nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒03‒05
114 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. A Model of the Federal Funds Market: Yesterday, Today, and Tomorrow By Afonso, Gara M.; Armenter, Roc; Lester, Benjamin
  2. Intermediation markups and monetary policy pass-through By Malamud, Semyon; Schrimpf, Andreas
  3. Role of Expectation in a Liquidity Trap By Kohei Hasui; Yoshiyuki Nakazono; Yuki Teranishi
  4. A new theory of seigniorage and optimal inflation By Reich, Jens
  5. One Money, Many Markets - A Factor Model Approach to Monetary Policy in the Euro Area with High-Frequency Identification By Corsetti, G.; Duarte, J. B.; Mann, S.
  6. Has Monetary Policy Changed? How the Crisis Shifted the Ground Under Central Banks By Pierre L. Siklos
  7. Understanding HANK: insights from a PRANK By Acharya, Sushant; Dogra, Keshav
  8. The Consumption Function: A New Perspective By Foster, John
  9. Why Are Inflation and Real Interest Rates So Low? A Mechanism of Low and Floating Real Interest and Inflation Rates By Harashima, Taiji
  10. Boom-and-Bust Cycles in Emerging Markets: How Important is the Exchange Rate? By Pierre Siklos
  11. New Evidence on Cyclical Variation in Labor Costs in the U.S. By Grace Weishi Gu; Eswar Prasad
  12. Monetary theory reversed: Virtual currency issuance and miners’ remuneration By Luca Marchiori
  13. Saving, investment, capital stock and current account projections in long-term scenarios By Yvan Guillemette; Andrea De Mauro; David Turner
  14. A Global Lending Channel Unplugged? Does U.S. Monetary Policy Affect Cross-border and Affiliate Lending by Global U.S. Banks? By Temesvary, Judit; Ongena, Steven; Owen, Ann L.
  15. A Revised Direct Output Gap Measure for the Turkish Economy By Evren Erdogan Cosar
  16. Optimal Monetary Policy Under Bounded Rationality By Benchimol, Jonathan; Bounader, Lachen
  17. Asymmetry, Uncertainty and International Trade By Syed Hassan; Sarosh Shabi; Taufiq Choudhry
  18. Mortgage Debt and Time-Varying Monetary Policy Transmission By David Finck; Joerg Schmidt; Peter Tillmann
  19. Asset Price Spillovers From Unconventional Monetary Policy: A Global Empirical Perspective By Domenico Lombardi, Pierre Siklos, Samantha St. Amand
  20. Coherence of Business Cycles and Economic Shocks between Croatia and Euro Area Member States By Karlo Kotarac; Davor Kunovac; Rafael Ravnik
  21. The Macroeconomic Effects of Public Debt: An Empirical Analysis of Mozambique By António Afonso; Yasfir Ibraimo
  22. BREXIT: Key Analytical Issues and Insights from Revised Economic Forecasts By Paul J.J. Welfens; David Hanrahan
  23. Chained financial frictions and credit cycles By Federico Lubello; Ivan Petrella; Emiliano Santoro
  24. Multivariate Filter for Estimating Potential Output and Output Gap in Turkey By Selen Andic
  25. Collateral Damage By Gary B. Gorton; Toomas Laarits
  26. Affine Endeavour: Estimating a Joint Model of the Nominal and Real Term Structures of Interest Rates in Australia By Jonathan Hambur; Richard Finlay
  27. Artificial interest rate adjustments do not make sense. By Musgrave, Ralph S.
  28. Are Eastern European Taylor Reaction Functions Asymmetric in Inflation or Output: Empirical Evidence for four Countries By Jens Klose
  29. Beauty Contests and the Term Structure By Martin Ellison; Andreas Tischbirek
  30. From window guidance to interbank rates : Tracing the transition of monetary policy in Japan and China By Angrick, Stefan; Naoyuki, Yoshino
  31. On the Economics of Digital Currencies By Fernandez-Villaverde, Jesus; Sanches, Daniel R.
  32. Global Commodity Prices and Global Stock Volatility Shocks By Vespignani, Joaquin; Kang, Wensheng; Ratti, Ronald
  33. Product Turnover and the Cost of Living Index: Quality vs. Fashion Effects By Ueda, Kozo; Watanabe, Kota; Watanabe, Tsutomu
  34. Financial Crisis, Monetary Base Expansion and Risk By Stylianos Tsiaras
  35. Gabon; First Review of the Extended Arrangement under the Extended Fund Facility, Requests for a Waiver for Nonobservance of Performance Criterion, and Modifications of Performance Criteria, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Gabon By International Monetary Fund
  36. Open Mouth Operations By Campbell, Jeffrey R.; Weber, Jacob P.
  37. Argentina; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Argentina By International Monetary Fund
  38. Household Credit, Global Financial Cycle, and Macroprudential Policies; Credit Register Evidence from an Emerging Country By Mircea Epure; Irina Mihai; Camelia Minoiu; José-Luis Peydró
  39. Quantifying Uncertainty and Identifying its Impacts on the Turkish Economy By Evren Erdogan Cosar; Saygýn Sahinoz
  40. Forward guidance and the exchange rate By Jordi Galí
  41. Forward Guidance and the Exchange Rate By Jordi Galí
  42. Accounting for the Sources of Macroeconomic Tail Risks By Atalay, Enghin; Drautzburg, Thorsten; Wang, Zhenting
  43. Social Dominance By Ludger Schuknecht; Holger Zemanek
  44. Product Cycles and Prices:Search Foundation By Mei Dong; Yuki Teranishi
  45. The efficiency of transport infrastructure investment and the role of institutions: an empirical analysis. By Andreas P. Kyriacou; Leonel Muinelo-Gallo; Oriol Roca-Sagalés
  46. Republic of Madagascar; Second Review Under the Extended Credit Facility Arrangement and Request for Modification of Performance Criteria-Press Release; and Staff Report By International Monetary Fund
  47. Papua New Guinea; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Papua New Guinea By International Monetary Fund
  48. Why are inflation forecasts sticky? By Frédérique BEC
  49. Republic of Moldova; Article IV Consultation and Second Reviews under the Extended Fund Facility and Extended Credit Facility Arrangements-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Moldova By International Monetary Fund
  50. Central bank forward guidance and the signal value of market prices By Stephen Morris; Hyun Song Shin
  51. Republic of Serbia; Eighth Review Under the Stand-By Arrangement-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Serbia By International Monetary Fund
  52. Geopolitical Risks and Recessions in a Panel of Advanced Economies: Evidence from Over a Century of Data By Matthew W. Clance; Rangan Gupta; Mark E. Wohar
  53. Stock Market Returns and Consumption By Di Maggio, Marco; Kermani, Amir; Majlesi, Kaveh
  54. Discussion of Economic Conditions and Key Challenges Facing the U.S. Economy By Kaplan, Robert S.
  55. Money in Spain. New historical statistics. 1830-1998 By Pablo Martín-Aceña
  56. Cote d'Ivoire; Second Reviews under an Arrangement under the Extended Credit Facility and the Extended Arrangement under the Extended Fund Facility-Press Release; Staff Report By International Monetary Fund
  57. Optimal taxes on capital in the OLG model with uninsurable idiosyncratic income risk By Krueger, Dirk; Ludwig, Alexander
  58. Macroeconomic Implications of Changes in Social Security Rules By Bagis, Bilal
  59. Organizational Belief, Managerial Vision, and International Trade By Samil Oh; Thepthida Sopraseuth
  60. Seychelles; Request for a Three-Year Policy Coordination Instrument and Ex-Post Assessment of Longer-Term Program Engagement-Press Release; Staff Report By International Monetary Fund
  61. Sovereign - bank risk interconnections during the Greek financial crisis and the role of the Italian debt By Giulio Cifarelli; Giovanna Paladino
  62. Capital Share Risk in U.S. Asset Pricing By Lettau, Martin; Ludvigson, Sydney; Ma, Sai
  63. Stock Market Returns and Consumption By Di Maggio, Marco; Kermani, Amir; Majlesi, Kaveh
  64. Togo; First Review under the Extended Credit Facility-Press Release; and Staff Report By International Monetary Fund
  65. Bolivia; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Authorities of Bolivia By International Monetary Fund
  66. Economic Convergence in the Euro Area: Coming Together or Drifting Apart? By Jeffrey R. Franks; Bergljot B Barkbu; Rodolphe Blavy; William Oman; Hanni Schoelermann
  67. Why Have Interest Rates Fallen Far Below the Return on Capital By Marx, Magali; Mojon, Benoit; Velde, Francois R.
  68. Kiribati; 2017 Article IV Consultation-Press Release; and Staff Report By International Monetary Fund
  69. St. Vincent and the Grenadines; Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  70. On the origin of current account deficits in the Euro area periphery: A DSGE perspective By Christoph Zwick
  71. Implications for Aggregate Inflation of Sectoral Asymmetries: An Epirical Implication By Koskinen Hannu; Vilmunen Jouko
  72. Forecasting Industrial Production and Inflation in Turkey with Factor Models By Mahmut Gunay
  73. Persistence of Economic Uncertainty: A Comprehensive Analysis By Vasilios Plakandaras; Rangan Gupta; Mark E. Wohar
  74. Changing Business Dynamism and Productivity : Shocks vs. Responsiveness By Ryan Decker; John Haltiwanger; Ron S. Jarmin; Javier Miranda
  75. Republic of Kosovo; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Kosovo By International Monetary Fund
  76. Financial repression and high public debt in Europe By van Riet, Ad
  77. Speculative Activity and Returns to Volatility of Chinese Major Agricultural Commodity Futures By Martin T. Bohl, Pierre Siklos, Claudia Wellenreuther
  78. What if supply-side policies are not enough? The perverse interaction of exibility and austerity By Dosi, Giovanni; Pereira, Marcelo C.; Roventini, Andrea; Virgillito, Maria Enrica
  79. Benin; 2017 Article IV Consultation and First Review Under the Extended Credit Facility Arrangement and Request for Modifications of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Benin By International Monetary Fund
  80. Central African Economic and Monetary Community (CEMAC); Common Policies of Member Countries and Policies in Support of Member Countries Reform Programs-Press Release; Staff Report; and Statement by the Executive Director By International Monetary Fund
  81. Republic of Belarus; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Belarus By International Monetary Fund
  82. Mongolia; First and Second Reviews Under the Extended Fund Facility-Press Release; Staff Report; and Statement by the Executive Director for Mongolia By International Monetary Fund
  83. Indonesia; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Indonesia By International Monetary Fund
  84. Regulatory Cycles: Revisiting the Political Economy of Financial Crises By Jihad Dagher
  85. Income inequality and saving in a class society: The role of ordinal status By Haagsma, Rein
  86. Human Capital, Growth, and Asset Prices By Fabian Goessling
  87. Comments on “A skeptical view of the impact of the Fed’s balance sheet”: remarks delivered at the 2018 U.S. Monetary Policy Forum, New York, New York, February 23, 2018 By Rosengren, Eric S.
  88. Learning, as a wonder weapon of endogenous growth? By Peter Mihalyi
  89. Malta; 2017 Article IV Consultation-Press Release; Staff Report By International Monetary Fund
  90. Guinea- Bissau; 2017 Article IV Consultation and Fourth Review Under the Extended Credit Facility Arrangement, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for Guinea-Bissau By International Monetary Fund
  91. Investment in Brazil: From Crisis to Recovery By Ivo Krznar; Troy D Matheson
  92. Bank Capital Regulation in a Zero Interest Environment By Robin Döttling
  93. Attribution Error in Economic Voting: Evidence From Trade Shocks By Masami Imai; Cameron Shelton; Rosa Hayes
  94. An analysis of systematic risk in worldwide econonomic sentiment indices By Luu, Duc Thi; Yanovski, Boyan; Lux, Thomas
  95. Niger; First Review under the Extended Credit Facility Arrangement-Press Release and Staff Report By International Monetary Fund
  96. Dominica; 2017 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  97. Back to the future: Changing job profiles in the digital age By Lorenz, Hanno; Stephany, Fabian
  98. Spatial Chaining in International Comparisons of Prices and Real Incomes By Reza Hajargasht; Robert J. Hill; D. S. Prasada Rao; Sriram Shankar
  99. Bosnia and Herzegovina; Technical Assistance Report-Government Finance Statistics Mission By International Monetary Fund
  100. Euroization Drivers and Effective Policy Response: An Application to the case of Albania By Guido della Valle; Vasilika Kota; Romain M Veyrune; Ezequiel Cabezon; Shaoyu Guo
  101. Uruguay; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Uruguay By International Monetary Fund
  102. Sanctions and the Shadow Economy: Empirical Evidence from Iranian Provinces By Mohammad Reza Farzanegan; Bernd Hayo
  103. The impact of financialisation on the wage share. A theoretical clarification and empirical test. By Kohler, Karsten; Guschanski, Alexander; Stockhammer, Engelbert
  104. Anatomy of Unemployment Risk By Carolina Fugazza
  105. Cliometrics. By Claude Diebolt; Michael Haupert
  106. Essai d'une nouvelle représentation macroéconomique du marché du travail By Adama Zerbo
  107. Modeling how macroeconomic shocks a ect regional employment: analyzing the Brazilian formal labor market using the global VAR approach By Barbosa, Bruno Tebaldi de Queiroz; Marçal, Emerson Fernandes
  108. Can Countries Manage Their Financial Conditions Amid Globalization? By Nicolas Arregui; Selim Elekdag; R. G Gelos; Romain Lafarguette; Dulani Seneviratne
  109. Disagreement about Future Inflation: Understanding the Benefits of Inflation Targeting and Transparency By Steve Brito; Yan Carriere-Swallow; Bertrand Gruss
  110. Seasonal quasi-vector autoregressive models for macroeconomic data By Licht, Adrian; Escribano Sáez, Álvaro; Blazsek, Szabolcs Istvan
  111. How does hyperinflation shock the economy?: Panel VAR Approach By Jun-Hyun Ko; Hiroshi Morita
  112. Central African Republic; Third Review under the Extended Credit Facility Arrangement, Requests for Waiver of Nonobservance of Performance Criterion, Modification of Performance Criteria, Augmentation of Access, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for the Central African Republic By International Monetary Fund
  113. Ancient Origins of the Global Variation in Economic Preferences By Anke Becker; Benjamin Enke; Armin Falk
  114. Reform der Einheitlichen Ansprechpartner (EA): Anregungen von europäischen Good-Practice-Beispielen By Holz, Michael; Icks, Annette; Levering, Britta; Kasdorf, Alina

  1. By: Afonso, Gara M. (Federal Reserve Bank of New York); Armenter, Roc (Federal Reserve Bank of Philadelphia); Lester, Benjamin (Federal Reserve Bank of Philadelphia)
    Abstract: The landscape of the federal funds market changed drastically in the wake of the Great Recession as large-scale asset purchase programs left depository institutions awash with reserves, and new regulations made it more costly for these institutions to lend. As traditional levers for implementing monetary policy became less effective, the Federal Reserve introduced new tools to implement the target range for the federal funds rate, changing this landscape even more. In this paper, we develop a model that is capable of reproducing the main features of the federal funds market, as observed before and after 2008, in a single, unified framework. We use this model to quantitatively evaluate the evolution of interest rates and trading volume in the federal funds market as the supply of aggregate reserves shrinks. We find that these outcomes are highly sensitive to the dynamics of the distribution of reserves across banks.
    Keywords: Monetary Policy Implementation; Federal Funds Market; Over-the-Counter Markets
    JEL: E42 E43 E44 E52 E58
    Date: 2018–02–21
  2. By: Malamud, Semyon; Schrimpf, Andreas
    Abstract: We introduce intermediation frictions into the classical monetary model with fully flexible prices. In our model, monetary policy is redistributive because it affects intermediaries' ability to extract rents. The pass-through efficiency of quantitative easing (QE) and tightening (QT) policies depends crucially on the anticipated relationship between future monetary policy and future stock market returns (the "Central Bank Put"). When the Central Bank Put is too weak, balance sheet policies become inefficient. When the Central Bank Put is very strong, however, monetary policy may be destabilizing and lead to greater frequency of market tantrums.
    JEL: E40 E44 E52 G12
    Date: 2018–01
  3. By: Kohei Hasui (Matsuyama University); Yoshiyuki Nakazono (Yokohama City University); Yuki Teranishi (Keio University)
    Abstract: This paper investigates how expectation formation affects monetary policy ef- fectiveness in a liquidity trap. We examine two expectation formations: (i) different degrees in anchoring expectation and (ii) different degrees in forward-lookingness to form expectation. We reveal several points as follows. First, under optimal commitment policy, expectation formation for an inflation rate does not markedly change the effects of monetary policy. Second, contrary to optimal commitment policy, the effects of monetary policy significantly change according to different inflation expectation formations under the Taylor rule. The reductions to an infla- tion rate and the output gap are mitigated if the expectation is well anchored. This rule, however, can not avoid large drops when the degree of forward-lookingness to form expectation decreases. Third, a simple rule with price-level targeting shows some similar outcomes according to different expectation formations as the Taylor rule does. However, in a simple rule with price-level targeting, an inflation rate and the output gap drop less severe due to a history dependent easing and are less sensitive to expectation formations than in the Taylor rule. Even for the Japanese economy, the effects of monetary policy on economic dynamics significantly change according to expectation formations for rules except optimal commitment policy. Furthermore, when the same expectation formations for the output gap are as- sumed, we observe similar outcomes.
    Keywords: Expectation; Liquidity Trap; Monetary Policy
    JEL: E31 E52 E58 E61
    Date: 2018–02
  4. By: Reich, Jens
    Abstract: Central banks like the Bank of England or the Bundesbank have highlighted recently that the supply of currency is achieved not by means of printing and spending but by means of credit. This clarification raises further issues. This article addresses the issue of seigniorage and optimal inflation. So far approaches to seigniorage and optimal inflation are still based on the assumption of a currency which is printed and spend by a central authority. From this perspective central banks’ inflation targets and optimal inflation targets are at odds with those suggested by economic theory. The so-called Friedman-rule, the common core of optimal inflation theory, determines optimal inflation via the (opportunity) cost of producing currency. This basic approach is amended by “external effects”, e.g. the impact of monetary non-neutrality or wage rigidities and so on. However, even under consideration of external effects there remains a significant gap between actual inflation targets and optimal rates as suggested by theory. The supply by means of credit, however, involves “costs of production” which do not appear in Friedman’s case: losses from borrower defaults. Incorporating expected losses into economic theory contributes significantly in aligning central banks’ optima with economic theory and provides a new theory of seigniorage for a credit currency.
    Keywords: Optimal inflation, seigniorage, monetary policy, central banking.
    JEL: E31 E51 E52 E58
    Date: 2017–11–01
  5. By: Corsetti, G.; Duarte, J. B.; Mann, S.
    Abstract: We reconsider the effects of common monetary policy shocks across countries in the euro area, using a data-rich factor model and identifying shocks with high-frequency surprises around policy announcements. We show that the degree of heterogeneity in the response to shocks, while being low in financial variables and output, is significant in consumption, consumer prices and macro variables related to the labour and housing markets. Mirroring country-specific institutional and market differences, we find that home ownership rates are significantly correlated with the strength of the housing channel in monetary policy transmission. We document a high dispersion in the response to shocks of house prices and rents and show that, similar to responses in the US, these variables tend to move in different directions.
    Keywords: Monetary Policy, High-Frequency Identification, Monetary Union, Labour Market, Housing Market.
    JEL: E21 E31 E44 E52 F44
    Date: 2018–02–22
  6. By: Pierre L. Siklos (Department of Economics, Wilfrid Laurier University, Canada; Balsillie School of International Affairs, Canada; Rimini Centre for Economic Analysis)
    Abstract: Central bank communication is more important than only a decade ago. This paper examines the results of a Survey begun in 2013, in cooperation with the BIS, to assess how and why central bank communication strategies have changed in light of the financial crisis of 2008-10. Existing metrics of central bank transparency are found to be relatively less informative about the role of financial stability in transparency. Inflation targeting central banks are more likely to incorporate market reactions to their policies and place greater weight on the modelling exercise used to generate macroeconomic forecasts. Central banks also believe that forward guidance is beneficial. Inflation targeting central banks are also more vocal in publicly explaining the role and function of macroprudential tools. Few differences in views about communicating in normal versus crisis times are observed. Therefore, communicating in normal versus crisis times are not seen as being very different.
    Keywords: central bank communication, transparency, forward guidance, quantitative easing, macroprudential tools
    JEL: E58 E3 E61 E63
    Date: 2018–02
  7. By: Acharya, Sushant (Federal Reserve Bank of New York); Dogra, Keshav (Federal Reserve Bank of New York)
    Abstract: Does market incompleteness radically transform the properties of monetary economies? Using an analytically tractable heterogeneous agent New Keynesian (HANK) model, we show that whether incomplete markets resolve “policy paradoxes” in the representative agent New Keynesian model (RANK) depends primarily on the cyclicality of income risk, rather than incomplete markets per se. Incomplete markets reduce the effectiveness of forward guidance and multipliers in a liquidity trap only if risk is procyclical. Acyclical or countercyclical risk amplifies these puzzles relative to RANK. Cyclicality of risk also affects determinacy: procyclical risk permits determinacy even under an interest rate peg, while countercyclical income risk generates indeterminacy even if the Taylor principle holds. Finally, we uncover a new dimension of monetary-fiscal interaction. Since fiscal policy affects the cyclicality of income risk, it influences the effects of monetary policy even when “passive.”
    Keywords: New Keynesian; incomplete markets; monetary and fiscal policy; determinacy; forward guidance; fiscal multipliers
    JEL: E21 E30 E52 E62 E63
    Date: 2018–02–01
  8. By: Foster, John
    Abstract: The behaviour of aggregate consumption is conventionally understood from the perspective of the permanent income and life cycle hypotheses. Both of these hypotheses are deduced from the theory of constrained optimization as applied to a ‘representative agent’ that consumes and saves. An alternative way of understanding aggregate consumption expenditure is to see it as primarily a systemic outcome of the adoption of widely upheld rules (‘meso-rules’) that enable trading and contracting in a complex economic system. Such systems require order to function but they must also adapt and evolve. Correspondingly, aggregate consumption can be viewed as being determined by two contrasting historical processes: one involves an aggregation of pre-committed, rule-bound choices and the other open-ended aspirational choices of novel products. Both of these processes are influenced by economic incentives. This is the domain of neoclassical economic theory and it is found that such theorising can tell us a great deal once it is set in its proper historical context. Although a modern complex system perspective derived from the natural sciences is adopted, it is embedded in economic thinking. For example, connections are made to the insights and intuitions of Alfred Marshall, Joseph Schumpeter, Simon Kuznets, Friedrich Hayek and Maynard Keynes. What we understand from them, along with modern complex system analysis, is that, although it is individual decisions that are fundamental in any economic system, it cannot be the case that what we observe at the aggregate level just reflects the optimization decision of a representative agent. As Hayek observed, the role of individual is much more complex and important than this. Using half a century of data, the US consumption function is modelled successfully on the presumption that the economy is a complex system in which there has been the diffusion of a ‘culture of consumerism’ in the post-war era. This has involved the increasing adoption of a particular bundle of meso rules and this has resulted in a steadily increasing ratio of consumption to GDP that has been tending towards a limit. It was found that variables and perspectives drawn from neoclassical economic theory are important in explaining variations in the growth of aggregate consumption.
    Keywords: consumption function, macroeconomics, US
    JEL: E0 E00 E1 E10 E2 E21 E6 E60
    Date: 2018–02–06
  9. By: Harashima, Taiji
    Abstract: Real interest and inflation rates have been very low in many industrialized countries since the Great Recession. In this paper, a mechanism of low and floating real interest and inflation rates is examined based on the concept a “Nash equilibrium of a Pareto inefficient path” and the law of motion for trend inflation. I show that, because the link between the marginal product of capital and the real interest rate is severed on this path, the real interest rate loses its anchor and therefore floats. In addition, the inflation rate floats together with the real interest rate. There are, however, upper and lower bounds of the floating rates. It is also likely that the real interest rate floats below the marginal product of capital on this path and the inflation rate floats below the target rate of inflation.
    Keywords: Real interest rate; Inflation; Deflation; Marginal product of capital; Pareto inefficiency; Monetary policy; Fiscal policy; Bank behavior
    JEL: E21 E22 E31 E32 E43 E52 E62 G21
    Date: 2018–04–02
  10. By: Pierre Siklos (Wilfrid Laurier University)
    Abstract: This paper examines the macroeconomic implications of exchange rate shocks in a sample of 13 emerging market and 6 advanced economies since the early 1990s. Factor-augmented vector autoregressions are estimated with three separate factors identified. They are: real, monetary and financial factors. The main conclusion is that there is no ‘one size fits all’ when interpreting the domestic responses to an exchange rate shock. International policies that aim to define a particular exchange rate or exchange rate regime are unlikely to be able to deal with so many idiosyncratic responses. Nor is it the case that a particular monetary policy strategy, such as inflation targeting, can immunize a domestic economy against all external shocks. International cooperation should instead encourage individual economies to seek out the menu of policies that ensure that each one’s house is in order.
    Keywords: USD exchange rate channel, emerging markets, boom-and-busts, monetary policy strategy, globalization
    JEL: F42 E32 E65 E58
    Date: 2018–01–30
  11. By: Grace Weishi Gu; Eswar Prasad
    Abstract: Employer-provided nonwage benefit expenditures now account for one-third of U.S. firms' labor costs. We show that a broad measure of real labor costs including such benefit expenditures has become countercyclical during 1982-2014, contrary to the conventional view that labor costs are procyclical. Using BLS establishment-job data, we find that even real wages, the main focus of prior literature, have become countercyclical. Benefit expenditures are less rigid than nominal wages, although both components of labor costs have become more rigid. These rigidities, along with the rising relative importance of aggregate demand shocks (including the financial crisis), help explain countercyclical labor costs.
    JEL: E24 E32 J3 J32
    Date: 2018–01
  12. By: Luca Marchiori
    Abstract: This study analyzes the macroeconomic implications of virtual currency issuance. It builds on a standard cash-in-advance model extended with (i) ‘virtual’ goods, sold against virtual currency, and (ii) miners, the agents providing payment services. The main finding is that virtual currency growthmay have effects opposite to those predicted by monetary theory when miners are rewarded with newly created coins. Declining currency issuance, as in Bitcoin, raises the price of virtual goods, which counteracts the traditional impact of a reduced inflation tax. The paper also shows how fiat money growth affects the welfare effects of virtual currency creation.
    Keywords: Cash-in-advance, virtual currency, fiat money, money supply
    JEL: E41 E42 E51
    Date: 2018–02
  13. By: Yvan Guillemette; Andrea De Mauro; David Turner
    Abstract: The paper describes the framework used in long-term economic scenarios for the projection of the saving rate, investment, capital stock and current account. The saving rate is determined according to an estimated equation which suggests that demographics, captured by the old-age dependency rate and life expectancy, is a major driver, with additional effects from the fiscal balance, labour productivity growth, the net oil trade balance, the availability of credit and the level of social protection. The evolution of the business sector capital stock depends on the economy’s cyclical position, product market regulation, employment protection legislation and the user cost of capital, and may be constrained by current account deficits depending on the degree of capital account openness. Business sector investment is derived from the capital stock projection via the usual stock-flow identity. The public sector capital stock-to-output ratio is assumed to be constant in the baseline scenario, but a public investment shock can be simulated in alternative scenarios. The current account balance is obtained as the difference between national investment and saving, and in turn determines the evolution of the net international investment position. A global interest rate premium helps to bring global saving and investment into balance.
    Keywords: capital stock, current account, investment, long-term model, long-term scenarios, projection, Saving rate
    JEL: E21 E22 E27 F37
    Date: 2018–02–23
  14. By: Temesvary, Judit; Ongena, Steven; Owen, Ann L.
    Abstract: We examine how U.S. monetary policy affects the international activities of U.S. Banks. We access a rarely studied U.S. bank-level regulatory dataset to assess at a quarterly frequency how changes in the U.S. Federal funds rate (before the crisis) and quantitative easing (after the onset of the crisis) affects changes in cross-border claims by U.S. banks across countries, maturities and sectors, and also affects changes in claims by their foreign affiliates. We find robust evidence consistent with the existence of a potent global bank lending channel. In response to changes in U.S. monetary conditions, U.S. banks strongly adjust their cross-border claims in both the pre and post-crisis period. However, we also find that U.S. bank affiliate claims respond mainly to host country monetary conditions.
    Keywords: Bank lending channel; Cross-country analysis; Global banking; Monetary transmission
    JEL: E44 E52 F42 G15 G21
    Date: 2018–02–02
  15. By: Evren Erdogan Cosar
    Abstract: In the calculation of the output gap, which is an unobservable variable, filtering techniques, production function and structural models are used in general. However, the output gap estimates obtained using these methods may be subject to revisions due to the end-of-sample and model parameter revisions. To reduce the uncertainties in output gap estimates, it is important to follow indicators which are not predicted and contain information about the cyclical position of the economy. In this study we revised the direct output gap measure to cover the 2005-2017 period by including new cyclical indicators representing the different sectors of the economy. The results show that the revisions in the calculated output gap indicator are lower than the output gap series calculated by filter-based methods and that the revised output gap indicator contains more information about the phase of inflation and growth cycles than the old series. In addition, the calculated output gap indicators suggests that economic activity in Turkey was below its potential in the period 2016Q1-2017Q1 and 2009-2010.
    Keywords: Output gap, Growth cycles, Indexation and weighting
    JEL: E32 C43
    Date: 2018
  16. By: Benchimol, Jonathan (Bank of Israel); Bounader, Lachen (Mohammed V University)
    Abstract: Optimal monetary policy under discretion, commitment, and optimal simple rules regimes is analyzed through a behavioral New Keynesian model. Flexible price level targeting dominates under discretion; flexible inflation targeting dominates under commitment; and strict price level targeting dominates when using optimal simple rules. Stabilizing properties and bounded rationality-independence generally affect the regime's optimality. The policymaker's knowledge of an agent's myopia is decisive, whereas bounded rationality is not necessarily associated with decreased welfare. Several forms of economic inattention can be welfare increasing.
    JEL: C53 D01 D11 E37 E52
    Date: 2018–01–01
  17. By: Syed Hassan (School of Management, Swansea University); Sarosh Shabi (School of Management, Swansea University); Taufiq Choudhry (School of Business, University of Southampton)
    Abstract: This paper studies the role of economic policy uncertainty on the US trade with Canada, China, Germany, Japan and the United Kingdom. This paper contributes to the literature by analysing the asymmetric impact of policy uncertainty on the US trade from December 1989 to December 2016. Results suggest that there is a negative relationship between the economic policy uncertainty and the US trade flows. Further, US trade responds more sensitively to rise in the uncertainty as compared to an equal negative shock, confirming the asymmetric hypothesis both in the short and long run. Comparing the respective uncertainty indices, US EPU has a significantly greater impact on the trade relative to the EPU of its trading partners. These findings have both demand and supply side implications i.e. increase in the economic policy uncertainty can reduce the aggregate consumption significant as well as due to uncertain profit margins, businesses can choose to delay long term investment projects and inventory levels resulting in a wide spread recessionary effect on the US business cycle.
    Keywords: Economic policy uncertainty, international trade.
    JEL: E3 E32
    Date: 2018–02–28
  18. By: David Finck (University of Giessen); Joerg Schmidt (University of Giessen); Peter Tillmann (University of Giessen)
    Abstract: We study the role of monetary policy for the dynamics of U.S. mortgage debt, which is the largest component of household indebtedness. A time-varying parameter VAR model allows us to study the variation in the mortgage debt sensitivity to monetary policy. We find that an identically-sized policy shock became less effective over time. We use a DSGE model to show that a fall in the share of adjustable-rate mortgages (ARMs) could replicate this finding. Calibrating the model to the drop in the ARM share since the 1980s yields a drop in the sensitivity of housing debt to monetary policy which is quantitatively similar to the VAR results. A sacrifice ratio for mortgage debt reveals that a policy tightening directed towards reducing household debt became more expensive in terms of a loss in employment. Counterfactuals show that this result cannot be attributed to changes in monetary policy itself. The results are consistent with the "mortgage rate conundrum" found by Justiniano et al. (2017) and have strong implications for policy.
    Keywords: mortgage debt, monetary policy, deleveraging, time-varying VAR, DSGE
    JEL: E3 E5 G2
    Date: 2018
  19. By: Domenico Lombardi, Pierre Siklos, Samantha St. Amand (Wilfrid Laurier University)
    Abstract: This paper sheds new light on spillovers from US monetary policies before, during and after the 2008-09 global financial crisis by examining the behavior of select financial asset returns and incorporating indicators of the content of US Federal Open Market Committee announcements. The impact of US monetary policies is examined for systematically-important and small-open advanced economies. US monetary policy surprise easings are found to have decreased yields in advanced economies post-crisis. The impact of the content of US Federal Open Market Committee statements, coded using text analysis software, is also found to be significant but sensitive to the state of the economy.
    Keywords: central bank communication, financial asset prices, monetary policy spillovers, unconventional monetary policy
    JEL: G12 G28 E52 E58
    Date: 2018–01–30
  20. By: Karlo Kotarac (The Croatian National Bank, Croatia); Davor Kunovac (The Croatian National Bank, Croatia); Rafael Ravnik (European Central Bank)
    Abstract: The paper analyses the coherence of business cycles and supply and demand shocks between Croatia and euro area core countries. The results obtained point to several basic conclusions. Firstly, the coherence of business cycles and the correlation of supply and demand shocks between Croatia and euro area core countries are relatively high. Secondly, symmetric (common) shocks are dominant for explaining the dynamics in domestic GDP, while the contributions of asymmetric shocks are significantly smaller. Thirdly, the results point to the convergence of supply and demand shocks and business cycles between Croatia and euro area core countries. Based on all of the above, we may conclude that the introduction of the euro and the related adoption of the common countercyclical monetary policy should not result in significant costs for the Croatian economy.
    Keywords: cycle coherence, aggregate supply and demand shocks, symmetric and asymmetric shocks
    JEL: F33 F44 E42 C32
    Date: 2017–10
  21. By: António Afonso; Yasfir Ibraimo
    Abstract: Public debt has been rising markedly over the years, which suggests an increase in public expenditure financed by debt instead of taxation. There is no consensus on the economic implications of borrowing to finance public expenditure. We assess empirically the macroeconomic effects of public debt for the case of Mozambique over the period of 2000Q1-2016Q4. We use a Vector Autoregression model to assess these effects through impulse response functions and variance decomposition. We conclude that debt service variables have much more negative effects on this economy than debt variables. Debt variables over the period of this study had no significant impact on the real output and the debt service component depressed the real output, increased the general price level and accounted for the depreciation on the domestic currency.
    Keywords: Economic growth, External Debt, Domestic Debt, Total Debt Service, Variance Decomposition, Vector Autogression, Mozambique
    JEL: C32 E62 H63 O11 O55
    Date: 2018–02
  22. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)); David Hanrahan (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: Summary This contribution takes a look at the forecasts of macroeconomic indicators from 2015, i.e. prior to the BREXIT referendum, and 2017. The revised indicators indeed show that BREXIT has a significant impact on output growth, inflation and foreign exchange dynamics, with lower projected GDP growth already visible in the short term. The findings support the analysis of the Treasury, amongst others, in their study of 2016. Key analytical issues are discussed here including the information deficit during the referendum campaign, but also the policy options and challenges facing the United Kingdom and EU27 as the UK attempts to reinforce output growth in the coming years. Zusammenfassung: Dieser Beitrag befasst sich mit den Prognosen der makroökonomischen Indikatoren aus dem Jahr 2015, d.h. vor dem BREXIT-Referendum und 2017. Die überarbeiteten Indikatoren zeigen, dass der BREXIT erhebliche Auswirkungen auf das Produktionswachstum, die Inflation und die Wechselkursdynamik hat und das projizierte BIP-Wachstum schon kurzfristig geringer sichtbar ist. Die Ergebnisse stützen die Analyse des Finanzministeriums, unter anderem, die in ihrer Studie von 2016. Hier werden wichtige analytische Fragen erörtert, darunter das Informationsdefizit während der Kampagne für das Referendum, aber auch die politischen Optionen und Herausforderungen, vor denen das Vereinigte Königreich und die EU27, zur Steigerung des Produktionswachstums in den kommenden Jahren, steht.
    Keywords: Brexit, UK, economic forecasts, revisions
    JEL: E00 E60 F5 C5
    Date: 2018–01
  23. By: Federico Lubello; Ivan Petrella; Emiliano Santoro
    Abstract: We examine the role of bank collateral in shaping credit cycles. To this end, we develop a tractable model where bankers intermediate funds between savers and borrowers. If bankers default, savers acquire the right to liquidate bankers' assets. However, due to the vertically integrated structure of our credit economy, savers anticipate that liquidating nancial assets (i.e., bank loans) is conditional on borrowers being solvent on their debt obligations. This friction limits the collateralization of bankers' financial assets beyond that of other assets that are not involved in more than one layer of financial contracting. In this context, increasing the pledgeability of financial assets eases more credit and reduces the spread between the loan and the deposit rate, thus attenuating capital misallocation as it typically emerges in credit economies a la Kiyotaki and Moore (1997). We uncover a close connection between the collateralization of bank loans, macroeconomic amplification of shocks and the degree of procyclicality of bank leverage. A regulator may reduce macroeconomic volatility through the introduction of a countercyclical capital buffer, while a fixed capital adequacy requirement displays limited stabilization power.
    Keywords: Banking; Bank Collateral; Liquidity; Capital Misallocation; Macroprudential Policy.
    JEL: E32 E44 G21 G28
    Date: 2018–02
  24. By: Selen Andic
    Abstract: This paper estimates the potential output and output gap in Turkey using a multivariate filter. The filter employed links the output gap to slack in the labor market and changes in inflation. Additionally, it produces the output gap taking into account some macroeconomic variables. Though end-of-sample problem remains an issue, results show that the output gap estimates provided by the multivariate filter have a stronger relationship with inflation and are subject to smaller revisions compared to the Hodrick-Prescott filter.
    Keywords: Filter, Potential growth, Output gap, Turkey
    JEL: C51 E32 O40
    Date: 2018
  25. By: Gary B. Gorton; Toomas Laarits
    Abstract: A financial crisis is an event in which the holders of short-term debt come to question the collateral backing that debt. So, the resiliency of the financial system depends on the quality of that collateral. We show that there is a shortage of high-quality collateral by examining the convenience yield on short-term debt, which summarizes the supply and demand for short-term safe debt, taking into account the availability of high-quality collateral. We then show how the private sector has responded by issuing more (unsecured) commercial paper at shorter maturities. The results suggest that there is a shortage of safe debt now compared to the pre-crisis period, implying that the seeds for a new shadow banking system to grow exist.
    JEL: E4 E44 E58 G21
    Date: 2018–02
  26. By: Jonathan Hambur (Reserve Bank of Australia); Richard Finlay (Reserve Bank of Australia)
    Abstract: We outline a 'workhouse' affine term structure model of nominal and real interest rates in Australia. The model allows us to decompose observed yields paid on nominal and inflation-indexed government bonds into expectations for real and nominal interest rates, expectations for inflation, as well as real term premia and inflation risk premia. The results should not be interpreted too precisely given data limitations and the complexity of the model. Nevertheless, they suggest that medium- to long-term expectations for real interest rates, a market-based measure of the neutral real interest rate, have declined in recent years. At the same time, long-term inflation expectations have remained firmly within the Reserve Bank's 2 to 3 per cent target band and have been more stable than suggested by measures of break-even inflation. Finally, the results suggest that real term premia have declined since the global financial crisis, which may reflect overseas factors given it has coincided with declines in US term premia.
    Keywords: affine term structure model; joint real and nominal; survey data
    JEL: E31 E43 G12
    Date: 2018–02
  27. By: Musgrave, Ralph S.
    Abstract: There is a glaring flaw in using artificial interest rate adjustments to regulate demand: the GDP maximising rate of interest is presumably the free market rate, thus in order to maximise GDP, artificial interference with interest rates should be minimised. That in turn means demand is best regulated by fiscal means. As to “fiscal” in the sense “government borrows money and spends it”, that is defective because the fact of borrowing has a deflationary effect: the opposite of the intended stimulatory effect. Thus the best form of stimulus is one of the forms suggested by Keynes in the early 1930s, namely to have the state print money and spend it, and/or cut taxes. Under the latter system, treasuries or politicians could be given access to the printing press, i.e. be given control of how large a dose of stimulus the economy gets each year. Alternatively it is not difficult to delegate that “amount of stimulus” decision to a committee of economists, while politicians retain the right to take strictly political decisions, like what proportion of GDP is allocated to public spending.
    Keywords: interest; interest rate; stimulus; fiscal; monetary.
    JEL: E4 E5 E52 E58
    Date: 2018–01–31
  28. By: Jens Klose (THM Business School)
    Abstract: Do central banks in Eastern European countries react asymmetrically and in a non-linear fashion to changes in inflation and output? We tackle this question by expanding the standard Taylor reaction function for the four inflation targeting countries Czech Republic, Hungary, Poland and Romania. We do so taking explicitly inflation rates below or above target and output below or above potential, the so-called state of the economy, into account. The results reveal that there are indeed substantial asymmetries in the reaction function of the Czech, Polish and Romanian central bank, which are only evident when the combination of inflation and output thresholds is explicitly modelled in one estimation equation. For these three central banks also non-linearities in the inflation and output response could be verified.
    Keywords: Taylor reaction function, Asymmetries, Eastern European countries
    JEL: E52 E58
    Date: 2018
  29. By: Martin Ellison; Andreas Tischbirek
    Abstract: Abstract A novel decomposition highlights the scope for information to in uence the term structure of interest rates. Based on the law of total covariance, we show that real term premia in macroeconomic models contain a component that depends on covariances of realised stochastic discount factors and a component that depends on covariances of expectations of those stochastic discount factors. The impact of different informational assumptions can then be identified by looking at their effect on the second, expectational, component. If agents have full information about technology in a simple macro-finance model then the conditional covariance of expectations is low, which contributes to the real term premia implied by the model being at least an order of magnitude too small, a result that is unchanged if some components of technology are unobservable or observed with noise. To generate realistic term premia, we draw on the beauty contest literature by differentiating between private and public information and introducing the possibility of strategic complementarities in the formation of expectations. A quantitative version of the model is found to explain a significant proportion of observed term premia when estimated using data on expectations of productivity growth from the Survey of Professional Forecasters.
    Keywords: Yield Curve, Term Premia, Information Friction, Beauty Contest, Asset Pricing
    JEL: E40 E43 G12
    Date: 2018–02–27
  30. By: Angrick, Stefan; Naoyuki, Yoshino
    Abstract: Monetary policy in most major economies has traditionally focused on control of the interbank interest rate to achieve an inflation target. Monetary policy in transition economies, in contrast, relied on a mixed system of price-based and quantity based instruments and targets. Japanese monetary policy up to the 1990s was based on such a mix, and echoes of this system are today found in China’s monetary policy set-up. We explore the transition of these two monetary policy regimes historically and quantitatively with institutional comparison and Structural Vector Autoregressive (SVAR) models. Specifically, we examine the role of the interbank rate and “window guidance,” a policy by which authorities use “moral suasion” to communicate target quotas for lending growth directly to commercial banks. In Japan’s case, we compile historical statistics on window guidance from newspapers and industry sources. For China, we apply Romer–Romer text analysis and computational linguistic techniques to policy reports to quantify information on window guidance.We empirically demonstrate the declining effectiveness of quantity measures and the increasing importance of price measures. We end with a policy assessment of managing the transition of monetary policy from a quantity-based system to a price-based system.
    JEL: E5 E52 E58
    Date: 2018–02–21
  31. By: Fernandez-Villaverde, Jesus (University of Pennsylvania); Sanches, Daniel R. (Federal Reserve Bank of Philadelphia)
    Abstract: Can a monetary system in which privately issued cryptocurrencies circulate as media of exchange work? Is such a system stable? How should governments react to digital currencies? Can these currencies and government-issued money coexist? Are cryptocurrencies consistent with an efficient allocation? These are some of the important questions that the sudden rise of cryptocurrencies has brought to contemporary policy discussions. To answer these questions, we construct a model of competition among privately issued .at currencies. We .nd that a purely private arrangement fails to implement an efficient allocation, even though it candeliver price stability under certain technological conditions. Currency comptition creates problems for monetary policy implementation under conventional methods. However, it is possible to design a policy rule that uniquely implements an efficient allocation by driving private currencies out of the market. We also show that unique implementation of an efficient allocation can be achieved without government intervention if productive capital is introduced.
    Keywords: Currency competition; cryptocurrencies; monetary policy
    JEL: E40 E42 E52
    Date: 2018–02–02
  32. By: Vespignani, Joaquin; Kang, Wensheng; Ratti, Ronald
    Abstract: This paper investigates the time-varying dynamics of global stock volatility, commodity prices, and domestic output and consumer prices. The main empirical findings of this paper are: (i) stock volatility and commodity price shocks impact each other and the economy in a gradual and endogenous adjustment process; (ii) the impact of a commodity price shock on global stock volatility is far greater during the global financial crisis than at other times; (iii) the effects of global stock volatility on the US output are amplified by the endogenous commodity price responses; (iv) in the long run, shocks to commodity prices (stock market volatility) account for 11.9% (6.6%) and 25.1% (11.6%) of the variation in US output and consumer prices; (v) the effects of global stock volatility shocks on the economy are heterogeneous across nations and relatively larger in the developed countries; (vi) developing/small economies are relatively more vulnerable upon commodity price shocks.
    Keywords: Global commodity prices, Global stock volatility, Output, Heterogeneity
    JEL: E0 E00 E30
    Date: 2018–01–01
  33. By: Ueda, Kozo (Waseda University); Watanabe, Kota (University of Tokyo); Watanabe, Tsutomu (University of Tokyo)
    Abstract: This paper evaluates the effects of product turnover on a welfare-based cost-of-living index. We first present some facts about price and quantity changes over the product cycle employing scanner data for Japan for the years 1988-2013, which cover the deflationary period that started in the mid-1990s. We then develop a new methodology to decompose price changes at the time of product turnover into those due to the quality effect and those due to the fashion effect (i.e., the higher demand for products that are new). Our main findings are as follows: (1) the price and quantity of a new product tend to be higher than those of its predecessor at its exit from the market, implying that firms use new products as an opportunity to take back the price decline that occurred during the life of its predecessor under deflation; (2) a considerable fashion effect exists for the entire sample period, while the quality effect is declining over time; and (3) the discrepancy between the cost-of-living index estimated based on our methodology and the price index constructed only from a matched sample is not large.
    JEL: C43 E31 E32 O31
    Date: 2018–01–01
  34. By: Stylianos Tsiaras (University of Surrey)
    Abstract: This paper examines the post-2008 European Central Bank's liquidity enhancing policies, namely 'Long Term Refinancing Operations', and the increase of banks' excess reserves that followed. To evaluate this in a quantitative environment, I build a dynamic, general equilibrium model that incorporates financial frictions in both the supply and demand for credit and allows banks to receive liquidity and hold reserves. Results suggest the existence of a risk-shifting channel of monetary policy in the recent ECB operations. Specifically, I show that when the central bank supplies liquidity during turbulent times, banks grant loans to riskier _rms. This increases the firms' default on new credit and worsens the performance of the economy although the banks' health is improved. Additionally, I find that an increase in the riskiness of the non-financial corporations can explain the recent reserve accumulation by the banking system. Lastly, I evaluate the effects of negative interest rates on credit and assess the welfare implications of the recent policies.
    JEL: E44 E58
    Date: 2018–01
  35. By: International Monetary Fund
    Abstract: Economic activity remains subdued. Budget execution has taken place in difficult conditions given recent shortfalls in non-oil revenues and delays in domestic and external financing. Growth is expected to rebound in 2018 due to better prospects in the oil sector, investment in new growth pillars (agribusiness) and a gradual improvement in confidence as the government reduces its domestic arrears. The fiscal and external current account balances are improving thanks to strong export growth and a decline in public spending. Program implementation has been broadly satisfactory, with most end-June performance criteria and structural benchmarks met, but substantial risks remain. New external arrears were accumulated.
    Date: 2017–12–28
  36. By: Campbell, Jeffrey R. (Federal Reserve Bank of Chicago); Weber, Jacob P. (Federal Reserve Bank of Chicago)
    Abstract: We examine the standard New Keynesian economy’s Ramsey problem written in terms of instrument settings instead of allocations. Its standard formulation makes two instruments available: the path of current and future interest rates, and an “open mouth operation” which selects one of the many equilibria consistent with the chosen interest rates. Removing the open mouth operation by imposing a finite commitment horizon yields pathological policy advice that relies on the model's forward guidance puzzle.
    Keywords: Keynesian economics; equilibrium multiplicity; monetary policy; open market operations
    JEL: E12 E52 E58
    Date: 2018–02–05
  37. By: International Monetary Fund
    Abstract: The economy is rebounding. The government has unwound multiple distortions and made important progress in restoring integrity and transparency in public sector operations. These policy changes have put the economy on a stronger footing and corrected many of the most urgent macroeconomic imbalances. Argentina is experiencing a solid recovery from last year’s recession and, even in the face of planned fiscal consolidation and ongoing efforts at disinflation, growth is expected to slowly pick up in the coming years. Inflation continues to fall, albeit at a slower pace than targeted by the central bank.
    Keywords: Western Hemisphere;Argentina;
    Date: 2017–12–29
  38. By: Mircea Epure; Irina Mihai; Camelia Minoiu; José-Luis Peydró
    Abstract: We analyze the effects of macroprudential policies on local bank credit cycles and interactions with international financial conditions. For identification, we exploit the comprehensive credit register containing all bank loans to individuals in Romania, a small open economy subject to external shocks, and the period 2004-2012, which covers a full boom-bust credit cycle when a wide range of macroprudential measures were deployed. Although household leverage is known to be a key driver of financial crises, to our knowledge this is the first paper that employs a household credit register to study leverage and macroprudential policies over a full economic cycle. Our results show that tighter macroprudential conditions are associated with a significant decline in household credit, with substantially stronger effects for foreign currency (FX) loans than for local currency loans. The effects on FX loans are higher for: (i) ex-ante riskier borrowers proxied by higher debt-service-toincome ratios and (ii) banks with greater exposure to foreign funding. Moreover, tighter macroprudential policy has stronger dampening effects on FX lending when global risk appetite is high and foreign monetary policy is expansionary. Finally, quantitative effects are in general larger for borrower rather than lender macroprudential policies.
    Keywords: Household credit;Romania;Europe;Central banks and their policies;macroprudential policies, global financial cycle, cross-border spillovers, General
    Date: 2018–01–24
  39. By: Evren Erdogan Cosar; Saygýn Sahinoz
    Abstract: In this study, firstly, we construct indices reflecting the financial uncertainty and the uncertainty perception of different agents such as consumers, firms and forecasters. Then, we develop an index of Economic Policy Uncertainty based on newspaper coverage frequency. In a dynamic factor model framework, we combine these indices to obtain an aggregate measure of economic uncertainty for the Turkish economy. Finally, by using this measure, we investigate the impact of uncertainty on economic activity via vector autoregression models. Empirical evidence shows that uncertainty has adverse impacts on economic growth, consumption and investment in Turkey. The impacts typically take two to three quarters to reach the maximum effect and the most severe effects of uncertainty are observed on investment.
    Keywords: Uncertainty, Business cycle, Turkey
    JEL: C22 C52 D81 E32
    Date: 2018
  40. By: Jordi Galí
    Abstract: I analyze the effectiveness of forward guidance policies in open economies, focusing on the role played by the exchange rate in their transmission. An open economy version of the "forward guidance puzzle" is shown to emerge. In partial equilibrium, the effect on the current exchange rate of an anticipated change in the interest rate does not decline with the horizon of implementation. In general equilibrium, the size of the effect is larger the longer is that horizon. Empirical evidence using U.S. and euro area data euro-dollar points to the presence of a forward guidance exchange rate puzzle: expectations of interest rate differentials in the near (distant) future have much larger (smaller) effects on the euro-dollar exchange rate than is implied by the theory.
    Keywords: forward guidance puzzle, uncovered interest rate parity, unconventional monetary policies, open economy New Keynesian model.
    JEL: E43 E58 F41
    Date: 2017–05
  41. By: Jordi Galí
    Abstract: I analyze the effectiveness of forward guidance policies in open economies, focusing on the role played by the exchange rate in their transmission. An open economy version of the "forward guidance puzzle" is shown to emerge. In partial equilibrium, the effect on the current exchange rate of an anticipated change in the interest rate does not decline with the horizon of implementation. In general equilibrium, the size of the effect is larger the longer is that horizon. Empirical evidence using U.S. and euro area data euro-dollar points to the presence of a forward guidance exchange rate puzzle: expectations of interest rate differentials in the near (distant) future have much larger (smaller) effects on the euro-dollar exchange rate than is implied by the theory.
    Keywords: forward guidance puzzle, uncovered interest rate parity, unconventional monetary policies, open economy New Keynesian model
    JEL: E43 E58 F41
    Date: 2018–02
  42. By: Atalay, Enghin (University of Wisconsin-Madison); Drautzburg, Thorsten (Federal Reserve Bank of Philadelphia); Wang, Zhenting (Tianhong Asset Management)
    Abstract: Using a multi-industry real business cycle model, we empirically examine the microeconomic origins of aggregate tail risks. Our model, estimated using industry-level data from 1972 to 2016, indicates that industry-specific shocks account for most of the third and fourth moments of GDP growth.
    Keywords: production networks; business cycles; tail risk
    JEL: D5 E2 E3
    Date: 2018–02–05
  43. By: Ludger Schuknecht; Holger Zemanek
    Abstract: Based on the observation of an unabated trend towards higher social spending ratios in advanced countries, the study analyzes the risk of “social dominance”, where social expenditures dominate fiscal policy, and undermine growth and fiscal sustainability. We scrutinize this risk by analyzing drivers of social expenditures and their interaction with other fiscal variables. Results show, that social expenditure expansion is largely ageing driven, it crowds out other primary expenditures and there is evidence of unsustainability.These findings and the accelerating trend of population ageing and particularly high political costs to reforming social expenditure suggest significant and rising risks of “social dominance”.
    Keywords: fiscal policy,social expenditures,political economy,crowding out,fiscal sustainability
    JEL: E62 H30 H55
    Date: 2018–02
  44. By: Mei Dong (University of Melbourne); Yuki Teranishi (Keio University)
    Abstract: This paper develops a price model with a search foundation based on product cycles and prices. Observations conclude that firms match with a new product, then set a new price through negotiation and fix the price until the product exits from a market. This evident behavior results in a new model of price stickiness as a Search-based Phillips curve. The model includes a New Keynesian Phillips curve with Calvo's price adjustment as a special case and describes new phenom- ena. First, new parameters and variables of a frictional goods market determine price dynamics. As separation rate in a goods market decreases, price becomes more sticky, i.e., a flatter slope in a Search-based Phillips curve, since the product turnover cycle is sluggish. Moreover, other goods market features, such as proba- bility of match, elasticity of match, and bargaining power for a price setting decide price dynamics. Second, goods market friction can make endogenously persistent inflation dynamics without an assumption of indexation to a lagged inflation rate. Third, when the number of a product persistently increases, deflation continues for a long period. It can explain a secular deflation.
    Keywords: Phillips curve; search and matching; product chain
    Date: 2018–02
  45. By: Andreas P. Kyriacou; Leonel Muinelo-Gallo; Oriol Roca-Sagalés
    Abstract: In this article we analyze the efficiency of total transport investment in a sample of 34 countries over the period 1996 to 2010. We do so by way of Data Envelopment Analysis that evaluates countries according to their ability to achieve the maximum attainable infrastructure quantity and usage for a given investment volume. We find that the Central European countries, New Zealand and Japan are the most efficient when investing in transport infrastructure while the Eastern European countries, Russia, Turkey and Mexico are the least so. We moreover consider the role played by institutional or government quality when explaining cross-country differences in investment efficiency, based on truncated panel (and bootstrapped) regressions. We confirm the positive impact of institutional quality on efficiency even after controlling for a range of potentially confounding variables. Our analysis generates important policy implications for those concerned with the efficiency of transport infrastructure.
    Keywords: transport infrastructures, efficiency, data envelopment analysis, panel data, government quality.
    JEL: E02 E60 H11 H54
    Date: 2018–02
  46. By: International Monetary Fund
    Abstract: Context. The gradual economic recovery has continued, with solid growth despite the drought and cyclone that hit Madagascar in early 2017. Fiscal performance has been roughly as planned, with strong revenue performance offsetting unexpected spending pressures in 2017. Monetary and exchange rate policy has successfully managed the challenges from external developments. Focus. Discussions focused on creating fiscal space for priority investment and social spending, promoting investment for inclusive and sustainable growth, maintaining stable inflation, and advancing key structural reforms in economic governance and financial sector development.
    Keywords: Sub-Saharan Africa;Madagascar;
    Date: 2017–12–18
  47. By: International Monetary Fund
    Abstract: Papua New Guinea (PNG) is experiencing weak economic growth resulting from falls in major commodity export prices, the completion of the huge PNG LNG pipeline project, and a severe drought. These developments have led to fiscal deficits and increasing public debt as government revenues have declined. They have also led to foreign exchange (FX) shortages and import compression, partly owing to large private debt service outflows related to the LNG project. A new government, elected in July, is keen to address the immediate fiscal challenges as well as longer-term structural reform. A credible government commitment to substantial fiscal consolidation through the medium term could mitigate the risk that financing of the fiscal deficit could become extremely difficult, leading to a fiscal and financial crisis. In such a crisis, a severe fiscal contraction would be likely and monetary and exchange policies would also be at risk.
    Keywords: Asia and Pacific;Papua New Guinea;
    Date: 2017–12–29
  48. By: Frédérique BEC (Université de Cergy-Pontoise, THEMA)
    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
  49. By: International Monetary Fund
    Abstract: Following the 2014 crisis, Moldova has experienced a period of relative economic and financial stability, but still faces significant challenges. Growth has returned, inflation pressures have been contained, and fiscal performance has improved. Financial sector rehabilitation is underway, but further steps are needed to strengthen banks’ governance and balance sheets, which are critical to restore credit growth. Faster growth is needed if Moldova is to lift per capita income, which is the lowest in the region. • To accelerate growth and improve living standards while maintaining macroeconomic stability, policies should continue to focus on: (i) decisively strengthening the banking sector to facilitate deeper financial intermediation; (ii) bolstering the inflation targeting framework to help improve the transmission mechanism, while continuing to allow for exchange rate flexibility; (iii) maintaining fiscal discipline, while providing for growth-friendly priority public investment and safeguarding debt sustainability; and (iv) advancing structural reforms for sustainable and inclusive growth.
    Date: 2017–12–21
  50. By: Stephen Morris; Hyun Song Shin
    Abstract: The analysis suggests that relying less on market signals increases the effectiveness of central bank communication. In their eagerness to correctly anticipate policy moves, market participants risk giving too much weight to central bankers' utterances and not enough to assessing economic data. If central bankers, in turn, trust markets to guide their actions, they may end up creating a feedback loop that cancels out the value of the very market signals they rely on. In this circular relationship, market outcomes reflect central bank actions, which in turn reflect market outcomes.
    Keywords: central bank communication, market expectations, crowding out
    JEL: D82 E43 E58
    Date: 2018–01
  51. By: International Monetary Fund
    Abstract: Recent economic developments. Notwithstanding some temporary supply shocks, economic activity remains robust, supported by recovery of private consumption and strong FDI. Significant fiscal over-performance has continued and efforts to address structural weaknesses have been accelerated. This, along with a healthy credit recovery on the back of substantial monetary policy easing, has helped support growth, while low inflation has reinforced recovery in real incomes. Public debt has fallen notably and external vulnerabilities are reduced.
    Keywords: Europe;Serbia;
    Date: 2017–12–21
  52. By: Matthew W. Clance (Department of Economics, University of Pretoria, Pretoria, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha, Omaha, USA and School of Business and Economics, Loughborough University, Leicestershire, UK)
    Abstract: This paper uses a panel of seventeen advanced countries over the annual period of 1899-2013, to analyze for the first time, the role played by geopolitical risks in predicting recessions. After controlling for other standard predictors, based on a logit model, we find that, while aggregate geopolitical risks does not have any predictive ability, geopolitical acts enhances the probability of future recessions, with geopolitical threats reducing the same.
    Keywords: Geopolitical Risks, Recessions, Advanced Economies, Panel Data, Logit Model
    JEL: C33 E32
    Date: 2018–02
  53. By: Di Maggio, Marco (Harvard Business School and NBER); Kermani, Amir (UC Berkeley and NBER); Majlesi, Kaveh (Lund University)
    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.
    Keywords: Capital gain; Dividend income; Consumption; Near-rational behavior
    JEL: D14 E21 G12
    Date: 2018–02–02
  54. By: Kaplan, Robert S. (Federal Reserve Bank of Dallas)
    Abstract: An essay by Dallas Fed President Robert S. Kaplan from February 21, 2018.
    Date: 2018–02–21
  55. By: Pablo Martín-Aceña (Universidad de Alcalá)
    Abstract: The purpose of this Working Paper is to present a reconstruction of the main monetary aggregates for the period 1830, when the first modern banknotes were issue, to1998, the last year before the substitution of the peseta by the euro. It offers series for currency in circulation and its components, bank deposits and its components, high-powered money and the money supply. With regard to previous monetary historical statistics, this Working Paper improves the quality and the time-span of the series, covering a period of more than 150 years. The Working Paper offers also a short approach to the long-term evolution of the quantity of money in Spain and the changes in its composition. The sources and methodology employed is explain in detail.
    Keywords: monetary statistics, monetary history, currency in circulation, bank deposits, money supply
    JEL: E49 E51 N1 N9 Y1
    Date: 2018–02
  56. By: International Monetary Fund
    Abstract: Context. Meeting the demands of mutinous soldiers and striking civil servants secured social peace and stability. The authorities tightened security measures to address sporadic attacks on police and security installations that occurred over the summer. Economic outlook. Economic growth remains strong despite terms of trade and domestic shocks. Growth is projected to stay above 7 percent per year in 2017–19, with broadly balanced risks to the outlook. Inflation is expected to remain subdued. Program policies. Program performance has been strong in 2017. All end-June 2017 performance criteria and structural benchmarks have been met, and the criteria for end-year are within reach. New revenue mobilization measures and rationalization of current expenditure are projected to limit the fiscal deficit to 3.75 percent of GDP in 2018 and ensure convergence to the WAEMU regional norm of 3 percent of GDP by 2019. Staff views. Staff supports the authorities’ requests for completion of the second reviews of the program supported by the ECF and EFF arrangements, which would release disbursements equivalent to SDR 96.79 million. November 21, 2017
    Keywords: Sub-Saharan Africa;
    Date: 2017–12–15
  57. By: Krueger, Dirk; Ludwig, Alexander
    Abstract: We characterize the optimal linear tax on capital in an Overlapping Generations model with two period lived households facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium feedback of private precautionary saving. For logarithmic utility our full analytical solution of the Ramsey problem shows that the optimal aggregate saving rate is independent of income risk. The optimal time-invariant tax on capital is increasing in income risk. Its sign depends on the extent of risk and on the Pareto weight of future generations. If the Ramsey tax rate that maximizes steady state utility is positive, then implementing this tax rate permanently generates a Pareto-improving transition even if the initial equilibrium is dynamically efficient. We generalize our results to Epstein-Zin-Weil utility and show that the optimal steady state saving rate is increasing in income risk if and only if the intertemporal elasticity of substitution is smaller than 1.
    Keywords: Idiosyncratic Risk,Taxation of Capital,Overlapping Generations,Precautionary Saving,Pecuniary Externality
    JEL: H21 H31 E21
    Date: 2018
  58. By: Bagis, Bilal
    Abstract: The Turkish social insurance system has been feverishly debated for years, particularly through its burden on the economy. The most recent reform is an attempt to neutralize the deterioration within the social security system and its effects on the economy. After the recent reform, ‘the way that retirement benefits are calculated’ is changed unfavorably for workers and the minimum age for retirement is increased. In particular, for an agent with 25 years of social security tax payments, the replacement rate is down from 65 percent to 50 percent. On the other hand, retirement age is up from 60 to 65. The aim of this paper is to investigate the macroeconomic effects of these changes using an OLG model. The author’s findings indicate that labor supply, output and capital stock increase when changes above are applied to the benchmark economy calibrated to the Turkish economy data in 2005. A critical change with the current reform is that the marginal benefit of working has become uniform over ages. In a simulation exercise, the marginal retirement benefit in the benchmark economy is changed to be uniform over ages while keeping the size of social security system unchanged. As a result, the benefit of retiring at a later period increases. However, uniform distribution of the marginal benefits itself decreases both the capital stock and output of the economy. Increasing the retirement age has positive effects on the economy since agents obtain retirement benefits for fewer years and at an older age.
    Keywords: Social Security Reform, Retirement Age, Replacement Rate, Macroeconomics.
    JEL: D1 E2 H2 H5 J1 J2
    Date: 2017–02
  59. By: Samil Oh; Thepthida Sopraseuth (Université de Cergy-Pontoise, THEMA)
    Abstract: This paper investigates the impact of uncertainty shocks in a small open economy with search and matching frictions, endogenous job separation and rm entry. We rst develop our empirical analysis in the context of the Korean economy, as all dimensions of the model are relevant in this country. An increase in uncertainty lowers output, consumption, investment and job nding rate, while raising unemployment and job separations. We also supplement the existing empirical evidence by looking at rm dynamics, real exchange rate and current account behavior. Increased uncertainty gen- erates current account surplus, real exchange rate depreciation and reduces the number of rms in the economy. In our theoretical framework, we illustrate new transmissions mechanism that are ignored in the literature. The interaction of search frictions, rm entry and open economy leads to sizable macroeconomic eects of heightened uncer- tainty. Moreover, the model's predictions are consistent with empirical ndings.
    Keywords: small open economy, search and matching, rm entry, uncertainty shocks
    JEL: E32 F41 F32 J64
    Date: 2017
  60. By: International Monetary Fund
    Abstract: Seychelles has made substantial progress toward external viability and fiscal sustainability since the 2008 crisis under three successive Fund arrangements. The public debt to GDP ratio has been reduced by almost two thirds during the period, while international reserves coverage has improved to around four months of prospective imports from less than one month at end-2008. However, additional efforts are still needed to secure the hard-won economic stability, in view of the country’s vulnerability to external shocks and challenges to maintain fiscal discipline over the next few years. The authorities recently requested a new Policy Coordination Instrument (PCI), as the last Extended Arrangement expired in early June and the country no longer needs Fund financial assistance.
    Keywords: Sub-Saharan Africa;Seychelles;
    Date: 2017–12–22
  61. By: Giulio Cifarelli (Dipartimento di Scienze per l'Economia e l'Impresa); Giovanna Paladino
    Abstract: The Greek crisis has brought to light the strong nexus between the credit risks of European banks and their sovereign. We study this phenomenon in Germany, France, Italy and Spain by estimating the conditional correlations between sovereign and bank CDS bond spreads over the period 2006-2015. A trivariate time-varying regime switching correlation analysis, the STCC-GARCH, is implemented to associate the state shifts to the dynamics of the so-called “transition variable†. We start selecting as transition variable the first difference of the spread between Greek and German sovereign bond yields. We then expand the model – via a DSTCC-GARCH parameterization - and introduce a second transition variable, representing the influence of the Italian sovereign debt. There is a clear evidence of significant changes in the correlations structure due to the evolution of the Greek crisis and to the sustainability of the Italian debt, which in turns impinges on the tenability of the euro project. The role of Italy on the nexuses of France and Germany increases after 2011.
    Keywords: CDS spreads, Greek financial crisis, STCC- and DSTCC-GARCH correlation analysis, contagion
    JEL: E43 E52 F36 C32
    Date: 2018
  62. By: Lettau, Martin; Ludvigson, Sydney; Ma, Sai
    Abstract: A single macroeconomic factor based on growth in the capital share of aggregate income exhibits significant explanatory power for expected returns across a range of equity characteristic portfolios and non-equity asset classes, with risk price estimates that are of the same sign and similar in magnitude. Positive exposure to capital share risk earns a positive risk premium, commensurate with recent asset pricing models in which redistributive shocks shift the share of income between the wealthy, who finance consumption primarily out of asset ownership, and workers, who finance consumption primarily out of wages and salaries.
    Keywords: capital share; inequality; Labor Share; value premium
    JEL: E25 G11 G12
    Date: 2018–01
  63. By: Di Maggio, Marco (Harvard Business School); Kermani, Amir (UC Berkeley); Majlesi, Kaveh (Department of Economics, Lund University)
    Abstract: This paper employs Swedish data on households' stock holdings to investigate how consumption responds to changes in stock market returns. We instrument the actual capital gains and dividend payments with past portfolio weights. 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. Households' consumption is significantly more responsive to dividend payouts across all parts of the wealth distribution. Our findings are consistent with households treating capital gains and dividends as separate sources of income.
    Keywords: Capital gain; Dividend income; Consumption; Near-rational behavior
    JEL: E21 G12
    Date: 2018–02–15
  64. By: International Monetary Fund
    Abstract: Context: Growth is projected to hover around 5 percent and inflation to remain within the WAEMU convergence criteria of 3 percent during the 2017-19 program period. The authorities have started the fiscal consolidation envisaged under the ECF-supported program. They have halted the non-orthodox financing of public investment, which had led to a rapid debt accumulation in recent years. Weak institutional capacity may pose risks to program implementation; this may be exacerbated by recent protests, which are the most serious political unrest in Togo in more than a decade. Program performance: All quantitative performance criteria at end-June 2017 were met, as well as four of the five end-June and end-September 2017 structural benchmarks. The two indicative targets at end-June 2017 were missed. The structural benchmark on a restructuring plan for the two ailing public banks has encountered significant delays.
    Keywords: Sub-Saharan Africa;Togo;
    Date: 2017–12–15
  65. By: International Monetary Fund
    Abstract: Bolivia achieved impressive economic and social advances from 2004–14. Since the drop in commodity prices, the authorities have implemented countercyclical policies and an ambitious five-year investment plan (PDES). These have supported strong growth but contributed to large fiscal and external current account deficits and foreign reserve losses. In the context of low commodity prices and an expected decline in gas and minerals production, a rebalancing of policies is needed to preserve earlier social gains, limit the build-up in macro vulnerabilities, and support sustainable and inclusive growth.
    Keywords: Western Hemisphere;Bolivia;
    Date: 2017–12–22
  66. By: Jeffrey R. Franks; Bergljot B Barkbu; Rodolphe Blavy; William Oman; Hanni Schoelermann
    Abstract: We examine economic convergence among euro area countries on multiple dimensions. While there was nominal convergence of inflation and interest rates, real convergence of per capita income levels has not occurred among the original euro area members since the advent of the common currency. Income convergence stagnated in the early years of the common currency and has reversed in the wake of the global economic crisis. New euro area members, in contrast, have seen real income convergence. Business cycles became more synchronized, but the amplitude of those cycles diverged. Financial cycles showed a similar pattern: sychronizing more over time, but with divergent amplitudes. Income convergence requires reforms boosting productivity growth in lagging countries, while cyclical and financial convergence can be enhanced by measures to improve national and euro area fiscal policies, together with steps to deepen the single market.
    Keywords: Business cycles;Economic integration;Euro Area;Financial cycles;Convergence, synchronization, Economic and Monetary Union, Optimum Currency Area, Financial Aspects of Economic Integration
    Date: 2018–01–23
  67. By: Marx, Magali (Banque de France); Mojon, Benoit (Banque de France); Velde, Francois R. (Federal Reserve Bank of Chicago)
    Abstract: Risk-free rates have been falling since the 1980s while the return on capital has not. We analyze these trends in a calibrated OLG model with recursive preferences, designed to encompass many of the "usual suspects'' cited in the debate on secular stagnation. Declining labor force and productivity growth imply a limited decline in real interest rates and deleveraging cannot account for the joint decline in the risk free rate and increase in the risk premium. If we allow for a change in the (perceived) risk to productivity growth to fit the data, we find that the decline in the risk-free rate requires an increase in the borrowing capacity of the indebted agents in the model, consistent with the increase in the sum of public and private debt since the crisis, but at odds with a deleveraging-based explanation put forth in Eggertsson and Krugman (2012).
    Keywords: Interest rates; secular stagnation; risk; return on capital
    JEL: E00 E40
    Date: 2018–01–25
  68. By: International Monetary Fund
    Abstract: Kiribati is a small and fragile state vulnerable to climate change. Record high fishing revenue in recent years has boosted growth, improved the current account, and strengthened the fiscal stance. However, fishing revenue is projected to decline as the impact of favorable weather conditions wears off. Long-run spending pressure is substantial due to the country’s large infrastructure gap and significant climate change adaptation cost. The government’s development strategy, the Kiribati 20-Year Vision (KV20), identifies fisheries and tourism as the two strategically important sectors to achieve inclusive and sustained long-run growth.
    Keywords: Asia and Pacific;Kiribati;
    Date: 2017–12–18
  69. By: International Monetary Fund
    Abstract: With the international airport’s entry in operations, the government has completed a key step of its strategy to spur still lackluster growth and tackle persistently high unemployment. The authorities’ remaining challenge is to foster a strong investment response from better international connectivity and ensure that its benefits are widespread across the population. Growth remains low and stayover tourism has slowed down, mainly due to setbacks in available tourism infrastructure. Fiscal space needs to be created to provide for the additional costs of operating and marketing the international airport until it can generate sufficient own revenue, and boost resilience to natural disasters. Meanwhile, the authorities need to articulate their medium-term fiscal strategy to reduce public debt to the ECCU regional target of 60 percent of GDP by 2030, in a context of recurrent natural disasters.
    Keywords: Western Hemisphere;Saint Vincent and the Grenadines;
    Date: 2017–12–21
  70. By: Christoph Zwick (University of Graz, Austria)
    Abstract: This paper studies the sources of current account deficits in Greece, Ireland, Portugal and Spain after the introduction of the Euro. I lay out a DSGE model with a rich structure of the external sector and estimate it separately on each periphery country. A three-region model structure allows for interactions between the respective periphery country, a “Rest of the Euro Area” aggregate and a “Rest of the World” block. I show that the model exhibits a solid in-sample-fit across periphery countries and use it to quantitatively assess the relevance of several explanations concerning the origin of the deficits.
    Keywords: Current account; Competitiveness; Euro area; DSGE
    JEL: C32 E42 E52 F32 F41
    Date: 2018–02
  71. By: Koskinen Hannu; Vilmunen Jouko (Faculty of Management, University of Tampere)
    Abstract: Following the theoretical identification scheme that relies on the two-sector DSGE macro model derived in a study by Koskinen and Vilmunen (2017), the focus of this study is to empirically estimate and identify the possibly divergent sector specific parameters within an economy. We analyse and compare two different sectors of the Finnish economy, manufacturing industry and building industry,each in turn to the rest of the economy during 2000:Q1- 2015Q2. It is hence assumed, that the parameters of interest within a sector reflect the divergent preferences of economic agents to the goods produced at different sectors. The relative price movements and adjustment asymmetries stemming from these kind of divergences has a central role in allocational efficiency and welfare of the economy. Then this diversity has important implications to any economic policy practised as these divergent preferences could give rise to asymmetric reaction to any shock that hits the economy. As a result, there is evidence that the economy could be characterised to be compounded of divergent groups of goods. These groups, then, has group specific parameters reflecting different behaviour of the agents and their preferences to the goods produced.
    JEL: D52 C11 E12
    Date: 2018–02
  72. By: Mahmut Gunay
    Abstract: In this paper, industrial production growth and core inflation are forecasted using a large number of domestic and international indicators. Two methods are employed, factor models and forecast combination, to deal with the curse of dimensionality problem stemming from the availability of ever growing data sets. A comprehensive analysis is carried out to understand the sensitivity of the forecast performance of factor models to various modelling choices. In this respect, effects of factor extraction method, number of factors, data aggregation level and forecast equation type on the forecasting performance are analyzed. Moreover, the effect of using certain data blocks such as European Union variables and interest rates on the forecasting performance is evaluated as well. Out-of-sample forecasting exercise is conducted for two consecutive periods to assess the stability of the forecasting performance. Results show that best performing specifications depend on the type of the variable that one wants to forecast, the forecast horizon and the sample period used to evaluate the out-of-sample forecasting performance. Factor models perform better than the combination of bi-variate forecasts.
    Keywords: Forecasting, Factor models, Principal component
    JEL: E37 C53
    Date: 2018
  73. By: Vasilios Plakandaras (Department of Economics, Democritus University of Thrace, Komotini, Greece); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Mark E. Wohar (College of Business Administration, University of Nebraska at Omaha, Omaha, USA and School of Business and Economics, Loughborough University, Leicestershire, UK)
    Abstract: One of the most heavily researched and cited issues in applied economics is the relationship of uncertainty indices with the financial and macroeconomic variables. While the statistical features of financial and macroeconomic variables have been thoroughly examined, virtually nothing has been done to examine uncertainty indices under the statistical perspective. In this paper, we focus on two primary characteristics of uncertainty indices: persistence and chaotic behavior. In order to evaluate the persistence and the chaotic behavior we analyze 72 popular uncertainty indices constructed by forecasting models, text mining from news articles and data mining from monetary variables to measure the Hurst and Lyapunov exponents in rolling windows. The examination in rolling windows provides a dynamic evaluation of the specific characteristics revealing significant variations of persistence and chaotic dynamics with time. More specifically, we find that almost all uncertainty indices are persistent, while the chaotic dynamics are detected only sporadically and for certain indices during recessions of economic turbulence. Thus, we suggest that the examination of persistence and chaos should be a prerequisite step before using uncertainty indices in economic policy models.
    Keywords: Economic policy uncertainty, persistence, chaos, Hurst exponent, Lyapunov exponent
    JEL: C46 E52
    Date: 2018–02
  74. By: Ryan Decker; John 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 a ggregate productivity.
    Keywords: Dynamism ; Entrepreneurship ; Job reallocation ; Labor supply and demand ; Productivity
    JEL: J23 D22 O47 E24 D24 L26 M13
    Date: 2018–02–02
  75. By: International Monetary Fund
    Abstract: Kosovo has made significant progress since the 2015 Article IV consultation in ensuring fiscal discipline, strengthening the financial sector, and enhancing growth. Notwithstanding this progress, important structural challenges remain. Weak external competitiveness, high informality, low labor force participation and high unemployment, particularly among young workers, and a large infrastructure gap continue to constrain Kosovo’s growth potential.
    Date: 2018–02–04
  76. By: van Riet, Ad (Tilburg University, School of Economics and Management)
    Abstract: The sharp rise in public debt-to-GDP ratios in the aftermath of the global financial crisis of 2008 posed serious challenges for fiscal policy in euro area countries. This thesis examines whether and to what extent modern financial repression has been applied in Europe to address these challenges. Financial repression is defined as the government’s strategy – supported by monetary and financial policies – to gain privileged access to capital markets at preferential credit conditions and divert resources to the state with the aim to secure and, if necessary, enforce public debt sustainability. This study shows that national public debt management, EU financial regulation, EMU crisis management as well as ECB monetary policy have significantly supported euro area governments in dealing with their fiscal predicament. Taken on their own, these public policies were targeted at supporting fiscal, financial and monetary stability in the wake of the euro area crisis. This study argues that the respective authorities have in fact applied the tools of financial repression and thereby contributed to relieving sovereign liquidity and solvency stress.
    Date: 2018
  77. By: Martin T. Bohl, Pierre Siklos, Claudia Wellenreuther (Wilfrid Laurier University)
    Abstract: Chinese futures markets for agricultural commodities are among the fastest growing futures markets in the world and trading behaviour in those markets is perceived as highly speculative. Therefore, we empirically investigate whether speculative activity in Chinese futures markets for agricultural commodities destabilizes futures returns. To capture speculative activity a speculation and a hedging ratio are used. Applying GARCH models we first analyse the influence of both ratios on the conditional volatility of eight heavily traded Chinese futures contracts. Additionally, VAR models in conjunction with Granger causality tests, impulse-response analyses and variance decompositions are used to obtain insight into the lead-lag relationship between speculative activity and returns volatility. For most of the commodities, we find a positive influence of the speculation ratio on conditional volatility. The results relying on the hedging ratio are inconclusive.
    Keywords: Speculation Ratio, Returns Volatility, Chinese Futures Markets, Agricultural Commodities
    JEL: E44 F30 G12 G13 G15
    Date: 2018–01–30
  78. By: Dosi, Giovanni; Pereira, Marcelo C.; Roventini, Andrea; Virgillito, Maria Enrica
    Abstract: In this work we develop a set of labour market and fiscal policy experiments upon the labour and credit augmented "Schumpeter meeting Keynes" agent-based model. The labour market is declined under two institutional variants, the "Fordist" and the "Competitive" set- ups meant to capture the historical transition from the Fordist toward the post "Thatcher- Reagan" period. Inside these two regimes, we study the different effects of supply-side active labour market policies (ALMPs) vs. demand-management passive labour market ones (PLMPs). In particular, we analyse the effects of ALMPs aimed at promoting job search, and at providing training to unemployed people. Next, we compare the effects of these policies with unemployment benefits simply meant to sustain income and therefore aggregate demand. Considering the burden of unemployment benefits in terms of public budget, we link such provision with the objectives of the European Stability and Growth Pact. Our results show that (i) an appropriate level of skills is not enough to sustain growth when workers face adverse labour demand; (ii) supply-side policies are not able to reverse the perverse interaction between exibility and austerity; (iii) PLMPs outperform ALMPs in reducing unemployment and workers' skills deterioration; and (iv) demand-management policies are better suited to mitigate inequality and to improve and sustain long-run growth.
    Keywords: Industrial-relation Regimes,Flexibility,Active Labour Market Policies,Austerity,Agent-based models
    JEL: C63 E24 H53 J88
    Date: 2018
  79. By: International Monetary Fund
    Abstract: Upon assuming office in April 2016, the new government moved swiftly to address the deteriorating fiscal situation compounded by spillovers from Nigeria and requested Fund support under the Extended Credit Facility (ECF). On April 7, 2017, the IMF Executive Board approved an ECF Arrangement for Benin for an amount equivalent to SDR 111.42 million (about US$151.03 million or 90 percent of Benin’s quota) to support the country’s economic and financial reform program.
    Keywords: Sub-Saharan Africa;Benin;
    Date: 2018–01–05
  80. By: International Monetary Fund
    Abstract: The sharp decline in oil revenues since 2014 continues to impair the region. In the last two years, regional economic growth has turned negative, fiscal and external imbalances have widened, public debt has risen rapidly, and financial sector vulnerabilities have increased. CEMAC national authorities are implementing fiscal adjustment policies to restore their external and fiscal stability, with the support of the IMF in four countries (Cameroon, Central African Republic, Chad and Gabon). Regional institutions also adjusted policies to assist the rebuilding of regional reserves and ensure financial sector stability. Since mid-2017, the decline in reserves has stopped, but the economic situation remains difficult. Main risks relate to an uncertain macroeconomic outlook dependent on oil prices, possible weaker-than-expected policies owing to capacity constraints and/or lack of political support, possible delays in concluding programs with the remaining countries, and still difficult security conditions.
    Date: 2017–12–19
  81. By: International Monetary Fund
    Abstract: The Belarusian economy is recovering after two years of recession, helped by a more favorable external environment, better policies, and stronger domestic demand conditions. Near-term external financing pressures have eased following energy and financing agreements with Russia and a Eurobond issuance. Although key macroeconomic and financial policy frameworks have improved somewhat, much work lies ahead to support the authorities’ ambitious economic objectives through 2020 without increasing imbalances, and to reduce vulnerabilities. External and public debt are high, medium-term financing needs are significant, and corporate and bank balance sheets are weak. Key structural reforms in the real sector are proceeding at a gradual pace amidst a desire to preserve the state’s strong role in the economy and support of the existing social system. Policy recommendations.
    Keywords: Europe;Belarus;
    Date: 2017–12–18
  82. By: International Monetary Fund
    Abstract: A three-year arrangement for Mongolia under the Extended Fund Facility (EFF) was approved on May 24, 2017, in an amount equivalent to SDR 314.5054 million (435 percent of quota, or approximately $425 million). The arrangement forms part of a $5.5 billion multi-donor financing package that supports the authorities’ program of policy adjustment and structural reforms to stabilize the economy and lay the basis for sustainable, inclusive growth. The extended arrangement is subject to quarterly reviews though, because of delays, this is a combined first and second review.
    Keywords: Mongolia;Asia and Pacific;
    Date: 2017–12–21
  83. By: International Monetary Fund
    Abstract: The Indonesian economy continues to perform well. Economic growth has stabilized at near 5 percent, inflation has moderated, the current account deficit is manageable, and systemic risks are contained. Indonesia is in a good position to address its socio-economic challenges. Creating sufficient jobs for its young and growing population and reaping the benefits of the demographic dividend requires higher sustainable and inclusive growth and economic diversification.
    Date: 2018–02–06
  84. By: Jihad Dagher
    Abstract: Financial crises are traditionally analyzed as purely economic phenomena. The political economy of financial booms and busts remains both under-emphasized and limited to isolated episodes. This paper examines the political economy of financial policy during ten of the most infamous financial booms and busts since the 18th century, and presents consistent evidence of pro-cyclical regulatory policies by governments. Financial booms, and risk-taking during these episodes, were often amplified by political regulatory stimuli, credit subsidies, and an increasing light-touch approach to financial supervision. The regulatory backlash that ensues from financial crises can only be understood in the context of the deep political ramifications of these crises. Post-crisis regulations do not always survive the following boom. The interplay between politics and financial policy over these cycles deserves further attention. History suggests that politics can be the undoing of macro-prudential regulations.
    Date: 2018–01–15
  85. By: Haagsma, Rein
    Abstract: This paper examines the impact of income growth and income inequality on household saving rates and payoffs in a non-cooperative game where each player's payoff depends on her present and future consumption and her rank in the present-consumption distribution. The setting is a pooling equilibrium with three clusters of successive income groups, each cluster having its own present-consumption standard and rank in the present-consumption distribution. In this way the analysis addresses the saving behaviour and welfare of three social classes: the lower, middle and upper class. The author finds explanations for the Easterlin paradox and the Kuznets consumption puzzle and concludes that rank concerns tend to weaken the standard effect of inequality on aggregate saving.
    Keywords: status,relative consumption,saving,income inequality,income growth
    JEL: C72 D31 D62 E21 I31 Z10
    Date: 2018
  86. By: Fabian Goessling
    Abstract: Human capital investment is one of the most important drivers of growth. In this paper, I enhance the endogenous growth model of Kung and Schmid (2015) by an educational choice decision of the household. The engine of growth in the extended model is a composite of firm-side R&D capital stock and a household-side human capital stock. As households are able to allocate their time to labor, leisure and educational activities, the model allows to simultaneously study labor and education choices. The parameters of the non-linear model can be estimated by advanced Bayesian methods, allowing to study the return on human capital conditional on the data.
    Keywords: Asset Pricing, Endogenous Growth, Human Capital, Bayesian Estimation
    JEL: E23 G12 J24 O24
    Date: 2018–02
  87. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: Eric Rosengren's comments were delivered as part of a panel discussion at the 2018 U.S. Monetary Policy Forum, held in New York City, and hosted by The University of Chicago Booth School of Business.
    Date: 2018–02–23
  88. By: Peter Mihalyi (Department of Macroeconomics, Corvinus University of Budapest and Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: This extended book review of Creating a Learning Society by Joseph Stiglitz and Bruce Greenwald (2014) looks at the 700-page long scholarly work from a transition economy perspective. Using as a starting point Arrow’s renowned concept of “learning by doing”, the authors throw away the doctrines of free trade, liberalization of capital, as well as the liberalization of labour and currency markets (for short: the Washington consensus) by claiming that these policies imped economy-wide learning. In the opinion of the present author, Stiglitz and his co-author are using the term “learning” in such a broad sense that it becomes almost meaningless as an explanatory factor in their endogenous growth concept thought out primarily for less developed (infant) economies.
    Keywords: Infant industry, infant economy, learning, labour productivity, inertia, rivalry, Washington consensus
    JEL: E61 F12 I28
    Date: 2017–09
  89. By: International Monetary Fund
    Abstract: Malta remains one of the fastest-growing economies in Europe, aided by a rapid expansion of export-oriented services, favorable labor market dynamics, and prudent policies, which advanced structural reforms and strengthened private and public sectors’ balance sheets. At the same time, robust growth, along with the continued influx of foreign workers, has led to increased infrastructure needs and contributed to higher housing prices. The June snap election, which resulted in the Labor Party maintaining a comfortable majority in Parliament, provides a strong mandate for the government to pursue its reform strategy. Main policy recommendations: Policies should focus on sustaining the strong performance, enhancing the economy’s resilience, and making growth more inclusive.
    Date: 2018–01–29
  90. By: International Monetary Fund
    Abstract: Background: The three-year arrangement under the Extended Credit Facility (ECF) was approved on July 10, 2015. Guinea-Bissau obtained a primary disbursement (SDR 2.84 million, 10 percent of quota) upon approval of the arrangement and additional disbursements (totaling SDR 8.14 million, 29 percent of quota) following approval of the combined first and second review on December 2, 2016, and the third review on July 6, 2017. Context: A fragile state, Guinea-Bissau has seen a strong pickup in economic activity since 2014, despite continued political tensions and reduced external financial assistance. Growth has been supported by a calm security situation and favorable terms of trade developments. Political tensions resulted in multiple changes of government during 2015–16 and Parliament has not been sitting since late 2015.
    Keywords: Sub-Saharan Africa;Guinea-Bissau;
    Date: 2017–12–18
  91. By: Ivo Krznar; Troy D Matheson
    Abstract: While Brazil’s deep recession has been broad based, it has been marked by a particularly large fall in investment. Real investment fell by around 30 percent between the beginning of 2014 and the beginning of 2017. This paper finds that a variety of factors contributed to the investment decline, including a deterioration in Brazil’s medium-term growth prospects, rising real interest rates, falling terms of trade, rising uncertainty related to economic policy, rising levels of corporate leverage and lower cash flow. Some of the factors that have weighed on investment over recent years have begun to normalize providing some impetus for a recovery. However, still-high levels of corporate leverage and the prospect of continued uncertainty related to economic policy settings suggest a turnaround in investment is likely to be subdued.
    Keywords: Investment;Western Hemisphere;Brazil;Recession
    Date: 2018–01–12
  92. By: Robin Döttling (University of Amsterdam)
    Abstract: How do near-zero interest rates affect bank competition, risk taking and regulation? I study these questions in a tractable dynamic general equilibrium model, in which forward-looking banks compete imperfectly for deposit funding, and deposit insurance may induce excessive risk taking. The zero lower bound on deposit rates (ZLB) distorts bank competition and boosts risk shifting incentives, particularly if rates are expected to remain near-zero for long. At the ZLB, capital regulation becomes a less effective tool to curb risk shifting incentives. When banks cannot pass on the cost of capital to depositors, tight capital requirements erode franchise value, countervailing the usual "skin in the game" effect. Optimal capital requirements vary with the interest rate cycle, highlighting a novel interaction between monetary and macro-prudential policies. Complementing existing regulation with policy tools that subsidize the funding cost of banks may improve welfare at the ZLB.
    Keywords: Zero lower bound; search for yield; capital regulation; bank competition; risk shifting; franchise value
    JEL: G21 G28 E43
    Date: 2018–02–28
  93. By: Masami Imai; Cameron Shelton; Rosa Hayes
    Abstract: This paper exploits the international transmission of business cycles to examine the prevalence of attribution error in economic voting in a large panel of countries from 1990-2009. We find that voters, on average, exhibit a strong tendency to oust incumbent governments during an economic downturn, regardless of whether the recession is home-grown or merely imported from trading partners. However, we find important heterogeneity in the extent of attribution error. A split sample analysis shows that countries with more experienced voters, more educated voters, and possibly more informed voters。ェall conditions which have been shown to mitigate other voter agency problems。ェdo better in distinguishing imported from domestic growth.
  94. By: Luu, Duc Thi; Yanovski, Boyan; Lux, Thomas
    Abstract: In this paper, we investigate the temporal dynamics of correlations between sentiment indices worldwide. Employing the tools of Random Matrix Theory (RMT) and Principal Component Analysis (PCA), our paper aims to extract latent information embedded in the interactions between economic and business sentiment indices around the world. We find that: (i) The dynamics of the sentiment indices across countries can be well explained by the evolution of a single factor (the "market mode"), (ii) during most periods, some groups of countries exhibit sentiment dynamics less associated with (or divergent from) the market mode, while (iii) during the financial crisis, no country or group of countries has been able to escape the market mode, which accounts for almost all movements in the indices. We argue that strong "global" information signals, like the collapse of the US housing market in 2007, can lead to a homogenization of the expectation structure around the world, as such information can provide a coordination signal for a global phase of low confidence.
    Keywords: Sentiment Index,Correlations,Financial Crisis,Random Matrix Theory,Principal Component Analysis
    JEL: C19 E30 G01
    Date: 2018
  95. By: International Monetary Fund
    Abstract: With the second lowest Human Development Index and the highest population growth rate in the world, Niger is facing a daunting development agenda. Despite terrorist incursions from abroad and depressed prices for key uranium exports, the economy is expected to expand by 5.2 percent in both 2017 and 2018. Growth should rise to 5.5 percent thereafter as reform efforts trump continued headwinds and Niger benefits from substantial donor support. The government enjoys a comfortable political majority but capacity remains a bottleneck for reform implementation.
    Keywords: Sub-Saharan Africa;Niger;
    Date: 2017–12–20
  96. By: International Monetary Fund
    Abstract: The recovery from tropical storm Erika (August 2015) has been slower than anticipated. Capacity constraints slowed public investment while private investment was subdued. The authorities made progress on fiscal consolidation measures committed to at the time of the RCF disbursement (October 2015; SDR 6.15 million), but revenue yields are somewhat below expectations
    Keywords: Western Hemisphere;Dominica;
    Date: 2017–12–20
  97. By: Lorenz, Hanno; Stephany, Fabian
    Abstract: In light of increasingly "smarter" technologies, the future of (human) labour is questioned on a daily basis. A study by Frey and Osborne (2013), one of the most recognised contributions in this domain, estimated that half of the US labour force is highly susceptible to computerisation in the near future. Their findings have been applied for several follow-up investigations in other countries. However, the transferability of the results is limited by the set-up of the study. In contrast to previous investigations, our approach tries to overcome past shortcomings by collecting assessments on the susceptibility to digital technologies for the Austrian labour market by Austrian experts. We show that the diversity of previous findings regarding the degree of job automatisation is to a large extent driven by model selection and not by controlling for personal characteristics or tasks. Our results indicate that while clerical computer-based routine jobs are likely to change in the next decade, professional activities, e.g., the processing of complex information, are prone to digital change.
    Keywords: Bayesian,Classification,Employment,GLM,Technological Change
    JEL: E24 J24 J31 J62 O33
    Date: 2018
  98. By: Reza Hajargasht (Swinburne Business School, Swinburne University of Technology, Australia); Robert J. Hill (University of Graz, Austria); D. S. Prasada Rao (School of Economics, University of Queensland, Australia); Sriram Shankar (ANU Centre for Social Research and Methods & Research School of Economics, Australian National University, Australia)
    Abstract: Multilateral international comparisons of the purchasing power of currencies and real income often use as building blocks bilateral comparisons between all possible pairs of countries. The standard approach in the literature weights all these bilaterals equally. One problem with this approach is that some bilaterals are typically of lower quality, and their inclusion therefore can undermine the integrity of the multilateral comparison. Formulating multilateral comparisons as a graph theory problem, we show how quality can be improved by replacing bilateral comparisons with their shortest path spatially chained equivalents. We consider a few variants on this approach, and illustrate these multilateral methods using data from the 2011 round of the International Comparisons Program (ICP). Using some novel bounds criteria, we demonstrate how spatial chaining improves the quality of the overall multilateral comparison.
    Keywords: International Comparisons Program (ICP); Price Index; Spatial Chaining; Weighted GEKS; Shortest Path; Spanning tree; Country-Product-Dummy(CPD) Method, Afriat bounds
    JEL: C43 E31 O47
    Date: 2018–02
  99. By: International Monetary Fund
    Abstract: In the framework of the second phase of the Swiss Sate Secretariat of Economic Affairs (SECO) government finance statistics (GFS) capacity building project, a technical assistance (TA) mission on GFS, conducted by Mr. Léonard Haakman, visited Sarajevo, Bosnia and Herzegovina, during April 24–28, 2017. The mission was a follow-up of previous TA missions to Bosnia and Herzegovina in the context of the SECO project during the period 2015–17. The main objective of the TA mission was to further assist the Central Bank of Bosnia and Herzegovina (CBBH) with the compilation of GFS in accordance with the guidelines of the Government Finance Statistics Manual 2014 (GFSM 2014) and the European System of National and Regional Accounts 2010 (ESA 2010).
    Date: 2018–02–06
  100. By: Guido della Valle; Vasilika Kota; Romain M Veyrune; Ezequiel Cabezon; Shaoyu Guo
    Abstract: This paper proposes a methodology to develop empirically based and theoretically consistent deeuroization policies. It is derived from the experience of Albania. The paper is the first attempt to provide an empirical measure of the optimal level of euroization. The results indicate that euroization is trending above the estimated measure in Albania, calling for deeuroization policies. In the long term, deeuroization requires maintaining the commitment to low and stable inflation in a context of greater exchange rate flexibility to encourage saving in local currency. In the short term, policies that mitigate the financial stability risk due to euroization contribute to deeuroization inasmuch as they make banking intermediation in euro less financially attractive to the public.
    Keywords: Dollarization;Europe;Financial stability;Albania;Central banks and their policies;euroization, and reserve requirement, reserve requirement
    Date: 2018–01–25
  101. By: International Monetary Fund
    Abstract: 2017 has been a good year for Uruguay. GDP growth picked up and the unemployment rate stabilized. A relatively tight monetary policy stance and an appreciating exchange rate contributed to a notable decline in inflation since mid-2017, bringing it within the central bank’s target range for the first time in seven years. The current account has been improving and is now in surplus, while the government has reduced its fiscal deficit and continued to be able to access international markets on favorable terms.
    Date: 2018–01–31
  102. By: Mohammad Reza Farzanegan (University of Marburg); Bernd Hayo (University of Marburg)
    Abstract: Using Iranian-province-level data from 2001–2013, this study finds that the international sanctions of 2012/2013 had a significantly stronger negative impact on the growth rate of the shadow economy than they did on the official GDP growth rate. Thus, the international sanctions on Iran have damaged the informal economy even more than the formal economy.
    Keywords: shadow economy, sanctions, Iran
    JEL: F51 E26 O17
    Date: 2018
  103. By: Kohler, Karsten (Kingston University London); Guschanski, Alexander (University of Greenwich); Stockhammer, Engelbert (Kingston University London)
    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: financialisation; income distribution; political economy
    JEL: E25
    Date: 2018–02–25
  104. By: Carolina Fugazza (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: This paper investigates how job separation and job finding probabilities shape the unemployment risk across ages and working group characteristics. Improving on current methods, I estimate duration models for employment and unemployment separately. I then use the duration analysis results to derive the individual age profiles of conditional transitions in and out of unemployment as well as the unconditional unemployment risk profile over the whole working life. This approach allows adapting the decomposition of changes in unemployment risk, which has so far only been used to study aggregate unemployment dynamics (Shimer, 2007 and 2012; Fujita and Ramey, 2009). I find that differences in job separation rates across ages underlie the observed age differences in unemployment risk. When differences between working groups are under consideration, the job findings are just as important as the job separation probability.
    Keywords: Unemployment Risk, Duration Analysis, Heterogeneity, Semi-Markov Processes.
    JEL: C53 E24 J64
    Date: 2018–02
  105. By: Claude Diebolt; Michael Haupert
    Abstract: Cliometrics has been defined and summarized in numerous scholarly articles. They all pretty much start with the obvious, that cliometrics is the application of economic theory and quantitative techniques to study history; and then move on to the origin of the name, the joining of Clio (the muse of history), with metrics ("to measure," or "the art of measurement"), allegedly coined by economist Stanley Reiter while collaborating with economic historians Lance Davis and Jonathan Hughes.
    Keywords: Cliometrics, Economic History, Methodology, Economics, History.
    JEL: A12 B41 C18 C80 E01 N01
    Date: 2018
  106. By: Adama Zerbo (GED, Université de Bordeaux)
    Abstract: Fondé sur la Théorie générale de la firme, ce papier a développé une nouvelle représentation du marché du travail qui permet de tirer cinq principaux enseignements. Premièrement, résultat de négociations entre les employeurs et les salariés, l’équilibre du marché du travail ne se caractérise pas par l’égalité entre l’offre et la demande de travail, mais plutôt par la « satisfaction » réciproque des deux parties. En effet, à l’équilibre, d’une part, les désirs respectifs de gagner un centime supplémentaire sur le profit brut réel et sur le salaire réel sont égaux et, d’autre part, le niveau d’effort au travail correspond au niveau accepté par chacune des parties, au regard du salaire réel versé. Deuxièmement, la demande de travail est croissante avec les profits bruts réels. De ce fait, l’équilibre de sous-emploi est bien possible dans une économie et, cela, pour deux principales raisons : (i) les entreprises ne réalisent pas assez de profits réels permettant d’accroitre leur demande de travail, à cause notamment d’une insuffisance de demande globale rentable et/ou de l’existence de fortes rigidités sur le marché du travail ; (ii) les entreprises réalisent des profits réels élevés, mais le marché du travail est trop flexible de sorte que la dynamique économique est très peu favorable à la création d’emplois et/ou les capacités de production des entreprises sont relativement limitées par rapport à l’offre de travail. Troisièmement, il résulte donc qu’un dosage judicieux de la flexibilité et de la sécurité du marché du travail, à savoir la flexisécurité, s’avère nécessaire afin que la croissance économique génère à la fois suffisamment d’emplois et de profits. Quatrièmement, l’arbitrage entre le chômage et l’inflation s’impose dans le court terme et le taux de sacrifice d’une désinflation dépend, entre autres, du degré de flexibilité du marché du travail. Cinquièmement, même si une désinflation a toujours un coût en termes de variation du taux de chômage dans le court terme, une baisse du taux de chômage peut bien être observée au cours d’un épisode de désinflation. Based on the general theory of firm, this paper has developed a new macroeconomic representation of labor market that allows five main lessons to be learnt. First, as an outcome of negotiations between employers and employees, the equilibrium of labor market is not characterized by equality between supply and demand of labor, but rather by mutual "satisfaction" of both stakeholders. In fact, in the equilibrium, on the one hand, the respective desires to earn an extra cent on real gross profit and on real wage are equal and, on the other hand, the level of effort at work corresponds to the one agreed by each stakeholder in relation to the real wage. Secondly, labor demand is growing with real gross profits. As a result, underemployment equilibrium is possible in an economy for two main reasons: (i) firms do not realize enough real profits to increase their labor demand, mainly because of the lack of profitable global demand and/or the existence of strong rigidities in labor market; (ii) firms realize high real profits, but labor market is so much flexible that the economic dynamic is very unfavorable to job creation and/or production capacities of firms are relatively small compared to labor supply. Thirdly, as a result, a judicious mix of flexibility and security on labor market, namely flexicurity, is needed to ensure that economic growth generates both jobs and profits. Fourthly, the trade-off between unemployment and inflation compulsorily sets in the short term, and the sacrifice rate of disinflation depends, among other things, on the degree of labor market flexibility. Lastly, even if a disinflation still has a cost in terms of the change in the unemployment rate in the short run, a decrease of the unemployment rate may be observed during a disinflation period.(Full text in french)
    JEL: E24
    Date: 2018–02
  107. By: Barbosa, Bruno Tebaldi de Queiroz; Marçal, Emerson Fernandes
    Abstract: Assessing linkages across different regions and how macroeconomic shocks spread out across regions is not an easy task. In this study we address this problem using a global vector autoregressive methodology that deals with the curse of dimensionality in an ingenious form. Focusing on the Brazilian labor market, identified and quantified how a shock in an aggregate economic activity spreads out regionally and throughout time. Another novelty of our work is the use of information collected by the Brazilian Bureau of Geography and Statistics to measure how regions are linked by analyzing infrastructure linkages of Brazilian municipalities in terms of airports, roads, ports, education, health, and tourism activities. Interdependence among regions is measured not only by closeness but also by considering economic linkages. In terms of regional sensitivity to macroeconomic shocks, we provide evidence that these shocks tend to cause stronger effects on the South, Southeast, and Midwest regions than the Northeast and North regions. This conclusion is in line with the idea that the formal labor market is better developed in the former regions than the latter. The South, Southeast, and Midwest regions in Brazil have better economic and social indicators.
    Date: 2018–02
  108. By: Nicolas Arregui; Selim Elekdag; R. G Gelos; Romain Lafarguette; Dulani Seneviratne
    Abstract: This paper examines the evolving importance of common global components underlying domestic financial conditions. It develops financial conditions indices (FCIs) that make it possible to compare a large set of advanced and emerging market economies. It finds that a common component, “global financial conditions,” accounts for about 20 percent to 40 percent of the variation in countries’ domestic FCIs, with notable heterogeneity across countries. Its importance, however, does not seem to have increased markedly over the past two decades. Global financial conditions loom large, but evidence suggests that, on average, countries still appear to hold considerable sway over their own financial conditions—specifically, through monetary policy. Nevertheless, the rapid speed at which foreign shocks affect domestic financial conditions may also make it difficult to react in a timely and effective manner, if deemed necessary.
    Keywords: Monetary policy;Financial conditions, international policy transmission, Financial Markets and the Macroeconomy, General, General, General
    Date: 2018–01–24
  109. By: Steve Brito; Yan Carriere-Swallow; Bertrand Gruss
    Abstract: We estimate the determinants of disagreement about future inflation in a large and diverse sample of countries, focusing on the role of monetary policy frameworks. We offer novel insights that allow us to reconcile mixed findings in the literature on the benefits of inflation targeting regimes and central bank transparency. The reduction in disagreement that follows the adoption of inflation targeting is entirely due to increased central bank transparency. Since the benefits of increased transparency are non-linear, the gains from inflation targeting adoption have accrued mainly to countries that started from a low level of transparency. These have tended to be developing countries.
    Date: 2018–01–25
  110. By: Licht, Adrian; Escribano Sáez, Álvaro; Blazsek, Szabolcs Istvan
    Abstract: We introduce the Seasonal-QVAR (quasi-vector autoregressive) model for world crude oil production and global real economic activity that identifies the hidden seasonality not found in linear VAR and VARMA models. World crude oil production has an annual seasonality component, and global real economic activity as measured by ocean freight rates has a six-month seasonality component.Seasonal-QVAR is a dynamic conditional score (DCS) model for the multivariate t distribution.Seasonal-VARMA and Seasonal-VAR are special cases of Seasonal-QVAR, this latter being superior to the two former models and also superior to the basic structural model with local level and stochastic seasonality components
    Keywords: Crude oil production; Vector autoregressive moving average (VARMA) model; Vector autoregressive (VAR) model; Basic structural model; Nonlinear multivariate dynamic location models; Score-driven stochastic seasonality; Dynamic conditional score (DCS) models
    JEL: C52 C32
    Date: 2018–02
  111. By: Jun-Hyun Ko; Hiroshi Morita
    Abstract: Using 48 country data for the period 1800-2010, we empirically investigate the effect of hyperinflations on the public debt, the primary surplus, and the real economy. Estimating a panal vector-autoregressive (VAR) model, we find that (i) hyperinflations permanently reduce public debt-to-GDP ratios; (ii) the reduction is closely related to the increase in the primary balances in response to hyperinflations; (iii) however, hyperinflations accompany dampening effects on the real economy, reducing GDP.
  112. By: International Monetary Fund
    Abstract: The Central African Republic (C.A.R.) is a fragile state. The key economic corridor between Bangui and Cameroon remains stable, but security has deteriorated in other areas. Armed groups have targeted civilians, humanitarian workers, and UN troops and half of the population needs humanitarian assistance. The government is taking steps to restore the authority of the state, notably in the provinces, and launched the disarmament, demobilization, reintegration and repatriation program. Medium-term growth has been revised downward as violence weighs on agricultural production. The ECF-supported program is an integral part of the effort in the CEMAC region to redress regional imbalances and rebuild adequate buffers.
    Keywords: Sub-Saharan Africa;Central African Republic;
    Date: 2017–12–27
  113. By: Anke Becker; Benjamin Enke; Armin Falk
    Abstract: Variation in economic preferences is systematically related to both individual and aggregate economic outcomes, yet little is known about the origins of the worldwide preference variation. This paper uses globally representative data on risk aversion, time preference, altruism, positive reciprocity, negative reciprocity, and trust to uncover that contemporary preference heterogeneity has its roots in the structure of the temporally distant migration patterns of our very early ancestors: In dyadic regressions, differences in preferences between populations are significantly increasing in the length of time elapsed since the ancestors of the respective groups broke apart from each other. To document this pattern, we link genetic and linguistic distance measures to population-level preference differences (i) in a wide range of cross-country regressions, (ii) in within-country analyses across groups of migrants, and (iii) in analyses that leverage variation across linguistic groups. While temporal distance drives differences in all preferences, the patterns are strongest for risk aversion and prosocial traits.
    JEL: D03
    Date: 2018–02
  114. By: Holz, Michael; Icks, Annette; Levering, Britta; Kasdorf, Alina
    Abstract: Ausgangspunkt der Studie ist der Rückstand Deutschlands gegenüber anderen EU-Ländern bei der Implementierung des Einheitlichen Ansprechpartners. Basierend auf leitfadengestütz-ten Experteninterviews stellt die Studie die stärker digitalisierten EA-Systeme in Österreich und Dänemark vor und leitet daraus Handlungsempfehlungen für Deutschland ab. Neben notwendigen Fortschritten im Bereich des E-Government sollten die wirtschaftspolitischen Akteure - u.a. mit Hilfe einer Koordinierungsgruppe - den Aufbau weitgehend einheitlicher, modular konzipierter Strukturen für die Weiterentwicklung der EA-Landesportale anstreben und dabei auch relevante externe Stakeholder einbeziehen. Die Konsolidierung von beste-henden Parallelangeboten sollte im Wege eines speziellen Beirates erfolgen. Weitere Empfehlungen betreffen u.a. den inhaltlich-thematischen Aufbau der EA-Portale, die (indirekte) Verfahrensabwicklung sowie die stärkere Automatisierung der Helpdesk-Funktion des EA.
    Keywords: Einheitlicher Ansprechpartner (EA),Europäische Dienstleistungsrichtlinie,One-Stop-Shop,E-Government,Mittelstandspolitik,internationale Good-Practice-Beispiele,Point of Single Contact (PSC),European Services Directive,One-Stop-Shop,eGovernment,policies on Mittelstand enterprises,international good-practice-examples
    JEL: D73 E61 H77 H83 M13
    Date: 2018

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