nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒03‒19
127 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Protectionism and the Business Cycle By Alessandro Barattieri; Matteo Cacciatore; Fabio Ghironi
  2. The economic evidence in the relationship between corporate tax and private investment in Ghana By Tweneboah Senzu, Emmanuel; Ndebugri, Haruna
  3. Financial markets effects of ECB unconventional monetary policy announcements By Guido Bulligan; Davide Delle Monache
  4. Money Aggregates and Determinacy : A Reinterpretation of Monetary Policy During the Great Inflation By Qureshi, Irfan
  5. Macroeconomic and Stock Market Interactions with Endogenous Aggregate Sentiment Dynamics By Peter Flaschel; Matthieu Charpe
  6. Oil price pass-through into core inflation By Cristina Conflitti; Matteo Luciani
  7. The Government Spending Multiplier at the Zero Lower Bound: Evidence from the Euro Area By AMENDOLA, Adalgiso; DI SERIO, Mario; FRAGETTA, Matteo
  8. One Money, Many Markets By Giancarlo Corsetti; Joao B. Duarte; Samuel Mann
  9. Stock Market Cross-Sectional Skewness and Business Cycle Fluctuations By Thiago Revil T. Ferreira
  10. Estimating the Effective Lower Bound for the Czech National Bank's Policy Rate By Kolcunova, Dominika; Havranek, Tomas
  11. Term structure and real-time learning By Pablo Aguilar; Jesús Vázquez
  12. The equilibrium interest rate: a measurement for Russia By Dmitry Kreptsev; Alexey Porshakov; Sergey Seleznev; Andrey Sinyakov
  13. The effects of fiscal policy in an estimated DSGE model: The case of the German stimulus packages during the great recession By Drygalla, Andrej; Holtemöller, Oliver; Kiesel, Konstantin
  14. The side effects of safe asset creation By Acharya, Sushant; Dogra, Keshav
  15. High trend inflation and passive monetary detours By Ascari, Guido; Florio, Anna; Gobbi, Alessandro
  16. Fiscal Policy Interventions at the Zero Lower Bound By Boubaker, Sabri; Nguyen, Duc Khuong; Paltalidis, Nikos
  17. Price level targeting with evolving credibility By Honkapohja, Seppo; Kaushik, Mitra
  18. The negative interest rate policy and the yield curve By Dora Xia; Jing Cynthia Wu
  19. Distribution, wealth and demand regimes in historical perspective. USA, UK, France and Germany, 1855-2010 By Engelbert Stockhammer; Joel Rabinovich; Niall Reddy
  20. The macroeconomic effects of asset purchases revisited By Hesse, Henning; Hofmann, Boris; Weber, James
  21. Finance and Business Cycles: The Credit-Driven Household Demand Channel By Atif R. Mian; Amir Sufi
  22. Decomposing the links between oil price shocks and macroeconomic indicators: Evidence from SAARC region By Ahmed, Khalid; Bhutto, Niaz Ahmed; Kalhoro, Muhammad Ramzan
  23. The Optimal Inflation Target and the Natural Rate of Interest By Philippe Andrade; Jordi Galí; Hervé Le Bihan; Julien Matheron
  24. An introduction of a simple monetary policy with savings taxation in the overlapping generations model By Taro Ikeda
  25. International co-movements in recessions By Moritz A. Roth
  26. Comparing Central Europe and the Baltic macro-economies: A Bayesian approach By Beqiraj, Elton; Di Bartolomeo, Giovanni; Di Pietro, Marco; Serpieri, Carolina
  27. The Tail that Keeps the Riskless Rate Low By Julian Kozlowski; Laura Veldkamp; Venky Venkateswaran
  28. Pay Cycles: Individual and Aggregate Effects of Paycheck Frequency By Inés Berniell
  29. Exchange Rate Misalignment, Capital Flows, and Optimal Monetary Policy Trade-off By Giancarlo Corsetti; Luca Dedola; Sylvain Leduc
  30. The Federal Reserve’s implicit inflation target and Macroeconomic dynamics. A SVAR analysis. By Haroon Mumtaz; Konstantinos Theodoridis
  31. Beliefs formation and the puzzle of forward guidance power By Di Bartolomeo, Giovanni; Beqiraj, Elton; Di Pietro, Marco
  32. Wachstumsfolgen von Einkommensungleichheit – Theorie, empirische Evidenz und Politikempfehlungen By Jochen Hartwig
  33. Monetary policy spillovers in the first age of financial globalisation: a narrative VAR approach 1884–1913 By Green, Georgina
  34. Fiscal Stimulus with Learning-By-Doing By Giulio Fella; Antonello d'Alessandro
  35. Money and trust: lessons from the 1620s for money in the digital age By Isabel Schnabel; Hyun Song Shin
  36. Computerizing Industries and Routinizing Jobs: Explaining Trends in Aggregate Productivity By Sangmin Aum; Sang Yoon (Tim) Lee; Yongseok Shin
  37. Is Chinese monetary policy forward-looking? By Zhang, Chengsi; Dang, Chao
  38. Positive and Normative Implications of Liability Dollarization for Sudden Stops Models of Macroprudential Policy By Enrique G. Mendoza; Eugenio I. Rojas
  39. Deflation expectations By Ryan Niladri Banerjee; Aaron Mehrotra
  40. Zur Belastbarkeit von Forderungen nach expansiver Fiskalpolitik an der Nullzinsgrenze: Eine Kritik neukeynesianischer Modelle auf Basis einer Literaturanalyse By Adam, Felix; Matthes, Jürgen
  41. Learning, On-the-Job Search and Wage-Tenure Contracts By Kevin Fawcett; Shouyong Shi
  42. Riding the Global Growth Wave By Vasily Astrov; Rumen Dobrinsky; Vladimir Gligorov; Richard Grieveson; Doris Hanzl-Weiss; Peter Havlik; Gabor Hunya; Sebastian Leitner; Isilda Mara; Olga Pindyuk; Leon Podkaminer; Sandor Richter; Robert Stehrer; Roman Stöllinger; Hermine Vidovic
  43. A business-cycle-model with monopolistically-competitive intermediary firms and sticky nominal wages: the case of Bulgaria after the introduction of the currency board (1999-2016) By Vasilev, Aleksandar
  44. The Macroeconomic Effects of Efficiency Gains in Electricity Production in Malta By Noel Rapa
  45. Monetary Policy, Oil Stabilization Fund and the Dutch Disease By Jean-Pierre Allegret; Mohamed Tahar Benkhodjay; Tovonony Razafindrabe
  46. Politique monétaire et stabilité financière By Anne-Marie Rieu-Foucault
  47. Money stock composition and inflation risks By Alexey Ponomarenko
  48. The perils of approximating fixed-horizon inflation forecasts with fixed-event forecasts By James Yetman
  49. Is the US Phillips Curve Stable? Evidence from Bayesian VARs By Karlsson, Sune; Österholm, Pär
  50. The Side Effects of Safe Asset Creation By Keshav Dogra; Sushant Acharya
  51. Firms’ financial surpluses in advanced economies: the role of net foreign direct investments By Tatiana Cesaroni; Riccardo De Bonis; Luigi Infante
  52. The behaviour of disaggregated transitory and potential output over the economic cycle By Mashabela, Juliet; Raputsoane, Leroi
  53. Radial Basis Functions Neural Networks for Nonlinear Time Series Analysis and Time-Varying Effects of Supply Shocks By KANAZAWA, Nobuyuki
  54. Revisión de gasto sector salud By Jairo Núñez Méndez; Cindy Cárdenas; Juan Pablo Toro
  55. Revisión de gasto sector salud By Jairo Núñez Méndez; Cindy Cárdenas; Juan Pablo Toro
  56. Comparing different data descriptors in Indirect Inference tests on DSGE models By Meenagh, David; Minford, Patrick; Wickens, Michael; Xu, Yongdeng
  57. Inequality and Aggregate Demand By Adrien Auclert; Matthew Rognlie
  58. A comprehensive classification of monetary policy frameworks for advanced and emerging economies By Cobham, David
  59. Forecasting European Economic Policy Uncertainty By Stavros Degiannakis; George Filis
  60. Measuring Retail Trade Using Card Transactional Data By Diego Bodas; Juan Ramon Garcia; Juan Murillo; Matias Pacce; Tomasa Rodrigo; Juan de Dios Romero; Pep Ruiz; Camilo Ulloa; Heribert Valero
  61. "Income Distribution, Household Debt, and Aggregate Demand: A Critical Assessment" By J. W. Mason
  62. Introducing minimum wages in Germany: Employment effects in a post Keynesian perspective By Heise, Arne; Pusch, Toralf
  63. Namibia; 2017 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Namibia By International Monetary Fund
  64. Financial Stability and Fractional Reserve Banking By Shengxing Zhang; Cyril Monet; Stephan Imhof
  65. Revisión de gasto sector comercio, industria y turismo By Natalia Salazar Ferro; Carlos Antonio Mesa; Víctor Sánchez
  66. The Modigliani Puzzle Revisited: A Note By Margarita Katsimi; Gylfi Zoega
  67. Income Inequality, Financial Crises and Monetary Policy By Isabel Cairo; Jae Sim
  68. Dominican Republic; Technical Assistance Report-Balance of Payments Statistics and International Investment Position (April 27-May 1, 2015) By International Monetary Fund
  69. Determinação e Gestão da Taxa de Juros de Curto Prazo: um resgate da discussão para a economia brasileira no bojo do sistema de metas de inflação By Edson Roberto Vieira
  70. The Rate of Return on Everything, 1870-2015 By Ã’scar JordÃ; Katharina Knoll; Dmitry Kuvshinov; Moritz Schularick; Alan M. Taylor
  71. Fiscal multipliers in Russia By Sergey Vlasov; Elena Deryugina
  72. Analysis of the debt burden in Russian economy sectors By Svetlana Popova; Natalia Karlova; Alexey Ponomarenko; Elena Deryugina
  73. Nonlinear Household Earnings Dynamics, Self-insurance, and Welfare By Mariacristina De Nardi; Giulio Fella; Gonzalo Paz Pardo
  74. Access to finance for firms in Malta: Estimating the impact of reduced credit By Sandra Zerafa
  75. Revisión de gasto sector de ambiente y desarrollo sostenible By Luz Helena Sarmiento Villamizar; Rosalba Ordónez Cortés; Andrés Humberto Alonso
  76. Ein Vergleich der Bankensysteme in Deutschland, dem Vereinigten Königreich und Spanien aus räumlicher Perspektive: Befunde und Handlungsbedarf By Flögel, Franz; Gärtner, Stefan
  77. Gross Domestic Product – National Income of Romania 1862 – 2010. Secular statistical series and methodological foundations By Axenciuc, Victor; Georgescu, George
  78. Measuring Domestically Generated Inflation By Alexey Ponomarenko
  79. Optimal Taxes on Capital in the OLG Model with Uninsurable Idiosyncratic Income Risk By Dirk Krueger; Alexander Ludwig
  80. Saving and Wealth Inequality By Mariacristina De Nardi; Giulio Fella
  81. What would you do with $500? Spending responses to gains, losses, news, and loans By Fuster, Andreas; Kaplan, Greg; Zafar, Basit
  82. What If Supply-Side Policies Are Not Enough? The Perverse Interaction Of Exibility And Austerity By Giovanni Dosi; Marcelo C. Pereira; Andrea Roventini; Maria Enrica Virgillito
  83. The effects of Financial Shock on Russian short-term equilibrium interest rates By Yulia Ushakova; Dmitry Chernyadyev
  84. Rethinking macroeconomic policies for full employment and inclusive growth some elements By Parisotto, Aurelio.; Ray, Nikhil.
  85. The Financing of Companies in Malta By Jude Darmanin
  86. Buffer-stock saving and households' response to income shocks By Giulio Fella; Serafin Frache
  87. Financial Frictions, Volatility, and Skewness By David Zeke
  88. Adjustments of regular and non-regular workers to exogenous shocks: Evidence from exchange rate fluctuation By Izumi Yokoyama; Kazuhito Higa; Daiji Kawaguchi
  89. The Bank of Canada 2015 Retailer Survey on the Cost of Payment Methods: Calibration for Single-Location Retailers By Heng Chen; Rallye Shen
  90. Somalia; 2017 Article IV Consultation and First Review Under the Staff-Monitored Program-Press Release; Staff Report; and Statement by the Executive Director for Somalia By International Monetary Fund
  91. The determinants of interest rates in microfinance: age, scale and organisational charter By Jacinta C. Nwachukwu; Aqsa Aziz; Uchenna Tony-Okeke; Simplice A. Asongu
  92. Accounting for Medium-run Macro-finance Trends By Francois Gourio; Emmanuel Farhi
  93. Portugal; Sixth Post-Program Monitoring Discussions-Press Release; Staff Report By International Monetary Fund
  94. Regional prices in early twentieth-century Spain: A country-product-dummy approach By Alicia Gómez-Tello; Alfonso Díez-Minguela; Julio Martínez-Galarraga; Daniel A. Tirado-Fabregat
  95. Revisión de gasto sector transporte By Juan Benavides; Dora Elisa Laverde; Daniel Garavito
  96. A dynamic spatial model of global governance structures By Giorgos Galanis; Ashok Kumar
  97. Financial Globalization and Bank Lending: The Limits of Domestic Monetary Policy? By Jin Cao; Valeriya Dinger
  98. Exchange rate and competitiveness of the economy By Alexander Morozov; Yulia Ushakova; Dmitry Chernyadyev; Andrey Sinyakov; Alexey Vasilenko
  99. On the Divergence between CPI and PPI as Inflation Gauges: The Role of Supply Chains By Shang-Jin Wei; Yinxi Xie
  100. Macroeconomic News and Market Reaction: Surprise Indexes meet Nowcasting By Alberto Caruso
  101. Aggregation biases in empirical Euler consumption equations: evidence from Spanish data By Oscar Antonio Cutanda; José María Labeaga; Juan Sanchis-Llopis
  102. Gilded Bubbles By David Perez-Reyna; Xavier Freixas
  103. Credit Conditions and the Effects of Economic Shocks: Amplifications and Asymmetries By Carriero, Andrea; Galvao, Ana Beatriz; Marcellino, Massimiliano
  104. CO2 mitigation in developing countries: the role of foreign aid By Mohamed BOLY
  105. Credit risk of foreign bank branches and subsidiaries in Argentina and Uruguay By Michael Brei; Carlos Winograd
  106. Crescimento Econômico com Restrição no Balanço de Pagamentos: Uma Revisão da Literatura e uma Aplicação Empírica da Abordagem Multissetorial ao Caso Brasileiro de 1996-2013 By Mário Fernando de Sousa; Sérgio Fornazier Meyrelles Filho; Sabrina Faria de Queiroz; Antônio Marcos de Queiroz
  107. Revisión de gasto sector educación By Natalia Ariza Ramírez; Bibiana Quiroga Forero; María Angélica Ardila Lara
  108. Economic Growth, Volatility and Their Interaction: What’s the role of finance? By Sergio Henrique Rodrigues da Silva; Benjamin Miranda Tabak; Daniel Oliveira Cajueiro; Dimas Mateus Fazio
  109. Ciclos Político-Econômicos: Uma Análise Empírica para o Estado de Goiás By Vivian de Castro; Sérgio Fornazier Meyrelles Filho; Sabrina Faria de Queiroz; Paula Andrea do Valle Hamberger
  110. A Multi-country Approach to Analysing the Euro Area Output Gap By Florian Huber; Philipp Piribauer
  111. Russia’s Reform Failures and Putin’s Future Challenges By Peter Havlik
  112. Macroeconomic modelling of electrified mobility systems in 2030 European Union By Frédéric Ghersi
  113. Steuart, Smith, and the ‘system of commerce’: international trade and monetary theory in late-18th century british political economy By Maurício C. Coutinho; Carlos Eduardo Suprinyak
  114. Expectativas Financieras y Tasas Forward en Chile By Rodrigo Alfaro; Antonio Fernandois; Andrés Sagner
  115. Costo económico de la inestabilidad y debilidad normativa en la gestión socio-ambiental de los proyectos en los sectores minero-energético, de infraestructura y de telecomunicaciones, en el marco del proyecto Norte Claro By Juan Benavides; Astrid Martínez; Leonardo Villar; David Forero
  116. Fiscal Rules as Bargaining Chips By Facundo Piguillem; Alessandro Riboni
  117. Monetary Policy and Models of Currency Demand By Mariam El Hamiani Khatat
  118. A Real-Business-Cycle model with pollution and environmental taxation: the case of Bulgaria By Vasilev, Aleksandar
  119. Productivity growth, firm turnover and new varieties By Thomas von Brasch; Diana-Cristina Iancu; Arvid Raknerud
  120. The MacroFinancial Risk Assessment Framework (MFRAF), Version 2.0 By Jose Fique
  121. Central Bank Reserve Management and International Financial Stability—Some Post-Crisis Reflections By Bradley Jones
  122. Economic Dynamics and Changes in Values and Attitudes among Finnish Regions: A Descriptive Analysis By Fornaro, Paolo
  123. Population aging and cross-country redistribution in integrated capital markets By Davoine, Thomas
  124. Georgia at the crossroads of economic development By Abuselidze, George
  125. Quel est le régime démocratique optimal en Afrique ? By Izu, Akhenaton
  126. Publish and Perish: Creative Destruction and Macroeconomic Theory By Jean-Bernard Chatelain; Kirsten Ralf
  127. Leverage Ratio as a Macroprudential Policy Instrument By Nijolë Valinskytë; Erika Ivanauskaitë; Darius Kulikauskas; Simonas Krëpðta

  1. By: Alessandro Barattieri; Matteo Cacciatore; Fabio Ghironi
    Abstract: We study the consequences of protectionism for macroeconomic fluctuations. First, using high-frequency trade policy data, we present fresh evidence on the dynamic effects of temporary trade barriers. Estimates from country-level and panel VARs show that protectionism acts as a supply shock, causing output to fall and inflation to rise in the short run. Moreover, protectionism has at best a small positive effect on the trade balance. Second, we build a small open economy model with firm heterogeneity, endogenous selection into trade, and nominal rigidity to study the channels through which protectionism affects aggregate fluctuations. The model successfully reproduces the VAR evidence and highlights the importance of aggregate investment dynamics and micro-level reallocations for the contractionary effects of tariffs. We then use the model to study scenarios where temporary trade barriers have been advocated as potentially beneficial, including recessions with binding constraints on monetary policy easing or in the presence of a fixed exchange rate. Our main conclusion is that, in all the scenarios we consider, protectionism is not an effective tool for macroeconomic stimulus and/or to promote rebalancing of external accounts.
    JEL: E31 E52 F13 F41
    Date: 2018–02
  2. By: Tweneboah Senzu, Emmanuel; Ndebugri, Haruna
    Abstract: Understanding and appreciating the crucial role privates’ investment plays in developing economies towards it sustainable growth, it became an imperative assignment to investigate the effect of corporate taxes and it impacts on privates’ Investment in developing countries, but focused the study on Ghana for the hypothetical test. For this very reason, the study sort to derive a cogent argument between corporate tax and it impacts on private investment including controllable variables like real GDP, Inflation estimated under consumer price index, exchange rate measured nominally, government expenditure and finally domestic credits as a vector indicators using Johansen approach to co-integration.
    Keywords: Corporate Taxes, Private Investment, Macroeconomics, monetary policies, econometrics
    JEL: E2 E22 E4 E44 E5 E52
    Date: 2018–02–20
  3. By: Guido Bulligan (Banca d’Italia); Davide Delle Monache (Banca d’Italia)
    Abstract: This paper provides empirical evidence about the announcement effects of the ECB unconventional monetary policies carried out during the period September 2014 - July 2017. The variables considered are selected looking at the various transmission channels through which unconventional measures operate. We find that monetary policy news had significant effects on the exchange rate and sovereign long term yields, especially in those countries that were most severely hit by the crisis. Unlike previous studies, we look at the impact of announcements over different sub-periods in order to identify time-varying effects possibly due to different market conditions, policy instruments and communication strategies. We find that the strongest effects on the exchange rates and on sovereign bonds occurred in the initial phase of the Asset Purchase Programme; over the more recent period a statistically significant rise of inflation expectations was instead detected.
    Keywords: monetary policy announcements, event study, financial markets, unconventional monetary policy
    JEL: E44 E52 E58 E65 G14
    Date: 2018–02
  4. By: Qureshi, Irfan (Department of Economics,University of Warwick)
    Abstract: Should a policy rule include money? Including money exerts policy inertia and increases inflation aversion. In a New-Keynesian model with trend inflation,these features guarantee price determinacy even when the Taylor principle is not satisfied. Novel Greenbook data confirm money aggregates as U.S.Federal Open Market Committee policy objectives, enabling monetary policy to insulate the U.S.economy from self-fulfilling fluctuations despite positive trend inflation. A high response to inflation and lowtrend inflation guarantees determinacy post-1982. Cross-country applications highlight the superiority of the rule with money. Raising the inflation target from 2 percent to 4 percent violates the Taylor principle ; including money resolves this issue
    Keywords: Determinacy, Great Inflation, Inflation Target, Money Aggregates, Time-Varying Policy
    JEL: E41 E42 E51 E52 E58 E61 E65
    Date: 2018
  5. By: Peter Flaschel (University of Bielefeld); Matthieu Charpe (International Labor Organization)
    Abstract: This paper studies the implications of heterogeneous capital gain expectations on output and asset prices. We consider a disequilibrium macroeconomic model where agents’ expectations on future capital gains affect aggregate demand. Agents’ beliefs take two forms – fundamentalist and chartist – and the relative weight of the two types of agents is endogenously determined. We show that there are two sources of instability arising from the interaction of the financial with the real part of the economy, and from the heterogeneous opinion dynamics. Two main conclusions are derived. On the one hand, perhaps surprisingly, the non-linearity embedded in the opinion dynamics far from the steady state can play a stabilizing role by preventing the economy from moving towards an explosive path. On the other hand, however, real-financial interactions and sentiment dynamics do amplify exogenous shocks and tend to generate persistent fluctuations and the associated welfare losses. We consider alternative policies to mitigate these effects.
    Keywords: Real-financial interactions, heterogeneous expectations, aggregate sentiment dynamics, macro-financial instability
    JEL: E12 E24 E32 E44
    Date: 2017–04–27
  6. By: Cristina Conflitti (Bank of Italy); Matteo Luciani (Federal Reserve Board)
    Abstract: This work estimates the effect that fluctuations in oil prices have on changes in consumer prices in both the United States and the euro area. For many of the basic items in the basket of goods used to estimate inflation, the effects of oil price trends are divided into two components: the first is linked to the specific characteristics of individual products (such as, for example, the importance of energy in the production process), while the second is related to macroeconomic factors which are in turn connected with changes in oil prices. The results show that changes in oil prices mainly pass through to core inflation (or rather to inflation excluding food and energy products) by means of macroeconomic factors; while the effect is limited, it is statistically different from zero and persists over time.
    Keywords: Core inflation, oil price, dynamic factor model, pass-through, disaggregate consumer prices
    JEL: C32 E31 E32 Q43
    Date: 2017–11
  7. By: AMENDOLA, Adalgiso (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy); DI SERIO, Mario (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy); FRAGETTA, Matteo (CELPE - Centre of Labour Economics and Economic Policy, University of Salerno - Italy)
    Abstract: We use an Interacted Panel Vector Autoregressive (IPVAR) model, to investigate the effects of a government spending shock when the interest rate is at zero lower bound (ZLB). We also compare the responses of variables of interest at the ZLB with what we get when a government spending shock occurs in normal times (i.e. when the interest rate is larger than 0.25). We identify the government spending shock by sign restrictions and use the European Commission forecasts of government expenditure to account for fiscal foresight. For the baseline specification we find lower multipliers in times in which the ZLB is binding. However, fiscal foresight is not the only problem in fiscal VARs related to limited information problems. Usually, VAR models can only consider a limited number of variables due to degree of freedom problems. Several authors have shown (see Stock and Watson(2005) for a survey) how principal components extracted from a larger number of variables, can approximate unobserved factors driving most (if not all) of the macroeconomic variables. Therefore, we develop a Factor-Augmented IPVAR model (FAIPVAR) and find that the multipliers are very similar among states, ranging between 1.08 and 1.41 at the ZLB and between 1.26 and 1.39 away from it. We also divide our sample, considering two groups of countries in terms of high and low debt-to-GDP ratios. We find that countries with high levels of debt-to-GDP ratio show relatively lower multipliers. Considering the FAIPVAR model, the government spending multiplier ranges between 2.69 and 3.54 for core countries and between 0.82 and 1.37 for peripheral countries. Therefore, our findings support some recent studies, which suggest that the government spending multiplier is even larger if the debt-to-GDP ratio is low.
    Keywords: Interacted VAR; Fiscal Policy; Public Debt; Government Spending: Zero Lower Bound
    JEL: C32 E32 E40 E52 E62 H50
    Date: 2018–02–20
  8. By: Giancarlo Corsetti (Centre for Macroeconomics (CFM); University of Cambridge); Joao B. Duarte (University of Cambridge; Nova School of Business and Economics); Samuel Mann (Centre for Macroeconomics (CFM); University of Cambridge)
    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 E44
    Date: 2018–02
  9. By: Thiago Revil T. Ferreira
    Abstract: Using U.S. data from 1926 to 2015, I show that financial skewness—a measure comparing cross-sectional upside and downside risks of the distribution of stock market returns of financial firms—is a powerful predictor of business cycle fluctuations. I then show that shocks to financial skewness are important drivers of business cycles, identifying these shocks using both vector autoregressions and a dynamic stochastic general equilibrium model. Financial skewness appears to reflect the exposure of financial firms to the economic performance of their borrowers.
    Keywords: Cross-Sectional Skewness ; Business Cycle Fluctuations ; Financial Channel
    JEL: C32 E32 E37 E44
    Date: 2018–03–06
  10. By: Kolcunova, Dominika; Havranek, Tomas
    Abstract: The paper focuses on the estimation of the effective lower bound for the Czech National Bank's policy rate. The effective lower bound is determined by the value below which holding and using cash would be more convenient than deposits with negative yields. This bound is approximated based on storage, the insurance and transportation costs of cash and the costs associated with the loss of the convenience of cashless payments and complemented with the estimate based on interest charges, which present direct costs to the profitability of the bank. Overall, the estimated value is below -1% and is approximately in the interval -1.6%, -1.1%. In addition, by means of a vector autoregression, we show that the potential of negative rates would not be sufficient to deliver monetary policy easing with effects similar to those of the exchange rate commitment.
    Keywords: effective lower bound; zero lower bound; negative interest rates; costs of holding cash; transmission of monetary policy
    JEL: E43 E44 E52 E58
    Date: 2018–02–20
  11. By: Pablo Aguilar (Banco de España); Jesús Vázquez (Universidad del País Vasco (UPV/EHU))
    Abstract: This paper introduces the term structure of interest rates into a medium-scale DSGE model. This extension results in a multi-period forecasting model that is estimated under both adaptive learning and rational expectations. Term structure information enables us to characterize agents’ expectations in real time, which addresses an imperfect information issue mostly neglected in the adaptive learning literature. Relative to the rational expectations version, our estimated DSGE model under adaptive learning largely improves the model fit to the data, which include not just macroeconomic data but also the yield curve and the consumption growth and inflation forecasts reported in the Survey of Professional Forecasters. Moreover, the estimation results show that most endogenous sources of aggregate persistence are dramatically undercut when adaptive learning based on multi-period forecasting is incorporated through the term structure of interest rates.
    Keywords: real-time adaptive learning, term spread, multi-period forecasting, short-versus long-sighted agents, SPF forecasts, medium-scale DSGE model
    JEL: C53 D84 E30 E44
    Date: 2018–01
  12. By: Dmitry Kreptsev (Bank of Russia, Russian Federation); Alexey Porshakov (Bank of Russia, Russian Federation); Sergey Seleznev (Bank of Russia, Russian Federation); Andrey Sinyakov (Bank of Russia, Russian Federation)
    Abstract: The aim of this paper is to measure the equilibrium interest rate for Russia both in the short and long run, based on three definitions of the equilibrium interest rate. A general equilibrium model for the Russian economy is being built and gauged. In this real business cycle of a commodity-centred economy with investment, we find that short-run estimates come with very extended confidence intervals (approx. +/-10 pp). In the long run, equilibrium interest rates in the model are set by one of its equilibrium conditions, which in practice will often be applied discretely to find the equilibrium interest rate. This condition-based estimate comes very sensitive to unknown parameters, and is also very uncertain. Additionally, we use the general equilibrium model to study how the equilibrium interest rate reacts to changing oil prices, a rising global rate and growth in consumers’ propensity to save. These calculations complement with panel data-based calculations (those for the long-run equilibrium) and computation built on semi-structural methods (for the current equilibrium). Such estimates are also characterised by a high, for practical purposes, degree of uncertainty for the long-run equilibrium, with its point estimates equalling to 1.0% è 3.0%. The point estimate of the current equilibrium short interest rate based on semi-structural methods comes at the level of around 0.5%, and the one derived from the interest rate parity is 2.7%. The uncertainty in the measures of equilibrium interest rates calls for a central bank to apply robust monetary policy rules.
    Keywords: equilibrium (natural) interest rate, real business cycle with investment model, potential GDP growth, uncovered interest rate parity, minor open economy of a commodity exporting country
    JEL: E32 E43 E52
    Date: 2016–07
  13. By: Drygalla, Andrej; Holtemöller, Oliver; Kiesel, Konstantin
    Abstract: In this paper, we analyse the effects of the stimulus packages adopted by the German government during the Great Recession. We employ a standard mediumscale dynamic stochastic general equilibrium (DSGE) model extended by nonoptimising households and a detailed fiscal sector. In particular, the dynamics of spending and revenue variables are modeled as feedback rules with respect to the cyclical component of output. Based on the estimated rules, fiscal shocks are identified. According to the results, fiscal policy, in particular public consumption, investment, transfers and changes in labour tax rates including social security contributions prevented a sharper and prolonged decline of German output at the beginning of the Great Recession, suggesting a timely response of fiscal policy. The overall effects, however, are small when compared to other domestic and international shocks that contributed to the economic downturn. Our overall findings are not sensitive to the allowance of fiscal foresight.
    Keywords: fiscal policy shocks,DSGE model,Bayesian inference,stimulus packages
    JEL: C32 E32 E62
    Date: 2017
  14. By: Acharya, Sushant (Federal Reserve Bank of New York); Dogra, Keshav (Federal Reserve Bank of New York)
    Abstract: We present an incomplete markets model to understand the costs and benefits of increasing government debt in a low interest rate environment. Higher risk increases the demand for safe assets, lowering the natural rate of interest below zero, constraining monetary policy at the zero lower bound, and raising unemployment. Higher government debt satiates the demand for safe assets, raising the natural rate and restoring full employment. While this permanently lowers investment, a policymaker committed to low inflation has no alternative. Higher inflation targets, instead, permit both full employment and high investment, but allow for harmful bubbles. Aggressive fiscal policy can prevent bubbles.
    Keywords: safe assets; negative natural rate; crowding out; risk premium; liquidity traps; bubbles
    JEL: E3 E4 E5 G1 H6
    Date: 2018–03–01
  15. By: Ascari, Guido; Florio, Anna; Gobbi, Alessandro
    Abstract: According to the long-run Taylor principle (Davig and Leeper, 2007), a central bank can deviate to a passive monetary policy and still obtain equilibrium uniqueness if a sufficiently aggressive monetary policy is expected for the future. Does this principle hold true when both monetary and fiscal policies can switch between active and passive and there is positive trend inflation? We find that passive monetary detours are no longer possible when trend inflation is high, whatever fiscal policy is in place. This has important policy implications in terms of flexibility and monetary-fiscal authorities coordination.
    JEL: E52 E62
    Date: 2018–02–26
  16. By: Boubaker, Sabri; Nguyen, Duc Khuong; Paltalidis, Nikos
    Abstract: We build on a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model to explore the macroeconomic consequences of fiscal expansionary shocks during the economic crisis of 2008 in the eurozone. In this setting, we find that the big four eurozone economies (France, Germany, Italy, and Spain) can effectively escape from their liquidity trap through fiscal policy interventions caused by government purchases. We estimate the government spending multiplier to be above 1.8 when this policy is associated with a long-term commitment to keeping the nominal interest rate at the zero lower bound, as suggested by Krugman (1998). Notably, the short-term deficit effect on the budget balance can be offset five years after the implementation of a large spending program. We also show that alternative policies with tax cuts that expand the supply do not appear to have the same power in the short run. Moreover, we provide novel empirical evidence that a large government debt renders a government spending policy ineffective.
    Keywords: Fiscal policy; Liquidity trap; Fiscal multipliers; Zero lower bound
    JEL: E12 E52 E62 E63
    Date: 2016–12
  17. By: Honkapohja, Seppo; Kaushik, Mitra
    Abstract: We examine global dynamics under learning in a nonlinear New Keynesian model when monetary policy uses price-level targeting and compare it to inflation targeting. Domain of attraction of the targeted steady state gives a robustness criterion for policy regimes. Robustness of price-level targeting depends on whether a known target path is incorporated into learning. Credibility is measured by accuracy of this forecasting method relative to simple statistical forecasts. Credibility evolves through reinforcement learning. Initial credibility and initial level of target price are key factors influencing performance. Results match the Swedish experience of price level stabilization in 1920's and 30s.
    JEL: E63 E52 E58
    Date: 2018–02–23
  18. By: Dora Xia; Jing Cynthia Wu
    Abstract: We extract the market's expectations about the ECB's negative interest rate policy from the euro area's yield curve and study its impact on the yield curve. To capture the rich dynamics taking place at the short end of the yield curve, we introduce two policy indicators that summarise the immediate and longer-horizon future monetary policy stances. The ECB has cut interest rates four times under zero. We find that the June 2014 and December 2015 cuts were expected one month ahead but that the September 2014 cut was unanticipated. Most interestingly, the March 2016 cut was expected four months ahead of the actual cut.
    Keywords: negative interest rate policy, effective lower bound, term structure of interest rates, shadow rate term structure model, regime-switching model
    JEL: E43 E52 E58
    Date: 2018–02
  19. By: Engelbert Stockhammer; Joel Rabinovich; Niall Reddy
    Abstract: Most empirical macroeconomic research limited to the period since World War II. This paper analyses the effects of changes in income distribution and in private wealth on consumption and investment covering a period from as early as 1855 until 2010 for the UK, France, Germany and USA, based on the dataset of Piketty and Zucman (2014). We contribute to the post-Keynesian debate on the nature of demand regimes, mainstream analyses of wealth effects and the financialisation debate. We find that overall domestic demand has been wage-led in the USA, UK and Germany. Total investment responds positively to higher wage shares, which is driven by residential investment. For corporate investment alone, we find a negative relation. Wealth effects are found to be positive and significant for consumption in the USA and UK, but weaker in France and Germany. Investment is negatively affected by private wealth in the USA and the UK, but positively in France and Germany.
    Keywords: historical macroeconomics, demand regimes, Bhaduri-Marglin model, wealth effects, financialisation
    JEL: B50 E11 E12 E20 E21 N10
    Date: 2018–03
  20. By: Hesse, Henning; Hofmann, Boris; Weber, James
    Abstract: This paper revisits the macroeconomic effects of the large-scale asset purchase programmes launched by the Federal Reserve and the Bank of England from 2008. Using a Bayesian VAR, we investigate the macroeconomic impact of shocks to asset purchase announcements and assess changes in their effectiveness based on subsample analysis. The results suggest that the early asset purchase programmes had significant positive macroeconomic effects, while those of the subsequent ones were weaker and in part not significantly different from zero. The reduced effectiveness seems to reflect in part better anticipation of asset purchase programmes over time, since we find significant positive macroeconomic effects when we consider shocks to survey expectations of the Federal Reserve's last asset purchase programme. Finally, in all estimations we find a significant and persistent positive impact of asset purchase shocks on stock prices.
    Keywords: unconventional monetary policy,asset purchases,monetary transmission
    JEL: E50 E51 E52
    Date: 2018
  21. By: Atif R. Mian; Amir Sufi
    Abstract: Every major financial crisis leaves its unique footprint on economic thought. The early banking crises taught us the importance of financial sector liquidity and the lender of last resort. The Great Depression highlighted the devastating effects of bank failures and the need for counter-cyclical fiscal and monetary policy. The Great Recession has brought to the surface the importance of credit-driven business cycles that operate through household demand. We discuss empirical evidence accumulated over the last decade supporting this view, and we also describe accompanying theoretical work that helps define these concepts.
    JEL: E32 E5 G01 G2 R2
    Date: 2018–02
  22. By: Ahmed, Khalid; Bhutto, Niaz Ahmed; Kalhoro, Muhammad Ramzan
    Abstract: This study examines the impact of oil price shocks on key macroeconomic variables (i.e., real GDP, interest rate, inflation and exchange rate) for five SAARC countries (i.e., India, Pakistan, Bangladesh, Sri Lanka and Bhutan). For this purpose, we adopt contemporary macroeconomic policy modeling tool called impulse response function (IRF) and forecast error variance decomposition method (FEVDM) in the structural vector autorepression (SVAR) setting using time series data over the extended period from 1982 to 2014. In addition, Johansen and Juselius (1990) cointegration method is applied for long-run relationship. The results of cointegration test confirms the long-run equilibrium relationship between all the underlying variables. However, the empirical findings of IRF explained significant variation among all underlying macroeconomic variables in response to exogenous oil price shocks at different time horizons. It means the macroeconomic factors are sensitive to even small oil price shocks and possess various socio-economic implications in the region. The results of FEVDM evidence that each country in a study group responds differently to oil price shocks, it corresponds their independent policies, macroeconomic fundamentals, sector constructions and heterogeneity across the countries. The findings help governments to reform public policies in the region by controlling macroeconomic fluctuations due to oil price shocks.
    Keywords: Oil price shocks; Interest rate; GDP; SAARC; SVAR model
    JEL: E2 E20 E4 E64 O4
    Date: 2017–12–01
  23. By: Philippe Andrade; Jordi Galí; Hervé Le Bihan; Julien Matheron
    Abstract: We study how changes in the value of the steady-state real interest rate affect the optimal inflation target, both in the U.S. and the euro area, using an estimated New Keynesian DSGE model that incorporates the zero (or effective) lower bound on the nominal interest rate. We find that this relation is downward sloping, but its slope is not necessarily one-for-one: increases in the optimal inflation rate are generally lower than declines in the steady-state real interest rate. Our approach allows us not only to assess the uncertainty surrounding the optimal inflation target, but also to determine the latter while taking into account the parameter uncertainty facing the policy maker, including uncertainty with regard to the determinants of the steady-state real interest rate. We find that in the currently empirically relevant region for the US as well as the euro area, the slope of the curve is close to -0.9. That finding is robust to allowing for parameter uncertainty
    JEL: E31 E51 E58
    Date: 2018–02
  24. By: Taro Ikeda (Graduate School of Economics, Kobe University)
    Abstract: In this paper, we introduce a simple monetary policy with savings taxation into Samuelson’s (1958) overlapping generations model. In our model, we confirm that the real market interest rate increases in response to an increase in the rate of the savings taxation as a policy lending rate.
    Keywords: overlapping generations model; monetary policy; savings taxation
    JEL: E10 E20 E52
    Date: 2018–03
  25. By: Moritz A. Roth (Banco de España)
    Abstract: Business cycle correlations are state-dependent and higher in recessions than in expansions. In this paper, I suggest a mechanism to explain why this is the case. For this purpose, I build an international real business cycle model with occasionally binding constraints on capacity utilization which can account for state-dependent cross-country correlations in GDP growth rates. The intuition is that firms can only use their machines up to a capacity ceiling. Therefore, in booms the growth of an individual economy can be dampened when the economy hits its capacity constraint. This creates an asymmetry that can spill-over to other economies, thereby creating state-dependent cross-country correlations in GDP growth rates. Empirically, I successfully test for the presence of capacity constraints using data from the G7 advanced economies in a Bayesian threshold autoregressive (T-VAR) model. This finding supports capacity constraints as a prominent transmission channel of cross-country GDP asymmetries in recessions compared to expansions.
    Keywords: international business cycles, business cycle asymmetries, GDP co-movement, capacity constraints, occasionally binding constraints
    JEL: E32 E60 F41 F44 F47
    Date: 2018–01
  26. By: Beqiraj, Elton; Di Bartolomeo, Giovanni; Di Pietro, Marco; Serpieri, Carolina
    Abstract: Applying the Bayesian approach, a small open economy DSGE model was estimated using a sample of quarterly data for a macro-region formed by six Central Europe and Baltic economies: Czech Republic, Estonia, Hungary, Lithuania, Poland, and Slovakia. Estimates have been employed to investigate the effects of a financial crisis, exploring the role played by country differences in the relative performances. We also use our Bayesian estimations to compute two measures of resilience in the considered region.
    Keywords: resilience,Bayesian estimations,financial crisis,macroeconomic performance,emerging markets
    JEL: E02 E32 E58
    Date: 2018
  27. By: Julian Kozlowski; Laura Veldkamp; Venky Venkateswaran
    Abstract: Riskless interest rates fell in the wake of the financial crisis and have remained low. We explore a simple explanation: This recession was perceived as an extremely unlikely event before 2007. Observing such an episode led all agents to re-assess macro risk, in particular, the probability of tail events. Since changes in beliefs endure long after the event itself has passed, perceived tail risk remains high, generates a demand for riskless, liquid assets, and continues to depress the riskless rate. We embed this mechanism in a simple production economy with liquidity constraints and use observable macro data, along with standard econometric tools, to discipline beliefs about the distribution of aggregate shocks. When agents observe an extreme, adverse realization, they re-estimate the distribution and attach a higher probability to such events recurring. As a result, even transitory shocks have persistent effects because, once observed, the shock stays forever in the agents' data set. We show that our belief revision mechanism can help explain the persistent nature of the fall in the risk-free rates.
    JEL: E43 E44 G01 G14
    Date: 2018–02
  28. By: Inés Berniell (CEDLAS-FCE-UNLP.)
    Abstract: This paper shows that the frequency at which workers are paid affects the within-month patterns of both household expenditure and aggregate economic activity. To identify causal effects, I exploit two novel sources of exogenous variation in pay frequency in the US. First, using an as-good-as-random variation in the pay frequency of retired couples, I show that those who are paid more frequently have smoother expenditure paths. Second, I take advantage of crossstate variation in labor laws to compare patterns of economic activity in states in which the frequency with which wages are paid differs. I document that low pay frequencies lead to within-month business cycles when many workers are paid on the same dates, which in turn generates costly congestion in sectors with capacity constraints. These findings have important policy implications for contexts where firms and workers do not internalize such congestion externalities as this situation leads to market equilibria with suboptimally low pay frequencies and few paydays.
    JEL: J33 E21 E32
    Date: 2018–02
  29. By: Giancarlo Corsetti (Centre for Economic Policy Research (CEPR); Centre for Macroeconomics (CFM); University of Cambridge); Luca Dedola (Centre for Macroeconomics (CFM); European Central Bank); Sylvain Leduc (Bank of Canada)
    Abstract: What determines the optimal monetary trade-off between internal objectives (inflation and output gap) and external objectives (competitiveness and trade imbalances) when inefficient capital flows cause exchange rate misalignment and distort current account positions? We characterize this trade-off analytically, using the workhorse model of modern monetary theory in open economies under incomplete markets–where inefficient capital flows and exchange rate misalignments can arise independently of nominal distortions. We derive aquadratic approximation of the utility-based global policy loss function under fairly general assumptions on preferences and openness, and solve for the optimal targeting rules under cooperation. We show that, in economies with a low degree of exchange rate pass-through, the optimal response to inefficient capital inflows associated with real appreciation is contractionary, above and beyond the natural rate: the optimal policy curbs excessive demand at the cost of exacerbating currency overvaluation. In contrast, a high degree of pass-through, and/or low trade elasticities, warrants expansionary policies that lean against exchange rate appreciation and competitive losses, at the cost of inefficient inflation.
    Keywords: Currency misalignments, Trade imbalences, Asset markets and risk sharing, Optimal targeting rules, International Policy, Exchange rate pass-through
    JEL: E44 E52 E61 F41 F42
    Date: 2018–03
  30. By: Haroon Mumtaz (Queen Mary University of London); Konstantinos Theodoridis (Lancaster University Management School and the Bank of England)
    Abstract: This paper identifies shocks to the Federal Reserve’s inflation target as VAR innovations that make the largest contribution to future movements in long-horizon inflation expectations. The effectiveness of this scheme is documented via Monte-Carlo experiments. The estimated impulse responses indicate that a positive shock to the target is associated with a large increase in inflation, GDP growth and long-term interest rates. Target shocks are estimated to be a vital factor behind the increase in inflation during the pre-1980 period and are an important driver of the decline in long-term interest rates over the last two decades.
    Keywords: SVAR, DSGE model, inflation target
    JEL: C5 E1 E5 E6
    Date: 2017–04–17
  31. By: Di Bartolomeo, Giovanni; Beqiraj, Elton; Di Pietro, Marco
    Abstract: We study the extent to which the belief-formation process affects the dynamics of macroeconomic variables when the central bank uses forward guidance. Standard sticky-price models imply that far future forward guidance has huge and implausible effects on current outcomes, these effects grow in its horizon (forward guidance power puzzle). By a parsimonious macro-model that allows for the role of bounded rationality and heterogeneous agents, we obtain tempered responses for real and nominal variables.
    Keywords: forward guidance power,heterogeneous agents,bounded rationality,monetary policy,announcements
    JEL: E40 E50 E21
    Date: 2017
  32. By: Jochen Hartwig (Professur für Wirtschaftspolitik, Faculty of Economics and Business Administration, Chemnitz University of Technology, CESifo Munich, Germany)
    Abstract: Income inequality is “the defining challenge of our time”, former US President Barack Obama said in a speech in December 2013. Undoubtedly, the financial crisis and the sluggish recovery in its aftermath have increased the attention to rising inequality. This survey addresses the consequences of income inequality for economic growth from a theoretical and from an empirical angle. Both perspectives yield inconclusive results on whether inequality is ‘good’ or ‘bad’ for growth. This poses a problem for policymakers contemplating (e.g. tax) policies aimed at raising or lowering inequality. On the other hand, policies to promote social justice arguably do not need to pass a ‘do they increase economic growth?’ test. Some policy proposals which would reduce inequality are discussed as well.
    Keywords: Income distribution, economic growth, economic policy
    JEL: E25 E61 E62 E64 O49
    Date: 2018–03
  33. By: Green, Georgina (Bank of England)
    Abstract: This paper investigates whether movements in the Bank of England’s interest rate hindered the development of the United States by transmitting or amplifying crises during the first age of financial globalisation. Evidence that US monetary and financial developments entered into the Bank’s reaction function implies that a Bank Rate series must include some endogenous rate changes. In order to clean Bank Rate of such movements the narrative approach is applied to a previously unexploited source in the Bank’s archives, ‘The Record of Outstanding Events’. The Bank also followed a known rule of adjusting Bank Rate to preserve its reserves to liabilities ratio. Bank Rate is also cleaned of the contemporaneous impact of this ratio in order to control for any reflex policy movements that could have been anticipated. This ensures that only true monetary policy shocks to the United States are identified. Estimates derived from this new measure indicate that although the Bank was able, via abrupt rate rises, to attract gold to the United Kingdom and replenish its reserves ratio, it was not responsible for causing or aggravating US crises. This result runs counter to conventional wisdom in the literature and contradicts the hypothesis that many US financial crises extended directly back to Threadneedle Street.
    Keywords: Bank of England; monetary policy; business cycles; financial crises; international economic history; central banking
    JEL: E52 E58 F44 G01 G20 N10 N12
    Date: 2018–03–09
  34. By: Giulio Fella (Queen Mary University of London); Antonello d'Alessandro (University of Melbourne)
    Abstract: Using a structural VAR analysis, we document that an increase in government purchases raises private consumption, total factor productivity (TFP) and the real wage. This poses a puzzle for both neoclassical and New-Keynesian models. We extend a standard New-Keynesian model to allow for skill accumulation through past work experience, following Chang, Gomes and Schorfheide (2002). An increase in government spending increases hours and induces skill accumulation and higher measured TFP and real wages in subsequent periods. Future marginal costs fall lowering the expected rate of ination and, through the monetary policy rule, the real interest rate. Consumption increases as a result.
    Keywords: Fiscal policy transmission, consumption, real wage
    JEL: E62 E63
    Date: 2017–07–20
  35. By: Isabel Schnabel; Hyun Song Shin
    Abstract: Money is a social convention where one party accepts it as payment in the expectation that others will do so too. Over the ages, various forms of private money have come and gone, giving way to central bank money. The reasons for the resilience of central bank money are of particular interest given current debates about cryptocurrencies and how far they will supplant central bank money. We draw lessons from the role of public deposit banks in the 1600s, which quelled the hyper-in‡flation in Europe during the Thirty Years War (1618-1648). As the precursors of modern central banks, public deposit banks established trust in monetary exchange by making the value of money common knowledge.
    Keywords: Gresham's Law; debasement; common knowledge; central banks
    JEL: E42 E58 N13
    Date: 2018–02
  36. By: Sangmin Aum; Sang Yoon (Tim) Lee; Yongseok Shin
    Abstract: Aggregate productivity growth in the U.S. has slowed down since the 2000s. We quantify the importance of differential productivity growth across occupations and across industries, and the rise of computers since the 1980s, for the productivity slowdown. Complementarity across occupations and industries in production shrinks the relative size of those with high productivity growth, reducing their contributions toward aggregate productivity growth, resulting in its slowdown. We find that such a force, especially the shrinkage of occupations with above-average productivity growth through “routinization,” was present since the 1980s. Through the end of the 1990s, this force was countervailed by the extraordinarily high productivity growth in the computer industry, of which output became an increasingly more important input in all industries (“computerization”). It was only when the computer industry's productivity growth slowed down in the 2000s that the negative effect of routinization on aggregate productivity became apparent. We also show that the decline in the labor income share can be attributed to computerization, which substitutes labor across all industries.
    JEL: E01 E22 E25 O41 O47
    Date: 2018–02
  37. By: Zhang, Chengsi; Dang, Chao
    Abstract: This paper investigates the empirical validity of the claim that China employed a forward-looking monetary policy rule from 2001 to 2016. Survey expectations are used in conjunction with competing money supply and interest rate rules. The paper contributes to the literature by addressing the problems of serial correlation and structural breaks in the underlying policy reaction function. Un-like earlier studies indicating a strong role for expectations in Chinese monetary policy, we find expectations only began to play a significant role after 2008. This finding is robust for expectations series based on surveys of both households and forecasting experts. We also find that the People’s Bank of China promotes economic growth in procyclical fashion, but applies countercyclical policy in managing inflation.
    JEL: E58 E31
    Date: 2018–02–22
  38. By: Enrique G. Mendoza; Eugenio I. Rojas
    Abstract: "Liability dollarization,'' namely intermediation of capital inflows in units of tradables into domestic loans in units of aggregate consumption, adds three important effects driven by real-exchange-rate fluctuations that alter standard models of Sudden Stops significantly: Changes on the debt repayment burden, on the price of new debt, and on a risk-taking incentive (i.e. a negative premium on domestic debt). Under perfect foresight, the first effect makes Sudden Stops milder and multiple equilibria harder to obtain. The three effects add an ``intermediation externality'' to the macroprudential externality of standard models, which is present even without credit constraints. Optimal policy under commitment can be decentralized equally by taxing domestic credit or capital inflows, and hence capital controls as a separate instrument are not justified. This optimal policy is time-inconsistent and follows a complex, non-linear schedule. Quantitatively, an optimized pair of constant taxes on domestic debt and capital inflows makes crises slightly less likely and yields a small welfare gain, but other pairs reduce welfare sharply. For high effective debt taxes, capital controls and domestic debt taxes are again equivalent, and for low ones welfare is higher with higher taxes on domestic debt than on capital inflows.
    JEL: E44 F34 F41
    Date: 2018–02
  39. By: Ryan Niladri Banerjee; Aaron Mehrotra
    Abstract: We analyse the behaviour of inflation expectations during periods of deflation, using a large cross-country data set of individual professional forecasters' expectations. We find some evidence that expectations become less well anchored during deflations. Deflations are associated with a downward shift in inflation expectations and a somewhat higher backward-lookingness of those expectations. We also find that deflations are correlated with greater forecast disagreement. Delving deeper into such disagreement, we find that deflations are associated with movements in the lefthand tail of the distribution. Econometric evidence indicates that such shifts may have consequences for real activity.
    Keywords: deflation; inflation expectations; forecast disagreement; monetary policy
    JEL: E31 E58
    Date: 2018–02
  40. By: Adam, Felix; Matthes, Jürgen
    Abstract: In der jüngeren Vergangenheit wurde immer wieder eine expansive Fiskalpolitik zur Wachstumsförderung auf Basis von neukeynesianischen Modellen gefordert. Dieser Modelltyp hat sich wirtschaftshistorisch aus einer Synthese von neoklassischen und keynesianischen Elementen entwickelt und spielt in der modernen Makroökonomie und damit in der Politikberatung eine wichtige Rolle. Zunächst werden die Grundstrukturen eines Standardmodells dargelegt. Danach werden mehrere einschlägige Studien vorgestellt. Darin kommt es an der Nullzinsgrenze zu einer tiefen Wirtschaftskrise, weil die Geldpolitik, die im Modell nur mit dem Zinsinstrument agieren kann, in ihrer Handlungsfähigkeit beschränkt ist. In dieser Situation erweist sich eine expansive Fiskalpolitik, die oberhalb der Nullzinsgrenze im Modell weitgehend wirkungslos ist, über große Fiskalmultiplikatoren als sehr effektiv zur Krisenbekämpfung. [...]
    JEL: E01 E62 E12
    Date: 2018
  41. By: Kevin Fawcett; Shouyong Shi
    Abstract: When workers have incomplete information about their ability, they can learn about this ability by searching for jobs, both while employed and unemployed. Search outcomes yield information for updating the belief about the ability which affects optimal search decisions in the future. Firms respond to updated beliefs by altering vacancy creation and optimal wage contracts. To study equilibrium interactions between learning and search, this paper integrates learning into a search equilibrium with on-the-job search and wage-tenure contracts. The model generates results that shed light on a number of empirical facts, such as wage cuts in job-to-job transition, wage growth over tenure, true duration dependence of unemployment, and frictional wage inequality. We calibrate the model to quantify the extent to which learning and on-the-job search explain these empirical facts.
    Keywords: Learning; On-the-job search; Contracts; Inequality
    JEL: E21 E24 J60
    Date: 2018–03–09
  42. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Vladimir Gligorov (The Vienna Institute for International Economic Studies, wiiw); Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Roman Stöllinger (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Aggregate real GDP growth in CESEE is at its strongest level for six years, and in 2017 all economies in the region expanded for the first time in a decade. External conditions are highly supportive of growth in CESEE. All the big engines of the global economy – the US, China and the eurozone – are expanding strongly together for the first time since 2010. The coordinated global upswing has further to run, and we expect CESEE economies to continue to benefit in the coming years. EU-CEE and Turkey will grow strongly during our forecast period, while activity in the Western Balkans will pick up from recent years. The CIS and Ukraine will remain the regional laggards, but will continue to recover slowly. We do not think that any economy in the region is ‘overheating’, although there are growing risks in Romania and Turkey. We expect inflation to remain very subdued in most of CESEE during the forecast period. In parts of CESEE, large-scale Ukrainian migration is helping to relieve labour market tightness. Wage increases in most of CESEE have been strong, but are concentrated largely in the manufacturing sector, and have been more than offset by rising labour productivity and non-price competitiveness. External competitiveness is not in danger. Across the region, investment will rise faster than headline real GDP growth in 2018-2020, driven by low interest rates, high capacity utilisation, stronger confidence, EU funds and still low base effects. Most countries have seen their export/GDP shares rise in the past decade, which increases their ability to take advantage of the current upswing. Many are moving up the value chain. Banking sectors in CESEE are generally on a much stronger footing than a few years ago. However, the old pre-crisis, highly leveraged model reliant on foreign inflows is mostly a thing of the past, meaning that credit growth will be relatively low by historical standards in the coming years. Downside risks to regional growth emanating from local and global factors are significant. In particular, we are worried about a trade war, the exit of major central banks from extraordinarily loose monetary policy, pockets of high corporate and government leverage, east/west EU splits, the undermining of institutional independence in some countries, geopolitical tensions, the Ukraine crisis, and potential spill-overs from a renewed outbreak of volatility in the eurozone, or a Chinese debt crisis. Convergence with Western European income levels will proceed in the long term. However, there is a risk that specialisation in parts of the supply chain where little value is created will condemn the region to a permanent ‘semi-periphery trap’.
    Keywords: CESEE, economic forecast, Europe, Central and Eastern Europe, Southeast Europe, Western Balkans, new EU Member States, CIS, Russia, Ukraine, Poland, Romania, Czech Republic, Hungary, Turkey, convergence, overheating, external risks, EU funds, investment, exports, tourism, unemployment, employment, wage growth, unit labour costs, migration, inflation, competitiveness, external debt, public debt, semi-periphery trap, demographics
    JEL: E20 F34 G12 O47 O52 O57 P24 P27 P33 P52
    Date: 2018–03
  43. By: Vasilev, Aleksandar
    Abstract: We augment an otherwise standard business cycle model with a richer government sector, and add monopolistic competition in the product market, and rigid prices, as well as rigid wages a la Calvo (1983) in the labor market. This specification with the nominal wage rigidity, when calibrated to Bulgarian data after the introduction of the currency board (1999-2016), allows the framework to reproduce better observed variability and correlations among model variables, and those characterizing the labor market in particular. As nominal wage frictions are incorporated, the variables become more persistent, especially output, capital stock, investment and consumption, which helps the model match data better.
    Keywords: business cycles,monopolistic competition,rigid (Calvo) prices,rigid (Calvo) wages
    JEL: D43 E32
    Date: 2018
  44. By: Noel Rapa
    Abstract: This note studies the impact energy market reforms might have on the Maltese economy in the medium-to-long run using a DSGE model. Contrary to previous studies, this note takes in consideration the changes in the marginal cost of electricity production of Enemalta under a number of energy production setups. Results show that the decommissioning of the Marsa power plant and the installation of an undersea interconnector results in a fall in marginal costs, and therefore an increase in long run output, under both baseline and high oil price scenarios ranging between 1.61% and 2.53%. This energy setup is however consistent with an increase in marginal costs, and therefore a fall in long run output of 0.41% in the case of a low oil price scenario. The future setup of natural gas fired turbines results in a fall in marginal costs and an increase in long run output in all oil price scenarios, ranging between 0.81% in the low oil price scenario to 3.00% in case of high oil prices.
    JEL: E37 D58 Q43
  45. By: Jean-Pierre Allegret (Université Côte d'Azur, France; GREDEG CNRS); Mohamed Tahar Benkhodjay (ESSCA, School of Management); Tovonony Razafindrabe (CREM, Université Rennes 1)
    Abstract: This paper contributes to the literature on the Dutch disease effect in a small open oil exporting economy. Specifically, our contribution to the literature is twofold. On the one hand, we formulate a DSGE model in line with the balanced-growth path theory. On the other hand, besides alternative monetary rules, the model introduces an oil stabilization fund, an oil price rule, and a fiscal rule. Our aim is to analyze to what extent the combinations between our alternative monetary rules and fiscal policy are effective to prevent a Dutch disease effect in the aftermath of a positive oil price shock. Our main findings show that the Dutch disease, through the spending effect, occurs only in the case of inflation targeting regime. An expansionary fiscal policy contributes to improve the state of the economy through its impact on the productivity of the manufacturing sector.
    Keywords: Monetary Policy, Oil Stabilization Fund, Dutch disease, Oil Prices, DSGE model
    JEL: E52 F41 Q40
    Date: 2018–03
  46. By: Anne-Marie Rieu-Foucault
    Abstract: Trois positionnements théoriques de la politique monétaire par rapport à la stabilité financière sont proposés : assurer le bon fonctionnement des canaux de transmission, utiliser la stabilité financière pour la stabilité des prix et définir un objectif de stabilité financière pour les politiques monétaires. Le premier positionnement relève de la politique de liquidité, qui est naturellement dévolue aux banques centrales. Les deux autres positionnements relèvent d’une politique de solvabilité car prenant en compte la croissance du crédit, les prix d’actifs et l’évolution du cycle financier. Dans ces deux derniers cas, la politique de solvabilité qui n’est pas naturellement dévolue à la banque centrale ouvre un questionnement sur l’absence d’indépendance entre politique monétaire et stabilité financière. Que la stabilité financière soit analysée du point de vue de la stabilité des prix, des mesures non conventionnelles ou des politiques macroprudentielles, le débat sur l’indépendance des deux politiques reste non tranché.A l’heure actuelle, le choix a été fait de ne pas modifier le mandat des banques centrales. Des conséquences sur la politique budgétaire pourraient autrement en résulter.
    Keywords: Politique monétaire, Stabilité financière, Liquidité
    JEL: E52 E58 G01
    Date: 2018
  47. By: Alexey Ponomarenko (Bank of Russia, Russian Federation)
    Abstract: Revaluation of ruble value of foreign currency deposits and use of the Reserve Fund to finance budget deficit resulted in fast growth of broad money supply. The related inflation risks are currently moderate given that the money stock components with the fastest growth rates are not closely related to the aggregate demand. Nevertheless, inflation risks may increase in future if demand for liquid components of money supply grows and the composition of M2Y monetary aggregate returns to its 2011-2013 average values. We estimate that in this case the annual growth of household expenditures on final consumption may go up by 1.5 pp within two years, which may have negative inflation spillovers in 2017-2018.
    Date: 2016–05
  48. By: James Yetman
    Abstract: A common practice in studies using inflation forecasts is to approximate fixed-horizon forecasts with fixed-event ones. Here we show that this may be problematic. In a panel of US inflation forecast data that allows us to compare the two, the approximation results in a mean absolute approximation error of around 0.2-0.3 percentage points (around 10% of the level of inflation), and statistically significant differences in both the variances and persistence of the approximate inflation forecasts relative to the actual forecasts. To reduce these problems, we propose an adjustment to the approximation, consistent with a model where longer-horizon forecasts are more heavily "anchored", while shorter-horizon forecasts more closely reflect current inflation levels.
    Keywords: fixed-event forecasts, fixed-horizon forecasts, inflation expectations
    JEL: C43 E31
    Date: 2018–02
  49. By: Karlsson, Sune (Örebro University School of Business); Österholm, Pär (Örebro University School of Business)
    Abstract: Inflation did not fall as much as many economists expected as the Great Recession hit the US economy. One explanation suggested for this phenomenon is that the Phillips curve has become flatter. In this paper we investigate the stability of the US Phillips curve, employing Bayesian VARs to quarterly data from 1990Q1 to 2017Q3. We estimate bivariate models for PCE inflation and the unemployment rate under a number of different assumptions concerning the dynamics and covariance matrix. Specifically, we assess the importance of time-varying parameters and stochastic volatility. Using new tools for model selection, we find support for both time-varying parameters and stochastic volatility. Interpreting the Phillips curve as the inflation equation of our Bayesian VAR, we conclude that the US Phillips curve has been unstable. Our results also indicate that the Phillips curve may have been somewhat flatter between 2005 and 2013 than in the decade preceding that period. However, while the dynamic relations of the model appear to be subject to time variation, we note that the effect of a shock to the unemployment rate on inflation is not fundamentally different over time. Finally, a conditional forecasting exercise suggests that as far as the models are concerned, inflation may not have been unexpectedly high around the Great Recession.
    Keywords: Time-varying parameters; Stochastic volatility; Model selection; Inflation; Unemployment
    JEL: C11 C32 C52 E37
    Date: 2018–03–05
  50. By: Keshav Dogra (Federal Reserve Bank of New York); Sushant Acharya (Federal Reserve Bank of New York)
    Abstract: We present a model with incomplete markets in order to understand the costs and benefits of increasing government debt in a low interest rate environment. Higher idiosyncratic risk increases the demand for safe assets and can even lower real interest rates below zero. A fiscal authority can issue more debt to meet this increased demand for safe assets and arrest the decline in real interest rates. While such a policy succeeds in keeping real rates above zero, it comes at a cost as higher real interest rates can lead to permanently lower investment. However, in an environment with nominal rigidities and a zero bound on nominal rates, policymakers may not have a choice. On the one hand, without creating additional safe assets, constrained monetary policy is powerless to combat higher unemployment. On the other hand, creating safe assets can make monetary policy potent again, allowing policymakers to lower unemployment, but such a policy only shifts the malaise elsewhere in the economy where it manifests itself as a permanent investment slump.
    Date: 2017
  51. By: Tatiana Cesaroni (Bank of Italy); Riccardo De Bonis (Bank of Italy); Luigi Infante (Bank of Italy)
    Abstract: According to macroeconomic predictions firms are expected to be net borrowers: the net change of their financial assets should be smaller than the net change of their financial liabilities. However, since the mid-1990s, the non–financial sector has been on average a net lender in countries such as Japan, the UK, Germany and the Netherlands. Conversely firms remained on average net borrowers in countries such as France, Italy and the US. Using financial accounts, we investigate the sources of corporate sector surpluses and deficits applying panel data techniques. Our statistics include 18 industrial countries over the period 1995-2014. We find that firms’ surpluses are structurally linked to net foreign direct investments. The econometric results are robust to the use of variables that control for the business cycle, such as the output gap, the ratio of corporate investment to GDP, firms’ profits and leverage, and taxation.
    Keywords: net lending/net borrowing, corporate sector, global saving glut, panel data
    JEL: E2 G3
    Date: 2017–11
  52. By: Mashabela, Juliet; Raputsoane, Leroi
    Abstract: This paper examines the behaviour of disaggregated transitory and potential output over the economic cycle in South Africa. Aggregate output and output of the economic sectors and industries were decomposed into their transitory and potential components. These components were then examined for comovement. The results of the transitory component generally show a moderate to strong positive comovement between aggregate output and output of all the economic sectors and majority of the industries. The results of the potential component have generally show a weak positive comovement between aggregate output and output of majority of economic sectors and the economic industries. A generally weak comovement between aggregate output and output of general government services and community, social and personal services highlights a more laissez faire approach to economic management. Contrary to the investment literature, there does not seem to be a definite distinction between the companies industry categories, such as the defensive, cyclical and sensitive industries.
    Keywords: Disaggregated output, Commovement, Economic cycle
    JEL: C11 C52 D20 E32
    Date: 2018–02–07
  53. By: KANAZAWA, Nobuyuki
    Abstract: I propose a flexible nonlinear method for studying the time series properties of macroeconomic variables. In particular, I focus on a class of Artificial Neural Networks (ANN) called the Radial Basis Functions (RBF). To assess the validity of the RBF approach in the macroeconomic time series analysis, I conduct a Monte Carlo experiment using the data generated from a nonlinear New Keynesian (NK) model. I find that the RBF estimator can uncover the structure of the nonlinear NK model from the simulated data whose length is as small as 300 periods. Finally, I apply the RBF estimator to the quarterly US data and show that the response of the macroeconomic variables to a positive supply shock exhibits a substantial time variation. In particular, the positive supply shocks are found to have significantly weaker expansionary effects during the zero lower bound periods as well as periods between 2003 and 2004. The finding is consistent with a basic NK model, which predicts that the higher real interest rate due to the monetary policy inaction weakens the effects of supply shocks.
    Keywords: Neural Networks, Radial Basis Functions, Zero Lower Bound, Supply Shocks
    JEL: C45 E31
    Date: 2018–03
  54. By: Jairo Núñez Méndez; Cindy Cárdenas; Juan Pablo Toro
    Abstract: El presente documento pertenece a una serie de esfuerzos realizados por el Gobierno Nacional desde el 2015 por incorporar las Revisiones de Gasto como parte integral del proceso presupuestal. Esta herramienta busca lograr, a través de una metodología ordenada y sistemática, una mejor distribución de los recursos escasos, de forma que el gasto nacional se oriente hacia proyectos y programas de mayor impacto y que atienden necesidades más urgentes. Con la Revisión de Gasto del sector salud, se busca llegar a recomendaciones prácticas para la preparación del presupuesto y establecer lineamientos para lograr un proceso institucionalizado y comprensivo de planeación de gasto en el futuro. La metodología que aquí se presenta parte de aquella establecida por Banco Mundial en el 2016, la cual fue discutida, ajustada y acordada con el Departamento Nacional de Planeación, sin embargo la metodología no se aplicó para los recursos del Sistema General de Participaciones – SGP. En su implementación se contó con la participación del DNP, y las diferentes entidades del sector como son el Ministerio de Salud y Protección Social, INS, INVIMA y la Superintendencia Nacional de Salud. De esta manera, se buscó crear un proceso participativo que contribuya a identificar de manera consensuada y organizada posibilidades específicas de ahorro y de reasignación de recursos dentro del sector, que se ajusten a las necesidades fiscales del Gobierno Nacional y a la coyuntura económica que han ocasionado recortes en los últimos años. De otra parte, se ha incluido una sección adicional enfocada al Sistema General de Participaciones, en consideración a la relevancia estratégica del mismo a nivel territorial y por el volumen de recursos involucrados. También se analizaron los proyectos correspondientes a salud del Sistema General de Regalías, aplicando la metodología con alguna variación de acuerdo con las características de los mismos y la información disponible.
    Keywords: Salud, Gastos PúblicosRegalías, Sistema General de Participaciones, Finanzas Públicas, Sistema General de Regalías, Proyectos de Inversión, Procesos Presupuestales, Transferencias de Capital, Colombia.
    JEL: E62 I18 H51 H72 H75 H61 G31 E22
    Date: 2017–07–31
  55. By: Jairo Núñez Méndez; Cindy Cárdenas; Juan Pablo Toro
    Abstract: El presente documento pertenece a una serie de esfuerzos realizados por el Gobierno Nacional desde el 2015 por incorporar las Revisiones de Gasto como parte integral del proceso presupuestal. Esta herramienta busca lograr, a través de una metodología ordenada y sistemática, una mejor distribución de los recursos escasos, de forma que el gasto nacional se oriente hacia proyectos y programas de mayor impacto y que atienden necesidades más urgentes. Con la Revisión de Gasto del sector salud, se busca llegar a recomendaciones prácticas para la preparación del presupuesto y establecer lineamientos para lograr un proceso institucionalizado y comprensivo de planeación de gasto en el futuro. La metodología que aquí se presenta parte de aquella establecida por Banco Mundial en el 2016, la cual fue discutida, ajustada y acordada con el Departamento Nacional de Planeación, sin embargo la metodología no se aplicó para los recursos del Sistema General de Participaciones – SGP. En su implementación se contó con la participación del DNP, y las diferentes entidades del sector como son el Ministerio de Salud y Protección Social, INS, INVIMA y la Superintendencia Nacional de Salud. De esta manera, se buscó crear un proceso participativo que contribuya a identificar de manera consensuada y organizada posibilidades específicas de ahorro y de reasignación de recursos dentro del sector, que se ajusten a las necesidades fiscales del Gobierno Nacional y a la coyuntura económica que han ocasionado recortes en los últimos años. De otra parte, se ha incluido una sección adicional enfocada al Sistema General de Participaciones, en consideración a la relevancia estratégica del mismo a nivel territorial y por el volumen de recursos involucrados. También se analizaron los proyectos correspondientes a salud del Sistema General de Regalías, aplicando la metodología con alguna variación de acuerdo con las características de los mismos y la información disponible.
    Keywords: Salud, Gastos PúblicosRegalías, Sistema General de Participaciones, Finanzas Públicas, Sistema General de Regalías, Proyectos de Inversión, Procesos Presupuestales, Transferencias de Capital, Colombia.
    JEL: E62 I18 H51 H72 H75 H61 G31 E22
    Date: 2017–07–31
  56. By: Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School); Wickens, Michael (Cardiff Business School); Xu, Yongdeng (Cardiff Business School)
    Abstract: Indirect inference testing can be carried out with a variety of auxiliary models. Asymptotically these different models make no difference. However, in small samples power can differ. We explore small sample power and estimation bias both with different variable combinations and models of description --- Vector Auto Regressions, Impulse Response Functions or Moments (corresponding to the Simulated Methods of Moments) --- in the auxiliary model. We find that VAR and IRF descriptors perform slightly better than Moments but that different three variable combinations make little difference. More than three variables raises power and lowers bias but reduces the chances of finding a tractable model that passes the test.
    Keywords: Indirect Inference, DGSE model, Auxiliary Models, Simulated Moments Method, Impulse Response Functions, VAR, Moments, power, bias
    JEL: C12 C32 C52 E1
    Date: 2018–03
  57. By: Adrien Auclert; Matthew Rognlie
    Abstract: We explore the transmission mechanism of income inequality to output. In the short run, higher inequality reduces output because marginal propensities to consume are negatively correlated with incomes, but this effect is quantitatively small in the data and in our model. In the long run, the output effects of income inequality are small if inequality is caused by rising dispersion in individual fixed effects, but can be large if it is the manifestation of higher individual income risk. We formalize the connection between partial and general equilibrium effects, and show that the two are closely related under standard assumptions about the behavior of monetary policy. Our economy features a depressed long-run real interest rate, allowing us to quantify the potential contribution of income inequality to secular stagnation.
    JEL: D31 D52 E21 E63
    Date: 2018–02
  58. By: Cobham, David
    Abstract: The paper presents a new classification of monetary policy frameworks which it applies to ‘advanced’ and 'emerging' economies for the period since the end of the Bretton Woods international monetary system. The classification is multi-dimensional, in particular while the main focus is on the monetary authorities' objectives and account is taken of both pre-announced targets and actual performance, it also emphasises the development of the underlying monetary and financial infrastructure which conditions the instruments available to the monetary authorities and therefore the coherence of different policy frameworks. It is based in large part on information obtained from a close reading of the monetary policy elements of IMF Article IV consultations. The two major changes which can be seen in the data are the swing over time in these countries towards a heavier focus on inflation, and the trend towards more systematic and coherent monetary arrangements which are typically associated with lower inflation and better, or at least not lower, economic growth. The classification, which will eventually be extended to cover developing countries as well, should enable researchers in the future to address a number of questions about comparative economic performance in a more nuanced way than has so far been possible.
    Keywords: monetary policy framework, monetary targeting, exchange rate targeting, inflation targeting
    JEL: E42 E52 F33
    Date: 2018–02–20
  59. By: Stavros Degiannakis (Department of Economics and Regional Development, Panteion University of Social and Political Sciences); George Filis (Department of Accounting, Finance and Economics, Bournemouth University)
    Abstract: Forecasting the economic policy uncertainty in Europe is of paramount importance given the on-going debt crisis and the Brexit vote. This paper evaluates monthly out-of-sample economic policy uncertainty index forecasts and examines whether ultra-high frequency information from asset market volatilities and global economic policy uncertainty can improve the forecasts relatively to the no-change forecast. The results show that the global economic policy uncertainty provides the highest predictive gains, followed by the European and US stock market volatilities. The results hold true even when we consider the directional accuracy.
    Keywords: Economic policy uncertainty; forecasting; financial markets; commodities markets; HAR; ultra-high frequency information
    JEL: C22 C53 E60 E66 G10
    Date: 2018–03
  60. By: Diego Bodas; Juan Ramon Garcia; Juan Murillo; Matias Pacce; Tomasa Rodrigo; Juan de Dios Romero; Pep Ruiz; Camilo Ulloa; Heribert Valero
    Abstract: In this paper we present a high-dimensionality Retail Trade Index (RTI) constructed to nowcast the retail trade sector economic performance in Spain, using Big Data sources and techniques. The data are the footprints of BBVA clients from their credit or debit card transactions at Spanish point of sale (PoS) terminals.
    Keywords: Working Paper , Economic Analysis , Spain
    JEL: C32 C81 E21
    Date: 2018–03
  61. By: J. W. Mason
    Abstract: During the period leading up to the recession of 2007-08, there was a large increase in household debt relative to income, a large increase in measured consumption as a fraction of GDP, and a shift toward more unequal income distribution. It is sometimes claimed that these three developments were closely linked. In these stories, the rise in household debt is largely due to increased borrowing by lower-income households who sought to maintain rising consumption in the face of stagnant incomes; this increased consumption in turn played an important role in maintaining aggregate demand. In this paper, I ask if this story is consistent with the empirical evidence. In particular, I ask five questions: How much household borrowing finances consumption spending? How much has monetary consumption spending by households increased? How much of the rise in household debt-income ratios is attributable to increased borrowing? How is household debt distributed by income? And how has the distribution of consumption spending changed relative to the distribution of income? I conclude that the distribution-debt-demand story may have some validity if limited to the housing boom period of 2002-07, but does not fit the longer-term rise in household debt since 1980.
    Keywords: Consumption; Debt Dynamics; Household Debt; Income Inequality; National Income and Product Accounts
    JEL: D31 E21
    Date: 2018–03
  62. By: Heise, Arne; Pusch, Toralf
    Abstract: There has been a long discussion about the employment impact of minimum wages and this discussion has recently been renewed with the introduction of an economy-wide, binding minimum wage in Germany in 2015. In traditional reasoning, based on the allocational approach of modern labour market economics, it has been suggested that the impact is clearly negative on the assumption of a competitive labour market and clearly positive on the assumption of a monopsonistic labour market. Unfortunately, both predictions conflict with the empirical findings, which do not show a clear-cut impact of significant size in any direction. As an alternative, a Post Keynesian twosector model including an employment market is presented here. Its most likely prediction of a negligible employment effect and a sectoral shift is tested against the German case of an introduction of a statutory minimum wage in 2015. Despite substantial wage increases in the low wage sector, our empirical analysis reveals very low overall employment loss of about 33,000 labourers as a result of a small sectoral shift from low wage industries to higher wage industries.
    Keywords: Post Keynesianism,minimum wage,aggregate demand,aggregate supply
    JEL: B50 E12 E23 J31
    Date: 2018
  63. By: International Monetary Fund
    Abstract: Context. Namibia has experienced a period of exceptional growth and economic stability, but faces significant policy challenges and structural issues. Strong growth was partly attributable to temporary factors that have come to an end. Public debt is rising and reserve coverage is below adequate levels. Financial institutions’ interconnections and exposures, and elevated private sector indebtedness pose macro-financial risks. Structural impediments have contributed to keep unemployment and income inequality unacceptably high. Outlook and challenges. With temporary expansionary factors ending, growth contracted in 2017 and is expected to resume in 2018. Downside risks weigh on the outlook, and emanate from possible fiscal slippages that could undermine policy credibility; lower demand for key exports; and declines in SACU revenue. The impact of shocks could be amplified by macro-financial linkages. Namibia’s key policy challenges are to manage the ongoing adjustment process and bring public debt on a sustainable path, address macro-financial risks and financial sector vulnerabilities, and generate sufficient jobs to manage upcoming demographic changes and reduce income inequality.
    Date: 2018–02–28
  64. By: Shengxing Zhang (London School of Economics); Cyril Monet; Stephan Imhof (Swiss National Bank)
    Abstract: We analyze the optimal risk-return trade-off when banks can issue inside money. Optimally the quantity of inside money is restricted by some reserve requirements. Increasing the reserve requirements or decreasing the rate of return on central bank money makes loans to the private sector more expensive. This induces borrowers to take more risk. However, leverage also decline, which induces borrowers to take safer decision. The optimal combination of reserve requirement and inflation trades-off both effects. The Friedman rule or zero reserve requirement is not necessarily optimal, as it would induce too much leverage. In spite of being the safest system, fully backed inside money is not optimal as it reduces leverage too much.
    Date: 2017
  65. By: Natalia Salazar Ferro; Carlos Antonio Mesa; Víctor Sánchez
    Abstract: Este documento corresponde al informe final del estudio de Revisión de Gasto del sector Comercio, Industria y Turismo. Contiene cuatro grandes secciones. La primera se refiere a la aproximación metodológica que se siguió en la construcción de la línea de base para el ejercicio de revisión y para la discusión con las entidades del sector. En la segunda se hace una descripción de la construcción de la línea base, así como los primeros resultados que se obtienen de ésta. Posteriormente se describe el proceso realizado con las entidades en las mesas operativas para definir la calificación de prioridad y desempeño, establecer inflexibilidades e ineficiencias, y elaborar las propuestas de reasignación, tanto para los proyectos de inversión como a nivel de las transferencias de capital. En las últimas secciones del documento se discuten elementos del proceso presupuestal del sector que resultaron de la revisión de gasto y las lecciones principales del ejercicio.
    Keywords: Líneas de Base, Gastos Públicos, Finanzas Públicas, Proyectos de Inversión, Procesos Presupuestales, Transferencias de Capital, Comercio, Industria, Turismo, Colombia
    JEL: H50 E62 E22 H61 G31 F10 L60 H72
    Date: 2017–08–31
  66. By: Margarita Katsimi; Gylfi Zoega
    Abstract: We estimate the relationship between investment and unemployment in order to explore whether the medium-term relationship emphasized by Franco Modigliani survived the recent Great Recession. Our results indicate that the relationship held up, both employment and investment fell although the estimated coefficient of investment is slightly smaller when the period 2000-2015 is added to the 1960-2000 period.
    Keywords: Modigliani puzzle, investment, unemployment, Great Recession
    JEL: J10 E20
    Date: 2017
  67. By: Isabel Cairo (Board of Governors of the Federal Reserve System); Jae Sim (Federal Reserve Board)
    Abstract: We construct a general equilibrium model in which income inequality results in insufficient aggregate demand and deflation pressure by allocating a greater share of national income to a group with the least marginal propensity to consume, and if excessive, can lead to an endogenous financial crisis. The effectiveness of monetary policy during financial crises is severely distorted by the zero lower bound (ZLB) constraint. Such an economy generates left-skewed distributions for equilibrium prices and quantities, creating disproportionately large downside risks. Consequently, symmetric monetary policy rules that are designed to minimize the fluctuations in equilibrium quantities and prices around fixed means become inefficient. We evaluate alternative monetary policy rules in their ability to minimize not only the variance but also the skewness of the target variable. We find that a type of forward guidance rule of promising to lower the long-run natural rate of interest persistently in response to crises may bring large welfare gains by correcting the skewness of the distributions and thus increasing the means of aggregate output and inflation. While we assume no direct preferences of central bankers over income inequality, monetary policy rules correcting the skewed distributions also lessen the degree of income inequality substantially as low income households suffer the most from the asymmetric macroeconomic risks.
    Date: 2017
  68. By: International Monetary Fund
    Abstract: As part of the Regional Harmonization Project on External Sector Statistics (RHPESS) developed by the Central America, Panama, Dominican Republic Regional Technical Assistance Center (CAPTAC-DR), a technical assistance (TA) mission on Balance of Payments (BP) and International Investment Position (IIP) visited Santo Domingo, Dominican Republic, during April 27–May 1, 2015. The purpose of the TA mission was to advise the Central Bank of the Dominican Republic (BCRD), the institution responsible for compiling BP, IIP, and external debt statistics (EDS), on further improving the collection, compilation, and dissemination of the external sector statistics (ESS). The BCRD disseminates quarterly BP and IIP, following the guidelines of the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6). Quarterly IIP is disseminated semi-annually, and BP is compiled and disseminated quarterly.
    Date: 2018–02–21
  69. By: Edson Roberto Vieira (FACE-UFG)
    Abstract: This work has a central focus on the analysis of the determination and use of the interest rate in the conduct of economic policy in Brazil after the adoption of the inflation targeting system, taking into account Keynes's perspective on the issue, as well as some of the main explanations for the behavior of the short-term interest rate in the Brazilian economy in the recent period. Keynes’ criticism of the notion of a natural interest rate and his consequent recommendations for using interest rates in conducting economic policy were the analytical tools used in this paper. The research revealed many different approaches to interest rate determination in Brazil but little consensus on the issue. At the the core of economic policy recommendations from the Keynesian perspective are a preference for quantitative credit regulation and for the use of interest rates to stimulate the level of productive investment in opposition to the system of inflation targeting adopted in Brazil in 1999
    Keywords: Interest Rate, Inflation Targeting, Keynesian Policies
    JEL: E4 E5
    Date: 2017–11
  70. By: Ã’scar JordÃ; Katharina Knoll; Dmitry Kuvshinov; Moritz Schularick; Alan M. Taylor
    Abstract: This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century. What is the aggregate real rate of return in the economy? Is it higher than the growth rate of the economy and, if so, by how much? Is there a tendency for returns to fall in the long-run? Which particular assets have the highest long-run returns? We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but oft ignored, component of household wealth, housing. The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.
    Keywords: return on capital, interest rates, yields, dividends, rents, capital gains, risk premiums, household wealth, housing markets
    JEL: D31 E44 E10 G10 G12 N10
    Date: 2018
  71. By: Sergey Vlasov (Bank of Russia, Russian Federation); Elena Deryugina (Bank of Russia, Russian Federation)
    Abstract: The paper covers the theoretical and practical issues related to estimating fiscal multipliers for the Russian economy. The analysis of the main determinants affecting the size of multipliers suggests a relatively low effect of changes in fiscal variables on output growth. Estimation of the general government revenue and spending multipliers are generally in line with these expectations as well as with the results available for emerging market economies and stands at the values of - 0.75 and 0.28 respectively. The negative direct impact on GDP growth from the medium-term fiscal consolidation is estimated as relatively small (cumulatively about 0.3 percentage points through 2018-2020). Fiscal consolidation scheduled for the medium-term is expected to have a negative impact on output. However, since it is intended to be carried out mainly at the expense of the expenditure part of the budget, this should be less harmful to output growth and could promote greater efficiency in public spending. The direct impact from a reduction in expenditures can be fully offset by a significant positive indirect impact on GDP from an increase in confidence about long-term fiscal sustainability.
    Keywords: E62, H20, H50, O47
    Date: 2018–01
  72. By: Svetlana Popova (Bank of Russia, Russian Federation); Natalia Karlova (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation); Elena Deryugina (Bank of Russia, Russian Federation)
    Abstract: This work provides an analysis of the debt burden of Russian companies and raises the issue of debt-level heterogeneity across economic sectors. In order to identify the causes of this heterogeneity, we estimated a regression model that included both the fundamental explanatory variables of companies and industry fixed effects. The results of the analysis demonstrated that standard variables such as profitability, company size, asset turnover and fixed-asset turnover ratio have a strong statistical significance. However, these do not fully explain the variation in the debt levels of companies in different sectors. According to model estimation, there are industry specific factors that produce an imbalance between fundamental factors and companies' debt levels. An understanding of the formation process and structure of debt burden in individual industries is extremely important for the financial stability of companies, and effective monetary policy.
    Keywords: debt burden, capital structure, sector analysis, microdata of Russian companies, emerging markets.
    JEL: C23 D24 E44 G32
    Date: 2018–02
  73. By: Mariacristina De Nardi; Giulio Fella; Gonzalo Paz Pardo
    Abstract: Earnings dynamics are much richer than typically assumed in macro models with heterogenous agents. This holds for individual-pre-tax and household-post-tax earnings and across administrative (Social Security Administration) and survey (Panel Study of Income Dynamics) data. We study the implications of two household-post-tax earnings processes in a standard life-cycle model: the canonical earnings process (that includes a persistent and a transitory shock) and a rich earnings dynamics process (that allows for age-dependence of moments, non-normality, and nonlinearity in previous earnings and age). Allowing for richer earnings dynamics implies a substantially better fit of the evolution of the cross-sectional consumption inequality over the life cycle and of the individual-level degree of consumption insurance against persistent earnings shocks. Richer earnings dynamics also imply lower welfare costs of earnings risk, but, as the canonical earnings process, do not generate enough concentration at the upper tail of the wealth distribution.
    JEL: E21 H21 J3
    Date: 2018–02
  74. By: Sandra Zerafa
    Abstract: This note looks at changes in the access to finance of firms over time. From a demand side, results from the Survey on the Access to Finance of Enterprises (SAFE) indicate that bank financing still remains the most used source. From a supply-side point of view, the Bank Lending Survey (BLS) indicates that Maltese banks have resorted to stricter credit conditions rather than quantity restrictions. The relationship between credit to NFCs and GDP growth appears to have weakened since the crisis, such that an increased level of credit has a smaller impact on real output. This may reflect structural changes in the Maltese economy that have taken place over the last decade.
    JEL: E51 C5 G00
  75. By: Luz Helena Sarmiento Villamizar; Rosalba Ordónez Cortés; Andrés Humberto Alonso
    Abstract: Este documento corresponde al informe final del estudio de Revisión de Gasto del sector Medio Ambiente. El documento cuenta con 3 grandes capítulos. El primero describe el panorama y la tendencia del gasto en el sector de Medio Ambiente. El segundo desarrolla la implementación de fases y actividades de la revisión de gasto. Y el tercero presenta las recomendaciones y conclusiones.
    Keywords: Medio Ambiente, Desarrollo Sostenible, Finanzas Públicas, Gastos Públicos, Colombia
    JEL: Q56 Q01 E62 H72
    Date: 2017–07–31
  76. By: Flögel, Franz; Gärtner, Stefan
    Abstract: Dieser Beitrag untersucht dezentrale Bankensysteme in Deutschland, Spanien und dem Vereinigten Königreich. Der durchgeführte Ländervergleich verdeutlicht, dass das deutsche Bankensystem wie erwartet am stärksten dezentralisiert ist. Dies liegt vor allem an den regionalen und gemeinwohlorientierten Sparkassen und Genossenschaftsbanken. Während es im Vereinigten Königreich keine dezentrale Bankengruppe mehr gibt und echte Sparkassen in Spanien fast verschwunden sind, dominieren die mehr als 1.400 dezentralen Sparkassen und Genossenschaftsbanken die Unternehmensfinanzierung in Deutschland. Der Ländervergleich hat drei Erfolgsfaktoren identifiziert, die zur Persistenz des dezentralen Bankings beitragen: I. Geringe operationale und funktionale Distanz sowie Einbettung in einen unterstützenden Regionalbankenverband: Geringe Distanzen bzw. räumliche Nähe zwischen regionaler Bank und kleinen und mittleren Unternehmen (KMU) erleichtern den Zugang zu weichen Informationen bei der Kreditvergabe, und die Einbettung in einen Verband ermöglicht es regionalen Banken, auch in peripheren Regionen auf fortschrittliches Bankwissen zurückzugreifen. II. Die Entwicklung zu "echten" dezentralen Universalbanken: Hier ist entscheidend, ab wann regionale Sparkassen und Genossenschaftsbanken das Recht der Kreditvergabe erhielten. Die späte Erlaubnis, Kredite zu gewähren, machte die Sparkassen in Spanien und dem Vereinigten König-reich zu Nachzüglern im KMU-Kreditgeschäft. In Deutschland hingegen waren kleine Unternehmen von Anfang an Kreditkunden der Sparkassen. Das Kreditvergabeverbot im Vereinigten Königreich und Spanien führte dazu, dass die regionalen Banken dort die aus der Nähe resultierenden weichen Informationsvorteile nicht nutzen konnten. III. Das Zusammenspiel aus Regionalprinzip (regionale Marktsegregation), regionaler Einbettung und einem nationalen Umverteilungssystem, welches regionale Disparitäten reduziert: Dieser Dreiklang hilft regionalen Banken, auch in schwachen Regionen ausreichend erfolgreich zu sein, verringert den Wettbewerb zwischen den Banken und unterstützt damit eine enge Zusammenarbeit in den Bankenverbänden. Ferner fördert ein geringerer Wettbewerb das Entstehen von stabilen Hausbankbeziehungen, wovon Banken sowie Unternehmen profitieren können. Sparkassen waren im Vereinigten Königreich und Spanien zu keinem Zeitpunkt so relevant wie in Deutschland. In beiden Ländern gibt es jedoch einige Banken, die sich im Unterschied zu den Großbanken auf Kreditvergabe an KMU spezialisiert haben. Um die Kreditvergabe an KMU und die dazu notwendige Berücksichtigung weicher Informationen zu unterstützen, schlagen wir ein Förderprogramm vor, welches den Screening- und Monitoringaufwand von Banken subventioniert. Solch eine Förderung könnte Banken dazu anregen, ihre Kreditentscheidungsprozesse auf die regionale Ebene zu verlagern (bzw. sie dort zu belassen) und in Zeiten niedriger Zinsen die Notwendigkeit zur Standardisierung, Zentralisierung von Kreditvergabeentscheidungen sowie Bankenfusionen etwas abmildert.
    Keywords: Vergleichende Bankensystemforschung,KMU-Finanzierung,dezentrale vs. zentrale Bankensysteme
    JEL: D43 E21 G01 G21 G38 R12
    Date: 2018
  77. By: Axenciuc, Victor; Georgescu, George
    Abstract: Starting from the importance and need to investigate one of the most relevant issues regarding the structure and dynamics of the economic and social development of all countries in the world, the book focuses on Romania, from the perspective of certain synthetic indicators, aggregated at macroeconomic level, i.e. the Gross Domestic Product and the National Income, on long data series over the past 150 years, also taking into account the comparative international context, in terms of purchasing power parity. The Part One contains a synthesis, developed and completed, of GDP data for each year of the period 1862 – 2010 and also indicators resulting from the GDP, as Net Domestic Product, Net National Product and National Income. The historical research has adopted and applied, with maximum attention, criteria that substantiated the calculations, through rigorous techniques and methods of data aggregation, in order to remove certain errors that would lead to distorted results, focusing on the accuracy of evaluations, so that they would express, in the most genuine manner, the real dimension of the statistical indicators, allowing for a correct interpretation of the economic phenomena. The operations for compiling the indicators are accompanied by comments regarding the criteria and calculation methods, as well as by methodological explanations, so that the data would be able to be rebuilt in a better format, by the interested authors, should they have a more reliable and relevant statistical information about Romania. The Part Two of the book focuses on the international literature, dedicated to criticisms theoretical and methodological opinions regarding the GDP, as well as a comparative analysis of the GDP evolution in Romania, in various hypotheses, compared to other countries.
    Keywords: System of National Accounts; International Comparison Program; wellbeing; GDP criticism; Romania.
    JEL: B15 B41 C82 E01 N10 O11
    Date: 2017–10–16
  78. By: Alexey Ponomarenko (Bank of Russia, Russian Federation)
    Abstract: In 2014-2015, inflation acceleration was driven mainly by external factors. As they were exhausted, CPI growth decreased predictably. At the same time, our estimates show that domestic factors currently fail to ensure a decline in the price growth to 4% in 2017. A slowdown in the growth rate of the wide range of domestic nominal indicators is necessary in order that the Bank of Russia may achieve its inflation target. Otherwise, further inflation deceleration may prove to be unsustainable in the medium term.
    Date: 2016–05
  79. By: Dirk Krueger; Alexander Ludwig
    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.
    JEL: E21 H21 H31
    Date: 2018–02
  80. By: Mariacristina De Nardi (University College London); Giulio Fella (Queen Mary University of London)
    Abstract: Why are some people wealth rich while others are poor? To what extent can governments affect inequality? Which instruments should they use? Answering these questions requires understanding why people save. Dynamic quantitative models of wealth inequality can help us to understand and quantify the determinants of the outcomes that we observe in the data and to evaluate the consequences of policy reform. This paper surveys the savings mechanisms generated by the transmission of bequests and human capital, by preference heterogeneity, by rate of return heterogeneity, by entrepreneurship, by richer earnings processes, and by medical expenses. It concludes that the transmission of bequests and human capital, entrepreneurship, and medical-expense risk are crucial determinants of savings and wealth inequality and that we need to look at more data to measure their relative importance.
    Keywords: Human Capital; Bequests; Taxation; Entrepreneurship; Rates of Return; Earnings Shocks
    JEL: E21 D14 D3
    Date: 2017–05–09
  81. By: Fuster, Andreas (Federal Reserve Bank of New York); Kaplan, Greg (University of Chicago and NBER); Zafar, Basit (Arizona State University)
    Abstract: We use survey questions about spending to investigate features of propensities to consume that are useful for distinguishing between consumption theories. Asking households about their intended spending under various scenarios, we find that 1) responses to unanticipated gains are vastly heterogeneous (either zero or substantially positive), 2) responses to losses are much larger and more widespread than responses to gains, and 3) even those with large responses to gains do not respond to news about future gains. These three findings suggest that limited access to disposable resources is an important determinant of spending behavior. We also find that households do not respond to the offer of a one-year interest-free loan, suggesting it is unlikely that short-term credit constraints drive high propensities to consume. Furthermore, people do cut spending in response to news about future losses, suggesting that even households with limited disposable resources are somewhat forward-looking. A calibrated two-asset life-cycle precautionary savings model can account for these features of propensities to consume, but it cannot explain the positive effect of windfall size, driven by the extensive margin, on spending responses to gains, which suggests that nonconvexities arising from durability, salience, or attention costs may also be important.
    Keywords: consumption; savings; marginal propensity to consume; survey
    JEL: D12 D14 E21
    Date: 2018–03–01
  82. By: Giovanni Dosi; Marcelo C. Pereira; Andrea Roventini; Maria Enrica Virgillito
    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" setups 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: 2018–02
  83. By: Yulia Ushakova (Bank of Russia, Russian Federation); Dmitry Chernyadyev (Bank of Russia, Russian Federation)
    Abstract: We estimate the impact of the Russia-specific shocks of 2014 on the short-term real equilibrium interest rate. We have used two approaches. The first approach is based on theoretical model calculations. The second rests on empirical estimates based on the results of IMF cross-country research on the sensitivity of the equilibrium interest rate to shifts in investment demand and supply (savings) curves. Our estimates suggest that the 2014 financial shock that restricted external borrowing for Russian issuers triggered 0.6-1.4 pp growth of the short-term equilibrium interest rate. However, the economy adjusted to the financial shock in 2016-2017 thanks to the macroeconomic policy pursued: the CDS risk premium declined, investment resumed growth and the net investment position gradually decreased. As a result, the effect of the financial shock on the short-term equilibrium interest rate has almost entirely vanished Length: 13 pages
    Date: 2017–11
  84. By: Parisotto, Aurelio.; Ray, Nikhil.
    Abstract: This paper reviews recent evidence and research by ILO and others concerning monetary, fiscal, exchange rate and capital account management policies, looking also at issues of policy coordination and the role of social dialogue. It argues that the rethinking of macroeconomics that is underway is providing ammunition for more active policies to strengthen labour market resilience in economic downturns; to support productive investment and private sector development, especially small and medium-sized enterprises;and to promote employment, productivity and stable and inclusive growth. The paper sets forth key elements of pro-employment macroeconomic frameworks as they were outlined by the ILO tripartite constituents at the 2014 International Labour Conference. Finally, it suggests areas for debates and research to inform the work of the ILO and other international organizations in the future.
    Keywords: employment creation, macroeconomics, monetary policy, fiscal policy, exchange rate
    Date: 2017
  85. By: Jude Darmanin
    Abstract: This note examines recent developments in the financing structure of non-financial companies in Malta. The financial liabilities of NFCs are mainly composed of debt, private equity, and trade credit, with evidence pointing to a shift away from bank lending in recent years. This financial disintermediation is driven by a number of factors, including loan supply restrictions on the part of banks, the changing structure of the economy, an improvement in the financial position of NFCs, and higher usage of capital markets by large companies. In this light, the main issue is understanding whether this shift is a choice on the part of firms, or a constraint imposed by a tighter bank lending channel. The analysis in this note suggests that it is a combination of the two.
    JEL: E51 G00 G32
  86. By: Giulio Fella (Queen Mary University of London); Serafin Frache (Banco Central del Uruguay)
    Abstract: We use the Italian Survey of Household Income and Wealth, a rather unique dataset with a long time dimension of panel information on consumption, income and wealth, to structurally estimate a buffer-stock saving model. We exploit the information contained in the joint dynamics of income, consumption and wealth to quantify the degree of insurance against income risk implied by the estimated model. We find that Italian households insure between 89 and 95 percent of a transitory and between 7 and 9 percent of a permanent income shock. Our estimates are in line with empirical estimates for the same dataset, that do not impose any model structure on the consumption process. This suggests that Italian households do not have access to significant insurance beyond that implied by self-insurance.
    Keywords: Consumption, Wealth, Incomplete markets, Insurance
    JEL: D91 E21
    Date: 2017–07–20
  87. By: David Zeke (University of Southern California)
    Abstract: A number of recent papers use the interaction of firm idiosyncratic volatility shocks with firm financial frictions to explain business cycle fluctuations. I argue that a key parameter for these models is the cost of default, as it has a quantitatively first-order effect on the magnitude of the decline in employment and other aggregates in response to idiosyncratic volatility shocks. I use firm-level panel data and a structural model of financial frictions and volatility shocks to assess the role of volatility shocks and the cost of default on firm and aggregate employment over the business cycle. I find that when the cost of default is calibrated to the range of estimates coming from the corporate finance literature, the model reproduces key cross-sectional moments of equity volatility, bond spreads, and employment growth. However, this calibration implies aggregate employment losses driven by shocks to firm idiosyncratic volatility are modest. I propose two additional shocks calibrated using firm-level panel data which could amplify the decline in employment in the context of such a model. First, the decline in employment is amplified when the increase in firm idiosyncratic risk is modeled not only as a positive second moment shock but also a negative third moment shock. Second, a plausible increase in the cost of default over the business cycle can interact with volatility shocks to dramatically reduce aggregate employment.
    Date: 2017
  88. By: Izumi Yokoyama (Graduate School of Economics, Hitotsubashi University); Kazuhito Higa (Economic and Social Research Institute, Cabinet Office); Daiji Kawaguchi (Graduate School of Economics, University of Tokyo)
    Abstract: We investigate the heterogeneous adjustments of regular and non-regular workers exploiting the exchange rate fluctuation and heterogeneous dependence on international trade across firms as a source of exogenous variation. An analysis of panel data of Japanese manufacturers reveals that the appreciation of Japanese Yen spontaneously decreases the sales of exporters and the employment of non-regular workers, but it moderately reduces the employment of regular workers with a time lag. Firms relying heavily on exporting tend to implement more significant adjustments of non-regular employment in response to exchange rate shocks. This finding provides support for the claim that firms are likely to adjust non-regular workers to absorb exogenous shocks and to insulate regular workers from the shocks in an uncertain business environment.
    Keywords: Exchange Rate; Permanent Shocks; Temporary Shocks
    JEL: E24 F16 F31
    Date: 2018–03–05
  89. By: Heng Chen; Rallye Shen
    Abstract: Calibrated weights are created to (a) reduce the nonresponse bias; (b) reduce the coverage error; and (c) make the weighted estimates from the sample consistent with the target population in terms of certain key variables. This technical report details our calibration analysis of singlelocation retailers for the Retailer Survey on the Cost of Payment Methods. We first compare two types of calibration approaches, consisting of (1) traditional calibration, in which calibration is implemented after explicit nonresponse modelling, and (2) nonresponse-embedded calibration, where the nonresponse correction is automatically built in (Särndal and Lundström, 2005). After carefully selecting auxiliary variables, we find minor differences between these two methods. We also examine the effects of trimming, sample size, smoothing and influential units on the calibrated weights, and show that our calibration is robust in view of these considerations.
    Keywords: E-Money, Econometric and statistical methods
    JEL: C81 C83
    Date: 2017
  90. By: International Monetary Fund
    Abstract: Somalia continued to suffer from drought and sporadic terrorist attacks in 2017. These developments have hurt economic activity, particularly in the north of the country and in rural areas, and temporarily impacted tax collection efforts of the Federal Government of Somalia. However, the authorities have navigated through these challenges, and, with sustained support from the international community, the country has avoided a significant economic slowdown. Program performance was broadly satisfactory at end-June and end-September 2017. On the December program targets, the authorities recently stepped up their efforts by implementing several critical tax measures, which are expected to keep the program on track. This is a testament to the continued strong commitment of the authorities to the SMP despite a very difficult environment.
    Date: 2018–02–26
  91. By: Jacinta C. Nwachukwu (Coventry University, UK.); Aqsa Aziz (Coventry University, UK.); Uchenna Tony-Okeke (Coventry University, UK.); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: This study compares the responsiveness of microcredit interest rates to age, scale of lending and organisational charter. It uses an unbalanced panel of 300 MFIs from 107 developing countries from 2005 to 2015. Three key trends emerge from the results of a 2SLS regression. First, the adoption of formal microbanking practices raises interest rates compared with other forms of microlending. Second, large scale lending lowers interest rates only for those MFIs that already hold legal banking status. Third, age of operation in excess of eight years exerts a negative impact on interest rates, regardless of scale and charter type of MFI. Collectively, our results indicate that policies which incentivise mature MFIs to share their knowledge will be more effective in helping the nascent institutions to overcome their cost disadvantages compared with reforms to transform them into licensed banks. For MFIs which already hold permits to operate as banks, initiatives to increase loan sizes are key strategic pricing decisions, irrespective of the institution’s age. This study is original in its differentiation of the impact on interest rates of regulations which promote formal banking principles, credit market extension vis-à-vis knowledge sharing between mature and nascent MFIs.
    Keywords: Microfinance; microbanks; non-bank financial institutions
    JEL: G21 G23 G28 E43 N20
    Date: 2018–01
  92. By: Francois Gourio (Federal Reserve Bank of Chicago); Emmanuel Farhi (Harvard University)
    Abstract: A large amount of recent (and ongoing) research tries to understand why real interest rates have fallen over the past three decades. We contribute to this literature in three ways. We first document empirically that the large decline in the level of real interest rates has occurred while investment, profitability, and the price-earnings have remained roughly stable. We view these additional moments as important targets for any explanation of interest rates. For instance, an increase in the supply of savings due to an aging population would naturally lead to an increase in investment. We next use a simple endowment economy model to study which explanations can account for the observed moments of asset prices. In a final step, we use a simple business cycle model to show how various factors (such as demographics, lower productivity growth, a larger demand for safe assets, a higher perceived risk premium, or an increase in market power) affect our target moments, outlining a possible identification of the key drivers of the trends.
    Date: 2017
  93. By: International Monetary Fund
    Abstract: The Portuguese economy has strengthened. Supported by a benign external environment, job-rich growth has gathered momentum since late 2016. The headline fiscal balance continued to benefit from stronger growth and falling interest costs, with the 2017 deficit target of 1.4 percent of GDP likely to have been met with some margin. Financial stability has also improved with various bank capital augmentations and the sale of Novo Banco in 2017, while banks have also reduced their NPLs and returned to modest profitability. Growth is projected at 2.2 percent in 2018. Downside risks in the near term are mostly external in nature and appear moderate.
    Date: 2018–02–22
  94. By: Alicia Gómez-Tello (Universitat de València, Spain); Alfonso Díez-Minguela (Universitat de València, Spain); Julio Martínez-Galarraga (Universitat de València, Spain); Daniel A. Tirado-Fabregat (Universitat de València, Spain)
    Abstract: This paper explores regional price variation in early twentieth-century Spain. Using consumer price information from the bulletins published by the Instituto de Reformas Sociales between 1910 and 1920, we build a dataset with a total of 40,581 quotes covering 22 items for each of the 49 provinces. We then estimate provincial price levels following a country-product-dummy (CPD)approach. Our preliminary findings suggest that substantial spatial price variation existed. In line with the Balassa-Samuelson conjecture, it appears that price and productivity levels were somewhat related. Nevertheless, spatial price variation prevails among the less industrialised provinces, and this calls for further research and discussion.
    Keywords: Spain, Prices, Living Standards, Economic Development
    JEL: E01 N00 N9 O11
    Date: 2018–02
  95. By: Juan Benavides; Dora Elisa Laverde; Daniel Garavito
    Abstract: Este documento corresponde al informe final del estudio de Revisión de Gasto del sector Transporte. El ejercicio busca implementar un método permanente para analizar la eficiencia y efectividad de los recursos públicos y proveer recomendaciones. El documento contiene 4 grandes secciones. La primera hace una descripción del gasto en el sector transporte. La segunda, describe el proceso de implementación de fases y actividades de la revisión de gasto. La tercera explica los resultados de la priorización en el sector transporte y la cuarta resume las lecciones aprendidas y recomendaciones.
    Keywords: Transporte, Finanzas Públicas, Gastos Públicos, Regalías, Sistema General de Regalías, Sistema General de Participaciones, Recursos Públicos, Colombia
    JEL: E62 H52 H72 H75 L91 L98 R42
    Date: 2017–07–31
  96. By: Giorgos Galanis (Goldsmiths, University of London); Ashok Kumar
    Abstract: This paper presents a novel understanding of the changing governance structures in global supply chains. Motivated by the global garment sector, we develop a geographical political economy dynamic model which reflects the interaction between bargaining power and distribution of value among buyer and producer firms. We find that the interplay between these two forces, in combination with the spatial specificities of global production, are necessary and sufficient to drive governance structures towards an intermediate position regarding their level of explicit coordination and power asymmetry.
    Keywords: Global value chains, global production networks, uneven development, disequilibrium dynamics, monopsony power
    JEL: D02 D43 E32 R10
    Date: 2018–03
  97. By: Jin Cao (Norges Bank (Central Bank of Norway)); Valeriya Dinger (Universität Osnabrück)
    Abstract: We empirically analyze how bank lending reacts to monetary policy in the presence of global financial flows. Employing a unique and novel dataset of the funding modes and currency composition of the full population of Norwegian banks in structurally identified regressions, we show that the efficiency of the bank lending channel is affected when banks can shift to international funding and thus insulate their costs of funding from domestic monetary policy. We isolate the effect of global factors from domestic monetary policy by focusing on the deviation of exchange rates from the prediction of (uncovered and covered) interest rate parity. The Norwegian banking sector represents an ideal laboratory since the exogenous exchange rate dynamics allows for a convincing identification of the relation between lending and global factors.
    Keywords: monetary policy, foreign funding channel, bank lending channel, exchange rate dynamics
    JEL: E52 F36 G21
    Date: 2018–02–23
  98. By: Alexander Morozov (Bank of Russia, Russian Federation); Yulia Ushakova (Bank of Russia, Russian Federation); Dmitry Chernyadyev (Bank of Russia, Russian Federation); Andrey Sinyakov (Bank of Russia, Russian Federation); Alexey Vasilenko (Bank of Russia, Russian Federation)
    Abstract: This policy brief examines the impact the national currency has on quality of life and on the structure of the economy. In particular, the effects on the economy of depreciation or undervaluation of the national currency (as a result of macroeconomic shocks or policies) are analysed. Length: 17 pages
    Date: 2017–07
  99. By: Shang-Jin Wei; Yinxi Xie
    Abstract: This paper starts by documenting a new fact that consumer price index (CPI) and producer price index (PPI) used to move in tandem within a given country around the world, but start to diverge after 2000. Understanding the source of divergence is important as it potentially affects optimal monetary policies. We propose an explanation via the lens of global value chains. With increased length of production chains, the baskets of CPI and PPI have become more different. We build a model with multi-stage production, and derive tractable analytical solutions to show this point. Moreover, in the model, as production becomes longer, both CPI and PPI become less responsive to a given shock to the first stage of production, and the reduction in responsiveness is greater for CPI. We show that the key predictions of the model are confirmed in the data. Furthermore, we compare model predictions at the country level using calibrations and empirical patterns, and find that the two line up well as well.
    JEL: E5 F1
    Date: 2018–02
  100. By: Alberto Caruso
    Abstract: Market operators monitor a massive flow of macroeconomic information every day, and react to the nexpected component of the releases. Can we replicate in an automatic way market’s pricing of macroeconomic news? In this paper I show that a "Nowcasting Surprise Index", constructed aggregating forecast errors from a nowcasting model using model-based weights, resembles surprise indexes proposed in the recent literature or constructed by practitioners, which cumulate survey-based forecast errors weighting them using the average news effects on asset prices. This suggests that market operators and a nowcasting model filter the macroeconomic data flow in a similar way, and confirms the link between asset prices and news about macroeconomic indicators. Moreover, the paper shows that a nonnegligible part of asset prices behaviour can be associated to the recent cumulated news in macroeconomic data which carry information about the underlying state of the economy. These results also open a new route for algorithmic trading based on macroeconomic conditions.
    Date: 2018–02
  101. By: Oscar Antonio Cutanda (Department of Economic Analysis, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia, Spain); José María Labeaga (Department of Economic Analysis II, UNED, UNED Calle de Bravo Murillo 38, 28015 Madrid, Spain); Juan Sanchis-Llopis (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia, Spain)
    Abstract: In this paper we investigate the implications of aggregation in empirical analyses of Euler equations for consumption. We compare the results obtained after estimating the samemodel, using total and non-durable microeconomic consumption household data, from themaximum aggregation level (National Accounts) to individual data from the SpanishExpenditure Survey (Encuesta Continua de Presupuestos Familiares). We also use thesurvey to build cohort and aggregate data to test the model using different aggregatemeasures of consumption. The results we obtain confirm the theoretical predictionssummarised in Blundell and Stoker (2005) as well as in previous empirical evidence, i.e.aggregation turns out to be crucial to study empirically Euler equations for consumption. The estimated EIS with aggregated data is biased as compared with the correspondingestimate with microeconomic data. Further, the size of the bias increased with the level ofaggregation.
    Keywords: aggregation, intertemporal consumption, microeconomic data
    JEL: D12 C43 E10
    Date: 2018–01
  102. By: David Perez-Reyna (Universidad de los Andes); Xavier Freixas (Universitat Pompeu Fabra)
    Abstract: Excessive credit growth and high asset prices increase the probability of a crisis. Because these two variables are determined in equilibrium, the analysis of systemic risk and the cost-benefit analysis of macroprudential regulation requires a specific framework consistent with the empirical observation. We argue that an overlapping generation model of rational bubbles can explain some of the main features of banking crises and, therefore, provide a microfounded framework for the rigorous analysis of macroprudential policy. We find that credit financed bubbles may have a role as a buffer in reducing excessive investiment at the firms' level and, thus, increasing efficiency. Still, when banks have a risk of going bankrupt a trade-off appears between financial stability and efficiency. When this is the case, macroprudential policy has a key role in improving efficiency while preserving financial stability.
    Date: 2017
  103. By: Carriero, Andrea (Queen Mary University of London); Galvao, Ana Beatriz (University of Warwick); Marcellino, Massimiliano (Bocconi University and CEPR)
    Abstract: In this paper we address three empirical questions related to credit conditions. Do they change the dynamic interactions of economic variables by characterizing different regimes? Do they amplify the effects of economic shocks? Do they generate asymmetries in the effects of economic shocks depending on the size and sign of the shock? To answer these questions, we introduce endogenous regime switching in the parameters of a large Multivariate Autoregressive Index (MAI) model, where all variables react to a set of observable common factors. We develop Bayesian estimation methods and show how to compute responses to common structural shocks. We find that credit conditions do act as a trigger variable for regime changes. Moreover, demand and supply shocks are amplified when they hit the economy during periods of credit stress. Finally, good shocks seem to have more positive effects during stress time, in particular on unemployment.
    Keywords: Credit conditions; Multivariate Autoregressive Index models ; Smooth Transition ; Bayesian VARs ; Large datasets ; Structural Analysis JEL Classification Numbers: E32 ; c11 ; C55 ;
    Date: 2018
  104. By: Mohamed BOLY
    Abstract: This paper empirically investigates the link between foreign aid and pollution, specifically CO2 emissions in developing countries. We use a more complete and recent dataset to re-assess the environmental impact of foreign aid. Focusing on 112 aid recipient countries over the period 1980 - 2013, we find that the effect of aid depends on the donor, with multilateral aid more likely to reduce pollution than bilateral aid for which we find no effect. However, when we more precisely look at the composition of bilateral aid, we find it has an effect when specifically targeted toward environment. This effect is non-linear, since we observe a pollution-reducing effect only for important amounts of bilateral environmental aid.
    Keywords: CO2 emissions, Foreign aid, Environmental aid, Threshold effect.
    JEL: Q54 Q53 O11 F35 E6
    Date: 2018–03
  105. By: Michael Brei; Carlos Winograd
    Abstract: The paper presents both theoretical and empirical analysis to explain the differences in credit risks between branches and subsidiaries of foreign banks. Using a model with costly monitoring and asymmetric information (from the perspective of host country regulators and parent banks), we show theoretical evidence that the optimal amount of monitoring increases with the size of foreign affiliates (relative to their parent banks), regardless of whether their legal form is of a branch or subsidiary. In the case of small affiliates, we argue that there is a conflict of interest between parent banks and regulators, the former of which prefer to operate with riskier and ring-fenced subsidiaries, and the latter of which prefer better-monitored and co-insured branches. Using bank-level data on Argentina and Uruguay prior to their financial crises of 2001-02, we find that (i) larger foreign branches have lower ratios of non-performing loans than foreign subsidiaries and smaller branches and (ii) branches headquartered in more developed economies had fewer non-performing loans.
    Keywords: Bank risks, branches, subsidiaries
    JEL: G21 G15 F36 E44
    Date: 2018
  106. By: Mário Fernando de Sousa (Mestre em economia pelo PPE/UFG.); Sérgio Fornazier Meyrelles Filho (FACE-UFG, Ciências Econômicas); Sabrina Faria de Queiroz (FACE-UFG, Ciências Econômicas); Antônio Marcos de Queiroz (FACE-UFG, Ciências Econômicas)
    Abstract: This study aims to make a systematic investigation of the relevant literature on balance of payments constrained growth. The study begins with a brief introduction of the origins of economic growth constraint models. The second section covered the key elements of this approach, stressing the canonical model developed by Thirlwall and a number of extensions that incorporated capital flows and the sustainable debt. The second section finishes with the recent approach that postulates that income elasticities are endogenous to the level of the real exchange rate and that a depreciation in this rate exerts positive effects on the reduction of the external constraint. The third section proposes a review of the multisectoral approach based on Pasinetti’s work. It was shown that the multisectoral approach is more complete than that one developed by Thirlwall. It was shown that there are signs of convergence in the recent developments of the literature since the multisectoral approach begins to incorporate the fact that a depreciation on the level of the real exchange rate exerts positive effects on the relaxation of the external constraint. The study ends with a simple empirical application of the multisectoral approach to the Brazilian case from 1996 to 2013, where the VAR models showed the existence of evidence that the sectoral share of imports and exports has not changed significantly over the period. The empirical section suggests that, in order to relax the external constraint, Brazil should focus on industrial sectors such as high and medium-low technology since these sectors have high income elasticities of exports and small income elasticities of imports.
    Keywords: Price of land; Economic Growth; Balance of Payments; External Constraint; Multi Sectoral Approach
    Date: 2016–12
  107. By: Natalia Ariza Ramírez; Bibiana Quiroga Forero; María Angélica Ardila Lara
    Abstract: Este documento corresponde al informe final del estudio de Revisión de Gasto del sector Educación. Se compone de cuatro capítulos. En el primero, se describe el panorama general del presupuesto del sector educación, haciendo un análisis particular al Sistema General de Participaciones (SGP) que hace parte del presupuesto de funcionamiento, y a los recursos que se destinan al sector provenientes del Sistema General de Regalías (SGR). En el segundo, se presenta la metodología y el desarrollo de las mesas técnicas. En el tercero, se presentan los resultados generales de la revisión de gasto, de acuerdo con las propuestas que las entidades del sector pusieron a consideración de la mesa técnica. Finalmente, en el cuarto capítulo se presentan las lecciones aprendidas para las diferentes etapas del proceso y las recomendaciones estratégicas para avanzar en la eficiencia del gasto en el sector educación.
    Keywords: Educación, Gastos Públicos, Regalías, Sistema General de Regalías, Sistema General de Participaciones, Finanzas Públicas, Colombia
    JEL: I28 H52 H72 H75 E62
    Date: 2017–07–31
  108. By: Sergio Henrique Rodrigues da Silva; Benjamin Miranda Tabak; Daniel Oliveira Cajueiro; Dimas Mateus Fazio
    Abstract: This paper examines the relation between financial depth and the interaction of economic growth and its volatility. We use a sample of 52 countries for the period 1980–2011, and our main finding is that, at moderate levels of financial depth, further deepening increases the ratio of average economic growth to volatility; however, as financial depth gets higher, this relation reverts, and the rise in volatility overcomes that of economic growth. This result is obtained both in the medium and long run; however, the peak of the relation seems to be lower in the medium run (domestic credit-to-GDP ratio around 40% to 55%) than in the long run (around 75% to 99%). This suggests that increasing the domestic credit-to-GDP ratio may intensify relative volatility in the medium term, but still may raise relative long-term growth before the long-run threshold is achieved
    Date: 2018–03
  109. By: Vivian de Castro (Graduada em Economia pela Universidade Federal de Goiás (UFG)); Sérgio Fornazier Meyrelles Filho (FACE-UFG, Ciências Econômicas); Sabrina Faria de Queiroz (FACE-UFG, Ciências Econômicas); Paula Andrea do Valle Hamberger (FACE-UFG, Ciências Econômicas)
    Abstract: This paper aims to study the political business cycles starting with the identification of central theoretical and empirical elements highlighted in the literature on this subject. Going through opportunistic, partisan and rational expectations models, we finally test for the possible existence of opportunistic political cycles for the state of Goias. This analysis estimate moving average autoregressive models, for 1995-2010 and 2002-2010, including a dummy variable in order to identify pre-election períods. We find evidence of opportunistic manipulation only in relation to inflation rates, finding no evidences with regard to output's behavior.
    Keywords: Cycles, ARMA, Inflation, Output, Election
    Date: 2016–12
  110. By: Florian Huber; Philipp Piribauer (WIFO)
    Abstract: We develop a multivariate dynamic factor model that exploits euro area country-specific information on output and inflation for estimating an area-wide measure of the output gap. In the proposed multi-country framework we moreover allow for flexible stochastic volatility specifications for both the error variances and the innovations to the latent quantities in order to deal with potential changes in the commonalities of business cycle movements. By tracing the relative importance of the common euro area output gap component as a means to explaining movements in both output and inflation over time, the paper provides valuable insights in the evolution of the degree of synchronicity of the country-specific business cycles. In an out-of-sample forecasting exercise, the paper shows that the proposed approach performs well as compared to other well-known benchmark specifications.
    Keywords: European Business Cycles, Dynamic factor model, Forecasting
    Date: 2018–03–13
  111. By: Peter Havlik (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Vladimir Putin’s presidency will last until 2024 – longer than most other Russian or Soviet leaders ruled. This Policy Note provides a brief review of past economic developments and reform attempts. We argue that past reforms have in effect failed yet the main economic challenges currently facing Russia remain essentially the same as two decades ago excessive dependence on energy, lack of diversification, poor investment climate, corruption, etc. What has changed is the resort to assertive behaviour and inward-looking economic policies which replaced the European integration vector prevalent at the beginning of the 2000s. We argue that without normalisation of external relations, there will be no breakthrough in the vicious circle of sanctions, protectionism, and lack of investments and economic integration. Otherwise, Russia will likely face not only economic stagnation, but even the risk of economically falling behind the peers in the East, South and West – ultimately endangering the social and eventually even political stability at home and in the neighbourhood.
    Keywords: Russia, Vladimir Putin, economic reforms, economic integration
    JEL: E6 F4 O4 O5
    Date: 2018–03
  112. By: Frédéric Ghersi (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - AgroParisTech - EHESS - École des hautes études en sciences sociales - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement)
    Abstract: This working paper details in 3 sections (i) the data collection and treatment that were necessary to apply IMACLIM-P to a 28-country European Union (EU); (ii) the particulars of a version of IMACLIMP dedicated to a prospective outlook on the penetration of electric passenger cars in the EU, including how results of the PAN-EU TIMES model of energy systems can be imported in IMACLIMP, together with the complete set of equations of the model; (iii) model implementation.
    Date: 2018–01–24
  113. By: Maurício C. Coutinho (Universidade de Campinas); Carlos Eduardo Suprinyak (Cedeplar/UFMG)
    Abstract: Though contemporaries, Adam Smith and Sir James Steuart are commonly portrayed as men belonging to different eras. Whereas Smith went down in history both as founder of Classical Political Economy and patron of economic liberalism, Steuart became known as the last, outdated advocate of mercantilist policies in Britain. Smith himself was responsible for popularizing the notion of the ‘system of commerce’ as an approach to political economy that dominated British thought during the early modern period. As it evolved into a historiographical concept, the mercantile system came to be seen as an international trade theory grounded upon the fallacious doctrine of the favorable balance of trade. In the Wealth of Nations, however, Smith puts limited emphasis on international trade as a theoretical concern. His analysis of the subject, moreover, was marred by lack of analytical clarity, which caused him to be chastised by some among his followers who adhered more enthusiastically to the free trade cause. Given Smith’s doubtful credentials as a free trade theorist, in this paper we try to analyze the reasons that led him and Steuart to be historically placed on opposite sides of the mercantilist divide. To do so, we analyze the works of both authors in depth, showing that their disagreements in matters of economic policy have chiefly to do with different views about the role of money in the economy. Additionally, we explore how early-19th century writers helped forge the intellectual profiles of both Steuart and Smith.
    Keywords: Free trade, money, mercantilism, Adam Smith, James Steuart
    JEL: B11 B12 E40 F10
    Date: 2018–02
  114. By: Rodrigo Alfaro; Antonio Fernandois; Andrés Sagner
    Abstract: In this paper we present a simple tool to calculate the forward rate curve for Chile from a set of interest rates grouped by maturity using a linear version of the Nelson-Siegel model. Our results show that (i) the forward rate is a weighted average of zero-coupon rates, and (ii) the weights are time-invariant if the set of interest rates used in the estimations is always the same.
    Date: 2018–03
  115. By: Juan Benavides; Astrid Martínez; Leonardo Villar; David Forero
    Abstract: Este estudio estima el costo económico social causado por la incertidumbre en la normativa de los procesos de licenciamiento ambiental y las consultas previas en los sectores de minería, hidrocarburos, energía, telecomunicaciones e infraestructura. Con tal fin, el estudio presenta la interacción entre los agentes involucrados en los procesos de licenciamiento ambiental y consultas previas, y a su vez discute el marco institucional y legal, y describe estudios de caso que ilustran los problemas y los costos reales en los sectores mencionados. Para calcular el costo económico, el estudio modeló diferentes impactos por sector usando un modelo de equilibrio general para distintos escenarios.
    Keywords: Infraestructura, Telecomunicaciones, Costo Económico Social, Minería, Hidrocarburos, Energía, Instituciones, Licencias Ambientales, Consultas Previas
    JEL: L71 H54 O18 O43 E02 Q56
    Date: 2017–08–31
  116. By: Facundo Piguillem (EIEF); Alessandro Riboni (Ecole Polytechnique and CREST)
    Abstract: Most fiscal rules can be overridden by consensus.We show that the possibility of overridding does not make fiscal rules ineffectual. Since fiscal rules determine the outside option in case of disagreement, the opposition uses fiscal rules as “bargaining chips”. The party in power offers spending concessions to the opposition to avoid the application of the fiscal rule. This political bargain reduces the incentive for inefficient debt accumulation. We analyze three standard fiscal rules: government shutdown, budget balance and mandatory spending, and show that when political polarization is high, a government shutdown provision maximizes the bargaining power of the opposition and leads to a sizeable reduction of debt. When the degree of polarization is low, a balanced budget rule is preferable. Mandatory spending eliminates the incentive to over-accumulate debt by reducing political risk. However, it gives a considerable advantage to the initial incumbent, generating large and persistent static inefficiencies.
    Date: 2018
  117. By: Mariam El Hamiani Khatat
    Abstract: Two types of currency in circulation models are identified: (1) a first generation derived from the theory of money demand and (2) a second generation aimed at producing daily forecasts of currency in circulation. In this paper, we transform the currency demand function into a VAR to capture the dynamic link between interest rates and the demand for cash. We also apply ARIMA modeling to forecast the daily currency in circulation for Brazil, Kazakhstan, Morocco, New Zealand, and Sudan. Our empirical work shows that some of the conclusions in the economic literature on the impact of interest rates on the demand for currency do not necessarily hold, and that central banks would benefit from running both generations of currency in circulation models. The fundamental longer-run determinants of the demand for cash are distinct from its short-run determinants.
    Date: 2018–02–16
  118. By: Vasilev, Aleksandar
    Abstract: We introduce an environmental dimension into a real-business-cycle model augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of utility-enhancing environmental quality, and the mechanics of environmental ("carbon") tax on polluting production, as well as the effect of government spending on pollution abatement over the cycle. In particular, a positive shock to pollution emission in the model works like a positive technological shock, but its effect is quantitatively very small. Allowing for pollution as a by-product of production improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework, e.g., Vasilev (2009).
    Keywords: Business cycles,pollution,environmental quality,environmental tax,abatement spending
    JEL: E32 C68 Q58
    Date: 2018
  119. By: Thomas von Brasch; Diana-Cristina Iancu; Arvid Raknerud (Statistics Norway)
    Abstract: We reconcile two different strands of the literature: the literature on how new goods impact prices and the literature on productivity growth and firm turnover. To our knowledge, this is the first paper to provide a fully consistent decomposition of aggregate productivity growth that identifies the contribution from new firms producing new varieties. We extend the estimator for the demand elasticity, proposed by Feenstra (1994) and supplemented by Soderbery (2015), in two dimensions: First, we create a two-stage estimation framework that exploits the boundary cases where simultaneity is not an issue, i.e. when supply is elastic or inelastic, to obtain a more efficient estimator. Second, we make it robust towards choice of reference unit. To illustrate the decomposition and estimator, we analyse the case of firm turnover in Norway, using panel data covering the period from 1995 to 2016 for manufacturing firms. Our results indicate that net creation of new varieties from firm turnover contributes by about one half percentage point to annual aggregate productivity growth.
    Keywords: Aggregation; Productivity growth; Variety gains; Demand elasticity
    JEL: C43 E24 O47
    Date: 2018–03
  120. By: Jose Fique
    Abstract: This report provides a detailed technical description of the updated MacroFinancial Risk Assessment Framework (MFRAF), which replaces the version described in Gauthier, Souissi and Liu (2014) as the Bank of Canada’s stress-testing model for banks with a focus on domestic systemically important banks (D-SIBs). This new version incorporates the characteristics of the previous model and also includes fire-sale effects resulting from the regulatory leverage constraints faced by banks, as well as an enhanced treatment of feedback-loop effects between solvency and liquidity risks through both the pricing and costly asset-liquidation channels. These new features improve the model’s ability to capture the non-linear effects of risk scenarios on D-SIBs’ capital positions and shed light on the importance of additional channels of stress propagation. The model is also subject to a comprehensive sensitivity analysis.
    Keywords: Financial stability, Financial system regulation and policies
    JEL: G01 G21 G28 C72 E58
    Date: 2017
  121. By: Bradley Jones
    Abstract: Motivated by the tension first revealed during the global financial crisis between the domestic and international financial stability obligations of central bank reserve managers, this paper offers some reflections along four main lines. First, the paper highlights how official reserve management has evolved to mirror important aspects of private institutional investor behavior over time, and addresses the policy relevance of this convergence. Second, evidence is documented of procyclical portfolio behavior by reserve managers during the crisis, which added to the stabilization burden shouldered by central banks in reserve currency-issuing countries. Third, in appraising the evolution of related vulnerabilities since the crisis, the paper finds grounds for both cautious optimism and lingering concern, the balance of which points to an uncertain future resolution. Fourth, some potential remedies are presented to help dampen the procyclical impulses of reserve managers in future periods of international financial turbulence.
    Date: 2018–02–16
  122. By: Fornaro, Paolo
    Abstract: Finland is characterized by a substantial heterogeneity across its regions. Key economic indicators, such as the GDP per capita and the unemployment rate, vary widely for different areas, with Uusimaa, the region where Helsinki is located, being significantly richer than regions such as Kainuu and Savo. This heterogeneity, however, has not been stable over time. We find that many important indicators, namely the GDP per capita, the unemployment rate and real wages and salaries per employee, have been converging across regions over the years going from 2000 to 2014. Moreover, we examine regional values and attitudes, using surveys from the Finnish Business and Policy Forum, and find that there has been a strong regional convergence in terms of trust in political parties and in the EU. In particular, we find that the trust in these institutions has increased more in regions where there was a more negative attitude toward parties and the EU during the initial years of our analysis. On the other hand, we do not find a significant convergence with respect to the attitude towards immigration.
    Keywords: Convergence, Regional heterogeneity, Values and attitudes
    JEL: A13 E02
    Date: 2018–03–09
  123. By: Davoine, Thomas (Institute for Advanced Studies, Vienna)
    Abstract: Population aging challenges the financing of social security systems in developed economies, as the fraction of the population in working age declines. The resulting pressure on capital-labor ratios translates into a pressure on factor prices and production. While European countries all face this challenge, the speed at which their population ages differs, and thus the pressure on capital-labor ratios. If capital markets are integrated, differences in population aging may lead to cross-country spillovers, as investors freely seek the best returns on capital. Using a multi-country overlapping-generations model covering 14 European Union countries, I quantify spillovers and find that capital market integration leads to redistribution across countries over the long run. For instance, GDP per capita would on average be 2.9 %-points lower in Germany in each of the next 50 years if capital markets were perfectly integrated and public debts kept constants with increases in labor income taxes, compared to a closed economy case; by contrast, GDP per capita would on average be 2.1 %-points higher in France, whose population ages slower than in Germany. I also show that pension reforms can change the cross-country redistribution patterns, some countries losing from capital market integration without the reform but winning with it.
    Keywords: population aging, pension reforms, capital markets, cross-country spillovers, overlapping-generations modelling
    JEL: C68 E60 F41 J11
    Date: 2018–02
  124. By: Abuselidze, George
    Abstract: In the last decade of XX century, has expanded the area of capital movements, which included the former socialist countries. Thus, the countries that are attracting some of the centers of the capital and at the same time, participate in the export of capital, it is impossible not to have engaged in a global economy. Our country has been greatly involved in the processes of globalization. At the same time, Georgia's future development will depend on how the country is adapting to globalization with the need for policy implementation, the political, economic and organizational actuating levers. In this regard, the need for more emphasis on the intellectual forces of international finance - financial institutions with their own interests, the use of integrated approaches to economic development, high rates of achievement, social and economic policy harmonization, social inequality mitigation. Finally, the orientation of foreign economic priorities have to be organic in conjunction with the ongoing processes, it must define the strategic objectives of the national economy.
    Keywords: Public Finance,Financial Aspects,Economic Integration,Macroeconomic Policy,Fiscal Policy
    JEL: F36 H30 E60
    Date: 2018
  125. By: Izu, Akhenaton
    Abstract: Referring to several rebellions in Africa, referring to troubles after each election in Africa, the purpose of that paper is to analyze the strengths and the weaknesses of each democratic regime in Africa. Indeed, according to customary past of Africa, according to the drifts of the presidentialism, from our analyses, it rises that the best democratic regime in Africa are those which do not facilitate the emergence of a strong man to the summit of the state (parliamentary system, constitutional monarchy, hybrid republican system). From the econometric analyses, we deduce that the practice of the democracy in the economies of the second group attracts more investments and improves the investment climate.
    Keywords: Democracy, Presidentialism, Investment climate
    JEL: E20 H10 H12
    Date: 2018–01–07
  126. By: Jean-Bernard Chatelain (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)
    Abstract: A number of macroeconomic theories, very popular in the 1980s, seem to have completely disappeared and been replaced by the dynamic stochastic general equilibrium (DSGE) approach. We will argue that this replacement is due to a tacit agreement on a number of assumptions, previously seen as mutually exclusive, and not due to a settlement by "nature". As opposed to econometrics and microeconomics and despite massive progress in the access to data and the use of statistical softwares, macroeconomic theory appears not to be a cumulative science so far. Observational equivalence of different models and the problem of identification of parameters of the models persist as will be highlighted by examining two examples: one in growth theory and a second in testing inflation persistence.
    Keywords: Macroeconomic theory,controversies,identification,economic growth,convergence,inflation persistence,B22, B23, B41, C52, E31, O41, O47
    Date: 2018–03
  127. By: Nijolë Valinskytë (Bank of Lithuania); Erika Ivanauskaitë (Bank of Lithuania); Darius Kulikauskas (Bank of Lithuania); Simonas Krëpðta (Bank of Lithuania)
    Abstract: This paper aims to explain the relationship between risk-based and LR requirements and the motivation for the macroprudential use of LR requirements. The rest of the paper is structured as follows. First, we define the LR and the microprudential requirement that is based on it (Chapter 1) and discuss the merits and drawbacks of risk-weighted and nonrisk-weighted capital requirements, assessing how LR requirements can improve the current capital regulation framework (Chapter 2). Then, we turn to the stylized quantitative relationship between the two kinds of requirements and illustrate the rationale for macroprudential LR add-ons (Chapter 3). Further on, we consider legal issues, with a focus on the EU (Chapter 4) and review the country experience with LR requirements (Chapter 5). Finally, we take a look at the LR situation in the Lithuanian banking sector (Chapter 6) and conclude.
    Date: 2018–03–07

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