|
on Macroeconomics |
|
Issue of 2018‒05‒07
87 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Reis, Ricardo |
| Abstract: | Central banks have sometimes turned their attention to long-term interest rates as a target or as a diagnosis of policy. This paper describes two historical episodes when this happened-the US in 1942-51 and the UK in the 1960s-and uses a model of inflation dynamics to evaluate monetary policies that rely on going long. It concludes that these policies for the most part fail to keep inflation under control. A complementary methodological contribution is to re-state the classic problem of monetary policy through interest-rate rules in a continuous-time setting where shocks follow diffusions in order to integrate the endogenous determination of inflation and the term structure of interest rates. |
| Keywords: | affine models; ceilings; pegs; Taylor rule; Yield Curve |
| JEL: | E31 E52 E58 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12833&r=mac |
| By: | Michał Brzoza-Brzezina (Narodowy Bank Polski; Warsaw School Economics); Marcin Kolasa (Narodowy Bank Polski; Warsaw School Economics); Krzysztof Makarski (Narodowy Bank Polski; Warsaw School Economics; Group for Research in Applied Economics (GRAPE)) |
| Abstract: | This paper checks how international spillovers of shocks and policies are modified when banks are foreign owned. To this end we build a two-country macroeconomic model with banking sectors that are owned by residents of one (big and foreign) country. Consistently with empirical findings, in our model foreign ownership of banks amplifies spillovers from foreign shocks. It also strengthens the international transmission of monetary and macroprudential policies. We next use the model to replicate the financial crisis in the euro area and show how, by preventing bank capital outflow in 2009, the Polish regulatory authorities managed to reduce its contagion to Poland. We also find that under foreign bank ownership such policy is strongly preferred to a recapitalization of domestic banks. Finally, we check how foreign ownership of banks affects transmission of domestic shocks to find that it has a stabilizing effect. |
| Keywords: | foreign-owned banks, monetary and macroprudential policy, international spillovers, DSGE models with banking |
| JEL: | E32 E44 E58 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:fme:wpaper:18&r=mac |
| By: | Matthias Neuenkirch; Matthias Nöckel |
| Abstract: | In this paper, we provide evidence for a risk-taking channel of monetary policy transmission in the euro area that works through the relaxation of lending standards for borrowers. Our dataset covers the period 2003Q1-2016Q2 and includes, in addition to the standard variables for real GDP growth, inflation, and the monetary policy stance, indicators of bank lending standards and bank lending margins. Based on vector autoregressive models with (i) recursive identification and (ii) sign restrictions, we show that banks react aggressively to an expansionary monetary policy shock by lowering their lending standards. The banks’ efforts to keep their lending margin stable, however, are not successful as we detect a significant compression. We document these findings for the euro area as a whole and for its individual member states. In particular, banks in the Netherlands, Portugal, Spain, and Ireland lowered their lending standards after expansionary monetary policy shocks. The compression of the lending margin is most pronounced in the five crisis countries (Greece, Ireland, Italy, Portugal, and Spain). |
| Keywords: | European Central Bank, macroprudential policy, monetary policy transmission, risk-taking channel, vector autoregression |
| JEL: | E44 E51 E52 E58 G28 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6982&r=mac |
| By: | Paweł Kopiec (Narodowy Bank Polski) |
| Abstract: | This paper studies the macroeconomic consequences of interbank market disruptions caused by higher counterparty risk. I propose a novel, dynamic model of banking sector where banks trade liquidity in the frictional OTC market à la Afonso and Lagos (2015) that features counterparty risk. The model is then embedded into an otherwise standard New Keynesian framework to analyze the macroeconomic impact of interbank market turmoils: economy suffers from a prolonged slump and deflationary pressure during such episodes. I use the model to analyze the effectiveness of two policy measures: rise in the supply of central bank reserves and interbank market guarantees in mitigating the adverse effects of those disruptions. |
| Keywords: | Financial crisis, Interbank market, Policy intervention, OTC market |
| JEL: | D80 E44 E58 G21 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:280&r=mac |
| By: | Gondo, Rocío (Banco Central de Reserva del Perú); Yetman, James (Bank for International Settlements) |
| Abstract: | We use inflation survey data from Consensus Economics to assess the degree of inflation expectations anchoring in Latin America. Following the methodology proposed by Mehrotra and Yetman (2017), we model inflation forecasts using a decay function, where forecasts monotonically diverge from an estimated anchor towards recent actual inflation as the forecast horizon shortens. Our results suggest that most countries do have an inflation anchor, with the estimated weight of the anchor increasing through time, indicating more strongly anchored expectations. This is consistent with the improving credibility of central banks’ monetary policy management over our sample period (1993-2016). For countries with formal inflation targets, our results indicate that inflation targeting regimes are generally credible, with estimated anchors lying within the inflation target range for all countries in the most recent sample that we consider. |
| Keywords: | inflation expectations, inflation anchoring, decay function |
| JEL: | E31 E58 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2018-003&r=mac |
| By: | Aleksandar Vasilev (Independent Researcher) |
| Abstract: | We introduce a pro-cyclical endogenous utilization rate of physical capita1 stock into a real-business-cycle model augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the endogenous depreciation rate, and the capital utilization mechanism working through the use of energy for cyclical uctuations in Bulgaria. In particular, a positive shock to energy prices in the model works like a negative technological shock. Allowing for variations in factor utilization and the presence of energy as a factor of production improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework with constant depreciation and a fixed utilization rate of physical capital, e.g., Vasilev (2009). |
| Keywords: | Business uctuations, capital utilization rate, endogenous depreciation rate, energy use, energy prices, Bulgaria |
| JEL: | E32 E22 E37 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:sko:wpaper:bep-2018-05&r=mac |
| By: | Marek Dabrowski |
| Abstract: | In the last decade, advanced economies, including the euro area, experienced deflationary pressures caused by the global financial crisis of 2007-2009 and the anti-crisis policies that followed—in particular, the new financial regulations (which led to a deep decline in the money multiplier). However, there are numerous signs in both the real and financial spheres that these pressures are disappearing. |
| Keywords: | monetary policy, inflation, economic growth, unemployment, money multiplier, money velocity |
| JEL: | E24 E31 E41 E51 E52 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:sec:report:0494&r=mac |
| By: | Hampl, Mojmir; Havranek, Tomas |
| Abstract: | We examine the use of central bank capital as an unconventional monetary policy tool. In this setting, a central bank employs digital currency to transfer digital cash to each household, thus supporting consumption directly when needed. The asset side of the central bank’s balance sheet remains unchanged, and the creation of new digital cash is offset by a decrease in central bank capital. The central bank thus incurs an immediate loss but does not take on any additional risks for its future income statements. We address several objections to this policy, paying particular attention to the claim that weakening the financial strength of the central bank endangers long-term price stability. Through a meta-analysis of 176 estimates reported previously in the literature, we find that central bank financial strength has not historically correlated with inflation performance. |
| Keywords: | Central bank capital,inflation,seigniorage,monetary policy,helicopter money,central bank digital currency |
| JEL: | E42 E52 E58 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:176828&r=mac |
| By: | Thomas Hasenzagl; Fillipo Pellegrino (London School of Economics and Political Science (LSE)); Lucrezia Reichlin (London Business School (LBS)); Giovanni Ricco (Observatoire français des conjonctures économiques) |
| Abstract: | view often expressed by the Fed is that three components matter in inflation dynamics: a trend anchored by long run inflation expectations; a cycle connecting nominal and real variables; and oil prices. This paper proposes an econometric structural model of inflation formalising this view. Our findings point to a stable expectational trend, a sizeable and well identified Phillips curve and an oil cycle which, contrary to the standard rational expectation model, affects inflation via expectations without being reflected in the output gap. The latter often overpowers the Phillips curve. In fact, the joint dynamics of the Phillips curve cycle and the oil cycles explain the inflation puzzles of the last ten years. |
| Keywords: | Phillips curve; Output gap; Unobserved Components; Bayesian estimation |
| JEL: | C11 C32 C53 E31 E32 E52 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/784ilbkihi9tkblnh7q2514823&r=mac |
| By: | Marc Lavoie; Severin Reissl |
| Abstract: | We present a simple stock-ow consistent (SFC) model to discuss some recent claims made by Angel Asensio in the Journal of Post Keynesian Economics regarding the relationship between endogenous money theory and the liquidity preference theory of the rate of interest. We incorporate Asensio's assumptions as far as possible and use simulation experiments to investigate his arguments regarding the presence of a crowding-out effect, the relationship between interest rates and credit demand, and the ability of the central bank to steer interest rates through varying the stock of money. We show that in a fully-specified SFC model, some of Asensio's conclusions are not generally valid (most importantly, the presence of a crowding-out effect is ambiguous), and that in any case, his use of a non-SFC framework leads him to ignore important mechanisms which can contribute to a better understanding of the behaviour of interest rates. More generally, this paper hence once more demonstrates the utility of the SFC approach in research on monetary economics 1930s. |
| Keywords: | Horizontalism, structuralism, endogenous money, interest rates, stock-flow consistency |
| JEL: | E5 E12 E40 E43 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:17-2018&r=mac |
| By: | Kalemli-Ozcan, Sebnem; Laeven, Luc; Moreno, David |
| Abstract: | We quantify the role of financial factors that have contributed to sluggish investment in Europe in the aftermath of the 2008-2009 crisis. Using a big data approach, we match the firms to their banks based on banking relationships in 8 European countries over time, obtaining over 2 million observations. We document four stylized facts. First, the decline in investment in the aftermath of the crisis can be linked to higher leverage, increased debt service, and having a relationship with a weak bank-once we condition on aggregate demand shocks. Second, the relation between leverage and investment depends on the maturity structure of debt: firms with a higher share of long-term debt have higher investment rates relative to firms with a lower share of long-term debt since the rollover risk for the former is lower and the latter is higher. Third, the negative effect of leverage is more pronounced when firms are linked to weak banks, i.e., banks with high exposure to sovereign risk. Firms with higher shares of short-term debt decrease investment more relative to firms with lower shares of short-term debt even both set of firms linked to weak banks. This result suggests that loan evergreening by weak banks played a limited role in increasing investment. Fourth, the direct negative effect of weak banks on the average firm's invest- ment disappears once demand shocks are controlled for, although the differential effects with respect to leverage and the maturity of debt remain. |
| Keywords: | Bank-Sovereign Nexus; Debt Maturity; Firm Investment; Rollover Risk |
| JEL: | E22 E32 E44 F34 F36 G32 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12881&r=mac |
| By: | Pérez-Forero, Fernando (Banco Central de Reserva del Perú) |
| Abstract: | Knowing the stance of monetary policy is a general theme of interest for academics, policy makers and private sector agents. The mentioned stance is not necessarily observable, since the Fed have used different monetary instruments at different points in time. This paper provides a measure of this stance for the last forty five years, which is a weighted average of a pool of instruments. We extend Bernanke and Mihov (1998)'s Interbank Market model by allowing structural parameters and shock variances to change over time. In particular, we follow the recent work of Canova and Perez Forero (2015) for estimating non-recursive TVCVARs with Bayesian Methods. The estimated stance measure describes how tight/loose was monetary policy over time and takes into account the uncertainty related with posterior estimates of time varying parameters. Finally, we present how has monetary transmission mechanism changed over time, focusing our attention in the period after the Great Recession. |
| Keywords: | SVARs, Interbank Market, Operating Procedures, Monetary Policy Stance, Time-varying parameters, Bayesian Methods, Multi-move Metropolis within Gibbs Sampling |
| JEL: | C11 E51 E52 E58 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:rbp:wpaper:2018-004&r=mac |
| By: | Drehmann, Mathias; Juselius, Mikael; Korinek, Anton |
| Abstract: | Traditional economic models have had difficulty explaining the non-monotonic real effects of credit booms and, in particular, why they have predictable negative after-effects for up to a decade. We provide a systematic transmission mechanism by focusing on the flows of resources between borrowers and lenders, i.e. new borrowing and debt service. We construct the first cross-country dataset of these flows for a panel of house-hold debt in 16 countries. We show that new borrowing increases economic activity but generates a pre-specified path of debt service that reduces future economic activity. The protracted response in debt service derives from two key analytic properties of credit booms: (i) new borrowing is auto-correlated and (ii) debt contracts are long term. We confirm these properties in the data and show that debt service peaks on average four years after credit booms and is associated with significantly lower output and higher crisis risk. Our results explain the transmission mechanism through which credit booms and busts generate non-monotonic and long-lasting aggregate demand effects and are, hence, crucial for macroeconomic stabilization policy. |
| JEL: | E17 E44 G01 D14 |
| Date: | 2018–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:2018_010&r=mac |
| By: | Luís Aguiar-Conraria (Department of Economics/NIPE, University of Minho); Manuel M. F. Martins (Cef.up and Faculty of Economics, University of Porto); Maria Joana Soares (NIPE and Department of Mathematics and Applications, University of Minho,) |
| Abstract: | We present the first assessment of U.S. monetary policy across time and frequencies within the Taylor Rule framework. We derive a novel wavelet tool - the partial wavelet gain - to estimate a parametric equation relating the federal funds rate to inflation and the output gap. We detect a gradual shift of the focus of policy from short cycles to intermediate cycles at the beginning of the Great Moderation, followed by a strengthening of policy´s reaction to long fluctuations once credibility was attained, and, during the Great Recession, a renewed interest in shorter output cycles. We document that the violation of the Taylor principle until the early 1980s and the strengthening of the reaction of policy to inflation thereafter were more marked at intermediate than at long cycles. Overall, we also detect lead-lag relationships between the policy rate and ináation and the output gap that differ along time and cyclical frequencies. |
| Keywords: | Monetary Policy; Taylor Rule; Partial Wavelet Gain; Time-Frequency Estimation;Continuous Wavelet Transform. |
| JEL: | C49 E43 E52 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:04/2018&r=mac |
| By: | Mohammad Davoodalhosseini; Francisco Rivadeneyra |
| Abstract: | We present a policy framework for electronic money and payments. The framework poses a set of positive questions related to the areas of responsibility of central banks: payments systems, monetary policy and financial stability. The questions are posed to four broad forms of e-money: privately or publicly issued, and with centralized or decentralized verification of transactions. This framework is intended to help evaluate the trade-offs that central banks face in the decision to issue new forms of e-money. |
| Keywords: | Digital currencies; Monetary policy; Payment clearing and settlement systems |
| JEL: | E41 E51 E52 E58 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocadp:18-5&r=mac |
| By: | Qichun He (Central University of Finance and Economics); Heng-fu Zou (Development Research Group, World Bank) |
| Abstract: | We first use a monetary Schumpeterian model to investigate how central bank independence (CBI) affects inflation. We find that we cannot predict a monotone relationship between CBI and infiation. When the elasticity of labor supply is high or the seigniorage is mainly used to finance entrepreneurs, a condition that is more likely in developed countries, CBI has a positive effect on inflation; in contrast, when labor supply is inelastic or the seigniorage is mainly used to finance non-productive government spending, a situation more commonly found in developing countries, CBI has a negative effect or no effect on inflation. Calibration shows the following. When the nominal interest rate increases from 8.3% (the sample mean) to the optimal value of 28.1%, the equilibrium rate of economic growth increases from the benchmark value of 1.8% to 1.99%, and the welfare gain is equivalent to a permanent increase in consumption of 1.02%. The growth and welfare effects increase with CBI. As an empirical test, we build panel data for 68 countries during 1998–2010 and find that the effect of CBI on inflation is positive and significant in developed countries, and it is insignificant (at the 5% level) in developing countries in both system generalized method of moments (GMM) and instrumental variable (IV) estimations. Our results remain robust to the consideration of financial crises, financial development, and other factors affecting inflation. Our empirical findings provide support for our theory. |
| Keywords: | Inflation, Central Bank Independence, Monetary Schumpeterian Model, Dynamic Panel Data |
| JEL: | E42 E58 O42 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cuf:wpaper:606&r=mac |
| By: | Jagjit S. Chadha (NIESR & University of Cambridge); Germana Corrado (DEF,University of Rome "Tor Vergata"); Luisa Corrado (DEF & CEIS,University of Rome "Tor Vergata") |
| Abstract: | We decompose aggregate consumption of heterogeneous consumers by modelling both savers and their links to collateral constrained borrowers through a bank which prices credit risk. Savers own both ?rms and the commercial bank while borrowers require loans from the commercial bank to e¤ect their consumption plans. The bank lends at a premium over the interest rate on central bank money in proportion to the riskiness of loans, the demand for loans, the asset price and the quantity of housing collateral. We show that even though house prices do not represent wealth, aggregate consumption is closely related to movements in house prices. House price-induced changes may lead to large variations in household spending via the collateral e¤ect with important policy implications. We consider the case for jointly determined macro-prudential, ?scal and monetary policies in order to minimise losses for a representative household. We also analyse the implications when there is uncertainty over some of the policy parameters such as the loan default rate. |
| Keywords: | Heterogeneous households, Credit constraints, Housing collateral, Asset prices, Bank lending, Macro-prudential tools, Fiscal and monetary policy. |
| JEL: | E31 E40 E51 |
| Date: | 2018–05–03 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:433&r=mac |
| By: | Hudson, Michael; Goodhart, Charles A. E. |
| Abstract: | In this paper the authors recall the history of Jubilee debt cancellations, emphasizing what their social purpose was at that time. They note that it would not be possible to copy that procedure exactly nowadays, primarily because most debt/credit relationships are intermediated via financial institutions, such as banks, insurance companies, etc., rather than by governments or wealthy families directly. But the authors argue that the underlying social purpose of such Jubilees - to keep debt within the reasonable ability to be paid without social and economic polarisation - could be recreated via alternative mechanisms, and they discuss the politico-economic arguments for, and against, doing so. |
| Keywords: | inequality,debt-canceling Jubilees,Babylonian and Byzantine empires,equity participation,student loans,land tax |
| JEL: | E60 E61 E62 E65 H10 H23 H80 N30 N35 P43 Q15 R52 Z13 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201833&r=mac |
| By: | Pelizzon, Loriana; Sottocornola, Matteo |
| Abstract: | This paper investigates the effect of the conventional and unconventional (e.g. Quantitative Easing - QE) monetary policy intervention on the insurance industry. We first analyze the impact on the stock performances of 166 (re)insurers from the last QE programme launched by the European Central Bank (ECB) by constructing an event study around the announcement date. Then we enlarge the scope by looking at the monetary policy surprise effects on the same sample of (re)insurers over a timeframe of 12 years, also extending the analysis to the Credit Default Swaps (CDS) market. In the second part of the paper by building a set of balance sheet-based indices, we identify the characteristics of (re)insurers that determine sensitivity to monetary policy actions. Our evidences suggest that a single intervention extrapolated from the comprehensive strategy cannot be utilized to estimate the effect of monetary policy intervention on the market. With respect to the impact of monetary policies, we show how the effect of interventions changes over time. Expansionary monetary policy interventions, when generating an instantaneous reduction of interest rates, generated movement in stock prices in the same direction till September 2010. This effect turned positive during the European sovereign debt crisis. However, the effect faded away in 2014-2015. The pattern is confirmed by the impact on the CDS market. With regard to the determinants of these effects, our analysis suggests that sensitivity is mainly driven by asset allocation and in particular by exposure to fixed income assets. |
| Keywords: | event study,monetary policy surprise,unconventional monetary policy,conventional monetary policy,insurance industry |
| JEL: | E44 E52 G14 G22 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:204&r=mac |
| By: | Silvana Bartoletto; Bruno Chiarini; Elisabetta Marzano; Paolo Piselli |
| Abstract: | The financial crises of 2007-2008 and the subsequent worldwide recession show the importance of exploring the correlation between financial and real crises. Starting from our new estimation of the Italian business cycle (Bartoletto et al., 2017), we analyze the linkage between banking crises and the business cycle in Italy over the last two centuries. The vast literature on banking crises in Italy is dominated by the narrative approach. In this work we aim to advance the argument one step further by integrating the narrative approach with an empirical VAR analysis, distinguishing between slowdown and inner-banking crises according to the business cycle phase in which they occur. Our long-run analysis proves that not all the banking crises have a connection with real activity and that not all the crises occurring close to a GDP contraction were associated to a boom-bust mechanism. |
| Keywords: | business fluctuations, financial cycle, bank credit, banking crisis, VAR |
| JEL: | E32 E44 N13 N14 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6972&r=mac |
| By: | Javier Cravino (University of Michigan and NBER); Ting Lan (University of Michigan); Andrei A. Levchenko (University of Michigan, NBER, and CEPR) |
| Abstract: | We document that the prices of the goods consumed by high-income households are more sticky and less volatile than those of the goods consumed by middle-income households. This suggests that monetary shocks can have distributional consequences by affecting the relative prices of the goods consumed at different points on the income distribution. We use a Factor-Augmented VAR (FAVAR) model to show that, following a monetary policy shock, the estimated impulse responses of high-income householdsÕ consumer price indices are 22% lower than those of the middle-income households. We then evaluate the macroeconomic implications of our empirical findings in a quantitative New-Keynesian model featuring households that are heterogeneous in their income and consumption patterns, and sectors that are heterogeneous in their frequency of price changes. We find that: (i) the distributional consequences of monetary policy shocks are large and similar to those in the FAVAR model, and (ii) greater income inequality increases the effectiveness of monetary policy, although this effect is modest for realistic changes in inequality. |
| Keywords: | Inflation, distributional effects, consumption baskets, monetary policy. |
| JEL: | E31 E52 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:mie:wpaper:661&r=mac |
| By: | Sabine Le Bayon (Observatoire français des conjonctures économiques); Christine Rifflart (Observatoire français des conjonctures économiques) |
| Abstract: | Alors que l'INSEE vient de publier une première estimation de la croissance française de 2017 (1,9 %), nous comparons les prévisions pour 2018 et 2019 réalisées par 18 organismes (publics et privés, dont l'OFCE) entre septembre et décembre 2017. Pour tous la reprise semble solidement enclenchée et durable, avec une croissance moyenne prévue de 1,8 % en 2018 puis de 1,7 % en 2019 : les prévisions sont assez proches pour 2018 (1,7 % à 2 %) mais s'étalent de 1,4 % à 2,2 % en 2019 (avec 8 instituts sur 15 qui prévoient un ralentissement). La consommation privée accélérerait un peu (1,6 % en 2018 et 1,7 % en 2019), avec des écarts nets entre instituts. En effet, l'emploi progresserait entre 0,6 et 1,9 % en 2019 et les salaires entre 1,3 % et 2,6 %. Le diagnostic sur les salaires dépend du degré de tensions sur le marché du travail, de l'impact de l'inflation et des gains de productivité et de l'effet de la réforme du marché du travail de 2017 (décentralisation des négociations collectives). L'inflation resterait modérée (1,4 % en 2019). Le taux de chômage baisserait à 8,8 % en moyenne en 2019 mais les prévisions varient entre 8,1 % et 9,2 %. Pour tous les instituts, le déficit public respecterait dès 2017 le seuil de 3 % du PIB. La France pourrait alors sortir de la Procédure de Déficit Excessif en 2018. Le déficit resterait cependant élevé, du fait de mesures exceptionnelles (remboursement aux entreprises de la taxe sur les dividendes récemment invalidée par le Conseil constitutionnel et transformation du CICE en baisses de charges sociales employeurs en 2019). |
| Keywords: | Prévisions; Conjoncture; Croissance; Comptes nationaux |
| JEL: | E2 E27 E37 E66 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/5kdu6t9nt19aaognm2r7so612s&r=mac |
| By: | Sabine Le Bayon (Observatoire français des conjonctures économiques); Christine Rifflart (Observatoire français des conjonctures économiques) |
| Abstract: | Alors que l'INSEE vient de publier une première estimation de la croissance française de 2017 (1,9 %), nous comparons les prévisions pour 2018 et 2019 réalisées par 18 organismes (publics et privés, dont l'OFCE) entre septembre et décembre 2017. Pour tous la reprise semble solidement enclenchée et durable, avec une croissance moyenne prévue de 1,8 % en 2018 puis de 1,7 % en 2019 : les prévisions sont assez proches pour 2018 (1,7 % à 2 %) mais s'étalent de 1,4 % à 2,2 % en 2019 (avec 8 instituts sur 15 qui prévoient un ralentissement). La consommation privée accélérerait un peu (1,6 % en 2018 et 1,7 % en 2019), avec des écarts nets entre instituts. En effet, l'emploi progresserait entre 0,6 et 1,9 % en 2019 et les salaires entre 1,3 % et 2,6 %. Le diagnostic sur les salaires dépend du degré de tensions sur le marché du travail, de l'impact de l'inflation et des gains de productivité et de l'effet de la réforme du marché du travail de 2017 (décentralisation des négociations collectives). L'inflation resterait modérée (1,4 % en 2019). Le taux de chômage baisserait à 8,8 % en moyenne en 2019 mais les prévisions varient entre 8,1 % et 9,2 %. Pour tous les instituts, le déficit public respecterait dès 2017 le seuil de 3 % du PIB. La France pourrait alors sortir de la Procédure de Déficit Excessif en 2018. Le déficit resterait cependant élevé, du fait de mesures exceptionnelles (remboursement aux entreprises de la taxe sur les dividendes récemment invalidée par le Conseil constitutionnel et transformation du CICE en baisses de charges sociales employeurs en 2019). |
| Keywords: | Prévisions; Conjoncture; Croissance; Comptes nationaux |
| JEL: | E2 E27 E37 E66 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/6crsneqva485g9g6clhm9jc5vq&r=mac |
| By: | Warwick J. McKibbin; Adam Triggs |
| Abstract: | World leaders have declared the G20 to be the premier forum for economic cooperation. But as its influence and policy agenda has grown, so too has the need to be able to effectively model the G20 and the implications of its policy agenda. The paper introduces the G-Cubed (G20) model: a multi-country, multi-sector, intertemporal general equilibrium model of the G20. The paper gives an overview of the model and highlights its key features through four simulated shocks, all of which relate to the G20’s goal of reducing global current account imbalances: a fiscal shock (reducing the fiscal deficit in the United States), a productivity/fiscal shock (increasing infrastructure investment in Germany), a consumption shock (increasing domestic consumption in China) and the collective impact of all three shocks occurring simultaneously. The results demonstrate that, to be effective, any model of the G20 must reflect the complex trade and financial linkages between countries, the structural differences across G20 economies and the short-term rigidities observed empirically in the data, as well as a high level of disaggregation across economies, markets and sectors. The simulations show that reducing current account imbalances through these policies often comes with a real economic cost. The results also explain some of the shifts in global current account balances observed since 2007. |
| Keywords: | macroeconomic policy coordination, intertemporal general equilibrium models, econometric modelling, Group of 20, fiscal policy, structural reform |
| JEL: | F4 C68 C5 C02 E17 D9 D58 E62 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2018-17&r=mac |
| By: | Linda Schilling; Harald Uhlig |
| Abstract: | How do Bitcoin prices evolve? What are the consequences for monetary policy? We answer these questions in a novel, yet simple endowment economy. There are two types of money, both useful for transactions: Bitcoins and Dollars. A central bank keeps the real value of Dollars constant, while Bitcoin production is decentralized via proof-of-work. We obtain a “fundamental condition,” which is a version of the exchange-rate indeterminacy result in Kareken-Wallace (1981), and a “speculative” condition. Under some conditions, we show that Bitcoin prices form convergent supermartingales or submartingales and derive implications for monetary policy. |
| JEL: | D50 E40 E42 E50 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24483&r=mac |
| By: | Schilling, Linda; Uhlig, Harald |
| Abstract: | How do Bitcoin prices evolve? What are the consequences for monetary policy? We answer these questions in a novel, yet simple endowment economy. There are two types of money, both useful for transactions: Bitcoins and Dollars. A central bank keeps the real value of Dollars constant, while Bitcoin production is decentralized via proof-of-work. We obtain a ``fundamental condition'', which is a version of the exchange-rate indeterminacy result in Kareken-Wallace (1981), and a ``speculative'' condition. Under some conditions, we show that Bitcoin prices form convergent supermartingales or submartingales and derive implications for monetary policy. |
| Keywords: | Bitcoin; cryptocurrency; currency competition; Exchange Rates; Indeterminacy |
| JEL: | D50 E40 E42 E50 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12831&r=mac |
| By: | Dilem Yıldırım (Department of Economics, Middle East Technical University, Ankara, Turkey); Onur A. Koska (Department of Economics, Middle East Technical University, Ankara, Turkey) |
| Abstract: | This study would like to contribute to the existing literature on the Feldstein-Horioka paradox by focusing on Turkey for the period 1960-2014 and by scrutinizing the correlation between domestic savings and investments within a time-varying parameter approach (which is warranted especially for emerging countries due to their political and economic instability and due to the frequency of policy changes). Our time-varying parameter approach is able to capture the impact of various economic and political interruptions on the correlation between domestic savings and investments, especially the military coups in the early 1960s, 1970s and 1980s, and the economic and financial crises in the mid-1990s, in the late 1990s, and in the early 2000s, as well as the financial crises affecting various countries in the globe in the late 1990s and 2000s. Our empirical analysis suggests a high correlation between domestic savings and investments in the 1960s, which was decreasing (increasing) during the 1970s (1980s), and which was decreasing since the 1990s. Furthermore, in the post-2002 era, with a further decline in the correlation coefficient, the saving-investment nexus has turned out to be statistically insignificant. |
| Keywords: | Feldstein-Horioka Paradox; Turkey; Economic and financial crises; Structural breaks; Time-varying parameter approach |
| JEL: | E21 E22 F21 C32 C51 G01 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:met:wpaper:1808&r=mac |
| By: | Krichene, Noureddine; Ghassan, Hassan B. |
| Abstract: | Historically, money is gold and silver, supplied by the market on profit criterion. Everywhere, government inconvertible paper money arose from bankruptcy. A government with balanced budgets would never need it. Imposed by force, inconvertible paper is a taxation mean, highly inflationary, and causes impoverishment. Unjust and bankrupt governments will continue to force this despotic money. Islamic Monetary Economics refutes the idea of money as a policy tool. Fully convertible paper is Shariah compliant. Shariah requires a just government to balance its budgets and restore fully gold and silver as lawful money. |
| Keywords: | Money, Gold-silver, Inconvertible paper, Inflation, Bankruptcy, Shariah. |
| JEL: | E42 E5 F33 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:85798&r=mac |
| By: | Roger Farmer |
| Abstract: | I review the contribution and influence of Milton Friedman’s 1968 presidential address to the American Economic Association. I argue that Friedman’s influence on the practice of central banking was profound and that his argument in favour of monetary rules was responsible for thirty years of low and stable inflation in the period from 1979 through 2009. I present a critique of Friedman’s position that market-economies are self-stabilizing, and I describe an alternative reconciliation of Keynesian economics with Walrasian general equilibrium theory from that which is widely accepted today by most neo-classical economists. |
| JEL: | E3 E4 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24498&r=mac |
| By: | Roberto Chang |
| Abstract: | Received wisdom posits that sterilized foreign exchange intervention can be effective by altering the currency composition of assets held by the public. This paper proposes an alternative channel: sterilized intervention may (or may not) have real effects because it changes the net credit position of the central bank vis a vis financial intermediaries, thereby affecting external debt limits. This argument is developed in the context of an open economy model with domestic banks subject to occasionally binding collateral constraints. Intervention has real effects if and only if it occurs when the constraints bind; at such times, a sterilized sale of official reserves relaxes the constraints by reducing the central bank's debt to domestic banks, freeing resources for the latter to increase the supply of credit to domestic agents. The analysis yields several noteworthy implications for intervention policy, official reserves accumulation, and the interaction between intervention and monetary policy. |
| JEL: | E58 F33 F41 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24463&r=mac |
| By: | Daniel Levy (Bar-Ilan University); Avichai Snir |
| 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: | E31 E32 R21 G14 D12 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:biu:wpaper:2018-01&r=mac |
| By: | Ryuta Ray Kato (International University of Japan) |
| Abstract: | This paper examines the impact of stimulated female labor supply on the Japanese economy as well as the government fiscal imbalance within a numerical dynamic general equilibrium model with multiple overlapping generations, particularly by paying attention to females' time costs of child rearing and elderly care in a graying Japan. Several numerical results indicate that even complete elimination of females' time costs of child rearing and elderly care stimulates the total GDP only by 1 percent. If complete elimination of time costs occurs in accordance with no gender gap in wage profiles, then the total GDP expands by 4 percent. The results also suggest importance of government policies not only to stimulate female labor force participation but also to improve human capital accumulation of females to reduce a gender gap in wage profiles. |
| Keywords: | Female Labor Supply, Childcare, Child Allowance, Elderly Care, Public Pension, Long-Term Care Insurance, Population Aging, Japan, Simulation |
| JEL: | C68 H51 E62 H55 J16 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:iuj:wpaper:ems_2017_04&r=mac |
| By: | Giovanni Dosi (Laboratory of Economics and Management); Mauro Napoletano (Observatoire français des conjonctures économiques); Andrea Roventini (Laboratory of Economics and Management (LEM)); Joseph Stiglitz (Columbia Business School); Tania Treibich (Observatoire français des conjonctures économiques) |
| Abstract: | We analyze the individual and macroeconomic impacts of heterogeneous expectations and action rules within an agent-based model populated by heterogeneous, interacting firms. Agents have to cope with a complex evolving economy characterized by deep uncertainty resulting from technical change, imperfect information and coordination hurdles. In these circumstances, we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naïve learning rules. In fact, more sophisticated, e.g. recursive least squares (RLS) expectations produce less accurate individual forecasts and also considerably worsen the performance of the economy. Finally, we experiment with agents that adjust simply to technological shocks, and we show that individual and aggregate performances dramatically degrade. Our results suggest that fast and frugal robust heuristics are not a second-best option: rather they are “rational” in macroeconomic environments with heterogeneous, interacting agents and changing “fundamentals”. |
| Keywords: | Complexity; Expectations; Heterogeneity; Heuristics; Learning; Agent based model; Computational economics |
| JEL: | C63 E32 E6 G1 G21 O4 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/31dhti786q9k0q2i04klh6no54&r=mac |
| By: | Ebadi, Esmaeil |
| Abstract: | This paper sheds light on the effect of government spending on money demand. The conventional literature of money demand has been developed with money demand defined as a function of income, interest rate, exchange rate, and inflation. I propose the new method of income decomposition to the public sector and the private sector following Barro’s (1990) spending model. I include government spending in the conventional money demand function to investigate the impact of government spending on the demand for money. The results confirm the long-run significant effect of government spending on money demand. In addition, I find that money demand tends to be unstable and moves on the edge of structural break during recessions. Moreover, the tendency of instability lasted longer in the early recession of 2000s than in the Great Recession 2007-2008 and the results do not support Friedman’s (1969) idea that the demand for money is “highly stable”. Instead, the findings suggest that money demand is “slightly stable” during recessions. |
| Keywords: | Monetary Policy, Money Demand, Stability, ARDL Cointegration Approach |
| JEL: | E41 E62 |
| Date: | 2018–04–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86399&r=mac |
| By: | Farmer, Roger E A |
| Abstract: | I review the contribution and influence of Milton Friedman's 1968 presidential address to the American Economic Association. I argue that Friedman's influence on the practice of central banking was profound and that his arguments in favour of monetary rules was responsible for thirty years of low and stable inflation in the period from 1979 through 2009. I present a critique of Friedman's position that market-economies are self-stabilizing and I describe an alternative reconciliation of Keynesian economics with Walrasian general equilibrium theory from that which is widely accepted today by most neo-classical economists. My interpretation implies that government should intervene actively in financial markets to stabilize economic activity. |
| Keywords: | Keynesian economics; Monetarism; Natural rate of unemployment |
| JEL: | E3 E4 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12825&r=mac |
| By: | Redl, Chris (Bank of England) |
| Abstract: | This paper uses a data-rich environment to produce direct econometric estimates of macroeconomic and financial uncertainty for 11 advanced nations. These indices exhibit significant independent variation from popular proxies. Using this new data we control for both first and second moment financial shocks in identifying the real effects of macro uncertainty shocks. We further separate the identified macro shocks from financial shocks using narrative information, requiring that macro uncertainty rises during close elections. These are events which are likely to lead to macro uncertainty but are disjoint from a weakening in financial conditions. We find that macro uncertainty shocks matter for the vast majority of countries and that the real effects of macro uncertainty shocks are generally larger conditioning on close elections. These results are robust to controlling for credit spreads, financial uncertainty, global uncertainty and a measure of the first moment of the business cycle as proxied by a composite leading indicator. |
| Keywords: | Economic uncertainty; business cycles; elections |
| JEL: | D72 D80 E32 |
| Date: | 2018–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0722&r=mac |
| By: | Krzysztof Makarski (Narodowy Bank Polski; Warsaw School Economics; Group for Research in Applied Economics (GRAPE)); Joanna Tyrowicz (Group for Research in Applied Economics (GRAPE); University of Warsaw; Institut für Arbeitsrecht und Arbeitsbeziehungen in der Europäischen Union (IAAEU); Institute of Labor Economics (IZA)); Magda Malec (Group for Research in Applied Economics (GRAPE); Warsaw School of Economics) |
| Abstract: | In the context of the second demographic transition, many countries consider rising fertility through pro-family polices as a potentially viable solution to the fiscal pressure stemming from longevity. However, an increased number of births implies private and immediate costs, whereas the gains are not likely to surface until later and appear via internalizing the public benefits of younger and larger population. Hence, quantification of the net effects remains a challenge. We propose using an overlapping generations model with a rich family structure to quantify the effects of increased birth rates. We analyze the overall macroeconomic and welfare effects as well as the distribution of these effects across cohorts and study the sensitivity of the final effects to the assumed target value and path of increased fertility. We find that fiscal effects are positive but, even in the case of relatively large fertility increase, they are small. The sign and the size of both welfare and fiscal effects depend substantially on the patterns of increased fertility: if increased fertility occurs via lower childlessness, the fiscal effects are smaller and welfare effects are more likely to be negative than in the case of the intensive margin adjustments. |
| Keywords: | fertility, welfare, natalistic policies, overlapping generations model |
| JEL: | H55 E17 C60 C68 E21 D63 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:fme:wpaper:25&r=mac |
| By: | Juan Carluccio; Erwan Gautier; Sophie Guilloux-Nefussi |
| Abstract: | We provide a quantitative assessment of the impact of imports from low-wage countries (LWCs) on CPI inflation in France during 1994-2014, using detailed micro data on imports and exports. The share of imports from low-wage countries in consumption increased from about 2% to 7%, and resulted in a negative impact on CPI inflation of about 0.17 pp per year on average. This effect decomposes in three channels. 1) The substitution channel, capturing the replacement of domestic production by goods from LWCs, accounts for almost -0.05 pp. 2) The rise in the proportion of LWC goods in total imports weighed down on imported inflation. This channel reduced French CPI inflation by 0.06 pp per year. 3) Instrumental variable estimation of the competition channel at the product level shows that the increase in the market share of LWCs in French expenditures led to a negative effect of 0.06 pp on CPI inflation. |
| Keywords: | inflation, low-wage countries, imports, globalization, price index, consumers. |
| JEL: | E31 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:672&r=mac |
| By: | Benoit Mojon (Centre de recherche de la Banque de France); Xavier Ragot (Observatoire français des conjonctures économiques) |
| Abstract: | Why is wage inflation so weak in spite of the recent sharp reduction in unemployment? We show that this may be due to an ongoing major positive labor supply shock. Indeed, the participation rate of workers aged between 55 and 64 has increased steadily over the last decade, from a third to above a half on average across OECD countries. This is most likely the consequence of aging and the reform of pensions. We show that the participation rate of workers aged 55 to 64 contributes to explain why wage inflation has remained weak over the last five years. For instance, it accounts for as much as -1% of wage inflation per annum in Germany since 2013. Our second result is that Phillips curves are alive and well. Wage inflation remains highly responsive to domestic unemployment rates, including after the Great Recession. |
| Keywords: | Monetary policy; Wages; Compensation; Labor costs |
| JEL: | E5 J3 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/67p3ersi9g8r7rictf5hklkqcq&r=mac |
| By: | Mensah, Emmanuel Buadi (UNU-MERIT); Szirmai, Adam (UNU-MERIT) |
| Abstract: | Since the construction of the Africa Sector Database (ASD) at the Groningen Growth and Development Centre, there has been a wave of statistical reforms in some of the countries in the ASD leading to significant revaluations of GDP. These reforms have provided a clearer picture of the size and structure of production of the countries involved (Sy, 2015). We update the ASD to reflect these statistical changes. Most importantly, following the methodology of ASD, we expand the ASD by constructing sectoral data for seven new African countries: Burkina Faso, Cameroon, Lesotho, Mozambique, Namibia, Rwanda and Uganda. This has resulted in an expanded database (from the 1960s to 2015) covering about 80% of GDP in sub-Saharan Africa. |
| Keywords: | Africa, Data, Employment, Sector, Value Added |
| JEL: | E01 O11 O47 |
| Date: | 2018–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:unm:unumer:2018020&r=mac |
| By: | OKIMOTO Tatsuyoshi |
| Abstract: | This paper examines the dynamics of trend inflation in Japan over the last three decades based on the smooth transition Phillips curve model. We find that there is a strong connection between the trend inflation and monetary policy regimes. The results also suggest that the introduction of the inflation targeting policy and quantitative and qualitative easing in the beginning of 2013 successfully escaped from the deflationary regime, but were not enough to achieve the 2% inflation target. Finally, our results indicate the significance of exchange rates in explaining the recent fluctuations of inflation and the importance of oil and stock prices in maintaining the positive trend inflation regime. |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:18024&r=mac |
| By: | Beetsma, Roel; Debrun, Xavier; Fang, Xiangming; Kim, Young; Lledo, Victor; MBaye, Samba; Zhang, Xiaoxiao |
| Abstract: | Countries increasingly rely on independent fiscal councils to constrain policymakers' discretion and curb the bias towards excessive deficits and pro-cyclical policies. Since fiscal councils are often recent and heterogeneous across countries, assessing their impact is challenging. Using the latest (2016) vintage of the IMF Fiscal Council Dataset, we focus on two tasks expected to strengthen fiscal performance: the preparation or assessment of forecasts, and the monitoring of compliance with fiscal rules. Tentative econometric evidence suggests that the presence of a fiscal council is associated with more accurate and possibly less optimistic fiscal forecasts, as well as greater compliance with fiscal rules. |
| Keywords: | fiscal forecasts; fiscal rule compliance; Independent fiscal councils |
| JEL: | E61 E62 H11 H62 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12826&r=mac |
| By: | Esteban Pérez Caldentey, Nicole Favreau-Negront, and Luis Méndez Lobos |
| Abstract: | This paper provides an empirical analysis of nonfinancial corporate debt in six large Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, and Peru), distinguishing between bond-issuing and non-bond-issuing firms, and assessing the debt’s macroeconomic implications. The paper uses a sample of 2,241 firms listed on the stock markets of their respective countries, comprising 34 sectors of economic activity for the period 2009–16. On the basis of liquidity, leverage, and profitability indicators, it shows that bond-issuing firms are in a worse financial position relative to non-bond-issuing firms. Using Minsky’s hedge/speculative/Ponzi taxonomy for financial fragility, we argue that there is a larger share of firms that are in a speculative or Ponzi position relative to the hedge category. Also, the share of hedge bond-issuing firms declines over time. Finally, the paper presents the results of estimating a nonlinear threshold econometric model, which demonstrates that beyond a leverage threshold, firms’ investment contracts while they increase their liquidity positions. This has important macroeconomic implications, since the listed and, in particular, bond-issuing firms (which tend to operate under high leverage levels) represent a significant share of assets and investment. This finding could account, in part, for the retrenchment in investment that the sample of countries included in the paper have experienced in the period under study and highlights the need to incorporate the international bond market in analyses of monetary transmission mechanisms. |
| Keywords: | International Bond Market; Bond-Issuing Firms; Non-Bond-Issuing Firms; Solvency; Hyman P. Minsky; Nonlinear Threshold Model |
| JEL: | E32 G15 O11 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:lev:wrkpap:wp_904&r=mac |
| By: | Bhamra, Harjoat Singh; Kuehn, Lars-Alexander; Strebulaev, Ilya |
| Abstract: | We embed a structural model of credit risk inside a dynamic continuous-time consumption-based asset pricing model, which allows us to price equity and corporate debt in a unified framework. Our key economic assumptions are that the first and second moments of earnings and consumption growth depend on the state of the economy which switches randomly, creating intertemporal risk, which agents prefer to resolve sooner rather than later, because they have Epstein-Zin-Weil preferences. Agents optimally choose dynamic capital structure and default times. For a dynamic cross-section of firms, our model endogenously generates a realistic average term structure and time series of actual default probabilities and credit spreads, together with a reasonable levered equity risk premium, which varies with macroeconomic conditions. |
| Keywords: | Capital Structure; corporate bond credit spread; default; Equity premium; jumps; macroeconomic conditions; predictability |
| JEL: | E44 G12 G32 G33 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12827&r=mac |
| By: | Claudia M. Buch; Matthieu Bussiere; Linda Goldberg; Robert Hills |
| 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 U.S., euro area, Japan, and 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. |
| JEL: | E4 E5 F30 F4 G15 G21 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24454&r=mac |
| By: | Kerwin Kofi Charles; Erik Hurst; Mariel Schwartz |
| Abstract: | Using data from a variety of sources, this paper comprehensively documents the dramatic changes in the manufacturing sector and the large decline in employment rates and hours worked among prime-aged Americans since 2000. We use cross-region variation to explore the link between declining manufacturing employment and labor market outcomes. We find that manufacturing decline in a local area in the 2000s had large and persistent negative effects on local employment rates, hours worked and wages. We also show that declining local manufacturing employment is related to rising local opioid use and deaths. These results suggest that some of the recent opioid epidemic is driven by demand factors in addition to increased opioid supply. We conclude the paper with a discussion of potential mediating factors associated with declining manufacturing labor demand including public and private transfer receipt, sectoral switching, and inter-region mobility. Overall, we conclude that the decline in manufacturing employment was a substantial cause of the decline in employment rates during the 2000s particularly for less educated prime age workers. Given the trends in both capital and skill deepening within this sector, we further conclude that many policies currently being discussed to promote the manufacturing sector will have only a modest labor market impact for less educated individuals. |
| JEL: | E24 J21 J23 R23 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24468&r=mac |
| By: | Daniele Tavani; Luke Petach |
| Abstract: | A longstanding criticism to Keynesian and Kaleckian growth theories is the question: why would firms operating with underutilized capacity still accumulate capital stock? This paper offers an answer by analyzing the choice of capacity utilization and accumulation in a strategic setting. The argument hinges on the Keynesian notion of user cost of capital. We argue that firms have incentives to wait to see what other firms are doing before adjusting their own utilization, which we capture through a marginal user cost of own utilization decreasing in average utilization. Accordingly, interactions among firms involve strategic complementarities: it is profit-maximizing to increase own utilization with average utilization. Since the latter is a reasonable proxy for demand, (i) the analysis provides a rationale for treating desired utilization as endogenous to demand at the firm level. In general equilibrium: (ii) capital accumulation coexists with underutilization; (iii) if firms were able to coordinate on a common utilization rate, utilization would be strictly higher than in equilibrium. The implications for growth and distribution depend on how the model is closed: (iv) with a distributive closure, equilibrium growth and profitability are both strictly below their socially-coordinated counterpart; (v) with an exogenous labor supply closure, the equilibrium labor share is strictly smaller than under coordination. Hence, (vi) there are mutually beneficial bargaining opportunities for both capital and labor. Moreover, (vii) demand policies have multiplier effects. The slow recovery from the Great Recession in the US provides a prime example of the relevance of equilibrium underutilization. Finally, we use stateby-sector data from the BEA to validate our hypothesis: (viii) our estimation results provide strong and robust support for the relevance of strategic complementarities in the US. |
| Keywords: | Capacity Utilization, Factor Shares, Growth, Strategic Complementarities |
| JEL: | B50 E12 E22 E25 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:imk:fmmpap:19-2018&r=mac |
| By: | Faccini, Renato (Queen Mary University of London); Melosi, Leonardo (Federal Reserve Bank of Chicago) |
| Abstract: | We develop a general equilibrium model to study the historical contribution of TFP news to the U.S. business cycle. Hiring frictions provide incentives for firms to start hiring ahead of an anticipated improvement in technology. For plausibly calibrated hiring costs, employment gradually rises in response to positive TFP news shocks even under standard preferences. TFP news shocks are identified mainly by current and expected unemployment rates since periods in which average unemployment is relatively high (low) are also periods in which average TFP growth is slow (fast). We work out the noise component of the identified TFP news shocks. Noise captures changes in agents' beliefs about future TFP shocks that do not materialize. These autonomous changes in beliefs have induced fluctuations in the unemployment rate within a two-percentage-point range across the post-war recessions and expansions. After the Great Recession, noise about TFP growth has been the most important factor behind the rise in the employment rate. The index of consumer sentiment and the dismal TFP growth in recent years support these predictions. |
| Keywords: | Unemployment rate; hiring frictions; beliefs; the Great Recession; labor market trends; employment gap; Bayesian estimation |
| JEL: | C11 C51 E32 J64 |
| Date: | 2018–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:wp-2018-06&r=mac |
| By: | Christophe Blot (Observatoire français des conjonctures économiques); Jérôme Creel (Observatoire français des conjonctures économiques); Paul Hubert (Observatoire français des conjonctures économiques) |
| Abstract: | Low inflation despite economic recovery has given rise to the puzzle of “missing inflation”. Yet there would be no puzzle if the recovery is incomplete. While GDP is on the rise, some slack may still be present in some countries of the euro area. Against this backdrop, we investigate the empirical determinants of inflation and we investigate their relative contributions to actual inflation since 2000 to explain why inflation is currently low. Drawing on empirical estimations, we explain the dynamics of inflation since 2000 by different cyclical and structural factors. We also introduce an indicator of both conventional and unconventional monetary policies to assess the direct incidence of ECB's policies on actual inflation. All these factors explain the bulk of inflation variance since 2000. The most important determinants of inflation in the euro area are inflation expectations and wage growth. Both indicators have contributed negatively to inflation since 2014 but inflation expectations less so since 2015 whereas the contribution of wage growth has remained constant. Drawing on evidence of uneven recovery across euro area Member States, it shall be recommended to keep on pursuing the expansionary stance of monetary policy until the ECB achieves its inflation objective. Moreover, the evolution of inflation and its determinants do not meet the conditions that the ECB regarded as genuine progress towards its policy objective. Inflation has not yet happened and is not expected in the medium-run; moreover, without second-round effects on wages, it is not yet possible to expect that once inflation goes back to target, it will be selfsustained. The features of the ongoing developments in wage-price inflation suggest a decrease in the nominal anchor. The recent structural reforms may have put a drag on the ability of the ECB to reach its inflation target rapidly. The timing of structural reforms is important. They may be helpful at fostering innovation and productivity provided they are implemented after economic growth has been sustained and evenly distributed across the Member states, and after inflation has reached its medium-run objective. |
| Keywords: | European Central Bank; Quantitative Easing; Low inflation; Inflation expectations; Wage dynamics; Output gap |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/8m9642tnm9kuaqr07m32s02jq&r=mac |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_6968&r=mac |
| By: | Stilianos Fountas (Department of Economics, University of Macedonia); Panagiota Karatasi (Department of Economics, University of Macedonia); Paraskevi Tzika (Department of Economics, University of Macedonia) |
| Abstract: | We constructed the monthly Economic Policy Uncertainty (EPU) index for Greece for the period 1998-2018 using the Baker et al. (2016) methodology. This index is of critical importance for macroeconomic research given the presumed heightened levels of uncertainty in the Greek economy in the context of recent economic and political events. The newly-constructed time series of the uncertainty index is discussed and related to the recent economic and financial crisis in Greece and the Eurozone. Simple statistical analysis highlights the high levels of correlation in economic policy uncertainty between Greece, European countries and the USA. It is also shown that the uncertainty correlation between Greece and Europe is time varying and has become much lower since the onset of the Greek crisis. |
| Keywords: | Economic Policy Uncertainty index, Greek economy, European uncertainty. |
| JEL: | D80 E20 E66 G18 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:mcd:mcddps:2018_05&r=mac |
| By: | Alberto Cardacci (Lombardy Advanced School of Economics Milan); Francesco Saraceno (Observatoire français des conjonctures économiques) |
| Abstract: | Our paper investigates the impact of rising inequality in a two-country macroeconomic model with an agent-based household sector characterised by peer effects in consumption. In particular, the model highlights the role of inequality in determining diverging balance of payments dynamics within a currency union. Inequality may drive the two countries into different growth patterns: where peer effects in consumption interact with higher credit availability, rising income inequality leads to the emergence of a debt-led growth. Where social norms determine weaker emulation and credit availability is lower, an export-led regime arises. Eventually, a crisis emerges endogenously due to the sudden-stop of capital ows from the net lending country, triggered by the excessive risk associated to the dramatic amount of private debt accumulated by households in the borrowing country. Monte Carlo simulations for a wide range of calibrations confirm the robustness of our results. |
| Keywords: | Inequality; Current Account; Currency Union; Agent -based model |
| JEL: | C63 D31 E21 F32 F43 |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/6h4m03fi1i9olbq081sgh502mt&r=mac |
| By: | António Afonso; Huseyin Sen; Ayse Kaya |
| Abstract: | Using a panel of eight large emerging market economies from 1980 to 2015, this paper seeks to assess the causal linkages between government size, unemployment, and inflation. Overall, our results suggest that the government size is positively associated with both unemployment and inflation. The Granger causality runs from the government size to unemployment and to inflation. From our analysis, two aspects stand out. First, the effects of government size on unemployment and inflation depend essentially on how the government size is measured. As long as government consumption spending is considered as the proxy measure of the government size, the government size is significantly and positively correlated with unemployment, and with inflation. Second, indirect taxes, like government consumption spending, have a positive as well as statistically significant association with unemployment. However, the direct taxes solely exert a strong effect on inflation in the countries considered. |
| Keywords: | Government Size, Unemployment, Inflation, Emerging Market Economies |
| JEL: | H10 E61 E63 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0382018&r=mac |
| By: | Krueger, Dirk; Ludwig, Alexander |
| Abstract: | We characterize the optimal linear tax on capital in an Overlapping Generations model with two period lived households facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium feedback of private precautionary saving. For logarithmic utility our full analytical solution of the Ramsey problem shows that the optimal aggregate saving rate is independent of income risk. The optimal time-invariant tax on capital is increasing in income risk. Its sign depends on the extent of risk and on the Pareto weight of future generations. If the Ramsey tax rate that maximizes steady state utility is positive, then implementing this tax rate permanently generates a Pareto-improving transition even if the initial equilibrium is dynamically efficient. We generalize our results to Epstein-Zin-Weil utility and show that the optimal steady state saving rate is increasing in income risk if and only if the intertemporal elasticity of substitution is smaller than 1. |
| Keywords: | Idiosyncratic Risk,Taxation of Capital,Overlapping Generations,Precautionary Saving,Pecuniary Externality |
| JEL: | H21 H31 E21 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:18014&r=mac |
| By: | Hossfeld, Oliver; Pramor, Marcus |
| Abstract: | We analyse the relationship between global liquidity and exchange market pressure in 32 emerging market economies. Exchange market pressure is a measure of excess currency demand that is applicable across different exchange rate regimes as it accounts for changes in exchange rates, foreign exchange reserves and, optionally, interest rates. Surges in monetary liquidity, credit provision, and short-term funding in advanced economies are shown to be robustly associated with appreciation pressure on emerging market currencies. The underlying transmission mechanism, however, only operates under regular financial market conditions: ample liquidity provision in advanced economies contributes to the build-up of financial stability risks in emerging market economies in tranquil times, but further liquidity injections do not avert the pronounced depreciation pressure on emerging market currencies in times of high market volatility. |
| Keywords: | global liquidity,emerging markets,exchange market pressure,search for yield,global financial cycle |
| JEL: | F31 E51 E58 C23 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:052018&r=mac |
| By: | Warwick J. McKibbin; Augustus Panton |
| Abstract: | This papers surveys alternative monetary frameworks and evaluates whether the current inflation targeting framework followed by the RBA for the past 25 years is likely to be the most appropriate framework for the next 25 years. While flexible inflation targeting has appeared to work well in Australia in the past decades, the nature of future shocks suggests that some form of nominal income targeting is worth considering as an evolutionary changes the Australia’s framework for monetary policy. |
| Keywords: | Inflation targeting, nominal income targeting, monetary framework |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2018-19&r=mac |
| By: | Santiago Caballero, Carlos; Prados de la Escosura, Leandro |
| Abstract: | The Napoleonic Wars had dramatic consequences for Spain's economy. The Peninsular War had higher demographic impact than any other military conflict, including civil wars, in the modern era. Farmers suffered confiscation of their crops and destruction of their main capital asset, livestock. The shrinking demand, the disruption of international and domestic trade, and the shortage of inputs hampered industry and services. The loss of the American colonies, a by-product of the French invasion, seriously harmed absolutism. In the long run, however, the Napoleonic Wars triggered the dismantling of Ancien Régime institutions and interest groups. Freed from their constraints, the country started a long and painful transition towards the liberal society. The Napoleonic Wars may be deemed, then, a watershed in Spanish history. |
| Keywords: | Growth; Institutional Change; Spain; Peninsular War; Napoleonic Wars |
| JEL: | N43 N13 F54 E02 |
| Date: | 2018–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:cte:whrepe:26737&r=mac |
| By: | Mumtaz, Haroon; Musso, Alberto |
| Abstract: | We build a dynamic factor model with time-varying parameters and stochastic volatility and use it to decompose the variance of a large set of financial and macroeconomic variables for 22 OECD countries spanning from 1960 onwards into contributions from country-specific uncertainty, region-specific uncertainty and uncertainty common to all countries. We find that common global uncertainty plays a primary role in explaining the volatility of inflation, interest rates and stock prices, although to a varying extent over time. Region-specific uncertainty drives most of the exchange rate volatility for all Euro Area countries and for countries in North-America and Oceania. All uncertainty estimates (global, regional, country-specific and idiosyncratic) play a non-negligible role for real economic activity, credit and money for most countries. We also find that all uncertainty measures display significant recurrent fluctuations, that the recent peaks in uncertainty found for most estimates around 2008/2009 are comparable to those seen in the mid-1970s and early 1980s, and that all uncertainty measures appear to be strongly countercyclical and positively correlated with inflation. JEL Classification: C15, C32, E32 |
| Keywords: | dynamic factor model, global uncertainty, stochastic volatility, time-varying parameters, uncertainty shocks |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20182147&r=mac |
| By: | Bock, Alexander; Cajnko, Miha; Daskalova, Svetla; Durka, Iwona; Gallagher, Brian; Grandia, Roel; Haberbush, Glenn; Kamps, Annette; Luskin, Alaoishe; Russo, Michelina Lo; Lozoya, Mª Carmen Castillo; Pasqualone, Filippo; Thomas, Michael; Vasconcelos, Isabel |
| Abstract: | This paper provides a comprehensive overview of the use of the Eurosystem’s monetary policy instruments and the operational framework from the second quarter of 2016 to the last quarter of 2017. It reviews the context of Eurosystem market operations; the design and operation of the Eurosystem’s counterparty and collateral frameworks; the fulfilment of minimum reserve requirements; participation in credit operations and recourse to standing facilities; and the conduct of outright asset purchase programmes. The paper also discusses the impact of monetary policy implementation on the Eurosystem's balance sheet, excess liquidity and money market liquidity conditions. JEL Classification: D02, E43, E58, E65, G01 |
| Keywords: | central bank collateral framework, central bank counterparty framework, central bank liquidity management, monetary policy implementation, non-standard monetary policy measures |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbops:2018209&r=mac |
| By: | Zsofia Barany (Département d'économie); Christian Siegel (University of Kent) |
| Abstract: | We document that job polarization—contrary to the consensus—has started as early as the 1950s in the United States: middle-wage workers have been losing both in terms of employment and average wage growth compared to low- and high-wage workers. Given that polarization is a long-run phenomenon and closely linked to the shift from manufacturing to services, we propose a structural change driven explanation, where we explicitly model the sectoral choice of workers. Our simple model does remarkably well not only in matching the evolution of sectoral employment, but also of relative wages over the past 50 years. |
| Keywords: | Job Polarization; Structural Change; Roy Model |
| JEL: | E24 J22 J31 J21 J24 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/4t83lre9hm91sq006n4940n19s&r=mac |
| By: | Alexander Konon; Michael Fritsch; Alexander S. Kritikos |
| Abstract: | We analyze whether start-up rates in different industries systematically change with business cycle variables. Using a unique data set at the industry level, we mostly find correlations that are consistent with counter-cyclical influences of the business cycle on entries in both innovative and non-innovative industries. Entries into the largescale industries, including the innovative part of manufacturing, are only influenced by changes in the cyclical component of unemployment, while entries into small-scale industries, like knowledge intensive services, are mostly influenced by changes in the cyclical component of GDP. Thus, our analysis suggests that favorable conditions in terms of high GDP might not be germane for start-ups. Given that both innovative and non-innovative businesses react counter-cyclically in ‘regular’ recessions, business formation may have a stabilizing effect on the economy. |
| Keywords: | New business formation, entrepreneurship, business cycle, manufacturing, services, innovative industries |
| JEL: | E32 L16 L26 R11 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1732&r=mac |
| By: | Giovanni Dosi (Laboratory of Economics and Management); Marcelo C. Pereira (Universidade Estadual de Campinas); Andrea Roventini (Laboratory of Economics and Management (LEM)); Maria Enrica Virgillito (Scuola Superiore Sant'Anna) |
| Abstract: | In this work we develop a set of labour market and fiscal policy experiments upon the labour and credit augmented “Schumpeter meeting Keynes” agent-based model. The labour market is declined under two institutional variants, the “Fordist” and the “Competitive” set-ups meant to capture the historical transition from the Fordist toward the post “Thatcher- Reagan” period. Inside these two regimes, we study the different effects of supply-side active labour market policies (ALMPs) vs. demand-management passive labour market ones (PLMPs). In particular, we analyse the effects of ALMPs aimed at promoting job search, and at providing training to unemployed people. Next, we compare the effects of these policies with unemployment benefits simply meant to sustain income and therefore aggregate demand. Considering the burden of unemployment benefits in terms of public budget, we link such provision with the objectives of the European Stability and Growth Pact. Our results show that (i) an appropriate level of skills is not enough to sustain growth when workers face adverse labour demand; (ii) supply-side policies are not able to reverse the perverse interaction between flexibility and austerity; (iii) PLMPs outperform ALMPs in reducing unemployment and workers’ skills deterioration; and (iv) demand-management policies are better suited to mitigate inequality and to improve and sustain long-run growth. |
| Keywords: | Industrial -relation Regimes; Flexibility; Active Labour Market Policies; Austerity; Agent-based models |
| JEL: | C63 E24 H53 J88 |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/3ii0pf6a4b8o4ovgol0f0kd8f3&r=mac |
| By: | Akvile Bertasiute (Budget Policy Monitoring Department, National Audit Office of Lithuania); Domenico Massaro (Universita Cattolica del Sacro Cuore & Complexity Lab in Economics); Matthias Weber (CEFER, Bank of Lithuania & Faculty of Economics, Vilnius University) |
| Abstract: | Currency unions are often modeled as homogeneous economies, although they are fundamentally different. The expectations that impact macroeconomic behavior in any given country are not the expectations of variables at the currency-union level but at the country level. We model these expectations with a behavioral reinforcement learning model. In our model, economic integration is of particular importance in determining whether economic behavior in a currency union is stable. Monetary policy alone is insufficient to guarantee stable economic behavior, as the central bank cannot conduct different monetary policies in different countries. These results are easily overlooked when modeling expectations as rational. |
| Keywords: | Behavioral Macroeconomics, Monetary Unions, Reinforcement Learning, Expectation Formation |
| JEL: | E52 D84 |
| Date: | 2018–04–27 |
| URL: | http://d.repec.org/n?u=RePEc:lie:wpaper:49&r=mac |
| By: | Harenberg, Daniel; Ludwig, Alexander |
| Abstract: | We ask whether a pay-as-you-go financed social security system is welfare improving in an economy with idiosyncratic productivity and aggregate business cycle risk. We show analytically that the whole welfare benefit from joint insurance against both risks is greater than the sum of benefits from insurance against the isolated risk components. One reason is the convexity of the welfare gain in total risk. The other reason is a direct risk interaction which amplifies the utility losses from consumption risk. We proceed with a quantitative evaluation of social security's welfare effects. We find that introducing an unconditional minimum pension leads to substantial welfare gains in expectation, even net of the welfare losses from crowding out. About 60% of the welfare gains would be missing when simply summing up the isolated benefits. |
| Keywords: | social security,idiosyncratic risk,aggregate risk,welfare |
| JEL: | C68 E27 E62 G12 H55 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:18016&r=mac |
| By: | Ryuta Ray Kato (International University of Japan) |
| Abstract: | This paper explores the impact of population aging on the Japanese public longterm care insurnace (LTCI) within a numerical dynamic general equilibrium model with multiple overlapping generations. The impact of three policy options, such as an increase in co-payments, an earlier starting age of contribution, and more distribution of the cost to the public sector, is also examined. The numerial results show that in the next about forty years the burdens on the first (age 65 and over) and second (age 40 to 64) groups become more than 1.7 times and more than 2.7 times as much, respectively. A relatively more increase in the burdens on the second group cannot be avaiodable, even if adjustment of the cost distribution between both groups is made every three years in the future in accordance with the schedule by the MHLW. Furthermore, in order to reduce future burdens in the LTCI, an increase in co-payments is most preferable, rather than an earlier starting age of contribution in longer duration of contribution with lower burdens every year, or a shift of the cost to the public sector followed by a very higher consumption tax. |
| Keywords: | Long-term Care Insurance, Population Aging, Japan, Simulation |
| JEL: | C68 H51 E62 H55 J16 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:iuj:wpaper:ems_2017_05&r=mac |
| By: | Hauzenberger, Niko; Böck, Maximilian; Pfarrhofer, Michael; Stelzer, Anna; Zens, Gregor |
| Abstract: | In this paper, we estimate a Bayesian vector autoregressive (VAR) model with factor stochastic volatility in the error term to assess the effects of an uncertainty shock in the Euro area (EA). This allows us to incorporate uncertainty directly into the econometric framework and treat it as a latent quantity. Only a limited number of papers estimates impacts of uncertainty and macroeconomic consequences jointly, and most literature in this sphere is based on single countries. We analyze the special case of a shock restricted to the Euro area, whose countries are highly related by definition. Among other variables, we find significant results of a decrease in real activity measured by GDP in most Euro area countries over a period of roughly a year following an uncertainty shock. |
| Keywords: | vector autoregressive models, factor stochastic volatility, uncertainty shocks |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:wiw:wus005:6246&r=mac |
| By: | Hagedorn, Marcus; Luo, Jinfeng; Manovskii, Iourii; Mitman, Kurt |
| Abstract: | We assess the power of forward guidance - promises about future interest rates - as a monetary tool in a liquidity trap using a quantitative incomplete-markets model. Our results suggest the effects of forward guidance are negligible. A commitment to keep future nominal interest rates low for a few quarters-although macro indicators suggest otherwise-has only trivial effects on current output and employment. We explain theoretically why in complete markets models forward guidance is powerful-generating a "forward guidance puzzle"-and why this puzzle disappears in our model. We also clarify theoretically ambiguous conclusions from previous research about the effectiveness of forward guidance in incomplete and complete markets models. |
| Keywords: | forward guidance; incomplete markets; monetary policy |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12858&r=mac |
| By: | Tomomi Miyazaki (Graduate School of Economics, Kobe University); Kazuki Hiraga (School of Political Science and Economics, Tokai University); Masafumi Kozuka (University of Marketing and Distribution Sciences (Japan)) |
| Abstract: | This research examines the effects of public investment on stock returns using Japanese cross-industry data. We calculate impulse response functions using the local projection method. The empirical results show that public investment shocks have strong and stimulating effects on stock returns when the nominal interest rate is at the zero lower bound (ZLB) while negative responses dominate outside of the ZLB period. Furthermore, the estimated impulse responses for the non-manufacturing industry group are larger than those of the manufacturing industry group. Our results imply that the government should increase public investment when nominal interest rates are near zero to prop up the stock market and cut back once the economy is no longer in a liquidity trap. |
| Keywords: | Public investment; stock returns; local projection method; zero lower bound |
| JEL: | E44 G12 H54 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:171806&r=mac |
| By: | Simone Auer; Christian Friedrich; Maja Ganarin; Teodora Paligorova; Pascal Towbin |
| Abstract: | This paper studies the international transmission of monetary policy through banks in small open economies using the examples of Switzerland and Canada. We assess the inward transmission of foreign monetary policy for Switzerland and the outward transmission of domestic monetary policy for Canada. In both country cases, we focus on the international bank lending and the international portfolio channel, which make opposing predictions about how monetary policy transmits internationally through banks. Our results on the inward transmission of foreign monetary policy through banks in Switzerland are consistent with a role for the international portfolio channel, but we find no evidence for the traditional international bank lending channel. The results on the outward transmission of domestic monetary policy in Canada suggest that foreign lending by Canadian banks is affected through both channels, which work as predicted and largely balance each other. |
| Keywords: | International banking, monetary policy, inward transmission, outward transmission, small open economies, Switzerland, Canada |
| JEL: | G21 E5 F21 F32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:snb:snbwpa:2018-04&r=mac |
| By: | Salzmann, Leonard |
| Abstract: | I fit a high-dimensional macroeconomic dataset of 41 countries to a factor-augmented vector autoregressive model to examine the role of the recent Chinese economic slowdown for international inflation dynamics. I identify Chinese supply and demand shocks and examine their contributions to international price indicators. My main findings are: (i) Impulse response analyses indicate that Chinese business cycle shocks and especially demand shocks significantly spill over to inflation rates in Europe, North America, Asia and Oceania, mainly transmitted through global oil, commodity and manufacturing prices. (ii) The Chinese growth slowdown that started in 2012 can be attributed to a fall in aggregate Chinese demand and supply. (iii) Historical decompositions indicate that the fall in Chinese demand lowered national prices in Europe, North America, Asia and Oceania by up to 12 percent from the third quarter of 2013 on. |
| Keywords: | China’s Economic Slowdown,Global inflation,Spillovers,Factor Augmented Vector Autoregressive Model |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:176757&r=mac |
| By: | Auboin, Marc; Borino, Floriana |
| Abstract: | This paper looks at the extent to which the shift in the lower value added production to countries in the following development "tier" is actually becoming a reality. Several countries in East Asia have been upgrading production patterns and moving up the value chain, this paper looks at how this helps and offers new opportunities to less advanced countries to integrate in world trade. The paper uses a combination of techniques, from an analysis of disaggregated trade flows by country and sectors, to the calculation of trade intensity indices by country and sector, and value-added trade by sector. It finds combined evidence of forward and backward trade increasing between several neighbouring Asian economies and China, in the most labour-intensive industries in particular. Econometric analysis shows that relative unit labour costs are an explanatory factor of increased trade links. In cases, the intensification of trade links on the export side can relate to a strongly expanding local market (for example India for electronic products such as smartphones), but mostly the intensification of trade links takes place both on the import and export sides with markets which are much smaller than China (Vietnam, Bangladesh, etc.), and which experienced increased outward-processing activities as a result of China's production upgrade. |
| Keywords: | investment,trade policy,business cycles |
| JEL: | E22 F13 F44 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wtowps:ersd201804&r=mac |
| By: | Rampini, Adriano A.; Viswanathan, S. |
| Abstract: | Insurance has an intertemporal aspect as insurance premia have to be paid upfront. We argue that the financing aspect of insurance is key to understanding basic insurance patterns. In a model with limited enforcement, we show that insurance is globally monotone increasing in household net worth and income, incomplete, and precautionary. These results hold in economies with income risk, durable goods and collateral constraints, and durable goods price risk that affects asset values, under quite general conditions. In equilibrium, insurers are financial intermediaries with collateralized loans as assets and diversified portfolios of insurance claims as liabilities. Collateral scarcity lowers the interest rate, reduces insurance, and increases inequality. |
| Keywords: | Collateral; Financial constraints; household finance; Insurance; Risk management |
| JEL: | D91 E21 G22 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12855&r=mac |
| By: | Toader, Serban; Iancu, Victor; Olteanu, Dan (Romanian Academy, National Institute of Economic Research) |
| Abstract: | We aim to clarify how objective wellbeing in Romania, as expressed by statistical indicators, evolved during two and a half decades (1990-2014). We considered three main pillars of welfare - health, income & consumption, education – and we investigated their evolution for five CEE countries: Romania, Bulgaria, the Czech Republic, Hungary and Poland, to which we added a western european country – Germany -, as a banchmark for comparison. We conclude that Romania’s welfare development, determined using our indicators and methodology, appears to be consistent and robust. Considering the overall welfare development relative scores, Romania ranks second among the countries under survey, after Poland. Accordingly, even though for some indicators Romania was and still is positioned below other CEE countries in absolute figures, the positive evolutions we have observed for some indicators show a convergence tendency with countries better positioned so far, as confirmed by reducing gaps for these indicators. However, this 2nd rank comprises mixed performances among the analysed indicators. For instance, Romania’s wellbeing development lags behind some other CEE countries for life expectancy, tertiary enrolment and human capital. As a result, absolute gaps have expanded. Moreover, in the case of GDP, although its relative growth was lower only than that of Poland, the absolute gap between Romania and other two countries (Czech Republic and Germany) widened in 2014, as compared with 1991 This study has been financed and conducted by KPMG Romania: https://assets.kpmg.com/content/dam/kpmg/ro/pdf/welfare-en-web.pdf The Romanian version is available for download at: https://assets.kpmg.com/content/dam/kpmg /ro/pdf/welfare-ro-web.pdf |
| Keywords: | wellbeing, health, income, consumption, education, CEE |
| JEL: | D60 I31 I10 E01 E21 I20 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:ror:wpince:161212&r=mac |
| By: | Marcin Kolasa (SGH Warsaw School of Economics and Narodowy Bank Polski); Michał Rubaszek (SGH Warsaw School of Economics) |
| Abstract: | This paper evaluates the forecasting performance of several small open economy DSGE models relative to a closed economy benchmark using a long span of data for Australia, Canada and the United Kingdom. We find that opening the model economy usually does not improve, and even deteriorates the quality of point and density forecasts for key domestic variables. We show that this result can be to a large extent attributed to an increase in forecast error due to a more sophisticated structure of the extended setup which is not compensated by better model specification. This claim is based on a Monte Carlo experiment, in which an open economy model fails to consistently beat its closed economy benchmark even if the former is the true data generating process. |
| Keywords: | Forecasting, DSGE models, New Open Economy Macroeconomics, Bayesian estimation |
| JEL: | D58 E17 F41 F47 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:nbp:nbpmis:282&r=mac |
| By: | Gita Gopinath; Jeremy C. Stein |
| Abstract: | We explore the interplay between trade invoicing patterns and the pricing of safe assets in different currencies. Our theory highlights the following points: 1) a currency’s role as a unit of account for invoicing decisions is complementary to its role as a safe store of value; 2) this complementarity can lead to the emergence of a single dominant currency in trade invoicing and global banking, even when multiple large candidate countries share similar economic fundamentals; 3) firms in emerging-market countries endogenously take on currency mismatches by borrowing in the dominant currency; 4) the expected return on dominant-currency safe assets is lower than that on similarly safe assets denominated in other currencies, thereby bestowing an “exorbitant privilege” on the dominant currency. The theory thus provides a unified explanation for why a dominant currency is so heavily used in both trade invoicing and in global finance. |
| JEL: | E0 F0 G0 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24485&r=mac |
| By: | Roth, Felix; Baake, E.; Jonung, Lars; Nowak-Lehmann D., Felicitas |
| Abstract: | This paper explores the evolution and determinants of public support for the euro since its creation in 1999 until the end of 2017, thereby covering the pre-crisis experience of the euro, the crisis years and the recent recovery. Using uniquely large macro and micro databases and applying up-to-date econometric techniques, this paper revisits the growing literature on public support for the euro. First, we find a majority of citizens support the euro in nearly all 19 euro area member states. Second, we offer fresh evidence that economic factors are the main determinants of change in the level of support for the euro: crisis reduces support while periods of recovery from unemployment bode well for public support. This result holds for both macroeconomic and microeconomic factors. Turning to a broad set of socio-economic variables, we find clear differences in support due to education and perceptions of economic status. |
| Keywords: | public support for the euro,euro area,euro crisis,economic recovery,unemployment,inflation,Economic and Monetary Union |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ekhdps:118&r=mac |
| By: | John Fitzgerald (Department of Economics, Trinity College Dublin); |
| Abstract: | Globalisation is affecting the way economic activity is reflected in the national accounts. Intellectual property, which is now part of the capital stock, interacts with the choice of global firms as to their legal structure, producing different national accounting outcomes for individual countries. This is but one manifestation of the challenges that a global economy presents for national accounting. Using the example of Ireland, consideration is given to the data needed to meet the needs of users of national accounts. In particular, more information is required to separately identify all the activity of multinational enterprises and domestically owned firms. This paper suggests a set of satellite accounts for Ireland that would show how changes in the economy affect the economic welfare of Irish residents. |
| Keywords: | National Accounts, Globalisation, Intellectual Property, GNI |
| JEL: | C82 E62 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:tcd:tcduee:tep0418&r=mac |
| By: | Halac, Marina; Yared, Pierre |
| Abstract: | We develop a simple delegation model to study rules based on instruments vs. targets. A principal faces a better informed but biased agent and relies on joint punishments as incentives. Instrument-based rules condition incentives on the agent's observable action; target-based rules condition incentives on outcomes that depend on the agent's action and private information. In each class, an optimal rule takes a threshold form and imposes the worst punishment upon violation. Target-based rules dominate instrument-based rules if and only if the agent's information is sufficiently precise. An optimal hybrid rule relaxes the instrument threshold whenever the target threshold is satisfied. |
| Keywords: | delegation; mechanism design; Policy Rules; private information |
| JEL: | D02 D82 E58 E61 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12872&r=mac |
| By: | Marina Halac; Pierre Yared |
| Abstract: | We develop a simple delegation model to study rules based on instruments vs. targets. A principal faces a better informed but biased agent and relies on joint punishments as incentives. Instrument-based rules condition incentives on the agent's observable action; target-based rules condition incentives on outcomes that depend on the agent's action and private information. In each class, an optimal rule takes a threshold form and imposes the worst punishment upon violation. Target-based rules dominate instrument-based rules if and only if the agent's information is sufficiently precise. An optimal hybrid rule relaxes the instrument threshold whenever the target threshold is satisfied. |
| JEL: | D02 D82 E58 E61 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24496&r=mac |
| By: | Ibhagui, Oyakhilome |
| Abstract: | We draw on the threshold analysis to examine the effect of foreign direct investment on growth in Sub-Saharan Africa. The growth literature is awash with divergent evidence on the role of foreign direct investment (FDI) on economic growth. Although the FDI-growth nexus has been studied in diverse ways, very few studies have examined the problem within the framework of threshold regression analysis. Furthermore, even where this framework has been adopted, none of the previous studies has comprehensively examined the FDI-growth nexus in the broader Sub-Saharan Africa (SSA). In this paper, we revisit, within the standard panel and threshold regression framework, the problem of determining the growth impact of FDI. We use as thresholds six variables – inflation, initial income, population growth, trade openness, financial market development and human capital, and we base the analysis on a large panel-data set that comprises 45 SSA countries for the years 1985-2013. Our results show that the direct impact of FDI on growth is largely ambiguous and inconsistent. However, under the threshold analysis, we find evidence that FDI accelerates economic growth when SSA countries have achieved certain threshold levels of inflation, population growth and financial markets development. This evidence is largely invariant qualitatively and robust to different specifications. FDI enhances growth in SSA when inflation and private sector credit are below their threshold levels while population growth is above its threshold level. |
| Keywords: | Foreign Direct Investment (FDI), Economic Growth, and Threshold Analysis |
| JEL: | C4 E0 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:85784&r=mac |
| By: | Reichlin, Pietro |
| Abstract: | I discuss two alternative notions of social welfare (utilitarian and self-enforcing) in a dynastic model with heterogeneous and persistent degrees of parental altruism and evaluate the implied levels of consumption inequality. Then, I study a decentralization of planning optima in a competitive equilibrium where the only source of inequality arises from intergenerational wealth transmission and I show that the self-enforcing criterion implies a negative tax rate on the less altruistic individuals' capital income. |
| Keywords: | Capital taxation; inequality; Wealth |
| JEL: | D31 E21 H21 J62 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12873&r=mac |
| By: | Dladla, Khumbuzile; Khobai, Hlalefang |
| Abstract: | This paper investigates the impact of taxation on economic growth in South Africa. Yearly data for South Africa for the period 1981 – 2016 was used to develop the Auto-Regressive Distribution Lag (ARDL) approach. The empirical results confirm that there is a negative relationship between taxes and economic growth in South Africa. The findings of the study include that economic growth, trade and openness, capital and taxes are co-integrated. This paper suggests that fiscal policy is very important to force sustainable economic growth in South Africa |
| Keywords: | Taxation, Economic growth, Auto-regression Distribution Lag Model (ARDL), Co-integration, South Africa |
| JEL: | C2 E27 H2 |
| Date: | 2018–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86219&r=mac |
| By: | Ibrahim, Taofik |
| Abstract: | Budget deficit has an implication for monetary policy formulation and thus aggregate macroeconomic performance. An important question often asked is whether an increase in budget deficit is able to change the money market equilibrium. In order to answer this question, this paper investigates empirically the sensitivity and validity of the Keynesian and Neoclassical propositions and the Ricardian equivalence hypothesis. The study utilized cointegration analysis and ECM methodology to ascertain the short and long-run effect of budget deficit on money demand. The results of the cointegration test confirmed the existence of a strong and stable long-term relationship among the variables in the money demand model. Also, the estimates of the ECM model indicate the existence of a short- and long-term, positive and significant relationship between money demand and budget deficit suggesting that the Keynesian and Neoclassical views hold for Nigeria. Therefore the study suggests that there should be increased emphasis on productivity and efficiency of government expenditure since it impacts positively on aggregate money demand via increase in aggregate demand. |
| Keywords: | Budget Deficit, Money Demand, Error Correction Model (ECM), Nigeria |
| JEL: | E41 H62 |
| Date: | 2017–07–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86265&r=mac |
| By: | Sokolovska, Olena |
| Abstract: | We analyze both the theoretical framework of labor taxation in the open economy and important current reforms of labor taxation in countries worldwide including the introduction of “social VAT”. The current tax theory considers the reforms of labor income taxation related to the shifting of taxation from more mobile tax bases to the less mobile ones, taking into consideration the reduction of tax rates with simultaneous broadening of the tax base. Such a reform is intended to reduce the distortion effects of taxation, and, as a consequence, to reduce the tax burden on labor. The empirical section includes analysis of indicators of labor income taxation in OECD countries. We calculated the progressivity index of overall tax wedge and its components – personal income tax, employer’s and employee’s social security contributions. The results enabled cross-country comparisons: we found that in a most OECD members both employees’ and employers’ social security contributions systems are regressive or flat, while personal income tax systems are progressive in all countries except Hungary with flat tax schedule. Moreover, in OECD countries with highest GDP per capita the employees bear average labor tax burden with simultaneously low employers’ social security contributions rates. |
| Keywords: | personal income tax; social security contributions; consumption tax; social VAT; progressivity |
| JEL: | E20 H22 H24 P51 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86233&r=mac |
| By: | Holtemöller, Oliver; Schult, Christoph; Zeddies, Götz |
| Abstract: | Im Koalitionsvertrag von CDU, CSU und SPD vom 7. Februar 2018 formuliert die neue Bundesregierung ihre rentenpolitischen Ziele. Diese sind vor dem Hintergrund der Bevölkerungsdynamik in Deutschland zu sehen. Ab dem Jahr 2020 wird sich die Altersstruktur der deutschen Bevölkerung deutlich verändern. In diesem Beitrag werden Simulationsrechnungen zu den Konsequenzen der rentenpolitischen Maßnahmen aus dem Koalitionsvertrag für die Finanzierung der gesetzlichen Rentenversicherung mit Hilfe eines Simulationsmodells dargestellt. Die im Koalitionsvertrag vorgesehenen Leistungsausweitungen verursachen langfristig Kosten in Höhe von etwa 2 1/2 Prozentpunkten beim Beitragssatz zur gesetzlichen Rentenversicherung. Es werden ferner Maßnahmen - auch im Vergleich zu den Rentensystemen anderer Länder - diskutiert, mit denen der Anstieg des Beitragssatzes begrenzt werden könnte. |
| Keywords: | ageing,demographic dynamics,public pension insurance,coalition agreement,public pension policies |
| JEL: | E17 H55 H68 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwhdps:52018&r=mac |
| By: | Simerský, Mojmír |
| Abstract: | The paper addresses the problem of zero-coupon yield curve (YC) estimation from a portfolio of coupon-bearing instruments, primarily coupon bonds. A fast and stable iterative procedure is proposed and implemented. The optimization problem is formulated in a matrix form, the principal cashflow matrix having the dimension given by the number of instruments (bonds) and the number of knots on the time axis. The number of instruments is arbitrary, as well as the number of time knots. In our concept of “equivalent cashflows”, each future cashflow at a time t is replaced by two cashflows, one at the left, the other at the right knot respective to the time t. We solve then a simplified problem of estimating the YC from a portfolio of instruments whose future cashflows occur only at predefined times. The method allows for further additional constraints, e.g., an ultimate forward rate fixing or predefined discount factor at some time. We touch also on the asymptotic case of a very dense partitioning of the time axis. The optimization is carried out in the space of forward rate functions of the simplest form – zero-degree splines, i.e., piecewise constant functions. Our approach is thus a generalization of the bootstrap method with no requirements on the bond maturity ladder and, at the same time, with optional smoothing. This work relates to our previous article ([Sim1]), where the idea of equivalent cashflows was introduced. Czech bond yields estimated by the proposed method can be found in ([Sim2]). |
| Keywords: | yield curve estimation, nonparametric regression, penalized splines, bootstrap, Czech bond market |
| JEL: | E43 |
| Date: | 2018–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86268&r=mac |
| By: | Bailliu, Jeannine; Han, Xinfen; Kruger, Mark; Liu, Yu-Hsien; Thanabalasingam, Sri |
| Abstract: | The official Chinese labour market indicators have been seen as problematic, given their small cyclical movement and their only-partial capture of the labour force. In our paper, we build a monthly Chinese labour market conditions index (LMCI) using text analytics applied to mainland Chinese-language newspapers over the period from 2003 to 2017. We use a supervised machine learning approach by training a support vector machine classification model. The information content and the forecast ability of our LMCI are tested against official labour market activity measures in wage and credit growth estimations. Surprisingly, one of our findings is that the much-maligned official labour market indicators do contain information. However, their information content is not robust and, in many cases, our LMCI can provide forecasts that are significantly superior. Moreover, regional disaggregation of the LMCI illustrates that labour conditions in the export-oriented coastal region are sensitive to export growth, while those in inland regions are not. This suggests that text analytics can, indeed, be used to extract useful labour market information from Chinese newspaper articles. |
| JEL: | C38 E24 E27 |
| Date: | 2018–04–20 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:2018_009&r=mac |