nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒04‒16
105 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. One money, many markets: a factor model approach to monetary policy in the Euro Area with high-frequency identification By Corsetti, Giancarlo; Duarte, Joao B.; Mann, Samuel
  2. The Anchoring of Inflation Expectations in Japan: A Learning-Approach Perspective By Yoshihiko Hogen; Ryoichi Okuma
  3. Business Cycles in Economics By Ledenyov, Viktor O.; Ledenyov, Dimitri O.
  4. Monetary policy with non-homothetic preferences By Cavallari, Lilia
  5. QE in the future: the central bank’s balance sheet in a fiscal crisis By Reis, Ricardo
  6. DSGE forecasts of the lost recovery By Cai, Michael; Del Negro, Marco; Giannoni, Marc; Gupta, Abhi; Li, Pearl; Moszkowski, Erica
  7. The importance of hiring frictions in business cycles By Faccini, Renato; Yashiv, Eran
  8. Investment as a transmission mechanism from weak demand to weak supply and post-crisis productivity slowdown By Patrice Ollivaud; Yvan Guillemette; David Turner
  9. Here Lives a Wealthy Man: Price Rigidity and Predictability in Luxury Housing Markets By Levy, Daniel; Snir, Avichai
  10. Credibility and Monetary Policy By Mengus, Eric; Barthelemy, Jean
  11. Disinflation and improved anchoring of long-term inflation expectations - The Icelandic experience By Thórarinn G. Pétursson
  12. Resurrecting the New-Keynesian Model: (Un)conventional Policy and the Taylor Rule By Olaf Posch
  13. Growth Facts with Intellectual Property Products: An Exploration of 31 OECD New National Accounts By Sangmin Aum; Dongya Koh; Raül Santaeulàlia-Llopis
  14. A well-timed raise in inflation targets By Javier G. Gómez-Pineda
  15. A Decade After Lehman: Taking Stock of Quantitative Easing and Regulation By Ramaswamy, R.
  16. Credit and money creation from the integrated accounts perspective By Tomas Ramanauskas; Skirmante Matkenaite; Virgilijus Rutkauskas
  17. Does unemployment aggravate suicide rates in South Africa? Some empirical evidence By Andrew Phiri; Doreen Mukuka
  18. DSGE Reno: Adding a Housing Block to a Small Open Economy Model By Christopher G Gibbs; Jonathan Hambur; Gabriela Nodari
  19. Detrending and financial cycle facts across G7 countries: mind a spurious medium term! By Schüler, Yves S.
  20. Expectations' Dispersion & Convergence towards Central Banks' IR forecasts: Chile, Colombia, Mexico, Peru & United Kingdom, 2004-2014 By Barrera Chaupis, Carlos
  21. Assessing International Commonality in Macroeconomic Uncertainty and Its Effects By Carriero, Andrea; Clark, Todd E.; Marcellino, Massimiliano
  22. Exchange rate misalignment, capital flows, and optimal monetary policy trade-offs By Corsetti, Giancarlo; Dedola, Luca; Leduc, Sylvain
  23. Parameter heterogeneity, persistence and cross-sectional dependence: new insights on fiscal policy reaction functions for the Euro area By R. Golinelli; I. Mammi; A. Musolesi
  24. Some Thoughts on the External Finance Premium and the Cost of Internal Finance By Brissimis, Sophocles N.; Papafilis, Michalis; Vlassopoulos, Thomas
  25. Protectionist Trade Barriers to Threaten Policy-induced Debt Trap By Xing, Victor
  26. The FDI-growth nexus in South Africa: A re-examination using quantile regression approach By Hlalefang Khobai; Nicolene Hamman; Thando Mkhombo; Simba Mhaka; Nomahlubi Mavikela; Andrew Phiri
  27. Renoncer à la théorie des zones monétaires optimales ? By Landais, Bernard
  28. Monetary policy coordination leader followership By Raputsoane, Leroi
  29. Aging, Secular Stagnation and the Business Cycle By Callum Jones
  30. Assessing Temporary Product-Specific Subsidies: A Time Series Intervention Analysis By David Leuwer; Bernd Süssmuth
  31. Long-run cointegration between foreign direct investment, direct investment and unemployment and South Africa By Nampasa Chella; Andrew Phiri
  32. Changes in the relationshp between interest rates and housing prices in South Africa around the 2007 financial crisis By Nwabisa Kolisi; Andrew Phiri
  33. Monetary Policy obeying the Taylor Principle Turns Prices into Strategic Substitutes By Camille Cornand; Frank Heinemann
  34. Perspectives on the economy and Fed policy: why continuing to remove monetary accommodation is appropriate: remarks at the Springfield Regional Chamber Outlook 2018, Springfield, Massachusetts, March 9, 2018 By Rosengren, Eric S.
  35. Digital Innovations in Public Finance: An Efficient Use of Resources By Chakraborty, Lekha; Agarwal, Samiksha
  36. What is the Major Source of Business Cycles : Spillovers from Land Prices, Investment Shocks, or Anything Else? By Shirota, Toyoichiro
  37. Monedas digitales emitidas por bancos centrales: una valoracion de su adopcion en LatAm By Noelia Camara; Enestor Dos Santos; Francisco Grippa; Javier Sebastian; Fernando Soto; Cristina Varela
  38. Deflation forces and inequality By Rod Tyers; Yixiao Zhou
  39. Explaining theSlowU.S.Recovery: 2010–2017 By Ray C. Fair
  40. Inflation persistence in BRICS countries: A quantile autoregressive (QAR) approach By Andrew Phiri
  41. On real interest rates, tariff policy, exchange rates and the ZLB By Sweder van Wijnbergen
  42. Credit Misallocation During the European Financial Crisis By Fabiano Schivardi; Enrico Sette; Guido Tabellini
  43. The nature of firm growth By Pugsley, Benjamin W.; Sedlacek, Petr; Sterk, Vincent
  44. Intermediary Asset Pricing and the Financial Crisis By Zhiguo He; Arvind Krishnamurthy
  45. Fiscal Spillovers; The Importance of Macroeconomic and Policy Conditions in Transmission By Patrick Blagrave; Giang Ho; Ksenia Koloskova; Esteban Vesperoni
  46. Optimal Fiscal Policy – Factors for the Formation of the Optimal Economic and Social Models By George Abuselidze
  47. Spillover Implications of Differences in Monetary Conditions in the United States and the Euro Area By Carolina Osorio; Esteban Vesperoni
  48. Interest rate reforms and economic growth: the savings and investment channel By Clement Moyo; Pierre Le Roux
  49. Business cycle narratives By Vegard Høghaug Larsen; Leif Anders Thorsrud
  50. Understanding the US natural gas market: A Markov switching VAR approach By Chenghan Hou; Bao H. Nguyen
  51. Inflation and Fertility in a Schumpeterian Growth Model: Theory and Evidence By He, Qichun
  52. The international transmission of monetary policy By Buch, Claudia M.; Bussiere, Matthieu; Goldberg, Linda S.; Hills, Robert
  53. Firms’ and households’ investment in Italy: the role of credit constraints and other macro factors By Claire Giordano; Marco Marinucci; Andrea Silvestrini
  54. Endogenous Uncertainty By Carriero, Andrea; Clark, Todd E.; Marcellino, Massimiliano
  55. On the Persistence of UK Inflation: A Long-Range Dependence Approach By Guglielmo Maria Caporale; Luis A. Gil-Alana; Tommaso Trani
  56. Real Effects of Financial Distress: The Role of Heterogeneity By Francisco Buera; Sudipto Karmakar
  57. Stock Market Returns and Consumption By Di Maggio, Marco; Kermani, Amir; Majlesi, Kaveh
  58. Counterintuitive facts regarding household saving in China: the saving glut By Kevin Luo; Tomoko Kinugasa
  59. The ECB's fight against low inflation : On the effects of ultra-low interest rates By van Riet, Ad
  60. The economic consequences of the Brexit Vote By Born, Benjamin; Müller, Gernot J.; Schularick, Moritz; Sedlacek, Petr
  61. The Retirement-Consumption Puzzle: New Evidence from Personal Finances By Arna Olafsson; Michaela Pagel
  62. Elecricity intensity and unemployment in South Africa: A quantile regression analysis By Tafadzwa Ruzive; Thando Mkhombo; Simba Mhaka; Nomahlubi Mavikela; Andrew Phiri
  63. Investigating the macroeconomic determinants of household debt in South Africa By Anelisa Nomatye; Andrew Phiri
  64. Social subsidies and marketization - the role of gender and skill By Duval-Hernandez, Robert; Fang, Lei; Ngai, L. Rachel
  65. Time-consistently undominated policies By Brendon, Charles; Ellison, Martin
  66. Euro area real-time density forecasting with financial or labor market frictions By McAdam, Peter; Warne, Anders
  67. Monetary policy and cross-border interbank market fragmentation: lessons from the crisis By Blattner, Tobias Sebastian; Swarbrick, Jonathan M.
  68. Interest rate reforms and economic growth: the savings and investment channel By Moyo, Clement; Le Roux, Pierre
  69. The Dynamic Effects of Fiscal Consolidation Episodes on Income Inequality By Philipp Heimberger
  70. Does the Steindl-Dutt Investment Function Rule Out Profit-Led Expansion? By Deepankar Basu
  71. The Geography of Talent: Development Implications and Long-Run Prospects By Michal BURZYŃSKI; Christoph DEUSTER; Frédéric DOCQUIER
  72. The Geography of Talent: Development Implications and Long-Run Prospects By Michal BURZYŃSKI; Christoph DEUSTER; Frédéric DOCQUIER
  73. Is there hysteresis in South African unemployment? Evidence form the post-recessionary period By Vuyo Pikoko; Andrew Phiri
  74. Second-Generation Fiscal Rules; Balancing Simplicity, Flexibility, and Enforceability By Luc Eyraud; Xavier Debrun; Andrew Hodge; Victor Duarte Lledo; Catherine A Pattillo
  75. Fiscal Rules; Coping with Revenue Volatility in Lesotho and Swaziland By Jiro Honda; Manabu Nose; Cesar Sosa Padilla; Jose L. Torres; Murna Morgan; Fernando G Im; Natalia A Koliadina
  76. The macroeconomic impact of microeconomic shocks: beyond Hulten's Theorem By Baqaee, David Rezza; Farhi, Emmanuel
  77. Friedman's presidential address in the evolution of macroeconomic thought By Mankiw, N. Gregory; Reis, Ricardo
  78. A residential land price index for Luxembourg: Dealing with the spatial dimension By GLUMAC Brano; HERRERA-GOMEZ Marcos; LICHERON Julien
  79. Imputation of Pension Accruals and Investment Income in Survey Data By Andrew Aitken; Martin Weale
  80. Fiscal Policy, as the “Employer of Last Resort”: Impact of Direct fiscal transfer (MGNREGA) on Labour Force Participation Rates in India By Chakraborty, Lekha S; Singh, Yadawendra
  81. Banks’ holdings of and trading in government bonds By Michele Manna; Stefano Nobili
  82. China Spillovers; New Evidence From Time-Varying Estimates By Davide Furceri; João Tovar Jalles; Aleksandra Zdzienicka
  83. Supporting Strong, Steady, and Sustainable Growth By Williams, John C.
  84. The US Opidemic: Prescription Opioids, Labour Market Conditions and Crime By Deiana, Claudio; Giua, Ludovica
  85. Stock market reactions to wars and political risks: A cliometric perspective for a falling empire By Hanedar, Avni Önder; Yaldız Hanedar, Elmas
  86. Financial Centrality and Liquidity Provision By Arun G. Chandrasekhar; Robert Townsend; Juan Pablo Xandri
  87. Revisiting the Economic Case for Fiscal Union in the Euro Area By Helge Berger; Giovanni Dell'Ariccia; Maurice Obstfeld
  88. A framework to improve performance measurement in engineering projects By Li Zheng; Claude Baron; Philippe Esteban; Rui Xue; Qiang Zhang
  89. Innovation, Productivity Dispersion, and Productivity Growth By Lucia Foster; Cheryl Grim; John C. Haltiwanger; Zoltan Wolf
  90. Does the volatility of commodity prices reflect macroeconomic uncertainty? By Marc Joëts; Valérie Mignon; Tovonony Razafindrabe
  91. FIW Note No. 25 - März 2018 By Cornelius Hirsch; Roman Stöllinger
  92. Recovery from Financial Crises in Peripheral Economies, 1870-1913 By Peter H. Bent
  93. Education and labour market: estimating future skill gap in India By Majumder, Rajarshi; Mukherjee, Dipa; Ray, Jhilam
  94. Italy: Quantifying the Benefits of a Comprehensive Reform Package By Michal Andrle; Alvar Kangur; Mehdi Raissi
  95. Initial Coin Offerings and the Value of Crypto Tokens By Christian Catalini; Joshua S. Gans
  96. Tracing value-added and double counting in sales of foreign affiliates and domestic-owned companies By Miroudot, Sébastien; ye, ming
  97. Budgetary Rules at the Regional Level: Main Approaches and Recommendations By Alexeev, Michael; Arlashkin, Igor; Barbashiova, Natalya; Deryugin, Alexander; Komarnitskaya, Anna; Moguchev, Nikita; Tischenko, Tatiana; Filippova, Irina
  98. Sub-Saharan African Migration; Patterns and Spillovers By Jesus R Gonzalez-Garcia; Ermal Hitaj; Montfort Mlachila; Arina Viseth; Mustafa Yenice
  99. Annuity Markets and Capital Accumulation By Shantanu Bagchi; James Feigenbaum
  100. Reconciling the Original Schumpeterian Model with the Observed Inverted-U Relationship between Competition and Innovation By Roberto Bonfatti; Luis A. Bryce Campodonico; Luigi Pisano
  101. The option value of vacant land and the optimal timing of city extensions By Rutger-Jan Lange; Coen Teulings
  102. Shining a Light on Purchasing Power Parities By Maxim Pinkovskiy; Xavier Sala-i-Martin
  103. Les modèles multi-agents et leurs conséquences pour l’analyse macroéconomique By Mauro Napoletano
  104. A Data Map of Existing UK Data Sources Related to Regional Trade By Alastair Greig; Katerina Lisenkova; Graeme Roy
  105. The impact of exchange rate on exports in South Africa. By Ngondo, Mashilana; Khobai, Hlalefang

  1. By: Corsetti, Giancarlo; Duarte, Joao B.; Mann, Samuel
    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 E44 E52
    Date: 2018–02
  2. By: Yoshihiko Hogen (Bank of Japan); Ryoichi Okuma (Bank of Japan)
    Abstract: This paper employs a model of learning about long-term inflation to jointly estimate long-term inflation expectations and the degree to which they have been anchored to the 2 percent inflation mark over the last half century in Japan. The estimated model shows that long-term inflation expectations declined to about 2 percent in the late 1980s and remained anchored to the 2 percent mark until the mid-1990s. They fell below 2 percent in the late 1990s, which resulted in a low degree of anchoring until the early 2010s. Following the introduction of the price stability target of 2 percent and the launch of Qualitative and Quantitative Monetary Easing in early 2013, inflation expectations rose until early 2015, but have not yet been anchored to the target. A further VAR analysis demonstrates that markups in domestic goods and services markets are one important reason why expectations have not been anchored at 2 percent since the late 1990s.
    Keywords: Inflation expectations; Anchoring; Learning
    JEL: D83 D84 E31 E58
    Date: 2018–04–06
  3. By: Ledenyov, Viktor O.; Ledenyov, Dimitri O.
    Abstract: The business cycles are generated by the oscillating macro-/micro-/nano- economic output variables in the economy of the scale and the scope in the amplitude/frequency/phase/time domains in the economics. The accurate forward looking assumptions on the business cycles oscillation dynamics can optimize the financial capital investing and/or borrowing by the economic agents in the capital markets. The book's main objective is to study the business cycles in the economy of the scale and the scope, formulating the Ledenyov unified business cycles theory in the Ledenyov classic and quantum econodynamics.
    Keywords: Business cycles, economic output waves, investment portfolio
    JEL: C1 C6 D8 E01 E3 E32 E37 E5 O3
    Date: 2018–03–05
  4. By: Cavallari, Lilia
    Abstract: This paper studies the role of non-homothetic preferences for monetary policy from both a positive and a normative perspective. It draws on a dynamic stochastic general equilibrium model characterized by preferences with a variable elasticity of substitution among goods and with price adjustment costs à la Rotemberg. These preferences have remarkable implications for monetary policy. Three main results stand out from a comparison of models with an increasing and a constant elasticity. First, an increasing elasticity induces novel intertemporal substitution effects that amplify the propagation of monetary and technology shocks. Second, it weakens the ability of a simple Taylor rule to attain a given level of macroeconomic stabilization. Third, the smallest welfare losses can be attained by stabilizing both inflation and output, in contrast to the prevailing view - based on models with a constant elasticity - that the best thing the monetary authority can do is to control inflation only.
    Keywords: non-homothetic preferences; monetary policy; output stabilization; inflation stabilization; Taylor rule; new-Keynesian model; time-varying elasticity.
    JEL: E12 E32 E52 E61
    Date: 2018–02
  5. By: Reis, Ricardo
    Abstract: Analyses of quantitative easing (QE) typically focus on the recent past studying the policy’s effectiveness during a financial crisis when nominal interest rates are zero. This paper examines instead the usefulness of QE in a future fiscal crisis, modeled as a situation where the fiscal outlook is inconsistent with both stable inflation and no sovereign default. The crisis can lower welfare through two channels, the first via aggregate demand and nominal rigidities, and the second via contractions in credit and disruption in financial markets. Managing the size and composition of the central bank’s balance sheet can interfere with each of these channels, stabilizing inflation and economic activity. The power of QE comes from interest-paying reserves being a special public liability, neither substitutable by currency nor by government debt.
    JEL: E44 E58 E63
    Date: 2017–04
  6. By: Cai, Michael (Federal Reserve Bank of New York); Del Negro, Marco (Federal Reserve Bank of New York); Giannoni, Marc (Federal Reserve Bank of Dallas); Gupta, Abhi (Federal Reserve Bank of New York); Li, Pearl (Federal Reserve Bank of New York); Moszkowski, Erica (Harvard Business School)
    Abstract: The years following the Great Recession were challenging for forecasters. Unlike other deep downturns, this recession was not followed by a swift recovery, but generated a sizable and persistent output gap that was not accompanied by deflation as a traditional Phillips curve relationship would have predicted. Moreover, the zero lower bound and unconventional monetary policy generated a policy environment without precedents. We document the real real-time forecasting performance of the New York Fed dynamic stochastic general equilibrium (DSGE) model during this period and explain the results using the pseudo real-time forecasting performance results from a battery of DSGE models. We find the New York Fed DSGE model’s forecasting accuracy to be comparable to that of private forecasters—and notably better, for output growth, than the median forecasts from the FOMC’s Summary of Economic Projections. The model’s financial frictions were key in obtaining these results, as they implied a slow recovery following the financial crisis.
    Keywords: DSGE models; real-time forecasts; Great Recession; financial frictions
    JEL: C11 C32 C54 E43 E44
    Date: 2018–03–01
  7. By: Faccini, Renato; Yashiv, Eran
    Abstract: The paper shows that there is an important direct role for hiring frictions in business cycles. This runs counter to key models in several strands of the macroeconomic literature, which imply that hiring frictions are not important per-se. In our model, conventional shocks yield non-standard and non-obvious macroeconomic outcomes in the presence of hiring frictions. Specifically, hiring frictions operate to offset, and possibly reverse, the effects of price frictions. This confluence of frictions has substantial effects. For a sub-set of the parameter space, model outcomes appear “frictionless,” though both hiring frictions and price frictions are at play. For a different sub-space, these interactions between the two frictions generate amplification in the responses of employment and unemployment to technology shocks, rather than friction-induced mitigation of responses. Despite the presence of price rigidity, positive technology shocks may still be expansionary in employment, and the effects of monetary policy shocks may still be negligible. We explain the underlying economic mechanisms and show their empirical implementation. In doing so, we argue in favor of the importance of explicitly using hiring frictions in business cycle modelling.
    Keywords: hiring frictions; business cycles; interactions with price frictions; endogenous wage rigidity
    JEL: E22 E24 E32 E52
    Date: 2017–11
  8. By: Patrice Ollivaud; Yvan Guillemette; David Turner
    Abstract: Current weak labour productivity growth in many OECD countries reflects historically weak contributions from both total factor productivity (TFP) growth and capital deepening. The slowdown in trend productivity growth in the pre-crisis period is mostly explained by a long-established slowdown in TFP growth, but since the crisis the further deceleration is mainly due to weak capital deepening, a development apparent in practically every OECD country. Much of the weakness in the growth of the capital stock since the financial crisis can be explained by an accelerator response of investment to continued demand weakness, leading in turn to a deterioration of potential output via a hysteresis-like effect. For the most severely affected economies, the financial crisis is estimated to have reduced potential output by more than 2% via this transmission mechanism. In many OECD countries, declining government investment as a share of GDP has further exacerbated post-crisis weakness in capital stock growth, both directly and probably indirectly via adverse spillover effects on business investment. Finally, over a period when the use of conventional macro policy instruments was constrained, the slower pace of structural reform represents a missed opportunity, not least because more competition-friendly product market regulation could have boosted both investment and potential growth.
    Keywords: accelerator effect, capacity, capital stock, financial crisis, global financial crisis, hysteresis, investment, potential output
    JEL: E22 E27 E32 E65 E66
    Date: 2018–04–16
  9. By: Levy, Daniel; Snir, Avichai
    Abstract: We use novel and unique data to study the effect of price changes in the market for luxury and middle class homes. We find that luxury home sales respond less to price changes than the middle-class home sales; in the market for luxury homes, past prices affect current prices; luxury home prices persist; and prices of luxury homes are stickier than prices of middle-class homes. Recent macroeconomic models predict that housing markets can have counter-cyclical effect, if home prices are flexible. Our findings imply that home prices, especially luxury home prices, may not be flexible enough to generate such effect.
    Keywords: Housing market, luxury housing, housing demand, price rigidity, sticky prices, predictability, Veblen effect
    JEL: D12 E21 E31 E32 E52 G14 R21 R31
    Date: 2018–02–20
  10. By: Mengus, Eric; Barthelemy, Jean
    Abstract: This paper revisits the ability of central banks to manage private sector's expectations depending on its credibility and how this affects the use of interest rate rules and pegs to achieve monetary policy objectives. When private agents can only provide limited incentives for the central bank to follow a policy, we show that resulting limited credibility allows a central bank to prevents the inflation from diverging by defaulting on past promises if necessary. As a result, the Taylor rule, when expected, anchors inflation expectations on a unique equilibrium path as long as the Taylor principle is satisfied. Finally, we also show that limited credibility restricts the impact of long-term interest rate pegs, so as to make current conditions less dependent on future policy changes.
    Keywords: Taylor principle; Credibility; Forward Guidance
    JEL: E31 E52 E65
    Date: 2017–05–01
  11. By: Thórarinn G. Pétursson
    Abstract: After rising sharply following the Global Financial Crisis, inflation in Iceland has been low and stable in recent years despite a strong cyclical recovery. This not only reflects good luck – stemming from low global inflation, declining commodity prices, and a currency appreciation – but also a significant improvement in monetary policy credibility as reflected in a large decline in long-term inflation expectations. To quantify these effects, a forward-looking, open-economy Phillips curve is estimated for the inflation-targeting period since 2001. The empirical results suggest a structural shift in the average relation between inflation and its key drivers occurring around 2012. It is argued that this reflects the convergence of long-term inflation expectations of households and firms towards the downward trending inflation expectations in financial markets. Long-term inflation expectations of households and firms are not observed, but using a Markov switching model and a time-varying parameter model suggests that this unobserved component of long-term inflation expectations has declined from an average of about 2 percentage points in 2003-2011 to zero in late 2016. Together with the large decline in imported inflation, the improved anchoring of long-term inflation expectations goes a long way towards explaining the large disinflation of the last five years and the low recent inflation despite the strong pickup in economic activity. It also seems that an important part of the persistent over-prediction of inflation in Iceland by most forecasters in recent years can be explained by the failure to take the gradual improvement in monetary policy credibility since 2012 into account. Finally, this combination of imported deflation and a firmer anchoring of inflation expectations can explain why the post-2012 disinflation episode did not coincide with any loss of output.
    Date: 2018–03
  12. By: Olaf Posch
    Abstract: This paper explores the ability of the New-Keynesian (NK) model to explain the recent periods of quiet and stable inflation at near-zero nominal interest rates. We show how (conventional and unconventional) monetary policy shocks enlarge the ability to explain the facts, such that the theory supports both a negative and a positive response of inflation. Central to our finding is that monetary policy shocks may have temporary and/or permanent components. We find that the NK model can explain the recent episodes, even if one considers an active role of monetary policy and restrict ourselves to the regions of (local) determinacy. We also show that a new global solution, capturing highly nonlinear dynamics, is necessary to generate a prolonged period of near-zero interest rates as a policy choice.
    Keywords: continuous-time dynamic equilibrium models, Calvo price setting
    JEL: E32 E12 C61
    Date: 2018
  13. By: Sangmin Aum; Dongya Koh; Raül Santaeulàlia-Llopis
    Abstract: We document a rise of intellectual property products (IPP) captured by up-to-date national accounts in 31 OECD countries. These countries gradually adopt the new system of national accounts (SNA08) that capitalizes IPP -which was previously treated as an intermediate expense in the pre-SNA93 accounting framework. We examine how the capitalization of IPP affects stylzed growth facts and the big ratios (Kaldor, 1957, Jones, 2016). We find that the capitalization of IPP generates (a) a decline of the accounting labor share, (b) an increase in the capital-to-output ratio across time, and (c) an increase in the rate of return to capital across time. The key accounting assumption behind the IPP capitalization implemented by national accounts is that the share of IPP rents that are attributed to capital, x, is equal to one. That is, national accounts assume that IPP rents are entirely owed to capital. We question this accounting assumption and apply an alternative split of IPP rents between capital and labor based on the cost structure of R&D as in Koh et al. (2018). We find that this alternative split generates a secularly trendless labor share, a constant capital-to-output ratio, and a constant rate of return across time. We discuss the implications of these new measures of IPP capital -conditional on x- for cross-country income per capita differences using standard development and growth accounting exercises. Please see the abstract on the paper to see
    Keywords: growth facts, intellectual property products, labor share, cross-country income differences
    JEL: E01 E22 E25
    Date: 2018–03
  14. By: Javier G. Gómez-Pineda (Banco de la República de Colombia)
    Abstract: A raise in inflation targets would be viable if implemented strategically, that is, at the time of a pickup in demand. Policy interest rates would not be constrained by the zero-bound as the result of a balance between two forces: first, policy interest rates must drop under a raise in the inflation target; and second, policy interest rates must rise under a pickup in demand. We use a simple new-Keynesian, semi-structural model to find the natural rate as well as other non observables, including inflation expectations, for a group of advanced economies. We also use the model to explain the role of demand and monetary policy in the evolution of inflation and the output gap. The document shows how a sizable drop in the natural rate pushed policy interest rates against the zero-bound. **** Un aumento en las metas de inflación es viable, si se implementa estratégicamente, es decir, durante un repunte de la demanda. Las tasas de interés no estarían restringidas por el límite cero como resultado de un balance entre dos fuerzas: primero, las tasas de política deben caer bajo un aumento en la meta de inflación; y segundo, deben aumentar ante un aumento en la demanda. Utilizamos un modelo sencillo, neo keynesiano y semi estructural para encontrar la tasa natural así como otros no observables, incluidas las expectativas de inflación, para un grupo de economías avanzadas. También utilizamos el modelo para estudiar el papel de la demanda y la política monetaria en la evolución de la inflación y la brecha del producto. El documento muestra cómo una considerable caída en la tasa natural empujó las tasas de interés de política contra el límite cero. Classification JEL: E58; E37; E43; Q43
    Keywords: Natural rate, Zero-bound, Strategic policy, Monetary policy stance, Taylor rule
    Date: 2018–04
  15. By: Ramaswamy, R.
    Abstract: The Lehman failure precipitated the Great Recession and forced economic policy into unchartered terrain. This paper provides a retrospective on the policy response and links to the underwhelming economic recovery. The exposition is kept non-technical to facilitate wider access. Contrary to perceptions that banks remain vulnerable, this paper argues that regulation strengthened U.S. banks across a variety of dimensions. The deleveraging involved in the transition to stronger banks tightened financial conditions and offset the significant monetary stimulus. The failure to fully capture these offsetting policy forces explains the systematic forecasting errors—both markets and the Fed have consistently overestimated the strength of the economic cycle. Quantitative Easing resulted in a ballooning of excess reserves in the banking system, but payment of interest on excess reserves helped bank recapitalisation. The combination of stronger banks and excess reserves has the potential, unlike in previous cycles, to drive a late cycle surge in growth.
    Keywords: Quantitative Easing, financial regulation, deleveraging
    JEL: E4 E5 G1 G2
    Date: 2018–04–04
  16. By: Tomas Ramanauskas (Bank of Lithuania); Skirmante Matkenaite (Bank of Lithuania); Virgilijus Rutkauskas (Bank of Lithuania)
    Abstract: In this paper we apply the analytical integrated accounts framework to conduct a conceptual analysis of essential macrofinancial linkages. In particular, we analyse the macroeconomic mechanism of the creation of purchasing power through bank credit, explore the partial self-financing property of bank credit and the links between bank credit and money creation, and discuss the role of debt accumulation as a powerful demand-side driver of growth. We argue that creation of money and purchasing power is an indispensable corollary of bank credit issuance. Contrary to conventional wisdom, credit is not predicated on existing savings. It directly adds to domestic demand, which translates into some combination of stronger domestic economic activity, stronger foreign economic activity or higher prices, with particular configuration depending on the structural features of the economy. However, credit-driven growth may result in a systemic over-reliance on continuous debt accumulation and poses the risk of deep structural imbalances and balance sheet recessions.
    Keywords: bank lending, credit creation, money creation, national accounts, integrated accounts, macroeconomic and financial linkages
    JEL: E51 E58 G21
    Date: 2018–04–06
  17. By: Andrew Phiri (Department of Economics, Nelson Mandela University); Doreen Mukuka (Department of Economics, Finance and Business Studies, CTI Potchefstroom Campus)
    Abstract: Our study investigates the cointegration relationship between suicides and unemployment in South Africa using annual data collected between 1996 and 2015 applied to the ARDL model. Furthermore, suicide data is further disintegrated into ‘sex’ and ‘age’ demographics. Our empirical results indicate that unemployment is insignificantly related with suicide rates with the exception for citizens above 75 years. On the other hand, other control variables such as per capita GDP, inflation and divorce appear to be more significantly related with suicides. Collectively, these findings have important implications for policymakers.
    Keywords: Unemployment, Suicide, Cointegration, Causality, South Africa, Sub Saharan Africa (SSA).
    JEL: C22 C51 E24 E31
    Date: 2017–07
  18. By: Christopher G Gibbs (UNSW Sydney); Jonathan Hambur (Reserve Bank of Australia); Gabriela Nodari (Reserve Bank of Australia)
    Abstract: We propose a straightforward approach to adding a housing sector to a large-scale open economy dynamic stochastic general equilibrium model. The model has four intermediate sectors: non-traded, housing, traded, and resources. Households are assumed to consume housing services as part of their consumption bundle and gain utility from holding housing stock. The utility specification increases households' willingness to hold housing stock and implies a relatively high sensitivity of housing investment to monetary policy. We estimate the model on Australian data and find that our model is better able to match a number of empirical regularities compared to a model without housing. These regularities include the sensitivity of housing investment to interest rates and the persistence of aggregate output's response to monetary policy shocks. We then use the model to explore the role of the housing sector in the rebalancing of the Australian economy following the end of the mining boom. First, we find that most of the recent increase in housing investment has been an endogenous response to the large fall in commodity prices and associated declines in interest rates. Second, the pick-up in housing investment has significantly supported the economy over the past five years, ading a ½ percentage point to GDP growth and a ¼ percentage point to inflation, in year-ended terms.
    Keywords: housing; DSGE; open economy; monetary policy; residential investment
    JEL: E23 E32 R31
    Date: 2018–04
  19. By: Schüler, Yves S.
    Abstract: I show that the detrending of financial variables with the Hodrick and Prescott (1981, 1997) (HP) and band-pass filters leads to spurious cycles. I find that distortions become especially severe when considering medium-term cycles, i.e., cycles that exceed the duration of regular business cycles. In particular, these medium-term filters amplify the variances of cycles of duration around 20 to 30 years up to a factor of 204, completely cancelling out shorter-term fluctuations. This is important because it is common practice, and recommended under Basel III, to extract medium-term cycles using such filters; e.g., the HP filter with a smoothing parameter of 400,000. In addition, I find that financial cycle facts, i.e., differing amplitude, duration, and synchronisation of cycles in financial variables relative to cycles in GDP, are robust. For HP and band-pass filters, differences to GDP become marginal due to spurious cycles. JEL Classification: C10, E32, E44, E58, G01
    Keywords: credit-to-GDP gap, detrending, financial cycles, macroprudential policy, spurious cycles
    Date: 2018–03
  20. By: Barrera Chaupis, Carlos
    Abstract: The study evaluates the effect of both the publication of Inflation Report (IR)’s forecasts and the subsequent media diffusion efforts (made by 5 central banks) on (i) the dispersion of ‘fixed-event’ forecasts for inflation and real growth produced by the macroeconomic insiders of a country (and gathered by Consensus Economics, Inc.), as well as (ii) the distance between their median and the aforementioned official forecasts. The 5 central banks correspond to the monetary authorities in Chile, Colombia, Mexico, Peru and United Kingdom. Statistically testing the effects on the dispersion and distance uses a common sample of monthly forecasts from 2004 to 2014 and reach high specificity by using separate samples according to the forecasting horizon (short and medium ‘term’) and the macroeconomic uncertainty level (IR publication months are classified as either high- or low-uncertainty months). With a significance level of 10 per cent, the general results are that (a) increases and decreases in the dispersion can be attributed to either IR forecast publication or media diffusion; and (b) increases and decreases in the distance can be attributed to either IR forecast publication or media diffusion, although the number of increases in the distance is low relative to (a). Comment from the author: It would be interesting to add results for more countries. Specifically, I was planning to add Canada and New Zealand. However, in the case of New Zealand, the corresponding series from Consensus Economics, Inc. is actually not available near Peru for the whole sample (the nearest one is actually located at the British Library!). There exists a critique addressing the econometric approach: it is related to the idea of causality and the need to use the difference-in-difference approach (this implies the need to include data from non-inflation-targeting countries). I am totally satisfied with the paper, though. In a nutshell, I consider more important to address the issue as if I were a medicine doctor wondering about whether the temperature is normal, high or low for the specific cases of 5 individuals instead of digressing about what is "normal temperature" for (say) 40 individuals.
    Keywords: central bank, forecasting, coordination
    JEL: E37 E47 E58 G14
    Date: 2016–07–27
  21. By: Carriero, Andrea (Queen Mary University of London); Clark, Todd E. (Federal Reserve Bank of Cleveland); Marcellino, Massimiliano (Bocconi University, IGIER, and CEPR)
    Abstract: This paper uses a large vector autoregression (VAR) to measure international macroeconomic uncertainty and its effects on major economies, using two datasets, one with GDP growth rates for 19 industrialized countries and the other with a larger set of macroeconomic indicators for the U.S., euro area, and U.K. Using basic factor model diagnostics, we first provide evidence of significant commonality in international macroeconomic volatility, with one common factor accounting for strong comovement across economies and variables. We then turn to measuring uncertainty and its effects with a large VAR in which the error volatilities evolve over time according to a factor structure. The volatility of each variable in the system reflects time-varying common (global) components and idiosyncratic components. In this model, global uncertainty is allowed to contemporaneously affect the macroeconomies of the included nations—both the levels and volatilities of the included variables. In this setup, uncertainty and its effects are estimated in a single step within the same model. Our estimates yield new measures of international macroeconomic uncertainty, and indicate that uncertainty shocks (surprise increases) lower GDP and many of its components, adversely affect labor market conditions, lower stock prices, and in some economies lead to an easing of monetary policy.
    Keywords: Business cycle uncertainty; stochastic volatility; large datasets;
    JEL: C11 E32 F44
    Date: 2018–03–02
  22. By: Corsetti, Giancarlo; Dedola, Luca; Leduc, Sylvain
    Abstract: What determines the optimal monetary trade-o§ 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-o§ 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 a quadratic 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 imbalances; asset markets and risk sharing; optimal targeting rules; international policy cooperation; exchange rate pass-through
    JEL: E44 E52 E61 F41 F42
    Date: 2018–03
  23. By: R. Golinelli; I. Mammi; A. Musolesi
    Abstract: A number of novelties have emerged in the study of the discretionary fiscal policy within the Euro area during the last decade. Among the others, the availability of up-to-date information on fiscal indicators for the years following the Great Recession, the introduction of cutting-edge econometric methods, and a renewed interest about the sustainability of fiscal policy and public debt. The aim of this paper is to address the challenges posed by the estimation of the discretionary fiscal reaction function for the Euro area. We exploit recently introduced testing and estimation strategies for heterogeneous dynamic panels with cross-sectional dependence and propose a new parsimonious approach. Using real-time data over the period 1996-2016, we investigate whether the fiscal policy reaction function is still a benchmark after the Great Recession. We find evidence of strong cross-sectional dependence in the panel, and clear support to a valid cointegration relationship among the main determinants of the function. Newly added covariates, such interest rate spreads, come out to play a relevant role in explaining discretionary actions.
    JEL: E62 E61 H60 D80 C33
    Date: 2018–04
  24. By: Brissimis, Sophocles N.; Papafilis, Michalis; Vlassopoulos, Thomas
    Abstract: We draw a conceptual distinction between the cost and the opportunity cost of internal finance, the latter being an integral part of the definition of the external finance premium in the literature. We come up with an operational definition of the cost of internal finance and calculate its differential with the cost of external finance. We further delve into the concept of the equilibrium real interest rate and measure it in terms of the cost of internal finance as the rate that would prevail in the long run after temporary shocks in the economy have died out.
    Keywords: External finance premium; Cost of internal finance; Equilibrium real interest rate
    JEL: E44 E52 G32
    Date: 2018–02
  25. By: Xing, Victor
    Abstract: BIS working paper highlighted monetary authorities’ asymmetrical policies that are “too timid” in leaning against financial booms but too aggressive and persistent in leaning against financial busts, thus giving rise to a debt trap. Disinflationary effects of globalization induced persistent policy accommodation and encouraged leveraged risk-taking, and the ensuing systemic vulnerability to higher interest rates are at risk from protectionist trade policies. Tariff-induced price pressure and rising federal deficits as a result of tax reform would exacerbate effects of global quantitative tightening (waning unconventional easing) and threaten the post-crisis “lower for longer” paradigm. Heightened volatility as a result of higher bond yields would increase the likelihood of dovish Fed policy reactions, for both the U.S. and other advanced economies cannot tolerate higher interest rates under a policy-led debt trap.
    Keywords: Debt trap, trade barrier, quantitative tightening
    JEL: E0 E5 G1
    Date: 2018–03–04
  26. By: Hlalefang Khobai (Department of Economics, Nelson Mandela University); Nicolene Hamman (Department of Economics, Nelson Mandela University); Thando Mkhombo (Department of Economics, Nelson Mandela University); Simba Mhaka (Department of Economics, Nelson Mandela University); Nomahlubi Mavikela (Department of Economics, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University)
    Abstract: This study sought to contribute to the growing empirical literature by investigating the effects of FDI on per capita GDP growth for South Africa using time series data collected between 1970 and 2016. In differing from a majority of previous studies we use quantile regressions which investigates the effects of FDI on economic growth at different distributional quantiles. Puzzling enough, our empirical results show that FDI has a negative influence on welfare at extremely low quantiles whereas at other levels this effect turns insignificant. Contrary, the effects of domestic investment on welfare is positive and significant at all levels. Collectively, these result have important implications for policymakers in South Africa.
    Keywords: FDI, Economic growth, Quantile regression, Global financial crisis, South Africa.
    JEL: C21 E31 E22 F43 O40
    Date: 2017–07
  27. By: Landais, Bernard
    Abstract: Abstract This paper emphasize the 2008 economic crisis in Europe and try to jauge the convenience of the Optimal Currency Area Theory (OCA). First, among the the causes of this crisis one does not see the famous « assymetric chocks » but only the increasing path of desequilibria before the clash, worsened by the Monetary Union itself. Second, on the ajustment side, after the recession, there were some of the adjustment patterns described by the Theory. Nevertheless, they have not conducted the european economies to optimal situations both from the point of view of members (adhesion optimality) and of the entire group (admission optimality).We think that this two kinds of optimality must be validated in case of independant nations joining themselves in a Monetary Union. The OCA Theory is very strongly challenged by the recent european experience.
    Keywords: OCA Theory- Crisis- Eurozone
    JEL: E3 E58
    Date: 2018–04–04
  28. By: Raputsoane, Leroi
    Abstract: This paper analyses the leader followership phenomenon in monetary policy coordination in South Africa, the Advanced, Developed and Emerging counties. The coordination of monetary policy in Advanced counties is examined in individual countries while such coordination in Developed and Emerging countries is examined in groups of countries. These countries comprise South Africa, United States, Euro area, United Kingdom and Japan while the groups of countries comprise the Developed, BRIC, Eastern Europe, East Asia and Latin American countries. The results show that monetary policy coordination is led by the United States and Developed countries, that monetary policy coordination in United Kingdom, Eastern European countries and the Euro area is intermediate while South Africa and Latin America are followers in monetary policy coordination. The results further show that Japan, BRIC and Eastern Europe coordinate monetary policy independent of the rest of the selected countries.
    Keywords: Central bank, Monetary policy, Causal Inference
    JEL: C11 C70 E43 E58
    Date: 2018–04–03
  29. By: Callum Jones
    Abstract: As of 2015, U.S. log output per capita was 12 percent below what its pre-2008 linear trend would predict. To understand why, I develop and estimate a model of the US with demographics, real and monetary shocks, and the occasionally binding ZLB on nominal rates. Demographic changes generate slow-moving trends in the real interest rate, employment, and productivity. I find that demographics alone can explain one-third of the gap between log output per capita and its linear trend in 2015. Demographics also lowered real rates, causing the ZLB to bind between 2009 and 2015, contributing to the slow recovery after the Great Recession.
    Date: 2018–03–23
  30. By: David Leuwer; Bernd Süssmuth
    Keywords: automobile industry, regime changes, counterfactual analysis
    JEL: E32 E62 L62 C32
    Date: 2018
  31. By: Nampasa Chella (Department of Economics, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University)
    Abstract: The primary objective of this paper is to investigate the relationship between foreign direct investment, domestic investment and unemployment in South Africa. Our mode of empirical investigation is the autoregressive distributive lag (ARDL) cointegration model which provides the advantage of accommodating for a mixture of levels stationary and difference stationary time series variables and is applied to quarterly data collected between 1970 and 2014. Our empirical results point to the existence of a negative effect of domestic investments on unemployment levels whereas foreign direct investment appears to have no significant effect on reducing unemployment levels. Collectively, these results hold crucial implications for South African policymakers.
    Keywords: FDI, domestic investment, unemployment, ARDL, cointegration, South Africa, developing country.
    JEL: C22 C32 E22 E24
    Date: 2017–11
  32. By: Nwabisa Kolisi (Department of Economics, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University)
    Abstract: In this study we investigate the cointegration relationship between interest rates and housing prices in South Africa using the autoregressive distributive (ARDL) model applied to quarterly data covering the post inflation targeting period of 2002:Q1 and 2016:Q4. Our empirical consists of splitting the empirical data into two sub-periods, one corresponding to the pre-crisis period (i.e. 2002:Q1 – 2008:Q2) and the other corresponding to the post-crisis periods (i.e. 2008:Q3 – 2016:Q4). Indeed, our empirical results confirm changing dynamics of the interest rate-housing price relationship in light of the financial crisis with the Reserve Bank appearing to respond to changes in the housing price growth in the post-crisis period. This results reflect the strong macropudential stance which the Reserve Bank has recently assumed after the sub-prime crisis and such policy stance critically depends on monitoring asset prices such as housing and property prices as a means of assessing market conditions.
    Keywords: Interest rates, Housing prices, Monetary policy, Cointegration, ARDL model, South Africa, Emerging economy.
    JEL: C22 C51 E31 E52
    Date: 2017–07
  33. By: Camille Cornand (Univ Lyon, CNRS, GATE L-SE UMR 5824, F-69131 Ecully, France); Frank Heinemann (Technische Universitaet Berlin, Chair of Macroeconomics, H 52 - Strasse des 17. Juni 135 - 10 623 Berlin, Germany)
    Abstract: Monetary policy affects the degree of strategic complementarity in firms’ pricing decisions if it responds to the aggregate price level. In normal times, when monopolistic competitive firms increase their prices, the central bank raises interest rates, which lowers consumption demand and creates an incentive for firms to reduce their prices. Thereby, monetary policy reduces the degree of strategic complementarities among firms’ pricing decisions and even turns prices into strategic substitutes if the effect of interest rates on demand is sufficiently strong. We show that this condition holds when monetary policy follows the Taylor principle. By contrast, in a liquidity trap where monetary policy is restricted by the zero lower bound, pricing decisions are strategic complements. Our main contribution consists in relating the determinacy and stability of equilibria to strategic substitutability in prices. We discuss the consequences for dynamic adjustment processes and some policy implications.
    Keywords: monopolistic competition, monetary policy rule, pricing decisions, strategic complementarity, strategic substitutability
    JEL: E52 C72
    Date: 2018
  34. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: In these remarks, Boston Fed President Eric Rosengren said that economic data "have been quite good," monetary policy remains accommodative, and fiscal policy has just become quite a bit more stimulative.
    Date: 2018–03–09
  35. By: Chakraborty, Lekha; Agarwal, Samiksha
    Abstract: Digital innovations in fiscal policy is the du jour for the macro policy makers, especially in the post-demonetisation India. India showcases the early three experiments of digitization in public finance – especially financial inclusion through digital financial services - in the recent Economic Survey. It highlights that digitization in public finance helped the government to identify the beneficiaries correctly given the technology it uses. It also helped in the removal of ghost beneficiaries and thus plugged leakages and identification errors. An early figure suggests that digitization in public finances in India has helped to transfer the benefits of welfare programmes to extent of 41% in MGNREGS, 37% in PAHAL (the LPG subsidy scheme), 14% in National Social Assistance Program(NSAP) and 7% in national scholarship schemes.(Economic Survey of India, 2015-16). Yet another successful experiment in digitization of fiscal policy is the new scheme, Pradhan Mantri Jan Dhan Yojana. It has ensured financial inclusion in financial services through opening savings accounts by the masses so that the money is transferred to the genuine beneficiaries. Another related experiment has been the introduction of Aadhaar cards which provides a unique online identity to each individual in the country and has been linked to bank accounts and mobile numbers in order to ease transactions. Greater use of mobile banking to transfer funds faster and to solve the last mile banking problem has also been encouraged. The use of Jan Dhan accounts, Aadhaar cards and Mobile Banking has helped India take a step closer to the digital revolution that awaits it. Such global experiments of digitization in finance have happened in Kenya, where geospatial surveys were used to decipher how much financial institutions have responded to an increasingly digitizing environment.
    Keywords: digital infrastructure , financial inclusion, Aadhar
    JEL: E26 E44 E52 H30 H61
    Date: 2018
  36. By: Shirota, Toyoichiro
    Abstract: Some recent studies argue that spillovers from land prices into the aggregate economy are the crucial drivers of business cycles. Other studies stress the importance of investment shocks at business cycle frequencies. This study evaluates these two strands of the literature in a single unified framework by estimating a New Keynesian dynamic stochastic general equilibrium model with a collateral constraint on investment financing. The results are twofold: (i) when these features are combined, neither shocks that drives most of land-price fluctuations nor investment shocks are the primary source of U.S. business cycles; and (ii) technology shocks play an important role in business cycles.
    Keywords: Source of business cycles, Land price dynamics, Investment shock, Collateral constraint, Bayesian estimation,
    Date: 2018–03
  37. By: Noelia Camara; Enestor Dos Santos; Francisco Grippa; Javier Sebastian; Fernando Soto; Cristina Varela
    Abstract: Identificamos los factores mas relevantes para la implementacion de una CBDC en LatAm, a partir de varios diseños alternativos. Concluimos que la region podria beneficiarse mas de la adopcion de una CBDC que paises desarrollados. Sin embargo, la existencia de costes asociados a la implementacion arroja incertidumbre sobre donde se adoptara primero
    Keywords: Documento de Trabajo , Bancos Centrales , Economia Digital , Escenarios financieros , Latam
    JEL: O33 E43 E58
    Date: 2018–04
  38. By: Rod Tyers; Yixiao Zhou
    Abstract: Proximity to short yield zero lower bounds has challenged the inflation targeting central banks of the advanced regions. Central to this development are three-decade declining trends in long yields and underlying real, equilibrium interest rates that have flattened yield curves, restricting “normalisation” and adding deflationary pressure by boosting demand for portfolio money. Inflationary forces, such as fiscal deficits, industrial protection and resurgent regional growth, have proved comparatively weak. In this paper global modelling is used to show that key deflationary forces in these regions include automation, the race to the bottom in capital taxation and immigration. Each is shown to redistribute income so as to expand the welfare gap between the low-skilled and capital owners by 2.5 to 3.5 per cent per year. The high saving rates of capital owners depress real equilibrium rates and their expanding portfolios demand monetary expansion. These forces ensure that the challenges of macro stabilisation and distributional policy making are both intertwined and urgent.
    Keywords: Inflation, deflation, productivity, automation, income distribution, tax, transfers, general equilibrium analysis
    JEL: D33 E52 J11 O33
    Date: 2018–04
  39. By: Ray C. Fair (Cowles Foundation, Yale University)
    Abstract: This paper argues that the slow U.S. recovery after the 2008–2009 recession was due to sluggish government spending. The analysis uses a structural macroeconometric model. Conditional on government policy, the errors in predicting output for the 2009.4–2017.4 period are within what one would expect historically. Productivity and labor force participation are endogenous variables in the model, and so their behavior in this period is a consequence of the slow growth rather than a cause.
    Keywords: Slow recovery, Productivity
    JEL: E1 E3
    Date: 2018–03
  40. By: Andrew Phiri (Department of Economics, Nelson Mandela University)
    Abstract: Using the recently-introduced quantile autoregression methodology (QAR), this study contributes to the ever-expanding empirical literature by investigating the persistence in inflation for BRICS countries using quarterly time series data collected between 1996 to 2016. Our empirical analysis reveals two crucial findings. Firstly, for all estimated regressions, inflation persistence in the higher percentiles of the QAR regression exhibits unit root tendencies. Secondly, we note that the global financial crisis did alter the levels of inflation persistence at all quantiles for all BRICS countries. Collectively, we advise monetary authorities in BRICS countries to focus on keeping inflation at low and stable rates.
    Keywords: BRICS, Emerging economies, Inflation persistence, Quantile regression.
    JEL: C21 E31
    Date: 2017–07
  41. By: Sweder van Wijnbergen (UvA, CEPR)
    Abstract: What could be the drivers of low real rates? What are the implications of the Zero Lower Bound for economic policy? To discuss these questions we introduce a full general equilibrium model of the world economy with a simple (2 period) intertemporal structure. The model is simple enough to allow for full analytical solution yet sufficiently complex to allow us to address the impact of anticipated future productivity slow down, aging, structural reform and fiscal policy on real interest rates if markets clear and on aggregate economic activity if they do not because of the ZLB. We extend both the equilibrium model and the ZLB variant to a more-goods-per-period set up with complete specialization to address (real) exchange rate policy and the macroeconomic impact of trade tariffs.
    Keywords: equilibrium real interest rates; aging; productivity change; the ZLB; real exchange rates; import tariffs
    JEL: E62 F13 F40 F41 H30
    Date: 2018–03–30
  42. By: Fabiano Schivardi (Università LUISS "Guido Carli"); Enrico Sette (Banca d'Italia); Guido Tabellini (Università Bocconi)
    Abstract: Do banks with low capital extend excessive credit to weak firms, and does this matter for aggregate eciency? Using a unique data set that covers almost all bank-firm relationships in Italy in the period 2008-2013, we find that, during the Eurozone financial crisis: (i) Under-capitalized banks cut credit to healthy firms (but not to zombie firms) and are more likely to prolong a credit relationship with a zombie firm, compared to stronger banks. (ii) In areas-sectors with more low-capital banks, zombie firms are more likely to survive and non-zombies are more likely to go bankrupt; (iii) Nevertheless, bank under-capitalization does not hurt the growth rate of healthy firms, while it allows zombie firms to grow faster. This goes against previous in uential findings that, we argue, face a serious identification problem. Thus, while banks with low capital can be an important source of aggregate ineffciency in the long run, their contribution to the severity of the great recession via capital misallocation was modest.
    Keywords: Bank capitalization, zombie lending, capital misallocation
    JEL: D23 E24 G21
    Date: 2018
  43. By: Pugsley, Benjamin W.; Sedlacek, Petr; Sterk, Vincent
    Abstract: Only half of all startups survive past the age of ve and surviving businesses grow at vastly di erent speeds. Using micro data on employment in the population of U.S. businesses, we estimate that the lion's share of these differences is driven by ex-ante heterogeneity across fi rms, rather than by ex-post shocks. We embed such heterogeneity in a fi rm dynamics model and study how ex-ante differences shape the distribution of fi rm size, "up-or-out" dynamics, and the associated gains in aggregate output. "Gazelles" - a small subset of startups with particularly high growth potential - emerge as key drivers of these outcomes. Analyzing changes in the distribution of ex-ante fi rm heterogeneity over time reveals that gazelles are driven towards extinction, creating substantial aggregate losses.
    Keywords: firm dynamics; startups; macroeconomics; big data
    JEL: E23 E24
    Date: 2017–11
  44. By: Zhiguo He; Arvind Krishnamurthy
    Abstract: "Intermediary asset pricing'' understands asset prices and risk premia through the lens of frictions in financial intermediation. Perhaps motivated by phenomena in the financial crisis, intermediary asset pricing has been one of the fastest growing areas of research in finance. This article explains the theory behind intermediary asset pricing and in particular how it is different from other approaches to asset pricing. The article also covers selective empirical evidence in favor of intermediary asset pricing.
    JEL: E44
    Date: 2018–03
  45. By: Patrick Blagrave; Giang Ho; Ksenia Koloskova; Esteban Vesperoni
    Abstract: Are fiscal spillovers today as large as they were during the global financial crisis? How do they depend on economic and policy conditions? This note informs the debate on the cross-border impact of fiscal policy on economic activity, shedding light on the magnitude and the factors affecting transmission, such as the fiscal instruments used, cyclical positions, monetary policy conditions, and exchange rate regimes. The note assesses spillovers from five major advanced economies (France, Germany, Japan, United Kingdom, United States) on 55 advanced and emerging market economies that represent 85 percent of global output, looking at government-spending and tax revenue shocks during expansion and consolidation episodes. It finds that fiscal spillovers are economically significant in the presence of slack and/or accommodative monetary policy—and considerably smaller otherwise, which suggests that spillovers are large when domestic multipliers are also large. It also finds that spillovers from government-spending shocks are larger and more persistent than those from tax shocks and that transmission may be stronger among countries with fixed exchange rates. The evidence suggests that although spillovers from fiscal policies in the current environment may not be as large as they were during the crisis, they may still be important under certain economic circumstances.
    Keywords: Spillovers;Fiscal policy;External shocks;Global financial crisis, 2008-2009;Monetary policy;Exchange rate regimes;Emerging markets;Government spending;Tax revenue;Economic expansion;Fiscal consolidation;Spillovers, fiscal policy, transmission, economic impact, cross-border impact
    Date: 2017–10–18
  46. By: George Abuselidze (Faculty of Economics and Business, Batumi Shota Rustaveli State University)
    Abstract: Objective – The purpose of this paper is to develop the optimal economic and social model for the modern stage and analyze the Social Progress Index in Georgia. The research is based on the paradigm that "what we analyze, this determines the decisions we make". Consequently, emphasis is placed on issues that significantly affect human wellbeing. Methodology/Technique – In this top-down study, the empirical material is collected from official documents and public statements made by centrally placed politicians and administrators in Georgia as well as research conducted by international organizations in Georgia. The research database used is the legislative and normative acts adopted by the government of Georgia in the modern day, in particular: the National Statistics Office of Georgia, the Economic Development and Finance Ministries, the Georgian National Statistics Office, the Parliamentary Finance and Budget Committee and other related departments. Findings – This study shows that the formation of the optimal economic and social organization model of a country is particularly dependent on the selection and implementation of the most appropriate fiscal policy. The philosophy of social security is one of the greatest achievements of modern civilization. The present work is dedicated to the progress of human development – specifically, welfare issues. This provides the model for creating the optimal social security system of a population, with the following social system parameters: distribution of national income to the population and their families and addressing the issues of financing social security needs. Based on the study of the social experiences of social reform and the social indicators of the European Union, the alternate concept of prosperity and perfection is developed. These topics are the focus of the present work. Novelty – The empirical material contained within focuses on the period after 2005, when some important changes in political leadership took place. In 2003, Saakashvili became President of Georgia, Ivanishvili was elected as Prime Minister in 2012 and Kvirikashvili took over this position in 2015. During this time, there was also a shift in government social policy at a central level. The collection of empirical data for this study ends in 2017, giving a total study period of 12 years.
    Keywords: Fiscal Policy; Welfare; Social Security; Social Innovation; Household; Employment.
    JEL: E24 E62 H31 H55 H61 R2 R51
    Date: 2018–02–26
  47. By: Carolina Osorio; Esteban Vesperoni
    Abstract: This report analyzes the possible spillover effects that could result if the U.S. normalizes its monetary policy while euro area countries are increasing monetary stimulus (a situation referred to as asynchronous monetary conditions). This analysis identifies country-specific shocks to economic activity and monetary conditions since the early 1990s, finding that real and monetary conditions in the United States and the euro area have oftentimes been asynchronous and have often resulted in significant spillover effects, particularly since early 2014.
    Keywords: Monetary policy;Spillovers;Western Hemisphere;United States;Negative spillovers;Positive spillovers;
    Date: 2016–09–27
  48. By: Clement Moyo (Department of Economics, Nelson Mandela University); Pierre Le Roux (Department of Economics, Nelson Mandela University)
    Abstract: The 2008/2009 global financial crisis has re-ignited the debate around financial reforms with contrasting views with regards to the impact of financial reforms on economic growth. This study examines the impact of interest rate reforms on economic growth through savings and investments in SADC countries for the period 1990-2015. Three specifications are used for the analysis; the first one determines the influence of interest rate reforms on savings, the second one analyses the effect of savings on investments while the third one examines whether investments have a positive impact on economic growth. The Pooled Mean Group (PMG) estimation technique is employed for analysis. Furthermore, the ARDL bounds tests are conducted for the individual countries to test for cointegration. The results show that cointegration is detected in most countries for each one of the three specifications. Also, interest rate reforms have a positive impact on economic growth through savings and investments. The study therefore recommends that market forces should be allowed to determine real interest rates and furthermore, real interest rates maintained at artificially low levels may harm economic growth.
    Keywords: Interest rate reforms, economic growth, SADC, savings, investments, PMG.
    JEL: C50 E20 E62
    Date: 2018–03
  49. By: Vegard Høghaug Larsen; Leif Anders Thorsrud
    Abstract: This article quantifies the epidemiology of media narratives relevant to business cycles in the US, Japan, and Europe (euro area). We do so by first constructing daily business cycle indexes computed on the basis of the news topics the media writes about. At a broad level, the most in uential news narratives are shown to be associated with general macroeconomic developments, finance, and (geo-)politics. However, a large set of narratives contributes to our index estimates across time, especially in times of expansion. In times of trouble, narratives associated with economic uctuations become more sparse. Likewise, we show that narratives do go viral, but mostly so when growth is low. While narratives interact in complicated ways, we document that some are clearly associated with economic fundamentals. Other narratives, on the other hand, show no such relationship, and are likely better explained by classical work capturing the market's animal spirits.
    Keywords: Business cycles, Narratives, Dynamic Factor Model (DFM), Latent Dirichlet Allocation (LDA)
    Date: 2018–04
  50. By: Chenghan Hou; Bao H. Nguyen
    Abstract: Over the past three decades, the US natural gas market has witnessed significant changes. Utilizing a standard Bayesian model comparison method, this paper formally determines four regimes existing in the market. It then employs a Markov switching vector autoregressive model to investigate the regime-dependent responses of the market to its fundamental shocks. The results reveal that the US natural gas market tends to be much more sensitive to shocks occurring in regimes existing after the Decontrol Act 1989 than the other regimes. The paper also finds that shocks to the natural gas demand and price have negligible effects on natural gas production while the price of natural gas is mainly driven by specific demand shocks. Augmenting the model by incorporating the price of crude oil, the results show that the impacts of oil price shocks on natural gas prices are relatively small and regime-dependent.
    Keywords: Natural gas market, Bayesian model comparison, Markov Switching VAR model
    JEL: C32 E32 Q4
    Date: 2018–04
  51. By: He, Qichun
    Abstract: This study explores a novel channel for monetary policy to impact growth and welfare---through fertility choice. In a scale-invariant Schumpeterian growth model with endogenous fertility and a cash-in-advance constraint on consumption, we find a positive effect of an increase in the nominal interest rate on fertility. The increase in fertility decreases labor supplied to production and R&D, which in turn decreases long-run growth. Calibration shows that long-run growth increases 0.12% by reducing the nominal interest rate from 9.6% to 0%, and the welfare gain is equivalent to a permanent increase in consumption of 3.14%. As an empirical test, we build panel data for 12 advanced countries during 2000--2014. We use the degree of central bank independence and money growth as the instruments for inflation. We find that the effect of inflation on population growth is positive and significant in instrumental variables estimation. Our results remain robust to using birth rate or fertility rate as the dependent variable. An increase in annual inflation of 1 percentage point would bring an increase of 0.06 percentage point in the annual growth of the total population. Our empirical findings provide support for our theory.
    Keywords: Monetary policy; fertility; economic growth; panel data
    JEL: J1 O31 O42
    Date: 2018–03
  52. By: Buch, Claudia M. (Deutsche Bundesbank); Bussiere, Matthieu (Banque de France); Goldberg, Linda S. (Federal Reserve Bank of New York); Hills, Robert (Bank of England)
    Abstract: This paper presents the novel results from an internationally coordinated project by the International Banking Research Network (IBRN) on the cross-border transmission of conventional and unconventional monetary policy through banks. Teams from seventeen countries use confidential micro-banking data for the years 2000 through 2015 to explore the international transmission of monetary policies of the United States, the euro area, Japan, and the United Kingdom. Two other studies use international data with different degrees of granularity. International spillovers into lending to the private sector do occur, especially for U.S. policies, and bank-specific heterogeneity influences the magnitudes of transmission. The effects are supportive of the international bank lending channel and the portfolio channel of monetary policy transmission. They also show that the frictions that banks face matter; in particular, foreign currency funding and hedging considerations can be a key source of heterogeneity. The forms of bank balance sheet heterogeneity that differentiate spillovers across banks are not uniform across countries. International spillovers into lending can be large for some banks, even while the average international spillovers of policies into nonbank lending generally are not large.
    Keywords: monetary policy; international spillovers; cross-border transmission; global bank; global financial cycle
    JEL: E52 F3 F4 G15 G21
    Date: 2018–03–01
  53. By: Claire Giordano (Banca d’Italia); Marco Marinucci (Banca d’Italia); Andrea Silvestrini (Banca d’Italia)
    Abstract: Using significantly under-exploited data from institutional sector accounts, we assess the main drivers of both firms’ and households’ investment in Italy over the past two decades. We estimate a vector error correction model separately for firms and for households. Our findings support the existence in both institutional sectors of a long-run equilibrium relationship between investment, income and the user cost of capital, as predicted by the flexible neoclassical model, as well as adjustment dynamics towards the equilibrium level. Moreover, we find evidence that an increase in uncertainty and a decline in economic sentiment have a dampening effect on investment. Furthermore, high indebtedness, measured by financial accounts data, and tight credit constraints, based on survey data for firms, are found to have significantly hindered both firms’ and households’ capital accumulation, again in the short run. This leads us to conclude that studies that disregard the role of debt or financing constraints are unable to fully explain investment dynamics in Italy, especially in the most recent years of sharp contraction.
    Keywords: gross fixed capital formation, institutional sectors, credit constraints
    JEL: E22 G01 G31
    Date: 2018–03
  54. By: Carriero, Andrea (Queen Mary, University of London); Clark, Todd E. (Federal Reserve Bank of Cleveland); Marcellino, Massimiliano (Bocconi University, IGIER, and CEPR)
    Abstract: We show that macroeconomic uncertainty can be considered as exogenous when assessing its effects on the U.S. economy. Instead, financial uncertainty can at least in part arise as an endogenous response to some macroeconomic developments, and overlooking this channel leads to distortions in the estimated effects of financial uncertainty shocks on the economy. We obtain these empirical findings with an econometric model that simultaneously allows for contemporaneous effects of both uncertainty shocks on economic variables and of economic shocks on uncertainty. While the traditional econometric approaches do not allow us to simultaneously identify both of these transmission channels, we achieve identification by exploiting the heteroskedasticity of macroeconomic data. Methodologically, we develop a structural VAR with time-varying volatility in which one of the variables (the uncertainty measure) impacts both the mean and the variance of the other variables. We provide conditional posterior distributions for this model, which is a substantial extension of the popular leverage model of Jacquier, Polson, and Rossi (2004), and provide an MCMC algorithm for estimation.
    Keywords: Uncertainty; Endogeneity; Identification; Stochastic Volatility; Bayesian Methods;
    JEL: C11 C32 D81 E32
    Date: 2018–03–29
  55. By: Guglielmo Maria Caporale; Luis A. Gil-Alana; Tommaso Trani
    Abstract: This paper examines the degree of persistence in UK inflation by applying long-memory methods to historical data that span the period from 1660 to 2016. Specifically, we use both parametric and non-parametric fractional integration techniques, that are more general than those based on the classical I(0) vs. I(1) dichotomy. Further, we carry out break tests to detect any shifts in the degree of persistence, and also run rolling-window and recursive regressions to investigate its evolution over time. On the whole, the evidence suggests that the degree of persistence of UK inflation has been relatively stable following the Bretton Woods period, despite the adoption of different monetary regimes. The estimation of an unobserved-components stochastic volatility model sheds further light on the issues of interest by showing that post-Bretton Woods changes in UK inflation are attributable to a fall in the volatility of permanent shocks.
    Keywords: UK inflation, persistence, fractional integration
    JEL: C14 C22 E31
    Date: 2018
  56. By: Francisco Buera; Sudipto Karmakar
    Abstract: What are the heterogeneous effects of financial shocks on firms' behavior? This paper evaluates and answers this question from both an empirical and a theoretical perspective. Using micro data from Portugal during the sovereign debt crisis, starting in 2010, we document that highly leveraged firms and firms that had a larger share of short-term debt on their balance sheets contracted more in the aftermath of a financial shock. We use a standard model to analyze the conditions under which leverage and debt maturity determine the sensitivity of firms' investment decisions to financial shocks. We show that the presence of long-term investment projects and frictions to the issuance of long-term debt are needed for the model to rationalize the empirical findings. We conclude that the differential responses of firms to a financial shock do not provide unambiguous information to identify these shocks. Rather, we argue that this information should be use to test for the relevance of important model assumptions.
    JEL: E44 F34 G12 H63
    Date: 2018–04
  57. By: Di Maggio, Marco (Harvard Business School); Kermani, Amir (University of California, Berkeley); Majlesi, Kaveh (Lund University)
    Abstract: This paper employs Swedish data on households' stock holdings to investigate how consumption responds to changes in stock market returns. We instrument the actual capital gains and dividend payments with past portfolio weights. Unrealized capital gains lead to a marginal propensity to consume (MPC) of 13 percent for the bottom 50% of the wealth distribution, but a flat 5 percent for the rest of the distribution. Households' consumption is significantly more responsive to dividend payouts across all parts of the wealth distribution. Our findings are consistent with households treating capital gains and dividends as separate sources of income.
    Keywords: capital gain, dividend income, consumption, near-rational behavior
    JEL: E21 G12
    Date: 2018–02
  58. By: Kevin Luo (Graduate School of Economics, Kobe University); Tomoko Kinugasa (Graduate School of Economics, Kobe University)
    Abstract: This study begins by confirming that China has been in a state of overaccumulation over the past decade. Against this backdrop, we empirically investigate the underlying determinants of Chinese household saving, and present both intuitive and distinct insights. Considering that overaccumulation has become a major threat to China's economic performance, we find that certain policies and phenomena, which are usually regarded as positive factors (e.g., the SOE reform), are primarily responsible for China's excess saving, and those usually deemed to be negative factors (e.g., the real estate bubble), have essentially mitigated the surplus saving.
    Keywords: China; Household saving; Over-accumulation; GMM estimator; Policy design
    JEL: C33 D12 E21 G28
    Date: 2018–04
  59. By: van Riet, Ad (Tilburg University, School of Economics and Management)
    Abstract: Starting in June 2014, the European Central Bank (ECB) stepped up its monetary accommodation in order to counter a too prolonged period of low inflation in the euro area. This article offers a narrative of the monetary policy measures taken up to December 2016 and a review of the effects of ultra-low interest rates. The exceptional monetary stimulus transmitted to the economy broadly as intended. Moreover, it enhanced the financial capacity of economic agents to bear risks. At the same time, the ECB and the European micro- and macro-prudential authorities remained watchful of the unintended side-effects of an extended period of very low or negative interest rates for financial intermediation, financial stability and market discipline and took preventive or corrective measures as appropriate. A joint plan of action carried out by the 19 member countries with the aim to speed up balance sheet repair, accelerate the economic recovery and achieve higher productivity growth could have contributed to a more effective euro area macroeconomic and financial policy mix.
    Date: 2017
  60. By: Born, Benjamin; Müller, Gernot J.; Schularick, Moritz; Sedlacek, Petr
    Abstract: This paper introduces a data-driven, transparent and unbiased method to calculate the economic costs of the Brexit vote in June 2016. We let a matching algorithm determine a combination of comparison economies that best resembles the growth path of the UK economy before the Brexit referendum. The economic cost of the Brexit vote is the difference in output between the UK economy and and its synthetic doppelganger. We show that, contrary to public perception, by the third quarter of 2017 the economic costs of the Brexit vote are already 1.3% of GDP. The cumulative costs amount to almost 20 billion pounds and are expected to grow to more than 60 billion pounds by end-2018. We provide evidence that heightened policy uncertainty has already taken a toll on investment and consumption.
    Keywords: Brexit; European Union; policy uncertainty; synthetic control method
    JEL: E65 F13 F42
    Date: 2017–11
  61. By: Arna Olafsson; Michaela Pagel
    Abstract: This paper uses a detailed panel of individual spending, income, account balances, and credit limits from a personal finance management software provider to investigate how expenditures, liquid savings, and consumer debt change around retirement. The longitudinal nature of our data allows us to estimate individual fixed-effects regressions and thereby control for all selection on time-invariant (un)observables. We provide new evidence on the retirement-consumption puzzle and on whether individuals save adequately for retirement. We find that, upon retirement, individuals reduce their spending in both work-related and leisure categories. However, we feel that it is difficult to tell conclusively whether expenses are work related or not, even with the best data. We thus look at household finances and find that individuals delever upon retirement by reducing consumer debt and increasing liquid savings. We argue that these findings are difficult to rationalize via, for example, work-related expenses. A rational agent would save before retirement because of the expected fall in income, and dissave after retirement, rather than the exact opposite
    JEL: D12 D14 E21 J26 J32
    Date: 2018–03
  62. By: Tafadzwa Ruzive (Department of Economics, Nelson Mandela University); Thando Mkhombo (Department of Economics, Nelson Mandela University); Simba Mhaka (Department of Economics, Nelson Mandela University); Nomahlubi Mavikela (Department of Economics, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University)
    Abstract: Our study investigates the relationship between electricity intensity and unemployment in South Africa. Our mode of empirical investigation is the quantile regressions approach which has been applied to quarterly interpolated time series data collected between 2000:01 and 2014:04. As a further development to our study, we split our empirical data into two sub-samples, the first corresponding to the pre-financial crisis period and the other corresponding to the post-financial crisis period. Our empirical results point to electricity intensity being significantly and positively correlated with unemployment in periods before the crisis at all estimated quantiles, whereas this relationship turns significantly negative in periods subsequent to the crisis at all quantile levels. In other words, since the financial crisis, increased electricity intensity (i.e. lower electricity efficiency) appears to reduce domestic unemployment rates, a result which indicates that policymakers should be discouraged from implementing electricity conversation strategies and encouraged to rely on environmental friendly methods of supplying electricity.
    Keywords: Electricity intensity, Unemployment, South Africa, SSA, Quantile regressions.
    JEL: C31 C51 E24 Q43
    Date: 2017–09
  63. By: Anelisa Nomatye (Department of Economics, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University)
    Abstract: Following the 2007 global financial crisis, the understanding of the relationship between debt and other economic indicators has become crucial for policymakers worldwide. In this study, we investigated the macroeconomic determinants of household debt for the South African economy using macroeconomic variables such as GDP growth, consumption, interest rates, inflation, housing prices and domestic investments. Our mode of empirical investigation is the quantile regression approach which is applied to quarterly time series data spanning from 2002:q1 to 2016:q4. Our empirical results imply that inflation and consumption are insignificantly related with household debt; GDP growth and house prices are only related with household debt at moderate to high levels of distributions whereas interest rates and investment are related with household debt across all quantile distributions. All-in-all, these empirical findings bear important implications for South African policymakers.
    Keywords: Household debt, Quantile regressions, South Africa
    JEL: C32 C51 R20
    Date: 2017–12
  64. By: Duval-Hernandez, Robert; Fang, Lei; Ngai, L. Rachel
    Abstract: This paper decomposes the differences in aggregate market hours between US and Europe across gender-skill groups and finds that low-skilled women are the biggest contributors to aggregate differences, with the exception of Nordic countries. We develop a model to account for the gender-skill differences in market hours across countries. Taxes, which reduce market hours in favor of leisure and home production, explain a substantial fraction of the differences in hours for Southern and Central European countries. Subsidized family care, which reduces home hours of women in favor of market hours, explains the different pattern of hours in Nordic countries. Low-skilled women are more responsive to policy because of their comparative advantage in producing home services and the corresponding market substitutes.
    Keywords: cross-country differences in market hours; home production; subsidies on family care
    JEL: E24 E62 J22
    Date: 2018–02–14
  65. By: Brendon, Charles; Ellison, Martin
    Abstract: This paper proposes and characterises a new normative solution concept for Kydland and Prescott problems, allowing for a commitment device. A policy choice is dominated if either (a) an alternative exists that is superior to it in a time-consistent subdomain of the constraint set, or (b) an alternative exists that Pareto-dominates it over time. Policies may be time-consistently undominated where time-consistent optimality is not possible. We derive necessary and su cient conditions for this to be true, and show that these are equivalent to a straightforward but signi cant change to the fi rst-order conditions that apply under Ramsey policy. Time-consistently undominated policies are an order of magnitude simpler than Ramsey choice, whilst retaining normative appeal. This is illustrated across a range of examples.
    Keywords: time consistency; undominated policy; Ramsey policy
    JEL: D02 E61
    Date: 2018–01
  66. By: McAdam, Peter; Warne, Anders
    Abstract: We compare real-time density forecasts for the euro area using three DSGE models. The benchmark is the Smets-Wouters model and its forecasts of real GDP growth and inflation are compared with those from two extensions. The first adds financial frictions and expands the observables to include a measure of the external finance premium. The second allows for the extensive labor-market margin and adds the unemployment rate to the observables. The main question we address is if these extensions improve the density forecasts of real GDP and inflation and their joint forecasts up to an eight-quarter horizon. We find that adding financial frictions leads to a deterioration in the forecasts, with the exception of longer-term inflation forecasts and the period around the Great Recession. The labor market extension improves the medium to longer-term real GDP growth and shorter to medium-term inflation forecasts weakly compared with the benchmark model. JEL Classification: C11, C32, C52, C53, E37
    Keywords: Bayesian inference, DSGE models, forecast comparison, inflation, output, predictive likelihood
    Date: 2018–04
  67. By: Blattner, Tobias Sebastian; Swarbrick, Jonathan M.
    Abstract: We present a two-country model with an enhanced banking sector featuring risky lending and cross-border interbank market frictions. We find that (i) the strength of the financial accelerator, when applied to banks operating under uncertainty in an interbank market, will critically depend on the economic and financial structure of the economy; (ii) adverse shocks to the real economy can be the source of banking crisis, causing an increase in interbank funding costs, aggravating the initial shock; and (iii) central bank asset purchases and long-term refinancing operations can be effective substitutes for, or supplements to, conventional monetary policy. JEL Classification: E44, E52, F32, F36
    Keywords: cross-border capital flows, financial frictions, interbank market, monetary union, unconventional monetary policy
    Date: 2018–04
  68. By: Moyo, Clement; Le Roux, Pierre
    Abstract: The 2008/2009 global financial crisis has re-ignited the debate around financial reforms with contrasting views with regards to the impact of financial reforms on economic growth. This study examines the impact of interest rate reforms on economic growth through savings and investments in SADC countries for the period 1990-2015. Three specifications are used for the analysis; the first one determines the influence of interest rate reforms on savings, the second one analyses the effect of savings on investments while the third one examines whether investments have a positive impact on economic growth. The Pooled Mean Group (PMG) estimation technique is employed for analysis. Furthermore, the ARDL bounds tests are conducted for the individual countries to test for cointegration. The results show that cointegration is detected in most countries for each one of the three specifications. Also, interest rate reforms have a positive impact on economic growth through savings and investments. The study therefore recommends that market forces should be allowed to determine real interest rates and furthermore, real interest rates maintained at artificially low levels may harm economic growth.
    Keywords: Interest rate reforms, economic growth, SADC, savings, investments, PMG
    JEL: C50 E20 E52
    Date: 2018–03–19
  69. By: Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Evidence for 17 OECD Countries over 1978-2013 Using an annual data set covering 17 OECD countries over the time period 1978-2013, this paper analyses the dynamic effects of fiscal consolidation episodes on income inequality in the short and medium run. By estimating impulse response functions from local projections, we find that fiscal consolidations typically lead to an increase in income inequality. Baseline results suggest that in the aftermath of the start of a fiscal adjustment episode, the Gini coefficient of disposable income increases by about 0.4 percentage points in the short run (in year three), and by 0.6 percentage points in the medium run (in year seven). The impact of fiscal austerity measures on the income distribution is found to be more pronounced a) when the size of the fiscal consolidation package is large rather than small; b) when the duration of the adjustment is long instead of short; c) when the fiscal consolidation is based more on spending cuts than on tax increases; d) when the consolidation is started in the aftermath of a financial crisis rather than in a non-crisis episode; and e) when the adjustment falls into a period of low economic growth instead of high growth.
    Keywords: income inequality, income distribution, austerity, fiscal policy, fiscal consolidation
    JEL: D63 E62 E64
    Date: 2018–04
  70. By: Deepankar Basu (Department of Economics, University of Massachusetts - Amherst)
    Abstract: Bhaduri and Marglin (1990) had argued that an investment function which has the profit rate and the capacity utilization rates as the two determinants of investment imposes unwarranted restrictions on the macroeconomic model and rules out profit-led expansion. In this paper, I show that this critique only holds in a closed economy model. In an open economy model, such an investment function does not rule out profit-led expansion. I argue that the problem was less in the investment function itself than in the larger model within which it was embedded, in particular the saving behavior of the macroeconomy entailed by the model.
    Keywords: structuralist model, investment function, profit-led expansion
    JEL: E12 B51
    Date: 2018
  71. By: Michal BURZYŃSKI (CREA - University of Luxembourg); Christoph DEUSTER (IRES - Université Catholique de Louvain); Frédéric DOCQUIER (Université Catholique de Louvain)
    Abstract: This paper characterizes the recent evolution of the geographic distribution of talent, and studies its implications for development inequality. Assuming the continuation of recent educational and immigration policies, it produces integrated projections of income, population, urbanization and human capital for the 21st century. To do so, we develop and parameterize a two-sector, two-class, world economy model that endogenizes education decisions, population growth, labor mobility, and income disparities across countries and across regions/sectors (agriculture vs. nonagriculture). We find that the geography of talent matters for global inequality, whatever the size of technological externalities. Low access to education and the sectoral allocation of talent have substantial impacts on inequality, while the effect of international migration is small. We conclude that policies targeting access to all levels of education and sustainable urban development are vitalto reduce demographic pressures and global inequality in the long term.
    Keywords: human capital, migration, Urbanization, growth, inequality.
    JEL: E24 J24 O15
    Date: 2018–03
  72. By: Michal BURZYŃSKI (CREA - University of Luxembourg); Christoph DEUSTER (IRES - Université Catholique de Louvain); Frédéric DOCQUIER (Université Catholique de Louvain)
    Abstract: This paper characterizes the recent evolution of the geographic distribution of talent, and studies its implications for development inequality. Assuming the continuation of recent educational and immigration policies, it produces integrated projections of income, population, urbanization and human capital for the 21st century. To do so, we develop and parameterize a two-sector, two-class, world economy model that endogenizes education decisions, population growth, labor mobility, and income disparities across countries and across regions/sectors (agriculture vs. nonagriculture). We find that the geography of talent matters for global inequality, whatever the size of technological externalities. Low access to education and the sectoral allocation of talent have substantial impacts on inequality, while the effect of international migration is small. We conclude that policies targeting access to all levels of education and sustainable urban development are vitalto reduce demographic pressures and global inequality in the long term.
    Keywords: human capital, migration, Urbanization, growth, inequality.
    JEL: E24 J24 O15
    Date: 2018–03
  73. By: Vuyo Pikoko (Department of Economics, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University)
    Abstract: High unemployment in South Africa possess as the country’s most problematic economic issue faced by South African policymakers and hence is considered an overriding priority within the design of large scale government expenditure programmes. In this study, we investigate the hysteresis hypothesis for 8 categories of unemployment in South Africa using a battery of individual and panel unit root testing procedures applied to quarterly data collected in the post-recession period of 2008:q1 to 2017:q2. Indeed our empirical results confirm the hysteresis hypothesis for a majority of unemployment classifications with the exception of unemployment associated with persons aged 55 to 64 years old. Overall, our obtained empirical results hold far reaching ramifications towards domestic policymakers.
    Keywords: Unemployment, Hysteresis, Unit root tests, Stationarity, tests, South Africa, Sub Saharan Africa (SSA).
    JEL: E32 R10
    Date: 2018–01
  74. By: Luc Eyraud; Xavier Debrun; Andrew Hodge; Victor Duarte Lledo; Catherine A Pattillo
    Abstract: Fiscal rule frameworks have evolved significantly in response to the global financial crisis. Many countries have reformed their fiscal rules or introduced new ones with a view to enhancing the credibility of fiscal policy and providing a medium-term anchor. A number of countries have complemented their supranational rules with national ones. Enforcement and monitoring mechanisms have also been upgraded. At the same time, the Fund view on fiscal rules has evolved considerably in the past decade, partly in the context of the euro area surveillance. The time is ripe for evaluating all these changes. The SDN will take stock of past experiences with fiscal rules, review recent reforms, and present new research on the effectiveness of rules. It will also provide a critical assessment of the new view on fiscal rules that has emerged in the past decade.
  75. By: Jiro Honda; Manabu Nose; Cesar Sosa Padilla; Jose L. Torres; Murna Morgan; Fernando G Im; Natalia A Koliadina
    Abstract: Over the past decade, Lesotho and Swaziland have faced significant volatility in their fiscal revenues, owing to highly unstable Southern African Customs Union (SACU) receipts. Based on model analysis, this paper explores the advantages of implementing fiscal rules to deal with such volatility. It finds that the use of a structural balance target could smooth the growth impact from revenue shocks while helping preserve sufficient international reserves during bad times. From a long-term perspective, it suggests possible welfare gains from introducing fiscal rules. Last, it concludes that, based on experiences in other countries, developing strong institutions and improving public financial management are necessary steps to ease the transitions to a rules-based fiscal policy framework.
    Keywords: Fiscal analysis;Fiscal management;Fiscal policy;Fiscal sector;Fiscal data;Fiscal framework;Fiscal rules;Fiscal rules and institutions;
    Date: 2017–09–12
  76. By: Baqaee, David Rezza; Farhi, Emmanuel
    Abstract: We provide a nonlinear characterization of the macroeconomic impact of microeconomic productivity shocks in terms of reduced-form non-parametric elasticities for efficient economies. We also show how structural parameters are mapped to these reduced-form elasticities. In this sense, we extend the foundational theorem of Hulten (1978) beyond first-order terms. Key features ignored by first-order approximations that play a crucial role are: structural elasticities of substitution, network linkages, structural returns to scale, and the extent of factor reallocation. Higher-order terms magnify negative shocks and attenuate positive shocks, resulting in an output distribution that is asymmetric, fat-tailed, and has a lower mean even when shocks are symmetric and thin-tailed. In our calibration, output losses due to business-cycle fluctuations are an order of magnitude larger than the cost calculated by Lucas (1987). Second-order terms also show how shocks to critical sectors can have large macroeconomic impacts, tripling the estimated impact of the 1970s oil price shocks.
    JEL: J1
    Date: 2017–06
  77. By: Mankiw, N. Gregory; Reis, Ricardo
    Abstract: This essay discusses the role of Milton Friedman’s presidential address to the American Economic Association, which was given a half century ago and helped set the stage for modern macroeconomics. We discuss where macroeconomics was before the address, what insights Friedman offered, where researchers and central bankers stand today on these issues, and (most speculatively) where we may be heading in the future.
    JEL: J1
    Date: 2017–11
  78. By: GLUMAC Brano; HERRERA-GOMEZ Marcos; LICHERON Julien
    Abstract: Urban development projects have many effects on society, such as improving mobility, health, education, and sustainability. For policy-relevant measures, it is important that policymakers are able to foresee how quality improvements influence the price of land. Therefore, our objective is to collect a set of variables able to account for the effects of a multitude of land quality improvements. In addition, surrounding plots and the natural and built environment might also influence urban land prices. However, most house price and land price indices do not control for any potentially related spatial effects. The urban land price index detailed here is based on land transaction prices for Luxembourg between 2010 and 2014 recorded in notarial deeds and cadastral data, together with geo-spatial characteristics. The proposed index includes many aspects in an initial hedonic model specification, the index also operates on a spatial model.
    Keywords: land value; hedonic regression; spatial Durbin error model; Luxembourg
    JEL: C23 E31 R31 R32
    Date: 2018–04
  79. By: Andrew Aitken; Martin Weale
    Abstract: This paper explores the problem of augmenting the data in the UK's Living Costs and Food Survey in order to address two issues. First we are concerned with broadening the definition of income to include accrual of pension rights and secondly we aim to address the point that investment incomes are materially underrecorded. We draw on the Wealth and Assets Survey to address the first point and the Survey of Personal Incomes for the second. We present an approach to stochastic imputation which largely replicates the distributional properties of the source data and show how it can be adapted to address the issue of covariance between the variables imputed. Our initial results suggest that imputation of pension accruals raises both the Gini coefficient and the geometric mean of equivalised household income materially, while the effects of imputing investment income are more marked on the Gini coefficient than on the geometric mean of household income.
    Keywords: income distribution, inequality aversion, welfare indicator, cost of living
    JEL: I31 D12 E21 C83 E20
    Date: 2018–03
  80. By: Chakraborty, Lekha S; Singh, Yadawendra
    Abstract: We examine the impact of conditional fiscal transfers on public employment across gender in India taking the case of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). The MGNREGS, as an “employer of last resort” fiscal policy, is a direct employment transfer, which guarantees to provide 100 days of paid work opportunities at a predetermined wage for public works in India through a self-selection criterion. Using unit record data of the latest 68th round of NSS Employment-Unemployment survey, we examined gender differential impacts of MGNREGS on labour force participation rates across States in India. The unit of analysis in our paper is not ‘household’, but is one step ahead to capture the intra-household level of participating behaviour in the economic activity. The results, based on the survey enumerating 2,80,763 individuals in rural areas, revealed that there is a striking heterogeneity in the gender impacts of job guarantee programme across States of India. The probit estimates showed that MGNREGS job card holder’s labour force participation rates were higher than the non-card holders and the result was more pronounced for women. The analysis of the time-use patterns and the unpaid care economy statistics of job guarantee card holders obtained from the unit records also shows that augmenting public investment in care economy infrastructure is significant for the job guarantee programme to function at its full potential in India.
    Keywords: job guarantee, fiscal policy, gender, care economy, labour force participation rate
    JEL: C40 C51 D33 E24 H3 H7 H77 J48
    Date: 2018
  81. By: Michele Manna (Bank of Italy); Stefano Nobili (Bank of Italy)
    Abstract: In this paper we examine the holdings of government securities by domestic banks along with those of five other sectors: foreign banks, foreign non-banks, the official foreign sector, the domestic central bank and domestic non-banks. We use data for 21 advanced economies from 2004 Q1 to 2016 Q2. The results offer four main insights. First, banks are reluctant to undertake major changes in their holdings of domestic bonds but do accept frequent changes of more intermediate size. Second, the foreign official sector emerges as the clearest example of a contrarian investor, buying when prices fall and selling when prices rise. Third, the greater the holdings by domestic and foreign banks, the lower the yields tend to be on 10-year benchmark sovereign bonds. Finally, in all countries included in the sample we find a positive home bias in banks’ sovereign holdings while foreign banks hold fewer bonds than predicted by a neutral portfolio measure. These results suggest that banks regard domestic government bonds as a special asset class (hence the positive bias and avoidance of major changes in inventories) which they manage in a flexible manner (hence the frequent intermediate changes and lack of systematic timing of transactions), in all likelihood to meet requests from their customers. All in all, this behaviour by domestic banks provides a positive contribution to the liquidity of the market.
    Keywords: government bond yields, investor holdings, panel cointegration
    JEL: C23 E43 G11 G12 G15 G21
    Date: 2018–03
  82. By: Davide Furceri; João Tovar Jalles; Aleksandra Zdzienicka
    Abstract: Until recently, China has been the leading contributor to global economic growth and—since the recent global financial crisis—a stabilizing driver of its evolution. However, as China recently began to rebalance its economy away from investment and exports and toward consumption, its GDP growth slowed significantly—partly reversing the country’s contribution to global output and trade growth—and is expected to continue to decline gradually over the medium term. There is little consensus regarding the consequences of a China’s growth slowdown for the rest of the world, with some arguing that a significant slowdown in China may have large implications and possibly lead to a worldwide recession if the “rebalancing” process is not well managed, and others suggesting that even a significant slowdown in China is unlikely to have large global effects, as its role in the world economy is still limited This note contributes to the ongoing debate by analyzing how growth shocks in China affect particular regions and country groups and how the impact and key transmission channels of these growth shocks have increased over time. It finds that historically, the average impact of growth shocks in China on global output has been statistically significant but limited, but since the early 2000s, the magnitude of spillovers has significantly increased. Trade linkages remain the main transmission channels, with larger effects for net commodity exporters and countries mostly exporting manufacturing goods. Also, spillover effects tend to be larger during periods of high global uncertainty and have been positively associated with an increase in the share of industry in total value in China, which suggests an important role of the “rebalancing” process.
    Keywords: Exports;Asia and Pacific;Commodities;China;Manufacturing;Industry;Trade;growth, global economic growth, global financial crisis, rebalancing, growth slowdown, recession, shocks, transmission channels, trade linkages, time-varying estimates, GDP, spillovers
    Date: 2016–11–23
  83. By: Williams, John C. (Federal Reserve Bank of San Francisco)
    Abstract: Presentation to the World Affairs Council of Sonoma, Santa Rosa, California, John C. Williams, President and CEO, Federal Reserve Bank of San Francisco, April 6, 2018.
    Date: 2018–04–06
  84. By: Deiana, Claudio; Giua, Ludovica
    Abstract: In response to the recent opioid crisis, US states have implemented several policies to reduce the dispensing of opioids and contain drug mortality. We analyse the effectiveness of these laws and their unintended fallouts on labour participation and crime at the local level. Using multiple data sources and a difference-in-difference set-up, we show that the laws targeting the supply for opioids yield larger reductions in prescribed drugs compared to the demand-side policies, particularly in the absence of cross-bordering effects. We observe an improvement in labour market participation and higher crime rates following the enforcement of some of the policies considered.
    Keywords: Prescription Opioids, Drugs, Labour Market, Crime.
    JEL: E24 I18 K14
    Date: 2018–03
  85. By: Hanedar, Avni Önder; Yaldız Hanedar, Elmas
    Abstract: In this paper, based on cliometric methodology we use new historical data on the most popular stocks traded at the İstanbul bourse between 1910 and 1914, to examine the effect of wars on stock market prices. During this period, the Ottoman Empire was involved in the Turco-Italian and the Balkan wars, leading to massive land losses and risks for the companies before the First World War. The data are manually collected from the available volumes of a daily Ottoman newspaper, Tanin. Our findings are surprising, as we observe only a temporary and small drop in stock prices, indicating little perceived risk by stock investors of the İstanbul bourse.
    Keywords: Cliometrics; The İstanbul stock exchange; stocks; the Turco-Italian war; the Balkan wars; Structural breaks
    JEL: E44 G1 N25
    Date: 2017–02–02
  86. By: Arun G. Chandrasekhar; Robert Townsend; Juan Pablo Xandri
    Abstract: We study an endowment economy in which agents face income risk, as if uncertain returns on a portfolio, and agents can only make transfers in states when they are actively participating in the market. Besides income risk, agents also have limited and stochastic market access, with a probability distribution governed by an underlying social network. While network connections may serve to dissipate shocks, they may also provide obstacles to the sharing of risk, as when participation frictions are generated through the network. We identify and quantify the value of key players in terms of whether they are likely to be able to smooth the resulting market participation risk and how valuable that smoothing would be when they are there. We define financial centrality in economic terms, given the model, as the ex ante marginal social value of injecting an infinitesimal amount of liquidity to the agent. We show that the most financially central agents are not only those who trade often – as in standard network models – but are more likely to trade when there are few traders, when income risk is high, when income shocks are positively correlated, when attitudes toward risk are more sensitive in the aggregate, when there are distressed institutions, and when there are tail risks. We extend our framework to allow for endogenous market participation. Observational evidence from village risk sharing network data is consistent with our model.
    JEL: D14 E44 G01 L14 O16
    Date: 2018–03
  87. By: Helge Berger; Giovanni Dell'Ariccia; Maurice Obstfeld
    Abstract: The paper makes an analytical contribution to the revived discussion about the euro area’s institutional setup. After significant progress during the euro crisis, the drive to complete Europe’s Economic and Monetary Union (EMU) had stalled, and the way forward will benefit from an in-depth look at the conceptual issues raised by the evolution and architecture of Europe, and the tradeoffs involved. A thorough look at the underlying economic issues suggests that in the long run, EMU will benefit from progressing along three mutually supporting tracks: introduce more fiscal risk sharing, helping to make the sovereign “no bailout” rule credible; complementary financial sector reforms to delink sovereigns and banks; and more effective rules to discourage moral hazard. This evolution would ensure that financial markets provide incentives for fiscal discipline. Introducing more fiscal union comes with myriad legal, technical, operational, and political problems, raising questions well beyond the remit of economics. But without decisive progress to foster fiscal risk sharing, EMU will continue to face existential risks.
    Keywords: Sweden;Switzerland;United Kingdom;Monetary unions;Spain;Italy;Fiscal policy;France;Germany;Greece;Austria;Belgium;Czech Republic;Denmark;Economic integration;Europe;European Economic and Monetary Union;European Monetary Union;Euro area; currency union; fiscal union; fiscal risk sharing; governance; bailout; fiscal rules, General, Financial Aspects of Economic Integration, International Policy Coordination and Transmission, Intergovernmental Relations, Governmental Loans and Credits
    Date: 2018–02–20
  88. By: Li Zheng (LAAS-ISI - Équipe Ingénierie Système et Intégration - LAAS - Laboratoire d'analyse et d'architecture des systèmes [Toulouse] - INP - Institut National Polytechnique [Toulouse] - INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - UPS - Université Paul Sabatier - Toulouse 3 - CNRS - Centre National de la Recherche Scientifique); Claude Baron (LAAS-ISI - Équipe Ingénierie Système et Intégration - LAAS - Laboratoire d'analyse et d'architecture des systèmes [Toulouse] - INP - Institut National Polytechnique [Toulouse] - INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - UPS - Université Paul Sabatier - Toulouse 3 - CNRS - Centre National de la Recherche Scientifique); Philippe Esteban (LAAS-ISI - Équipe Ingénierie Système et Intégration - LAAS - Laboratoire d'analyse et d'architecture des systèmes [Toulouse] - INP - Institut National Polytechnique [Toulouse] - INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - UPS - Université Paul Sabatier - Toulouse 3 - CNRS - Centre National de la Recherche Scientifique); Rui Xue (LAAS-ISI - Équipe Ingénierie Système et Intégration - LAAS - Laboratoire d'analyse et d'architecture des systèmes [Toulouse] - INP - Institut National Polytechnique [Toulouse] - INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - UPS - Université Paul Sabatier - Toulouse 3 - CNRS - Centre National de la Recherche Scientifique); Qiang Zhang (L2E - Laboratoire d'Electronique et Electromagnétisme - UPMC - Université Pierre et Marie Curie - Paris 6)
    Abstract: A wide range of methods and good practices have been developed for the measurement of projects performance. They help project managers to effectively monitor the project progress and evaluate results. However, from a literature review, we noticed several remaining critical issues in measuring projects performance, such as an unbalanced development of Key Performance Indicators types between lagging and leading indicators. On the other hand, systems engineering measurement is a more recent discipline with practices and theories that appeared with the emergence of the systems engineering discipline; however, this discipline offers very deep developments, published in several standards and guides. In particular, systems engineering measurement does not only manipulate lagging indicators, useful to track how things are going, but defines methods to promote leading indicators, used as precursors to the direction the engineering is going. Indeed, 18 leading indicators were recently proposed, validated, and finally engineered in a practical guidance. The objective of this paper being to improve project performance and success rate, one mean is to improve the measurement of projects performance by enriching its leading indicators, on which decisions rely on project management. To reach this goal, we propose to refine and extend the performance measurement activities in the Project Management Body of Knowledge (PMBoK version 5) by considering systems engineering measurement. This paper thus considers transferring and adapting the good practices in systems engineering measurement such as described in systems engineering guides as well as the set of systems engineering leading indicators to the well-defined project management processes in PMBoK. To this effect, we propose a methodology resulting in a framework to explore this integration. This way, systems engineering leading indicators can be applied to project performance measurement, thus providing project managers with a wider set of leading indicators and straightforward measurement techniques.
    Keywords: projects performance,systems engineering measurement,leading indicators,lagging indicators
    Date: 2017–12–28
  89. By: Lucia Foster; Cheryl Grim; John C. Haltiwanger; Zoltan Wolf
    Abstract: We examine whether underlying industry innovation dynamics are an important driver of the large dispersion in productivity across firms within narrowly defined sectors. Our hypothesis is that periods of rapid innovation are accompanied by high rates of entry, significant experimentation and, in turn, a high degree of productivity dispersion. Following this experimentation phase, successful innovators and adopters grow while unsuccessful innovators contract and exit yielding productivity growth. We examine the dynamic relationship between entry, productivity dispersion, and productivity growth using a new comprehensive firm-level dataset for the U.S. We find a surge of entry within an industry yields initially an increase in productivity dispersion and then after a significant lag an increase in productivity growth. These patterns are more pronounced for the High Tech sector where we expect there to be more innovative activities. These patterns change over time suggesting other forces are at work during the post-2000 slowdown in aggregate productivity.
    JEL: E24 L26 M13 O31
    Date: 2018–03
  90. By: Marc Joëts (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); Valérie Mignon (CEPII - Centre d'études prospectives et d'informations internationales, EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); Tovonony Razafindrabe (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - CNRS - Centre National de la Recherche Scientifique)
    Abstract: While there exists numerous studies on the macroeconomic effects of oil and commodity shocks, the literature is quite silent on the impact of macroeconomic uncertainty on oil and commodity prices and, especially, on their volatility. This paper tackles this issue through the estimation of a structural threshold vector autoregressive (TVAR) model on a sample of 19 commodity markets. We aim at (i) assessing whether the effect of macroeconomic uncertainty shocks on commodity price returns depends on the degree of uncertainty, and (ii) investigating the transfer from macroeconomic uncertainty to price uncertainty using a newly developed measure of commodity price uncertainty. Our findings show that both agricultural and industrial markets are highly sensitive to the variability and the level of macroeconomic uncertainty, while the impact on precious metals is more parsimonious given their well-identified safe-haven role in time of economic turmoil. In addition, we find evidence that the recent 2007–09 recession has generated an unprecedented episode of high uncertainty in numerous commodity prices. Interestingly, our analysis further reveals that volatility and uncertainty in prices can be disconnected. This is especially true for the oil market as most important shocks in the 1990s and the beginning of the 2000s that lead to price volatility do not generate price uncertainty, highlighting the relevance of our uncertainty measure in linking uncertainty to predictability rather than to volatility.
    Keywords: Macroeconomic uncertainty, Commodity prices, Threshold vector autoregressive model
    Date: 2017–10
  91. By: Cornelius Hirsch; Roman Stöllinger
    Abstract: FIW publishes biannually FIW Notes. They present an overview of the most important Austrian and international developments regarding International Economics.
    Keywords: Austrian Foreign Trade, Economic Outlook Austria, International Trade, FDI, exports
    JEL: E66 F01
    Date: 2018–03
  92. By: Peter H. Bent
    Abstract: What drives recoveries after financial crises? I address this question for the 1870-1913 “first era of globalization,” a period when international economic integration meant that terms of trade movements could have significant national-level impacts, but before governments were engaged in widespread economic management. Protectionism was one of the few economic policy options available at this time. The impacts of these two factors–terms of trade and tariff rates–over this period have been studied before. But previous studies have not looked specifically at how these factors influenced recoveries from financial crises. I find that tariff shocks had a positive impact on GDP in post-crisis periods, while terms of trade shocks had a slightly negative impact. The tariff results are especially pronounced in temperate economies. Overall this suggests that national governments, through trade policies, played a more significant role in shaping economic outcomes during this period than is typically recognized.
    Date: 2018–04
  93. By: Majumder, Rajarshi; Mukherjee, Dipa; Ray, Jhilam
    Abstract: Demographic transition creates a small window for countries when the population pyramid shows signs of maturity and bulges in the middle, indicating a relatively larger share of working age population. Key to reaping this demographic dividend lies in using the working age population to fullest potential and enhance production to the maximum possible. However, this can become a nightmare if skill demand and supply in the labour market do not match, keeping large portion of the working age population out of productive engagement while at the same time some productive sectors suffer from labour shortage in key areas. In this paper we look at the issue of estimating skill gap in the Indian labour market starting with the methods currently available globally. It then attempts to project both future labour demand and labour supply by sector and skill group and study the expected surplus/shortages in labour market. Results indicate that methodologies are still in the nascent stage and surplus and shortages are likely to coexist in the labour market. While some specific skills are scarce, others are in surplus, indicating the importance of taking a hard look at the manpower policy, including the education policy. It is crucial to bridge the gap between education, training and employment so that promised demographic dividend can actually materialise.
    Keywords: Demographic Dividend; Employability; Skill Gap; Education; India
    JEL: E24 E27 I24 I25 I28 J11 J2 J21 J24 O15
    Date: 2017
  94. By: Michal Andrle; Alvar Kangur; Mehdi Raissi
    Abstract: This paper seeks to quantify the net benefits of a comprehensive reform package aimed at addressing Italy’s inter-related challenges. Specifically, it simulates the growth and competitiveness effects of a package of fiscal, financial, wage bargaining, and other structural reforms. Credible implementation of such a package yields substantial mediumterm dividends at negligible near-term growth costs. Real GDP growth is estimated to be substantially higher over the medium term, while the real effective exchange rate depreciates notably.
    Date: 2018–03–16
  95. By: Christian Catalini; Joshua S. Gans
    Abstract: This paper explores how entrepreneurs can use initial coin offerings — whereby they issue crypto tokens and commit to accept only those tokens as payment for future use of a digital platform — to fund venture start-up costs. We show that the ICO mechanism allows entrepreneurs to generate buyer competition for the token, which, in turn, reveals consumer value without the entrepreneurs having to know, ex ante, consumer willingness to pay. We find that venture returns are independent of any committed growth in the supply of tokens over time, but that initial funds raised are maximized by setting that growth to zero to encourage saving by early participants. Furthermore, by revealing key aspects of consumer demand, crypto tokens may increase entrepreneurial returns beyond what can be achieved through traditional equity financing. A lack of commitment in monetary policy can, however, undermine saving and, thus, the cost of using tokens to fund start-up costs is potential inflexibility in future capital raising. Crypto tokens can also facilitate coordination among stakeholders within digital ecosystems when network effects are present.
    JEL: E42 L12 L26
    Date: 2018–03
  96. By: Miroudot, Sébastien; ye, ming
    Abstract: In this paper, we propose a new accounting framework for the decomposition of value-added into domestic, foreign and double counting terms in domestic sales. In this framework, we show where the value-added double counting is derived from and give an explicit expression of domestic and foreign double counting terms based on the Inter-Country Input-Output (ICIO) tables’ Ghosh insight. We can distinguish domestic sales from exports and trace the value added and double counting in sales of foreign affiliates and domestic-owned enterprises. Based on this framework, we then calculate the value-added by foreign-owned and domestic-owned firms in exports and in domestic sales by using an Inter-Country Input-Output table split according to ownership. Preliminary results suggest that there is much more double counting in sales of foreign affiliates than in exports and that more value-added is created through exports than through sales of foreign affiliates in world GDP.
    Keywords: inter-country input-output, value-added decomposition, global value chains, foreign affiliates
    JEL: E01 F23 L14
    Date: 2018–03–14
  97. By: Alexeev, Michael (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Arlashkin, Igor (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Barbashiova, Natalya (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Deryugin, Alexander (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Komarnitskaya, Anna (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Moguchev, Nikita (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Tischenko, Tatiana (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Filippova, Irina (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The paper presents the results of the analysis of the Russian system of regional fiscal rules, including the comparison of the Russian and the foreign systems of regional fiscal rules. Based on the results of the analysis, recommendations are given to alter regional fiscal rules, established both in federal and in the regional legislation.
    Date: 2018–03
  98. By: Jesus R Gonzalez-Garcia; Ermal Hitaj; Montfort Mlachila; Arina Viseth; Mustafa Yenice
    Abstract: Amid rapid population growth, migration in sub-Saharan Africa has been increasing briskly over the last 20 years. Up to the 1990s, the stock of migrants—citizens of one country living in another country—was dominated by intraregional migration, but over the last 15 years, migration outside the region has picked up sharply. In the coming decades, sub-Saharan African migration will be shaped by an ongoing demographic transition involving an enlargement of the working-age population, and migration outside the region, in particular to advanced economies, is set to continue expanding. This note explores the main drivers of sub-Saharan African migration, focusing on migration outside the region, as this has greater global spillovers. It finds that the economic impact of migration for the region occurs mainly through two channels. First, the migration of young and educated workers—brain drain—takes a toll as human capital is already scarce in the region, although some recent studies suggest that migration may have also a positive effect—brain gain. Second, remittances represent an important source of foreign exchange and income in a number of sub-Saharan African countries, contribute to the alleviation of poverty, and help smooth business cycles.
    Keywords: Togo;Tanzania;Uganda;Swaziland;Spillovers;Sub-Saharan Africa;Rwanda;Senegal;Seychelles;Sierra Leone;South Africa;Niger;Income;Human capital;Kenya;Malawi;Mali;Lesotho;Liberia;Madagascar;Migration;Mauritius;Mozambique;Namibia;Nigeria;Central African Republic;Chad;Comoros;Benin;Botswana;Burkina Faso;Burundi;Cameroon;Guinea;Guinea-Bissau;Foreign exchange;Gabon;Gambia, The;Ghana;Equatorial Guinea;Eritrea;Ethiopia;Population growth;Remittances;Zambia;Zimbabwe;Congo, Democratic Republic of the;Congo, Republic of;Demographic transition;intraregional migration, extraregional migration, demographics, economic impact, brain drain, brain gain, working-age population, poverty, business cycles, migration patterns, refugees, displacement, poverty reduction, macroeconomic volatility
    Date: 2016–11–02
  99. By: Shantanu Bagchi (Department of Economics, Towson University); James Feigenbaum (Department of Economics, Utah State University)
    Abstract: We examine how the absence of annuities in financial markets affects capital accumulation in a two-period overlapping generations model. Our findings indicate that the effect on capital is ambiguous in general equilibrium, because there are two competing mechanisms at work. On the one hand, the absence of annuities increases the price of old-age consumption relative to the price of early-life consumption. This induces a substitution effect that reduces saving and capital, and an income effect that has the opposite effect as households want to consume less when young, causing them to save more. On the other hand, accidental bequests originate from the assets of the deceased under missing annuity markets. The bequest received in early life always has a positive income effect on saving, but the bequest received in old age, conditional on survival, is effectively a partial annuity with both substitution and income effects. We find that when the desire to smooth consumption is high, the income effects dominate, so the capital stock always increases when annuity markets are missing. However, when the desire to smooth consumption is low, the substitution effects dominate, and the capital stock decreases with missing annuity markets.
    Keywords: Mortality risk, frictionless annuities, accidental bequests, savings, capital stock.
    JEL: D52 E21
    Date: 2018–04
  100. By: Roberto Bonfatti; Luis A. Bryce Campodonico; Luigi Pisano
    Abstract: Empirical studies have uncovered an inverted-U relationship between product-market competition and innovation. This is inconsistent with the original Schumpeterian Model, where greater competition reduces the profitability of innovation. We show that the model can predict the inverted-U if the innovators’ talent is heterogenous, and privately observable. With competition low and profitability high, talented innovators are credit constrained, since others are eager to mimic them. As competition increases, the mimickers become less eager, and talented innovators can invest more. This generates the increasing part of the relationship. With competition high, talented innovators are unconstrained, and the relationship is decreasing.
    Keywords: innovation, competition, Schumpeterian Model of Growth, asymmetric information
    JEL: O38 E60 G38
    Date: 2018
  101. By: Rutger-Jan Lange (Erasmus University Rotterdam); Coen Teulings (University of Cambridge)
    Abstract: Classic real options theory rests on two debatable assumptions: projects require a fixed investment and generate cash flows that follow a random walk. Relaxing both assumptions leads to radically different conclusions regarding the optimal timing of investment. We model investment using a Stone-Geary production function (Leontief and Cobb-Douglas are special cases) and growth as a mean-reverting Brownian motion. The solution method for this option valuation problem is non-trivial because the state space is two dimensional (level of the cash flow and its growth). For Leontief, the optimal policy is intuitive; the moment of investment involves a trade-off between the level of the cash flow and its growth. For Cobb-Douglas, in contrast, the optimal moment of investment depends only on the growth. More surprisingly, investment should be delayed when growth is high. This conclusion persists in the general Stone-Geary case. Applied to urban real estate, this suggests that up to 20% of cities should delay new construction because of high growth. The option value of vacant land may represent 60% of the value of new construction. High prices of vacant land may thus result from rational investor behavior rather than regulatory inefficiency. Our analysis should be widely applicable, for example to investment in high-growth companies.
    Keywords: real options; mean-reverting growth; real estate construction
    JEL: D81 E22 R11 R30
    Date: 2018–03–30
  102. By: Maxim Pinkovskiy; Xavier Sala-i-Martin
    Abstract: Nighttime lights data are a measure of economic activity whose error is plausibly independent of the measurement errors of most conventional indicators. Therefore, we can use nighttime lights as an independent benchmark to assess existing measures of economic activity (Pinkovskiy and Sala-i-Martin (2016)). We employ this insight to generate three findings in the study of PPP-adjusted estimates of GDP around the world between 1992 and 2010. First, we find that while market exchange rates described poor economies better than did PPP-adjusted estimates in the late 1990s (Dowrick and Akmal 2008; Almas 2012), this pattern has disappeared by the 2010s. Second, we also find that estimates of PPPs have been steadily improving from one price survey round to the next, including during the controversial 2005 and 2011 rounds. Third, we leverage this fact to assess whether it is optimal to measure relative prices as close as possible to the year of interest or to use the latest available relative price data and discard the rest, and provide a theoretical framework in which the latter may be optimal. Using data from the Penn World Tables, we find that, indeed, it is optimal to only use the latest price data, and hence, to revise existing PPP-adjusted estimates whenever a new price survey is released.
    JEL: A1 E01 F00
    Date: 2018–03
  103. By: Mauro Napoletano (OFCE - OFCE - Sciences Po)
    Abstract: Cet article analyse les progrès récents de la modélisation multi-agents appliquée à l'analyse macroéconomique. Je présente d'abord les principaux ingrédients des modèles multi-agents. Ensuite, en s'appuyant sur des exemples tirés de travaux récents, je montre que les modèles multi-agents apportent des éclairages complémentaires ou nouveaux sur des questions macroéconomiques clés telles que les cycles économiques endogènes, les interactions entre cycles et croissance à long terme, le rôle des ajustements de prix versus quantités dans le retour au plein emploi. Enfin, je discute certaines limites des modèles multi-agents et comment ils sont actuellement abordés dans la littérature.
    Keywords: Modèles multi-agents,Analyse macroéconomique,Cycles économiques endogènes,Politique monétaire et budgétaire
    Date: 2017–12
  104. By: Alastair Greig; Katerina Lisenkova; Graeme Roy
    Abstract: Considering the political importance of devolution, and emerging economic issues in UK’s trade policy arising from Brexit, there’s a pressing demand for data which can help understand internal trade flows within the UK. This paper is the first in a series which seeks to understand and evaluate the feasibility of producing robust interregional trade flows statistics for the UK.
    Keywords: regional trade, UK, regional economic statistics
    JEL: R12 F15 E01
    Date: 2018–03
  105. By: Ngondo, Mashilana; Khobai, Hlalefang
    Abstract: The primary objective of this study is to assess the impact of exchange rate on exports in South Africa between the periods 1994 to 2016 and to establish whether a statistically significant relationship exists between exports and exchange rate. The study incorporated real interest rate, investments and inflation as control variables. By applying the Autoregressive Distributed Lag (ARDL) approach, this study empirically investigates the impact of real exchange rate on exports in South Africa. In testing for the unit root properties of the time series data, the variables were subjected to the Augmented Dickey-Fuller (ADF) and Philips Perron (PP) unit root tests. The results obtained reveal that exchange rate has a significant negative relationship with exports in South Africa.
    Keywords: Exchange rate, exports, Autoregressive Distribution Lag Model (ARDL), South Africa
    JEL: C50 E00 F13
    Date: 2018–03–09

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