nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒06‒18
101 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  2. Coordinating monetary and financial regulatory policies By Van der Ghote, Alejandro
  3. Measuring the effects of conventional and unconventional monetary policy in the euro area By Anttila, Juho
  4. Is Basel III counter-cyclical: The case of South Africa? By Guangling Liu; Thabang Molise
  5. Financial and Fiscal Shocks in the Great Recession and Recovery of the Spanish Economy By Jose Emilio Bosca; Rafael Domenech; Javier Ferri; Rodolfo Mendez-Marcano; Juan F. Rubio-Ramirez
  6. Monetary Policy in Sudden Stop-Prone Economies By Louphou COULIBALY
  7. Voluntary Reserve Targets By Garth Baughman; Francesca Carapella
  8. Noisy Monetary Policy By Tatjana Dahlhaus; Luca Gambetti
  9. Uncertainty and Hyperinflation: European Inflation Dynamics after World War I By Jose A. Lopez; Kris James Mitchener
  10. Why Are Banks Exposed to Monetary Policy? By Di Tella, Sebastian; Kurlat, Pablo
  11. Residential investment and economic activity: evidence from the past five decades By Emanuel Kohlscheen; Aaron Mehrotra; Dubravko Mihaljek
  12. Measuring Financial Stability in Ghana: A New Index-Based Approach By Akosah, Nana; Loloh, Francis; Lawson, Natalia; Kumah, Claudia
  13. Fiscal Compact and Debt Consolidation Dynamics By Luca Brugnolini; Luisa Corrado
  14. The Origins of Aggregate Fluctuations in a Credit Network Economy By Engin L. Altinoglu
  15. Media Perception of Fed Chair's Overconfidence and Market Expectations By Hamza Bennani
  16. Demographics, monetary policy, and the zero lower bound By Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa
  17. Distribution, wealth and demand regimes in historical perspective. USA, UK, France and Germany, 1855-2010 By Engelbert Stockhammer; Joel Rabinovich; Niall Reddy
  18. Sovereign Stress, Banking Stress, and the Monetary Transmission Mechanism in the Euro Area By Holtemöller, Oliver; Scherer, Jan-Christopher
  19. Firm Investment, Financial Constraints and Monetary Transmission: An Investigation with Czech Firm-Level Data By Oxana Babecka Kucharcukova; Renata Pasalicova
  20. Pension Fund Restoration Policy In General Equilibrium By Pim B. Kastelein; Ward E. Romp
  21. Leaning Against Housing Prices as Robustly Optimal Monetary Policy By Adam, Klaus; Woodford, Michael
  22. Uncertainty and Hyperinflation: European Inflation Dynamics after World War I By Lopez, Jose A; Mitchener, Kris James
  23. Zinsen, Effektivpreise und Lebenskosten: Ein Beitrag zur Konstruktion eines intertemporalen Preisindex By Tödter, Karl-Heinz; Ziebarth, Gerhard
  24. Effects of US Quantitative Easing on Emerging Market Economies By Bhattarai, Saroj; Chatterjee, Arpita; Park, Woong Yong
  25. Дефицит бюджета и структурный профицит ликвидности как ключевые факторы развития финансового сектора России в 2018-2020 годах By Andreyev, Mikhail
  26. Optimal Currency Area and European Monetary Membership: Economics and Political Economy By Donato Masciandaro; Davide Romelli
  27. Optimal Public Debt with Life Cycle Motives By William B. Peterman; Erick Sager
  28. Differences in Euro-Area Household Finances and their Relevance for Monetary-Policy Transmission By Hintermaier, Thomas; Koeniger, Winfried
  29. Monetary Policy under Climate Change By George Economides; Anastasios Xepapadeas
  30. Asset pricing and the propagation of macroeconomic shocks By Jaccard, Ivan
  31. Monetary policy under climate change By George Economides; Anastasios Xepapadeas
  32. The Regulatory and Monetary Policy Nexus in the Repo Market By Sriya Anbil; Zeynep Senyuz
  34. El Impacto Redistributivo del Gasto Social en Argentina (2003-2015): Una Herramienta para Evaluar las Politicas Publicas de Asignacion Social By Anatilde Salerno
  35. Designing QE in a fiscally sound monetary union By Bletzinger, Tilman; von Thadden, Leopold
  36. O retrospectivă analitică a contextului crizei datoriei externe a României din anii 1980 By Georgescu, George
  37. Managing Financial Globalization: A Guide for Developing Countries Based on the Recent Literature By Wei, Shang-Jin
  38. Monetary policy in perspective of Umer Chapra By Arikha, Dahlia
  39. Sticky expectations and consumption dynamics By Carroll, Christopher D.; Crawley, Edmund; Slacalek, Jiri; Tokuoka, Kiichi; White, Matthew N.
  40. Investigating credit transmission mechanism in the Republic of Macedonia: evidence from Vector Error Correction Model By Milan Eliskovski
  41. Thailand; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Thailand By International Monetary Fund
  42. Dynamic Directed Random Matching By Duffie, Darrell; Qiao, Lei; Sun, Yeneng
  44. The commodities boom and the profit squeeze: output and profit cycles in Brazil (1996-2016) By Guilherme Klein Martins; Fernando Rugitsky
  45. The drivers of household indebtedness re-considered: an empirical evaluation of competing arguments on the macroeconomic determinants of household indebtedness in OECD countries By Glennie Lauren Moore; Engelbert Stockhammer
  46. Inference in Structural Vector Autoregressions When the Identifying Assumptions are Not Fully Believed: Re-evaluating the Role of Monetary Policy in Economic Fluctuations By Christiane Baumeister; James D. Hamilton
  47. The Nature of Household Labor Income Risk By Seth Pruitt; Nicholas Turner
  48. An International Comparison of the Contribution to Job Creation by High-growth Firms By Anyadike-Danes, Michael; Bjuggren, Carl Magnus; Dumont, Michel; Gottschalk, Sandra; Hölzl, Werner; Johansson, Dan; Maliranta, Mika; Myrann, Anja; Nielsen, Kristian; Zheng, Guanyu
  49. Downward Real Wage Rigidity and Equal Treatment Wage Contracts: Theory and Evidence By Snell, Andy; Stüber, Heiko; Thomas, Jonathan P.
  50. Will wealth become more concentrated in Europe? Evidence from a calibrated neo-Kaleckian model By Stefan Ederer; Miriam Rehm
  51. Not All Regions Are Alike: Evaluating the Effect of Oil Price Shocks on Local and Aggregate Economies By Arlan Brucal; Michael J. Roberts
  52. Employment Shocks and anti-EU Sentiment By Lechler, Marie
  53. Trade and currency weapons By Agnès Bénassy-Quéré; Matthieu Bussière; Pauline Wibaux
  54. The roots of the Euro By Labrinidis, George
  55. The Lifetime Medical Spending of Retirees By John Bailey Jones; Mariacristina De Nardi; Eric French; Rory McGee; Justin Kirschner
  56. Fiscal adjustment and debt sustainability: Greece 2010-2016 and beyond By Nicholas E. Karavitis
  57. Credit Misallocation During the European Financial Crisis By Fabiano Schivardi; Enrico Sette; Guido Tabellini
  58. £àäðîòî è ïåðèôåðè¼àòà íà åâðîçîíàòà: Ïðèêàçíà çà îáåäèíóâàœå èëè ðàçîáåäèíóâàœå By Èãîð Âåëè÷êîâñêè; Àëåêñàíäàð Ñòî¼êîâ; Èâàíà Ðà¼êîâè
  59. Economic Policy Uncertainty Spillovers in Booms and Busts By Giovanni Caggiano; Efrem Castelnuovo; Juan Manuel Figueres
  60. Economic policy uncertainty spillovers in booms and busts By Giovanni Caggiano; Efrem Castelnuovo; Juan Manuel Figueres
  61. Job Polarization and the Natural Rate of Unemployment in the United States By Tuzemen, Didem
  62. Efficient Mismatch By David M. Arseneau; Brendan Epstein
  63. The Impact of Bailouts on Political Turnover and Sovereign Default Risk By Timm M. Prein; Almuth Scholl
  64. Shocks vs Menu Costs: Patterns of Price Rigidity in an Estimated Multi-Sector Menu-Cost Model By Erwan Gautier, Hervé Le Bihan
  65. Banking on Deposits: Maturity Transformation without Interest Rate Risk By Drechsler, Itamar; Savov, Alexi; Schnabl, Philipp
  66. Les réformes structurelles : philosophie sociale et choix politique By Jean-Luc Gaffard
  67. The theoretical basis of the CGIL's analysis of the Italian economic decline By Guglielmo Forges Davanzati; Nicolò Giangrande
  68. Uncovered Return Parity: Equity Returns and Currency Returns By Edouard Djeutem; Geoffrey R. Dunbar
  69. Samoa; 2018 Article IV Consultation-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Samoa By International Monetary Fund
  70. Monetary Policy Surprises and Monetary Policy Uncertainty By Michiel De Pooter; Giovanni Favara; Michele Modugno; Jason J. Wu
  71. The Optimum Quantity of Capital and Debt By Acikgöz, Ömer; Hagedorn, Marcus; Holter, Hans; Wang, Yikai
  72. On Welfare Effects of Increasing Retirement Age By Joanna Tyrowicz; Krzysztof Makarski
  73. The Effect of the Macroeconomic Determinants on Sovereign Credit Rating of Turkey By Aras, Osman Nuri; Öztürk, Mustafa
  74. The impact of financialisation on the wage share: a theoretical clarification and empirical test By Karsten Kohler; Alexander Guschanski; Engelbert Stockhammer
  75. A dynamic spatial model of global governance structures By Giorgos Galanis; Ashok Kumar
  76. Business Cycles and Start-ups across Industries: An Empirical Analysis of German Regions By Konon, Alexander; Fritsch, Michael; Kritikos, Alexander S.
  77. The Impact of the Dodd-Frank Act on Small Business By Bordo, Michael D.; Duca, John V.
  78. Republic of Equatorial Guinea; Staff-Monitored Program By International Monetary Fund
  80. Firm heterogeneity and macroeconomic dynamics: a datadriven investigation By Mihnea Constantinescu; Aurelija Proskute
  81. Reconsidering the Consequences of Worker Displacements : Firm versus Worker Perspective By Aaron Flaaen; Matthew D. Shapiro; Isaac Sorkin
  82. Is Inequality Increasing in r-g? The Dynamics of Capital’s Income Share in the UK, 1210-2013 By MADSEN, Jakob B
  83. Underdevelopment and unregulated markets: Seven reasons why unregulated markets reproduce underdevelopment By Herr, Hansjörg
  84. The Effects of Conventional and Unconventional Monetary Policy on House Prices in the Scandinavian Countries By Signe Rosenberg
  85. Long-run patterns of labour market polarisation: Evidence from German micro data By Bachmann, Ronald; Cim, Merve; Green, Colin
  86. Capital Flow Management with Multiple Instruments By Krishnamurthy, Arvind; Archarya, Viral V.
  87. Optimal Progressive Income Taxation in a Bewley-Grossman Framework By Juergen Jung; Chung Tran
  88. The Effects of Industry Classification Changes on US Employment Composition By Teresa C. Fort; Shawn D. Klimek
  89. Beyond the Central Bank Independence Veil: New Evidence By Donato Masciandaro; Davide Romelli
  90. The dynamics of finance-growth-inequality nexus: Theory and Evidence for India By Pranab Kumar Das; Bhaswati Ganguli; Sugata Marjit; Sugata Sen Roy
  91. The productivity-wage premium: Does size still matter in a service economy? By Giuseppe Berlingieri; Sara Calligaris; Chiara Criscuolo
  92. Financialisation, distribution & the macroeconomic regimes before & after the crisis: A post-Keynesian view on Denmark, Estonia & Latvia By Dünhaupt, Petra; Hein, Eckhard
  93. Divercence between the core and the periphery and secular stagnation in the Eurozone By Botta, Alberto; Tippet, Ben; Onaran, Özlem
  94. Bayesian vector autoregressions By Silvia Miranda Agrippino; Giovanni Ricco
  95. Jean-Michel Grandmont - A Forthcoming Mind By Laurent Linnemer; Michael Visser
  96. Can we prove a bank guilty of creating systemic risk? A minority report By Danielsson, Jon; James, Kevin R.; Valenzuela, Marcela; Zer, Ilknur
  97. Oil Price and Exchange Rate Volatilities: Its Implications on the Cost of Living in OPEC Member Country - Nigeria. By Udabah, Sylvester; Okolo, Chimaobi
  98. The Incidence of Soft-Drink Taxes on Consumer Prices and Welfare:Evidence from the French “Soda Tax†By Etilé, F.;; Lecocq, S.;; Boizot-Szantaï, C.;
  99. Global Financial Cycles and Risk Premiums By Jorda, Oscar; Schularick, Moritz; Taylor, Alan M.; Ward, Felix
  100. Did the Swiss exchange rate shock shock the market? By Buchholz, Manuel; von Schweinitz, Gregor; Tonzer, Lena
  101. Central Banking and Macroeconomic Ideas: Economics, Politics and History By Donato Masciandaro

  1. By: Donato Masciandaro; Francesco Passarelli
    Abstract: This paper examines myopic, populist policies that guarantee short-term financial protection of the people from the elite without regard for long-term fiscal or monetary distortions. Assuming that citizens arefinancially heterogeneous, this paper shows that inefficient outcomes can arise when the majority of citizens are bank stakeholders. Populist policies promote politically controlled central banks.
    Keywords: Populism, central bank independence, monetary policy, banking policy, political economy
    JEL: D72 D78 E31 E52 E58 E62
    Date: 2018
  2. By: Van der Ghote, Alejandro
    Abstract: How to conduct macro-prudential regulation? How to coordinate monetary policy and macro-prudential policy? To address these questions, I develop a continuous-time New Keynesian economy in which a financial intermediary sector is subject to a leverage constraint. Coordination between monetary and macro-prudential policies helps to reduce the risk of entering into a financial crisis and speeds up exit from the crisis. The downside of coordination is variability in inflation and in the employment gap. JEL Classification: E31, E32, E44, E52, E61, G01
    Keywords: macro-prudential policy, monetary policy, policy coordination
    Date: 2018–06
  3. By: Anttila, Juho
    Abstract: I estimate the effects of conventional and unconventional monetary policy in the euro area by using a factor-augmented vector autoregression.I complement the standard monetary policy analysis using the short rate with models where the shadow rates by Kortela (2016) and Wu and Xia (2017) are used as proxies for unconventional monetary policy. I quantify the effects of unanticipated monetary policy shocks using impulse response functions, forecast-error variance decompositions, and counterfactual simulations. The results indicate that unconventional monetary policy shocks have similar, expansionary effects on the economy as conventional monetary policy shocks.
    JEL: E43 E44 E52 E58
    Date: 2018–05–29
  4. By: Guangling Liu (Department of Economics, University of Stellenbosch); Thabang Molise (Department of Economics, University of Stellenbosch)
    Abstract: This paper develops a dynamic general equilibrium model with banking and a macroprudential authority, and studies the extent to which the Basel III bank capital regulation promotes financial and macroeconomic stability in the context of South African economy. The decomposition analysis of the transition from Basel II to Basel III suggests that it is the counter-cyclical capital buffer that effectively mitigates the pro-cyclicality of its predecessor, while the impact of the conservative buffer is marginal. Basel III has a pronounced impact on the financial sector compared to the real sector and is more effective in mitigating fluctuations in financial and business cycles when the economy is hit by financial shocks. In contrast to the credit-to-GDP ratio, the optimal policy analysis suggests that the regulatory authority should adjust capital requirement to changes in credit and output when implementing the counter-cyclical buffer.
    Keywords: Bank capital regulations, Financial stability, Counter-cyclical capital buffer, DSGE
    JEL: E44 E47 E58 G28
    Date: 2018
  5. By: Jose Emilio Bosca; Rafael Domenech; Javier Ferri; Rodolfo Mendez-Marcano; Juan F. Rubio-Ramirez
    Abstract: In this paper we develop and estimate a new Bayesian DSGE model for the Spanish economy that has been designed to evaluate different structural reforms.
    Keywords: Working Paper , Regional Analysis Spain , Spain
    JEL: E30 E32 E43 E51 E52 E62
    Date: 2018–06
  6. By: Louphou COULIBALY
    Abstract: In a model featuring sudden stops and pecuniary externalities, I show that the ability to use capital controls has radical implications for the conduct of monetary policy. Absent capital controls, following an inflation targeting regime is nearly optimal. However, if the central bank lacks commitment, it will follow a monetary policy that is excessively procyclical and not desirable from an ex ante welfare prospective: it increases overall indebtedness as well as the frequency of financial crisis and reduces social welfare relative to an inflation targeting regime. Access to capital controls can correct this monetary policy bias. With capital controls, relative to an inflation targeting regime, the time-consistent regime reduces both the frequency and magnitude of crises, and increases social welfare. This paper rationalizes the procyclicality of the monetary policy observed in many emerging market economies.
    Keywords: financial crises, monetary policy, capital controls, time consistency, aggregate demand externality, pecuniary externality
    JEL: E44 E52 F41 G01
    Date: 2018
  7. By: Garth Baughman; Francesca Carapella
    Abstract: This paper updates the standard workhorse model of banks' reserve management to include frictions inherent to money markets. We apply the model to study monetary policy implementation through an operating regime involving voluntary reserve targets (VRT). When reserves are abundant, as is the case following the unconventional policies adopted during the recent financial crisis, operating regimes based on reserve requirements may lead to a collapse in interbank trade. We show that, no matter the relative abundance of reserves, VRT encourage market activity and support the central bank's control over interest rates. In addition to this characterization, we consider (i) the impact of routine and non-routine liquidity injections by the central bank on market outcomes and (ii) a comparison with the implementation framework currently adopted by the Federal Reserve. Overall, we show that a VRT framework may provide several advantages over other frameworks.
    Keywords: Monetary policy ; Reserve targets ; Money markets
    JEL: G21 G28 E42 E43 E44 E51 E52 E58
    Date: 2018–05–07
  8. By: Tatjana Dahlhaus; Luca Gambetti
    Abstract: We introduce limited information in monetary policy. Agents receive signals from the central bank revealing new information (“news") about the future evolution of the policy rate before changes in the rate actually take place. However, the signal is disturbed by noise. We employ a non-standard vector autoregression procedure to disentangle the economic and financial effects of news and noise in US monetary policy since the mid-1990s. Using survey- and market-based data on federal funds rate expectations, we find that the noisy signal plays a relatively important role for macroeconomic dynamics. A signal reporting news about a future policy tightening shifts policy rate expectations upwards and decreases output and prices. A sizable part of the signal is noise surrounding future monetary policy actions. The noise decreases output and prices and can explain up to 16% and 13% of their variations, respectively. Furthermore, it significantly increases the excess bond premium, the corporate spread and financial market volatility, and decreases stock prices.
    Keywords: Business fluctuations and cycles, Econometric and statistical methods, Financial markets, Monetary policy implementation, Transmission of monetary policy
    JEL: E0 E02 E4 E43 E5 E52
    Date: 2018
  9. By: Jose A. Lopez; Kris James Mitchener
    Abstract: Fiscal deficits, elevated debt-to-GDP ratios, and high inflation rates suggest hyperinflation could have potentially emerged in many European countries after World War I. We demonstrate that economic policy uncertainty was instrumental in pushing a subset of European countries into hyperinflation shortly after the end of the war. Germany, Austria, Poland, and Hungary (GAPH) suffered from frequent uncertainty shocks – and correspondingly high levels of uncertainty – caused by protracted political negotiations over reparations payments, the apportionment of the Austro-Hungarian debt, and border disputes. In contrast, other European countries exhibited lower levels of measured uncertainty between 1919 and 1925, allowing them more capacity with which to implement credible commitments to their fiscal and monetary policies. Impulse response functions show that increased uncertainty caused a rise in inflation contemporaneously and for a few months afterward in GAPH, but this effect was absent or much more limited for the other European countries in our sample. Our results suggest that elevated economic uncertainty directly affected inflation dynamics and the incidence of hyperinflation during the interwar period.
    JEL: E3 E31 E4 E52 E62 N14
    Date: 2018–05
  10. By: Di Tella, Sebastian (Stanford University); Kurlat, Pablo (Stanford University)
    Abstract: We propose a model of banks' exposure to movements in interest rates and their role in the transmission of monetary shocks. Since bank deposits provide liquidity, higher interest rates allow banks to earn larger spreads on deposits. Therefore, if risk aversion is higher than one, banks' optimal dynamic hedging strategy is to take losses when interest rates rise. This risk exposure can be achieved by a traditional maturity mismatched balance sheet, and amplifies the effects of monetary shocks on the cost of liquidity. The model can match the level, time pattern, and cross-sectional pattern of banks' maturity mismatch.
    JEL: E41 E43 E44 E51
    Date: 2017–11
  11. By: Emanuel Kohlscheen; Aaron Mehrotra; Dubravko Mihaljek
    Abstract: We analyse the evolution and main drivers of residential investment, using a panel with quarterly data for 15 advanced economies since the 1970s. Residential investment is a notably volatile component of real GDP in all countries in the sample. We find real house price growth, net migration inflows and the size of the existing housing stock to be significant drivers of residential investment across various model specifications. We also detect important asymmetries: interest rate increases affect residential investment more than interest rate cuts, and interest rate changes have larger effects on residential investment when its share in overall GDP is rising. Finally, we show that adding information on residential investment significantly improves the performance of standard recession prediction models.
    Keywords: housing markets, residential investment, house prices, business cycles, construction, interest rates, recession forecasts
    JEL: E22 E32 E37 E43 E52 F44
    Date: 2018–06
  12. By: Akosah, Nana; Loloh, Francis; Lawson, Natalia; Kumah, Claudia
    Abstract: We compute aggregate financial stability index (AFSI) for Ghana to gauge the performance of the financial system since the adoption of inflation targeting in 2017. The index is derived from four sub-indices, namely financial development index (FDI), financial soundness index (FSI), financial vulnerability index (FVI), and the world economic climate index (WECI). The trend in AFSI identifies three distinct developments in Ghana’s financial system. These are (1) the period of financial strain following the global financial crisis (June 2007 – September 2010); (2) period of sustained improvement in financial stability (December 2010 – June 2015); and (3) a return to financial stress (September 2015 – December 2016). We observe that the risks to financial stability still persist as sub-indices especially FVI, FDI and FSI (in 2016) remain well below their respective levels in since 2012. Analysis of the sub-indices thus suggests that the risk factors to financial stability primarily emanates from the weakening domestic factors which could be linked to the uncertainties that surrounded the election in 2016. Our metric therefore provides a more powerful gauge of financial stability in Ghana and very relevant for monetary policymaking decision.
    Keywords: Financial Stability, Soundness, Vulnerability, Ghana
    JEL: E0 E44 E52 E58
    Date: 2018–01
  13. By: Luca Brugnolini (Central Bank of Malta's Research Department); Luisa Corrado (DEF & CEIS,University of Rome "Tor Vergata")
    Abstract: We analyse the macroeconomic effects of a debt consolidation policy in the Euro Area mimicking the Fiscal Compact Rule (FCR). The rule requires the signatory states to target a debt-to-GDP ratio below 60%. Within the context of Dynamic Stochastic General Equilibrium models (DSGE), we augment a fully micro-founded New-Keynesian model with a parametric linear debt consolidation rule, and we analyse the effects on the main macroeconomic aggregates. To fully understand its implications on the economy, we study different debt consolidation scenarios, allowing the excess debt to be re-absorbed with different timings. We show that including a debt consolidation rule can exacerbate the effects of the shocks in the economy by imposing a constraint on the public debt process. Secondly, we note that the effect of loosening or tightening the rule in response to a shock is heterogeneous. Shocks hitting nominal variables (monetary policy shock) are not particularly sensitive. On the contrary, we prove that the same change has a more pronounced effect in case of shock hitting real variables (productivity and public spending shocks). Finally, we show that the macroeconomic framework worsens as a function of the rigidity of the debt consolidation rule. As a limiting case, we show that the effects on output, employment, real wages, inflation, and interest rates are sizable.
    Keywords: fiscal policy, debt consolidation, government spending, New-Keynesian, DSGE
    JEL: E10 E30 E62
    Date: 2018–06–08
  14. By: Engin L. Altinoglu
    Abstract: I show that inter-firm lending plays an important role in business cycle fluctuations. I first build a tractable network model of the economy in which trade in intermediate goods is financed by supplier credit. In the model, a financial shock to one firm affects its ability to make payments to its suppliers. The credit linkages between firms propagate financial shocks, amplifying their aggregate effects by about 30 percent. To calibrate the model, I construct a proxy of inter-industry credit flows from firm- and industry-level data. I then estimate aggregate and idiosyncratic shocks to industries in the US and find that financial shocks are a prominent driver of cyclical fluctuations, accounting for two-thirds of the drop in industrial production during the Great Recession. Furthermore, idiosyncratic financial shocks to a few key industries can explain a considerable portion of these effects. In contrast, productivity shocks had a negligible impact during the recession.
    Keywords: Business cycles ; Credit network ; Financial frictions ; Great recession ; Input-output network ; Trade credit
    JEL: C32 C67 E23 E32 G10
    Date: 2018–05–04
  15. By: Hamza Bennani
    Abstract: This paper aims to assess the impact of media perception of Fed chair's overconfidence on market expectations. We first use a media-based proxy to compute a measure of Fed chair's overconfidence for the period 1999M01-2017M07, the overconfidence indicator. The overconfidence indicator provides a measure of the perceived overconfidence of the Fed chair by the media, and thus, by financial market participants. We relate this variable to inflation and unemployment expectations of market participants. Our results show that an overconfident Fed chair is associated with higher inflation expectations and lower unemployment expectations. These findings are robust to (i) the macroeconomic forecasts used to extract the exogenous component of the media-based proxy reflecting Fed chair's overconfidence, (ii) different measures of the media-based proxy used to quantify Fed chair's overconfidence and (iii) different measures of inflation expectations. These findings shed some new light on the impact of central bankers' personality on market expectations, and thus, on the effectiveness of their monetary policy decisions.
    Keywords: Fed Chair, Overconfidence, Monetary Policy, Media
    JEL: E52 E58
    Date: 2018
  16. By: Marcin Bielecki (Narodowy Bank Polski and University of Warsaw); Michał Brzoza-Brzezina (Narodowy Bank Polski and SGH Warsaw School of Economics); Marcin Kolasa (Narodowy Bank Polski and SGH Warsaw School of Economics)
    Abstract: The recent literature shows that demographic trends may affect the natural rate of interest (NRI), which is one of the key parameters affecting stabilization policies implemented by central banks. However, little is known about the quantitative impact of these processes on monetary policy, especially in the European context, despite persistently low fertility rates and an ongoing increase in longevity in many euro area economies. In this paper we develop a New Keynesian life-cycle model, and use it to assess the importance of population ageing for monetary policy. The model is fitted to euro area data and successfully matches the age profiles of consumption-savings decisions made by European households. It implies that demographic trends have contributed and are projected to continue to contribute significantly to the decline in the NRI, lowering it by more than 1.5 percentage points between 1980 and 2030. Despite being spread over a long time, the impact of ageing on the NRI may lead to a sizable and persistent deflationary bias if the monetary authority fails to account for this slow moving process in real time. We also show that, with the current level of the inflation target, demographic trends have already exacerbated the risk of hitting the lower bound (ZLB) and that the pressure is expected to continue. Delays in updating the NRI estimates by the central bank elevate the ZLB risk even further.
    Keywords: ageing, monetary policy, zero lower bound, life-cycle models
    JEL: E31 E52 J11
    Date: 2018
  17. By: Engelbert Stockhammer; Joel Rabinovich; Niall Reddy
    Abstract: Most empirical macroeconomic research limited to the period since World War II. This paper analyses the effects of changes in income distribution and in private wealth on consumption and investment covering a period from as early as 1855 until 2010 for the UK, France, Germany and USA, based on the dataset of Piketty and Zucman (2014). We contribute to the post-Keynesian debate on the nature of demand regimes, mainstream analyses of wealth effects and the financialisation debate. We find that overall domestic demand has been wage-led in the USA, UK and Germany. Total investment responds positively to higher wage shares, which is driven by residential investment. For corporate investment alone, we find a negative relation. Wealth effects are found to be positive and significant for consumption in the USA and UK, but weaker in France and Germany. Investment is negatively affected by private wealth in the USA and the UK, but positively in France and Germany.
    Keywords: historical macroeconomics, demand regimes, Bhaduri-Marglin model, wealth effects, financialisation
    JEL: B50 E11 E12 E20 E21 N10
    Date: 2018–03
  18. By: Holtemöller, Oliver (Asian Development Bank Institute); Scherer, Jan-Christopher (Asian Development Bank Institute)
    Abstract: We investigate to what extent sovereign stress and banking stress have contributed to the increase in the level and in the heterogeneity of nonfinancial firms’ financing costs in the Euro area during the European debt crisis and how both have affected the monetary transmission mechanism. Employing a large firm-level data set containing 2 million observations, we are able to identify the effect of government bond yield spreads (sovereign stress) and the share of non-performing loans (banking stress) on firms' financing costs in a panel model by assuming that idiosyncratic shocks to individual firms are uncorrelated with country-specific variables. We find that the two sources of stress have increased firms’ financing costs controlling for country and firm-specific factors. Moreover, we estimate both to have significantly impaired the monetary transmission mechanism.
    Keywords: banking stress; firms’ financing conditions; government bond yields; interest rate channel; monetary policy transmission; sovereign stress
    JEL: E43 E44 E52
    Date: 2018–02–19
  19. By: Oxana Babecka Kucharcukova; Renata Pasalicova
    Abstract: This project investigates the effect of financial constraints and monetary policy on firms' investment behaviour using Czech firm-level data. The empirical specification is based on the dynamic neoclassical investment model, which explains investment by sales and cash flow. In addition, it includes financial constraints and other factors. We differentiate firms according to their size and type of economic activity. We find that indebtedness and availability of liquidity have significant effects on investment. In the post-crisis period firms obtained less additional credit due to greater riskiness and tended to accumulate more liquidity. Expectations about future GDP growth and business sentiment are positively related to investment. At the same time, we observe considerable heterogeneity of the results across sectors. The impact of the short-term real interest rate is highly significant for firms of all sizes and in all important sectors of the Czech economy, reflecting monetary policy effectiveness.
    Keywords: Financial constraints, firms, indebtedness, investment, liquidity, monetary policy
    JEL: D22 E5 E22 G3 G32
    Date: 2017–12
  20. By: Pim B. Kastelein (University of Amsterdam); Ward E. Romp (University of Amsterdam, Netspar)
    Abstract: When the financial positions of pension funds worsen, regulations prescribe that pension funds reduce the gap between their assets (invested contributions) and their liabilities (accumulated pension promises). This paper quantifies the business cycle effects and distributional implications of various types of restoration policies. We extend a canonical New-Keynesian model with a tractable demographic structure and, as a novelty, a flexible pension fund framework. Fund participants accumulate real or nominal benefits and funding adequacy is restored by revaluing previously accumulated pension wealth (Defined Contribution) or changing the pension fund contribution rate on labour income (Defined Benefit). Generally, economies with Defined Contribution pension funds respond similarly to adverse capital quality shocks as economies without pension funds. Defined Benefit pension funds, however, distort labour supply decisions and exacerbate economic fluctuations. Retirees prefer Defined Benefit over Defined Contribution funds in case they face deficits, while the current and future working population prefers the opposite.
    Keywords: Pension Fund; Regulation; Business Cycles; Life cycle; New-Keynesian model
    JEL: J32 E32 D91 E21
    Date: 2018–05–25
  21. By: Adam, Klaus; Woodford, Michael
    Abstract: We analytically characterize optimal monetary policy for a New Keynesian model with a housing sector. If one supposes that the private sector has rational expectations about future housing prices and inflation, optimal monetary policy can be characterized without making reference to housing price developments: commitment to a "target criterion" that refers only to inflation and the output gap is optimal, as in the standard model without a housing sector. But when a policymaker seeks to choose a policy that is robust to potential departures of private sector expectations from model-consistent ones, then the optimal target criterion must also depend on housing prices. In the empirically realistic case where housing is subsidized and where monopoly power causes output to fall short of its optimal level, the robustly optimal target criterion requires the central bank to "lean against" housing prices: following unexpected housing price increases, policy should adopt a stance that is projected to undershoot its normal targets for inflation and the output gap, and similarly aim to overshoot those targets in the case of unexpected declines in housing prices. The robustly optimal target criterion does not require that policy distinguish between "fundamental" and "non-fundamental" movements in housing prices.
    Keywords: Asset price bubbles; Inflation targeting; leaning against the wind; optimal target criterion
    JEL: D81 D84 E52
    Date: 2018–05
  22. By: Lopez, Jose A; Mitchener, Kris James
    Abstract: Fiscal deficits, elevated debt-to-GDP ratios, and high inflation rates suggest hyperinflation could have potentially emerged in many European countries after World War I. We demonstrate that economic policy uncertainty was instrumental in pushing a subset of European countries into hyperinflation shortly after the end of the war. Germany, Austria, Poland, and Hungary (GAPH) suffered from frequent uncertainty shocks - and correspondingly high levels of uncertainty - caused by protracted political negotiations over reparations payments, the apportionment of the Austro-Hungarian debt, and border disputes. In contrast, other European countries exhibited lower levels of measured uncertainty between 1919 and 1925, allowing them more capacity with which to implement credible commitments to their fiscal and monetary policies. Impulse response functions show that increased uncertainty caused a rise in inflation contemporaneously and for a few months afterward in GAPH, but this effect was absent or much more limited for the other European countries in our sample. Our results suggest that elevated economic uncertainty directly affected inflation dynamics and the incidence of hyperinflation during the interwar period.
    Keywords: Exchange Rates; Hyperinflation; prices; reparations; uncertainty
    JEL: E31 E63 F31 F33 F41 F51 G15 N14
    Date: 2018–05
  23. By: Tödter, Karl-Heinz; Ziebarth, Gerhard
    Abstract: Für Zwecke des privaten Konsums werden ständig Gegenwarts- und Zukunftsgüter bewertet und gehandelt. Ein zuverlässiges und umfassendes Maß für die allgemeine Kaufkraft des Geldes und deren Veränderung sollte diesem Grundsachverhalt Rechnung tragen. Im Unterschied zu konventionellen statistischen Verbraucherpreisindizes ist ein ökonomischer Lebenskostenindex intertemporal angelegt, da er die effektiven Konsumgüterpreise (Effektivpreise) über den Planungshorizont der privaten Haushalte bündelt. Ein Preisstabilitätsstandard, der diesen Zusammenhang ausblendet, ist tendenziell verzerrt und leistet einer asymmetrischen Geldpolitik Vorschub. Effektivpreise sind Gegenwartspreise für künftigen Konsum, sie berücksichtigen Güterpreise und Zinsen bzw. Vermögenspreisänderungen, sind konsumtheoretisch und wohlfahrtsökonomisch fundiert und bilden die zentralen Bausteine für die Modellklasse der ökonomischen Lebenskostenindizes. Nutzentheoretisch gesehen sind Effektivpreise bewerteter Grenznutzen der letzten konsumierten Gütereinheit, und die daraus abgeleiteten Effektiven Inflationsraten sind intertemporale Grenzraten der Substitution. Das vorliegende Papier entwickelt einen intertemporalen Lebenskostenindex auf der Grundlage des Konzepts der Effektivpreise und stellt empirische Zeitreihen und kohortenspezifische Szenarioanalysen für Deutschland vor.
    Keywords: Kaufkraft des Geldes,Geldpolitik,Zinsen,Gegenwartspreise,Vermögenspreise,Effektivinflation,Lebenskostenindex,purchasing power of money,monetary policy,interest rates,present value prices,asset prices,effective inflation,cost of life index
    JEL: E31 E21 E58 I3
    Date: 2018
  24. By: Bhattarai, Saroj (Asian Development Bank Institute); Chatterjee, Arpita (Asian Development Bank Institute); Park, Woong Yong (Asian Development Bank Institute)
    Abstract: We estimate international spillover effects of the United States (US)’ Quantitative Easing (QE) on emerging market economies (EMEs). Using a Bayesian VAR on monthly US macroeconomic and financial data, we first identify the US QE shock. The identified US QE shock is then used in a monthly Bayesian panel VAR for EMEs to infer spillover effects on these countries. We find that an expansionary US QE shock has significant effects on financial variables in EMEs. It leads to an exchange rate appreciation, a reduction in long-term bond yields, a stock market boom, and an increase in capital inflows to these countries. These effects on financial variables are stronger for the “Fragile Five" countries compared to other EMEs.
    Keywords: US quantitative easing; spillovers; emerging market economies; bayesian var; panel var; fragile five countries
    JEL: C31 E44 E52 E58 F32 F41 F42
    Date: 2018–01–30
  25. By: Andreyev, Mikhail
    Abstract: In our opinion, the key problems that will determine the parameters of the financial sector in the coming years are the budget deficit and growth of the monetary base. Growth of the monetary base is a direct consequence of the budget deficit. The government can withdraw liquidity through the sale of foreign currency by the Bank of Russia, through the borrowing in the domestic money market by the Ministry of Finance or through the spending of the Russian National Wealth Fund with the simultaneous sale of these funds in the foreign exchange market. According to scenarios concerned, the development of the financial sector will depend on how the government will restrain the growth of the monetary base and how fast the government will reduce the budget deficit. We present a forecast for the Russian financial sector for 2018-2020. The forecast includes quarter series for the sector of commercial banks, the Bank of Russia and the Ministry of Finance. We used the financial balances methodology. The main external variables of the forecast were the macroeconomic variables of socio-economic development forecast, published by the Ministry of Economic Development, as well as the budget deficit parameters. In this regard, our forecast gives an answer to the question “under what parameters of financial policy can the socio-economic forecast be realized?”
    Keywords: financial sector, forecast, financial balance, cash flows, liquidity surplus, budget deficit, demand for money, liquidity absorption
    JEL: E47 E51 E58
    Date: 2018–04–12
  26. By: Donato Masciandaro; Davide Romelli
    Abstract: The recent Global Crisis are posing challenges to the stability of the European Monetary Integration process. The pillar of the European Monetary Integration is the evolution of the European Monetary Union (EMU). Being the EMU the establishment of a currency union, such as international agreement implies for the member countries the inability to use exchange rates and national monetary policy to deal with real and financial shocks. It is natural then to wonder under which conditions the net benefits of a currency union are likely to be positive, comparing the abovementioned limitations with the medium long term gains in having on the one side perpetual fixed exchange rates and on the other side the delegation of the monetary policy action to an independent and supranational central bank, i.e. the European Central Bank (ECB) that manages the European Monetary Union (EMU). A natural question arises: how to evaluate the economic pros and cons in having the EMU membership? The aim of this paper is to analyse the economics and the political economy of the EMU membership.
    JEL: E52 E58
    Date: 2017
  27. By: William B. Peterman; Erick Sager
    Abstract: Public debt can be optimal in standard incomplete market models with infinitely lived agents, since the associated capital crowd-out induces a higher interest rate. The higher interest rate encourages individuals to save and, hence, better self-insure against idiosyncratic labor earnings risk. Even though individual savings behavior is a crucial determinant of the optimality of public debt, this class of economies abstracts from empirically observed life cycle savings patterns. Thus, this paper studies how incorporating a life cycle affects optimal public debt. We find that while the infinitely lived agent model's optimal policy is public debt equal to 24\% of output, the life cycle model's optimal policy is public savings equal to 61\% of output. Although public debt also encourages life cycle agents to hold more savings during their lifetimes, the act of accumulating this savings mitigates the potential welfare benefit. Moreover, public savings improves life cycle agents' welfare by encouraging a flatter allocation of consumption and leisure over their lifetimes. Accordingly, abstracting from the life cycle yields an optimal policy that reduces average welfare by more than 0.6% of expected lifetime consumption. Furthermore, ignoring the life cycle overstates the influence of wealth inequality on optimal policy, since optimal policy is far less sensitive to wealth inequality in the life cycle model than in the infinitely lived agent model. These results demonstrate that studying optimal debt policy in an infinitely lived agent model, which abstracts from the realism of a life cycle in order to render models more computationally tractable, is not without loss of generality.
    Keywords: Government debt ; Heterogeneous agents ; Incomplete markets ; Life cycle
    JEL: H6 E21 E6
    Date: 2018–04–20
  28. By: Hintermaier, Thomas; Koeniger, Winfried
    Abstract: This paper quantifies the extent of heterogeneity in consumption responses to changes in real interest rates and house prices in the four largest economies in the euro area: France, Germany, Italy, and Spain. We first calibrate a life-cycle incomplete-markets model with a liquid financial asset and illiquid housing to match the large heterogeneity of households asset portfolios, observed in the Household Finance and Consumption Survey (HFCS) for these countries. We then show that the heterogeneity in household finances implies that responses of consumption to changes in the real interest rate and in house prices differ substantially across the analyzed countries, and across age groups within these countries. The different consumption responses quantified in this paper point towards important heterogeneity in monetary-policy transmission within the euro area.
    Keywords: European Household Portfolios, Consumption, Monetary Policy Transmission, International Comparative Finance, Housing
    JEL: D14 D31 E21 E43 G11
    Date: 2018–05
  29. By: George Economides; Anastasios Xepapadeas
    Abstract: We study monetary policy under climate change in order to answer the question of whether monetary policy should take into account the expected impacts of climate change. The setup is a new Keynesian dynamic stochastic general equilibrium model of a closed economy in which a climate module that interacts with the economy has been incorporated, and the monetary authorities follow a Taylor rule for the nominal interest rate. The model is solved numerically using common parameter values and fiscal data from the euro area. Our results, which are robust to a large number of sensitivity checks, suggest non-trivial implications for the conduct of monetary policy.
    Keywords: climate change, monetary policy, new Keynesian model, Taylor rule
    JEL: E50 E10 Q50
    Date: 2018
  30. By: Jaccard, Ivan
    Abstract: This paper considers the implications of habit formation and financial frictions for the propagation of macroeconomic shocks. In a model that is capable of matching asset pricing moments, a short-lived shock that destroys a small fraction of the economy’s stock of pledgeable collateral generates a persistent recession, a stock market crash, and a flight-to-safety effect. This novel mechanism creates a tight link between the asset pricing implications of macroeconomic models and their ability to propagate and amplify the effects of macroeconomic shocks. JEL Classification: E32, E44, G10
    Keywords: equity premium, Great Recession, liquidity constraints
    Date: 2018–05
  31. By: George Economides (Athens University of Economics and Business, and CESifo); Anastasios Xepapadeas (Athens University of Economics and Business, University of Bologna)
    Abstract: We study monetary policy under climate change in order to answer the question of whether monetary policy should take into account the expected impacts of climate change. The setup is a new Keynesian dynamic stochastic general equilibrium model of a closed economy in which a climate module that interacts with the economy has been incorporated, and the monetary authorities follow a Taylor rule for the nominal interest rate. The model is solved numerically using common parameter values and fiscal data from the euro area. Our results, which are robust to a large number of sensitivity checks, suggest non-trivial implications for the conduct of monetary policy.
    Keywords: Climate change; monetary policy; new Keynesian model; Taylor rule
    JEL: E5 E1 Q5
    Date: 2017–05
  32. By: Sriya Anbil; Zeynep Senyuz
    Abstract: We examine the interaction of regulatory reforms and changes in monetary policy in the U.S. repo market. Using a proprietary data set of repo transactions, we find that differences in regional implementation of Basel III capital reforms intensified European dealers' window-dressing by 80%. Money funds eligible to use the Fed's reverse repo (RRP) facility cut their private lending almost by half and instead lent to the Fed when European dealers withdraw, contributing to smooth implementation of Basel III. In a difference-in-differences setting, we show that ineligible funds lent 15% less to European dealers as they find their withdrawal for reporting purposes inconvenient. We find that intermediation through the RRP led to quantity and not pricing adjustments in the market, which is consistent with the RRP facility anchoring market rates.
    Keywords: Basel III regulations ; Federal Reserve Board and Federal Reserve System ; Monetary policy ; Repo ; Reverse repo facility
    JEL: C32 E43 E52
    Date: 2018–04–17
  33. By: Emanuele Borgonovo; Stefano Caselli; Alessandra Cillo; Donato Masciandaro
    Abstract: The aim of this paper is to analyse the demand of a central bank digital currency (CBDC). Using a financial portfolio approach and assuming that individual preferences and policy votes are consistent, we identify the drivers of the political consensus in favour or against such as new currency. Given three different properties of a currency – where the first two are the standard functions of medium of exchange and store of value and the third one is the less explored function of store of information – and three different existing moneys – paper currency, banking currency and cryptocurrency – if the individuals are rational but at the same time can be affected by behavioural biases – loss aversion - three different groups of individuals – respectively lovers, neutrals and haters – emerge respect to the CBDC option. Given the alternative opportunity costs of the different currencies, the CBDC issuing is more likely to occur the more the individuals likes to use a legal tender, and/or are indifferent respect to anonymity; at the same time, the probability of the CBDC introduction increases if a return can be paid on it, and/or its implementation can guarantee at least the counterparty anonymity.
    Keywords: Central Bank Digital Currencies, Cash, Bitcoin, Cryptocurrencies
    JEL: B22 D72 E41 E42 E52 E58 G38 K42
    Date: 2018
  34. By: Anatilde Salerno (Universidad del CEMA)
    Abstract: Este trabajo tiene por objeto demostrar que entre los años 2003 y 2015 el componente de mercado relacionado con el crecimiento económico ha sido mas significativo en explicar la disminucion de la desigualdad que la expansion de las politicas redistributivas del Estado. Bajo el metodo de descomposicion del Gini busca tambien cuantificar el impacto marginal de las politicas sociales en la desigualdad. A partir de un analisis de la EPH fue posible demostrar que el cambio atribuible a las politicas del Estado fue del 21% mientras que el 79% restante se explica por los factores del mercado. Entre 2003 y 2007, casi la totalidad del cambio se explica por el mercado. En tanto, entre 2011 y 2015, el componente del Estado ascendio al 45%. El programa de pensiones no contributivas evidencia un mayor impacto redistributivo por motivo de su participacion en el ingreso de las familias. La Asignacion Universal por Hijo es el programa social con la canalizacion hacia las familias mas pobres.
    Keywords: desigualdad, gasto social, redistribucion, progresividad, Argentina
    JEL: E24 E25 E62 H53 H55 H72 I38
    Date: 2017–12
  35. By: Bletzinger, Tilman; von Thadden, Leopold
    Abstract: This paper develops a tractable model of a monetary union with a sound fiscal governance structure and shows how in such environment the design of monetary policy above and at the lower bound constraint on short-term interest rates can be linked to well-known findings from the literature dealing with single closed economies. The model adds a portfolio balance channel to a New Keynesian two-country model of a monetary union. If the monetary union is symmetric and the portfolio balance channel is not active, the model becomes isomorphic to the canonical New Keynesian three-equation economy in which central bank purchases of long-term debt (QE) at the lower bound are ineffective. If the portfolio balance channel is active, QE becomes effective and we prove that for sufficiently small shocks there exists an interest rate rule augmented by QE at the lower bound which replicates the equilibrium allocation and the welfare level of a hypothetically unconstrained economy. Shocks large enough to push the whole yield curve to the lower bound require, in addition, forward guidance. We generalise these results to an asymmetric monetary union and illustrate them through simulations, distinguishing between asymmetric shocks and asymmetric structures. In general, asymmetries give rise to current account imbalances which are, depending on the degree of financial integration, funded by private capital imports or through the central bank balance sheet channel. Moreover, our findings support that at the lower bound, as long as asymmetries between countries result from shocks, outcomes under an unconstrained policy rule can be replicated via a symmetric QE design. By contrast, asymmetric structures of the countries which matter for the transmission of monetary policy can translate into an asymmetric QE design. JEL Classification: E43, E52, E61, E63
    Keywords: lower bound, monetary policy, monetary union, quantitative easing
    Date: 2018–06
  36. By: Georgescu, George
    Abstract: This study, based on more recent research, including disarchived and / or declassificated information regarding the communist period in Romania, both internally and internationally, focuses on exploring the 1980s external debt crisis context and causes, as well as the impact of internal and external factors, having as intention a reevaluation, closer to the reality, of those times state of affaires. At the beginning of the 1980s, the global economy was marked by a severe economic and financial crisis, the first on global-scale in history, felt by more than 30 developing countries as a balance of payments crisis, which resulted in the renegotiation and rescheduling of their sovereign debt. In the case of Romania, the external debt crisis triggered in 1982 has been aggravated, in an extremely severe manner, by overlapping internal vulnerabilities accumulated in previous decades with external shock caused by the major changes in the global economic, financial and geopolitical context at the end of 1979, which led to the explosive rise in interest rates on loans contracted from private commercial banks under floating interest rates, as well as the introduction of conditionalities on loans granted by international financial institutions. The study conclude that the decision of Romanian authorities to liquidate the external debt and the crisis management errors had a destructive impact on the Romanian economy, degenerated in a system crisis at the end of 1989. Many of the external debt crisis were felt also afterwards, slowing down significantly the pace of the transition to the market economy and the positioning of the country on a sustainable development trajectory.
    Keywords: external debt crisis; oil crisis shocks; IMF; FED monetary policy; interest rates; sovereign debt rescheduling
    JEL: B22 E44 E62 F34 H63 N44
    Date: 2018–05–15
  37. By: Wei, Shang-Jin (Asian Development Bank Institute)
    Abstract: We seek to draw lessons for developing countries based on a survey of the recent literature on financial globalization. First, while capital account openness holds promises (by potentially generating a lower cost of capital, better risk sharing, and stronger disciplines on policies), they do not always work out that way in the data. Distortions in the domestic financial market, international capital market, domestic labor market, and domestic public governance can make financial globalization less beneficial for developing countries. Second, developing countries sometimes need to insulate themselves from foreign monetary policy shocks. The empirical pattern appears to be somewhere between a trilemma and a dilemma. While nominal exchange rate flexibility is insufficient for policy autonomy, capital flow management may be needed to confer more monetary policy autonomy.
    Keywords: financial globalization; monetary policy autonomy; overborrowing; capital flow management
    JEL: E42 E43 E52
    Date: 2018–01–31
  38. By: Arikha, Dahlia
    Abstract: This research is a type of qualitative research with a study approach profound literature. The study discussed was the thought of M. Umer Chapra in the field of Islamic monetary policy. Chapra's extensive experience in teaching and research economic field as well as a good understanding of Islamic Shari'ah, bringing on the conclusion that Islam is only the most appropriate alternative system for creating the welfare of mankind. It was shown Chapra in the discussion about instruments in monetary policy, the urgency of changing the banking system and on finally realize the concept of Islamic-style welfare state.
    Keywords: Monetary Policy, Reconstruction Conventional Bank, Islamic Welfare State
    JEL: E00 E52 E58 O42
    Date: 2018–03–17
  39. By: Carroll, Christopher D.; Crawley, Edmund; Slacalek, Jiri; Tokuoka, Kiichi; White, Matthew N.
    Abstract: Macroeconomic models often invoke consumption "habits" to explain the substantial persistence of macroeconomic consumption growth. to explain the substantial But a large literature has found no evidence of habits in the micro-economic datasets that measure the behavior of individual households. We show that the apparent conflict can be explained by a model in which consumers have accurate knowledge of their personal circumstances but `sticky expectations' about the macro-economy. In our model, the persistence of aggregate consumption growth reflects consumers' imperfect attention to aggregate shocks. Our proposed degree of (macro) inattention has negligible utility costs, because aggregate shocks constitute only a tiny proportion of the uncertainty that consumers face. JEL Classification: D83, D84, E21, E32
    Keywords: consumption, habits, imperfect information, inattention, sticky expectations
    Date: 2018–05
  40. By: Milan Eliskovski (National Bank of the Republic of Macedonia)
    Abstract: Research subject of this paper is the credit transmission mechanism in the Republic of Macedonia or in other words this paper investigates the effects of the monetary signals by the National Bank of the Republic of Macedonia on banks' lending. The credit transmission is analyzed through its narrow nature or so called bank lending channel. In order to explain how the bank lending channel operates in Macedonia, two theoretical models are considered and econometrically tested. The first one is the traditional bank lending channel explained by Bernanke and Blinder model and the second one is the credit rationing model by Stiglitz and Weiss. The econometric technique employed is the vector error correction model or known as Johansen cointegration technique which is appropriate for empirical testing based on time series. The empirical results suggest that the Stiglitz and Weiss model better explains the banks' behavior in the Republic of Macedonia, that is the banking sector is risk averse and rations loans with an aim not to deteriorate its' profitability. Therefore, monetary tightening signals clearly affect the banks to restrict lending. On the other hand, the monetary expansionary signals have to be supported by favorable balance sheet structure of the banks as well as by favorable macroeconomic conditions in order to encourage lending.
    Keywords: bank lending channel, monetary transmission, credit rationing, VECM analysis
    JEL: C22 E52 E58 G21
    Date: 2018
  41. By: International Monetary Fund
    Abstract: A cyclical recovery is underway though it is yet to be broad-based. Domestic demand remains sluggish amid structural challenges, inflation continues to show weak dynamics, and the current account surplus remains large. The authorities have taken important measures to strengthen financial stability, and enacted reforms that bode well for medium-term fiscal management and credibility. Under the 12th National Development Plan, the government’s program aims to address the impediments to growth and scale up infrastructure to enhance Thailand’s position in global value chains and propel the economy into the digital age.
    Date: 2018–06–04
  42. By: Duffie, Darrell (Stanford University); Qiao, Lei (Shanghai University of Finance and Economics); Sun, Yeneng (National University of Singapore)
    Abstract: We develop a general and unified model in which a continuum of agents conduct directed random searches for counterparties. Our results provide the first probabilistic foundation for static and dynamic models of directed search (including the matching-function approach) that are common in search-based models of financial markets, monetary theory, and labor economics. The agents' types are shown to be independent discrete-time Markov processes that incorporate the effects of random mutation, random matching with match-induced type changes, and with the potential for enduring partnerships that may have randomly timed break-ups. The multi-period cross-sectional distribution of types is shown to be deterministic and is calculated using the exact law of large numbers.
    JEL: C02 D83 E00 G10 J64
    Date: 2017–12
  43. By: Emanuele Borgonovo; Stefano Caselli; Alessandra Cillo; Donato Masciandaro
    Abstract: The aim of this paper is to offer a theoretical primer in order to analyse the demand of a central bank digital currency (CBDC). Using a financial portfolio approach and assuming that individual preferences and policy votes are consistent, we identify the drivers of the political consensus in favour or against such as new currency. Given three different properties of a currency – where the first two are the standard functions of medium of exchange and store of value and the third one is the less explored function of store of information – and three different existing moneys – paper currency, banking currency and cryptocurrency – if the individuals are rational but at the same time can be affected by behavioural biases – loss aversion - three different groups of individuals – respectively lovers, neutrals and haters – emerge respect to the CBDC option. Given the alternative opportunity costs of the different currencies, the CBDC issuing is more likely to occur the more the individuals likes to use a legal tender, and/or are indifferent respect to anonymity; at the same time, the probability of the CBDC introduction increases if a return can be paid on it, and/or its implementation can guarantee at least the counterparty anonymity.
    Keywords: Central Bank Digital Currencies, Cash, Bitcoin, Cryptocurrencies
    JEL: B22 D72 E41 E42 E52 E58 G38 K42
    Date: 2017
  44. By: Guilherme Klein Martins; Fernando Rugitsky
    Abstract: The aim of the present paper is to contribute to the understanding of the recent Brazilian crisis by arguing that it was related to a cyclical profit squeeze that took place between 2010 and 2014, following the long cyclical expansion that started in 2003. To do so, the cyclical trajectories of output and profit rates in the Brazilian economy, throughout the five business cycles that took place between 1996 and 2016, are examined by resorting to the part of the framework established by Weisskopf (1979) that focuses on cycles. The results indicate that profit squeezes are rare in the Brazilian economy, possibly due to the truncated character and the weakness of the business cycles’ expansions. However, a profit squeeze did took place in the last cycle partly as result of the commodities boom, which attenuated the foreign vulnerability of the economy and allowed for a longer than usual expansion.
    Keywords: cyclical profit squeeze; Brazilian economy; profit rate decomposition; Weisskopf; structuralist Goodwin model
    JEL: B50 B51 E32
    Date: 2018–06–14
  45. By: Glennie Lauren Moore; Engelbert Stockhammer
    Abstract: Household debt is at a record high in most OECD countries and it played a crucial role in the recent financial crisis. Several arguments on the macroeconomic drivers of household debt have been put forward, and most have been empirically tested, albeit in isolation of each other. This paper empirically tests seven competing hypotheses on the macroeconomic determinants of household indebtedness together in one econometric study. Existing arguments suggest that residential house prices, upward movements in the prices of assets demanded by households, the income share of the top 1%, falling wages, the rolling back of the welfare state, the age structure of the population and the short-term interest rate drive household indebtedness. We formulate these arguments as hypotheses and test them for a panel of 13 OECD countries over the period 1993 - 2011 using error correction models. We also investigate whether effects differ in boom and bust phases of the debt and house price cycles. The results show that the most robust macroeconomic determinant of household debt is real residential house prices, and that the phase of the debt and house price cycles plays a role in household debt accumulation.
    Keywords: household debt, house prices, cycles
    JEL: E19 E21 R20
    Date: 2018–02
  46. By: Christiane Baumeister; James D. Hamilton
    Abstract: Reporting point estimates and error bands for structural vector autoregressions that are only set identified is a very common practice. However, unless the researcher is persuaded on the basis of prior information that some parameter values are more plausible than others, this common practice has no formal justification. When the role and reliability of prior information is defended, Bayesian posterior probabilities can be used to form an inference that incorporates doubts about the identifying assumptions. We illustrate how prior information can be used about both structural coefficients and the impacts of shocks, and propose a new distribution, which we call the asymmetric t distribution, for incorporating prior beliefs about the signs of equilibrium impacts in a nondogmatic way. We apply these methods to a three-variable macroeconomic model and conclude that monetary policy shocks were not the major driver of output, inflation, or interest rates during the Great Moderation.
    JEL: C11 C32 E52
    Date: 2018–05
  47. By: Seth Pruitt; Nicholas Turner
    Abstract: What is the nature of labor income risk facing households? We answer this question using detailed administrative data on household earnings from the U.S. Internal Revenue Service. By analyzing total household labor earnings as well as each member's earnings, we offer several new findings. One, households face substantially less risk than males in isolation. Second, households face roughly half the countercyclical increase in risk that males face. Third, spousal labor income ameliorates household earnings risk through both extensive and intensive margins.
    Keywords: Earnings risk ; Household labor dynamics
    JEL: J21 E24 D13 E32
    Date: 2018–05–15
  48. By: Anyadike-Danes, Michael (Aston Business School and Enterprise Research Centre, UK); Bjuggren, Carl Magnus (Research Institute of Industrial Economics (IFN)); Dumont, Michel (Federal Planning Bureau and Ghent University, Belgium); Gottschalk, Sandra (ZEW, Germany); Hölzl, Werner (Austrian Institute of Economic Research (WIFO), Austria); Johansson, Dan (Orebro University and HUI Research, Sweden); Maliranta, Mika (ETLA and University of Jyväskylä, Finland); Myrann, Anja (Ragnar Frisch Centre for Economic Research, Norway); Nielsen, Kristian (Aalborg University, Denmark); Zheng, Guanyu (Productivity Commission, New Zealand)
    Abstract: The basic principle governing the development of the accounting framework is the choice of appropriate comparators. Firstly, when measuring contributions to job creation, we should focus on just job creating firms, otherwise we are summing over contributions from firms with positive, zero, and negative job creation numbers. Secondly, because we know growth depends in part on size, the ’natural’ comparison for HGFs is with job creation by similar-sized firms which simply did not grow as fast as HGFs. However, we also show how the measurement framework can be further extended to include, for example, a consistent measure of the contribution of small job creating firms. On the empirical side, we find that the HGF share of job creation by large job creating firms varies across countries by a factor of two, from around one third to two thirds. A relatively small proportion of this cross-country variation is accounted for by variations in the influence of HGFs on job creation. On average HGFs generated between three or four times as many jobs as large non-HGF job creating firms, but this ratio is relatively similar across countries. The bulk of the cross-country variation in HGF contribution to job creation is accounted for by the relative abundance (or rarity) of HGFs. Moreover, we also show that the measurement of abundance depends upon the choice of measurement framework: the ’winner’ of a cross-national HGF
    Keywords: High-growth firms; Firm growth; Job creation
    JEL: D22 E24 L11 L25 L26 M13
    Date: 2018–05–23
  49. By: Snell, Andy (University of Edinburgh); Stüber, Heiko (University of Erlangen-Nuremberg); Thomas, Jonathan P. (University of Edinburgh)
    Abstract: Recent dynamic contracting models of downward real wage rigidity with "equal treatment" – newly hired workers cannot price themselves into jobs by undercutting incumbents – imply that real wages are relatively rigid in "bad" times but upwardly flexible during "good" times. We use an administrative panel dataset to establish that such asymmetries are a feature of West German labor markets. We find that the elasticity of real wages with respect to output is very close to zero in downswings but large and highly significant in upswings. In a separate analysis we find that after controlling for match fixed effects the cyclicality of new hire wages is approximately the same as that for incumbent wages regardless of whether or not they joined the establishment from unemployment This is supportive of equal treatment. We also show that a four parameter version of the equal treatment contracting model of Snell and Thomas (2010) can replicate reasonably well the salient time series properties and co-properties of real wages, output, and unemployment, in particular the asymmetric response of wages to output that we find in the data.
    Keywords: business cycles, employment, unemployment, real wage rigidity, GDP growth, models with panel data
    JEL: E24 E32 C23
    Date: 2018–04
  50. By: Stefan Ederer; Miriam Rehm (Federal Chamber of Labour Vienna (AT))
    Abstract: We develop and calibrate an analytical growth model in the neo-Kaleckian tradition with an endogenous wealth distribution and differential returns to wealth between workers and capitalists. We show that a long-run equilibrium allows for non-zero wealth owned by workers, even as the model contains the “triumph of the rentier” predicted by Piketty’s r > g as a special case. The model’s calibration to ten European countries shows that the distribution of wealth is likely to become more unequal in all cases, barring political countermeasures.
    Keywords: inequality, wealth, income, neo-Kaleckian theory, model calibration
    JEL: D31 E12 E21
    Date: 2017–12
  51. By: Arlan Brucal (Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science); Michael J. Roberts (Department of Economics, University of Hawaii at Manoa; UHERO; Sea Grant at University of Hawaii at Manoa)
    Abstract: Using a sample of 48 contiguous U.S. states for the period 1973-2013, we study how oil price shocks influence state-level economic growth. The analysis incorporates (1) a structural decomposition of the supply and demand factors that drive the real price of crude oil; (2) heterogeneity of states in terms of their production and consumption of oil and natural gas; and (3) economic spillovers across neighboring states. Oil price effects vary across states, depending on the underlying source of the price shock and a state's average production of oil relative to its average consumption. Oil-exporting states are more vulnerable to unanticipated changes in oil prices, and the direct effect of oil price shocks can magnify or temper effects on neighboring states. Aggregated predictions from the state-level model also differ modestly from stand-alone aggregate model (Kilian, 2009). The aggregated state-level model implies that the recent (2005-2016) decline in U.S. dependence on foreign oil reduced aggregate sensitivity to exogenous supply shocks by more than a third.
    Keywords: Oil price shocks, economic spillovers, dynamic
    JEL: E32 Q43
    Date: 2018–06
  52. By: Lechler, Marie
    Abstract: Euroscepticism and the rise of populist parties have often been linked to economic insecurity. This paper identifies regional employment changes as causal factors for forming attitudes towards the European Union and voting for eurosceptic parties in European Parliament elections. To do so, I combine industry-specific employment data for roughly 260 European NUTS II regions with individual-level Eurobarometer survey data for the past 20 years and regional voting results. I apply panel data and instrumental variable methods; for the latter I construct a Bartik-style instrument, which predicts employment changes on the basis of regional industry specialization and Europe-wide sector specific employment growth rates. The effect of employment changes on attitudes towards the EU is particularly strong for unemployed and low-skilled workers in regions with a high share of migrants from other European member states, which supports the narrative that ‘losers of globalization’ tend to be more skeptical towards economic and political integration.
    Keywords: European Integration; Regional Employment; EU Attitudes; European Parliament Elections; EU Migration
    JEL: E24 J21 O52 P16
    Date: 2018
  53. By: Agnès Bénassy-Quéré; Matthieu Bussière; Pauline Wibaux
    Abstract: The debate on trade wars and currency wars has re-emerged since the Great recession of 2009. We study the two forms of non-cooperative policies within a single framework. First, we compare the elasticity of trade flows to import tariffs and to the real exchange rate, based on product level data for 110 countries over the 1989-2013 period. We find that a 1 percent depreciation of the importer's currency reduces imports by around 0.5 percent in current dollar, whereas an increase in import tariffs by 1 percentage point reduces imports by around 1.4 percent. Hence the two instruments are not equivalent. Second, we build a stylized short-term macroeconomic model where the government aims at internal and external balance. We find that, in this setting, monetary policy is more stabilizing for the economy than trade policy, except when the internal transmission channel of monetary policy is muted (at the zero-lower bound). One implication is that, in normal times, a country will more likely react to a trade "aggression" through monetary easing rather than through a tariff increase. The result is reversed at the ZLB.
    Keywords: tariffs;exchange rates;trade elasticities;protectionism
    JEL: F13 F14 F31
    Date: 2018–06
  54. By: Labrinidis, George
    Abstract: Indisputably, the euro has played a pivotal role in the development of Europe. Yet, the euro has also been very controversial, raising many discussions related to the nature, role and form of the “common currency”. This paper aims at contributing to this ongoing debate from a Marxist perspective, presenting the theoretical framework of quasi-world money and examining the evolution of the euro as such, from the 1950s when the idea appeared for the first time. In particular, the paper focuses on the processes that led to the emergence of the euro as quasi-world money. These processes comprised a series of political solutions to the contradiction between the necessity of all major European countries to impose their money on the European market on the one hand, and their incompetence in doing so, on the other. The analysis focuses on the post-war European monetary system up until the launch of the European Monetary Union. Its object is a historical monetary compromise that passed through many phases and managed to survive until the present day. The paper analyses the particular mechanisms through which the euro became a reality and points to the class interests that were satisfied in each phase. This discussion offers useful insights for the current debate that unfolds amidst a deep capitalist crisis internationally and a particular monetary crisis in the European Union.
    Keywords: Euro, quasi-world money, European monetary system
    JEL: B14 E42 F33
    Date: 2018–04–23
  55. By: John Bailey Jones; Mariacristina De Nardi; Eric French; Rory McGee; Justin Kirschner
    Abstract: Using dynamic models of health, mortality, and out-of-pocket medical spending (both inclusive and net of Medicaid payments), we estimate the distribution of lifetime medical spending that retired U.S. households face over the remainder of their lives. We find that at age 70, households will on average incur $122,000 in medical spending, including Medicaid payments, over their remaining lives. At the top tail, 5 percent of households will incur more than $300,000, and 1 percent of households will incur over $600,000 in medical spending inclusive of Medicaid. The level and the dispersion of this spending diminish only slowly with age. Although permanent income, initial health, and initial marital status have large effects on this spending, much of the dispersion in lifetime spending is due to events realized later in life. Medicaid covers the majority of the lifetime costs of the poorest households and significantly reduces their risk.
    JEL: D1 D14 E02 E2 H31
    Date: 2018–05
  56. By: Nicholas E. Karavitis (Panteion University)
    Abstract: This paper reviews the fiscal developments that led Greece from a successful con-vergence process and the adoption of the Euro to an unprecedented prolonged re-cession. Analysis of all fiscal aggregates reveals the policies behind the sovereign crisis, both on the expenditure and the revenue side. We employ a simple macrostatic model to identify the impact of fiscal policies on the economy through the fiscal multipliers, especially during the adjustment programmes. We attempt to explore the extent to which fiscal adjustment may have been self-defeating by developing ex post adjustment scenarios. Following this, we turn to testing debt sustainability in the long run in an interest rate sensitive environment. This is done based on a set of several varying assumptions regarding growth, fiscal performance and debt reprofiling. Analysis of the resulting scenarios points out the risks surrounding debt sustainability and draws the broad lines of future fiscal policies.
    Keywords: Greek Crisis, Fiscal Adjustment, Fiscal Multipliers, Debt Sustainability
    JEL: E62 H62 H63 H68
    Date: 2018–04
  57. By: Fabiano Schivardi; Enrico Sette; Guido Tabellini
    Abstract: Do banks with low capital extend excessive credit to weak firms, and does this matter for aggregate efficiency? Using a unique data set that covers almost all bank-firm relationships in Italy in the period 2004-2013, we find that, during the Eurozone financial crisis: (i) Under-capitalized banks were less likely to cut credit to non-viable firms. (ii) Credit misallocation increased the failure rate of healthy firms and reduced the failure rate of non viable firms. (iii) Nevertheless, the adverse effects of credit misallocation on the growth rate of healthier firms were negligible, and so were the effects on TFP dispersion. This goes against previous infl uential findings that, we argue, face serious identification problems. Thus, while banks with low capital can be an important source of aggregate inefficiency in the long run, their contribution to the severity of the great recession via capital misallocationvwas modest.
    Keywords: Bank capitalization, zombie lending, capital misallocation
    JEL: D23 E24 G21
    Date: 2017
  58. By: Èãîð Âåëè÷êîâñêè (Íàðîäíà áàíêà íà Ðåïóáëèêà Ìàêåäîíè¼à); Àëåêñàíäàð Ñòî¼êîâ (Óíèâåðçèòåò „Ñâ. Êèðèë è Ìåòîä輓, Ïðàâåí ôàêóëòåò „£óñòèíè¼àí ïðâè“, Ñêîï¼å); Èâàíà Ðà¼êîâè (Íàðîäíà áàíêà íà Ñðáè¼à)
    Abstract: Îâî¼ òðóä ãè èñòðàæóâà äâèãàòåëèòå íà ñèíõðîíèçàöè¼àòà íà øîêîâèòå êîðèñòå¼ è êâàðòàëíè ïîäàòîöè çà 27 åâðîïñêè çåì¼è âî ïåðèîäîò 1999-2013 ãîäèíà, ïðè øòî ¼à çåìà ïðåäâèä ðàçëèêàòà ìåƒó ¼àäðîòî è ïåðèôåðíèòå çåì¼è âî åâðîçîíàòà è åâðîïñêèòå çåì¼è âî òðàíçèöè¼à. Ðåçóëòàòèòå îä ïàíåë-ìîäåëîò íà êîðåêöè¼àòà íà ãðåøêè óêàæóâààò íà òîà äåêà ¼àäðîòî íà åâðîçîíàòà íå å ñèëåí ïðèâëåêóâà÷ íà êîíâåðãåíöè¼àòà íà øîêîâèòå íà ïåðèôåðíèòå çåì¼è è çåì¼èòå âî òðàíçèöè¼à îä âîâåäóâàœåòî íà åâðîòî, çàðàäè ïðåáèâàœåòî íà åôåêòèòå íà ðàçëè÷íèòå ôàêòîðè êîèøòî âëè¼ààò âðç ïðîöåñîò íà êîíâåðãåíöè¼à íà øîêîâè. Êîíâåðãåíöè¼àòà íà øîêîâèòå íà ñòðàíàòà íà ïîáàðóâà÷êàòà îñîáåíî å ïîääðæàíà îä òðãîâè¼àòà âî ðàìêèòå íà èñòàòà èíäóñòðè¼à è äî îäðåäåí ñòåïåí îä èíòåíçèòåòîò íà òðãîâè¼àòà, áàðåì çà ïåðèôåðíèòå çåì¼è, íî íèâíèòå åôåêòè ñå íåóòðàëèçèðàíè ñî äèâåðãåíòíèòå ôèñêàëíè ïîëèòèêè, ïðîìåíèòå âî ïðîèçâîäíàòà ñòðóêòóðà è ôèíàíñèñêèòå òåêîâè. Îä äðóãà ñòðàíà, øîêîâèòå íà ñòðàíàòà íà ïîíóäàòà çàáåëåæàà äèâåðãåíòíà òåíäåíöè¼à êî¼àøòî ãëàâíî ñå äîëæè íà èíòåíçèòåòîò íà òðãîâñêèòå òåêîâè è íåêîîðäèíèðàíèòå ôèñêàëíè ïîëèòèêè. Îâèå íàîäè ¼à ïðåäèçâèêóâààò õèïîòåçàòà íà åíäîãåíîñòà è ? äàâààò ïîääðøêà íà ïàðàäèãìàòà íà ñïåöè¼àëèçàöè¼à, øòî å çàãðèæóâà÷êè íàîä çà èäíàòà ñòàáèëíîñò íà åâðîçîíàòà.
    Keywords: ñèíõðîíèçàöè¼à íà øîêîâè, òðãîâè¼à, äèíàìè÷íè ïàíåë-ìîäåëè
    JEL: E32 F10 C33
    Date: 2017
  59. By: Giovanni Caggiano (Monash University, Australia; University of Padova, Italy; Rimini Centre for Economic Analysis); Efrem Castelnuovo (University of Melbourne, Australia; University of Padova, Italy); Juan Manuel Figueres (University of Padova, Italy)
    Abstract: We estimate a nonlinear VAR to quantify the impact of economic policy uncertainty shocks originating in the US on the Canadian unemployment rate in booms and busts. We find strong evidence in favor of asymmetric spillover effects. Unemployment in Canada is shown to react to uncertainty shocks in economic busts only. Such shocks explain about 13% of the variance of the 2-year ahead forecast error of the Canadian unemployment rate in periods of slack vs. just 2% during economic booms. Counterfactual simulations lead to the identification of a novel "economic policy uncertainty spillovers channel". According to this channel, jumps in US uncertainty foster economic policy uncertainty in Canada in the first place and, because of the latter, lead to a temporary increase in the Canadian unemployment rate. Evidence of asymmetric spillover effects due to US EPU shocks are also found for the UK economy. This evidence, which refers to a large economy having a low trade intensity with the US, supports our view that a channel other than trade could be behind our empirical results.
    Keywords: Economic Policy Uncertainty Shocks, Spillover Effects, Unemployment Dynamics, Smooth Transition Vector AutoRegressions, Recessions
    JEL: C32 E32 E52
    Date: 2018–06
  60. By: Giovanni Caggiano; Efrem Castelnuovo; Juan Manuel Figueres
    Abstract: We estimate a nonlinear VAR to quantify the impact of economic policy uncertainty shocks originating in the US on the Canadian unemployment rate in booms and busts. We find strong evidence in favor of asymmetric spillover effects. Unemployment in Canada is shown to react to uncertainty shocks in economic busts only. Such shocks explain about 13% of the variance of the 2-year ahead forecast error of the Canadian unemployment rate in periods of slack vs. just 2% during economic booms. Counterfactual simulations lead to the identification of a novel “economic policy uncertainty spillovers channel”. According to this channel, jumps in US uncertainty foster economic policy uncertainty in Canada in the first place and, because of the latter, lead to a temporary increase in the Canadian unemployment rate. Evidence of asymmetric spillover effects due to US EPU shocks are also found for the UK economy. This evidence, which refers to a large economy having a low trade intensity with the US, supports our view that a channel other than trade could be behind our empirical results.
    Keywords: Economic Policy Uncertainty Shocks, Spillover Effects, Unemployment Dynamics, Smooth Transition Vector Autoregressions, Recessions.
    JEL: C32 E32 E52
    Date: 2018–06
  61. By: Tuzemen, Didem (Federal Reserve Bank of Kansas City)
    Keywords: Natural rate of unemployment; Job polarization; Labor demand; Skills; Aging
    JEL: E24 J21 J23 J24
    Date: 2018–03–01
  62. By: David M. Arseneau; Brendan Epstein
    Abstract: This paper presents a model in which mismatch employment arises in a constrained efficient equilibrium. In the decentralized economy, however, mismatch gives rise to a congestion externality whereby heterogeneous job seekers fail to internalize how their individual actions affect the labor market outcomes of competitors in a common unemployment pool. We provide an analytic characterization of this distortion, assess the distributional nature of the associated welfare effects, and relate it to the relative productivity of low- and high-skilled workers competing for similar jobs.
    Keywords: Competitive search equilibrium ; Crowding in/out ; Labor market frictions ; Skill-mismatch
    JEL: E24 J31 J64
    Date: 2018–06–01
  63. By: Timm M. Prein (University of Konstanz, Department of Economics, Germany); Almuth Scholl (University of Konstanz, Department of Economics, Germany)
    Abstract: This paper develops a stochastic dynamic politico-economic model of sovereign debt to analyze the impact of bailouts on sovereign default risk and political turnover. We consider a small open economy in which the government has access to official loans conditional on the implementation of austerity policies. There is a two-party system in which both parties care about the population’s welfare but differ in an exogenous utility cost of default. Political turnover is the endogenous outcome of the individual voting behavior. In a quantitative exercise we apply the model to Greece and find that bailout episodes are characterized by an increased risk of political turnover. In the short run, stricter conditionality raises the risk of sovereign default because it reduces the participation rate in bailout programs. In the long run, however, stricter conditionality limits the accumulation of debt which lowers sovereign default risk. We show that the frequency of political turnover is U-shaped in the strength of conditionality.
    Keywords: sovereign default risk, political turnover, bailouts, conditionality, austerity
    JEL: E44 E62 F34
    Date: 2018–06–08
  64. By: Erwan Gautier, Hervé Le Bihan
    Abstract: Relying on a menu-cost model augmented with a time-dependent (Calvo) component, we investigate the structural sources of cross-sectoral heterogeneity in patterns of price setting. We use a large micro dataset of French consumer prices to estimate the model at the product level for 227 products. The Calvo component is found to be large in most sectors. Heterogeneity in structural parameters is also substantial. The combination of these two features leads to much larger real effects of monetary policy. The effect of monetary shock on output is more than 4 times larger than the one derived from a standard single-sector menu-cost model estimated using average moments.
    Keywords: Price rigidity, menu cost, (S,s) models, adjustment cost, heterogeneity
    JEL: E31 D43 L11
    Date: 2018
  65. By: Drechsler, Itamar; Savov, Alexi; Schnabl, Philipp
    Abstract: We show that maturity transformation does not expose banks to significant interest rate risk---it actually hedges banks' interest rate risk. We argue that this is driven by banks' deposit franchise. Banks incur large operating costs to maintain their deposit franchise, and in return get substantial market power. Market power allows banks to charge depositors a spread by paying deposit rates that are low and insensitive to market rates. The deposit franchise therefore works like an interest rate swap where banks pay the fixed-rate leg (the operating costs) and receive the floating-rate leg (the deposit spread). To hedge the deposit franchise, banks must therefore hold long-term fixed-rate assets; i.e., they must engage in maturity transformation. Consistent with this view, we show that banks' aggregate net interest margins have been highly stable and insensitive to interest rates over the past six decades, and that banks' equity values are largely insulated from monetary policy shocks. Moreover, in the cross section we find that banks match the interest-rate sensitivities of their income and expenses one-for-one, and that banks with less sensitive interest expenses hold substantially more long-term assets. Our results imply that forcing banks to hold only short-term assets (``narrow banking'') would make banks unhedged and, more broadly, that the deposit franchise is what allows banks to lend long term.
    Keywords: banks; deposits; interest rate risk; maturity transformation
    JEL: E43 E52 G21 G31
    Date: 2018–05
  66. By: Jean-Luc Gaffard (Observatoire français des conjonctures économiques)
    Keywords: Dualisme; Engagement; Entrepreneuriat; Flexibilité; Stabilité
    JEL: D14 D2 D31 D63 E24 J24 L22 L26
    Date: 2018–04
  67. By: Guglielmo Forges Davanzati; Nicolò Giangrande
    Abstract: This paper deals with the Italian economic decline from a double perspective. First, it provides a reconstruction of the main Post Keynesian arguments explaining the bad macroeconomic performance of the Italian economy, starting from the end of the “economic miracle”. Second, it proposes a re-reading of the CGIL’s view, showing that is it consistent with a theoretical approach based on the fundamental assumptions and policy prescriptions of the Post Keynesian framework.
    Keywords: Italian economic decline, labour market, unions
    JEL: E60 J50
    Date: 2018–01
  68. By: Edouard Djeutem; Geoffrey R. Dunbar
    Abstract: We propose an uncovered expected returns parity (URP) condition for the bilateral spot exchange rate. URP implies that unilateral exchange rate equations are misspecified and that equity returns also affect exchange rates. Fama regressions provide evidence that URP is statistically preferred to uncovered interest rate parity (UIP) for nominal bilateral exchange rates between the US dollar and six countries (Australia, Canada, Japan, Norway, Switzerland and the UK) at the monthly frequency. An implication of URP is that commodity price changes that affect equity returns thus affect bilateral exchange rates through the equity channel. We find evidence that the Australian, Canadian, Norwegian (post 2001) and UK (post 1992) expected exchange rates increase via the oil-equity channel as oil prices rise, whereas the Japanese and Swiss expected exchange rates decrease.
    Keywords: Asset pricing; Exchange rates; International financial markets
    JEL: E E4 E43 F F3 F31 G G1 G15
    Date: 2018
  69. By: International Monetary Fund
    Abstract: Samoa has demonstrated resilience in the face of multiple external shocks. Growth remains robust, but is expected to temporarily moderate before rebounding. Inflation has picked up but remains below the authorities’ target of 3 percent. The authorities have made efforts towards fiscal consolidation in recent years, but the fiscal position loosened in 2016/17 and Samoa remains at high risk of debt distress. Samoa remains vulnerable to natural disasters and to the partial withdrawal of correspondent banking relationships (CBRs). The authorities are implementing mitigation measures to address these risks.
    Date: 2018–06–04
  70. By: Michiel De Pooter; Giovanni Favara; Michele Modugno; Jason J. Wu
    Abstract: In this note we find that after a given monetary policy surprise, primary dealers--key intermediaries in interest rate markets--tend to adjust their positions in the U.S. Treasury market and their exposures to interest rates more when the prevailing level of policy uncertainty is low than when it is high.
    Date: 2018–05–18
  71. By: Acikgöz, Ömer; Hagedorn, Marcus; Holter, Hans; Wang, Yikai
    Abstract: In this paper we solve the dynamic optimal Ramsey taxation problem in a model with incomplete markets, where the government commits itself ex-ante to a time path of labor taxes, capital taxes and debt to maximize the discounted sum of agents' utility starting from today. Whereas the literature has bee limited mainly to studying policies that maximize steady-state welfare only, we instead characterize the optimal policy along the full transition path. We show theoretically that in the long run the capital stock satisfies the modified golden rule. More importantly, we prove that in contrast to complete markets economies, in incomplete markets economies the long run steady state resulting from an infinite sequence of optimal policy choices is independent of initial conditions. This result is not only of theoretical interest but moreover, enables us to compute the long-run optimum independently from the transition path such that a quantitative analysis becomes tractable Quantitatively we find, robustly across various calibrations, that in the long run the government debt-to-GDP ratio is high, capital is taxed at a low rate and labor income at a high rate when compared to current U.S. values. Along the optimal transition to the steady state, labor taxes initially are lowered, financed through issuing more debt and taxing capital income heavily, before they are eventually increased to their steady-state level.
    Keywords: Capital taxation; Dynamically Optimal Taxation; incomplete markets; Optimal Government Debt
    JEL: E62 H20 H60
    Date: 2018–05
  72. By: Joanna Tyrowicz (Institute for Labour Law and Industrial Relations in the European Union IAAEU), Trier University); Krzysztof Makarski (Warsaw School of Economics)
    Abstract: We develop an OLG model with realistic assumptions about longevity to analyze the welfare effects of raising the retirement age. We look at a scenario where an economy has a pay-as-you-go defined benefit scheme and compare it to a scenario with defined contribution schemes (funded or notional). We show that, initially, in both types of pension system schemes the majority of welfare effects comes from adjustments in taxes and/or prices. After the transition period, welfare effects are predominantly generated by the preference for smoothing inherent in many widely used models. We also show that although incentives differ between defined benefit and defined contribution systems, the welfare effects are of comparable magnitude under both schemes. We provide an explanation for this counter-intuitive result.
    Keywords: longevity, PAYG, retirement age, pension system reform, welfare
    JEL: C68 E21 J11 H55
    Date: 2018–04
  73. By: Aras, Osman Nuri; Öztürk, Mustafa
    Abstract: The effects of the main macroeconomic determinants on the sovereign credit rating of Turkey assigned by Standard & Poor’s are analyzed in this paper. As the main macroeconomic determinants, inflation rate, economic growth rate, foreign direct investment, external debt, current account debt and savings are taken into account in this study. The data related to Turkey in this study covers between 1992-2016. In this study, the Granger causality test and the OLS regression model are used for that correlations of the variables. Outcomes of the analysis show that just two in six macroeconomic determinants are effective on the sovereign credit rating. According to the results of the study, external debt and inflation rate have a statistically significant relationship with the sovereign credit rating of Turkey. The outcomes show that external debt and the inflation rate have negative effects on the sovereign credit rating of the country. The coefficient of the external debt and the inflation is negative which means that if the inflation or external debt increases the rating decreases in appropriate with the theory. On the other hand, the effects of the other four macroeconomic variables are not significant. The results of the study indicate that some factors other than the primary macroeconomic determinants are effective on the sovereign credit ratings of Turkey. The results also unveil the door for the criticism that the decisions of the credit rating agencies are biased.
    Keywords: Sovereign risk, Sovereign credit rating, Credit rating agencies, Macroeconomic determinants, Turkey.
    JEL: E02 F30 G20 G24 G29
    Date: 2018–05–01
  74. By: Karsten Kohler (None); Alexander Guschanski; Engelbert Stockhammer
    Abstract: It is frequently asserted that financialisation has contributed to the decline in the wage share. This paper provides a theoretical clarification and a systematic empirical investigation. We identify four channels through which financialisation can affect the wage share: (1) enhanced exit options of firms; (2) rising price mark-ups due to financial overhead costs for businesses; (3) increased competition on capital markets and shareholder value orientation; and (4) the role of household debt in increasing workers’ financial vulnerability and undermining their class consciousness. The paper compiles a comprehensive set of empirical measures of financialisation and uses it to test these hypotheses with a panel regression of 14 OECD countries over the 1992-2014 period. We find strong evidence for negative effects of financial liberalisation and financial payments of non-financial corporations on the wage share that are in the same order of magnitude as the effects of globalisation.
    Keywords: financialization, income distribution, political economy
    JEL: E25
    Date: 2018–01
  75. By: Giorgos Galanis (Goldsmiths, University of London); Ashok Kumar
    Abstract: This paper presents a novel understanding of the changing governance structures in global supply chains. Motivated by the global garment sector, we develop a geographical political economy dynamic model which reflects the interaction between bargaining power and distribution of value among buyer and producer firms. We find that the interplay between these two forces, in combination with the spatial specificities of global production, are necessary and sufficient to drive governance structures towards an intermediate position regarding their level of explicit coordination and power asymmetry.
    Keywords: Global value chains, global production networks, uneven development, disequilibrium dynamics, monopsony power
    JEL: D02 D43 E32 R10
    Date: 2018–03
  76. By: Konon, Alexander (DIW Berlin); Fritsch, Michael (University of Jena); Kritikos, Alexander S. (DIW Berlin)
    Abstract: We analyze whether start-up rates in different industries systematically change with business cycle variables. Using a unique data set at the industry level, we mostly find correlations that are consistent with counter-cyclical influences of the business cycle on entries in both innovative and non-innovative industries. Entries into the large-scale industries, including the innovative part of manufacturing, are only influenced by changes in the cyclical component of unemployment, while entries into small-scale industries, like knowledge intensive services, are mostly influenced by changes in the cyclical component of GDP. Thus, our analysis suggests that favorable conditions in terms of high GDP might not be germane for start-ups. Given that both innovative and non-innovative businesses react counter-cyclically in 'regular' recessions, business formation may have a stabilizing effect on the economy.
    Keywords: new business formation, entrepreneurship, business cycle, manufacturing, services, innovative industries
    JEL: E32 L16 L26 R11
    Date: 2018–04
  77. By: Bordo, Michael D. (Rutgers University); Duca, John V. (Federal Reserve Bank of Dallas)
    Abstract: There are concerns that the Dodd-Frank Act (DFA) has impeded small-business lending. By increasing the fixed regulatory compliance requirements needed to make business loans and operate a bank, the DFA disproportionately reduced the incentives for all banks to make very modest loans and reduced the viability of small banks, whose small-business share of commercial and industrial (C&I) loans is generally much higher than that of larger banks. Despite an economic recovery, the small-loan share of C&I loans at large banks and banks with $300 or more million in assets has fallen 9 percentage points since the DFA was passed in 2010, with the magnitude of the decline twice as large at small banks. Controlling for cyclical effects and bank size, we find that these declines in the small-loan share of C&I loans are almost all statistically attributed to the change in regulatory regime. Examining Federal Reserve survey data, we find evidence that the DFA prompted a relative tightening of bank credit standards on C&I loans to small versus large firms, consistent with the DFA inducing a decline in small-business lending through loan supply effects. We also empirically model the pace of business formation, finding that it had downshifted around the time when the DFA and the Sarbanes-Oxley Act were announced. Timing patterns suggest that business formation has more recently ticked higher, coinciding with efforts to provide regulatory relief to smaller banks via modifying rules implementing the DFA. The upturn contrasts with the impact of the Sarbanes-Oxley Act, which appears to persistently restrain business formation.
    Keywords: small-business lending; business formation; regulation; Dodd-Frank; Sarbanes-Oxley; secular stagnation
    JEL: E40 E50 G21
    Date: 2018–04–21
  78. By: International Monetary Fund
    Abstract: In 2014, like other CEMAC countries, Equatorial Guinea (EG) was hit hard by the plunge in oil prices. Since then, oil prices have partially recovered, but this has been offset by a rapid trend decline in hydrocarbon output, which peaked in 2008. These factors, along with business environment weaknesses, low private sector confidence, and financing constraints have led to a sharp and prolonged contraction in overall output. With very low government deposits and high domestic arrears, financing constraints are forcing a narrowing of external and fiscal imbalances. At the same time, weak institutional capacity, along with an inadequate public financial management (PFM) framework has reduced the effectiveness of the macroeconomic policy responses.
    Date: 2018–06–04
  79. By: Donato Masciandaro; Davide Romelli
    Abstract: One of the fundamental issue in implementing the twin peaks regime is deciding where the prudential supervisor should be housed, given that so far three options has been explored, i.e. the prudential supervisor could be outside the central bank, or be a subsidiary of the central bank, or be completely inside the central bank. In other words the key question is to define the central bank involvement in the twin peaks model. The aim of the chapter is twofold: first of all we offer a systematic review of the economics and politics of the central bank involvement in a twin peak regime. Therefore and secondly we analyse the central bank position in the countries that already adopted the twin peak model, in order to better understand how the general theoretical and empirical results already obtained in exploring the central bank involvement in supervision can be applied in analysing the actual twin peaks regimes. Analysing the establishment of the twin peaks regime in Australia, Belgium, the Netherlands, New Zealand and United Kingdom it has been confirmed the heterogeneity of the central bank involvement as prudential supervisor, and on average that two drivers seems to be relevant in motivating the incumbent policymakers in reforming their supervisory settings: the necessity to address and fix the consequences of a systemic crisis (crisis driver); the opportunity to implement a supervisory change when the share of peer countries undertaking reforms is higher (bandwagon driver). On this respect, the true outlier seems to the Australian case, where the relevance of the two drivers is completely absent. The inertia effect – i.e. lagged reform due to the risks in implementing it - seems to evident only in the UK case.
    Keywords: Twin Peaks Model, Prudential Supervision, Central Banking, Monetary Policy, Australia, Belgium, Netherlands, New Zealand, United Kingdom)
    JEL: E58 E63 G18
    Date: 2017
  80. By: Mihnea Constantinescu (Bank of Lithuania); Aurelija Proskute (Bank of Lithuania)
    Abstract: In this paper we offer a unique firm-level view of the empirical regularities underlying the evolution of the Lithuanian economy over the period of 2000 to 2014. Employing a novel data-set, we investigate key distributional moments of both the financial and real characteristics of Lithuanian firms. We focus in particular on the issues related to productivity, firm birth and death and the associated employment creation and destruction across industries, firm sizes and trade status (exporting vs. non-exporting). We refrain from any structural modeling attempt in order to map out the key economic processes across industries and selected firm characteristics. We uncover similar empirical regularities as already highlighted in the literature: trade participation has substantial benefits on firm productivity, the 2008 recession has had a cleansing effect on the non-tradable sector, firm birth and death are highly pro-cyclical. The richness of the dataset allows us to produce additional insights such as the change in the composition of assets and liabilities over the business cycles (tilting both liabilities and assets towards the short-term) or the increasing share of exporting firms but the constant share of importing ones since 2000.
    Keywords: productivity, firm dynamism, job creation and destruction, firm heterogeneity, Lithuanian economy
    JEL: D22 D24 E30 J21 J24 J30 L11 L25
    Date: 2018–05–14
  81. By: Aaron Flaaen; Matthew D. Shapiro; Isaac Sorkin
    Abstract: Prior literature has established that displaced workers suffer persistent earnings losses by following workers in administrative data after mass layoffs. This literature assumes that these are involuntary separations owing to economic distress. This paper examines this assumption by matching survey data on worker-supplied reasons for separations with administrative data. Workers exhibit substantially different earnings dynamics in mass layoffs depending on the reason for separation. Using a new methodology to account for the increased separation rates across all survey responses during a mass layoff, the paper finds earnings loss estimates that are surprisingly close to those using only administrative data.
    Keywords: Earnings losses ; Job loss ; Unemployment
    JEL: J63 J65 J26 J00
    Date: 2018–05–04
  82. By: MADSEN, Jakob B
    Abstract: This paper provides the first very long term empirical examination of Piketty’s (2014) controversial hypothesis that inequality is increasing in r – g, (assets - real income). Using unique annual data on asset returns for a balanced portfolio and several other variables for the UK over the period 1210-2013, the study examines whether the dynamics in capital’s income share, SW, are governed by (r–g). The analysis confirms that r and g are robust and significant determinants of factor shares and that they have been the major forces behind the large inequality waves over the past eight centuries.
    Keywords: Inequality and the (r-g)-gap, dynamics of inequality, inequality in the UK, 1210-2013
    JEL: E1 E2 O4 N1 N30 P1
    Date: 2018–06
  83. By: Herr, Hansjörg
    Abstract: After World War II only a few developing countries were able to catch up to real GDP per capita levels prevailing in developed countries. These successful countries in almost all cases came from Asia and did not follow the free market doctrine in the tradition of the Washington Consensus. There must be theoretical explanations as to why underdevelopment is reproduced and most countries in the world do not catch up. This essay reviews different economic approaches which attempt to explain the lack of convergence. A first group of approaches focuses on the lack of sufficient productivity development (free trade, global value chains, negative terms of trade effects, abundance of scarce resources, premature deindustrialization); the second group focuses on problems to trigger sufficient growth (distorted financial systems, high restrictions on macroeconomic demand management). Countries can suffer from several of these factors, which can explain why development is only possible with the support of comprehensive government policies.
    Keywords: underdevelopment,financial system,free trade,inequality,Keynesian paradigm,Washington Consensus
    JEL: B50 F40 O11
    Date: 2018
  84. By: Signe Rosenberg
    Abstract: This paper studies the impact of conventional and unconventional monetary policy on house prices in the Scandinavian countries, using sign and zero restrictions in a Bayesian structural vector autoregressive model, covering the central banks’ policy rate and balance sheet policies over a period of nearly 30 years. Expansionary shocks of the policy rate and the balance sheet both have a positive impact on house prices in the Scandinavian countries, but the effects vary greatly within each country. In all the three countries the effect of balance sheet shocks on house prices peaks higher and is more persistent than the response of policy rate shocks. In Sweden and Denmark the impact is more sluggish in case of balance sheet shocks while in Norway the speed of the reaction is similar in case of both types of monetary policy shocks.
    Date: 2018–06–07
  85. By: Bachmann, Ronald; Cim, Merve; Green, Colin
    Abstract: The past four decades have witnessed dramatic changes in the structure of employment. In particular, the rapid increase in computational power has led to large-scale reductions in employment in jobs that can be described as intensive in routine tasks. These jobs have been shown to be concentrated in middle skill occupations. A large literature on labour market polarisation characterises and measures these processes at an aggregate level. However to date there is little information regarding the individual worker adjustment processes related to routine-biased technological change. Using an administrative panel data set for Germany, we follow workers over an extended period of time and provide evidence of both the short-term adjustment process and medium-run effects of routine task intensive job loss at an individual level. We initially demonstrate a marked, and steady, shift in employment away from routine, middle-skill, occupations. In subsequent analysis, we demonstrate how exposure to jobs with higher routine task content is associated with a reduced likelihood of being in employment in both the short term (after one year) and medium term (five years). This employment penalty to routineness of work has increased over the past four decades. More generally, we demonstrate that routine task work is associated with reduced job stability and more likelihood of experiencing periods of unemployment. However, these negative effects of routine work appear to be concentrated in increased employment to employment, and employment to unemployment transitions rather than longer periods of unemployment.
    Keywords: polarization,occupational mobility,worker flows,tasks
    JEL: J23 J24 J62 E24
    Date: 2018
  86. By: Krishnamurthy, Arvind (Reserve Bank of India); Archarya, Viral V. (Stanford University)
    Abstract: We examine theoretically the role of reserves management and macro-prudential capital controls as ex-post and ex-ante safeguards, respectively, against sudden stops, and argue that these measures are complements rather than substitutes. Absent capital controls, reserves to be deployed ex post are partially undone ex ante by short-term capital flows, a form of moral hazard from the insurance provided by reserves in sudden stops. Ex ante capital controls offset this distortion and thereby increase the benefit of holding reserves. Thus, these instruments are complements. With foreign investment flows into both domestic and external borrowing markets, capital controls need to account for the possibility of regulatory arbitrage between the markets. Through the lens of the model, we analyze movements in foreign reserves, external debt, and the range of capital controls being employed by one large emerging market, viz. India.
    JEL: E44 G12 G2
    Date: 2018–02
  87. By: Juergen Jung; Chung Tran
    Abstract: We study optimal income tax progressivity in an environment where individuals are exposed to idiosyncratic income and health risks over the lifecycle. Our results, based on a calibration for the US economy, indicate that the presence of health risk combined with incomplete insurance markets amplies the social insurance role of progressive income taxes. The government is required to set higher optimal levels of tax progressivity in order to provide more social insurance for unhealthy low income individuals who have limited access to health insurance. The optimal progressive income tax system includes a tax break for income below $36; 400 and high marginal tax rates of over 50 percent for income above $200; 000: The tax progressivity (Suits) indexa Gini coecient for income tax contributions by incomeof the optimal tax system is around 0:53, compared to 0:17 in the benchmark tax system. Yet, the optimal tax system in our model is more progressive than the optimal tax systems in models abstracting from health risk (e.g., Conesa and Krueger (2006) and Heathcote, Storesletten and Violante (2017)). Importantly, the optimal level of tax progressivity is strongly aected by the design of the health insurance system. When health expenditure risk is reduced or removed from the model, the optimal tax system becomes less progressive and thus more similar to the optimal progressivity levels reported in the previous literature.
    Keywords: Health and income risks, Inequality, Social insurance, Tax progressivity, Suits index, Optimal taxation, General equilibrium.
    JEL: E62 H24 I13 D52
    Date: 2018–06
  88. By: Teresa C. Fort; Shawn D. Klimek
    Abstract: This paper documents the extent to which compositional changes in US employment from 1976 to 2009 are due to changes in the industry classification scheme used to categorize economic activity. In 1997, US statistical agencies began implementation of a change from the Standard Industrial Classification System (SIC) to the North American Industrial Classification System (NAICS). NAICS was designed to provide a consistent classification scheme that consolidated declining or obsolete industries and added categories for new industries. Under NAICS, many activities previously classified as Manufacturing, Wholesale Trade, or Retail Trade were re-classified into the Services sector. This re-classification resulted in a significant shift of measured activities across sectors without any change in underlying economic activity. Using a newly developed establishment-level database of employment activity that is consistently classified on a NAICS basis, this paper shows that the change from SIC to NAICS increased the share of Services employment by approximately 36 percent. 7.6 percent of US manufacturing employment, equal to approximately 1.4 million jobs, was reclassified to services. Retail trade and wholesale trade also experienced a significant reclassification of activities in the transition.
    JEL: E24
    Date: 2018–06
  89. By: Donato Masciandaro; Davide Romelli
    Abstract: This paper employs a new and comprehensive database of central bank institutional design to reassess the role of the independence of these public administrations in influencing the macroeconomic performance of countries, before and after the Global Financial Crisis. Using new dynamic indices, the empirical investigation takes into account the evolution of the level of independence in 65 countries over the period 1972-2014. Going beyond the standard correlation between central bank independence and inflation, we confirm the importance of the independence of these public administrations. Importantly we show that the degree of central bank independence is an endogenous variable and stress the relevance of economic and political drivers in shaping the incentives of governments to maintain or reform the governance of these public administrations.
    Keywords: Central Bank Independence, Global Financial Crisis, Macroeconomic Performance, Monetary Policy, Populism, Political Economy, Public Administration
    Date: 2018
  90. By: Pranab Kumar Das (Reserve Bank of India Professor of Industrial Economics, Centre for Studies in Social Sciences, Calcutta(CSSSC).); Bhaswati Ganguli (Department of Statistics, University of Calcutta); Sugata Marjit (Centre for Studies in Social Sciences, Calcutta(CSSSC).); Sugata Sen Roy (Department of Statistics, University of Calcutta)
    Abstract: The paper critically inquires the ‘finance-growth-inequality’ nexus based on an econometric analysis of the IHDS Survey data for two rounds – 2005-06 and 2011-12. The study attempts to assess the co-evolution of finance-growth-inequality in an intertemporal framework. At the household level asset is still the most important determinant of bank loans inspite of several policy measures aimed at financial inclusion. However, the probability of receiving a bank loan increases if any member of the household is active participant of the local level government or caste association. The most important finding of the paper pertains to the econometric result that the household asset grows at the same rate independent of the source of loans - banks or informal moneylenders though the level effect (intercept) is higher if the loan is obtained from banks or lower if the household lives below poverty line. The same observation is also confirmed for per capita income of the households. The phenomenon is explained in a theoretical model of intertemporal choice of entrepreneur-investor to show that if there are both formal and informal sources of borrowing with a constraint on the formal sector borrowing and no constraint on the latter, then growth rates of asset and income are determined by the informal sector interest rate. This result can be generalised for any number of sources of borrowing. This questions the conventional wisdom regarding the policy aimed at financial inclusion. Inequality of income increases independent of the source of borrowing, though the households living below poverty line are worse off in general. If the major source of borrowing is bank for the business and industry then inequality increases more for the above poverty line households than if the major source is moneylenders or the households belong to the below poverty line category. Moneylenders as the source of borrowing is not as regressive as is believed. So the whole issue of financial inclusion needs a review in the light of the findings of the paper.
    Keywords: Financial development, Financial Inclusion Growth, Inequality, Bank, India, IHDS, Logit Model
    JEL: C35 E5 G21 O11
    Date: 2018–05–22
  91. By: Giuseppe Berlingieri (OECD); Sara Calligaris (OECD); Chiara Criscuolo (OECD)
    Abstract: The literature has established two robust stylised facts: (i) the existence of a firm size-wage premium; and (ii) a positive relationship between firm size and productivity. However, the existing evidence is mainly based on manufacturing data only. With manufacturing nowadays accounting for a small share of the economy, whether productivity, size, and wages are closely linked, and how tight this link is across sectors, is still an open question. Using a unique micro-aggregated dataset covering the whole economy in 17 countries over 1994-2012, this paper compares these relationships across sectors. While the size-wage and size-productivity premia are significantly weaker in market services compared to manufacturing, the link between wages and productivity is stronger. The combination of these results suggests that, in a service economy the “size-wage premium” becomes more a “productivity-wage premium”. These results have first-order policy implications for both workers and firms.
    Keywords: Productivity, Size-Premium, Wages
    JEL: D2 E2 J3
    Date: 2018–06–12
  92. By: Dünhaupt, Petra; Hein, Eckhard
    Abstract: Since the early 1980s, financialisation has become an increasingly important trend in developed capitalist countries, with different beginnings, speed and intensities in different countries. Rising inequality has been a major feature of this trend. Shares of wages in national income have declined and personal income inequality has increased. Against this background unsustainable demand and growth regimes have developed and dominated the major economies before the crisis: the "debt-led private demand boom" and the "export-led mercantilist" regime. The current paper applies this post-Keynesian approach on the macroeconomics of finance-dominated capitalism to three Baltic Sea countries, Denmark, Estonia and Latvia, both for the pre-crisis and the post-crisis period. First, the macroeconomics of finance-dominated capitalism are briefly reiterated. Second, the financialisation-distribution nexus is examined for the three countries. Third, macroeconomic demand and growth regimes are analysed, both before and after the crisis.
    Keywords: finance-dominated capitalism,financialisation,distribution,financial and economic crisis,Kaleckian theory of distribution
    JEL: D31 D33 D43 F40 F43 G01
    Date: 2018
  93. By: Botta, Alberto; Tippet, Ben; Onaran, Özlem
    Abstract: In this paper, we provide empirical evidence about the widening divergence between the macroeconomic performances of core eurozone countries and peripheral economies. We note that, while core economies operate close to full employment, there are evident signs of secular stagnation, i.e. widespread long-term unemployment and reduced growth potential, in the periphery. In such a context, we stress that the unconventional monetary policy implemented by the European Central Bank since 2015 has proved largely ineffective to stimulate investment demand and economic recovery in the periphery. More than this, it may even deepen the existing gap between core and peripheral countries. We suggest that a reform of EU industrial policy, which put emphasis on the productive development of underdeveloped regions in the euro area, stands out as the best strategy against the eurozone core-periphery divide and for improving the functioning and effectiveness of EU macro policies.
    Keywords: Secular stagnation; Eurozone; quantitative easing; core-periphery divergence; industrial policy;
    JEL: E58 F36 L52 O52
    Date: 2018–06–05
  94. By: Silvia Miranda Agrippino (Bank of England); Giovanni Ricco (Observatoire français des conjonctures économiques)
    Abstract: This article reviews Bayesian inference methods for Vector Autoregression models, commonly used priors for economic and financial variables, and applications to structural analysis and forecasting.
    Keywords: Bayesian Inference; Vector autoregression models; BVAR; SVAR; Forecasting
    JEL: C30 C32 E00
    Date: 2018–05
  95. By: Laurent Linnemer; Michael Visser
    Abstract: This profile of Jean-Michel Grandmont is based on several interviews we had with him between September 2016 and April 2017. The interviews took place at our CREST offices, located at that time in Malakoff, just south of Paris. The objective of the profile is twofold. First, we trace the career of this highly influential mathematical economist who made seminal contributions to the fields of monetary economics, temporary equilibrium, business cycle theory, and aggregation of individual behavior. Second, we show how Grandmont and his colleagues contributed to changing the French landscape of economic research.
    Keywords: general equilibrium, money, nonlinear dynamics
    JEL: B31 D50 D70 E30
    Date: 2018
  96. By: Danielsson, Jon; James, Kevin R.; Valenzuela, Marcela; Zer, Ilknur
    Abstract: Because increasing a bank's capital requirement to improve the stability of the financial system imposes costs upon the bank, a regulator should ideally be able to prove beyond a reasonable doubt that banks classified as systemically risky really do create systemic risk before subjecting them to this capital punishment. Evaluating the performance of two leading systemic risk models, we show that estimation error alone prevents the reliable identification of the most systemically risky banks. We conclude that it will be a considerable challenge to develop a riskometer that is sound and reliable enough to provide an adequate foundation for macroprudential policy.
    Keywords: G10; G18; G20; G28; G38; Systemic risk; macro-prudential policy; financial stability; risk management
    JEL: N0 E6
    Date: 2016–06–01
  97. By: Udabah, Sylvester; Okolo, Chimaobi
    Abstract: As the large exporter of crude oil, Nigeria heavily depends on oil earnings to fund economic activities. The country also rely heavily on imports of consumables, both oil and non oil consumables. Nigerias vulnerability to crude oil price shock at the international oil market exposes the nation to certain negative shocks. The study investigated the dynamics of crude oil price and exchange rate volatilities and its implication on the cost of living in Nigeria. Structural Generalized Autoregressive Conditional Heteroscedasticity (S-GARCH) was employed to measure the influence of crude oil price volatility on the exchange rate fluctuation as well as their influence on the consumer price index. Oil price and exchange rate volatilities did not significantly pass-through to the consumer price index in Nigeria. However, information on previous volatilities proved a significant determinant of current volatilities. The media should be significantly utilized as a strategic tool to better predict and manage oil price and exchange rate volatilities in Nigeria. Government should further reconsider allowing the importation of certain consumable goods which are also produced in Nigeria, while boosting domestic production and export.
    Keywords: cost of living, exchange rate, oil price, pass-through, volatilities.
    JEL: E31 F13 F31 F41
    Date: 2018
  98. By: Etilé, F.;; Lecocq, S.;; Boizot-Szantaï, C.;
    Abstract: The behavioural impact and acceptability of soft-drink taxes depend crucially on their incidence on consumer prices and welfare across socio-economic groups and markets. We use KantarWorldpanel homescan data to analyse the incidence of the 2012 French soda tax on Exact Price Indices (EPI) measuring consumer welfare from the availability and consumption of Sugar-Sweetened Beverages (SSB) and Non-Calorically Sweetened Beverages (NCSB) at a local geographical level. The soda tax has had significant, similar but small impacts on the EPI of SSB and NCSB (+4%), corresponding to an aggregate pass-through of about 40%. Tax incidence was slightly higher for low-income and high-consuming households. Retailers set higher pass-throughs in low-income, less-competitive and smaller markets. They did not change their product assortments. The lack of horizontal competition in low-income markets had a sizeable effect on tax regressivity. Finally, the negative income gradient in tax incidence was offset by a positive gradient in expected health benefits.
    Keywords: tax incidence; soft drink; exact price index; regressivity; market structure;
    JEL: D12 E31 H22 I18
    Date: 2018–06
  99. By: Jorda, Oscar (Federal Reserve Bank of San Francisco); Schularick, Moritz (University of Bonn); Taylor, Alan M. (University of California, Davis); Ward, Felix (University of Bonn)
    Abstract: This paper studies the synchronization of financial cycles across 17 advanced economies over the past 150 years. The comovement in credit, house prices, and equity prices has reached historical highs in the past three decades. The sharp increase in the comovement of global equity markets is particularly notable. We demonstrate that fluctuations in risk premiums, and not risk-free rates and dividends, account for a large part of the observed equity price synchronization after 1990. We also show that U.S. monetary policy has come to play an important role as a source of fluctuations in risk appetite across global equity markets. These fluctuations are transmitted across both fixed and floating exchange rate regimes, but the effects are more muted in floating rate regimes.
    JEL: E50 F33 F42 F44 G12 N10 N20
    Date: 2018–06–11
  100. By: Buchholz, Manuel; von Schweinitz, Gregor; Tonzer, Lena
    Abstract: The Swiss National Bank abolished the exchange rate floor versus the Euro in January 2015. Based on a synthetic matching framework, we analyse the impact of this unexpected (and therefore exogenous) shock on the stock market. The results reveal a significant level shift (decline) in asset prices in Switzerland following the discontinuation of the minimum exchange rate. While adjustments in stock market returns were most pronounced directly after the news announcement, the variance was elevated for some weeks, indicating signs of increased uncertainty and potentially negative consequences for the real economy.
    Keywords: exchange rate shock,stock markets,uncertainty,synthetic matching
    JEL: C22 E50 F30 F41
    Date: 2018
  101. By: Donato Masciandaro
    Abstract: The lecture notes describe different views in analysing the relationships between the central banking activities – i.e. monetary and banking policies – and the business cycle, using a modified workhorse AS AD model, in order to include in the simplest way uncertainty, expectations and the role of banking and finance, as well as the incentives of the policymakers. The bottom line is to show pedagogically that one size - i.e. a unique economic mainstream – doesn’t fit all – i.e. cannot explain different national and historical business cycles. Therefore it is necessary to know more than one macroeconomic views, and history, politics and empirics matters in disentangling the pros and cons of each of them.
    Date: 2018

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