nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒05‒14
89 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Debt Overhang, Rollover Risk, and Corporate Investment: Evidence from the European Crisis By Sebnem Kalemli-Ozcan; Luc Laeven; David Moreno
  2. Helicopter Ben, monetarism, the New Keynesian credit view and loanable funds By Brett Fiebinger; Marc Lavoie
  3. Does Indonesia’s macroeconomic work well towards the political year? By Verico, Kiki
  4. Central banks going long By Reis, Ricardo
  5. The Paradox of Global Thrift By Fornaro, Luca; Romei, Federica
  6. Has Macroeconomic Forecasting changed after the Great Recession? - Panel-based Evidence on Accuracy and Forecaster Behaviour from Germany By Jörg Döpke; Ulrich Fritsche; Karsten Müller
  7. The Effect of News Shocks and Monetary Policy By Luca Gambetti; Dimitris Korobilis; John D. Tsoukalas; Francesco Zanetti
  8. Devaluation with Exchange rate Floor in a Small Open Economy By David Svacina
  9. Income Effects and the Cyclicality of Job Search Effort By M. Alper Çenesiz; Luís Guimarães
  10. The Determinants of Price Frequency in Turkey By Yılmaz, Engin; Süslü, Bora
  11. Economic Challenges of Lagging Regions I: Fiscal and Macroeconomic Environment By Adam Brown; Ben Gardiner; Roman Römisch; Jonathan Stenning
  12. Central Banking below Zero: The Implementation of Negative Interest Rate Policies in Europe and Japan By Angrick, Stefan; Nemoto, Naoko
  13. Unsecured and Secured Funding By Mario di Filippo; Angelo Ranaldo; Jan Wrampelmeyer
  14. Migration and business cycle dynamics By Christie Smith; Christoph Thoenissen
  15. Credit shocks and the European labour market By Katalin Bodnár; Ludmila Fadejeva; Marco Hoeberichts; Mario Izquierdo Peinado; Christophe Jadeau; Eliana Viviano
  16. Online Annex – Economic Challenges of Lagging Regions: Annex I – Country Case Studies By Adam Brown; Ben Gardiner; Roman Römisch; Jonathan Stenning
  17. Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-based Model with Credit Rationing By Elisa Palagi; Mauro Napoletano; Andrea Roventini; Jean-Luc Gaffard
  18. Housing and the Business Cycle Revisited By Daniel Fehrle
  19. How can the government spending multiplier be small at the zero lower bound? By Valerio Ercolani; João Valle e Azevedo
  20. Does Monetary Policy Influence Banks' Perception of Risks? By Simona Malovana; Dominika Kolcunova; Vaclav Broz
  21. Money Velocity and the Natural Rate of Interest By Luca Benati
  22. On the empirics of reserve requirements and economic growth By Crespo-Cuaresma, Jesus; Schweinitz, Gregor von; Wendt, Katharina
  23. Assessing the Cyclical Behaviour of Bank Capital Buyers in a Finance-Augmented Macro-Economy By Alberto Montagnoli; Konstantinos Mouratidis; Kemar Whyte
  24. Monetary policy spillovers, global commodity prices and cooperation By Filardo, Andrew; Lombardi, Marco; Montoro, Carlos; Ferrari, Massimo
  25. Optimal inflation target: insights from an agent-based model By Jean-Philippe Bouchaud; Stanislao Gualdi; Marco Tarzia; Francesco Zamponi
  26. A(nother) Note on the Inconsistency of Neo-Kaleckian Growth Models By Pariboni, Riccardo; Girardi, Daniele
  27. Ghana; Fifth and Sixth Reviews Under the Extended Credit Facility, Request for Waivers for Nonobservance of Performance Criteria, and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Ghana By International Monetary Fund
  28. Dynamic Macroeconomics: A Didactic Numeric Model By Carlos Esteban Posada; Santiago Sánchez
  29. Asymmetrical effects of macro variables on commercial bank deposits: evidence from Maldives based on NARDL By Latheef, Udhula Abdul; Masih, Mansur
  30. Aggregation, Capital Heterogeneity, and the Investment CAPM By Goncalves, Andrei; Xue, Chen; Zhang, Lu
  31. Turkey; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Turkey By International Monetary Fund
  32. Do Unit Labor Costs Matter? A Decomposition Exercise on European Data By Sophie Piton
  33. The New Keynesian Model with Stochastically Varying Policies By Klaus Neusser
  34. Sostenibilidad de la deuda pública en Colombia By Andrés Fernando Velásquez Salgado
  35. On the Numerical Structure of Local and Nationwide Government Spending Multipliers: What Can We Learn from the Greek Crisis? By Eduardo A. Haddad; Natalia Q. Cotarelli, Vinicius A. Vale
  36. Heterogeneous human capital, inequality and growth: the role of patience and skills By Borissov, Kirill; Bosi, Stefano; Ha-Huy, Thai; Modesto, Leonor
  38. Network-based macro fluctuations: Evidence from Lithuania By Mihnea Constantinescu; Kristina Griskeviciene
  39. A provincial perspective of nonlinear Okun's law for emerging markets: The case of South Africa By Kavese, Kambale; Phiri, Andrew
  40. A provincial perspective of nonlinear Okun's law for emerging markets: The case of South Africa By Kambale Kavese; Andrew Phiri
  41. The impact of the ECB asset purchases on the European bond market structure: Granular evidence on ownership concentration By Martijn Boermans; Viacheslav Keshkov
  42. Structural Change, Employment and Institutions By Sebastiano Fadda
  43. Economic Challenges of Lagging Regions II: Recent Structural Reforms, Outstanding Needs and Governance Issues By Ruggero Fornoni; Lydia Greunz; Nirina Rabemiafara; Roman Römisch; Terry Ward
  44. On Barriers to Technology Adoption, Appropriate Technology and Deep Integration (with implications for the European Union) By Mercenier, Jean; Voyvoda, Ebru
  45. Sovereign Money Reforms and Welfare By Philippe Bacchetta; Elena Perazzi
  46. Dynamic Tax Externalities and the U.S. Fiscal Transformation in the 1930s By Dirk Niepelt
  47. Is it the natural rate or hysteresis hypothesis for unemployment rates in Newly Industrialized Economies? By Nsenga, Dieu; Nach, Mirada; Khobai, Hlalefang; Moyo, Clement; Phiri, Andrew
  48. The Paradox of Global Thrift By Luca Fornaro; Federica Romei
  49. Political shocks and financial markets : regression-discontinuity evidence from national elections. By Daniele Girardi
  50. Daily Exchange Rate Pass-through into Micro Prices By Renzo Alvarez; Amin Shoja; Syed Uddin; Hakan Yilmazkuday
  51. Les modèles multi-agents et leurs conséquences pour l’analyse macroéconomique By Mauro Napoletano
  52. Do Interest Rates Affect Business Investment? Evidence from Australian Company-level Data By Jonathan Hambur; Gianni La Cava
  53. Could the Bubble in U.S. House Prices Have Been Detected in Real Time? By Luca Benati
  54. How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply? By Chunzan Wu; Dirk Krueger
  55. What Drives Money Velocity? By Luca Benati
  56. Convenience yield on government bonds and unconventional monetary policy in Japanese corporate bond spreads By Takaoka, Sumiko
  57. Adaptive Hierarchical Priors for High-Dimensional Vector Autoregressions By Dimitris Korobilis; Davide Pettenuzzo
  58. Israel; 2018 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  59. A New Action-based Dataset of Fiscal Consolidation in Latin America and the Caribbean By Antonio David; Daniel Leigh
  60. Financial Crises, Macroeconomic Shocks, and the Government Balance Sheet: A Panel Analysis By Matteo Ruzzante
  61. Unemployment, Income Growth and Social Security By Watanabe, Minoru; Miyake, Yusuke; Yasuoka, Masaya
  62. Long-Run Money Demand Redux By Luca Benati
  63. Economic Challenges of Lagging Regions III: Recent Investment Trends and Needs By Stefan Jestl; Roman Römisch
  64. West African Economic and Monetary Union (WAEMU); Common Policies for Member Countries - Press Release; Staff Report; and Statement by the Executive Director for the WAEMU By International Monetary Fund
  65. Households and heat stress: estimating the distributional consequences of climate change By Park, Jisung; Bangalore, Mook; Hallegatte, Stephane; Sandhoefner, Evan
  66. The Intersection of U.S. Money Market Mutual Fund Reforms, Bank Liquidity Requirements, and the Federal Home Loan Bank System By Kenechukwu Anadu; Viktoria Baklanova
  67. Fiscal Multipliers and Foreign Holdings of Public Debt By Fernando Broner; Daragh Clancy; Alberto Martín; Aitor Erce
  68. Chad; First Review Under the Extended Credit Facility Arrangement, and Request for a Waiver of Nonobservance of Performance Criteria - Press Release; Staff Report; and Statement by the Executive Director for Chad By International Monetary Fund
  69. Why Has Economic Growth Slowed When Innovation Appears to be Accelerating? By Robert J. Gordon
  70. How to calibrate fiscal rules : a primer By Baum, Anja; Eyraud,, Luc; Hodge, Andrew; Jarmuzek, Mariusz; Kim, Young; Mbaye, Samba; Ture, Elif
  71. Chocs technologiques, chocs des prix et fluctuations du chômage en République Démocratique du Congo By Henry Ngongo; Antoine Miyamueni
  72. Banks' Disclosure of Information and Financial Stability Regulations By Okahara, Naoto
  73. A New Strategy for Korea’s Fiscal Policy in a Low Growth Environment By Edda Zoli; Hou Wang; Douglas Laxton
  74. Eurozone: original flaws, present problems and challenges for the future By Marcello Minenna
  75. Revisiting the Finance-Inequality Nexus in a Panel of African Countries By Christelle Meniago; Simplice Asongu
  76. Risk Factors of U.S. Real Estate Investments By Martin Hoesli; Jean-Christophe Delfim
  77. Chocs technologiques, chocs des prix et fluctuations du ch\^omage en R\'epublique D\'emocratique du Congo By Antoine Kamiantako Miyamueni; Henry Ngongo Muganza
  78. The Impact of Climate Conditions on Economic Production. Evidence from a Global Panel of Regions By Kalkuhl, Matthias; Wenz, Leonie
  79. Can News and Noise Shocks Be Disentangled? By Luca Benati
  80. Symmetry and Convergence in Monetary Unions By Nauro F. Campos; Corrado Macchiarelli
  81. The Balassa–Samuelson relationship: services, manufacturing and product quality By Zhang, Qi
  82. REITs and the Mixed-asset Portfolio over the Business Cycle By Stephen Lee
  83. Modeling economic forces, power relations, and stock-flow consistency: a general constrained dynamics approach By Oliver Richters; Erhard Gloetzl
  84. A Practical Guide to Parallelization in Economics By Fernández-Villaverde, Jesús; Zarruk Valencia, David
  85. The Fiscal Effects of Aid in Ethiopia Evidence from CVAR Applications By Mascagni, Giulia; Timmis, Emilija
  86. Foreign currency denominated debt and the fiscal multiplier By Marie-Pierre HORY; Grégory LEVIEUGE; Daria ONORI
  87. I see myself as an empirical Keynesian By Henri Sterdyniak
  88. The Role of Parenthood on the Gender Gap among Top Earners. By Bütikofer, Aline; Jensen, Sissel; Salvanes, Kjell G.
  89. Uncertainty and the Macroeconomy: Evidence from an uncertainty composite indicator By Amélie Charles; Olivier Darné; Fabien Tripier

  1. By: Sebnem Kalemli-Ozcan; Luc Laeven; David Moreno
    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 investment disappears once demand shocks are controlled for, although the differential effects with respect to leverage and the maturity of debt remain.
    JEL: E22 E32 E44 F34 F36 G32
    Date: 2018–04
  2. By: Brett Fiebinger; Marc Lavoie
    Abstract: The purpose of this paper is to examine the intellectual roots of monetary dominance; specifically, the view that fiscal policy is largely irrelevant to counter-cyclical macro stabilisation and long-run output growth. A first step towards monetary dominance was the monetarist reinterpretation of the Great Depression. In the 1990s orthodoxy replaced money supply targeting with inflation targeting while preserving monetarist results. In this monetarism without money, fiscal policy was not needed in the short-run for macro stabilisation, and in the long-run could only lead to higher inflation rates and to higher real interest rates that lowered potential output by crowding-out private investment. Expansionary fiscal policy was mostly overlooked in the early 2000s New Keynesian literature on the zero lower bound; instead, the optimism on unconventional monetary policies failed to prepare policymakers for the Global Financial Crisis. The crisis demands far-reaching changes to macro theory not least of which is a recognition that the theory of loanable funds is incapable of providing any insight into how the financial system works in practice or the long-term effects of fiscal policy.
    Keywords: quantitative easing, monetarism, bank lending channel, loanable funds
    JEL: B31 E51 E52 E58
    Date: 2018
  3. By: Verico, Kiki
    Abstract: This paper utilizes the timeframe of 2014-2018 as the period with some of the global underperformed macroeconomic indicators. This paper found that in late 2016, Indonesia’s macroeconomic indicators started shown some improvements that keep real and monetary sector’s equilibrium to be stable. This paper observes the external balance of current account, exchange rate stability, inflation and interest rate as well as consumption patterns, saving-investment gap, fiscal discipline & fiscal sustainability. It analyses the government expenditure multiplier, real & monetary sector stability and institutional coordination between fiscal authority, monetary authority, and financial service authority. Real sector improvements which have been rolling since 2017 has significantly contributed to the recent Indonesia’s macroeconomic stability. Technically, if all on the track, this will sustain during the upcoming political year of 2019.
    Keywords: Current Account, Exchange Rate, Economic Growth, Inflation, Interest Rate, Saving-Investment Gap, Real Sector Competitiveness, Fiscal Balance & Monetary Policy
    JEL: E00 E2 E31 E43 E50 E62 F1 F4 H0
    Date: 2018–04–11
  4. 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: Taylor rule; yield curve; pegs; ceilings; affine models
    JEL: E31 E52 E58
    Date: 2018–03
  5. By: Fornaro, Luca; Romei, Federica
    Abstract: This paper describes a paradox of global thrift. Consider a world in which interest rates are low and monetary policy cannot stabilize the economy because it is frequently constrained by the zero lower bound. Now imagine that governments complement monetary policy with prudential financial and fiscal policies, because they perceive that limiting private and public borrowing during booms will help stabilize the economy by reducing the risk of financial crises and by creating space for fiscal interventions during busts. We show that these policies, while effective from the perspective of individual countries, might backfire if applied on a global scale. In a financially integrated world, in fact, prudential policies generate a rise in the global supply of savings, or equivalently a drop in global aggregate demand. In turn, weaker global aggregate demand depresses output in countries whose monetary policy is constrained by the zero lower bound. Due to this effect, the world might paradoxically experience a fall in output and welfare following the implementation of well-intended prudential policies.
    Keywords: aggregate demand externalities; Capital Flows; current account policies; fiscal policies; international cooperation; Liquidity traps; macroprudential policies; zero lower bound
    JEL: E32 E44 E52 F41 F42
    Date: 2018–04
  6. By: Jörg Döpke (Hochschule Merseburg (University of Applied Sciences Merseburg)); Ulrich Fritsche (Universität Hamburg (University of Hamburg)); Karsten Müller (Hochschule Merseburg (University of Applied Sciences Merseburg))
    Abstract: Based on a panel of annual data for 17 growth and inflation forecasts from 14 institutions for Germany, we analyse forecast accuracy for the periods before and after the Great Recession, including measures of directional change accuracy based on Receiver Operating Curves (ROC). We find only small differences on forecast accuracy between both time periods. We test whether the conditions for forecast rationality hold in both time periods. We document an increased cross-sectional variance of forecasts and a changed correlation between inflation and growth forecast errors after the crisis, which might hint to changed forecaster behaviour. This is also supported by estimated loss functions before and after the crisis, which suggest a stronger incentive to avoid overestimations (growth) and underestimations (inflation) after the crisis. Estimating loss functions for a 10-year rolling window also reveals shifts in the level and direction of loss asymmetry and strengthens the impression of a changed forecaster behaviour after the Great Recession.
    Keywords: Macroeconomic Forecasting, Forecast Error Evaluation, Germany
    JEL: E32 E37 G11
    Date: 2018–05
  7. By: Luca Gambetti (Departament d’Economia i d’Historia Economica, UAB and Barcelona GSE, Spain); Dimitris Korobilis (Essex Business School, University of Essex, UK; Rimini Centre for Economic Analysis); John D. Tsoukalas (Adam Smith Business School, University of Glasgow, UK); Francesco Zanetti (Department of Economics, University of Oxford, UK)
    Abstract: A VAR model estimated on U.S. data before and after 1980 documents systematic differences in the response of short- and long-term interest rates, corporate bond spreads and durable spending to news TFP shocks. Interest rates across the maturity spectrum broadly increase in the pre-1980s and broadly decline in the post-1980s. Corporate bond spreads decline significantly, and durable spending rises significantly in the post-1980 period while the opposite short-run response is observed in the pre-1980 period. Measuring expectations of future monetary policy rates conditional on a news shock suggests that the Federal Reserve has adopted a restrictive stance before the 1980s with the goal of retaining control over inflation while adopting a neutral/accommodative stance in the post-1980 period.
    Keywords: News shocks, Business cycles, VAR models, DSGE models
    JEL: E20 E32 E43 E52
    Date: 2018–05
  8. By: David Svacina (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: In recent years, central banks in the Czech Republic and Switzerland used exchange rate floor commitment to use unlimited FX interventions to keep the exchange rate above the declared floor rate to persistently devalue their currency and stimulate inflation. Central banks in other small open economies, such as Sweden and Israel, faced similar challenges and could have chosen this instrument as well. In this paper, I develop an extension to dynamic stochastic general equilibrium (DSGE) models that could be used to esimate impact of such devaluations with exchange rate floor. As an illustration, I apply the extension to models estimated for Sweden and the Czech Republic. In particular, I simulate impact of a 5 percent devaluation with the exchange rate floor used as an unconventional monetary policy instrument with interest rates at the zero lower bound. In the first year after the devaluation, the annual consumer price in inflation increases by 0.8 percent in Sweden and 1.8 percent in the Czech Republic. The long-term exchange rate pass-through to consumer prices is 40 percent and 65 percent, respectively. The increase in inflation is highly dependent on the persistent nature of the devaluation.
    Keywords: Exchange Rate Floor, Devaluation of Currency, Unconventional Monetary Policy Instrument, Dynamic Stochastic General Equilibrium Models, Exchange Rate Pass-Through
    JEL: E31 E37 E58 F41
    Date: 2018–02
  9. By: M. Alper Çenesiz (cef.up, Faculdade de Economia, Universidade do Porto); Luís Guimarães (cef.up, Faculdade de Economia, Universidade do Porto)
    Abstract: The canonical matching model predicts procyclical job search effort while recent evidence suggests that it is not. In this paper, we assess whether accounting for income effects in a model with matching frictions reconciles it with the evidence. We find that: (i) low income effects imply procyclical search effort; (ii) moderate income effects imply acyclical search effort but also acyclical unemployment; and (iii) high income effects imply countercyclical search effort but also procyclical unemployment. In our experiments, only fully rigid wages or excessively high replacement rate of unemployment benefits improves the predictions of the model. In short, the predictions of the model with income effects are sound under unsound assumptions.
    Keywords: Matching Frictions; Job Search Effort; Income Effects.
    JEL: E24 E32 J64
    Date: 2018–05
  10. By: Yılmaz, Engin; Süslü, Bora
    Abstract: The effect of monetary and fiscal policy on the output depends on the frequency of price changes. When the prices change infrequently or prices change slowly, monetary and fiscal policy have a real effects on the output. Developed countries generally have a rigid prices but developing countries have a relatively flexible prices. This difference is originated from the reality that the developing countries have higher average inflation than the developed countries. Economic literature focuses on the micro reasons of the frequency of price changes, on the other hand, the inflation is seen the main factor which affects the frequency of price changes in the macro perspective. This study holds down the assumption that the frequency of price changes is a function of the inflation rate in the macro perspective. In addition to this, it is also focused on the direct relationships between the frequency of price changes and the macro variables which affect the inflation rate. It is revealed the effect of macro factors on the frequency of price changes in this work. It is concluded that the determinants of the frequency of price changes in the macro perspective in Turkey are the expected inflation and the exchange rate rather than output gap. It can be said that firms’ price frequency behavior directly depends on cost push factors in Turkey.
    Keywords: Price Frequency, Price Frequency Calculation, Price Rigidity
    JEL: E30 E31
    Date: 2018–04–20
  11. By: Adam Brown; Ben Gardiner; Roman Römisch (The Vienna Institute for International Economic Studies, wiiw); Jonathan Stenning
    Abstract: The report analyses the fiscal and macroeconomic environment in the lagging regions and the relevant Member States of the EU, as a sound and sustainable macroeconomic framework is a necessary, but by itself not a sufficient precondition for investment and growth in the regions. It starts with identifying relevant indicators to highlight the macroeconomic environment in the lagging regions, assessing the performance of the regions across these indicators, and establishing a framework which sets out the potential causes of these imbalances. This sets the scene for further analysis of the transmission mechanisms which cause the regional discrepancies in these Member States between the lagging and the non-lagging regions, as well as exploring the differences between the low growth and low income lagging regions. The report concludes with a summary of these findings and how they could be used as a basis for policy recommendations which might improve the economic performance of the lagging regions.
    Keywords: macroeconomic development, regional economic development, EU, lagging regions, regional policy, economic challenges
    JEL: E32 E60 H60 O11 O18 O40 R11
    Date: 2017–12
  12. By: Angrick, Stefan (Asian Development Bank Institute); Nemoto, Naoko (Asian Development Bank Institute)
    Abstract: We provide an overview of the operational implementation of negative interest rates in Europe and Japan, drawing attention to the fact that there is precedent for negative policy rates and negative money market rates. We then address conceptual issues and summarize measures which define negative interest rate policies. Based on detailed institutional analyses and an examination of the interaction of negative interest rate policies with balance sheet policies, we argue that there is substantial heterogeneity in the purpose, design, and operational specificities of negative interest rate policies across economies, with significant consequences for effective money market rates, private sector funding conditions, and expectations. Finally, summarizing transmission channels of negative rates to the real economy and their potential benefits and risks, we call attention to potential adverse effects resulting from the interaction of negative interest rate policies with tighter liquidity and capital standards adopted since the Global Financial Crisis.
    Keywords: central banking; negative interest rate policies; negative policy rates; monetary policy transmission; monetary policy effectiveness; regulation
    JEL: E50 E52 E58
    Date: 2017–05–23
  13. By: Mario di Filippo (The World Bank); Angelo Ranaldo (University of St. Gallen); Jan Wrampelmeyer (Vrije Universiteit Amsterdam)
    Abstract: We empirically investigate why wholesale funding is fragile by providing the first study of how individual banks borrow and lend in the euro unsecured and secured interbank market. Consistent with theories in which lenders enforce market discipline by monitoring counterparty credit risk and theories highlighting that secured loans are less informational sensitive, we find that banks with low credit worthiness replace unsecured borrowing with secured loans. Moreover, riskier lenders provide more secured loans to replace unsecured lending, which is not consistent with speculative or precautionary liquidity hoarding theories. Instead, lenders are precautionary in the sense that they prefer to lend against safe collateral.
    Keywords: Liquidity hoarding; asymmetric information; counterparty credit risk; wholesale funding fragility; interbank market; liquidity
    JEL: E42 E43 E58 G01 G21 G28
  14. By: Christie Smith; Christoph Thoenissen
    Abstract: Shocks to net migration matter for the business cycles of some countries. Using an estimated dynamic stochastic general equilibrium (DSGE) model of a small open economy and a structural vector autoregression, we find that migration shocks account for a considerable proportion of the variability of per capita GDP. Migration shocks matter for the capital investment and consumption components of per capita GDP, but they are not the most important driver. Migration shocks are also important for residential investment and real house prices, but other shocks play a larger role in driving housing market volatility. In the DSGE model, the level of human capital possessed by migrants relative to that of locals materially affects the business cycle impact of migration. The impact of migration shocks is larger when migrants have substantially different levels of human capital relative to locals. When the average migrant has higher levels of human capital than locals, as seems to be common in most OECD economies, a migration shock has an expansionary effect on per capita GDP and its components.
    Keywords: Migration, macroeconomics, business cycle fluctuations, Bayesian estimation, structural vector autoregression
    JEL: E44 E61 F42
    Date: 2018–05
  15. By: Katalin Bodnár; Ludmila Fadejeva; Marco Hoeberichts; Mario Izquierdo Peinado; Christophe Jadeau; Eliana Viviano
    Abstract: More than five years after the start of the Sovereign debt crisis in Europe, its impact on labour market outcomes is not clear. This paper aims to fill this gap. We use qualitative firm-level data for 24 European countries, collected within the Wage Dynamics Network (WDN) of the ESCB. We first derive a set of indices measuring difficulties in accessing the credit market for the period 2010-13. Second, we provide a description of the relationship between credit difficulties and changes in labour input both along the extensive and the intensive margins as well as on wages. We find strong and significant correlation between credit difficulties and adjustments along both the extensive and the intensive margin. In the presence of credit market difficulties, firms cut wages by reducing the variable part of wages. This evidence suggests that credit shocks can affect not only the real economy, but also nominal variables.
    Keywords: credit difficulties; labour input adjustment; intensive margin
    JEL: D53 E24 E44 G31 G32
    Date: 2018–04
  16. By: Adam Brown; Ben Gardiner; Roman Römisch (The Vienna Institute for International Economic Studies, wiiw); Jonathan Stenning
    Abstract: This report is an annex to wiiw Research Report 421, ‘Economic Challenges of Lagging Regions I Fiscal and Macroeconomic Environment’. It provides eight detailed country case studies, analysing the fiscal and macroeconomic environment in Bulgaria, Greece, Hungary, Italy, Poland, Portugal, Romania and Spain and its effects on the development of the lagging regions in those countries.
    Keywords: macroeconomic development, regional economic development, EU, lagging regions, regional policy, economic challenges
    JEL: E32 E60 H60 O11 O18 O40 R11
    Date: 2017–12
  17. By: Elisa Palagi; Mauro Napoletano (Observatoire français des conjonctures économiques); Andrea Roventini (Laboratory of Economics and Management (LEM)); Jean-Luc Gaffard (Observatoire français des conjonctures économiques)
    Abstract: We build an agent-based model populated by households with heterogenous and timevarying financial conditions in order to study how different inequality shocks affect income dynamics and the effects of different types of fiscal policy responses. We show that inequality shocks generate persistent falls in aggregate income by increasing the fraction of credit-constrained households and by lowering aggregate consumption. Furthermore, we experiment with different types of fiscal policies to counter the effects of inequality-generated recessions, namely deficit-spending direct government consumption and redistributive subsidies financed by different types of taxes. We find that subsidies are in general associated with higher fiscal multipliers than direct government expenditure, as they appear to be better suited to sustain consumption of lower income households after the shock. In addition, we show that the effectiveness of redistributive subsidies increases if they are financed by taxing financial incomes or savings.
    Keywords: Income inequality; Fiscal multipliers; Redistributive Policies; Credit-rationing; Agent-based models
    JEL: E63 E21 C63
    Date: 2017–11
  18. By: Daniel Fehrle
    Abstract: In this paper, I present a multi-sectoral DSGE-model with housing, real rigidities and variable capital utilization that generates aggregate and sectoral co-movements due to sector specic shocks. Furthermore, the model accounts for two puzzles: First, residential investment correlates positively with house prices, and second, GDP residential and business investment tend toward the empirically observed lead-lag pattern. I show that, except for relative prices, all co-movements and the lead-lag pattern of different investment types are endogenous in the calibrated model and independent of the properties of the shock. In a second step, I estimate the these properties with Bayesian techniques. As it turns out, shocks to sectors with similar elasticities in the nal good sectors playa role related to aggregated shocks. In contradiction to a standard assumption in the literature, shocks to the construction sector seem to be lower than others.
    Keywords: Housing market, sectoral and aggregate co-movements
    JEL: E13 E32 O41 R31
    Date: 2018–05
  19. By: Valerio Ercolani (Bank of Italy); João Valle e Azevedo (Bank of Portugal & Nova School of Business and Economics)
    Abstract: Some recent empirical evidence questions the typically large size of government spending multipliers when the nominal interest rate is stuck at zero, finding output multipliers of around 1 or even lower, with an upper bound of around 1.5 in some circumstances. In this paper, we use a recent estimate of the degree of substitutability between private and government consumption in an otherwise standard New Keynesian model to show that this channel significantly reduces the size of government spending multipliers obtained when the nominal interest rate is at zero. All else being equal, the relationship of substitutability makes a government spending shock crowd out private consumption while being less inflationary, thus limiting the typically expansionary effect of the fall in the real interest rate. Subject to the nominal interest rate being constrained at zero, the model generates output multipliers ranging from 0.8 to 1.6.
    Keywords: non-separable government consumption, substitutability, zero lower bound, fiscal multipliers
    JEL: E32 E62
    Date: 2018–04
  20. By: Simona Malovana (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic); Dominika Kolcunova (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic); Vaclav Broz (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na Prikope 28, 115 03 Prague 1, Czech Republic)
    Abstract: This paper studies the extent to which monetary policy may affect banks' perception of credit risk and the way banks measure risk under the internal ratings-based approach. Specifically, we analyze the effect of different monetary policy indicators on banks' risk weights for credit risk. We present robust evidence of the existence of the risk-taking channel in the Czech Republic. Further, we show that the recent prolonged period of accommodative monetary policy has been instrumental in establishing this relationship. Finally, we obtain comparable results by extending the analysis to cover all the Visegrad Four countries. The presented findings have important implications for the prudential authority, which should be aware of the possible side-effects of monetary policy on how banks measure risk.
    Keywords: Banks, financial stability, internal ratings-based approach, risk-taking channel
    JEL: E52 E58 G21 G28
    Date: 2018–01
  21. By: Luca Benati
    Abstract: Since World War I, M1 velocity has been, to a close approximation, the permanent component of the short-term nominal rate. This logically implies that, under monetary regimes which cause inflation to be I(0), permanent fluctuations in M1 velocity uniquely reflect, to a close approximation, permanent shifts in the natural rate of interest. Evidence from the Euro area and several inflation-targeting countries is compatible with this notion, with velocity fluctuations being systematically strongly correlated with a Stock and Watson (1996, 1998) estimate of trend real GDP growth. I exploit this insight to estimate the natural rate of interest for the United Kingdom and Canada under inflation targeting: In either country, the natural rate has been consistently declining since the early 1990s.
    Keywords: Money demand; Lucas critique; structural VARs; unit roots; cointegration; long-run restrictions: natural rate of interest.
    Date: 2017–06
  22. By: Crespo-Cuaresma, Jesus; Schweinitz, Gregor von; Wendt, Katharina
    Abstract: Reserve requirements, as a tool of macroprudential policy, have been increasingly employed since the outbreak of the great financial crisis. We conduct an analysis of the effect of reserve requirements in tranquil and crisis times on credit and GDP growth making use of Bayesian model averaging methods. In terms of credit growth, we can show that initial negative effects of higher reserve requirements (which are often reported in the literature) tend to be short-lived and turn positive in the longer run. In terms of GDP per capita growth, we find on average a negative but not robust effect of regulation in tranquil times, which is only partly offset by a positive but also not robust effect in crisis times.
    Keywords: reserve requirements,macroprudential policy,credit growth,economic growth,Bayesian model averaging
    JEL: C11 E44 F43 G28
    Date: 2018
  23. By: Alberto Montagnoli (Department of Economics, University of Sheffield); Konstantinos Mouratidis (Department of Economics, University of Sheffield); Kemar Whyte (Department of Economics, University of Sheffield)
    Abstract: This paper empirically analyses how the capital buyer held by banks behave over the business cycle after financial factors have been accounted for. Using a large panel of banks for the period 2000-2014, we document evidence that capital buyers behave more pro-cyclical than previously found in the literature. Furthermore, we also show that this relationship is more pronounced for large commercial banks where access to capital equity markets and external support (bail-out) is likely to constitute a strong incentive to increase credit exposure and lower capital reserves accordingly. Overall, these results have important implications for the development of macroprudential policy tools for the global financial system.
    Keywords: Pro-cyclicality; Capital Buyers; Business Cycle; Financial Cycle; Macropru-dential Policy
    JEL: E32 G21 G28
    Date: 2018–03
  24. By: Filardo, Andrew (Bank for International Settlements); Lombardi, Marco (Bank for International Settlements); Montoro, Carlos (Banco Central de Reserva del Perú; Ministerio de Economia y Finanzas); Ferrari, Massimo (Università Cattolica del Sacro Cuore)
    Abstract: How do monetary policy spillovers complicate the trade-offs faced by central banks face when responding to commodity prices? This question takes on particular relevance when monetary authorities find it difficult to accurately diagnose the drivers of commodity prices. If monetary authorities misdiagnose commodity price swings as being driven primarily by external supply shocks when they are in fact driven by global demand shocks, this conventional wisdom – to look through the first-round effects of commodity price fluctuations – may no longer be sound policy advice.
    Keywords: commodity prices, monetary policy, spillovers, global economy
    JEL: E52 E61
    Date: 2018–02
  25. By: Jean-Philippe Bouchaud (CFM - Capital Fund Management - Capital Fund Management); Stanislao Gualdi (CFM - Capital Fund Management - Capital Fund Management); Marco Tarzia (LPTMC - Laboratoire de Physique Théorique de la Matière Condensée - UPMC - Université Pierre et Marie Curie - Paris 6 - CNRS - Centre National de la Recherche Scientifique); Francesco Zamponi (LPTENS - Laboratoire de Physique Théorique de l'ENS - ENS Paris - École normale supérieure - Paris - UPMC - Université Pierre et Marie Curie - Paris 6 - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Which level of inflation should Central Banks be targeting? The authors investigate this issue in the context of a simplified Agent Based Model of the economy. Depending on the value of the parameters that describe the behaviour of agents (in particular inflation anticipations), they find a rich variety of behaviour at the macro-level. Without any active monetary policy, our ABM economy can be in a high inflation/high output state, or in a low inflation/low output state. Hyper-inflation, deflation and " business cycles " between coexisting states are also found. The authors then introduce a Central Bank with a Taylor rule-based inflation target, and study the resulting aggregate variables. The main result is that too-low inflation targets are in general detrimental to a CB-monitored economy. One symptom is a persistent under-realization of inflation, perhaps similar to the current macroeconomic situation. Higher inflation targets are found to improve both unemployment and negative interest rate episodes. The results are compared with the predictions of the standard DSGE model.
    Keywords: Taylor rule,Agent based models,monetary policy,inflation target
    Date: 2018
  26. By: Pariboni, Riccardo (Roma Tre University); Girardi, Daniele (University of Massachusetts-Amherst)
    Abstract: As a matter of common knowledge, the canonical Neo-Kaleckian growth model is not able to reconcile the actual and normal rates of utilization in equilibrium. Dávila-Fernández et al. (2017) revive an old proposal for solving this problem – making the rate of normal utilization an endogenous variable that converges to the actual utilization rate – justifying it with new premises, based on a recent contribution to production theory (Nikiforos 2013). In this note, we argue that their proposed adjustment mechanism is based on restrictive assumptions, some of which have little economic justification. Moreover, we show that also if one puts aside for the sake of argument the perplexities regarding the ‘endogenization’ of the normal rate of utilization, the existence of autonomous components of demand is sufficient to invalidate their results.
    Keywords: Neo-Kaleckian model; Autonomous Demand; Sraffian Supermultiplier; normal utilization
    JEL: E11 E12 E22
    Date: 2018–05
  27. By: International Monetary Fund
    Abstract: Program performance improved in 2017 and macroeconomic conditions have strengthened considerably. Growth increased on the back of expanded oil production; inflation declined; the fiscal deficit was significantly reduced, leading to a primary surplus for the first time in fifteen years; the exchange rate regained stability; and the external position improved, with a large reserve build-up. Challenges remain, though, as a still elevated (albeit declining) debt burden and the economy’s exposure to risks limit policy space; and progress in meeting structural benchmarks remains mixed. Program discussions focused on policies to lock in recent gains to secure continued stability and progress beyond the Fund-supported program (in line with the authorities' goal of "irreversibility" of sound policies).
    Date: 2018–05–02
  28. By: Carlos Esteban Posada; Santiago Sánchez
    Abstract: Teaching Dynamic Macroeconomics at undergraduate courses relies exclusively on intuitive prose and graphics depicting behaviours and steady states of the main markets of the economy. But when the case of forward-looking agents and the macroeconomic implications of their actions are discussed, intuitions and graphical representations offered to students may lead to unsupported conclusions. This happens even if the teacher and students use the chapter upon a dynamic macroeconomic model of one of the most didactic and ordered texts ever published: Williamson (2014). In this paper we try to sustain this assertion.
    Keywords: Dynamic Macroeconomics, Forward-looking agents, General equilibrium, Competitivemarkets, Total factor productivity, Public expenditure multiplier.
    JEL: A22 A23 C61 C63 E00 E17
    Date: 2018–04–25
  29. By: Latheef, Udhula Abdul; Masih, Mansur
    Abstract: The study investigates the asymmetrical effects of macroeconomic performance variables (if any) on other depository corporations. Maldives is taken as a case study. The variables selected for macroeconomic presentation are Trade Balance, Exchange Rate, Consumer Price Index, Broad Money Supply (M2) and Interest Rate, while for other depository corporations the proxy used is commercial deposits. Monthly data are taken from statistical publications supplied by Maldives Monetary Authority website from January 2007 to December 2016. Understanding the deposit behaviour to macroeconomic changes is crucial for financial corporations as it serves to generate much needed loans for the required parties. The significance of this study, unlike the previous studies is, to the best of my knowledge, that this is the first attempt made to test the existence of any asymmetry through Nonlinear Auto-Regressive Distributed Lag model developed by Shin et al. (2014). Also, this research is the first such examination on commercial deposits behaviour in response to macroeconomic variables in the Maldives. In order to find any non-linearity between the variables in long run and short run, the variables are decomposed into both positive and negative components applying nonlinear ARDL approach. Findings tend to indicate that only the short run interest rates to commercial deposits signify asymmetrical relationship unlike all other macroeconomic variables including both long and short-run variables confirming that most macroeconomic variables have symmetrical (linear) relationship with commercial deposits in the Maldives.
    Keywords: Bank deposits, macroeconomic variables, nonlinear ARDL
    JEL: C22 C58 E44 G21
    Date: 2017–12–30
  30. By: Goncalves, Andrei (Ohio State University); Xue, Chen (University of Cincinnati); Zhang, Lu (Ohio State University)
    Abstract: This paper provides a careful treatment of aggregation, and to a lesser extent, capital heterogeneity in the investment CAPM. Firm-level investment returns are constructed from firm-level variables, and then aggregated to the portfolio level to match with portfolio-level stock returns. Current assets form a separate production input besides physical capital. The model fits well the value, momentum, investment, and profitability premiums simultaneously, and partially explains the positive stock-investment return correlations, the procyclical and short-term dynamics of the momentum and profitability premiums, as well as the countercyclical and long-term dynamics of the value and investment premiums. However, the model fails to explain momentum crashes.
    JEL: D21 D92 E22 E44 G12 G14 G31 G32 G34
    Date: 2017–12
  31. By: International Monetary Fund
    Abstract: Growth rebounded sharply in 2017, helped by strong policy stimulus in the wake of the 2016 post-coup attempt slump and by favorable external conditions. Although expansionary policies were initially warranted, they are no longer appropriate as the economy is showing clear signs of overheating. Monetary policy appears too loose and its credibility is low; and on- and off-budget fiscal policies (including credit guarantee schemes and PPP activities) are expansionary and risk undermining Turkey’s hard-earned fiscal credibility. As a result, the economy faces internal and external imbalances: a positive output gap, inflation well above target, and a current account deficit of more than 5 percent of GDP. Meanwhile, political uncertainty and regional instability remain elevated, and the integration of the many refugees poses challenges.
    Date: 2018–04–30
  32. By: Sophie Piton
    Abstract: From the introduction of the Euro up to the 2008 global financial crisis, macroeconomic imbalances widened among Member States. This divergence took the form of strong differences in the dynamics of unit labour costs. This paper asks why this happened. Is it the result of distortionary public spending, or the consequence of economic integration? To answer this question, this paper builds a theoretical framework that is able to provide a decomposition of unit labour costs growth into various effects of economic integration and policy intervention. Using a novel dataset, it then measures the contribution of each effect to the dynamics of unit labour costs in 12 countries of the Euro area from 1995 to 2014. Results show that trade and financial integration are significant drivers of unit labour costs divergence. Before the global financial crisis, in Greece and Portugal for example, trade and financial integration explain up to 30% of the increase in unit labour costs relative to core countries. On the contrary, distortionary public spending plays a minor role. These results suggest that, in peripheral economies, increasing unit labour costs reflect more the process of real convergence than fiscal profligacy.
    Keywords: Economic Integration;Productivity;Structural Change;Non-tradable Sector;Macroeconomic Imbalances;Capital Flows;Growth Accounting;Euro Area
    JEL: E32 E65 F41 O33
    Date: 2018–04
  33. By: Klaus Neusser
    Abstract: The Multiplicative Ergodic Theorem provides a novel general method- ology to analyze rational expectations models with stochastically vary- ing coecients. The approach is applied for the first time to economics and analyzes the canonical New Keynesian model with a Taylor rule which switches randomly between an aggressive and a passive reaction to in ation. The paper delineates the trade-o of the central bank of being passive in some periods and aggressive in others. Moreover, it is shown how this trade-o depends on the stochastic process governing the randomness in the central bank's policy. Finally, explicit solution formulas are derived in the case of determinateness as well as inde- terminateness. In doing so he paper considerably extends the current approach.
    Keywords: time{varying rational expectations models, New Keynesian model, Taylor rule, Lyapunov exponents, multiplicative ergodic theorem
    JEL: C02 C61 E40 E52
    Date: 2018–03
  34. By: Andrés Fernando Velásquez Salgado
    Abstract: Este artículo presenta un análisis sobre la sostenibilidad de la deuda pública en Colombia para el periodo 2012-2016. Se procede en dos partes: la primera corresponde al estado del arte en esta materia, se incluye una serie de definiciones y distinciones clave, así como los elementos relevantes de la teoría económica —siendo el criterio de sostenibilidad de Blanchard (1990) el indicador más importante—. Al mismo tiempo, se presentan las disposiciones jurídicas que enmarcan el manejo de la deuda por parte del Estado. Adicionalmente, se muestra que la trayectoria de la deuda impacta no sólo las finanzas públicas, sino que también afecta la desigualdad y los objetivos de crecimiento y desarrollo del país. La segunda parte expone la evidencia empírica. Se centra en la discusión de los elementos macroeconómicos y sociopolíticos que han incidido en la dinámica de la deuda durante este periodo. Para ello, se incorpora una simulación de largo plazo del organismo de control y se plantea que la sostenibilidad requiere, más allá del cumplimiento de los criterios de teoría económica —particularmente el de Blanchard— de una serie de decisiones políticas en torno a la estructura tributaria y productiva del país, en relación con los objetivos de crecimiento y desarrollo económico. Para finalizar, se introduce una serie de conclusiones que permiten sintetizar los hallazgos presentados y servir de insumo para las discusiones de política económica que se requieren en torno al manejo responsable y sostenible de la deuda.
    Keywords: Deuda pública, sostenibilidad, déficit, gasto público, deuda interna, deuda externa, sistema tributario, pensiones, política económica.
    JEL: E62 E61 H29 H55 H63 H62 H61 K10
    Date: 2018–05–05
  35. By: Eduardo A. Haddad; Natalia Q. Cotarelli, Vinicius A. Vale
    Abstract: We develop a multiregional general equilibrium model for Greece to simulate the short run impacts of temporary deficit-financed rises in government spending. It has been recognized that the fiscal multiplier is a function of structural features of the economy and policy reaction parameters. Moreover, the debate on the magnitude of the multiplier along the business cycle has also been the subject of disputed debates. On these grounds, we look at the Greek case by calibrating the model using data for distinct states of the Greek economy during the development of the recent crisis. Whether this matters for local and nationwide multipliers depends on qualitative differences of the numerical structures of the model. Our results imply that structural coefficients have a strong effect on government spending impact multipliers. In the case of Greece, lack of information on the changing magnitudes of behavioral parameters over time adds another layer of uncertainty to this debate.
    Keywords: Multiregional models; Fiscal multiplier; Sensitivity analysis; Business cycle; Greece.
    JEL: D58 E17 E62 R13
    Date: 2018–04–11
  36. By: Borissov, Kirill; Bosi, Stefano; Ha-Huy, Thai; Modesto, Leonor
    Abstract: We extend the Lucas' 1988 model introducing two classes of agents with heterogeneous skills, discount factors and initial human capital endowments. We consider two regimes according to the planner's political constraints. In the first regime, that we call meritocracy, the planner faces individual constraints. In the second regime the planner faces an aggregate constraint, redistributing. We find that heterogeneity matters, particularly with redistribution. In the meritocracy regime, the optimal solution coincides with the BGP found by Lucas (1988) for the representative agent's case. In contrast, in the redistribution case, the solution for time devoted to capital accumulation is never interior for both agents. Either the less talented agents do not accumulate human capital or the more skilled agents do not work. Moreover, social welfare under the redistribution regime is always higher than under meritocracy and it is optimal to exploit existing differences. Finally, we find that inequality in human capital distribution increases in time and that, in the long run, inequality always promotes growth.
    Keywords: human capital, heterogenous patience and skills, inequality and growth.
    JEL: E24 O4 O41
    Date: 2018–04
  37. By: Jasmien De Winne; Gert Peersman (-)
    Abstract: For a panel of 75 countries, we find that increases in global agricultural commodity prices that are caused by unfavorable harvest shocks in other regions of the world significantly curtail domestic economic activity. The effects are much larger than for average global agricultural price shifts. The impact is also considerably stronger in high-income countries, despite the lower shares of food in household expenditures these countries have compared to low-income countries. On the other hand, we find weaker effects in countries that are net exporters of agricultural products, have higher shares of agriculture in GDP or lower shares of non-agricultural trade in GDP; that is, characteristics that typically apply to low-income countries. When we control for these country characteristics, we find indeed that the effects on economic activity become smaller when income per capita is higher. Overall, our findings imply that the consequences of climate change on advanced economies are likely larger than previously thought.
    Keywords: Agricultural commodity prices, economic activity, climate change
    JEL: E32 F44 O13 O44 Q11 Q54
    Date: 2018–04
  38. By: Mihnea Constantinescu (Bank of Lithuania); Kristina Griskeviciene (Bank of Lithuania and ISM University of Management and Economics)
    Abstract: Do inter-sectoral linkages of intermediate products affect the spread of sectoral shocks at the aggregate level in Lithuania, a small and open economy? We answer this question by: i) constructing the domestic sector-by-sector direct requirements table using the Lithuanian interindustry transactions tables, and ii) applying Acemoglu et al. (2012)'s network-based methodology and Gabaix and Ibragimov (2011)'s modified log rank-log size regression to analyse the nature of inter-sectoral linkages. Our results indicate that the direct and indirect inter-sectoral linkages cause aggregate volatility to decay at a rate lower than square root of n - the rate predicted by the standard diversification argument. Furthermore, indirect linkages play an important role in the above-mentioned process, supporting the findings of Acemoglu et al. (2012). These results suggest that the inter-sectoral network of linkages represent a potential propagation mechanism for idiosyncratic shocks throughout the Lithuanian economy.
    Keywords: Input-Output Linkages, Inter-sectoral Network, Aggregate Volatility, SmallOpen Economy, Complexity Economics
    JEL: C13 C46 C67 E00
    Date: 2018–05–04
  39. By: Kavese, Kambale; Phiri, Andrew
    Abstract: A provincial analysis of Okun’s law in South Africa is provided in this article over a period of 1996 to 2016. Empirically, we rely on the nonlinear autoregressive distributive lag (N-ARDL) model whilst the Corbae-Ouliaris filter is used to extract the ‘gap’ variables required for our regression estimates. Okun’s law is found to be significant hold in the long-run exclusively for the Western Cape and Kwa-Zulu Natal provinces whereas the remaining provinces partially display significant short-run effects. Our sensitivity analysis in which panel N-ARDL estimations for all provinces finds insignificant long-run Okun effects for the country as a whole, whilst validating the relationship only in the short-run. Our study hence implies that/advices that the epicentre of policy efforts in addressing the country’s high unemployment and low economic growth dilemma should be concentrated at a provincial level.
    Keywords: Economic growth; unemployment; Okun’s law; Provincial analysis; nonlinear ARDL model; Corbae-Ouliaris filter; South Africa; Emerging economies
    JEL: C13 C32 C51 E24 O40
    Date: 2018–05–04
  40. By: Kambale Kavese (Eastern Cape Socio Economic Consultation Council); Andrew Phiri (Department of Economics, Nelson Mandela University)
    Abstract: A provincial analysis of Okun’s law in South Africa is provided in this article over a period of 1996 to 2016. Empirically, we rely on the nonlinear autoregressive distributive lag (N-ARDL) model whilst the Corbae-Ouliaris filter is used to extract the ‘gap’ variables required for our regression estimates. Okun’s law is found to be significant hold in the long-run exclusively for the Western Cape and Kwa-Zulu Natal provinces whereas the remaining provinces partially display significant short-run effects. Our sensitivity analysis in which panel N-ARDL estimations for all provinces finds insignificant long-run Okun effects for the country as a whole, whilst validating the relationship only in the short-run. Our study hence advices that the epicenter of policy efforts in addressing the country’s high unemployment and low economic growth dilemma should be concentrated at a provincial level.
    Keywords: Economic growth, unemployment, Okun’s law, Provincial analysis, nonlinear ARDL model, Corbae-Ouliaris filter, South Africa, Emerging economies.
    JEL: C13 C32 C51 E24 O40
    Date: 2018–05
  41. By: Martijn Boermans; Viacheslav Keshkov
    Abstract: This study investigates the impact of the Eurosystem's Public Sector Purchase Programme (PSPP) on the micro market structure of sovereign bonds. In particular, we analyze how the PSPP affected the ownership concentration of PSPP-eligible bonds. In line with portfolio rebalancing models we hypothesize that the entry of relatively new and dominant investor will unevenly displace certain investors who are willing to rebalance their portfolios, thus reducing the dispersion of holdings in the market. Using detailed security-by-security holdings data, we estimate a difference-in-differences model with a matched control group. We find that the announcement of the PSPP did not affect the ownership concentration of sovereign bonds. However, during the implementation phase the asset purchases increased the ownership concentration of the eligible sovereign bonds relative to the control group, potentially due to asymmetric portfolio rebalancing. We argue that quantitative easing had market distortionary effects and our results may explain the growing concerns for bond scarcity, market liquidity dry-ups and price spikes in the European sovereign bond market.
    Keywords: quantitative easing; portfolio rebalancing; market concentration; ECB; PSPP; securities holdings statistics; unconventional monetary policy
    JEL: G11 E52 E58
    Date: 2018–04
  42. By: Sebastiano Fadda (dpt. Economia)
    Abstract: The aim of the paper is not so much to describe the structural changes that have occurred (or that are occurring) during a certain period of time, but rather to detect the dynamic forces which drive the process of structural change and to detect the institutions that influence these forces and therefore the areas in which the State can play a role in governing the process.
    JEL: E24 J24 O33
  43. By: Ruggero Fornoni; Lydia Greunz; Nirina Rabemiafara; Roman Römisch (The Vienna Institute for International Economic Studies, wiiw); Terry Ward
    Abstract: This report is concerned with analysing, for eight EU Member States with lagging regions, the main structural reforms carried out over the past five to ten years, essentially those which are relevant for the European Structural and Investment Funds. Furthermore it provides an overview of the remaining structural reforms needed, including to the system and operation of governance, and their relevance for lagging regions. The identification of the remaining reforms needed is based on a detailed analysis of the main indicators that can be identified to assess the situation in each of the eight countries concerned and, so far as possible, in the lagging regions in them. An additional concern is to gauge the effects of the reforms carried out with a particular focus on the lagging regions. The first subsection of the report briefly sets out the structural reforms covered by the analysis and the rationale for choosing these from among all those subject to the European Council’s Country-Specific Recommendations. It then presents for each of the eight countries and the lagging regions the main structural imbalances in the form of a concise summary bringing out the main points emerging from the detailed analysis for each country. The second sub-section assesses the effects of labour market reforms on investment, productivity and competitiveness. A third sub-section examines the business environment in each of the countries and the lagging regions within these as well as the structure of enterprises and business demography, and attempts to relate this to the business environment. It also considers the reforms which have been carried out over recent years which have been aimed at improving the situation in which businesses operate.
    Keywords: regional economic development, EU, lagging regions, regional policy, economic challenges, structural reforms, labour market reforms, business environment
    JEL: D21 E24 G30 H11 J21 J24 O15 O O O R11 R38 R50
    Date: 2017–12
  44. By: Mercenier, Jean; Voyvoda, Ebru
    Abstract: Based on two strands of research, namely ‘barriers to technology adoption’ and ‘appropriate technology’, we propose a formal reappraisal of ‘deep integration’, a broad concept often used in trade policy discussions. We then evaluate the 2004-7 EU enlargement wave utilizing this operational reappraisal. More specifically, we first estimate, using 2007 data, total labor productivity (TLP) in the 27 EU member states, and show that in all but a few sectors, new member states clearly stand below the lower envelope technology frontier of the older members in their use of skilled and unskilled labor. We interpret this as being the result of past barriers to technology adoption that are likely to be removed by the integration process into the EU, with these new counties’ TLP shifting to the incumbent members’ lower envelope. We then explore the potential effects on all 27 EU member states of this ‘deep integration’ experiment using a calibrated intertemporal multisectoral general equilibrium model. Our main finding is that, for most parameter configurations, workers’ welfare in incumbent member countries is not negatively impacted despite the rather drastic improvement in competitiveness experienced by new members.
    Keywords: Barriers to technology adoption, appropriate technology, technological upgrading, deep integration, European integration, calibrated general equilibrium
    JEL: D58 E23 F12 J31 O14 R13
    Date: 2018–04–25
  45. By: Philippe Bacchetta; Elena Perazzi
    Abstract: A monetary reform is submitted for vote to the Swiss people in 2018. The Sovereign Money Initiative proposes that all sight deposits should be controlled by the Swiss National Bank (SNB) and that the SNB could distribute its additional resources. While a sovereign money reform would clearly a ect the structure of the banking sector, it would also have macroeconomic implications, in particular because it transfers resources from banks to the central bank. The objective of this paper is to analyze these macroeconomic implications using a simple infinite-horizon open-economy model calibrated to the Swiss economy. While we consider several policy experiments, we find that there is a key trade-o between a reduction in distortionary labor taxes and an increase in the opportunity cost of holding money. However, in the proposed Swiss reform it is this latter cost that dominates and we find that the reform unambiguously lowers welfare.
    Date: 2018–04
  46. By: Dirk Niepelt
    Abstract: We propose a theory of tax centralization in politico-economic equilibrium. Taxation has dynamic general equilibrium implications which are rationally internalized at the federal, but not at the regional level. The political support for taxation therefore differs across levels of government. Complementarities on the spending side decouple the equilibrium composition of spending and taxation and create a role for inter governmental grants. The model provides an explanation for the centralization of revenue, introduction of grants, and expansion of federal income taxation in the U.S. around the time of the New Deal. Quantitatively, it accounts for between 30% and 100% of the federal revenue share’s doubling in the 1930s, and for the long-term increase in federal grants.
    Keywords: Fiscal policy, Federalism, Politico-economic equilibrium, Markov equilibrium, Public goods, Grants, Political Economy
    JEL: D72 E62 H41 H77
    Date: 2018–03
  47. By: Nsenga, Dieu; Nach, Mirada; Khobai, Hlalefang; Moyo, Clement; Phiri, Andrew
    Abstract: The focus of our study is on determining whether unemployment rates in 8 New Industrialized Economies conform to the natural rate hypothesis or the hysteresis hypothesis. To this end, we employ a variety of unit of unit root testing procedures to quarterly data collected between 2002:q1 and 2017:q1. In summary of our findings, conventional unit root tests which neither account for asymmetries or structural breaks produce the most inconclusive results. On the other hand, tests which incorporate structural breaks whilst ignoring asymmetries tends to favour the natural rate hypothesis for our panel of countries. However, simultaneously accounting for asymmetries and unobserved structural breaks seemingly produces the most robust findings and confirms hysteresis in all unemployment rates except for the Asian economies/countries of Thailand and the Philippines.
    Keywords: Natural rate hypothesis; hysteresis hypothesis; Unemployment; unit root tests; Fourier function approximation; Newly Industrialized Economies
    JEL: C22 C51 E24 J60
    Date: 2018–04–18
  48. By: Luca Fornaro; Federica Romei
    Abstract: This paper describes a paradox of global thrift. Consider a world in which interest rates are low and monetary policy cannot stabilize the economy because it is frequently constrained by the zero lower bound. Now imagine that governments complement monetary policy with prudential financial and fiscal policies, because they perceive that limiting private and public borrowing during booms will help stabilize the economy by reducing the risk of financial crises and by creating space for fiscal interventions during busts. We show that these policies, while effective from the perspective of individual countries, might backfire if applied on a global scale. In a financially integrated world, in fact, prudential policies generate a rise in the global supply of savings, or equivalently a drop in global aggregate demand. In turn, weaker global aggregate demand depresses output in countries whose monetary policy is constrained by the zero lower bound. Due to this effect, the world might paradoxically experience a fall in output and welfare following the implementation of well-intended prudential policies.
    Keywords: E32, E44, E52, F41, F42
    Date: 2018–04
  49. By: Daniele Girardi (Department of Economics, University of Massachusetts, Amherst)
    Abstract: Despite growing interest in the effect of political-institutional factors on the economy, causally identified evidence on the reaction of financial markets to electoral outcomes is still relatively scarce, due to the difficulty of isolating causal effects. This paper fills this gap: we estimate the ‘average treatment effect’ of left-wing (as opposed to conservative) electoral victories on share prices, exchange rates, and sovereign bond yields and spreads. Using a new dataset of worldwide national (parliamentary and presidential) elections in the post-WWII period, we obtain a sample of 954 elections in which main parties/candidates can be classified on the left-right scale based on existing sources and monthly financial data are available. To achieve causal identification, we employ a dynamic regression-discontinuity design, thus focusing on close elections. We find that left-wing electoral victories cause significant and substantial short-term decreases in stock market valuations and in the US dollar value of the domestic currency, while the response of sovereign bond markets is muted. Effects at longer time horizons (6 to 12 months) are very dispersed, signaling large heterogeneity in medium-run outcomes. Stock market and exchange rate effects are stronger and more persistent in elections in which the Left’s proposed economic policy is more radical, in developing economies, and in the post-1990 period.
    Keywords: political shocks, elections, financial markets, regression discontinuity, stock market, exchange rate, bond yields
    JEL: P16 N2 E02 D72 G1 H0
    Date: 2018
  50. By: Renzo Alvarez (Department of Economics, Florida International University); Amin Shoja (Department of Economics, Florida International University); Syed Uddin (Department of Economics, Florida International University); Hakan Yilmazkuday (Department of Economics, Florida International University)
    Abstract: This paper estimates the exchange rate pass-through (ERPT) by using good-level daily data on wholesale prices of imported agricultural products, where the identification is achieved by using daily data on the domestic inflation rate. The results of standard empirical analyses are in line with existing studies that employ lower frequencies of data by showing evidence for incomplete daily ERPT of about 5 percent. The key innovation is achieved when nonlinearities in ERPT are considered, where ERPT is doubled to about 10 percent when daily nominal exchange rate changes are above 0.55 percent, daily frequencies of price change are above 3.12 percent, and storage life of a product is above 10 weeks. Important policy implications follow.
    Keywords: Daily Agricultural Prices, Exchange Rate Pass-Through, Good-Level Analysis
    JEL: E31 F14 F31
    Date: 2018–05
  51. By: Mauro Napoletano (Observatoire français des conjonctures économiques)
    Abstract: Cet article analyse les progrès récents de la modélisation multi-agents appliquée à l'analyse macroéconomique. Je présente d'abord les principaux ingrédients des modèles multi-agents. Ensuite, en s'appuyant sur des exemples tirés de travaux récents, je montre que les modèles multi-agents apportent des éclairages complémentaires ou nouveaux sur des questions macroéconomiques clés telles que les cycles économiques endogènes, les interactions entre cycles et croissance à long terme, le rôle des ajustements de prix versus quantités dans le retour au plein emploi. Enfin, je discute certaines limites des modèles multi-agents et comment ils sont actuellement abordés dans la littérature.
    Keywords: Modèles multi-agents; Analyse macroéconomique; Cycles économiques endogènes; Politique monétaire et budgétaire
    Date: 2017–12
  52. By: Jonathan Hambur (Reserve Bank of Australia); Gianni La Cava (Reserve Bank of Australia)
    Abstract: We examine the distribution of borrowing rates paid by companies, and the relationship between corporate borrowing rates and fixed capital investment, using a unique hand-collected dataset. We find a high degree of heterogeneity in companies' cost of debt. Also, since the global financial crisis, the spread between the rates paid by companies at the top and bottom of the distribution has widened. Borrowing rates for a large portion of companies, including smaller and riskier ones, have remained high in recent years, despite falls in aggregate indicators of interest rates. This heterogeneity in borrowing rates enables us to find a significant inverse relationship between the cost of debt and corporate investment, which is generally not evident in aggregate data. We argue that this relationship may be due to credit supply effects, as a relaxation of lending standards leads to lower credit spreads and encourages more investment. These findings shed new light on the link between monetary policy and business investment in Australia.
    Keywords: interest rates; investment; user cost of capital
    JEL: E22
    Date: 2018–04
  53. By: Luca Benati
    Abstract: I explore whether time-series methods exploiting the long-run equilibrium properties of the housing market might have detected the disequilibrium in U.S. house prices which pre-dated the Great Recession as it was building up. Based on real-time data, I show that a VAR in levels identified as in Uhlig (2003, 2004) would have detected the disequilibrium with high confidence by the Summer of 2004, with the estimated extent of overvaluation peaking at about 15 per cent immediately before the crisis. These results demonstrate that disequilibria in the prices of at least one asset class–housing–can indeed be robustly detected as they are building up. Conceptually in line with Cochrane’s (1994) analysis for consumption and GNP, and dividends and stock prices, a key factor in order to robustly identify the transitory component of real house prices is applying Uhlig-style identification to real rents, which are cointegrated with house prices, and are comparatively much closer to the common stochastic trend. Directly focusing on house prices themselves, on the other hand, produces less robust results.
    Keywords: Structural VARs; unit roots; cointegration; long-run restrictions;medium-run identification; Great Recession; housing bubbles.
    Date: 2017–05
  54. By: Chunzan Wu; Dirk Krueger
    Abstract: We show that a calibrated life-cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri and Saporta-Eksten (2016) in U.S. data. With additively separable preferences, 43% of male and 23% of female permanent wage shocks pass through to consumption, compared to the empirical estimates of 34% and 20%. With non-separable preferences the model predicts more consumption insurance, with pass-through rates of 29% and 16%. Most of the consumption insurance against permanent male wage shocks is provided through the labor supply response of the female earner.
    JEL: D31 E21
    Date: 2018–03
  55. By: Luca Benati
    Abstract: Since WorldWar II, permanent interest rate shocks have driven nearly all of the fluctuations of U.S. M1 velocity, which is cointegrated with the short rate, and most of the long-horizon variation in the velocity of M2-M1. Permanent velocity shocks specific to M2-M1, on the other hand, have played a minor role. Further, counterfactual simulations show that, absent permanent interest rate shocks, M1 velocity would have been broadly flat, and fluctuations in the velocity of M2-M1 would have been more subdued than they have historically been. We show that failure to distinguish between M1 and M2-M1 causes a significant distortion of the inference, erroneously pointing towards a dominant role for M2 velocity shocks.
    Keywords: Money demand; structural VARs; unit roots; cointegration; longrun restrictions.
    Date: 2017–07
  56. By: Takaoka, Sumiko
    Abstract: This paper examines the factors that contribute to credit spreads in the primary market for Japanese corporate bonds, especially when the Bank of Japan implemented unconventional monetary policy measures. The models of credit spreads based on the Treasury convenience yield hypothesis are estimated using an issue-level dataset. The results indicate that the factors to explain credit spreads changed under the unconventional monetary policy regime. Investors became less sensitive to the risk of default for issuers with different credit quality due to the unprecedented degree of monetary easing. The Japanese government’s debt-to-GDP ratio, which is a measure of the convenience yield on government bonds, is an important driver of credit spreads throughout the sample period.
    Keywords: Convenience yield, Corporate bonds, Credit spreads, Japanese government bonds, Unconventional monetary policy.
    JEL: E50 G12 G30
    Date: 2018–03–09
  57. By: Dimitris Korobilis (Essex Business School, University of Essex, UK; Rimini Centre for Economic Analysis); Davide Pettenuzzo (Sachar International Center, Brandeis University, USA)
    Abstract: This paper proposes a simulation-free estimation algorithm for vector autoregressions (VARs) that allows fast approximate calculation of marginal parameter posterior distributions. We apply the algorithm to derive analytical expressions for independent VAR priors that admit a hierarchical representation and which would typically require computationally intensive posterior simulation methods. The benefits of the new algorithm are explored using three quantitative exercises. First, a Monte Carlo experiment illustrates the accuracy and computational gains of the proposed estimation algorithm and priors. Second, a forecasting exercise involving VARs estimated on macroeconomic data demonstrates the ability of hierarchical shrinkage priors to find useful parsimonious representations. We also show how our approach can be used for structural analysis and that it can successfully replicate important features of news-driven business cycles predicted by a large-scale theoretical model.
    Keywords: Bayesian VARs, Mixture prior, Large datasets, Macroeconomic forecasting
    JEL: C11 C13 C32 C53
    Date: 2018–05
  58. By: International Monetary Fund
    Abstract: Israel’s economy is growing well with inflation remaining low and the housing market cooling. Growth of about 3½ percent in 2017 helped bring unemployment below four percent in early 2018, supporting robust wage rises averaging 3¼ percent. Yet, partly owing to the appreciation of the shekel, inflation remained below the 1–3 percent target range. House price increases slowed to below two percent as proposed tax measures deterred investor interest. Prospects for the next few years are for growth to remain around 3½ percent with inflation rising gradually.
    Date: 2018–05–01
  59. By: Antonio David; Daniel Leigh
    Abstract: This paper presents a new database of fiscal consolidations for 14 Latin American and Caribbean economies during 1989-2016. We focus on discretionary changes in taxes and government spending primarily motivated by a desire to reduce the budget deficit and long-term fiscal health and not by a response to prospective economic conditions. To identify the motivation and budgetary impact of the fiscal policy changes, we examine contemporaneous policy documents, including Budgets, central bank reports, and IMF and OECD reports. The resulting series can be used to estimate the macroeconomic effects of fiscal consolidation for these economies
    Date: 2018–04–26
  60. By: Matteo Ruzzante
    Abstract: Government financial assets are increasingly recognized as playing an important role in assessing fiscal sustainability. However, very little research has been done on the dynamics of government financial assets compared to liabilities. In this paper, we investigate the impact of recent financial crises and macroeconomic shocks on government balance sheets, decomposing the separate effects on financial assets and liabilities. Using quarterly Government Finance Statistics (GFS) data, we analyze a panel of 27 countries over the period 1999Q1-2017Q1 through fixed effects and panel VAR techniques. Financial crises are shown to deteriorate the net financial worth of governments, but no significant impact is found on assets suggesting that they are not being used as fiscal buffers in bad times. On the contrary, countries that suffered both financial and banking crises experienced an “artificial” increase of their asset position through bank bailouts. Macroeconomic shock analyses reveal that government balance sheet items are countercyclical, but important asymmetries are found in their dynamics.
    Date: 2018–04–24
  61. By: Watanabe, Minoru; Miyake, Yusuke; Yasuoka, Masaya
    Abstract: Considering the sustainability of social security in an aging society with fewer children, income growth and population growth are important factors. With a decrease in income growth or population growth, social security transfers such as pension benefits cannot be provided. The intergenerational social security benefit is being reassessed in some OECD countries. In Japan, social security benefits for younger people are small because of an aging society. This paper presents description of an unemployment model with a minimum wage and social security benefits and presents examination of how unemployment benefits for the younger people affect income growth, fertility, and welfare. The results described herein demonstrate that unemployment benefits raise the capital stock and income level per capita. Therefore, this benefit should be provided to maintain the tax revenue for social security. Moreover, this benefit can increase social welfare.
    Keywords: Minimum wage, Social security, Unemployment
    JEL: E24 H55 J64
    Date: 2018–04–12
  62. By: Luca Benati
    Abstract: We explore the long-run demand for M1 based on a dataset comprising 32 countries since 1851. We report six main findings: (1) Evidence of cointegration between velocity and the short rate is widespread. (2) Evidence of breaks or time-variation in cointegration relationships is weak to nonexistent. (3) For several low-inflation countries the data prefer the specification in the levels of velocity and the short rate originally estimated by Selden (1956) and Latané (1960). This is especially clear for the United States. (4) There is no evidence of nonlinearities at low interest rates. (5) If the data are generated by either a Selden-Latané or a semi-log specification, estimation of a log-log specification spuriously causes estimated elasticities to appear smaller at low interest rates. (6) Using the correct money demand specification has important implications for the ability to correctly estimate the welfare costs of inflation.
    Date: 2018–04
  63. By: Stefan Jestl (The Vienna Institute for International Economic Studies, wiiw); Roman Römisch (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: This report focuses on investment in eight EU Member States and their lagging regions. Additionally, the analysis assesses the regional development strategies of the eight Member States and evaluates the main investment needs and complementary alternative support options of the lagging regions over the next ten years. The analysis is performed in two steps. The first step identifies the investment needs of the lagging regions from the countries’ own as well as from a European perspective. It analyses to what extent and in what form investments in the lagging regions have to be supported in order to satisfy the needs. The identification of investment needs is approached from two sides, a) the countries’ own assessments of investment needs and b) a comparative analysis of the lagging regions with more prosperous EU-28 regions that had similar economic development characteristics as the (Southern) lagging regions. The second step analyses the main national and regional investment trends over the last 10-15 years, and covers different types of investment, depending on whether they are seen from a National Accounts, European or international perspective.
    Keywords: regional economic development, EU, lagging regions, regional policy, economic challenges, investment, foreign direct investment, structural funds
    JEL: E22 F21 R11 R38 R58
    Date: 2017–12
  64. By: International Monetary Fund
    Abstract: The West African Economic and Monetary Union (WAEMU) member countries have experienced growth acceleration since 2012. Relative to an earlier reference period in the 1990s, the WAEMU’s recent strong growth has coincided with an increase in macroeconomic stability and investment, improvement in political institutions, improvement in the terms of trade, and increase in productivity.
    Date: 2018–04–25
  65. By: Park, Jisung; Bangalore, Mook; Hallegatte, Stephane; Sandhoefner, Evan
    Abstract: Recent research documents the adverse causal impacts on health and productivity of extreme heat, which will worsen with climate change. In this paper, we assess the current distribution of heat exposure within countries, to explore possible distributional consequences of climate change through temperature. Combining survey data from 690,745 households across 52 countries with spatial data on climate, this paper suggests that the welfare impacts of added heat stress may be regressive within countries. We find: (1) a strong negative correlation between household wealth and warmer temperature in many hot countries; (2) a strong positive correlation between household wealth and warmer temperatures in many cold countries; and (3) that poorer individuals are more likely to work in occupations with greater exposure. While our analysis is descriptive rather than causal, our results suggest a larger vulnerability of poor people to heat extremes, and potentially significant distributional and poverty implications of climate change.
    Keywords: climate change; exposure; heat stress; labor productivity; poverty
    JEL: E24 I32 Q50 Q54
    Date: 2018–04–12
  66. By: Kenechukwu Anadu (Federal Reserve Bank of Boston); Viktoria Baklanova (Office of Financial Research)
    Abstract: The most recent changes to money market fund regulations have had a strong impact on the money fund industry. In the months leading up to the compliance date of the core provisions of the amended regulations, assets in prime money market funds declined significantly, while those in government funds increased contemporaneously. This reallocation from prime to government funds has contributed to the latter's increased demand for debt issued by the U.S. government and government-sponsored enterprises. The Federal Home Loan Bank (FHLBank) System played a key role in meeting this heightened demand for U.S. government-related assets with increased issuance of short-term debt. The FHLBank System uses the funding obtained from money market funds to provide general liquidity to its members, including the largest U.S. banks. Large U.S. banks' increased borrowings from the FHLBank System are motivated, in large part, by other post-crisis regulations, specifically the liquidity coverage ratio (LCR). The intersection of money market mutual fund reforms and the LCR have contributed to the FHLBanks' increased reliance on short-term funding to finance relatively longer-term assets, primarily collateralized loans to its largest members. This funding model could be vulnerable to "runs" and impact financial markets and financial institutions in ways that are difficult to predict. While a funding run seems unlikely, it is often the violation of commonly held conventions that tend to pose financial stability risks. Indeed, runs on leveraged financial intermediaries engaged in maturity transformation have produced systemic risks issues in the past and are worthy of investigation and continuous monitoring.
    Keywords: Federal Home Loan Banks, liquidity coverage ratio, money market mutual funds, short-term funding markets, systemic risk
    Date: 2017–10–31
  67. By: Fernando Broner; Daragh Clancy; Alberto Martín; Aitor Erce
    Abstract: This paper explores a natural connection between fiscal multipliers and foreign holdings of public debt. Although fiscal expansions can raise domestic economic activity through various channels, they can also have crowding-out effects if the resources used to acquire public debt reduce domestic consumption and investment. Thus, these crowding-out effects are likely to be weaker when public debt is purchased by foreigners. We test this hypothesis on (i) post-war US data and (ii) data for a panel of 17 advanced economies from the 1980’s to the present. To do so, we assemble a novel database of public debt holdings by domestic and foreign creditors for a large set of advanced economies. We combine this data with standard measures of fiscal policy shocks and show that, indeed, the size of fiscal multipliers is increasing in the share of public debt held by foreigners. In particular, the fiscal multiplier is smaller than one when the foreign share is low, such as in the U.S. in the 1950’s and 1960’s and Japan today, and larger than one when the foreign share is high, such as in the U.S. and Ireland today.
    Keywords: sovereign debt, fiscal multiplier, foreign holdings of public debt
    JEL: F32 F34 F36 F41 F43 F44 G15
    Date: 2018–05
  68. By: International Monetary Fund
    Abstract: On April 13, 2018, the Executive Board of the International Monetary Fund (IMF) completed the first review of Chad’s economic performance under the program supported by an Extended Credit Facility (ECF) arrangement. Completion of this review enables the immediate disbursement of SDR 35.05 million (about US$51 million). This brings total disbursements under the arrangement to SDR 70.1 million (about US$ 99.8 million). The Board also approved the authorities’ request to waive the non-observance of the continuous performance criterion on the non-accumulation of new external payments arrears, and to rephase the planned disbursements.
    Date: 2018–04–27
  69. By: Robert J. Gordon
    Abstract: Measured between quarters with identical unemployment rates, U. S. economic growth slowed by more than half from 3.2 percent per year during 1970-2006 to only 1.4 percent during 2006-16, and only half of this GDP growth slowdown is accounted for diminished productivity growth. The paper starts from the proposition that GDP growth matters, not just productivity growth, because slower GDP growth provides fewer resources to address the nation’s problems, including faltering education, aging infrastructure, and the looming shortfall in funding for Social Security and Medicare, and it also implies lower net investment and a reduced rate at which new capital can embody the latest technology. The paper documents the contribution to slower GDP growth of the separate components of demography -- fertility, mortality, life expectancy, and immigration. Particular emphasis is placed on the interaction between rising inequality and the slower secular rise of life expectancy in the U.S. compared to other developed countries, both in the form of a large gap in life expectancy between rich and poor, and the stagnation of life expectancy for the lowest income quintile. Further contributions to slowing growth are made by a decline in the population share of both legal and illegal immigration and a turnaround from rising to declining labor force participation. Rising inequality creates a gap between the growth of average real per-capita income relative to that of median real income, and alternative measures of the evolution of this gap are compared and assessed. Causes of declining productivity growth begin with the slowdown in the rate of increase of educational attainment resulting from the interplay of demand and supply factors, including the flattening of the college wage premium and the rising relative price of college education. Why did productivity growth decline after 2006 despite an increase in the rate at which new U.S. patents were issued in 2006-16 compared to earlier decades? Part of the slowdown is attributed to the maturity of the IT revolution, which also helps to explain the trajectory of the college wage premium. Aspects of the productivity growth slowdown include the declining productivity of research workers, diminishing returns to drug innovation, and the evolutionary rather than revolutionary impact of robots and artificial intelligence, which are replacing workers slowly and only in a minority of industrial sectors throughout the economy. Also considered are alternative explanations of slower productivity growth, including low investment and mismeasurement.
    JEL: D24 E24
    Date: 2018–04
  70. By: Baum, Anja; Eyraud,, Luc; Hodge, Andrew; Jarmuzek, Mariusz; Kim, Young; Mbaye, Samba; Ture, Elif
    Abstract: This note provides guidance on how to calibrate fiscal rules; that is, how to determine the thresholds (ceiling, floor, or target) for specific fiscal aggregates constrained by rules. The note focuses, more specifically, on the calibration of the debt, balance, and expenditure rules.
    Keywords: fiscal rules, stochastic simulations
    JEL: C13 C15 H3 H6
    Date: 2018–03
  71. By: Henry Ngongo (UEA - Université Evangélique en Afrique); Antoine Miyamueni (UPC - Université Protestante au Congo)
    Abstract: The main purpose of this research is to analyze the effects of macroeconomic shocks on unemployment fluctuations in the Democratic Republic of Congo (DRC). Using the SVECM model on DRC data for the period 1960 to 2014, the conclusion is that the high and persistent level of unemployment is mainly explained permanently by technological and price shocks.
    Abstract: L'objet de cet article est d'analyser les effets des chocs macro-économiques sur les fluctuations du chômage en République Démocratique du Congo (RDC). En utilisant le modèle SVECM sur les données de la RDC pour la période allant de 1960 à 2014, on aboutit à la conclusion selon laquelle le niveau élevé et persistent du chômage est, à long terme, essentiellement expliqué de manière permanente par les chocs technologiques et des prix.
    Keywords: chocs technologiques,Chocs macro-économiques, SVECM",unemployment, price shocks, technological shocks, chômage, SVECM, chocs des prix,Macro-economic shocks
    Date: 2018
  72. By: Okahara, Naoto
    Abstract: This study proposes a model that analyzes the interaction between a bank and its creditors. The bank uses short-term wholesale funding and the creditors decide whether to roll over their loan by using information about the bank. The model shows that, when the creditors become more reluctant to roll over their loans since the bank heavily depends on such a debt, the bank does not issue the short-term debt excessively and its privately optimal amount of the debt in this situation corresponds to the socially desirable one. This implies that a regulation requiring banks to disclose information about their capital structures can by itself contribute to stabilizing the financial system. However, the model also shows that in order to ensure the result we need an additional regulation that bridges the information gap between banks and creditors
    Keywords: Short-term debt, Rollover risk, Macroprudential, Fire sales
    JEL: D80 E50
    Date: 2018–04
  73. By: Edda Zoli; Hou Wang; Douglas Laxton
    Abstract: Adverse demographics and other structural weaknesses impinge on Korea’s long-term fiscal outlook and potential growth. Moreover, inadequate social protection is creating poverty and dampening consumption. The paper presents projections of Korea’s fiscal outlook, using new estimates of potential growth obtained with a novel multivariate filter. It shows that keeping fiscal revenues-to-GDP constant would result in an explosive public debt dynamic in the long term. Then, through simulations of the Flexible System of Global Models, the paper analyzes policies to preserve fiscal sustainability, while boosting potential growth and social protection. It concludes that with greater revenue mobilization, Korea can stabilize debt-to-GDP well below “dangerous” levels. Policies to address Korea’s challenges include higher targeted transfers to the most vulnerable and fiscal measures to support female labor force participation and employment, accompanied by product and labor market reforms.
    Date: 2018–04–24
  74. By: Marcello Minenna
    Abstract: The European monetary union was born as a result of a negotiation process among the founding countries profoundly influenced by the economic and political dynamics of the '90s: the experience of the EMS, the German unification process, the desire of France to prevent the reaffirmation of German supremacy in the European continent, the need for countries like Italy to reduce the cost of servicing public debt. Despite the strong differences between the countries involved, the conviction prevailed that the German fiscal recipe could be successfully exported to neighboring States and that the centralization of monetary policy at the European Central Bank while keeping fiscal sovereignty at a national level could be achieved without trauma. The experience of the last decade shows, however, that the a monetary union with a derisory federal budget and whose central bank has exclusively an inflation target and cannot act as a lender of last resort in the Member States is endogenously predisposed to the formation of large economic-financial imbalances between the various countries and is particularly vulnerable to exogenous shocks. The reversal of the diverging dynamics still in progress -- captured by the unprecedented size of the Target 2 balances of countries such as Germany and Italy-- requires a profound rethinking of the European project in accordance with the principles of subsidiarity and of sustainable and shared development enshrined in the Treaties.
    Date: 2018–05–11
  75. By: Christelle Meniago (Sol Plaatje University, South Africa); Simplice Asongu (Yaoundé, Cameroon)
    Abstract: The study assesses the role of financial development on income inequality in a panel of 48 African countries for the period 1996 to 2014. Financial development is defined in terms of depth (money supply and liquid liabilities), efficiency (from banking and financial system perspectives), activity (at banking and financial system levels) and stability while, three indicators of inequality are used, namely, the: Gini coefficient, Atkinson index and Palma ratio. The empirical evidence is based on Generalised Method of Moments. When financial sector development indicators are used exclusively as strictly exogenous variables in the identification process, it is broadly established that with the exception of financial stability, access to credit (or financial activity) and intermediation efficiency have favourable income redistributive effects. The findings are robust to the: control for unobserved heterogeneity in terms of time effects and inclusion of time invariant variables as strictly exogenous variables in the identification process. The findings are also robust to the Kuznets hypothesis: a humped shaped nexus between increasing GDP per capita and inequality. Policy implications are discussed.
    Keywords: Africa; Finance; Inequality; Poverty
    JEL: D60 E25 G20 I30 O55
    Date: 2018–01
  76. By: Martin Hoesli; Jean-Christophe Delfim
    Abstract: This research investigates macroeconomic risk factors pertaining to the various types of real estate exposure, i.e. direct, listed and non-listed investments. We apply panel model techniques which make it possible to take advantage of both the cross-sectional and time series dimensions of our data. Much emphasis is placed on comparing sensitivities to risk factors across the types of real estate exposure. This is important in order to assess whether indirect (listed and non-listed) exposures react in the same way as direct investments to the macroeconomy and how well such investments replicate direct real estate behavior. The empirical analyses are conducted using U.S. data from 1984Q1 to 2016Q2. Allocations both by sector and geography are taken into account. For indirect exposures, we also control for size and leverage. Our results indicate that the GDP, money supply, construction costs, expected inflation and expected economic activity positively impact returns, while long-term interest rates, the term and credit spreads, unemployment and unexpected inflation negatively impact returns. The various types of real estate exposure generally respond similarly to risk factors.
    Keywords: Listed Real Estate; Macroeconomy; Non-listed real estate; Real Estate Investments; Risk Factors
    JEL: R3
    Date: 2017–07–01
  77. By: Antoine Kamiantako Miyamueni; Henry Ngongo Muganza
    Abstract: The main purpose of this research is to analyze the effects of macroeconomic shocks on unemployment fluctuations in the Democratic Republic of Congo (DRC). Using the SVECM model on DRC data for the period 1960 to 2014, the conclusion is that the high and persistent level of unemployment is mainly explained permanently by technological and price shocks.
    Date: 2018–04
  78. By: Kalkuhl, Matthias; Wenz, Leonie
    Abstract: We estimate the impacts of climate on economic growth using Gross Regional Product (GRP) for more than 1,500 regions in 77 countries. In temperate and tropical climates, annual temperature shocks reduce GRP whereas they increase GRP in cold climates. With respect to long-term climate conditions, one degree of temperature increase reduces output by 2-3%. The effect of annual or long-term precipitation is found to be less important and less robust among specifications. For projected global warming of 4°C until 2100, we find that regions lose 9\% of economic output on average and more than 20% of output in tropical regions.
    Keywords: climate change,climate damages,climate impacts,growth regression
    JEL: E23 O11 Q54 Q56
    Date: 2018
  79. By: Luca Benati
    Abstract: Chahrour and Jurado (2018) have shown that news and noise shocks are observationally equivalent when the econometrician only observes a fundamental process and agents’ expectations about it. We show that the observational equivalence result no longer holds when the econometrician observes a fundamental process and a noisy signal of it. Working with an RBC model with noise about TFP, we further show that, even if the signal is not directly observed by the econometrician, it can be inferred through its impact on other macroeconomic variables, since they are optimally chosen by agents conditional on all information, including the signal itself. In particular, we show that under these circumstances news and noise shocks can be exactly recovered in population. Our results demonstrate that news and noise shocks are not observationally equivalent for an econometrician exploiting all the information contained in standard macroeconomic time series.
    Date: 2018–05
  80. By: Nauro F. Campos; Corrado Macchiarelli
    Abstract: This paper has three main objectives, namely to (a) propose a new framework that can support placing countries along a core-periphery continuum (beyond the more common binary treatment as either core or periphery), (b) to construct a continuous dynamic theory-based measure (the first, to the best of our knowledge) illustrating the use of this framework for a set of European countries using yearly data from 1960 to 2015, and (c) provide a first preliminary assessment, based on endogenous Optimal Currency Area (OCA) theory, of the main potential explanatory factors of the dynamics of this measure over time and across countries. Our main finding is that this new measure allows us to identify sets of countries on the basis of not only its level but also in terms of its dynamic behaviour. Using the Phillips-Sul procedure, we show the emergence a newer set of core countries (composed by Austria, Belgium, Germany, France, Italy and Netherlands), a mixed set of countries (namely Denmark, Sweden, Greece, Spain and the UK), and a set of deep-rooted periphery countries (Finland, Ireland, Norway, Portugal, and Switzerland). There are valuable lessons from the dynamics of this measure. It increases for core countries (which confirms endogenous OCA predictions), remains worrisomely constant for a periphery, and varies substantially for the intermediate set of countries. Spain (Sweden and Greece) becomes consistently more (less) core over time, Denmark’s remains constant and the UK moves in and out of the core over time. Our panel estimates on a specification suggested by endogenous OCA theory imply that euro membership and more flexible product market regulations (or trade openness) make countries more likely to be in the core.
    Keywords: Symmetry, Convergence, Euro, EMU, European Union, Core-Periphery, SVAR
    JEL: E3 F4
    Date: 2018–03
  81. By: Zhang, Qi
    Abstract: The Balassa-Samuelson relationship, i.e. the positive relationship between a country's per capita income and its national price level, represents an apparent violation of Purchasing Power Parity (PPP) and is not expected to hold for manufactures according to the explanation of this relationship proposed by Balassa and Samuelson. This paper shows that at the level of the products used in constructing national price levels, the relationship is present in both ‘services’ and ‘manufactures’ and the specification of the relationship is different for the two. It further offers a new candidate explanation for the B-S relationship in manufactures, which is based on an appeal to product quality. This explanation yields a second, distinctive, testable prediction: controlling for per capita income, a non-monotonic relationship should exist between a country's income inequality and its national price level. The second prediction is shown to be consistent with empirical evidence. The explanation also implies that mismeasured quality exaggerates the B-S relationship and hence the observed cross-country income differences are likely to be underestimated.
    Keywords: Price level; Income distribution; Inequality; Quality; Balassa–Samuelson
    JEL: C43 D31 E31 F31 L15
    Date: 2017–05–01
  82. By: Stephen Lee
    Abstract: This study examines whether an investment in real estate investment trusts (REITs) would have improved the performance of the US 60/40 mixed-asset portfolio over four phases of the business cycle (early/late recession and early/late expansion). Empirically we find that the risk and return characteristics of the various asset classes are highly dependent on the phase of the business cycle. For instance, REITs returns were highest during the early-expansionary phase of the business but least in the late-recessionary phase. Stocks performing best in the late-expansionary phase and least in the late-recessionary phase of the business cycle, whereas bonds achieved their best returns in the late-recessionary phases and least in the late-expansionary phases. We also show that although an allocation to REITs of between 5%and 15%would have increased the Sharpe performance of a 60/40 mixed-asset portfolio in the late-recessionary and late-expansionary phases of the business cycle a similar allocation in the early-recessionary and early-expansionary phases would have resulted in a decline in Sharpe performance. Lastly, although, the phases of the business cycle were evaluated ex-post, the finding that an allocation to REITs can have both positive and negative effects on portfolio performance is of significant importance for the decision-making of portfolio management.
    Keywords: Asset Allocation; Business Cycles; Mixed-asset Portfolio; Portfolio Management; REITs
    JEL: R3
    Date: 2017–07–01
  83. By: Oliver Richters (University of Oldenburg, Department of Economics); Erhard Gloetzl (Institute for the Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria;)
    Abstract: In monetary Stock-Flow Consistent (SFC) models, accounting identities reduce the number of behavioral functions to avoid an overdetermined system of equations. We relax this restriction using a differentialalgebraic equation framework of constrained dynamics. Agents exert forces on the variables according to their desire, for instance to gradually improve their utility. The parameter ‘economic power’ corresponds to their ability to assert their interest. In analogy to Lagrangian mechanics, system constraints generate additional constraint forces that lead to unintended dynamics. We exemplify the procedure using a simple SFC model and reveal its implicit assumptions about power relations and agents’ preferences.
    Keywords: Economic models; Disequilibrium Dynamics; Stock-Flow Consistent Models; Post Keynesian; Constrained Dynamics; Lagrangian Mechanics; Procedural Rationality.
    Date: 2018–05
  84. By: Fernández-Villaverde, Jesús; Zarruk Valencia, David
    Abstract: This guide provides a practical introduction to parallel computing in economics. After a brief introduction to the basic ideas of parallelization, we show how to parallelize a prototypical application in economics using, on CPUs, Julia, Matlab, R, Python, C++ - OpenMP, Rcpp - OpenMP, and C++ - MPI, and, on GPUs, CUDA and OpenACC. We provide code that the user can download and fork, present comparative results, and explain the strengths and weaknesses of each approach. We conclude with some additional remarks about alternative approaches.
    Keywords: Computational Methods; Parallel Computing; Programming Languages
    JEL: C63 C68 E37
    Date: 2018–04
  85. By: Mascagni, Giulia; Timmis, Emilija
    Abstract: This article explores the fiscal effects of aid in Ethiopia using the Cointegrated Vector AutoRegressive (CVAR) methodology to model complex long-run and short-run dynamics. We use national data for 1961–2010, including a measure of aid capturing flows through the budget as measured by the recipient. The data suggests three main conclusions on the long-run equilibrium. First, government long-term spending plans are based on domestic sources, treating aid as an additional source of revenue. Second, both grants and loans are positively related to tax revenue. Third, aid is positively associated with spending, with a particularly strong relation between capital expenditure and grants. Overall, our results show that aid in Ethiopia had beneficial fiscal effects.
    Keywords: Governance,
    Date: 2017
  86. By: Marie-Pierre HORY; Grégory LEVIEUGE; Daria ONORI
    Keywords: , Fiscal multiplier , DSGE , Currency mismatch , Financial frictions , Emerging Countries
    Date: 2018
  87. By: Henri Sterdyniak (Observatoire français des conjonctures économiques)
    Abstract: Henri Sterdyniak is a scientific adviser at the OFCE research institute – the Observatoire français des conjonctures économiques – where he has been working for more than 30 years, among other posts as a director of the department ‘economics of globalization’. From 1985 until 2013 he was also a professor of economics at the University Paris Dauphine, France. He is also one of the founding members of the Économistes Atterrés (the Appalled Economists), an association of French economists who object to neoliberal policies, formed in 2010. He has written extensively on various topics, including empirical macroeconomics, monetary policies, fiscal policies, globalization, European policies, and more specifically social policies and retirement systems. He has published hundreds of articles and reports, lately with Catherine Mathieu.
    Keywords: Keynes; Economist
    Date: 2017–12
  88. By: Bütikofer, Aline (Dept. of Economics, Norwegian School of Economics and Business Administration); Jensen, Sissel (Dept. of Economics, Norwegian School of Economics and Business Administration); Salvanes, Kjell G. (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: Is the wage penalty due to motherhood larger among highly qualified women? In this paper, we study the effect of parenthood on the careers of high-achieving women relative to high-achieving men in a set of high-earning professions with either nonlinear or linear wage structures. Using Norwegian registry data, we find that the child earnings penalty for mothers in professions with a nonlinear wage structure, MBAs and lawyers, is substantially larger than for mothers in professions with a linear wage structure. The gender earnings gap for MBA and law graduates is around 30%, but substantially less for STEM and medicine graduates, 10 years after childbirth. In addition, we provide some descriptive statistics on the role of fertility timing on the child earnings penalty.
    Keywords: Parenthood on the careers; wage structure
    JEL: E24 J16
    Date: 2018–04–26
  89. By: Amélie Charles; Olivier Darné (LEMNA - Laboratoire d'Economie et de Management de Nantes-Atlantique - UN - Université de Nantes); Fabien Tripier (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne)
    Date: 2018–02

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