owners have significantly different consumption and saving choices from households living in rented properties. We found that, on average, property owners tend to have a lower propensity to consume and a higher saving rate independently of whether property prices move up or down. This casts doubts on the strength of the collateral channel linking the housing market to the macroeconomy in the Czech Republic.
    Keywords: Consumption and saving decisions, property prices
    JEL: D12 D14 E21 R31
    Date: 2017–12
  56. By: Richard Rogerson; Johanna Wallenius
    Abstract: Using the Consumption Activities Mail Survey (CAMS) module in the HRS we document how time allocations change for individuals within a household when one or more members transitions from full time work to not working. Our basic finding is that the ratio of home production to leisure time is approximately constant for both family members. We then build a model of household labor supply to understand the implications of this finding for preferences and the home production function. We conclude that this fact suggests a relatively large elasticity of substitution between the leisure of the two members. For commonly used preference specifications, this also implies a large (i.e., greater than one) intertemporal elasticity of substitution for leisure.
    JEL: E24 J22
    Date: 2018–01
  57. By: Campos, Nauro F.; Macchiarelli, Corrado
    Abstract: Bayoumi-Eichengreen (1993) establish a EMU core-periphery pattern using 1963-1988 data. We use same methodology, sample, window length (1989-2015), and a novel over-identifying restriction test to ask whether the EMU strengthened or weakened the core-periphery pattern. Our results suggest the latter.
    Keywords: business cycle synchronization; structural VAR; European Monetary Union; core-periphery
    JEL: E32 E63 F02
    Date: 2016–10–01
  58. By: Nikolaos Antonakakis (Department of Business and Management, Webster Vienna Private University, Praterstrasse Vienna, Austria and Economics and Finance Subject Group, University of Portsmouth, Portsmouth Business School, Portsmouth, UK); David Gabauer (Department of Business and Management, Webster Vienna Private University, Praterstrasse Vienna, Austria); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: In this study, we examine the transmission of international monetary policy shocks across developed economies based on a time-varying parameter vector autoregressive (TVP-VAR) methodology. Using daily data on shadow short rates over the period of January 2, 1995 to September 22, 2017, we find the following empirical regularities. International monetary policy shocks are an important source of domestic monetary policy fluctuations. Moreover, the magnitude of international monetary policy spillovers behaves heterogeneously overtime, with peaks reached during the “Great Recession”. In addition, the dominant transmitters of international monetary policy shocks are the Euro Area and the US, while Japan and the UK are the dominant receivers of international monetary policy shocks. Interestingly enough, international monetary policy shocks originating from the US are the largest during the zero lower bound and the related unconventional monetary policy actions era, indicating potential gains from monetary policy coordination.
    Keywords: Monetary policy spillovers, Dynamic connectedness, TVP-VAR
    JEL: C32 C50 E52
    Date: 2018–01
  59. By: German Cubas (Department of Economics, University of Houston); Pedro Silos (Department of Economics, Temple University)
    Abstract: This paper studies how insurance from progressive taxation improves the matching of workers to occupations. We propose an equilibrium dynamic assignment model to illustrate how social insurance encourages mobility. Workers experiment to find their best occupational fit in a process filled with uncertainty. Risk aversion and limited earnings insurance induce workers to remain in unfitting occupations. We estimate the model using microdata from the United States and Germany. Higher earnings uncertainty explains the U.S. higher mobility rate. When workers in the United States enjoy Germany's higher progressivity, mobility rises. Output and welfare gains are large.
    Keywords: Progressive Taxation, Social Insurance, Occupational Choice
    JEL: E21 H24 J31
    Date: 2018–02
  60. By: Dan Cao; Iván Werning
    Abstract: Is the standard hyperbolic-discounting model capable of robust qualitative predictions for savings behavior? Despite results suggesting a negative answer, we provide a positive one. We give conditions under which all Markov equilibria display either saving at all wealth levels or dissaving at all wealth levels. Moreover, saving versus dissaving is determined by a simple condition comparing the interest rate to a threshold made up of impatience parameters only. Our robustness results illustrate a well-behaved side of the model and imply that qualitative behavior is determinate, dissipating indeterminacy concerns to the contrary (Krusell and Smith, 2003). We prove by construction that equilibria always exist and that multiplicity is present in some cases, highlighting that our robust predictions are not due to uniqueness. Similar results may be obtainable in related dynamic games, such as political economy models of public spending.
    JEL: D03 D7 E21
    Date: 2018–01
  61. By: Caliendo, Lorenzo; Opromolla, Luca David; Parro, Fernando; Sforza, Alessandro
    Abstract: The economic effects from labor market integration are crucially affected by the extent to which countries are open to trade. In this paper we build a multi-country dynamic general equi- librium model with trade in goods and labor mobility across countries to study and quantify the economic effects of trade and labor market integration. In our model trade is costly and features households of different skills and nationalities facing costly forward-looking relocation decisions. We use the EU Labour Force Survey to construct migration flows by skill and na- tionality across 17 countries for the period 2002-2007. We then exploit the timing variation of the 2004 EU enlargement to estimate the elasticity of migration flows to labor mobility costs, and to identify the change in labor mobility costs associated to the actual change in policy. We apply our model and use these estimates, as well as the observed changes in tariffs, to quantify the effects from the EU enlargement. We find that new member state countries are the largest winners from the EU enlargement, and in particular unskilled labor. We find smaller welfare gains for EU-15 countries. However, in the absence of changes to trade policy, the EU-15 would have been worse off after the enlargement. We study even further the interaction effects between trade and migration policies and the role of different mechanisms in shaping our results. Our results highlight the importance of trade for the quantification of the welfare and migration effects from labor market integration
    Keywords: international trade; factor mobility; market integration; EU enlargement; welfare
    JEL: E24 F13 F16 F22 J61 R13
    Date: 2017–08–01
  62. 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: 2018–01
  63. By: Alvarez-Martinez, Maria; Barrios, Salvador; d'Andria, Diego; Gesualdo, Maria; Nicodème, Gaëtan; Pycroft, Jonathan
    Abstract: This paper estimates the size and macroeconomic effects of base erosion and profit shifting (BEPS) using a computable general equilibrium model designed for corporate taxation and multinationals. Our central estimate of the impact of BEPS on corporate tax losses for the EU amounts to €36 billion annually or 7.7% of total corporate tax revenues. The USA and Japan also appear to loose tax revenues respectively of €101 and €24 billion per year or 10.7% of corporate tax revenues in both cases. These estimates are consistent with gaps in bilateral multinationals' activities reported by creditor and debtor countries using official statistics for the EU. Our results suggest that by increasing the cost of capital, eliminating profit shifting would slightly reduce investment and GDP. It would however raise corporate tax revenues thanks to enhanced domestic production. This in turn could reduce other taxes and increase welfare.
    Keywords: BEPS; CGE model; Corporate taxation; Profit shifting; Tax avoidance
    JEL: C68 E62 H25 H26 H87
    Date: 2018–01
  64. By: Massimiliano Pisani (Bank of Italy); Filippo Vergara Caffarelli (Bank of Italy)
    Abstract: This paper evaluates the macroeconomic effects on the UK and the euro area of an increase in trade tariffs associated with Brexit, by simulating a dynamic general equilibrium model of the UK, the euro area, and the rest of the world (RW). Our results are as follows: first, the imposition of tariffs reduces UK exports and economic activity by a non-negligible amount; second, the macroeconomic costs for the UK are reduced if it decides unilaterally not to increase tariffs on imports from the euro area and to reduce those on imports from the RW; third, the macroeconomic costs are particularly high if the lower UK trade openness resulting from the imposition of tariffs reduces the UK’s total factor productivity; and fourth, Brexit has negative, but quite limited, effects on euro-area economic activity.
    Keywords: Brexit, DSGE models, tariffs
    JEL: C54 F13 F15
    Date: 2018–01
  65. By: Zhou, Haiwen
    Abstract: In this general equilibrium model, firms engage in oligopolistic competition and choose increasing returns technologies to maximize profits. Capital and labor are the two factors of production. The existence of efficiency wages leads to unemployment. The model can explain some interesting observations of the labor market. First, even though there is neither long-term labor contract nor costs of wage adjustment, wage rigidity is an equilibrium phenomenon: an increase in the exogenous job separation rate, the size of the population, the cost of exerting effort, and the probability that shirking is detected will not change the equilibrium wage rate. Second, the equilibrium wage rate increases with the level of capital stock. Third, a higher level of capital stock does not necessarily reduce the unemployment rate. That is, there is no monotonic relationship between capital accumulation and the unemployment rate.
    Keywords: Unemployment, efficiency wages, wage rigidity, the choice of technology, oligopolistic competition
    JEL: E24 J64 L13
    Date: 2018–02–11
  66. By: Jean-Luc Gaffard (OFCE Sciences-Po; Université Côte d'Azur; GREDEG CNRS; Institut Universitaire de France)
    Abstract: Au cours des années 1970 un changement majeur est apparu dans le domaine de l'analyse macroéconomique : les thèses monétaristes sous la conduite de Milton Friedman ont pris le pas sur les thèses keynésiennes issues de la synthèse néo-classique pour affirmer à la fois le rôle majeur de la politique monétaire dans la genèse et le développement des tensions inflationnistes et, de ce fait même, la nécessité de la neutraliser en imposant l'application d'une règle visant à fixer la quantité de monnaie en circulation. Ces thèses reposent sur l'idée que l'inflation est avant tout la conséquence de l'émission excessive de monnaie par une banque centrale soumise aux desiderata de gouvernements impécunieux et, conjointement, que la quantité de monnaie en circulation est déterminée de manière exogène via le mécanisme du multiplicateur de crédit. Elles participent d'un retour, pas toujours explicite, à une dichotomie entre variables réelles et monétaires qui va marquer profondément la théorie économique devenue dominante à partir de cette période et dont les conséquences vont s'avérer dommageables pour la compréhension des événements et des moyens de politique économique susceptibles d'y faire face. Or, dès le début des années 1960, un économiste français, Jacques Le Bourva, développait, dans deux articles de la Revue Economique, une approche radicalement opposée. Il y fait état du caractère endogène de la création de monnaie, signifiant que ce sont les crédits qui font les dépôts et non l'inverse. Il énonce une théorie de l'inflation qui en fait le fruit de dérives du crédit bancaire aux entreprises rendant les déséquilibres de marché récurrents sinon cumulatifs. Cette approche est d'une étonnante actualité si l'on entend répondre aux interrogations du moment et refonder l'analyse monétaire en s'inscrivant dans la filiation de Wicksell.
    Keywords: Crédit, Inflation, Monnaie
    JEL: B22 E5
    Date: 2018–02
  67. By: Dal Borgo Mariela
    Abstract: Using data of households approaching retirement in the U.S., I find that the Whites' median saving rates are 9 percentage points larger than the Mexican Americans' rates (ethnic gap) and than the African Americans' rates (racial gap). Two-thirds of each gap correspond to changes in asset prices and a third to households' active decisions. Quantile decompositions show that differences in income and education explain most of the active saving gaps. This implies that wealth inequality is not attributable to differences in the distributions of active saving rates conditional on socio-economic characteristics. When retirement assets are included, the racial but not the ethnic gap in total savings disappears. The results suggest that reducing disparities in income, education and pension savings would help to reduce wealth inequality.
    Keywords: African Americans;Mexican Americans;saving rates;wealth inequality
    JEL: D14 D31 E21 G11 J15
    Date: 2018–01
  68. By: Ryan A. Decker; John C. Haltiwanger; Ron S. Jarmin; Javier Miranda
    Abstract: The pace of job reallocation has declined in all U.S. sectors since 2000. In standard models, aggregate job reallocation depends on (a) the dispersion of idiosyncratic productivity shocks faced by businesses and (b) the marginal responsiveness of businesses to those shocks. Using several novel empirical facts from business microdata, we infer that the pervasive post-2000 decline in reallocation reflects weaker responsiveness in a manner consistent with rising adjustment frictions and not lower dispersion of shocks. The within-industry dispersion of TFP and output per worker has risen, while the marginal responsiveness of employment growth to business-level productivity has weakened. The responsiveness in the post-2000 period for young firms in the high-tech sector is only about half (in manufacturing) to two thirds (economy wide) of the peak in the 1990s. Counterfactuals show that weakening productivity responsiveness since 2000 accounts for a significant drag on aggregate productivity.
    JEL: D24 E24 J23 L26
    Date: 2018–01
  69. By: June Ma; Joshua S. Gans; Rabee Tourky
    Abstract: We analyze the Bitcoin protocol for electronic peer-to-peer payments and the operations that support the “blockchain” that underpins it. It is shown that that protocol maps formally into a dynamic game that is an extension of standard models of R&D racing. The model provides a technical foundation for any economic analysis of ‘proof of work’ protocols. Using the model, we demonstrate that free entry is solely responsible for determining resource usage by the system for a given reward to mining. The endogenous level of computational difficulty built into the Bitcoin protocol does not mitigate this usage and serves only to determine the time taken to process transactions. Regulating market structure will mitigate resource use highlighting the importance of identifying the benefits of competition for the operation of the blockchain.
    JEL: E42 L1
    Date: 2018–01
  70. By: Been-Lon Chen (Institute of Economics, Academia Sinica, Taipei, Taiwan); Shun‐Fa Lee (Department of Industrial Economics, Tamkang University); Xavier Raurich (Departament d’Economia, Universitat de Barcelona)
    Abstract: This paper studies an infinite‐horizon two‐sector growth model with sector‐specific externalities and preferences that are non‐separable between consumption and leisure. We find two main results. First, a larger income effect on the labor supply increases the possibility of macroeconomic instability. Second, a larger elasticity of the labor supply may increase or decrease the possibility of aggregate instability, depending on the intensity of the income effect.
    Keywords: : Indeterminacy, non‐separable preferences, income effect, labor supply elasticity
    JEL: E3 O41
    Date: 2018–01
  71. By: Martinho, Vítor João Pereira Domingues
    Abstract: The objective of this study is to analyse the financial realities for the farming sector in European Union countries and their relationships with agricultural investment and public structural subsidies, from a perspective of farming- and governmental relationships as part of the Triple Helix approach. Firstly, the statistical information available within the Farm Accountancy Data Network for the former twenty seven European Union countries, related with the main items of the accounting balance sheet was investigated. Secondly, various financial indicators were calculated to analyse the principal financial constraints in these farms and finally, these findings with the levels of investment and structural support were reported. As a main conclusion, more adjusted structural policies in the European Union will be needed, taking these microeconomic contexts into account.
    Keywords: Farming sector,Structural subsidies,Accountancy information,European Union,Triple Helix
    JEL: E22 M41 O52 Q12
    Date: 2018
  72. By: Gabriel Di Bella; Francesco Grigoli
    Abstract: Economic theory offers several explanations as to why shifting expectations about future economic activity affect current demand. Abstracting from whether changes in expectations originate from swings in beliefs or fundamentals, we test empirically whether more optimistic or pessimistic potential output forecasts trigger short-term fluctuations in private consumption and investment. Relying on a dataset of actual data and forecasts for 89 countries over the 1990-2022 period, we find that private economic agents learn from different sources of in- formation about future potential output growth, and adjust their current demand accordingly over the two years following the shock in expectations. To provide a theoretical foundation to the empirical analysis, we also propose a simple Keynesian model that highlights the role of expectations about long-term output in determining short-term economic activity.
    Keywords: Expectations;Animal spirits, fluctuations, optimism, pessimism, self-fulfilling
    Date: 2018–01–05
  73. By: Zheng Jian (Macroeconomic Policy and Financing for Development Division, ESCAP); Alberto Isgut (Macroeconomic Policy and Development Division, ESCAP)
    Keywords: Fiscal policy, public expenditure, revenues, taxation
    JEL: E62 H20 H50
  74. By: Allan Dizioli; Philippe D Karam; Dirk V Muir; Siegfried Steinlein
    Abstract: This paper revisits options for fiscal anchors in Australia against the backdrop of a medium-term budget balance anchor that has led to larger than expected upward drift in the net debt to GDP ratio since the end of the mining investment boom. The IMF’s G20MOD model is used to compare the budget balance anchor with a long-term debt anchor. Using model simulations evaluated against objective macro stabilization-debt control criteria under three likely scenarios for the Australian economy, the latter is found to perform at least as well as the former. The paper also considers the operationalization of a long-term debt anchor utilizing a combination of fiscal rules which includes expenditure restrictions and a flexible time horizon for convergence, aiming at encouraging countercyclical fiscal policy and minimizing the cost in terms of real GDP foregone in the medium term under fiscal consolidation.
    Keywords: Asia and Pacific;Australia;Fiscal policy; fiscal rules; general equilibrium models; taxation; debt, Fiscal policy, fiscal rules, general equilibrium models, taxation, debt, Forecasting and Simulation, General, General, Infrastructures
    Date: 2017–12–22
  75. By: James H. Stock; Mark W. Watson
    Abstract: An exciting development in empirical macroeconometrics is the increasing use of external sources of as-if randomness to identify the dynamic causal effects of macroeconomic shocks. This approach – the use of external instruments – is the time series counterpart of the highly successful strategy in microeconometrics of using external as-if randomness to provide instruments that identify causal effects. This lecture exposits this approach and provides conditions on instruments and control variables under which external instrument methods produce valid inference on dynamic causal effects, that is, structural impulse response functions. These conditions can help guide the search for valid instruments in applications. We consider two methods, a one-step instrumental variables regression and a two-step method that entails estimation of a vector autoregression. Under a restrictive instrument validity condition, the onestep method is valid even if the vector autoregression is not invertible, so comparing the two estimates provides a test of invertibility. Under a less restrictive condition, where multiple lagged endogenous variables are needed as control variables in the one-step method, the conditions for validity of the two methods are the same.
    JEL: C36 E17
    Date: 2018–01
  76. By: Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Presentation to the Financial Women of San Francisco, San Francisco, California, John C. Williams, President and CEO, Federal Reserve Bank of San Francisco, February 2, 2018.
    Date: 2018–02–02
  77. By: Jagjit S Chadha; Germana Corrado; Luisa Corrado
    Abstract: We decompose aggregate consumption of heterogeneous consumers by modelling both savers and their links to collateral constrained borrowers through a bank which prices credit risk. Savers own both firms and the commercial bank while borrowers require loans from the commercial bank to effect their consumption plans. The bank lends at a premium over the interest rate on central bank money in proportion to the riskiness of loans, the demand for loans, the asset price and the quantity of housing collateral. We show that even though house price do not represent wealth, aggregate consumption is closely related to movements in house prices. We consider the case for jointly determined macro-prudential, fiscal and monetary policies in order to minimise losses for a representative household. We consider the implications of loan default for our main results.
    Date: 2018–02
  78. By: World Bank Group
    Keywords: Macroeconomics and Economic Growth - Economic Forecasting Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Economic Policy, Institutions and Governance Macroeconomics and Economic Growth - Fiscal & Monetary Policy Macroeconomics and Economic Growth - Taxation & Subsidies Public Sector Development - Tax Administation Public Sector Development - Public Sector Management and Reform
    Date: 2017–07
  79. By: Andreas Hanl (University of Kassel)
    Abstract: Cryptocurrencies such as Bitcoin might revolutionize the economy through enabling peer-to-peer based transactions by abolishing the need for a trusted intermediary. As for now, Bitcoin remains to be the best recognized cryptocurrency, in particular in terms of market capitalization. However, as this paper shows, there are plenty of alternatives. This paper outlines the historical roots which have led to the creation of privately emitted, cryptography based digital currencies. Additionally, this paper discusses future possible hurdles of the development of cryptocurrencies and outlines features which might infl uence the success of a cryptocurrency. Insights into the beginning of cryptocurrency development are gained by analysis of the publicly available DOACC dataset. The paper does so by providing an overview of the techniques and mechanisms used by cryptocurrencies. It shows that newly created cryptocurrencies tend to be very similar in some properties in the early stages but new features and more diversity developed in more recent years. Additionally, newly created cryptocurrencies tend more and more to create a fixed number of coins before the initial announcement in order to sell these in Initial Coin Offerings. Even when the amount of premining increases over years, it remains at lower levels on the aggregate.
    Keywords: Cryptocurrency; Bitcoin; Blockchain, Cryptography; Digital Money; E-Money
    JEL: E40 E42
    Date: 2018
  80. By: Maheu, John M; Song, Yong; Yang, Qiao
    Abstract: This paper shows that oil shocks primarily impact economic growth through the conditional variance of growth. We move beyond the literature that focuses on conditional mean point forecasts and compare models based on density forecasts. Over a range of dynamic models, oil shock measures and data we find a robust link between oil shocks and the volatility of economic growth. A new measure of oil shocks is developed and shown to be superior to existing measures and indicates that the conditional variance of growth increases in response to an indicator of local maximum oil price exceedance. The empirical results uncover a large pronounced asymmetric response of growth volatility to oil price changes. Uncertainty about future growth is considerably lower compared to a benchmark AR(1) model when no oil shocks are present.
    Keywords: Bayes factors, predictive likelihoods, nonlinear dynamics, density forecast
    JEL: C11 C32 C53 Q43
    Date: 2018–01
  81. By: Auray Stéphane (CREST-ENSAI ; ULCO); Fuller David (University of Wisconsin-Oshkosh); Lkhagvasuren Damba (Concordia University)
    Abstract: From 1989-2012, on average 23% of those eligible for unemployment insurance (UI) bene?ts in the US did not collect them. In a search model with matching frictions, asymmetric information associated with the UI non-collectors implies an inefficiency in non-collector outcomes. This inefficiency is characterized along with the key features of collector vs. non-collector allocations. Specifically, the inefficiency implies that noncollectors transition to employment at a faster rate and a lower wage than the efficient levels. Quantitatively, the inefficiency amounts to 1.71% welfare loss in consumption equivalent terms for the average worker, with a 3.85% loss conditional on non-collection. With an endogenous take-up rate, the unemployment rate and average duration of unemployment respond significantly slower to changes in the UI bene?t level, relative to the standard model with a 100% take-up rate.
    Keywords: unemployment insurance, take-up, matching frictions, search, experience rating
    JEL: E61 J32 J64 J65
    Date: 2017–07–12
  82. By: Petr Vanek (Department of Finance, Faculty of Business and Economics, Mendel University in Brno); Petr Korab (Department of Finance, Faculty of Business and Economics, Mendel University in Brno)
    Abstract: The paper investigates the motives of deposit and credit euroisation in Eastern Europe employing Bayesian empirical methodology. We analyse a unique dataset of macroeconomic fundamentals, perception surveys, and institutional quality indicators and deal with the uncertainty in the model by Bayesian model averaging. Apart from traditional fundamental factors, strong institutions are found to be an important driver of both credit and deposit euroisation. Business regulation, corruption environment, administrative costs and country-specific risk impact borrowing and saving behaviour in EURO and should be reflected in designing de-euroisation policies in the region.
    Keywords: Euroization, Bayesian model averaging, currency substitution, foreign currency borrowing, institutional quality
    JEL: E51 F02 P24
    Date: 2018–02
  83. By: Romain A Duval; Davide Furceri; João Tovar Jalles
    Abstract: This paper explores the short-term employment effect of deregulating job protection for regular workers and how it varies with prevailing business cycle conditions. We apply a local projection method to a newly constructed “narrative” dataset of major regular job protection reforms covering 26 advanced economies over the past four decades. The analysis relies on country-sector-level data, using as an identifying assumption the fact that stringent dismissal regulations are more binding in sectors that are characterized by a higher “natural” propensity to regularly adjust their workforce. We find that the responses of sectoral employment to large job protection deregulation shocks depend crucially on the state of the economy at the time of reform——they are positive in an expansion, but become negative in a recession. These findings are consistent with theory, and are robust to a broad range of robustness checks including an Instrumental Variable approach using political economy drivers of reforms as instruments. Our results provide a case for undertaking job protection reform in good times, or for designing it in ways that enhance its short-term impact.
    Date: 2017–12–14
  84. By: Mateo Cordier; Thomas Poitelon; Walter Hecq
    Abstract: For decades, industrial harbor expansion has been destroying coastal marine ecosystems. Many estuaries are sites for industrial harbors and critical fish nursery habitat. Considering fish population decreases and the global biodiversity crisis, restoring these habitats is justified and supported by international institutions. However, restoration programs can be prohibitively costly, particularly when considering the Polluter Pays Principle. While harbors destroy nurseries, at the same time they generate benefits for society and contribute to the public interest. This raises questions of who is responsible for environmental degradation and who can afford environmental restoration costs? One way to allocate restoration costs is in proportion of those who have benefitted from harbor activities. This paper addresses these questions by calculating burden-sharing scenarios with inputoutput matrix equations. These scenarios are based on a shared producer and consumer responsibility approach to distribute restoration costs among stakeholders that use, either directly or indirectly, harbor services. The scenarios are applied to the Seine estuary, France, and calculated as a function of sectorial value-added as well as direct and indirect economic linkages between economic sectors and harbor activities. Economic linkages with final consumers (e.g. households) are also included. The shared environmental responsibility calculation developed in this paper shares restoration costs for previously damaged marine habitats between a wide-range of economic agents, thereby preventing industrial harbors from bearing expensive restoration costs alone, and making restoration more likely.
    Keywords: input-output model; marine habitat destruction; Restoration cost; shared environmental responsibility; burden-sharing; environmental tax
    JEL: C50 C60 E10 L90 Q01 Q50
    Date: 2018–01–23
  85. By: Auray Stéphane (CREST-ENSAI ; ULCO); Fuller David (University of Wisconsin-Oshkosh); Lkhagvasuren Damba (Concordia University); Terracol Antoine (Université Paris 8)
    Abstract: This paper argues that evolving comparative advantage is important not only for worker ?ows across sectors, but also for wage growth and lifetime earnings. First, the main individual-level relationship between sectoral mobility and wages is established using Panel Study of Income Dynamics. Second, a dynamic, stochastic multi-sector model with worker-sector match productivity is introduced to account for the relationship. In the model, a sector may experience simultaneous in?ows and out?ows of workers that are much larger than the corresponding net ?ows. Movers tend to have a lower wage than nonmovers both prior to, and after the move. Wages grow with sectoral tenure. Those who move more frequently tend to have lower lifetime earnings. Recent movers are more likely to move again. Labor mobility decreases with labor market experience. All these predictions of the model are consistent with data, but generated by a remarkably simple, evolving match productivity shock.
    Keywords: stochastic multi-sector model, labor mobility, sectoral mismatch, labor income shocks, lifetime earnings, return to tenure, autoregressive processes
    JEL: E24 J31 J24 J62
    Date: 2017–08–05
  86. By: Mergeani, Nicea; Dănciulescu, Andreea-Gabriela; Romeo, Dănciulescu
    Abstract: An active life on the labour market implies, besides the existence of jobs, continuous education and training of adults. Regardless of age, every person needs new knowledge, which one can obtain either by self-teaching or by attending training courses. The development of technology and information influences lifelong learning, which is why, in recent years, greater emphasis has been put on the education and training of adults. In this respect numerous Centers of Professional Training of Adults have been established, some of them attracting their learners through the implementation of projects financed from European funds, which meant free participation of adults to various courses of specialization, training or (re)qualification. The article highlights the importance of continuous education and training of adults related to the economic and social benefits deriving from it. The article analyzes some of the aspects of continuous education and training of adults that fosters active participation of adults in the labour market, concluding that, for an active professional life, the establishment of relationships between employers, employees, trainers and learners is required.
    Keywords: Education; adult lifelong learning; labour market; active life; training programmes; lifelong learning
    JEL: E24 I23 I25 J01 P46
    Date: 2017
  87. By: Karsten Kohler (None); Alexander Guschanski; Engelbert Stockhammer
    Abstract: It is frequently asserted that financialisation has contributed to the decline in the wage share. This paper provides a theoretical clarification and a systematic empirical investigation. We identify four channels through which financialisation can affect the wage share: (1) enhanced exit options of firms; (2) rising price mark-ups due to financial overhead costs for businesses; (3) increased competition on capital markets and shareholder value orientation; and (4) the role of household debt in increasing workers’ financial vulnerability and undermining their class consciousness. The paper compiles a comprehensive set of empirical measures of financialisation and uses it to test these hypotheses with a panel regression of 14 OECD countries over the 1992-2014 period. We find strong evidence for negative effects of financial liberalisation and financial payments of non-financial corporations on the wage share that are in the same order of magnitude as the effects of globalisation.
    Keywords: financialization, income distribution, political economy
    JEL: E25
    Date: 2018–01
  88. By: World Bank
    Keywords: International Economics and Trade - Export Competitiveness Macroeconomics and Economic Growth - Economic Forecasting Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Fiscal & Monetary Policy Macroeconomics and Economic Growth - Inflation
    Date: 2017–08
  89. By: Stefano Farne; David Arturo Rodríguez Guerrero; Paola Ríos
    Abstract: Según las estadísticas del Departamento Administrativo Nacional de Estadística (DANE), entre enero de 2009 y diciembre de 2014, los hogares colombianos que recibieron ayudas en dinero de instituciones pasaron de 700.000 a casi 3.000.000. Así, cualquiera que sea su finalidad y forma de entrega, estas ayudas pueden tener repercusiones sobre la decisión de participación en el mercado laboral por parte de los integrantes del grupo familiar beneficiario y, una vez tomada la decisión de participar, sobre la conveniencia de emplearse en el sector formal de la economía. Entonces, utilizando los microdatos de un panel a hogares, este documento estima un modelo econométrico de diferencias en diferencias con el fin de verificar el impacto de algunos programas sociales del Estado colombiano sobre la participación laboral y la informalidad de los adultos con responsabilidades familiares, residentes en áreas urbanas. Los resultados indican que el recibir ayudas por parte del Estado no tiene mayores efectos sobre la decisión de participar en el mercado laboral. Por el contrario, algunas transferencias, y sobre todo el acceso subsidiado a los servicios de salud, condicionan a los beneficiarios a permanecer en la informalidad.
    Keywords: empleo formal, trabajo informal, informalidad, participación, programas sociales, incentivos, subsidios, beneficios económicos, beps, formal work, formal job, formal employment, informal work, informal job, informal employment, trabalho formal, trabalho não declarado, market share, labour participation, labor participation, market participation, labour force, manpower, participação no mercado, participação laboral, participação no trabalho, participação da mão-de-obra, social programs, social programmes, programas sociais, welfare, economic benefits, subsidies, subvenções, auxilios, grants, allowance, allowances, seguridad social, segurança social, seguridade social, previdência social, cobertura social, social security, mercado de trabajo, labor market, labour market, mercado de trabalho, mercado do trablaho, economía, economy, labour economics, labor economics, economia do trabalho, economía laboral, colombia, latam, la, externado, uexternado, uec, observatorio, boletin, working paper, doc, stefano farne, farne
    JEL: E26 J22 I38 H55
    Date: 2016–08–08
  90. By: Minford, Lucy (Swansean University); Meenagh, David (Cardiff Business School)
    Abstract: We show that a DSGE model in which subsidies to private sector R&D stimulate economic growth, following the predictions of semi-endogenous growth theory, can account for the joint behaviour of UK output and total factor productivity for 1981-2010. R&D subsidies are measured as government- funded R&D performed by the private sector as a proportion of total private sector R&D. We estimate and test the performance of the model using Indirect Inference, and also investigate the robustness of the results using a Monte Carlo exercise. Our f•ndings indicate that sharp cuts in R&D subsidies tend to have highly persistent growth e¤ects in the UK.
    Keywords: R&D, subsidies, economic growth, government policy.
    JEL: E00 O00 O38 O50
    Date: 2018–01
  91. By: Marco Ranaldi (Centre d'Economie de la Sorbonne et Paris School of Economics)
    Keywords: Income Composition Inequality; Income Distribution; Inequality; Polarization; Statistical Methodology
    JEL: C43 E25
    Date: 2016–07
  92. By: World Bank
    Keywords: Public Sector Development - Public Sector Management and Reform Macroeconomics and Economic Growth - Economic Forecasting Macroeconomics and Economic Growth - Economic Growth Macroeconomics and Economic Growth - Economic Policy, Institutions and Governance Macroeconomics and Economic Growth - Fiscal & Monetary Policy
    Date: 2017–07
  93. By: Silvia Magri (Bank of Italy)
    Abstract: This paper analyzes whether in Italy the price of consumer loans is based on borrower specific risk. Mispricing could threat financial stability through negative effects on lenders' profitability; risk-based pricing also leads to a more efficient allocation of credit through lower prices for low-risk borrowers, with positive effects on economic growth and financial stability. The evidence available from data collected since 2006 through the Survey on Household Income and Wealth shows that consumer loan pricing has been more risk-based after the 2008 financial crisis. Households’ economic and financial conditions (net wealth, number of income earners and education of the household head) became significant and economically important in influencing the interest rates in 2010-12. These are also the most important drivers of the probability of delinquency on consumer loans; lenders also focus on these variables in selecting borrowers. As a consequence of the 2008 crisis, lenders have therefore paid more attention to borrowers' credit risk not only during the selection process, but also in deciding the price of the loan.
    Keywords: interest rates, consumer loans, risk-based pricing
    JEL: D40 D82 E43
    Date: 2018–01
  94. By: Dvoskin, Ariel (National University of San Martín); Feldman, Germán David (National University of San Martín); Ianni, Guido (National University of San Martín)
    Abstract: The present article critically examines the transmission channels between the real exchange rate and output growth adduced by the so-called New-Structuralist doctrine. It is shown that the assumptions under which the mechanisms work are highly restrictive, and hence, are generally inadequate to ex-plore the problem of economic development in Latin American peripheral countries. In view of this, the potential risks associated with a policy of devaluation are warned.
    Keywords: Dual economies; Economic growth; New-Structuralism; Pattern of Specialization; Real Exchange Rate
    JEL: B22 E11 F43
    Date: 2018–02
  95. By: Heinze, Henriette
    Abstract: Since the early 2000s German exports and net exports have grown persistently, generating huge current account surpluses. These surpluses have added to immense current account imbalances within and outside the European Monetary Union (EMU). Contributing to the economic policy debate of whether it is foreign demand or 'world-beating' price competitiveness driving German exports, the present paper econometrically investigates the determinants of German intra- and extra-EMU exports for the period 1995 to 2014. The longterm relationship between real exports, foreign activity and the real effective exchange rate is estimated using different explanatory variables in an error correction framework. The results show that German exports are very sensitive to foreign activity. Germany has benefited from growth dynamics of trading partners and high income elasticities of demand for German exports indicate strong non-price competitiveness. With regard to exchange rate effects, we do not detect a significant impact of the real exchange rate on intra-EMU exports. However, our estimations provide a stable relationship between the real exchange rate and extra-EMU exports. We calculate that the real exchange rate only explains 12% to 25% of our predicted export growth. Moreover, taking into account quantity and price effects caused by changes in the real exchange rate, we observe contrary effects on real and nominal exports. Thus, for the German economy it cannot simply be concluded that the real exchange rate is the indicator to focus on in explaining German export success.
    Keywords: German exports,current account imbalances,competitiveness,single equation error correction model
    JEL: C22 E12 F14 F41 F43
    Date: 2018
  96. By: John Duffy (University of California, Irvine); Aikaterini Karadimitropoulou (University of East Anglia); Melanie Parravano (Newcastle University)
    Abstract: We design and report on the first laboratory experiment exploring the role of interbank network structure and premature liquidation costs for the likelihood of a financial contagion. The laboratory provides the control necessary to understand the role played by interbank network configurations and liquidation costs for the fragility of the financial system. Specifically, we study the likelihood of financial contagion in complete and incomplete networks of banks that are linked in terms of interbank deposits as in the model of Allen and Gale (2000) and we further vary the cost of premature liquidation. Subjects play the role of depositors who must decide whether or not to withdraw their funds from their interconnected banks. We find that when liquidation costs are high, a complete network structure enabling efficient risk sharing is significantly less vulnerable to financial contagions than an incomplete network structure. However, when liquidation costs are low, network structure does not matter as much for the frequency of financial contagions. We conclude that low liquation costs or a more complete network structure can be viewed as substitutes for reducing the frequency of financial contagions.
    Keywords: contagion, networks, experiments, bank runs, interbank deposits, financial fragility
    JEL: C92 E44 G21
    Date: 2017–12
  97. By: Ndeye Penda Sokhna
    Abstract: An argument often put forward when mentioning the positive effects of immigration for the host country is that the entry of immigrants would have positive effects on demand and therefore on growth. This paper aims to measure the contribution of immigrants to the demand for final goods and services in France (over a relatively long period 1979-2011). We conduct an accounting analysis using three main sources of data : family budget surveys from 1979 to 2011, population censuses data and national accounts data. We find that at any age, an immigrant consumes on average less than a native. However, the share of immigrants’ demand in total demand is between 7.3% and 8.3%, which is proportional to their size in the French population. We show that the age structure of the immigrant population (over-represented in the working age group where consumption is at its maximum level) allows for compensation. A disaggregation of total consumption by item shows that immigrants have some specific characteristics : they lead to an increasing in the demand in some expense items such as food, clothing, housing and communication. The analysis of the evolution of consumption shows that between 4.5% and 16% of this change is explained by the immigrant population. However, these changes are more often explained by an increase in the population than by an increase in individual consumption, and this for our two subpopulations.
    Keywords: immigration, demand for final goods and services, age and skill structure
    JEL: E21 F22 D10
    Date: 2018
  98. By: Tobal Martín
    Abstract: This paper gathers and systemizes self-reported information about exchange rate flexibility and FX regulation in Latin America and the Caribbean for a period of twenty years beginning in 1992. The results show that, in countries in which the use of limits, liquidity and reserve requirements on FX positions was more common, the frequency of use of these instruments was particularly high during the transition towards more flexible exchange rate regimes. The exception refers to economies with a long tradition of financial dollarization in which the prudential policies were more spread out over time, possibly due to countercyclical adjustments of the regulatory instruments. Along these lines, policymakers reported that the first goal in using the regulation was to reduce currency mismatches, but, in the flexible regimes that were adopted during the 2000s the instruments were also used to dampen volatility in the exchange rate.
    Keywords: Prudential Regulation;Exchange Rate Regimes;Foreign Currency Positions
    JEL: E58 F31
    Date: 2017–12
  99. By: Antonio Ciccone
    Abstract: A new dataset by Bazzi and Blattman (2014) allows examining the effects of international commodity prices on the risk of civil war outbreak with more comprehensive data. I find that international commodity price downturns sparked civil wars in Sub-Saharan Africa. Another finding with the new dataset is that commodity price downturns also sparked civil wars beyond Sub-Saharan Africa since 1980. Effects are sizable relative to the baseline risk of civil war outbreak. My conclusions contrast with those of Bazzi and Blattman, who argue that the new dataset rejects that commodity price downturns cause civil wars. The reason is that I calculate commodity price shocks using time-invariant (fixed) export shares as commodity weights. Bazzi and Blattman also calculate commodity price shocks using export shares as commodity weights but but the exports shares they use are time-varying. Using time-invariant export shares as commodity weights ensures that time variation in price shocks solely re ects changes in international commodity prices. Price shocks based on time-varying export shares partly re ect (possibly endogenous) changes in the quantity and variety of countries' exports, which jeopardizes causal estimation.
    Keywords: civil wars, commodity price downturns
    JEL: E3 O1 Q1 Q10
    Date: 2018–01

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