|
on Macroeconomics |
|
Issue of 2018‒06‒25
118 papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Business Management |
| By: | Xing, Victor |
| Abstract: | San Francisco Fed President Williams attributed low natural rate to longer-term economic factors beyond the influence of central bank policy, such as demographic shift, productivity growth, as well as demand for safe assets. Nevertheless, policy-induced asset price appreciations benefit a small segment of the population to exacerbate rising inequality, and factors such as higher housing costs and lower prime-age homeownership contributed to decline on birth rate. In terms of productivity, expansionary monetary policy induced investors to “reach for yield,” and prolonged “lower for longer” policy regime pushed institutions to fund unproductive “zombie” firms to unintentionally drag on aggregate productivity. Furthermore, BIS research argued that impact of purely real factors on real interest rates may be overestimated, and influence of monetary factors may be correspondingly underestimated to reduce natural rate’s efficacy as a policy guidepost. Finally, global unconventional policies depressed long-maturity bond yields to perversely heighten demand for safe assets. |
| Keywords: | Natural rate, monetary policy, demographics, productivity, demand for safe assets |
| JEL: | D1 E23 E4 E5 J1 |
| Date: | 2018–05–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86981&r=mac |
| By: | Nao Sudo (Bank of Japan); Yosuke Okazaki (Bank of Japan); Yasutaka Takizuka (Bank of Japan) |
| Abstract: | Since it is not directly observable, the natural rate can only be inferred from various estimates based on different methodologies. We discuss the developments and determinants of the natural rate, and the impact of the demographic landscape on its outlook, using estimates derived from structural models by Okazaki and Sudo (2018), and Sudo and Takizuka (2018). Different estimates computed by these structural models, together with other models, suggest that it is likely that the natural rate in Japan has declined continuously since the 1990s, and has currently been around 0%. According to the structural models, the decline has been brought about mostly by changes in neutral technology, but the functioning of financial intermediation has also had an important effect, indicating that these factors will remain crucial to future developments as well. While population aging is predicted to depress the natural rate, it is not likely to depress the rate drastically. |
| Keywords: | Natural rate of interest; DSGE model; OG model |
| JEL: | E20 E32 E43 E44 E52 J11 |
| Date: | 2018–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:boj:bojlab:lab18e01&r=mac |
| By: | Andersson, Fredrik N. G. (Department of Economics, Lund University); Jonung, Lars (Department of Economics, Lund University) |
| Abstract: | The purpose of this report is to derive lessons from inflation targeting in Sweden for the choice of the future monetary policy regime of Iceland. Swedish inflation targeting has been a success in terms of reducing inflation and inflation volatility, but real economic volatility is not lower compared to previous periods. In addition, financial imbalances have grown rapidly. A key lesson is that the Riksbank has closely shadowed the policy of the European Central Bank due to financial integration. In other words, the Riksbank has behaved as if Sweden had a fixed exchange rate to the euro. Our analysis clearly indicates that a small economy cannot pursue an independent monetary policy from the rest of the world in a financially integrated world. Consequently, we suggest a fixed exchange rate arrangement for Iceland, preferably through a currency board. A currency board would provide exchange rate and price stability. A currency board would require domestic reforms to enhance price and wage flexibility as well as proper regulations on the financial system to minimize the risk of future banking crises. |
| Keywords: | Monetary policy; inflation targeting; financial stability; Riksbank; Sweden; Iceland; Central Bank of Iceland |
| JEL: | E42 E43 E44 E47 E52 E58 E62 |
| Date: | 2018–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2018_016&r=mac |
| By: | Abdullah Tahir (State Bank of Pakistan); Jameel Ahmed (State Bank of Pakistan); Waqas Ahmed (State Bank of Pakistan) |
| Abstract: | Business cycle dating, macroeconomic analysis and ex-ante policy prescription based on macroeconomic variables at annual data frequency is inadequate; as high frequency information on the state of the economy, otherwise inherent in quarterly data is averaged out at such low frequency. We use a robust method of disaggregating quarterly series from annual data, such that the aspect and information about the intervening business cycles is preserved. Extracting an orthogonal factor, which encompasses common variation (co-movements) of leading indicators of economic activity at quarterly data frequency, we use seemingly unrelated time series equation (SUTSE) model to disaggregate the annual GDP data into quarterly frequency. Utility of the quarterly GDP estimates is illustrated by (i) determining business cycle dates using a non-parametric Bry-Boschan (1971) algorithm and (ii) estimating the potential GDP and output gap for each of the 11 International Growth Center (IGC) partner countries. |
| Keywords: | Temporal Disaggregation, Business Cycle Dates, Dynamic Linear Model |
| JEL: | C32 E32 E58 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:sbp:wpaper:97&r=mac |
| By: | Arina Wischnewsky; Matthias Neuenkirch |
| Abstract: | In this paper, we provide evidence for a risk-taking channel of monetary policy transmission in the euro area that works through an increase in shadow banks’ total asset growth and their risk assets ratio. Our dataset covers the period 2003Q1–2017Q3 and includes, in addition to the standard variables for real GDP growth, inflation, and the monetary policy stance, the aforementioned two indicators for the shadow banking sector. Based on vector autoregressive models for the euro area as a whole, we find for conventional monetary policy shocks that a portfolio reallocation effect towards riskier assets is more pronounced, whereas for unconventional monetary policy shocks we detect stronger evidence for a general expansion of assets. Country-specific estimations confirm these findings for most of the euro area countries, but also reveal some heterogeneity in the shadow banks’ reaction. |
| Keywords: | European Central Bank, Macroprudential Policy, Monetary Policy Transmission, Risk-Taking Channel, Shadow Banks, Vector Autoregression |
| JEL: | E44 E52 E58 G11 G23 G28 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:trr:wpaper:201803&r=mac |
| By: | Yannis Dafermos; Maria Nikolaidi (University of Greenwich); Giorgos Galanis |
| Abstract: | Using a stock-flow-fund ecological macroeconomic model, we analyse (i) the effects of climate change on financial stability and (ii) the financial and global warming implications of a green QE programme. Emphasis is placed on the impact of climate change damages on the price of financial assets and the financial position of firms and banks. The model is estimated and calibrated using global data and simulations are conducted for the period 2015-2115. Four key results arise. First, by destroying the capital of firms and reducing their profitability, climate change is likely to gradually deteriorate the liquidity of firms, leading to a higher rate of default that could harm both the financial and the non-financial corporate sector. Second, climate change damages can lead to a portfolio reallocation that can cause a gradual decline in the price of corporate bonds. Third, financial instability might adversely affect credit expansion and the investment in green capital, with adverse feedback effects on climate change. Fourth, the implementation of a green QE programme can reduce climate-induced financial instability and restrict global warming. The effectiveness of this programme depends positively on the responsiveness of green investment to changes in bond yields. |
| Keywords: | ecological macroeconomics, stock-flow consistent modelling, climate change, financial stability, green quantitative easing |
| JEL: | E12 E44 E52 Q54 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1712&r=mac |
| By: | Mark A. Carlson; Burcu Duygan-Bump |
| Abstract: | To implement monetary policy in the 1920s, the Federal Reserve utilized administered interest rates and conducted open market operations in both government securities and private money market securities, sometimes in fairly considerable amounts. We show how the Fed was able to effectively use these tools to influence conditions in money markets, even those in which it was not an active participant. Moreover, our results suggest that the transmission of monetary policy to money markets occurred not just through changing the supply of reserves but importantly through financial market arbitrage and the rebalancing of investor portfolios. The tools used in the 1920s by the Federal Reserve resemble the extraordinary monetary policy tools used by central banks recently and provide further evidence on their effectiveness even in ordinary times. |
| Keywords: | Monetary policy ; Unconventional monetary policy ; Central banking ; Administered rates ; Money markets ; Quantitative easing |
| JEL: | E52 E58 N22 |
| Date: | 2018–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2018-19&r=mac |
| By: | Engelbert Stockhammer (Kingston University); Collin Constantine; Severin Reissl |
| Abstract: | The paper proposes a post-Keynesian analysis of the Eurozone crisis and contrasts interpretations inspired by New Keynesian, New Classical, and Marxist theories. The origin of the crisis is the emergence of a debt-driven and an export-driven growth model, which resulted in a rapid increase in private debt ratios and current account imbalances. The reason the crisis escalated in southern Europe, but not in other parts of the world, lies in the unique dysfunctional economic policy regime of the Euro area. European fiscal rules and the Troika impose fiscal austerity on countries in crisis and the separation of fiscal and monetary spaces has made countries vulnerable to sovereign debt crises and forced them to comply. We analyse the role different paradigms attribute to current account imbalances, fiscal policy and monetary policy. Remarkably, opposing views on the relative importance of cost and demand developments in explaining current account imbalances can be found in both heterodox and orthodox economics. Regarding the assessment of fiscal and monetary policy there is a clearer polarisation, with heterodox analysis regarding austerity as unhelpful and large parts of orthodox economics endorsing it. We conclude that there is a weak mapping between post-Keynesian, New Classical, New Keynesian and Marxist theories and different economic policy strategies for the Euro area, which we label Keynesian New Deal, European Orthodoxy, Moderate Reform and Progressive Exit respectively. |
| Keywords: | Euro crisis, European economic policy, sovereign debt crisis, current account balance, fiscal policy, quantitative easing |
| JEL: | B00 E00 E50 E63 F53 G01 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1617&r=mac |
| By: | Rahul Nath |
| Abstract: | This paper derives explicitly an equity pricing relationship in a simple New Keynesian model. This relationship is used to study the equity pricing implications of New Keynesian models. I ï¬ nd that New Keynesian models suffer from the same asset pricing shortcomings as more traditional RBC versions and that this can be attributed to the presence of nominal rigidities. I then add capital adjustment costs to study how the interaction of both investment adjustment costs and capital adjustment costs affect the results. |
| Keywords: | Asset Pricing, New Keynesian, Nominal Rigidities, Investment Adjustment Costs, Capital Adjustment Costs |
| JEL: | E12 E22 E44 |
| Date: | 2018–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:850&r=mac |
| By: | Dave, Chetan; Ghate, Chetan; Gopalakrishnan, Pawan; Tarafdar, Suchismita |
| Abstract: | We build a small open economy RBC model with financial frictions to analyze expansionary fiscal consolidations in emerging market economies (EMEs). We calibrate the model to India, which we view as a proto-typical EME. When factor income tax rates are low, a contractionary fiscal shock has an expansionary effect on output. The economy's debt/GDP ratio falls, and tax revenues rise. When factor income tax rates are high, a contractionary fiscal shock has an expansionary effect on output if government spending is valued sufficiently highly relative to private consumption by households in utility. We identify the mechanisms behind these results, and their implications for actual economies undertaking fiscal reforms. |
| Keywords: | Expansionary Fiscal Consolidations, Fiscal Policy in Small Open Economies, Emerging Market Business Cycles, Financial Frictions. |
| JEL: | E32 E6 E62 |
| Date: | 2018–05–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87086&r=mac |
| By: | Klaus Adam; Michael Woodford |
| 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. |
| JEL: | E52 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24629&r=mac |
| By: | Narayana R. Kocherlakota |
| Abstract: | In the wake of the Lucas Critique, the study of appropriate macroeconomic policy has largely focused on the comparison of different regimes/rules. In practice, few policymakers are faced with making those kinds of choices. In this paper, I examine the problem of a policymaker making but one in a long sequence of similar decisions (like to raise or cut interest rates by a quarter percentage point). I model the policymaker as playing a dynamic game against a forward-looking private sector. My main result is that, under relatively weak conditions, the policymaker's optimal within-equilibrium response to the current state can be found by applying statistical regression methods to past macroeconomic data. Theory is only useful as a source of information about credible functional form restrictions on these regressions. Based on this result, I argue that macroeconomic policy evaluation intended to be of practical value should rely considerably less on putatively structural macroeconomic models and considerably more on regression-based approaches. |
| JEL: | E58 E60 E61 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24643&r=mac |
| By: | Richard Varghese (IHEID, Graduate Institute of International and Development Studies, Geneva); ; |
| Abstract: | Using a cross-country panel of 925 banks from 19 advanced economies, for the period 1981-2016, I examine how the bank lending channel of monetary policy has evolved over time. I find that the sensitivity of lending to bank balance sheet liquidity declines over time, with nearly all the reduction occurring between the early 1990s and the early 2000s. Contrary to normal times, during recessions, more liquid banks reinforce the impact of monetary policy shocks on lending relative to their less liquid counterparts. The sensitivity of non-interest income to lending increases sharply from the late 1990s till the global financial crisis of 2008, and declines in the post-crisis period, indicating pro-cyclicality. Moreover, the relative ability of banks with higher non-interest income to mitigate monetary policy shocks increases sharply towards the end of the sample period, capturing the impact of the prolonged low interest rate environment on transmission process. These findings suggest that the structural changes in the banking industry and the state of the economy have a significant impact on the strength of the bank lending channel. |
| Keywords: | bank lending channel, monetary policy, financial regulation |
| JEL: | E51 E52 E44 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:gii:giihei:heidwp10-2018&r=mac |
| By: | Anne-Marie Rieu-Foucault |
| Abstract: | In the context of the 2007-2009 financial crisis, central banks innovated in the form of multiple unconventional measures. Due to a different history, different mandates and monetary policy implementations, the first crisis measures, mainly for financial stability, differed between the Fed and the ECB, resulting in a balance sheet size and structure of the assets specific to each. After 2015, the ECB's large-scale asset purchase transactions marked a convergence of the unconventional policies of the two central banks, which resulted in the ECB renouncing the principle of separation between monetary policy and stability financial.In addition, the risk-taker of last resort function of the two central banks has increased, although differences persist in their risk management policies (scope of counterparties and securities eligible). |
| Keywords: | Central Banks, Unconventional measures |
| JEL: | E52 E58 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2018-31&r=mac |
| By: | Cloyne, James; Dimsdale, Nicholas; Postel-Vinay, Natacha |
| Abstract: | The impact of fiscal policy on economic activity is still a matter of great debate. And, ever since Keynes first commented on it, interwar Britain, 1918-1939, has remained a particularly contentious case --- not least because of its high debt environment and turbulent business cycle. This debate has often focused on the effects of government spending, but little is known about the effects of tax changes. In fact, a number of tax reforms in the period focused on long-term and social objectives, often reflecting the personality of British Chancellors. Based on extensive historiographical research, we apply a narrative approach to the interwar period in Britain and isolate a new series of exogenous tax changes. We find that tax changes have a sizable effect on GDP, with multipliers around 0.5 on impact and exceeding 2 within two years. Our estimates contribute to the historical debate about fiscal policy in the interwar period and are remarkably similar to the sizeable tax multipliers found after WWII. |
| Keywords: | Fiscal History; Fiscal policy; Macroeconomic Policy; multiplier; narrative approach; Public Finance; taxation |
| JEL: | E23 E32 E62 H2 H30 N1 N44 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12962&r=mac |
| By: | Cravino, Javier; Lan, Ting; Levchenko, Andrei A. |
| Abstract: | We document that the prices of the goods consumed by high-income households are more sticky and less volatile than those of the goods consumed by middle-income households. This implies that monetary shocks can have distributional consequences by affecting the relative prices of the goods consumed at different points on the income distribution. We use a Factor-Augmented VAR (FAVAR) model to show that, following a monetary policy shock, the estimated impulse responses of high-income households' consumer price indices are 22% lower than those of the middle-income households. We then evaluate the macroeconomic implications of our empirical findings in a quantitative New-Keynesian model featuring households that are heterogeneous in their income and consumption patterns, and sectors that are heterogeneous in their frequency of price changes. We find that: (i) the distributional consequences of monetary policy shocks are large and similar to those in the FAVAR model, and (ii) greater income inequality increases the effectiveness of monetary policy, although this effect is modest for realistic changes in inequality. |
| Keywords: | consumption baskets; Distributional Effects; inflation; monetary policy |
| JEL: | E31 E52 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12967&r=mac |
| By: | Angela Abbate; Massimiliano Marcellino |
| Abstract: | We assess to what extent indicators of financial conditions can be considered relevant determinants and predictors of macroeconomic aggregates. The main finding is that controlling for default risk and risk aversion measures improves the forecasts of output, employment and loans, but that this improvement is largely attributable to the recession periods of 2001 and 2008. A structural VAR analysis further reveals that financial condition indicators display significant real effects only after the Great Financial Crisis. In particular, an unexpected increase in the credit spread in 2010 causes an output contraction that lasts for about two years, with an annualised through of 4.8%, and explains up to 35% of the forecast error variance of industrial production. |
| Keywords: | forecasting, credit spreads, SVAR, time-varying parameters |
| JEL: | C53 E02 E27 E37 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp1756&r=mac |
| By: | Javier Lopez Bernardo (Kingston University) |
| Abstract: | This paper offers a novel post-Keynesian theory, in a stock-flow consistent framework, to understand equity returns and their links with economic growth and consumption decisions from a long-run perspective. The main features of such a theory can be summarised as follows. First, there is a negative relationship between Tobin’s q and economic growth. Second, the effect of economic growth on dividend yields and earnings growth is positive, but its effect on the growth in the number of shares is negative (i.e. a ‘dilution effect’), which makes the relationship between equity returns and economic growth undetermined a priori. Third, consumption decisions emerge as crucial drivers for shareholder profitability in the long-run, being such a result very close to Kalecki’s theory of profits, but now applied to financial markets. And fourth, in the post-Keynesian theory the equity yield is determined by aggregate demand, and no theory of risk is needed. Finally, the post-Keynesian theory will be compared against the mainstream financial theory, which features the famous risk-return nexus where asset returns are given by the volatility of the asset with respect to consumption. It will be claimed that the use of risk for determining equity returns at the macroeconomic level is problematic, and that depending on the risk definition assumed, the risk-return relationship can be either positive or negative – being thus such a nexus of little theoretical significance and posing serious problems for mainstream finance. |
| Keywords: | equity yield, dividend yield, Tobin’s q, post-Keynesian macroeconomic theory, Kaleckian growth models, stock-flow consistent models, mainstream finance |
| JEL: | E12 E22 E44 G10 O42 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1613&r=mac |
| By: | Rahul Nath |
| Abstract: | This paper studies how flexible labour decisions affect asset pricing in a Real Business Cycle model. It uses Jaimovich-Rebelo preferences with internal habits in consumption and distinguishes between two income effect channels (i) the ‘habit income effect’ channel and (ii) the ‘separability income effect’ channel. I ï¬ nd that asset prices are superior when the ï¬ rst channel is strong and the second is weak, this is the case of using GHH preferences with internal habits in consumption. |
| Keywords: | Asset Pricing, Income Effects, Jaimovich-Rebelo Preferences |
| JEL: | E13 E32 E44 G12 |
| Date: | 2018–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:851&r=mac |
| By: | Javier Cravino; Ting Lan; Andrei A. Levchenko |
| Abstract: | We document that the prices of the goods consumed by high-income households are more sticky and less volatile than those of the goods consumed by middle-income households. This suggests that monetary shocks can have distributional consequences by affecting the relative prices of the goods consumed at different points on the income distribution. We use a Factor-Augmented VAR (FAVAR) model to show that, following a monetary policy shock, the estimated impulse responses of high-income households' consumer price indices are 22% lower than those of the middle-income households. We then evaluate the macroeconomic implications of our empirical findings in a quantitative New-Keynesian model featuring households that are heterogeneous in their income and consumption patterns, and sectors that are heterogeneous in their frequency of price changes. We find that: (i) the distributional consequences of monetary policy shocks are large and similar to those in the FAVAR model, and (ii) greater income inequality increases the effectiveness of monetary policy, although this effect is modest for realistic changes in inequality. |
| JEL: | E31 E52 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24654&r=mac |
| By: | Guizzo, Danielle; Strachman, Eduardo; Dalto, Fabiano; Feijo, Carmem |
| Abstract: | The influences of financialisation over emerging economies have drawn significant attention on whether these nations are able or not to overcome its constraints and promote satisfactory development levels. The possibilities for overcoming financial dominance, however, deserve further attention on what concerns its structural causes and policy alternatives. This article has two objectives. First, it formalises three key characteristics behind the financialisation of developing economies, focusing on some key elements that differentiate financialisation in developed versus emerging economies: interest rate behaviour; exchange rate volatility and balance of payments dominance. Secondly, it discusses some strategies for developing countries to overcome the effects of financialisation based on the hypothesis of increasing policy space, which allows these economies to retain autonomy on their macroeconomic policies and to conduct domestic policies in an integrated scenario |
| Keywords: | Financialisation, Developing Countries; Interest Rate; Exchange Rate; Policy Space |
| JEL: | E42 E44 E61 |
| Date: | 2018–05–29 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87076&r=mac |
| By: | Cristiano Cantore; Filippo Ferroni; Miguel A. Leon-Ledesma |
| Abstract: | The New-Keynesian transmission mechanism of monetary policy has clear implications for the behavior of the labor share. In the basic version of the model, the labor share is negatively related to the price markup and hence is pro-cyclical conditional on monetary policy shocks. However, little empirical evidence is available on the effect of monetary policy on the labor share and its components. We present a comprehensive cross country empirical analysis and find that the data are at odds with the theory. Cyclically, a monetary policy tightening increased the labor share and decreased real wages and labor productivity during the Great Moderation period in the US, the Euro Area, the UK, Australia and Canada. We then examine models allowing for a wide range of nominal and real rigidities that are important to separate the dynamics of the markup and the labor share. We show that models that do a good job at reproducing the responses of real variables to a monetary policy shock are unable to reproduce the responses of the labor share observed in the data. |
| Keywords: | Labor Share; Monetary Policy Shocks; DSGE models |
| JEL: | E23 E32 C52 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1808&r=mac |
| By: | Andrea Mantovi (Dipartimento di Scienze Economiche e Aziendali, Università di Parma, Italy; Rimini Centre for Economic Analysis) |
| Abstract: | Financial frictions give rise to the value of money. According to DeAngelo and Stulz (2015), such a principle lies at the foundations of banking. It is the aim of this short note to deepen the reach of such a principle in connection with the role of arbitrageurs of interacting with financial frictions. The methodological relevance of such a perspective for the current macroeconomic debate is thoroughly discussed, building on the stylization of “friction-premium pairs”. Such an approach seems to shed new light on the analogy between the macro-role of money and the nature of arbitrage. Potential implications for the theoretical analysis of shadow banking are briefly sketched. |
| Keywords: | Macro Finance, Financial Frictions, Liquidity Transformation, Arbitrage |
| JEL: | E32 E44 G23 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:18-27&r=mac |
| By: | Daniele Girardi (Department of Economics, University of Massachusetts, Amherst); Riccardo Pariboni (Department of Economics, Roma Tre University) |
| Abstract: | As well-known, the canonical Neo-Kaleckian growth model fails to reconcile actual and normal rates of utilization in equilibrium. Some recent contributions revive an old proposal for solving this problem – making the normal rate of utilization an endogenous variable that converges to the actual utilization rate – justifying it with new, micro-founded premises. We argue that these new justifications for the convergence of normal to actual utilization do not stand closer scrutiny. First, the proposed microeconomic model relies on various restrictive assumptions, some of which are mutually inconsistent. Second, the derivation of the macroeconomic adjustment mechanism from the microeconomic analysis involves a logical leap, that can be justified only by a very arbitrary assumption with little economic justification. Finally, we discuss the way in which this mechanism has been incorporated into the Neo-Kaleckian growth model by proposers of this approach. We show that, even if one puts aside, for the sake of argument, the first two points, the existence of autonomous components of demand is sufficient to invalidate the resulting macroeconomic model. |
| Keywords: | Capacity Utilization, Normal Rate of Utilization, Neo-Kaleckian model, Economic Growth |
| JEL: | B50 E11 E12 E22 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ums:papers:2018-11&r=mac |
| By: | Christie Smith (Reserve Bank of New Zealand); Christoph Thoenissen (Department of Economics, University of Sheffield) |
| Abstract: | Shocks to net migration matter for the business cycles. Using an estimated dynamic stochastic general equilibrium (DSGE) model of a small open economy and a structural vector autoregression, we find that migration shocks account for a considerable proportion of the variability of per capita GDP. Migration shocks matter for the capital investment and consumption components of per capita GDP, but they are not the most important driver. Migration shocks are also important for residential investment and real house prices, but other shocks play a larger role in driving housing market volatility. In the DSGE model, the level of human capital possessed by migrants relative to that of locals materially affects the business cycle impact of migration. The impact of migration shocks is larger when migrants have substantially different levels of human capital relative to locals. When the average migrant has higher levels of human capital than locals, as seems to be common in most OECD economies, a migration shock has an expansionary effect on per capita GDP and its components. |
| Keywords: | Migration, macroeconomics, business cycle fluctuations |
| JEL: | E44 E61 F42 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2018006&r=mac |
| By: | Giovanni Ganelli; Neil Rankin |
| Abstract: | We investigate in depth, using predominantly analytical, rather than numerical, methods, the mechanisms which operate following a one-period, debt-financed, fiscal deficit in a small open economy operating under a common currency. The economy incorporates the New Keynesian features of staggered price setting and overlapping generations. Unsurprisingly, these features cause the impact effect to be a boom, in the sense of a positive output gap. However we also find that the boom must later turn into a bust, or negative output gap. Moreover inflation also follows a boom-bust pattern and on average there is deflation rather than inflation. |
| Keywords: | staggered prices, overlapping generations, small open economy, currency union, fiscal deficits, government debt, output gap |
| JEL: | E62 H62 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:18/05&r=mac |
| By: | Yannis Dafermos (UWE Bristol); Maria Nikolaidi; Giorgos Galanis |
| Abstract: | This paper develops a stock-flow-fund ecological macroeconomic model that combines the stock-flow consistent approach of Godley and Lavoie with the flow-fund model of Georgescu-Roegen. The model has the following key features. First, monetary and physical stocks and flows are explicitly formalised taking into account the accounting principles and the laws of thermodynamics. Second, Georgescu-Roegen’s distinction between stock-flow and fund-service resources is adopted. Third, output is demand-determined but supply constraints might arise either due to environmental damages or due to the exhaustion of natural resources. Fourth, climate change influences directly the components of aggregate demand. Fifth, finance affects macroeconomic activity and the materialisation of investment plans that determine ecological efficiency. The model is calibrated using global data. Simulations are conducted to investigate the trajectories of key environmental, macroeconomic and financial variables under (i) different assumptions about the sensitivity of economic activity to the leverage ratio of firms and (ii) different types of green finance policies. |
| Keywords: | ecological macroeconomics, stock-flow consistent modelling, laws of thermodynamics, climate change, finance |
| JEL: | E12 E44 Q54 Q57 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1612&r=mac |
| By: | Julia Körding; Beatrice Scheubel |
| Abstract: | Money markets play a central role in monetary policy implementation. Money market functioning has changed since the financial crisis. This arguably reflects the interaction of two forces: Changes in monetary policy, and changes in regulation. This interaction is not yet well understood. We focus on the newly introduced Liquidity Coverage Ratio (LCR) and how it influences the behaviour of banks and the equilibrium on the money market. We develop a theoretical model to analyse how liquidity regulation may interfere with the central bank's implementation of monetary policy. We find that when the market equilibrium is suboptimal due to asymmetric information, both the central bank and the regulator can act to improve welfare. These actions can be complementary or conflicting, depending on the environment. The main insight from the central bank perspective is that the regulator can reach the welfare optimum, but at the expense of the central bank moving away from its optimum. The central bank will thus need to adjust its implementation of monetary policy accordingly, to address the effects of liquidity regulation. |
| Keywords: | regulation; Basel III; central bank; interbank lending; money market; asymmetric information |
| JEL: | E43 E58 G01 H12 L51 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:596&r=mac |
| By: | Joan R. Rovira (Economic Studies Office, Barcelona Chamber of Commerce (ES)) |
| Abstract: | We identify a set of key stylised facts characterising the evolution of the seven largest advanced economies from the 1960s to 2015 and develop a small one-sector model of growth and distribution broadly consistent with these facts. The model is used to explore the relationship between falling trend growth, the re-distribution of aggregate income towards profits and the concentration of corporate power and wealth. Theory is confronted with history to illustrate how changes in social structure can affect economic behaviour and performance. We argue that finance-led corporate restructuring, involving debt-financed corporate transactions, may have played a crucial role in shaping long-term patterns of growth and distribution. |
| Keywords: | Stagnation, Distribution, Growth, Financialisation, Heterodox Economics |
| JEL: | B22 E11 E12 E44 E65 G01 O11 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1704&r=mac |
| By: | Thomas Obst; Özlem Onaran (University of Greenwich); Maria Nikolaidi |
| Abstract: | This paper develops a multi-country post-Kaleckian demand-led growth model that incorporates the role of the government. One novelty of this paper is to integrate cross-country effects of both changes in income distribution and fiscal policy. The model is used to estimate econometrically the effects of income distribution and fiscal policy on the components of aggregate demand in EU15 countries. The results show that a policy mix that combines the simultaneous implementation of a pro-labour wage policy, an expansionary fiscal policy and a progressive tax policy in all EU countries leads to a significant rise in the EU15 GDP. The impact of wage policies is positive but small; the overall stimulus becomes much stronger with fiscal expansion. This policy mix leads to an improvement in the budget balance in all the EU15 countries, suggesting that expansionary fiscal policy is sustainable when it is combined with wage and progressive tax policy. |
| Keywords: | None |
| JEL: | E12 E25 E62 |
| Date: | 2017–04 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1703&r=mac |
| By: | James Cloyne; Nicholas Dimsdale; Natacha Postel-Vinay |
| Abstract: | The impact of fiscal policy on economic activity is still a matter of great debate. And, ever since Keynes first commented on it, interwar Britain, 1918- 1939, has remained a particularly contentious case | not least because of its high debt environment and turbulent business cycle. This debate has often focused on the effects of government spending, but little is known about the effects of tax changes. In fact, a number of tax reforms in the period focused on long-term and social objectives, often reflecting the personality of British Chancellors. Based on extensive historiographical research, we apply a narrative approach to the interwar period in Britain and isolate a new series of exogenous tax changes. We find that tax changes have a sizable effect on GDP, with multipliers around 0.5 on impact and exceeding 2 within two years. Our estimates contribute to the historical debate about fiscal policy in the interwar period and are remarkably similar to the sizable tax multipliers found after WWII. |
| JEL: | E32 E62 H2 N1 N44 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24659&r=mac |
| By: | Mendy, David; Widodo, Tri |
| Abstract: | The connection between inflation and inflation-uncertainty hypothesis has been tested in so many countries, yet in The Gambia testing the relationship and accounting for structural changes as not been given serious attention to the literature. This paper modelled the inflation-uncertainty hypothesis using monthly inflation series from 1970(1)-2017(5). The GJR-GARCH model was used to generate the conditional variance of the inflation proxied as inflation uncertainty. Then the Pearson correlation was employed across the various samples, and the results vary in sign and magnitude reflecting structural changes within The Gambia’s economy. Finally, Toda Yamamoto (1995) causality test was employed. The results show strong support of a feedback relationship for both the Friedman-Ball and Cukierman-Meltzer hypothesis for the full sample as well as the post Economy Reform Program (ERP) sample; while during the Inflation Targeting Era (ITE) sample; the results indicate strong support of the Friedman-Ball hypothesis and no support of Cukierman-Meltzer hypothesis. The results provide evidence for both empirical and policy implications for the Central Bank. Firstly, the findings provide additional insights into the dynamic relationship between inflation and inflation uncertainty in The Gambia. Secondly, the findings provide policy implication for The Gambian monetary authority to adopt Inflation targeting (IT) as a policy tool. |
| Keywords: | Inflation, Inflation-Uncertainty, GJR-GARCH, Toda Yamamoto Causality Test |
| JEL: | E3 E5 |
| Date: | 2018–05–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86743&r=mac |
| By: | Broner, Fernando A; Clancy, Daragh; Erce, Aitor; Martín, Alberto |
| Abstract: | This paper explores a natural connection between fiscal multipliers and foreign holdings of public debt. Although fiscal expansions can raise domestic economic activity through various channels, they can also have crowding-out effects if the resources used to acquire public debt reduce domestic consumption and investment. Thus, these crowding-out effects are likely to be weaker when public debt is purchased by foreigners. We test this hypothesis on (i) post-war US data and (ii) data for a panel of 17 advanced economies from the 1980's to the present. To do so, we assemble a novel database of public debt holdings by domestic and foreign creditors for a large set of advanced economies. We combine this data with standard measures of fiscal policy shocks and show that, indeed, the size of fiscal multipliers is increasing in the share of public debt held by foreigners. In particular, the fiscal multiplier is smaller than one when the foreign share is low, such as in the U.S. in the 1950's and 1960's and Japan today, and larger than one when the foreign share is high, such as in the U.S. and Ireland today. |
| Keywords: | Fiscal Multiplier; Foreign Holdings of Public Debt; Sovereign debt |
| JEL: | E62 F32 F34 F36 F41 G15 H63 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12960&r=mac |
| By: | Lawrence Christiano; Martin S. Eichenbaum; Benjamin K. Johannsen |
| Abstract: | This paper addresses whether non-uniqueness of equilibrium is a substantive problem for the analysis of fiscal policy in New-Keynesian (NK) models at the zero lower bound (ZLB). There would be a substantive problem if there were no compelling way to select among different equilibria that give different answers to critical policy questions. We argue that learnability provides such a criterion. We study a fully non-linear NK model with Calvo pricing frictions. Our main finding is that the model we analyze has a unique E-stable rational expectations equilibrium at the ZLB. That equilibrium is also stable-under-learning and inherits all of the key properties of linearized NK models for fiscal policy. |
| JEL: | E0 E3 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24612&r=mac |
| By: | Freddy Heylen; Renaat Van de Kerckhove (-) |
| Abstract: | Rising pressure on the welfare state due to aging, forces governments in all OECD countries to develop effective policies to raise employment, in particular employment among older individuals and low educated individuals. Increased sensitivity to rising inequality in society has made the challenge for policy makers only greater. In this paper we evaluate alternative fiscal policy scenarios to face this challenge. We construct and use an overlapping generations model for an open economy where individuals differ not only by age, but also by innate ability and human capital. The model allows us to study effects on aggregate employment, per capita income and welfare, as well as effects for specific age and ability groups. We show that well-considered fiscal policy changes can significantly improve macroeconomic productive efficiency, without increasing intergenerational or intragenerational welfare inequality. Our results strongly prefer a reduction in the labor tax rate on older workers and on all low-wage earners, financed by an overall reduction in non-employment benefits. These results are to be seen as long-run effects for economies at potential output. |
| Keywords: | employment by age, employment of low educated individuals, fiscal policy, heterogeneous ability, human capital, welfare inequality, overlapping generations (OLG) |
| JEL: | E62 H5 I28 J22 J24 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:18/946&r=mac |
| By: | Ho, Sin-Yu; Njindan Iyke, Bernard |
| Abstract: | The classical Phillips curve shows a negative relationship between inflation and unemployment. However, various studies have documented temporal positive and negative relationships between inflation and unemployment, leading to strong criticisms against the Phillips curve. In particular, the triangle approach indicates that the nature of the inflation-unemployment nexus is contingent on the source of the shocks, the length of lagged responses, and the policy response. Similarly, the strong linearity assumption on which the Phillips curve rests may have led to its empirical failure. Prior studies have modelled the possibility of threshold effects in the Phillips curve but no study has established the thresholds of when the relationship switches from negative to positive in the eurozone. This paper addresses this limitation using 11 eurozone countries for the period of January 1999 to February 2017. The paper also estimates both short- and long-run Phillips curves for these countries. We found that, by assuming linearity, there exists a Phillips curve in the short and the long run. We also established that the linearity assumption in the classical Phillips curve might be too strong since there is evidence of threshold effects. The thresholds in unemployment were 5.00% and 6.54%. By estimating the Phillips curve using these thresholds, we found that the relationship between inflation and unemployment is only negative when unemployment is lower than 5.00%. The negative relationship turned positive when unemployment was between 5.00% and 6.54%. Inflation and unemployment are unrelated once a threshold of a 6.54% unemployment rate is surpassed. These findings do not only highlight the importance of threshold effects in the Phillips curve, they also shed light on the need to fight unemployment in the eurozone. |
| Keywords: | Inflation; Unemployment; Nonlinearity; Phillips Curve; Eurozone. |
| JEL: | E24 E31 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87122&r=mac |
| By: | Gosego Mothuti (Department of Economics, Nelson Mandela University); Andrew Phiri (Department of Economics, Nelson Mandela University) |
| Abstract: | Does inflation affect economic growth in Botswana over the short-run and long-run? In applying bounds procedure for modelling ARDL cointegation effects applied to empirical data collected between 1975 and 2016 we find that this hypothesis does not hold true for Botswana as inflation is found to be insignificantly related with economic growth over both the short and long-run. Our growth equation estimates point to increased exports and an appreciated Pula currency as having a significant positive effect on steady-state GDP growth. Further empirical exercises show that an appreciated Pula increases inflation whilst a depreciated Pula decreases inflation for the Botswana economy. Policymakers should be this aware that attainment of lower inflation rates which occurs through a depreciated Pula/Dollar currency will only retard economic growth. |
| Keywords: | Inflation, Economic growth, Exchange rates, Bank of Botswana, Nonlinear autoregressive distributive lag (N-ARDL) model. |
| JEL: | C13 C32 C52 E31 F43 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:mnd:wpaper:1824&r=mac |
| By: | Guido Ascari; Paolo Bonomolo; Hedibert Lopes |
| Abstract: | We propose a generalization of the rational expectations framework to allow for multiplicative sunspot shocks and temporarily unstable paths. Then, we provide an econometric strategy to estimate this generalized model on the data. Our approach yields drifting parameters and stochastic volatility. The methodology allows the data to choose between different possible alternatives: determinacy, indeterminacy and temporary instability. We apply our methodology to US inflation dynamics in the '70s through the lens of a simple New Keynesian model. When temporarily unstable paths are allowed, the data unambiguously select them to explain the stagflation period in the '70s. |
| Keywords: | Rational Expectations; Sunspots; Instability; Indeterminacy; Inflation; Mnetary Policy |
| JEL: | E31 E52 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:597&r=mac |
| By: | Mark Hayes (University of Cambridge) |
| Abstract: | A core proposition of Keynes’s General Theory is that money wages do not determine real wages or employment at the aggregate level in a closed economy. What then is the macroeconomic role of trades unions in the determination of real wages and employment? What are the mechanisms through which bargaining power takes effect? The paper argues that trades unions play important roles in countering employer monopsony as well as in determining the non-wage terms and conditions of employment and the incidence of risk between capital and labour. In the former role, it is the money wage that is relevant, while the latter role is a factor in the determination of aggregate real income and profit, yet the aggregate real wage itself and the wage share are residuals. Trades unions have the potential to support the promotion of full employment with price stability as part of a policy of demand management through the adoption of co-ordinated wage bargaining institutions. |
| Keywords: | Collective bargaining, wage co-ordination, income distribution |
| JEL: | E23 E25 J30 J51 J52 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1615&r=mac |
| By: | Eric Kemp-Benedict |
| Abstract: | This paper presents a step toward a post-Keynesian dynamic model for long-run policy analysis. It is a multi-sector Harrodian-Kaleckian growth model with locally unstable dynamics contained by a Hicksian floor and ceiling. It adopts a model of biased technological change that links productivity growth with the functional income distribution. The model features endogenous wages, prices, labor and capital productivities, capital utilization, employment, and labor participation. At present it lacks government, financial, and foreign sectors, but despite this it exhibits interesting behavior. The model generates asymmetric business cycles, with a long expansion and a short contraction, as well as long waves and changes in the structure of employment. |
| Keywords: | post-Keynesian, Harrodian-Kaleckian, multiplier-accelerator, technological change |
| JEL: | E11 E17 E22 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1702&r=mac |
| By: | Engelbert Stockhammer; Rafael Wildauer (Kingston University) |
| Abstract: | The past decades have witnessed a strong increase in household debt and high growth of private consumption expenditures in many countries. This paper empirically investigates four explanations: First, the expenditure cascades hypothesis argues that an increase in inequality induced lower income groups to copy the spending behaviour of richer peer groups and thereby drove them into debt (‘keeping up with the Joneses’). Second, the housing boom hypothesis argues that increasing property prices encourage household spending and household borrowing due to wealth effects, eased credit constraints and the prospect of future capital gains. Third, the low interest hypothesis argues that low interest rates encouraged households to take on more debt. Fourth, the financial deregulation hypothesis argues that deregulation of the financial sector boosted credit supply. The paper tests these hypotheses by estimating the determinants of household borrowing using a panel of 11 OECD countries (1980-2011). Results indicate that real estate prices and low interest rates were the most important drivers of household debt. In contrast the data does not support the expenditure cascades hypothesis as a general explanation of debt accumulation across OECD countries. Our results are consistent with the financial deregulation hypothesis, but its explanatory power for the 1995-2007 period is low. |
| Keywords: | household debt, income distribution, property prices |
| JEL: | D31 E12 E51 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1710&r=mac |
| By: | Maria Nikolaidi (University of Greenwich); Engelbert Stockhammer |
| Abstract: | Minsky’s ideas have recently gained prominence in the mainstream as well as in the heterodox literature. However, there exists no agreement upon the formal presentation of Minsky’s insights. The aim of this paper is to survey the literature and identify differences and similarities in the ways through which Minskyan ideas have been formalised. We distinguish between the models that focus on the dynamics of debt or interest, with no or a secondary role for asset prices, and the models in which asset prices play a key role in the dynamic behaviour of the economy. Within the first category of models we make a classification between (i) the Kalecki-Minsky models, (ii) the Kaldor-Minsky models, (iii) the Goodwin-Minsky models, (iv) the credit rationing Minsky models, (v) the endogenous target debt ratio models and (vi) the Minsky-Veblen models. Within the second category of models, we distinguish between (i) the equity price Minsky models and (ii) the real estate price Minsky models. Key limitations of the models and directions for future research are outlined. |
| Keywords: | business cycles, financial instability, post-Keynesian economics, debt cycles |
| JEL: | B50 E32 G01 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1706&r=mac |
| By: | Alberto Martin; Enrique Moral-Benito; Tom Schmitz |
| Abstract: | What are the effects of a housing bubble on the rest of the economy? We show that if firms and banks face collateral constraints, a housing bubble initially raises credit demand by housing firms while leaving credit supply unaffected. It therefore crowds out credit to non-housing firms. If time passes and the bubble lasts, however, housing firms eventually pay back their higher loans. This leads to an increase in banks’ net worth and thus to an expansion in their supply of credit to all firms: crowding-out gives way to crowding-in. These predictions are confirmed by empirical evidence from the recent Spanish housing bubble. In the early years of the bubble, non-housing firms reduced their credit from banks that were more exposed to the bubble, and firms that were more exposed to these banks had lower credit and output growth. In its last years, these effects were reversed. |
| Keywords: | Housing bubble, credit, investment, financial frictions, financial transmission, Spain |
| JEL: | E32 E44 G21 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1613&r=mac |
| By: | Esteban Ramon Perez Caldentey (Universidad de Santiago de Chile (CL)) |
| Abstract: | This paper argues that Quantitative Easing (QE) led to significant changes in the global financial system, which, are not conducive to greater financial stability. Through a policy of reserve accumulation, QE disconnected base money from the money supply and deposits from loans. Jointly with the deleveraging process of global banks, QE contributed to restrain the supply of bank credit growth throughout the world. Also global banks continued to expand their trading on the basis of opaque instruments such as derivatives. Moreover, by altering the relative profitability of investing in different assets, QE exerted a positive effect on the performance of the international bond market. This not only spilled into emerging market economies expanding the debt of both the financial sector and the non-financial corporate sector but also has reinforced the role of the asset management industry in financial markets. Due to its concentration and interconnectedness, illiquidity, and pro-cyclicality the asset management industry poses important risks to financial stability. |
| Keywords: | Quantitative easing, financial system, global banks, asset management industry |
| JEL: | E12 E42 E44 E51 |
| Date: | 2017–02 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1701&r=mac |
| By: | Andrew C. Chang |
| Abstract: | I show that the probability that the Board of Governors of the Federal Reserve System staff's forecasts (the "Greenbooks'") overpredicted quarterly real gross domestic product (GDP) growth depends on both the forecast horizon and also whether the forecasted quarter was above or below trend real GDP growth. For forecasted quarters that grew below trend, Greenbooks were much more likely to overpredict real GDP growth, with one-quarter ahead forecasts overpredicting real GDP growth more than 75% of the time, and this rate of overprediction was higher for further ahead forecasts. For forecasted quarters that grew above trend, Greenbooks were slightly more likely to underpredict real GDP growth, with one-quarter ahead forecasts underpredicting growth about 60% of the time. Unconditionally, on average, Greenbooks overpredicted real GDP growth. |
| Keywords: | Asymmetric forecast errors ; Federal open market committee ; Forecast accuracy ; Greenbook ; Monetary policy ; Real-time data |
| JEL: | C53 D23 E00 E17 |
| Date: | 2018–04–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2018-26&r=mac |
| By: | Kuhn, Moritz (University of Bonn); Schularick, Moritz (University of Bonn); Steins, Ulrike I. (University of Bonn) |
| Abstract: | This paper introduces a new long-run dataset based on archival data from historical waves of the Survey of Consumer Finances. The household-level data allow us to study the joint distributions of household income and wealth since 1949. We expose the central importance of portfolio composition and asset prices for wealth dynamics in postwar America. Asset prices shift the wealth distribution because the composition and leverage of household portfolios differ systematically along the wealth distribution. Middle-class portfolios are dominated by housing, while rich households predominantly own equity. An important consequence is that the top and the middle of the distribution are affected differentially by changes in equity and house prices. Housing booms lead to substantial wealth gains for leveraged middle-class households and tend to decrease wealth inequality, all else equal. Stock market booms primarily boost the wealth of households at the top of the distribution. This race between the equity market and the housing market shaped wealth dynamics in postwar America and decoupled the income and wealth distribution over extended periods. The historical data also reveal that no progress has been made in reducing income and wealth inequalities between black and white households over the past 70 years, and that close to half of all American households have less wealth today in real terms than the median household had in 1970. |
| Keywords: | Income and wealth inequality; Household portfolios; Historical micro data |
| JEL: | D31 E21 E44 N32 |
| Date: | 2018–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmoi:0009&r=mac |
| By: | Michael T. Kiley |
| Abstract: | Research has suggested that a rapid pace of nonfinancial borrowing reliably precedes financial crises, placing the pace of debt growth at the center of frameworks for the deployment of macroprudential policies. I reconsider the role of asset-prices and current account deficits as leading indicators of financial crises. Run-ups in equity and house prices and a widening of the current account deficit have substantially larger (and more statistically-significant) effects than debt growth on the probability of a financial crisis in standard crisis-prediction models. The analysis highlights the value of graphs of predicted crisis probabilities in an assessment of predictors. |
| Keywords: | Current account ; Debt ; Equity prices ; Financial crisis ; House prices |
| JEL: | G01 E44 F32 |
| Date: | 2018–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2018-38&r=mac |
| By: | Michl, Thomas (Department of Economics, Colgate University); Oliver, Kayla (Department of Economics, Colgate University) |
| Abstract: | Hysteresis, path dependence, and multiple equilibria are characteristic features of post-Keynesian economics. This paper constructs an otherwise conventional three-equation model that includes a hysteresis-generating mechanism and an invariant output target. We use it to explore the implications for monetary policy of an output targeting policy framework that seeks to reverse the damage caused by hysteresis. We restrict ourselves to negative aggregate demand shocks and positive inflation shocks that in most instances require a disinflationary response from the central bank. One important finding is that as long as inflation expectations are to some degree anchored, the central bank can achieve its output target after an aggregate demand shock by overshooting its inflation target temporarily and running a ``high-pressure labor market." If expectations are unanchored, an aggregate demand shock will not have long-run hysteresis effects because the central bank is obliged to reflate aggressively, replacing on a cumulative basis all the demand that was lost through the shock. However, with unanchored expectations a pure inflation shock will create hysteresis effects since the central bank will need to disinflate and it does not have the option of running a high-pressure labor market. Anchoring gives the central bank this option, making inflation shocks manageable. |
| Keywords: | monetary policy, hysteresis, path dependence, divine coincidence, inflation-expectations anchoring |
| JEL: | E11 E12 O42 |
| Date: | 2017–11–01 |
| URL: | http://d.repec.org/n?u=RePEc:cgt:wpaper:2017-06&r=mac |
| By: | Bofinger, Peter; Haas, Thomas |
| Abstract: | In June 2018 the"Vollgeld" initiative will be submitted to the Swiss people. We contribute to the ongoing discussion of a sovereign money system, by providing a price-theoretic model for the money supply under a "Vollgeld"-system. As banks would no longer have the ability to create money, they are merely intermediaries of funds. The central bank would be the only institution to create money. But the central bank is no longer the only supplier of monetary base for the banking sector on the money market. Banks could also lend from the public and private sector. As the analysis of our model shows,the degree of instability would increase under the "Vollgeld"-system and result in higher interest rate volatility. |
| Keywords: | money supply process,monetary theory,sovereign money |
| JEL: | E51 E52 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wuewep:99&r=mac |
| By: | Carlos D. Santos; Luís F. Costa; Paulo Brito |
| Abstract: | Markup cyclicality has been central for debating policy e§ectiveness and understanding business cycle áuctuations. However, there are two empirical challenges: separating supply (TFP) from demand shocks, and properly measuring the markups. In this article, we use a panel of Portuguese manufacturing Örms for 2004-2014. Since it contains information on product-level prices, we can separate supply from demand shocks. We overcome the markup measurement by using the share of intermediate inputs on revenues,instead of the labor share. Our results suggest that markups are pro-cyclical with TFP shocks, and counter-cyclical with demand shocks. We also show that labor-based markups are pro-cyclical. |
| Keywords: | Markups, Demand Shocks, TFP shocks |
| JEL: | C23 E32 L16 L22 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0412018&r=mac |
| By: | Chen, Siyan; Desiderio, Saul |
| Abstract: | Empirical studies have pointed out that monetary policy may significantly affect income and wealth inequality. To investigate the distributive properties of monetary policy the authors resort to an agent-based macroeconomic model where firms, households and one bank interact on the basis of limited information and adaptive rules-of-thumb. Simulations show that the model can replicate fairly well a number of stylized facts, specially those relative to the business cycle. The authors address the issue using three types of computational experiments, including a global sensitivity analysis carried out through a novel methodology which greatly reduces the computational burden of simulations. The result emerges that a more restrictive monetary policy increases inequality, even though this effect may differ across groups of households. This may put into question the principle of the independence of central banks. In addition, this effect appears to be attenuated if the bank's willingness to lend is lower. |
| Keywords: | economic inequality,monetary policy,agent-based models,NK-DSGE models,stock-flow consistency,global sensitivity analysis |
| JEL: | C63 D31 D50 E52 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201838&r=mac |
| By: | Tudor, Monica Mihaela |
| Abstract: | The objective of this analysis is to investigate the capacity of agriculture to actively contribute to reducing vulnerabilities and the degree of exposure of Romania’s economy to shocks caused by major economic crises. The role of agriculture, as economic and social resilience factor, is analyzed from the perspective of primary sector contribution to the attenuation of shock and to the recovery following the economic-financial crisis that started in 2008. The primary sector contribution to counterbalancing the negative effects on GDP and labour employment generated by the recent economic crisis, by increasing the turnover in agriculture and reasserting the role of occupational outlet, in the conditions of shortage on the labour market, represent a few arguments in favour of the assertion that Romania’s agriculture is a system with relatively high resilience to shocks and at the same time a supplier of economic and social resilience for the entire economy. |
| Keywords: | resilience; agriculture; economic crisis; Romania |
| JEL: | E24 O11 Q1 |
| Date: | 2017–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:85169&r=mac |
| By: | Vincent Koen (OECD); Hidekatsu Asada (OECD); Mohamed Rizwan Habeeb Rahuman (OECD); Adam Bogiatzis (OECD) |
| Abstract: | The Prosperity pillar of the 2030 Agenda for Sustainable Development calls for an integrated approach based on boosting productivity through diversification, upgrading technology and innovation, and increasing employment and entrepreneurship. Thailand needs to address all these challenges to achieve high-income country status by 2036. Over the past decade, limited structural reform and capital investment have held back productivity growth and improvements in well-being, and Thailand has lost ground vis-à-vis regional comparators. More recently, however, economic growth has started to regain momentum helped by a pick-up in global trade, which has supported exports, and by a substantial public infrastructure investment programme. Moving forward, Thailand will need to boost productive capacity in the face of intensified competition with regional peers and rapid demographic ageing. In addition, productivity gains will be increasingly necessary to drive growth. Key areas of focus include improving human resource development, encouraging technology diffusion via cluster development, promoting innovation and digitalisation, improving the SME policy framework and expanding regional integration, as emphasised in the government’s 12th Plan and Thailand 4.0. This Working Paper relates to the Initial Assessment report of the Multi-dimensional Country Review of Thailand (http://www.oecd.org/eco/surveys/multi-d imensional-review-thailand.htm) |
| Keywords: | cluster development, digitalisation, education, fiscal consolidation, innovation, monetary policy, productivity, regional integration, regulatory reform, skills, SMEs, structural reform, trade, TVET |
| JEL: | E44 E62 E66 F13 F15 I25 J21 L78 O15 O38 O47 O53 Q18 R11 |
| Date: | 2018–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1470-en&r=mac |
| By: | Mengus, Eric |
| Abstract: | This paper shows that bailouts of private agents can optimally take the form of the purchase of a defaulting asset, even if this also means paying off external asset holders. When anticipated, this form of bailouts leads to an endogenous implicit guarantee, where even an intrinsically worthless asset may be traded at a positive price. In the presence of borrowing constraints and imperfectly observable private liquidity needs, direct transfers are imperfect so that, when more constrained agents are also more exposed to a given asset, the compensation through asset purchases becomes optimal. I then show that this possibility of implicit guarantee is amplified by other frictions as risk-shifting and ultimately leads to a coordination problem for selecting stores of liquidity. Finally, I derive policy implications for financial regulation and international capital flows. |
| Keywords: | Implicit guarantees; bailouts; intrinsically worthless assets |
| JEL: | E44 F34 G28 |
| Date: | 2017–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:1248&r=mac |
| By: | Guerrieri, Cinzia; Mendicino, Caterina |
| Abstract: | How sizable is the wealth effect on consumption in euro area countries? To address this question, we use newly available harmonized euro area wealth data and the methodology in Carroll et al. (2011b). We find that the marginal propensity to consume out of total wealth averaged across the largest euro area economies is around 3 cents per euro, with a marginal propensity to consume out of financial wealth significantly larger than of housing wealth. Country-group estimates document no significant differences between the largest economies and the rest of the sample. In contrast, remarkable differences emerge between periphery and core countries. JEL Classification: C22, E21, E32, E44 |
| Keywords: | consumption dynamics, financial assets, households wealth, wealth effects |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20182157&r=mac |
| By: | Thanaset Chevapatrakul (Nottingham University Business School); Juan Paez-Farrell (Department of Economics, University of Sheffield) |
| Abstract: | We re-assess the links between inflation targeting and economic performance in a sample of developing countries. We estimate the effects of inflation targeting (IT) using quantile regressions, thus enabling us to consider the whole distribution rather than focusing on the effects at the mean. Our findings indicate that following the implementation of IT, it is the least successful countries – those that have reduced inflation the least – that benefit the most. For the remainder there are no benefits to be had from IT. We also find no evidence that IT affects economic volatility. We provide a small model to account for this evidence. |
| Keywords: | Quantile regression; inflation targeting; emerging markets; monetary policy |
| JEL: | E52 E58 |
| URL: | http://d.repec.org/n?u=RePEc:shf:wpaper:2018005&r=mac |
| By: | International Monetary Fund |
| Abstract: | Four years after exiting a double dip recession, the economic recovery has taken hold, driven by robust domestic demand against the backdrop of increasing house prices. Net exports have also proven resilient to global uncertainties so far, pushing up the already large current account surplus. The pickup in economic activity has resulted in a marked decrease in the unemployment rate. In this context, the coalition agreement, adopted in late 2017 by the new government following general elections earlier on that year, lays out a broad-based fiscal expansion and an ambitious structural reform agenda aimed at strengthening the macroprudential toolkit, reducing duality on the labor market, and overhauling the second pillar of the pension system over the next four years. |
| Date: | 2018–05–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/130&r=mac |
| By: | Guido Baldi, Andre Bodmer |
| Abstract: | We analyze the eects of intangible investment on international out- put synchronization. Using a dynamic stochastic general equilibrium model, we nd that an increase in the importance of intangible cap- ital leads to a higher degree of output comovement across countries. Therefore, countries in which intangible capital is more important are better suited to economic integration, such as forming a monetary union. This oers an insightful perspective on the potential relation between the considerable dierences in intangible capital among Euro- zone members and the discussion surrounding the Eurozone as a sub- optimal currency area. A high stock of intangible capital also tends to attract foreign equity investments, in particular foreign direct in- vestments. We nd that cross-border equity holdings in tangible and intangible capital further increase the degree of output synchroniza- tion. Our results imply that policy reforms to incentivize higher intan- gible capital formation and cross-border equity investments may not only foster economic growth but also improve the functioning of the monetary policy in the Eurozone. |
| Keywords: | International Business Cycles, Investment, Cross-country Correlations, Intangible Capital |
| JEL: | E22 E32 F41 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:ube:dpvwib:dp1810&r=mac |
| By: | Fida Hussain (State Bank of Pakistan); Kalim Hayder (State Bank of Pakistan); Muhammad Rehman (State Bank of Pakistan) |
| Abstract: | This paper attempts to Nowcast Large-scale Manufacturing (LSM) growth in Pakistan, which is generally used as a potential proxy for economic activity in Pakistan. For this purpose, the dynamic factor and penalize regression models are used to extract the unique information set from a range of variables having close association with LSM. Given high seasonality induced volatility in LSM growth, we have also attempted to nowcast the trend and cycles separately. The estimation results show that the predicted LSM series is fairly tracking the actual LSM series. Penalize regression models perform remarkably well in tracing cycles in LSM growth. Whereas, dynamic factor model is more successful in tracing the underlying trend in LSM growth. |
| Keywords: | Nowcasting, Large-scale Manufacturing, Factor Model, Rigged Regressions |
| JEL: | C53 E43 E44 O53 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:sbp:wpaper:98&r=mac |
| By: | Christopher Heiberger (University of Augsburg, Department of Economics); Alfred Maussner (University of Augsburg, Department of Economics) |
| Abstract: | Cho, Cooley, and Kim (RED, 2015) (CCK) consider the welfare effects of removing multiplicative productivity shocks from real business cycle models. In a model that admits an analytical solution they argue convincingly that the positive welfare effect of removing uncertainty can be dominated by a negative mean effect arising from the optimal response of household labor supply. While the presentation of this model is quite elaborate, the details of their subsequent quantitative analysis of several versions of the standard real business cycle model remain vague. We lay out the general procedure of computing second-order accurate approximations of welfare gains or losses in the canonical dynamic stochastic general equilibrium model. In order to be able to consider mean preserving increases in the size of shocks we extend the computation of second-order approximations of the policy functions pioneered by Schmitt-Grohé and Uribe (JEDC, 2004). Our computations show that different from the results reported in CCK the mean effect never dominates the fluctuations effect. Welfare measures computed from weighted residuals methods confirm the logic behind our perturbation approach and verify the accuracy of our estimates. |
| Keywords: | business cycles, mean effect, second order solution, risk aversion, welfare costs |
| JEL: | C63 D60 E32 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:aug:augsbe:0335&r=mac |
| By: | Matthias Schlegl |
| Abstract: | I present a model of secular stagnation with land and infinitely-lived agents with wealth preferences. Land is the prime example of a non-producible productive asset and rules out a negative real interest rate in steady state. With standard wealth preferences, higher land prices stimulate consumption and full employment is always feasible in steady state unless the central bank follows a deflationary policy. In contrast, secular stagnation emerges as the unique equilibrium of the monetary economy if wealth preferences are insatiable. In contrast to conventional wisdom, it is very existence of land itself that prevents full employment from being feasible in this case. Increases in the inflation target are no longer effective in restoring full employment as stagnation is a real phenomenon. These conclusions hold if households require a risk premium on land. Then, a higher risk premium can restore full employment when wealth preferences are insatiable. |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1032&r=mac |
| By: | Isabel Argimón (Banco de España); Clemens Bonner (De Nederlandsche Bank and Vu University Amsterdam); Ricardo Correa (Federal Reserve Board); Patty Duijm (De Nederlandsche Bank); Jon Frost (De Nederlandsche Bank, Vu University Amsterdam and Financial Stability Board); Jakob de Haan (De Nederlandsche Bank, University of Groningen and CESifo); Leo de Haan (De Nederlandsche Bank); Viktors Stebunovs (Federal Reserve Board) |
| Abstract: | Global financial institutions play an important role in channeling funds across countries and, therefore, transmitting monetary policy from one country to another. In this paper, we study whether such international transmission depends on financial institutions’ business models. In particular, we use Dutch, Spanish, and U.S. confidential supervisory data to test whether the transmission operates differently through banks, insurance companies, and pension funds. We find marked heterogeneity in the transmission of monetary policy across the three types of institutions, across the three banking systems, and across banks within each banking system. While insurance companies and pension funds do not transmit homecountry monetary policy internationally, banks do, with the direction and strength of the transmission determined by their business models and balance sheet characteristics. |
| Keywords: | monetary policy transmission, global financial institutions, bank lending channel, portfolio channel, business models. |
| JEL: | E5 F3 F4 G2 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1815&r=mac |
| By: | International Monetary Fund |
| Abstract: | Estonia’s economy is performing well, underpinned by prudent economic management, ongoing structural reforms, and strong institutions. Real economic activity has surprised on the upside, bringing output above potential, and the fiscal position remains strong. Inflation has increased, but is expected to decelerate over 2018. The labor market has been tightening, and unemployment is low. Despite continued strong wage increases, rising export prices have eased pressure on corporate profitability. Over the medium term, low productivity and adverse demographics would weigh on long-term growth prospects. The authorities should take advantage of the current favorable conditions to accelerate structural reforms for sustained growth and income convergence, rather than boost demand through the expansionary policies embedded in the 2018 budget. |
| Date: | 2018–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/125&r=mac |
| By: | Alberto Martín; Enrique Moral-Benito; Tom Schmitz |
| Abstract: | What are the effects of a housing bubble on the rest of the economy? We show that if firms and banks face collateral constraints, a housing bubble initially raises credit demand by housing firms while leaving credit supply unaffected. It therefore crowds out credit to non-housing firms. If time passes and the bubble lasts, however, housing firms eventually pay back their higher loans. This leads to an increase in banks’ net worth and thus to an expansion in their supply of credit to all firms: crowding-out gives way to crowding-in. These predictions are confirmed by empirical evidence from the recent Spanish housing bubble. In the early years of the bubble, non-housing firms reduced their credit from banks that were more exposed to the bubble, and firms that were more exposed to these banks had lower credit and output growth. In its last years, these effects were reversed. Keywords: Housing bubble, Credit, Investment, Financial Frictions, Financial Transmission, Spain. JEL Codes: E32, E44, G21. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:igi:igierp:625&r=mac |
| By: | International Monetary Fund |
| Abstract: | Macroeconomic conditions are improving, as expected, along with sizable policy adjustment and favorable commodity price developments. The economy is recovering, with growth estimated at 3½ percent in 2017 and projected at 3 percent in 2018—with the slight slowdown due to the delayed impact of last year’s drought. Inflation is projected to remain moderate at 2.7 percent on average this year. International reserves rose to US$849 million at end-2017 (5.1 months of non-extractive sector imports) and should continue to do so this year. The primary budget balance excluding grants turned positive in 2017 at 0.3 percent of non-extractive GDP and is expected to remain in positive territory this year. The current account deficit contracted as mining and fishing exports rebounded. Borrowing slowed, with external debt levelling at 72 percent of GDP. |
| Date: | 2018–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/137&r=mac |
| By: | Musgrave, Ralph S. |
| Abstract: | The arguments for government borrowing do not stand inspection, thus the effect of such borrowing is to artificially raise interest rates above their free market level. Since GDP is maximised where prices are at the free market level, absent good reasons for thinking otherwise, it follows that the GDP maximising rate of interest is zero, in the sense that no interest should be offered to those holding base money. It is just possible that there are arguments for a limited amount of borrowing to fund public investments like infrastructure, though conventional thinking on that point is chaotic at the moment. But even if that infrastructure idea is accepted, it does not change the above “permanent zero interest rate” conclusion. |
| Keywords: | interest; government debt; base money; infrastructure |
| JEL: | E43 H30 H54 H63 |
| Date: | 2018–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87111&r=mac |
| By: | Alexander Guschanski; Engelbert Stockhammer |
| Abstract: | This paper analyses the emergence of current account imbalances as a result of the co-existence of trade flows and financial flows. The literature has tended to view these factors in isolation: many post-Kaleckian models, as well as Net-saving approaches assume that financial flows will adjust to trade flows. Models focusing on financial crises feature a strong role for financial flows but ignore drivers of trade flows. Similarly, empirical analyses either ignore drivers of financial flows or insufficiently capture determinants of trade flows. The paper, first, proposes a simple macroeconomic framework of the current account which gives equal emphasis to trade flows, determined by price competitiveness, and financial flows, determined by asset prices. Second, we test a reduced form of the model for 28 OECD countries for the period 1971-2014. Our results indicate that cost competitiveness as well as asset prices play a role in the determination of current accounts, but asset prices have dominated in the last two decades. |
| Keywords: | current account, financial flows, competitiveness, asset prices |
| JEL: | E12 F32 F41 |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1716&r=mac |
| By: | Céline Piton; François Rycx |
| Abstract: | This paper provides robust estimates of the impact of both product and labour market regulations on unemployment using data for 24 European countries over the period 1998-2013. Controlling for country-fixed effects, endogeneity and a large set of covariates, results show that product market deregulation overall reduces the unemployment rate. This finding is robust across all specifications and in line with theoretical predictions. However, not all types of reforms have the same effect: deregulation of state controls and in particular involvement in business operations tends to push up the unemployment rate. Labour market deregulation, proxied by the employment protection legislation index, is detrimental to unemployment in the short run while a positive impact (i.e. a reduction of the unemployment rate) occurs only in the long run. Analysis by sub-indicators shows that reducing protection against collective dismissals helps in reducing the unemployment rate. The unemployment rate equation is also estimated for different categories of workers. While men and women are equally affected by product and labour market deregulations, workers distinguished by age and by educational attainment are affected differently. In terms of employment protection, young workers are almost twice as strongly affected as older workers. Regarding product market deregulation, highly-educated individuals are less impacted than low- and middle-educated workers. |
| Keywords: | Unemployment; Structural reform; Product market; Labour market; Regulation; Employment Protection |
| JEL: | E24 E60 J48 J64 L51 |
| Date: | 2018–06–04 |
| URL: | http://d.repec.org/n?u=RePEc:sol:wpaper:2013/271461&r=mac |
| By: | Brian Lucking; Nicholas Bloom; John Van Reenen |
| Abstract: | This paper revisits the results of Bloom, Schankerman, and Van Reenen (2013) examining the impact of R&D on the performance of US firms, especially through spillovers. We extend their analysis to include an additional 15 years of data through 2015, and update the measures of firms' interactions in technology space and product market space. We show that the magnitude of R&D spillovers appears to have been broadly similar in the second decade of the 21st Century as it was in the mid-1980s. However, there does seem to have been some increase in the wedge between marginal social returns to R&D and marginal private returns with the ratio of marginal social to private returns increasing to a factor of 4 from 3. There is certainly no evidence that the divergence between public and private return has narrowed. Positive spillovers appeared to increase in the 1995-2004 boom. |
| JEL: | E22 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24622&r=mac |
| By: | Cédric Durand (CEPN, Université Paris 13 (FR)); Maxime Gueuder |
| Abstract: | During the past decades, the link between profits and domestic investment has weakened in the biggest high-income economies. The present contribution explores this relaxation of the profits-investment nexus through a profit-centred perspective. Focusing on the impact of the origins and uses of profits, we study the investment behaviour of non-financial corporations in relation to their profits at the macro level since 1980, a period marked by financialisation and globalisation. We contrast three competing hypotheses – the Revenge of the Rentiers, the Financial Turn of Accumulation and Globalisation – and test them through a macro panel data analysis for France, Germany, Italy, Japan, the United Kingdom and the United States over the period 1980-2012. |
| Keywords: | profits, investment, financialisation, globalisation, macro panel analysis |
| JEL: | E22 G35 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1614&r=mac |
| By: | International Monetary Fund |
| Abstract: | The economy is slowing, following the recovery in 2016, reflecting an increased pace of fiscal consolidation and policy uncertainty, partly relating to the forthcoming elections. International reserves, which are already low, continue to decline. While there is significant progress in reducing the high fiscal deficit, the government will fall short in meeting the ambitious fiscal adjustment targets set in the May 2017 budget. The adjustment, if maintained, will lead to a decline in the debt-to-GDP ratio, but debt will remain unsustainable. Further delays in privatization will lead to a continued decline in reserves, while large financing requirements remain a serious challenge. |
| Date: | 2018–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/133&r=mac |
| By: | Lisa Coiffard (Paris Institute of Political Studies, Sciences Po Paris) |
| Abstract: | The changes of the Hungarian financial regulation reflect the power of the Fidesz-government to challenge the European institutions. With the new structure of the Hungarian Central Bank (MNB) and unorthodox macroeconomic policy, Hungary uses the global trends in the financial sector to deviate from the European treaties. The complex European structure is not able to face the new challenges with its tools and is more than ever obliged to counter such behaviors to preserve the credibility and the values of the European project. |
| Keywords: | financial regulation, MNB, ECB, central banks |
| JEL: | E5 G2 H3 K4 N24 P2 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:iwe:workpr:242&r=mac |
| By: | Christian Bayer; Chi Hyun Kim; Alexander Kriwoluzky |
| Abstract: | This paper assesses redenomination risk in the euro area. We first estimate daily default-risk-free yield curves for French, German, and Italian bonds that can be redenominated and for bonds that cannot. Then, we extract the compensation for redenomination risk from the yield spreads between these two types of bonds. Redenomination risk primarily shows up at the short end of yield curves. At the height of the euro crisis, spreads between first-year yields were close to 7% for Italy and up to -2% for Germany. The ECB's interventions designed to reduce the risk of a breakup successfully did so for Italy, but increased it for France and Germany. |
| Keywords: | Euro crisis, redenomination risk, Yield curve, ECB interventions |
| JEL: | E44 F31 F33 G12 G14 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1740&r=mac |
| By: | Bayer, Christian; Kim, Chi; Kriwoluzky, Alexander |
| Abstract: | This paper assesses redenomination risk in the euro area. We first estimate daily default-risk-free yield curves for French, German, and Italian bonds that can be redenominated and for bonds that cannot. Then, we extract the compensation for redenomination risk from the yield spreads between these two types of bonds. Redenomination risk primarily shows up at the short end of yield curves. At the height of the euro crisis, spreads between first-year yields were close to 7% for Italy and up to -2% for Germany. The ECB's interventions designed to reduce breakup risk successfully did so for Italy, but increased it for France and Germany. |
| Keywords: | ECB Interventions; Eurocrisis; redenomination risk; Yield Curve |
| JEL: | E44 F31 F33 G12 G14 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12965&r=mac |
| By: | Ayako Saiki; Jon Frost |
| Abstract: | This is a revaluation of our study which we published in 2014 (Saiki and Frost, 2014) The study found that Japan's unconventional monetary policy (UMP) had widened income inequality in Japan. Since then, the Bank of Japan (BOJ) has further increased the monetary base and inflation has been low (headline inflation is about 1% as of this writing) but positive. We revisit the relationship between Japan's quantitative and qualitative easing (QQE) and find further evidence for our conjecture. The impact of UMP on income distribution may differ in Japan and other countries for various reasons, including differences in household balance sheets and the flexibility of labor markets. |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:tcr:wpaper:e126&r=mac |
| By: | Ewa Karwowski; Engelbert Stockhammer |
| Abstract: | Financialisation research has originally focussed on the US experience, but the concept is now increasingly applied to emerging economies (EMEs). There is a rich literature stressing peculiarities of individual country experiences, but little systematic comparison across EMEs. This paper fills this gap, providing an overview of the debate and identifying six financialisation interpretations for EMEs. These different interpretations stress (1) financial deregulation (2) foreign financial inflows, (3) asset price volatility, (4) the shift from bank-based to market-based finance, (5) business debt, and (6) household indebtedness. We construct and compare measures of the six financialisation interpretations across a sample of 17 EMEs from Latin America, emerging Europe, Africa and Asia, contrasting them with the US and UK, two financialised economies. We find considerable variation in financialisation experiences of EMEs. Asset price volatility is found across continents. Asia has been more exposed to capital inflows, stock markets have gained importance and private sector debt risen. In emerging Europe financial deregulation has been more pronounced with lower levels but strong increases in household debt. The picture is similar in South Africa, the African EME in the sample, where household debt is comparatively high. Financialisation in Latin America is weaker according to our measures. |
| Keywords: | financialisation, emerging markets, financial instability, asset price volatility, heterodox economics |
| JEL: | B50 E30 F34 G01 G12 G15 |
| Date: | 2016–08 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1616&r=mac |
| By: | Thomas Goda (Universidad EAFIT (CO)); Santiago Sanchez |
| Abstract: | This paper uses national accounts data to adjust market and disposable Top 10% and Top 1% household survey income shares for 39 developed and developing countries that are part of the Luxembourg Income Study (LIS). An additional novelty of this study is the distinction between labor and capital income. The obtained results suggest that for most countries top income shares are significantly higher than those reported in household surveys, which mainly underestimate top capital income. While the presented results should be treated with some caution, our easy-to-implement approach seems suitable for countries for which no tax data is available. |
| Keywords: | top income shares, personal income inequality, income distribution, LIS household surveys, system of national accounts (SNA) |
| JEL: | D31 E25 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1711&r=mac |
| By: | Asjad Naqvi; Engelbert Stockhammer |
| Abstract: | This paper presents a post-Keynesian ecological macro model that combines three strands of literature: the directed technological change mechanism developed in mainstream endogenous growth theory models, the ecological economic literature which highlights the role of green innovation and material flows, and the post-Keynesian school which provides a framework to deal with the demand side of the economy, financial flows, and inter- and intra-sectoral behavioral interactions. The model is stock-flow consistent and introduces research and development (R&D) as a component of GDP funded by private firm investment and public expenditure. The economy uses three complimentary inputs – Labor, Capital, and (non-renewable) Resources. Input productivities depend on R&D expenditures, which are determined by relative changes in their respective prices. Two policy experiments are tested; a Resource tax increase, and an increase in the share of public R&D on Resources. Model results show that policy instruments that are continually increased over a long-time horizon have better chances of achieving a "green" transition than one-off climate policy shocks to the system, that primarily have a short-run effect. |
| Keywords: | directed technological change, research and development, green transition, ecological economics, post-Keynesian economics, stock-flow consistency |
| JEL: | E12 O33 Q57 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:pke:wpaper:1714&r=mac |
| By: | Guihai Zhao |
| Abstract: | Equilibrium bond-pricing models rely on inflation being bad news for future growth to generate upward-sloping nominal yield curves. We develop a model that can generate upward-sloping nominal and real yield curves by instead using ambiguity about inflation and growth. Ambiguity can help resolve the puzzling fact that upward-sloping yield curves have persisted despite positive inflation shocks changing from negative to positive news about growth in the last twenty years. Investors make decisions using worst-case beliefs, under which the expectations hypothesis roughly holds. However, inflation and growth evolve over time under the true distribution, and this difference makes excess returns on long-term bonds predictable. The model is also consistent with the recent empirical findings on the term structure of equity returns. |
| Keywords: | Asset Pricing, Financial markets, Interest rates |
| JEL: | G00 G12 E43 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:18-24&r=mac |
| By: | Claudiu Tiberiu Albulescu (Politehnica University of Timisoara); Dominique Pépin (University of Poitiers); Stephen M. Miller (University of Nevada, Las Vegas) |
| Abstract: | This paper investigates and compares the effect of currency substitution between the currencies of Central and Eastern European (CEE) countries and the euro on CEE money demand functions. In addition, we develop a model with microeconomic foundations, which identifies the difference between currency substitution and money demand sensitivity to exchange rate variations. More precisely, we posit that currency substitution relates to the money demand sensitivity to interest rate spreads between CEE countries and the euro area. Moreover, we show how the exchange rate affects money demand, even absent a currency substitution effect. This model applies to any country where an international currency offers liquidity services to domestic agents. The model generates empirical tests of long-run money demand using two complementary cointegrating equations. The opportunity cost of holding the money and the scale variable, either household consumption or output, explain the long-run money demand in CEE countries. |
| Keywords: | Money demand; Open-economy model; Currency substitution; Cointegration; CEE countries |
| JEL: | E41 E52 F41 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2018-06&r=mac |
| By: | Entrop, Oliver; Merkel, Matthias F. |
| Abstract: | In this paper we show that inflation differentials among the countries in the European Monetary Union (EMU) are an economically significant risk to German firms, which make up the largest economy in the EMU. This risk can be interpreted as real "exchange rate exposure" resulting from trade within the euro area. Actually, we find that this EMU exposure is nearly as high as the standard exchange rate exposure caused by trade with non-EMU countries. Moreover, our analysis shows that many of the conventional factors that drive firm-specific exchange rate risk, such as size, debt ratio, asset turnover and foreign business activity, also determine EMU exposure in an economically meaningful way. However, EMU exposure challenges firms' risk management, particularly as it cannot be reduced by standard financial hedging instruments, such as currency derivatives. |
| Keywords: | currency risk,inflation differentials,single-currency area |
| JEL: | F23 F31 G15 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:upadbr:b3118&r=mac |
| By: | Raza, Syed Ali; Shah, Nida; Khan, Waqas Ahmed |
| Abstract: | This study investigates the influence of workers’ remittances on terrorism in 5 South Asian countries. The panel data comprised of 20 years from the period of 1994 to 2013 is used. The advanced econometric techniques i.e, CIPS unit root test, bootstrap cointegration, Pedroni co-integration, FMOLS, fixed effect model and heterogeneous panel causality technique have been applied. The results suggest that the workers’ remittances have a significant positive impact on the terrorism in South Asian countries. The results also indicate that the control variables, i.e., Inflation, unemployment, and population size also have a significant positive relationship with terrorism. The result of causality shows that unidirectional causality exists of remittance, population, and inflation with unemployment, however, bidirectional causality exists between unemployment and terrorism.The sample size is restricted to South Asian countries only so the result cannot be generalized to other countries. This study will help the policymakers of the region, to make necessary amendments in law so that remittance amount does not be accessible to the group to use in terrorist activities. On a larger perspective, only two studies have been carried out that examines the relationship between terrorism and remittance. One study is conducted in the sub-Saharan region by Elu and Price (2011), and the other one is conducted on panel data by Mascarenhas and Sandler (2014). No study to the best of our knowledge has been done in the South Asian context, so this study is conducted to analyze the impact of workers’ remittance on terrorism in South Asian countries. |
| Keywords: | Remittances, Terrorism, South Asian Countries, Econometric techniques |
| JEL: | E00 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86745&r=mac |
| By: | Charles Engel; Jungjae Park |
| Abstract: | This study quantitatively investigates the currency composition of sovereign debt in the presence of two types of limited enforcement frictions arising from a government’s monetary and debt policy: strategic currency debasement and default on sovereign debt. Local currency debt obligations are state contingent because the real value can be changed by a government’s monetary policy, and are therefore a better consumption hedge against income shocks than foreign currency debt. However, this higher degree of state contingency for local currency debt provides policymakers with more temptation to deviate from disciplined monetary policy, thus restricting borrowing in local currency more than in foreign currency. The two financial frictions combine to generate an endogenous debt frontier for local and foreign currency debts. Our model predicts that a country with less disciplined monetary policy borrows mainly in foreign currency, as the country faces a tighter borrowing limit for local currency debt than for the foreign currency debt. Our model accounts for the surge in local currency borrowings by emerging economies in the recent decade and the “Mystery of Original Sin”. An important extension demonstrates that in the presence of an expectational Phillips curve, local currency debt improves the ability of monetary policymakers to commit. |
| JEL: | E52 F3 F41 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24671&r=mac |
| By: | Andreas Tryphonides |
| Abstract: | Economists are often confronted with the choice between a completely specified, yet approximate model and an incomplete model that only imposes a set of behavioral restrictions that are believed to be true. We offer a reconciliation of these approaches and demonstrate its usefulness for estimation and economic inference. The approximate model, which can be structural or statistical, is distorted such that to satisfy the equilibrium conditions which are deemed as credible. We provide the relevant asymptotic theory and supportive simulation evidence on the MSE performance in small samples. We illustrate that it is feasible to do counterfactual experiments without explicitly solving for the equilibrium law of motion. We apply the methodology to the model of long run risks in aggregate consumption (Bansal and Yaron, 2004), where the auxiliary model is generated using the Campbell and Shiller (1988) approximation. Using US data, we investigate the empirical importance of the neglected non-linearity. We find that the distorted model is strongly preferred by the data and substantially improves the identification of the structural parameters. More importantly, it completely overturns key qualitative predictions of the linear model, such as the absence of endogenous time variation in risk premia and level effects, which is crucial for understanding the link between asset prices and macroeconomic risk. |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1805.10869&r=mac |
| By: | Morales, Marina |
| Abstract: | The aim of this paper is to analyze whether the composition of the household during adolescence may be an important determinant of their future unemployment in Spain. To address this issue, we follow the Quantity-Quality model of Becker-Lewis (Becker and Lewis, 1973), using data from the Survey of Living Conditions (2011). Results show that individuals living with both parents at home during their teenage years are less likely to be unemployed in the future. |
| Keywords: | Household composition, Unemployment, Labor Market, Spain |
| JEL: | D10 E24 I32 |
| Date: | 2018–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86770&r=mac |
| By: | Eizo Kawai |
| Abstract: | This study reexamines the skepticism toward the prevailing theories of modern macroeconomics based on the observations of a real economy. Two main hypotheses are tested. First, the price mechanism is significantly incomplete in a Walrasian economy and does not function, particularly under deflation, which leads to market failure in such an economy. This completely differs from "the market failure due to the rigidity of wages and prices, menu cost and asymmetry of information, and so on" as stated by new Keynesianism. The crucial cause of market failure in the Walrasian economy is the unavoidable spillover effects between goods and labor markets under disequilibrium. Walrasian price mechanism completely disregards these effects. Considering these effects, the belief of the Walrasian general equilibrium, along with the assumption of flexible wages and prices, does not hold. The scale of real balance effects is the most critical factor in the study results. A static model suffices for these explications. Dynamic stochastic general equilibrium models are unnecessary and unfeasible. Second, Keynes's unemployment equilibrium is realized due to market failure in the Walrasian economy. Therefore, involuntary unemployment is a result of quantitative aspects and not price aspects. In other words, involuntary unemployment is not caused by the rigidity of real wages but by a shortage of labor demand under rigid real wages. This is possible by re-interpreting the Shapiro-Stiglitz efficiency wage model. Finally, demand is a critical factor in both the short run and long run. |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:tcr:wpaper:e121&r=mac |
| By: | Matteo Maggiori; Brent Neiman; Jesse Schreger |
| Abstract: | We establish that global portfolios are driven by an often neglected aspect: the currency of denomination of assets. Using a dataset of $27 trillion in security-level investment positions, we demonstrate that investor holdings are biased toward their own currencies to such an extent that each country holds the bulk of all foreign debt securities denominated in their own currency. Surprisingly, currency is such a strong predictor of the nationality of a security's holder that the nationality of the issuer - to date, the most powerful predictor in a voluminous literature on cross-border portfolios - adds very little explanatory power. While large firms issue bonds in foreign currency and borrow from foreigners, the vast majority of firms issue only in local currency and do not directly access foreign capital. These patterns hold across countries with the exception of the US, which issues an international currency. The global willingness to hold US dollars means that even smaller US firms that borrow exclusively in dollars have little difficulty borrowing from abroad. Global portfolios shifted sharply away from the euro and toward the dollar after the 2008 financial crisis, further cementing the dollar's international role and potentially amplifying the benefit its status brings to the US. |
| JEL: | E4 F3 F5 G1 G2 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24673&r=mac |
| By: | Melvin Stephens Jr.; Desmond Toohey |
| Abstract: | While the literature finding a decrease in food expenditures at retirement suggests households do not adequately save for retirement, subsequent evidence that nutrient intake is unaffected by retirement has tempered these concerns. We further examine nutrient intake changes at retirement both by analyzing a much wider range of datasets, including longitudinal data, and by improving upon the empirical methodology used in earlier work. Our analysis yields four main results. First, unlike prior work, we find that caloric and nutrient intake fall at retirement in numerous cross-sectional datasets. We can reconcile these contrasting results as being due to well-documented differences and improvements in methodologies used to measure food intake. Second, using longitudinal data, we also find that intake falls at retirement. Third, we show that a food consumption index used in prior work to capture the relationship between permanent income and foods eaten can severely underestimate the impact of retirement on consumption. We show that a minor methodological revision circumvents this bias and that the revised consumption index falls at retirement. Finally, while unemployment reduces the consumption index, we find, in contrast to prior work, that the impact of retirement on the consumption index is larger. Overall, we consistently find that retirement reduces food intake. |
| JEL: | E21 J26 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24621&r=mac |
| By: | Sheila Dow (Department of Economics, University of Victoria) |
| Abstract: | The modern debate about monetary reform has taken on a new twist with the development of distributed ledger payments technology employing private digital currencies. In order to consider the appropriate state response, we go back to first principles of money and finance and the case for financial regulation: to ensure provision of a safe money asset and a stable supply of credit within an inherently unstable financial system. We consider calls to privatise money or to restrict money issue to the state against the background of the increasing marketisation of the financial sector and money itself. Following an analysis of private digital currencies, we then consider proposals for state issue of digital currency. It is concluded that the focus of attention should instead be on updating of regulation, not only to encompass digital currencies, but also to address other innovations in the financial sector which generate credit and liquidity, in order to meet the needs of the real economy. JEL Classification: E3, E5, G1 |
| Keywords: | Digital Currencies, Central Banks, Financial Instability, Financial Regulation |
| Date: | 2018–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:vic:vicddp:1805&r=mac |
| By: | Brindusa Anghel (Banco de España); Henrique Basso (Banco de España); Olympia Bover (Banco de España); José María Casado (Banco de España); Laura Hospido (Banco de España); Mario Izquierdo (Banco de España); Ivan A. Kataryniuk (Banco de España); Aitor Lacuesta (Banco de España); José Manuel Montero (Banco de España); Elena Vozmediano (Banco de España) |
| Abstract: | This document analyses the level of inequality in Spain and how it evolved over the course of the past crisis and the early stages of the current recovery. To this end, it first introduces the various dimensions of wage, income, consumption and wealth inequality, and analyses how they have developed. The analysis shows less wage dispersion in Spain than in other comparable economies, even after the crisis years, while the surge in unemployment during the period resulted in a high level of inequality in per capita income. The level of inequality in Spain is more moderate when total gross household income is analysed, decreasing during the crisis as a result of pensions developing more favourably than other sources of income, in conjunction with young people delaying setting up home. Inequality in per capita consumption rose during the crisis, particularly as a result of a decrease in expenditure on consumer durables by low-income households. Wealth inequality exceeds income inequality and increased during the downturn as a result of financial assets outperforming real assets. nevertheless, Spain’s wealth inequality is moderate by international standards, as ownership of real assets is more widespread than in other countries. The way inequality has evolved during the early stages of the current economic recovery shows that falling unemployment has enabled a reduction in wage income inequality, as well as in per capita income inequality, albeit to a lesser extent. |
| Keywords: | inequality, wage, labour supply, personal income, household saving, household consumption, wealth |
| JEL: | D31 J31 D14 E21 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:bde:opaper:1806&r=mac |
| By: | Raffaella Barone; Domenico Delle Side; Donato Masciandaro |
| Abstract: | The aim of the paper is to analyze theoretically and empirically the impact the macroeconomic cycle has on the accumulation of capital by organized crime, using estimates for the global drug market. So far the economic literature has neglected the relationships existing between illegal markets, money laundering, and the business cycle. We propose a dynamic model where the business cycle influences the criminal economy via two different channels. On the one side, illegal markets grow at variable rates, depending on the health of the legal economy. Secondly, a pass-through effect can exist, since the business cycle affects the legal markets which criminal operators use to launder their revenues. Furthermore, we analyze the consequences of a “saturation effect” limiting maximum accumulation of illegal capital. We find that overall illegal capital is affected by the business cycle through a capital multiplier; in addition to this, the dynamics of interest rates in financial markets can influence such multiplier. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp1747&r=mac |
| By: | Ho, Sin-Yu; Njindan Iyke, Bernard |
| Abstract: | In this paper, we re-assess the finance-growth-poverty linkage in Ghana during the period 1960–2015. We account for structural changes and omitted variable bias, using a modified multivariate distributed lag framework. We find financial development to cause economic growth, which in turn causes poverty reduction in Ghana. This has useful policy implications. |
| Keywords: | Financial Development; Economic Growth; Poverty Reduction; Ghana. |
| JEL: | C32 E44 I32 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87121&r=mac |
| By: | Bagus, Philipp; Howden, David; Huerta de Soto Ballester, Jesús |
| Abstract: | Barnett and Block (forthcoming) claim that Bagus and Howden (2012b) support indirectly the concept of market failure. In this paper we show that maturity mismatching in an unhampered market may imply entrepreneurial error but cannot be considered a market failure. We demonstrate why fractional-reserve banking leads to business cycles even if there is no central bank and why maturity mismatching does not per se lead to clusters of errors in a free market. Finally, we assure that, in contrast to the examples provided by Barnett and Block, maturity mismatching does not imply the creation of two incompatible contracts due to the fungible nature of money. |
| Keywords: | Borrow; lend; deposit; loan; compatible contracts; fungible goods; specific goods; maturity mismatching, fractional-reserve banking, ABCT; banking ethics |
| JEL: | E2 E59 P16 |
| Date: | 2018–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86706&r=mac |
| By: | Sang-Wook (Stanley) Cho; Julian P. Daz |
| Abstract: | We construct an applied general equilibrium model to account for diverging patterns of the skill premium. Our framework assesses the roles of various factors that a ect the demand and supply of skilled and unskilled labor|shifts in the skill composition of the labor supply, changes in the terms of trade and the complementarity between skilled labor and equipment capital in production. We nd that increases in the relative skilled labor supply due to demographic changes lead to a decline in the skill premium, while equipment capital deepening raises the relative demand for skilled labor which in turn increases the skill premium. In addition, terms of trade changes lead to the reallocation of resources towards sectors in which countries enjoy comparative advantages. Since our model incorporates multiple factors simultaneously, it can generate either rising or falling skill premium paths. When we parametrize the model to the Baltic states|countries that were similar along many dimensions at the onset of their transition from centrally-planned to market-oriented economies|our model can closely account for the diverging patterns of skill premia for the period between 1995 and 2008. |
| Keywords: | skill premium, international trade, capital-skill complementarity, demographic change, Baltic state |
| JEL: | E25 J24 J31 |
| URL: | http://d.repec.org/n?u=RePEc:eea:boewps:wp2018-01&r=mac |
| By: | Richard Hornbeck; Enrico Moretti |
| Abstract: | We estimate the local and aggregate effects of total factor productivity growth on US workers' earnings, housing costs, and purchasing power. Drawing on four alternative instrumental variables, we consistently find that when a city experiences productivity gains in manufacturing, there are substantial local increases in employment and average earnings. For renters, increased earnings are largely offset by increased cost of living; for homeowners, the benefits are substantial. Strikingly, local productivity growth reduces local inequality, as it raises earnings of local less-skilled workers more than the earnings of local more-skilled workers. This is due, in part, to lower geographic mobility of less-skilled workers. However, local productivity growth also has important general equilibrium effects through worker mobility. We estimate that 38% of the overall increase in workers' purchasing power occurs outside cities directly affected by local TFP growth. The indirect effects on worker earnings are substantially greater for more-skilled workers, due to greater geographic mobility of more-skilled workers, which increases inequality in other cities. Neglecting these general equilibrium effects would both understate the overall magnitude of benefits from productivity growth and misstate their distributional consequences. Overall, US workers benefit substantially from productivity growth. Summing direct and indirect effects, we find that TFP growth from 1980 to 1990 increased purchasing power for the average US worker by 0.5-0.6% per year from 1980 to 2000. These gains do not depend on a worker's education; rather, the benefits from productivity growth mainly depend on where workers live. |
| JEL: | E24 J0 R0 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:24661&r=mac |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:292&r=mac |
| By: | Louisa Kammerer; Miguel D. Ramirez (Department of Economics, Trinity College) |
| Abstract: | This paper examines the challenges firms(and policymakers) encounter when confronted by a recession at the zero lower bound, when traditional monetary policy is ineffective in the face of deteriorated balance sheets and high costs of credit. Within the larger body of literature, this paper focuses on the cost of credit during a recession, which constrains smaller firms from borrowing and investing, thus magnifying the contraction. Extending and revising a model originally developed by Walker (2010) and estimated by Pandey and Ramirez (2012), this study uses a Vector Error Correction Model with structural breaks to analyze the effects of relevant economic and financial factors on the cost of credit intermediation for small and large firms. Specifically, it tests whether large firms have advantageous access to credit, especially during recessions. The findings suggest that during the Great Recession of 2007-09 the cost of credit rose for small firms while it decreased for large firms, ceteris paribus. From the results, the paper assesses alternative ways in which the central bank can respond to a recession facing the zero lower bound. |
| Keywords: | Cost of credit; General impulse response functions; Granger causality test; Great Recession; Gregory Hansen single-break cointegration test; Johansen cointegration test; KPSS unit root test; Monetary policy; Vector error correction model (VECM); Small and large firms; and Zero lower bound (ZLB). |
| JEL: | C22 E50 G01 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:tri:wpaper:1707&r=mac |
| By: | Byron Botha; Franz Ruch; Rudi Steinbach |
| Abstract: | Potential growth, or the non-inflationary rate of growth in output, is generally viewed as a slow-moving and smooth process. This implies that all the sudden changes in real gross domestic product (GDP), regardless of origin, are reflected in the output gap. There are, however, short-lived supply shocks. Recent examples include the platinum-sector strike of 2014 and the drought of 2015/16 that are more accurately identified as temporary shifts in potential growth. We update the South African Reserve Bank's current, finance-neutral, estimates of potential growth to account for these short-lived supply shocks. We compare the supply shocks, that should shift potential growth rather than the output gap generated from the model, to a structural vector autoregression (SVAR) model. The resulting output gap more accurately reflects a measure of demand pressures in the economy at any given point in time. The output gap is not as wide as previously estimated after 2015. |
| Date: | 2018–06–22 |
| URL: | http://d.repec.org/n?u=RePEc:rbz:wpaper:8605&r=mac |
| By: | Mengus, Eric; Challe, Edouard; Lopez, Jose Ignacio |
| Abstract: | This paper analyzes, empirically and theoretically, the link between capital inflows and the quality of economic institutions. Starting with the example of Southern European countries (Spain, Portugal, Italy and Greece), we show that they experienced a significant decline in the quality of their institutions in the run-up to the euro currency, a period of cheap external funding and large capital inflows. We confirm this joint pattern of capital flows and institutional decline in a large panel of countries since the mid-1990s. We then develop an open-economy model of the "soft budget constraint" syndrome wherein persistently cheap funding from abroad (i) raises the prevalence of extractive projects and (ii) expands their support by the (benevolent) government ex post. While the government may in principle limit the prevalence of extractive projects ex ante, we show that the incentives to do so is limited when foreign borrowing is cheap. |
| Keywords: | Institutions; current account |
| JEL: | E02 F33 G15 |
| Date: | 2019–01–19 |
| URL: | http://d.repec.org/n?u=RePEc:ebg:heccah:1247&r=mac |
| By: | Adam Bogiatzis (OECD); Hidekatsu Asada (OECD); Mohamed Rizwan Habeeb Rahuman (OECD) |
| Abstract: | The Partnerships pillar of the 2030 Agenda for Sustainable Development cuts across all the goals focusing on the mobilisation of resources needed to implement the agenda. Thailand’s “sufficiency economy philosophy” encourages the prioritisation of long-term sustainability over short-term benefits. As such, Thailand has a long history of fiscal prudence that has served the country well in times of economic and political instability. However, relying on current fiscal buffers to finance foreseeable expenditure pressures is not sufficient or sustainable. A rapidly ageing population and shrinking workforce will weigh on future public finances and on the ability to achieve the Sustainable Development Goals. To ensure that Thailand is well placed over the medium term to meet growing social, environmental and infrastructure requirements, the government should: (i) increase tax revenues by broadening the tax base and enhancing collection efficiency; (ii) facilitate greater private sector investment in productive infrastructure; and (iii) reform the healthcare and pension systems to increase their efficiency and effectiveness. This Working Paper relates to the Initial Assessment report of the Multi-dimensional Country Review of Thailand. (http://www.oecd.org/eco/surveys/multi-d imensional-review-thailand.htm) |
| Keywords: | Fiscal consolidation, healthcare, inclusive growth, pension, public-private partnerships, regional development, social protection, tax, transfer |
| JEL: | E62 H21 H30 H51 H54 H55 H61 H62 H63 H68 H70 |
| Date: | 2018–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1471-en&r=mac |
| By: | Celebi, Kaan; Hönig, Michaela |
| Abstract: | Today we live in a post-truth and highly digitalized era characterized by the flow of (mis-)information around the world. Identifying the impact of this information on stock markets and, moreover, forecasting stock returns and volatilities has become a much more difficult, and perhaps an almost impossible, task purpose. This paper investigates the impact of macroeconomic factors on the German main stock index, the DAX30, for the time period from 1991 to 2016. There are no comparable investigations for the DAX regarding this time period and the GARCH approach in the literature. Using a dataset about 23 variables and over a timeframe of about 25 years, we find evidence that the growth rates of money supply M1 have a strong impact on the stock returns. The results illustrate that in the post-crisis period more macroeconomic factors have a significant impact on the German stock market compared to the pre-crisis period. This implies that in the post-crisis period a macro-driven market is prevailing. In the post-crisis period, however, increasing saving rates, M2 and M3 lead to shrinking stocks values due to higher risk aversion. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fhfwps:13&r=mac |
| By: | Mughal, Khurrum; Schneider, Friedrich |
| Abstract: | Shadow economy encompasses wide array of activities that influence the official economy and government policies, either directly or indirectly. In this paper we estimate the shadow economy of Pakistan using currency demand approach with two econometric approached, i.e. one using Auto Regressive Distributed Lag (ARDL) model and two with Engel Granger two step approach. Additionally, we use a variant of currency demand approach where along with tax variable we include unemployment rate and intensity of government control as indicator variables of shadow economy, for the first time in case of Pakistan. The average shadow economy of Pakistan estimated from 1973-2015 as percentage of GDP is 26.41, 25.29, and 26.11 from Models 1, 2, and 3 respectively. Furthermore, we analyzed interaction between the official and shadow sector using ARDL model. Our results show a significantly increasing shadow economy in Pakistan with positive impact on the official sector in long run while negative impact in the short run. This again is a novelty in our paper where we observe short and long run impacts separately along with dynamic simulations to show Pakistan’s GDP per Capita in the absence of shadow economy. |
| Keywords: | Shadow Economy, Pakistan, Impact of the official Sector, Currency Demand Approach |
| JEL: | E26 H26 K42 O17 |
| Date: | 2018–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87087&r=mac |
| By: | Mendy, David; Widodo, Tri |
| Abstract: | This paper aims to identify the Indonesia rupiah per US dollar turning points using a regime switching model. Firstly, to detect if nonlinear model suits the data at hand, the BDS test and CUSUM of square test was used and the results indicates that a nonlinear model suits the data. The paper then proceeds by using a univariate two state Markov Switching autoregressive model (MSAR) developed by Hamilton (1989), Engel and Hamilton (1990) to capture regime shifts behaviour in both the mean and the variance of the Indonesian rupiah per US dollar exchange rate between 2000 to 2015. The empirical evidence indicates strong transition probabilities suggesting that only extreme events can switch the series from an appreciation regime to a depreciation regime vice versa. Moreover, the results of the MSAR model was found to successfully capture the timing of the regime shifts of the Indonesian rupiah per US dollar exchange rate because of government intervention, Indonesian presidential elections, US financial crises of 2008, and the Indonesian current account deficit in 2013. Finally, the non-linear exchange rate dynamic of the Indonesian rupiah implied that regime-switching models have potential important implication for the macroeconomic literature documenting the effect of monetary policy shock and political environment on the economic aggregates. Furthermore, regime-switching models is well suited to capture the non-linearities in exchanges rate. |
| Keywords: | Exchange rates (Indonesian Rupiah per US Dollar), Nonlinearity, Markov switching model(MSAR) |
| JEL: | E3 E5 |
| Date: | 2018–05–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86728&r=mac |
| By: | Wolfgang Britz (Institute for Food and Resource Economics, University of Bonn); Roberto Roson (Department of Economics, University Of Venice Cà Foscari; IEFE Bocconi University) |
| Abstract: | In this paper we present a computable general equilibrium model (G-RDEM), specifically designed for the generation of long run scenarios of economic development, featuring a non-homothetic demand system, endogenous saving rates, differentiated industrial productivity growth, interest payments on foreign debt and time-varying input-output coefficients. To the best of our knowledge, this is the first model of this kind. We illustrate how parameters of the five modules of structural change have been estimated, and we test the model by comparing its results with those obtained by a more conventional recursive dynamic CGE model. Both models are driven by the same GDP and population data, exogenously provided by the IPCC Shared Socio-economic Pathway 3. GDP levels determine the endogenous productivity parameters. Population affects the definition of per capita income, which in turn affects the household demand system and the variation of input-output coefficients. Information on the demographic structure is also employed to modify the aggregate saving rate parameters. It is found that the two models do produce different findings, both globally and at the regional and industrial level. Understanding the origins of such differences sheds some light on how mechanisms of structural change operate in the long run. |
| Keywords: | Computable General Equilibrium models; Long-run economic scenarios; Structural change |
| JEL: | C68 C82 C88 D58 E17 F43 O11 O40 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2018:12&r=mac |
| By: | Abderrazak Said Belabes عبدالرزاق سعيد بلعباس (Associate Professor Researcher, Islamic Economics Institute King Abdulaziz University, Jeddah, Saudi Arabia باحث بمعهد الاقتصاد الإسلامي، جامعة الملك عبدالعزيز، المملكة العربية السعودية) |
| Abstract: | The paper deals with a Ph.D. thesis on economic feasibility study and its impact on the decision of financing in the banking sector, based on a sample composed of four Islamic banks operating in Jordan. After presenting the thesis plan along with the most important findings and recommendations, the paper proposes some methodological guidance for a foundation of the concept of feasibility study, which has been widely circulated in recent times, especially in the field of Awq?f, characterized primarily by the social impact. تتناول الورقة أطروحة دكتوراه عن دراسة الجدوى الاقتصادية وأثرها في اتخاذ قرار التمويل في القطاع المصرفي بناء على عينة مكونة من أربع مصارف إسلامية تعمل في الأردن. بعد عرض خطة الأطروحة وأهم النتائج والتوصيات التي توصلت إليها، تقترح الورقة بعض المعالم المنهجية لتأصيل مفهوم دراسة الجدوى الذي كثر تداوله في الآونة الأخيرة، لا سيما في مجال الأوقاف التي تتميّز بالدرجة الأولى بالأثر الاجتماعي. |
| Keywords: | Feasibility Study, Islamic Banks, Finance, Awq?f. دراسة الجدوى الاقتصادية، المصارف الإسلامية، التمويل، الأوقاف. |
| JEL: | E22 J42 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:abd:jkaubr:14&r=mac |
| By: | International Monetary Fund |
| Abstract: | The Colombian economy is at a turning point, recovering from the large oil price shock of 2015?16 that put a break on high growth, pushed up inflation, and widened the current account deficit. A very strong policy framework and well-executed policies, including a tax reform, narrowed external imbalances and laid the foundations for an economic recovery. Growth picked up in 2017H2 and inflation has been hovering around the top of the target band. |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/128&r=mac |
| By: | Esther Mirjam Girsberger (University of Lausanne); Miriam Rinawi (Swiss National Bank); Matthias Krapf (University of Basel) |
| Abstract: | How skills acquired in vocational education and training (VET) affect wages and employment is not clear. We develop and estimate a search and matching model for workers with a VET degree. Workers differ in interpersonal, cognitive and manual skills, while firms require and value different combinations of these skills. Assuming that match productivity exhibits worker-job complementarity, we estimate how interpersonal, cognitive and manual skills map into job offers, unemployment and wages. We find that firms value cognitive skills on average almost twice as much as interpersonal and manual skills, and they prize complementarity in cognitive and interpersonal skills. The average return to VET skills in hourly wages is 9%, similar to the returns to schooling. Furthermore, VET appears to improve labour market opportunities through higher job arrival rate and lower job destruction. Workers thus have large benefits from acquiring a VET degree. |
| Keywords: | Occupational training, vocational education, labor market search, sorting, multidimensional skills |
| JEL: | E24 J23 J24 J64 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:iso:educat:0153&r=mac |
| By: | Nilofer, Nilofer; Qayyum, Abdul |
| Abstract: | Investment is vital ingredients of growth in an economy. Saving contributes to investment which contributes to physical and human capital formation both of which promote growth of Gross Domestic Product (GDP) of a country. This study aims at determining the role of the three types of investment i.e., public, private and foreign direct investment (FDI) in the growth of Pakistan economy with a special focus on the contribution of FDI in GDP growth of the Pakistan. Cointegration analysis of time series data was used to analyze model. Autoregressive Distributed Lag (ARDL) approach has been used to analyze the long run relationship between GDP growth, investment and government expenditure for Pakistan using data (1970-2015). The results indicate that while public and private investment and lending rate have a positive impact on growth, public consumption and FDI decelerate GDP growth. Also the investor confidence should be bolstered by improving the law and order and security situation of the country and introducing investment friendly policies to further harness the positive impact of investment on growth. |
| Keywords: | Investment, FDI, Growth, Cointegration, Autoregressive Distributed Lag Model, Bounds Testing, Pakistan |
| JEL: | E22 O4 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86961&r=mac |
| By: | Luigi Guiso (Einaudi Institute for Economics and Finance (EIEF) and CEPR); Tullio Jappelli (University of Naples Federico II, CSEF, and CEPR) |
| Abstract: | Rational investors perceive correctly the value of financial information. Investment in information is therefore associated with a higher expected portfolio return and Sharpe ratio. Overconfident investo rs overstate the quality of their own information, and thus investment in information is associated with a lower expected Sharpe ratio despite they realize higher average returns. We contrast the implications of these two models using two unique surveys of customers of a leading Italian bank with portfolio data and measures of financial information. We find that the investment in information is positively associated with returns to financial wealth and negatively to Sharpe ratio. The latter falls with proxies for overconfidence. We relate these findings to the wealth inequality debate. |
| Keywords: | Portfolio Choice, Information, Overconfidence |
| JEL: | E2 D8 G1 |
| Date: | 2018–06–14 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:501&r=mac |
| By: | Xing, Victor |
| Abstract: | Policy-induced boom in non-bank funding enabled prosperity in the technology sector and large corporate issuers. At the same time, income growth remained stagnant in low-to-middle-skill jobs and peripheral areas amid persistent job polarization, and combination of asset price appreciation and soft wage growth led to rising evictions in lower income households. Bifurcated economic growth appear benign to monetary authorities as areas of growth dominate aggregate data, but tighter funding conditions would risk cooling the “growth engine” amid declining tolerance for downside shocks. Furthermore, rising wealth inequality and popular discontent have demonstrated their ability to reshape the political landscape. |
| Keywords: | Uneven growth, inequality, monetary policy, distributional effects, policy distortion |
| JEL: | D1 D4 E0 E4 E5 R3 |
| Date: | 2018–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:86775&r=mac |
| By: | Rodrigo Octávio Orair (IPC-IG); Sergio Wulff Gobetti (IPC-IG) |
| Abstract: | "Brazil, in the period after the great financial crisis of 2007?2008, presents a compelling case study of the interactions between fiscal policy and business cycles. The country is noteworthy not only for being one of the very few that dealt relatively well with the most acute stage of the crisis, maintaining its dynamism throughout most of the 2007?2010 period, but also for the speed of its economic and fiscal deterioration during the 2011?2014 economic slowdown, and the subsequent 2015?2016 recession. The contrast in performance is stark when one observes the decrease in growth of the country's gross domestic product (GDP), which halved from 4.6 per cent per year during 2007?2010?which placed Brazil close to the top third of countries with the best global performance?to 2.3 per cent per year during 2011?2014, which placed the country among the bottom third of countries, and finally culminating in an accumulated collapse of -7.2 per cent of GDP during 2015?2016, the worst recession in the country's history". (...) |
| Keywords: | Expansion, austerity, challenges, risks, radical, fiscal policy, Brazil |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:ipc:opager:360&r=mac |
| By: | Jesse Bricker; Alice M. Henriques; Lars Peter Hansen |
| Abstract: | Well known research based on capitalized income tax data shows robust growth in wealth concentration in the late 2000s. We show that these robust growth estimates rely on an assumption---homogeneous rates of return across the wealth distribution---that is not supported by data. When the capitalization model incorporates heterogeneous rates of return (on just interest-bearing assets), wealth concentration estimates in 2011 fall from 40.5% to 33.9%. These estimates are consistent in levels and trend with other micro wealth data and show that wealth concentration increases until the Great Recession, then declines before increasing again. |
| Keywords: | Wealth concentration ; Household wealth |
| JEL: | D31 D14 H00 E6 |
| Date: | 2018–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2018-24&r=mac |
| By: | Woodford, Michael |
| Abstract: | It is common to analyze the effects of alternative monetary policy commitments under the assumption of fully model-consistent expectations. This implicitly assumes unrealistic cognitive abilities on the part of economic decision makers. The relevant question, however, is not whether the assumption can be literally correct, but how much it would matter to model decision making in a more realistic way. A model is proposed, based on the architecture of artificial intelligence programs for problems such as chess or go, in which decision makers look ahead only a finite distance into the future, and use a value function learned from experience to evaluate situations that may be reached after a finite sequence of actions by themselves and others. Conditions are discussed under which the predictions of a model with finite-horizon forward planning are similar to those of a rational expectations equilibrium, and under which they are instead quite different. The model is used to re-examine the consequences that should be expected from a central-bank commitment to maintain a fixed nominal interest rate for a substantial period of time. "Neo-Fisherian" predictions are shown to depend on using rational expectations equilibrium analysis under circumstances in which it should be expected to be unreliable. |
| Keywords: | bounded rationality; forward guidance; neo-Fisherianism |
| JEL: | E52 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12968&r=mac |
| By: | Jordá, Óscar; Schularick, Moritz; Taylor, Alan M.; Ward, Felix |
| 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. |
| Keywords: | asset prices; equity return premium; financial centers; financial cycles; policy spillovers |
| JEL: | E50 F33 F42 F44 G12 N10 N20 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:12969&r=mac |
| By: | International Monetary Fund |
| Abstract: | With substantial financial buffers, prudent fiscal policy, and sound financial sector, Qatar’s economy continues to successfully adjust to lower hydrocarbon prices, despite the diplomatic rift that is weighing on the outlook. The policy priorities are to entrench fiscal consolidation, maintain financial stability and deepen structural reforms to facilitate private-sector led growth and job creation. |
| Date: | 2018–05–30 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/135&r=mac |
| By: | Eustasio Del Barrio; Juan Cuesta Albertos; Marc Hallin; Carlos Matran |
| Abstract: | We consider the smooth interpolation problem under cyclical monotonicity constraint. More precisely, consider finite n-tuples X =fx1; xng and Y = fy1; yng of points in Rd, and assume the existence of a unique bijection T :X !Y such that f(x; T(x)): x 2 Xg is cyclically monotone: our goal is to define continuous, cyclically mono-tone maps T :Rd !Rd such that T(xi) = yi, i = 1; n, extending a classical result by Rockafellar on the sub differentials of convex functions. Our solutions T are Lipschitz, and we provide a sharp lower bound for the corresponding Lipschitz constants. The problem is motivated by, and the solution naturally applies to, the concept of empirical center-outwarddistribution function in Rd developed in Hallin (2018). Those empirical distribution functions indeed are de_ned at the observations only. Our interpolation provides a smooth extension, as well as a multivariate, outward-continuous, jump function version thereof (the latter naturally generalizes the traditional left-continuous univariate concept); both satisfy a Glivenko-Cantelli property as n !1. |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/271399&r=mac |
| By: | International Monetary Fund |
| Abstract: | Mali is a fragile state, facing severe security challenges and social tensions. The authorities struggle with the implementation of the 2015 peace agreement, and persistent insecurity in northern and central Mali associated with limited State presence, highlights the lack of a peace dividend and explains limited societal buy-in. The economic recovery has entered its fifth year, and growth is projected to remain robust in the near term. However, poverty remains high and social discontent is growing. The economic outlook is also subject to downside risks from the volatile security conditions and potential pressures on policy implementation ahead of the 2018 elections. |
| Date: | 2018–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfscr:18/141&r=mac |
| By: | Baert, Stijn; Matthijs, Herman; Verdievel, Ilse |
| Abstract: | In this paper, the authors examine the impact of municipal budget policy on the percentage of votes for the incumbent majority parties in subsequent elections. They contribute to the academic literature by examining the combined influence of taxes, expenditures and debt. Based on data for Flanders (Belgium) between 1994 and 2012, they find no significant association between these budget variables and the actual election results. |
| Keywords: | budget policy,municipal elections,yardstick voting,political economics |
| JEL: | D72 E62 H71 H72 P48 R50 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201847&r=mac |