nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒07‒16
98 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Short term forecasts of economic activity: are fortnightly factors useful? By Libero Monteforte; Valentina Raponi
  2. Swing in the Fed’s balance sheet policy and spillover effects on emerging Asian countries By Yves, Togba Boboy; Yoon, Seong-Min
  3. EDB Macroreview, July 2016. EAEU COUNTRIES GROWTH AFTER ADAPTATION By Lissovolik, Yaroslav; Kuznetsov, Aleksei; Berdigulova, Aigul
  4. ECB vs Bundesbank: Diverging Tones and Policy E ectiveness By Peter Tillmann; Andreas Walter
  5. The empirical verification of money demand in case of India: Post-reform era By Adil, Masudul Hasan; Haider, Salman; Hatekar, Neeraj
  6. German Public Attitudes Towards Asylum Seekers, Immigrants in the Workplace, Inflation, and Local Budgets: Evidence from a Representative Survey of the German Population By Bernd Hayo; Israel García; Pierre-Méon Guillaume; Florian Neumeier; Duncan Roth
  7. Inflation Dynamics and Price Flexibility in the UK By de la Porte Simonsen, Lasse; Petrella, Ivan; Santoro, Emiliano
  8. EDB Macroreview, October 2016. ECONOMIC RECOVERY TRAJECTORIES IN EURASIA By Lissovolik, Yaroslav; Kuznetsov, Aleksei; Berdigulova, Aigul
  9. Fiscal policies in the euro area: revisiting the size of spillovers By Mario Alloza; Pablo Burriel; Javier J. Pérez
  10. Recovering Keynesian Phillips curve theory By Thomas Palley
  11. Montenegro’s Unilateral Euroization By Arslan Razmi
  12. Oil and Commodities Drive the World Business Cycle: A Long-Commodity-Cycle Model of the World Economy Over a Century and a Half By Le, Vo Phuong Mai; Meenagh, David; Minford, Patrick
  13. DEEP DYNAMICS By Gottfries, Nils; Mickelsson, Glenn; Stadin, Karolina
  14. Decreased Effectiveness of Fiscal and Monetary Policies in Japan’s Aging Society By Yoshino, Naoyuki; Miyamoto, Hiroaki
  15. What inflation measure should a currency union target? By Barnett, William A.; Wang, Chan; Wang, Xue; Wu, Liyuan
  16. Financial and Fiscal Interaction in the Euro Area Crisis: This Time was Different By Caruso, Alberto; Reichlin, Lucrezia; Ricco, Giovanni
  17. Monetary Policy Announcements and Market Interest Rates Response: Evidence from China By Rongrong Sun
  18. Extraction of inflation expectations from financial instruments in Latin America By Alberto Fuertes; Ricardo Gimeno; José Manuel Marqués
  19. Un análisis de la política monetaria y tasa de interés real neutral desde la perspectiva del principio de demanda efectiva By Sandoval paucar, Giovanny
  20. Central Bank Swap Lines By Bahaj, Saleem; Reis, Ricardo
  21. Central Bank Swap Lines By Saleem Bahaj; Ricardo Reis
  22. Reconciling Jaimovich-Rebelo Preferences, Habit in Consumption and Labor Supply By Tom D. Holden; Paul Levine; Jonathan M. Swarbrick
  23. Fiscal Stimulus with Learning-By-Doing By Antonello d’Alessandro; Giulio Fella; Leonardo Melosi
  24. Fiscal Stimulus with Learning-By-Doing By dAlessandro, Antonello; Fella, Giulio; Melosi, Leonardo
  25. Labor market and financial shocks: a time varying analysis By Francesco Corsello; Valerio Nispi Landi
  26. Leaning Against Housing Prices as Robustly Optimal Monetary Policy By Klaus Adam; Michael Woodford
  27. The quantification of structural reforms By Balázs Égert
  28. Zooming the Ins and Outs of the U.S. Unemployment with a Wavelet Lens By Portugal, Pedro; Rua, António
  29. Financial friction sources in emerging economies: Structural estimation of sovereign default models By Takefumi Yamazaki
  30. Differences in Euro-Area Household Finances and their Relevance for Monetary-Policy Transmission By Thomas Hintermaier; Winfried Koeniger
  31. The Supermultiplier-Cum-Finance. Economic Limits of a Credit Driven System By Dejuán, Óscar; McCombie, John S.L.
  32. The Financial Transmission of Housing Bubbles: Evidence from Spain By Martín, Alberto; Moral-Benito, Enrique; Schmitz, Tom
  33. The Slope of the Term Structure and Recessions: The Pre-Fed Evidence, 1857-1913 By Gerlach, Stefan; Stuart, Rebecca
  34. Conventional and Unconventional Monetary Policy Reaction to Uncertainty in Advanced Economies: Evidence from Quantile Regressions By Christina Christou; Ruthira Naraidoo; Rangan Gupta
  35. Secular Stagnation: New Challenges for the Industrialized Countries in the 21st Century By Gilles Dufrenot; Meryem Rhouzlane
  36. The economics of monetary unions By Kobielarz, Michal
  37. Survey on Germans’ Attitudes Towards and Knowledge of Monetary Policy Issues: Documentation of Survey Methodology and Descriptive Results By Bernd Hayo; Edith Neuenkirch
  38. Swedish Riksbank Notes and Enskilda Bank Notes: Lessons for Digital Currencies By Ben Fung; Scott Hendry; Warren E. Weber
  39. Income shares, secular stagnation, and the long-run distribution of wealth By Luke Petach; Daniele Tavani
  40. Combining Survey Long-Run Forecasts and Nowcasts with BVAR Forecasts Using Relative Entropy By Tallman, Ellis W.; Zaman, Saeed
  41. Does social capital explain the Solow residual? A DSGE approach By Argentiero, Amedeo; Cerqueti, Roy; Sabatini, Fabio
  42. Perceived FOMC: The Making of Hawks, Doves and Swingers By Michael Bordo, Klodiana Istrefi
  43. Firm-level investment spikes and aggregate investment over the Great Recession By Richard Disney; Helen Miller; Thomas Pope
  44. Nonlinear household earnings dynamics, self-insurance, and welfare By Mariacristina De Nardi; Giulio Fella; Gonzalo Paz-Pardo
  45. Asset price volatility in EU-6 economies: how large is the role played by the ECB? By Alessio Ciarlone; Andrea Colabella
  46. A Nowcasting Model for the Growth Rate of Real GDP of Ecuador : Implementing a Time-Varying Intercept By Manuel Gonzalez-Astudillo; Daniel Baquero
  47. Impacts of fiscal policy on economic growth: Another look from institutional perspective By Ho Thuy Ai; Ping, Lin
  48. A Business-cycle-model with Monopolistically-competitive Firms and Calvo Wages: The Case of Bulgaria after the Introduction of the Currency Board (1999-2016) By Aleksandar Vasilev
  49. The Nature of Firm Growth By Benjamin W. Pugsley; Peter Sedlacek; Vincent Sterk
  50. The role of autonomous demand growth in a neo-Kaleckian conflicting-claims framework By Won Jun Nah; Marc Lavoie
  51. Comparing hybrid time-varying parameter VARs By Joshua C.C. Chan; Eric Eisenstat
  52. On the Evolution of the United Kingdom Price Distributions By Ba M. Chu; Kim Huynh; David T. Jacho-Chávez; Oleksiy Kryvtsov
  53. Reported MPC and Unobserved Heterogeneity By Tullio Jappelli; Luigi Pistaferri
  54. Quantifying economic recovery from the recent global financial crisis By Raputsoane, Leroi
  55. Economic Policy Uncertainty Spillovers in Booms and Busts By Giovanni Caggiano; Efrem Castelnuovo; Juan Manuel Figueres
  56. Stochastic volatility models with ARMA innovations: An application to G7 inflation forecasts By Bo Zhang; Joshua C.C. Chan; Jamie L. Cross
  57. Meritocracy, Public-Sector Pay and Human Capital Accumulation By Andri Chassamboulli; Pedro Gomes
  58. The Network Effects of Fiscal Adjustments By Briganti, Edoardo; Favero, Carlo A.; Karamysheva, Madina
  59. Vers une croissance plus inclusive en Tunisie By Christine de la Maisonneuve; Hedi Larbi; Raja Dridi
  60. Uncertainty and spillover effects across the Euro area By Angelini, Giovanni; Costantini, Mauro; Easaw, Joshy
  61. Geldsicherheit und stabilere Finanzen durch Vollgeld By Huber, Joseph
  62. The international transmission of monetary policy By Buch, Claudia M.; Bussiere, Matthieu; Goldberg, Linda; Hills, Robert
  63. Liquidity Traps and Large-Scale Financial Crises By Giovanni Caggiano; Efrem Castelnuovo; Olivier Damette; Antoine Parent; Giovanni Pellegrino
  64. Structural Change and Business Cycle Fluctuations in Japan: Revisiting the Stylized Facts By Satoshi URASAWA
  65. Varieties of Capitalism, Increasing Income Inequality, and the Sustainability of Long-Run Growth By Mark Setterfield; Yun K. Kim
  66. Distribution-led growth through methodological lenses By Michaelis Nikiforos
  67. Pricing sin stocks: Ethical preference vs. risk aversion By Colonnello, Stefano; Curatola, Giuliano; Gioffré, Alessandro
  68. Time-varying cointegrating regression analysis with an application to the long-run interest rate pass-through in the Euro Area By Afonso-Rodríguez, Julio A.; Santana-Gallego, María
  69. Long-Run Patterns of Labour Market Polarisation: Evidence from German Micro Data By Bachmann, Ronald; Cim, Merve; Green, Colin
  70. Health, Longevity and Pension Reform By Laun, Tobias; Markussen, Simen; Vigtel, Trond Christian; Wallenius, Johanna
  71. Power of personalized smoking cessation: A unified lifecycle framework for policy evaluation By Chen, Li-Shiun; Wang, Ping; Yao, Yao
  72. Securing financial stability through macroprudential measures By Daniel Jeongdae Lee; Jose Antonio Pedrosa-Garcia; Kiatkanid Pongpanich
  73. A Look Inside the Box: Combining Aggregate and Marginal Distributions to Identify Joint Distributions By Marie-Hélène Felt
  74. Government Guarantees and the Valuation of American Banks By Atkeson, Andrew; d'Avernas, Adrien; Eisfeldt, Andrea L.; Weill, Pierre-Olivier
  75. Natural Gas and the US Economy: Some Preliminary Rules of Thumb By Arora, Vipin
  76. Does swap-covered interest parity hold in long-term capital markets after the financial crisis? By Takahiro Hattori
  77. Unemployment and growth By Thomas Palley
  78. Fair Premium Rate of the Deposit Insurance System based on Banks’ Creditworthiness By Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad; Nili, Farhad
  79. Regional Transfer Multipliers By Raphael Corbi; Elias Papaioannou, Paolo Surico
  80. Financing Durable Assets By Rampini, Adriano A.
  81. What Do Survey Data Tell Us about U.S. Businesses? By Bhandari, Anmol; Birinci, Serdar; McGrattan, Ellen R.; See, Kurt
  82. Unbundling Macroeconomics via Heterogeneous Agents and Input-Output Networks By Baqaee, David Rezza; Farhi, Emmanuel
  83. Approximating Equilibria with Ex-Post Heterogeneity and Aggregate Risk By Elisabeth Pröhl
  84. Alternatives to Bank Finance: Role of Carbon Tax and Hometown Investment Trust Funds in Developing Green Energy Projects in Asia By Yoshino, Naoyuki; Taghizadeh-Hesary, Farhad
  85. Financing innovative business investment in Poland By Antoine Goujard; Pierre Guérin
  86. Trade Linkages and Transmission of Oil Price Fluctuations in a Model Incorporating Monetary Variables By Taghizadeh-Hesary, Farhad; Rasoulinezhad, Ehsan; Yoshino, Naoyuki
  87. Effect of Climate and Geography on worldwide fine resolution economic activity By Alberto Troccoli
  88. Opening Up in the Caucasus and Central Asia; Policy Frameworks to Support Regional and Global Integration By Peter J Kunzel; Phil De Imus; Edward R Gemayel; Risto Herrala; Alexei P Kireyev; Farid Talishli
  89. Growth-indexed Bonds and Debt Distribution: Theoretical Benefits and Practical Limits By Julien Acalin
  90. Why Have Negative Nominal Interest Rates Had Such a Small Effect on Bank Performance? Cross Country Evidence By Lopez, Jose A.; Rose, Andrew K.; Spiegel, Mark M.
  91. Why Have Negative Nominal Interest Rates Had Such a Small Effect on Bank Performance? Cross Country Evidence By Lopez, Jose A; Rose, Andrew K; Spiegel, Mark
  92. Persistence and Cyclical Dynamics of US and UK House Prices: Evidence from Over 150 Years of Data By Giorgio Canarella; Luis A. Gil-Alana; Rangan Gupta; Stephen M. Miller
  93. Replacement hiring and the productivity-wage gap By Acharya, Sushant; Wee, Shu Lin
  94. Legislative Restraint in Corporate Bailout Design By Mark Gradstein; Michael Kaganovich
  95. The Long View: Scenarios for the World Economy to 2060 By Yvan Guillemette; David Turner
  96. How to Manage the Fiscal Costs of Natural Disasters By Serhan Cevik; Guohua Huang
  97. Dissecting the Input-Output Structure of the Greek Economy By Mariolis, Theodore; Leriou, Eirini; Soklis, George
  98. College Access and Attendance Patterns: A Long-Run View By Hendricks, Lutz; Herrington, Christopher; Schoellman, Todd

  1. By: Libero Monteforte (Bank of Italy); Valentina Raponi (Imperial College London and Sapienza University of Rome)
    Abstract: A short term mixed-frequency model is proposed to estimate and forecast the Italian economic activity fortnightly. Building on Frale et al. (2011), we introduce a dynamic factor model with three frequencies (quarterly, monthly and fortnightly), by selecting indicators that show significant coincident and leading properties and are representative of both demand and supply. We find that high-frequency indicators improve the real time forecasts of Italian GDP. Moreover, the model provides a new fortnightly indicator of GDP, consistent with the official quarterly series. Our results emphasize the potential benefit of the high frequency series, providing forecasting gains beyond those based on monthly variables alone.
    Keywords: factor models, Kalman filter, temporal disaggregation, mixed frequency data, forecasting
    JEL: C53 E17 E32 E37
    Date: 2018–06
  2. By: Yves, Togba Boboy; Yoon, Seong-Min
    Abstract: This paper investigates the effects of the Fed’s balance sheet policy at the zero lower bound on the macroeconomic and financial variables of emerging Asian countries. Based on a heterogeneous structural panel VAR model using monthly data from eight emerging Asian countries, we find evidence of cross-border spillover effects on long-term bond yields, GDP, prices, stock market index, local currency, and real credit. However, the quantile responses show that there is substantial heterogeneity among countries’ responses to Fed shocks. Accordingly, these effects vary across countries and horizons depending on their macroeconomic fundamentals, financial openness, and intensity of macroprudential regulations.
    Keywords: Quantitative easing; Unconventional monetary policy; International transmission mechanism, Structural panel VAR model; Quantile response.
    JEL: C31 C32 E44 E58 F41
    Date: 2018–05–14
  3. By: Lissovolik, Yaroslav (Eurasian Development Bank); Kuznetsov, Aleksei (Eurasian Development Bank); Berdigulova, Aigul (Eurasian Development Bank)
    Abstract: The prolonged search for the “low point” has not yet given us grounds to conclude unambiguously that it is inevitable the EAEU economies will recover soon. However, indicators for the first half of 2016 continue to indicate that the economies are gradually adapting to the shocks that have taken place in the last few years. Negative trends in the economies of EAEU countries, which strengthened amid a fall in commodity prices, have somewhat weakened. The economies started to show an improvement in macroeconomic indicators in the first half of 2016. The volume of migrant remittances from Russia began to decline sharply in Q4 2014 amid a significant fall in economic activity in the region; however, the pace of the decline started to slow down a year later. The year on-year fall in remittances from Russia to other EAEU countries in Q4 2015 exceeded 30%, but the rate of the quarter-on-quarter fall was the lowest in a year. The stabilization of the exchange rates of the national currencies of EAEU countries, and the stabilization of economic dynamics in the region, will contribute to a further slowdown in the fall in remittances. The external environment will improve through: a decline in the volatility of the world’s financial markets; a fall in capital outflows; and a rise in exports. This will contribute to the stabilization of the exchange rates of national currencies in the region. In turn, this will be a significant factor leading to a further slowdown in inflation and a decline in inflation expectations in EAEU countries. Due to inflationary pressure falling, the central banks of EAEU countries kept unchanged or reduced their base lending rates in the first half of 2016. However, we expect price and exchange rate stabilization in Q2 2016 amid low economic activity to lead to a further softening of the monetary conditions. The impressive slowdown in inflation in EAEU countries will perhaps be one of the surprises of 2016. We forecast the EAEU countries’ inflation to slow from 12.8% to 6.3%. The reduction of the key interest rates may have a positive effect on lending growth, which could provide impetus to a recovery in both investment and household consumption. As for the medium term, we forecast a recovery in GDP1 in EAEU countries from -3.1% in 2015 to -0.9% in 2016 and to a positive growth rate of 0.8% in 2017. Therefore despite 2016’s uneasy start, the first half of the year provides grounds for cautious optimism about the prospect of a recovery in economic growth and trade.
    Keywords: macroeconomy; macroeconomic policy; forecasting; Eurasia; EAEU countries; economic growth; monetary policy
    JEL: E17 E52 E66 O11
    Date: 2016–07–21
  4. By: Peter Tillmann (Justus-Liebig-University Giessen); Andreas Walter (Justus-Liebig-University Giessen)
    Abstract: The present paper studies the consequences of con flicting narratives for the transmission of monetary policy shocks. We focus on con flict between the presidents of the ECB and the Bundesbank, the main protagonists of monetary policy in the euro area, who often disagreed on policy over the past two decades. This con flict received much attention on financial markets. We use over 900 speeches of both institutions' presidents since 1999 and quantify the tone conveyed in speeches and the divergence of tone among both both presidents. We find (i) a drop towards more negative tone in 2009 for both institutions and (ii) a large divergence of tone after 2009. The ECB communication becomes persistently more optimistic and less uncertain than the Bundesbank's after 2009, and this gap widens after the SMP, OMT and APP announcements. We show that long-term interest rates respond less strongly to a monetary policy shock if ECB-Bundesbank communication is more cacophonous than on average, in which case the ECB loses its ability to drive the slope of the yield curve. The weaker transmission under high divergence re ects a muted adjustment of the expectations component of long-term rates.
    Keywords: Central bank communication, diverging tones, speeches, text analysis, monetary transmission
    JEL: E52 E43 E32
    Date: 2018
  5. By: Adil, Masudul Hasan; Haider, Salman; Hatekar, Neeraj
    Abstract: In the evident of globalised world economy and changing economic structure, the traditional policies are required to be close examination. This is true particularly in case of developing countries, like India where new economic policies have had been changing visibly since 1990s. Therefore, in the new economic policy regime one of the important building block of policy is the money demand, which needs to be examined again. Present study examines the stability issues of money demand in case of India, using quarterly data from 1996:Q2 to 2016:Q3. With the help of autoregressive distributed lag model (ARDL) or bounds testing approach of cointegration, it has been concluded that there exists stable long run relationship among variables under consideration in the post reform period.
    Keywords: new economic policy; money demand; autoregressive distributed lag model; India
    JEL: E02 E4 E41 E5 E58
    Date: 2018–06–03
  6. By: Bernd Hayo (University of Marburg); Israel García (University of Marburg); Pierre-Méon Guillaume (Université Libre de Bruxelles); Florian Neumeier (Ifo-Institute Munich); Duncan Roth (IAB Nuremberg)
    Abstract: This paper provides background information and basic descriptive statistics for a representative survey of the German population conducted on our behalf by GfK in the first quarter of 2018. The survey covers various topics, including: 1) attitudes towards asylum seekers; 2) migrating workers in the workplace; 3) inflation and monetary policy; and 4) the role played by local budgets in local voting decisions. We also collect a broad range of socio-demographic and psychological indicators.
    Keywords: Survey evidence, Attitudes, Asylum seekers, Migrating workers, Inflation, Monetary policy, Local budgets, Germany
    JEL: D72 D90 E24 E31 E58 F22 H72 J61
    Date: 2018
  7. By: de la Porte Simonsen, Lasse; Petrella, Ivan; Santoro, Emiliano
    Abstract: Using microdata underlying the UK consumer price index we study how the capacity of nominal demand shocks to stimulate the rate of inflation has evolved over the last two decades. To this end, we estimate a generalized $Ss$ model of lumpy price adjustment, and document sizeable time variation in the behavior of price flexibility. Most notably, the latter shoots up in the aftermath of the Great Recession and rapidly falls thereafter, with these sharp movements reflecting into increased inflation volatility. These features map into a marked non-linearity of inflation dynamics with respect to the degree of price flexibility, with mean reversion being significantly faster when prices are relatively more flexible. State dependence plays a major role for price setting at the microeconomic level, and more so when inflation is particularly high and volatile. Neglecting these facts may severely bias our understanding of inflation dynamics.
    Keywords: inflation; price flexibility; Ss models.
    JEL: C22 E30 E31 E37
    Date: 2018–07
  8. By: Lissovolik, Yaroslav (Eurasian Development Bank); Kuznetsov, Aleksei (Eurasian Development Bank); Berdigulova, Aigul (Eurasian Development Bank)
    Abstract: In recent years, positive expectations have not been met for the second half of the year regarding economic recovery in the EDB member countries. In both 2015 and 2014, unfavorable external factors, primarily the fall in oil prices, had a negative effect on the dynamics of economic growth in the region. Available data for Q3 2016 indicate a more favorable scenario. This is suggested by both macroeconomic data and leading indicators, as well as signals from international credit rating agencies. Trends in regional growth dynamics in the past several months point to the start of economic recovery. Indeed, judging by data for July-August 2016, there are grounds for positive GDP growth rates in the EDB countries in Q3 2016. To all appearances, one can also expect positive changes in inflation before the end of 2016. The inflation rate in Russia is expected to be lower than 6% in 2016. It will hit an all-time low in 2017-2018 and be close to the central bank’s target of 4%. We expect a fall in the aggregate inflation rate of the EDB countries from 12.8% in 2015 to 6.1% in 2016, and a further slowdown in the rise in consumer prices to 4.8% in 2017 and 4.2% in 2018. Apart from the low world prices on food and primary commodities, a significant contribution to the decline in inflationary pressure is delivered by the stabilization of the exchange rates of the EDB countries’ currencies throughout Q2-Q3 2016. This trend is partially due to a decline in the outflow of capital from EDB countries and makes it possible for the countries to replenish their foreign exchange reserves. An important factor for the economic recovery in a number of the EDB countries was the rise in exports, primarily to the Russian Federation. In some countries, the acceleration of the rise in exports may be attributable to the depreciation of the national currency. However, Kyrgyzstan showed an increase in exports to Russia despite the strengthening of the som against the ruble, which suggests that integration factors may have played a certain role. Despite the positive changes however, there are lingering risks of imbalances in a number of macroeconomic sectors, primarily in the budgetary sphere. There are still significant global risks related to: the slowdown in the growth of the Chinese economy; the fall in the prices of primary commodities; the deterioration of the situation in the banking sector of European countries; as well as an increase in the Fed rate.
    Keywords: macroeconomy; macroeconomic review; forecasting; Eurasia; EAEU countries; economic growth; monetary policy
    JEL: E17 E52 E66 O11
    Date: 2016–10–21
  9. By: Mario Alloza (Banco de España); Pablo Burriel (Banco de España); Javier J. Pérez (Banco de España)
    Abstract: The issue of the size of fiscal spillovers in the euro area has gained prominence recently, given proposals to coordinate fiscal policies that aim at achieving an appropriate “aggregate fiscal stance”, consistent with economic and monetary policy conditions. Given the heterogeneous fiscal positions of member states, such stance would be achieved by fine-tuning policies of countries with enough fiscal space. Appealing as they are, such proposals have so far been based on limited empirical evidence. On the one hand, the literature based on calibrated/estimated general equilibrium models tends to find that fiscal spillovers within the euro area are small once all channels are considered (trade channel vs. monetary policy reaction, exchange rate, and risk premium). On the other hand, the available empirical studies hinge on pools of countries, given data limitations, and do not provide robust country-specific estimates. In our paper we revisit the issue at hand. To do so, first, we compile quarterly datasets of fiscal policy variables for the four major euro area economies (1980q1-2016q4), based on consistent and comparable criteria and sources. This rich dataset allows us to effectively exploit exclusion restrictions within a structural VAR framework to identify country-specific government spending shocks. We use these shocks to explore the dynamic effects of fiscal changes in one country on neighbor countries (spillovers), finding significant and economically-relevant effects. We document that these spillover effects are notably heterogeneous in euro area countries and are particularly powerful when the fiscal actions are based on public investment expansions. We find that trade is a key transmission mechanism in explaining our results.
    Keywords: fiscal policy; fiscal spillovers; euro area; vector autoregressions
    JEL: E62 E32 C32
    Date: 2018–07
  10. By: Thomas Palley
    Abstract: Economic theory is prone to hysteresis. Once an idea is adopted, it is difficult to change. In the 1970s, the economics profession abandoned the Keynesian Phillips curve and adopted Milton Friedman's natural rate of unemployment (NRU) hypothesis. The shift was facilitated by a series of lucky breaks. Despite much evidence against the NRU, and much evidence and theoretical argument supportive of the Keynesian Phillips curve, the NRU hypothesis remains ascendant. The hypothesis has had an enormous impact on macroeconomic theory and policy. 2018 is the fiftieth anniversary of Friedman's introduction of the NRU hypothesis. The anniversary offers an opportunity to challenge, rather than celebrate it.
    Keywords: Natural rate of unemployment, Keynesian Phillips curve, Friedman, Tobin
    JEL: E00 E12 E20 E30 E60
    Date: 2018
  11. By: Arslan Razmi (Department of Economics, University of Massachusetts Amherst)
    Abstract: Unilateral euroization is underexplored even in comparison to unilateral dollarization (taken to mean the adoption of the US dollar as legal tender). This paper attempts to partly fill this gap in the literature by investigating the case of Montenegro, which is one of the two countries that have unilaterally adopted the euro as the legal tender. Montenegro's limited monetary policy options make the nature of business cycles important. The evidence presented here suggests that Montenegro has a low degree of synchronization, limited structural similarity, and weak trade integration with the Eurozone. Moreover, there is limited evidence for endogenous structural assimilation following euroization. The case for currency union is weak for Montenegro and appears to be defensible only on grounds of policy credibility.
    Keywords: Montenegro, euroization, dollarization, currency union, optimal currency areas.
    JEL: F15 E32 E52
    Date: 2018
  12. By: Le, Vo Phuong Mai (Cardiff Business School); Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School)
    Abstract: This paper explores the world business cycle using unfiltered data from 1870 and looks for a theory that could account for the long wave commodity cycle in the world economy. We build a simple DSGE model that includes a long time-to-build constraint in the commodity sector. We find that this model can produce long cycles in output and commodity prices as introduced by Kontradieff (1925) and Schumpeter (1935). Our findings show that these long business cycles are produced by the long gestation of commodity capacity which causes very large swings in commodity prices.
    Keywords: Long waves; commodities; DSGE model; Indirect Inference
    JEL: E10 E32 E52
    Date: 2018–06
  13. By: Gottfries, Nils (Department of Economics, Uppsala University, UCLS, IZA and CESifo); Mickelsson, Glenn (Department of Economics); Stadin, Karolina (Ratio Institute, Stockholm, and UCLS, Uppsala University)
    Abstract: Combining micro and macro data, we construct demand-side shocks, which we take to be exogenous for individual firms. We estimate a reduced-form model to describe how firms adjust their production, employment, capital stock, and inventories in response to such shocks. Then, we chose the structural parameters of a theoretical model so that the theoretical model can match the impulse-response functions from the estimated reduced-form model. Firms’ reactions to demand-side shocks are well explained by a model where firms have modest market power, face convex adjustment costs and where they can vary utilization flexibly. The stock-out motive helps to explain inventory dynamics.
    Keywords: capacity utilization; production factor; labor hoarding; labor productivity; inventory holdings; returns to scale; production function; Solow residual
    JEL: E22 E23 E24 E32
    Date: 2018–06–07
  14. By: Yoshino, Naoyuki (Asian Development Bank Institute); Miyamoto, Hiroaki (Asian Development Bank Institute)
    Abstract: We study how an aging population affects economic performance and the effectiveness of fiscal and monetary policies. We develop a New Keynesian dynamic stochastic general equilibrium model with heterogeneous households, workers, and retirees. We demonstrate that an increase in the proportion of working population increases aggregate output, consumption, and investment by increasing total labor supply in the long run. It also increases wages and reduces social security burden of the government. We also find that effectiveness of fiscal and monetary policies is weakened when the proportion of retirees becomes larger. This is the reason why recent monetary policies cannot lift the Japanese economy from prolonged stagnation.
    Keywords: aging population; aging society; fiscal policy; monetary policy
    JEL: E52 E62 J11
    Date: 2017–05–09
  15. By: Barnett, William A.; Wang, Chan; Wang, Xue; Wu, Liyuan
    Abstract: What is the appropriate inflation target for a currency union, when conducting monetary policy: core inflation or headline inflation? We answer the question in a two-country New Keynesian model with an energy sector. We derive the welfare loss function and find that optimal monetary policy should target output gaps, the terms of trade gap, the Prouder Price Index inflation rates, and the real marginal cost gaps. We use the welfare loss function to evaluate two alternative Taylor-type monetary policy rules. We find that the choice of preferred policy rule depends on the shocks. Specifically, when productivity shocks hit the economy, the policymaker should follow the headline inflation Taylor rule, while the core inflation Taylor rule should be followed when a negative energy endowment shock hits the economy.
    Keywords: Core inflation; Headline inflation; Optimal monetary policy; Currency union; Welfare.
    JEL: E5 F3 F4
    Date: 2018–05–25
  16. By: Caruso, Alberto; Reichlin, Lucrezia; Ricco, Giovanni
    Abstract: This paper highlights the anomalous characteristics of the Euro Area `twin crises' by contrasting the aggregate macroeconomic dynamics in the period 2009-2013 with the business cycle fluctuations of the previous decades. We report three stylised facts. First, the contraction in output was marked by an anomalous downfall in investment, while consumption, savings and unemployment followed their historical relation with GDP. Second, households' and financial corporations' debts, and house prices deviated from their pre-crisis trends. Third, the jump in the public deficit-GDP ratio in 2008-2009 was unprecedented and so was the fiscal consolidation that followed. Our analysis points to the financial nature of the crisis as a likely explanation for these facts. Importantly, the `anomaly' in public deficit is in large part explained by extraordinary measures in support of the financial sector, which show up in the stock-flow adjustments and reveal a key interaction between the fiscal and the financial sectors.
    Keywords: Euro Area; Government Debt; Recessions
    JEL: C11 C32 C54 E52 E62
    Date: 2018–06
  17. By: Rongrong Sun (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan)
    Abstract: This paper uses the event study to estimate the impact of various monetary policy announcements on market interest rates in China over the 2002-2017 period. I find that financial markets understand the quantitative signals better: the market response to an announced adjustment of the regulated retail interest rate and the required reserve ratio is positive and significant at all maturities of bond rates, but smaller at the long end of the yield curve. However, the market barely responds to announced changes in the qualitative policy stance index, which contains limited vague information and is easily anticipated. Two newly introduced central bank lending rates do not appear to be sufficient to replace the retail interest rate and the reserve ratio in guiding market rates in the post-deregulation era. My results suggest that the PBC adopts a publicly announced short-term interest-rate operating target regime, similar to the Fed’s federal funds rate target. Length: 26 pages
    Keywords: announcement effect, event study, monetary policy, monetary transmission, China
    JEL: E52 E58
  18. By: Alberto Fuertes (Banco de España); Ricardo Gimeno (Banco de España); José Manuel Marqués (Banco de España)
    Abstract: In this paper we estimate inflation expectations for several Latin American countries using an affine model that takes as factors the observed inflation and the parameters generated from zero-coupon yield curves of nominal bonds. By implementing this approach, we avoid the use of inflation-linked securities, which are scarce in many of these markets, and obtain market measures of inflation expectations free of any risk premium, eliminating potential biases included in other measures such as breakeven rates. Our method provides several advantages, as we can compute inflation expectations at any horizon and forward rates such as the expected inflation over the five year period that begins five years from today. We find that inflation expectations in the long-run are fairly anchored in Chile and Mexico, while those in Brazil and Colombia are more volatile and less anchored. We also find that expected inflation increases at longer horizons in Brazil and Chile, while it is decreasing in Colombia and Mexico.
    Keywords: inflation expectations, affine model, real interest rate, risk premium
    JEL: G12 E43 E44 C54
    Date: 2018–07
  19. By: Sandoval paucar, Giovanny
    Abstract: Este ensayo explora los dilemas que enfrenta un Banco Central en la toma de decisiones de la política económica referente al nivel de la tasa de interés real y el principio de demanda efectiva. Para cumplir con este objetivo, se revisa diferentes enfoques conceptuales de la Tasa de Interés Real Neutral (TIRN) y el principio de demanda efectiva de Keynes, complementándolo con las visiones neo-keynesianas de Stiglitz (2010) y Krugman (2017) sobre la política monetaria. Se concluye que la política monetaria debería evolucionar a un esquema de monitoreo de pleno empleo y estabilidad económica
    Keywords: Macroeconomía, Economía Monetaria, Keynes, Post-keynesianismo
    JEL: E43 E52 E58
    Date: 2018–06–26
  20. By: Bahaj, Saleem; Reis, Ricardo
    Abstract: Swap lines between advanced-economy central banks are a new important part of the global financial architecture. This paper analyses their monetary policy effects from three perspectives. First, from the perspective of the central banks, it shows that the swap line mimics discount-window credit from the source central bank to the recipient-country banks using the recipient central bank as the bearer of the credit risk. Second, from the perspective of the transmission of monetary policy, it shows that the swap-line rate puts a ceiling on deviations from covered interest parity, and finds evidence for it in the data. Third, from the perspective of the macroeconomic effects of policy, it shows that the swap line ex ante encourages inflows from recipient-country banks into assets denominated in the source-country's currency by reducing the ex post funding risk. We find support for these predictions using difference-in-difference empirical strategies that exploit the fact that only some currencies saw changes in the terms of their dollar swap line, only some bonds in banks' investments are exposed to dollar funding risk, only some dollar bonds are significantly traded by foreign banks, and only some banks have a significant U.S. presence.
    Keywords: bond portfolio flows; currency basis; liquidity facilities
    JEL: E44 F33 G15
    Date: 2018–06
  21. By: Saleem Bahaj (Bank of England; Centre for Macroeconomics (CFM)); Ricardo Reis (London School of Economics (LSE); Centre for Macroeconomics (CFM))
    Abstract: Swap lines between advanced-economy central banks are a new important part of the global financial architecture. This paper analyses their monetary policy effects from three perspectives. First, from the perspective of the central banks, it shows that the swap line mimics discount-window credit from the source central bank to the recipient-country banks using the recipient central bank as the bearer of the credit risk. Second, from the perspective of the transmission of monetary policy, it shows that the swap-line rate puts a ceiling on deviations from covered interest parity, and finds evidence for it in the data. Third, from the perspective of the macroeconomic effects of policy, it shows that the swap line ex ante encourages inflows from recipient-country banks into assets denominated in the source-country’s currency by reducing the ex post funding risk. We find support for these predictions using difference-in-difference empirical strategies that exploit the fact that only some currencies saw changes in the terms of their dollar swap line, only some bonds in banks’ investments are exposed to dollar funding risk, only some dollar bonds are significantly traded by foreign banks, and only some banks have a significant U.S. presence.
    Keywords: Liquidity facilities, Currency basis, Bond portfolio flows
    JEL: E44 F33 G15
    Date: 2018–06
  22. By: Tom D. Holden; Paul Levine; Jonathan M. Swarbrick
    Abstract: This note studies a form of a utility function of consumption with habit and leisure that (a) is compatible with long-run balanced growth, (b) hits a steady-state observed target for hours worked and (c) is consistent with micro-econometric evidence for the inter-temporal elasticity of substitution and the Frisch elasticity of labor supply. We employ Jaimovich- Rebello preferences, and our results highlight a constraint on the preference parameter needed to target the steady-state Frisch elasticity. This leads to a lower bound for the latter that cannot be reconciled empirically with external habit, but the introduction of a labor wedge solves the problem. We also propose a dynamic Frisch inverse elasticity measure and examine its business cycle properties.
    Keywords: Econometric and statistical methods, Inflation and prices
    JEL: E21 E24
    Date: 2018
  23. By: Antonello d’Alessandro (Bank of Italy); Giulio Fella (Queen Mary University of London; Centre for Macroeconomics (CFM); Institute for Fiscal Studies); Leonardo Melosi (Federal Reserve Bank of Chicago)
    Abstract: Using a Bayesian SVAR analysis, we document that an increase in government purchases raises private consumption, the real wage and total factor productivity (TFP) while reducing inflation. Each of these facts is hard to reconcile with both neoclassical and New-Keynesian models. We extend a standard New-Keynesian model to allow for skill accumulation through past work experience, following Chang, Gomes and Schorfheide (2002). An increase in government spending increases hours and induces skill accumulation and higher measured TFP and real wages in subsequent periods. Future marginal costs fall lowering future expected inflation and, through the monetary policy rule, the real interest rate. Consumption increases as a result.
    Keywords: Fiscal policy transmission, Consumption, Real wage
    JEL: E62 E63
    Date: 2018–05
  24. By: dAlessandro, Antonello (Bank of Italy); Fella, Giulio (Queen May University of London); Melosi, Leonardo (Federal Reserve Bank of Chicago)
    Abstract: Using a Bayesian SVAR analysis, we document that an increase in government purchases raises private consumption, the real wage and total factor productivity (TFP) while reducing inflation. Each of these facts is hard to reconcile with both neoclassical and New-Keynesian models. We extend a standard New-Keynesian model to allow for skill accumulation through past work experience, following Chang, Gomes and Schorfheide (2002). An increase in government spending increases hours and induces skill accumulation and higher measured TFP and real wages in subsequent periods. Future marginal costs fall lowering future expected inflation and, through the monetary policy rule, the real interest rate. Consumption increases as a result.
    Keywords: Fiscal policy transmission; consumption; real wage
    JEL: E62 E63
    Date: 2018–05–01
  25. By: Francesco Corsello (Bank of Italy); Valerio Nispi Landi (Bank of Italy)
    Abstract: Motivated by the events of the Great Recession, we estimate a time-varying structural VAR model to analyze the effects of a financial shock on the labor market, focusing on the US. Our results indicate that a tightening of financial conditions is highly detrimental to the labor market. Moreover, we show that financial shocks have affected the unemployment rate asymmetrically in the last three decades, an implication that a standard VAR cannot capture: while negative financial shocks have been responsible for increases in unemployment, our model does not find significant contributions of financial shocks during periods of expansion. The source of this asymmetry is the time-varying standard deviation of the identified shock, which is higher in times of financial distress; on the other hand, we find the transmission mechanism is almost constant over time.
    Keywords: VAR, labor market conditions, financial markets
    JEL: C32 E24 E44
    Date: 2018–06
  26. By: Klaus Adam; Michael Woodford
    Abstract: We analytically characterize optimal monetary policy for an augmented New Keynesian model with a housing sector. In a setting where 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 to inflation and the output gap only is optimal, as in the standard model without a housing sector. When the policymaker is concerned with potential departures of private sector expectations from rational ones and seeks to choose a policy that is robust against such possible departures, then the optimal target criterion must also depend on housing prices. In the empirically realistic case where housing is subsidized and where monopoly power causes output to fall short of its optimal level, the robustly optimal target criterion requires the central bank to ‘lean against’ housing prices: following unexpected housing price increases, policy should adopt a stance that is projected to undershoot its normal targets for inflation and the output gap, and similarly aim to overshoot those targets in the case of unexpected declines in housing prices. The robustly optimal target criterion does not require that policy distinguish between ‘fundamental’ and ‘non-fundamental’ movements in housing prices.
    Keywords: asset price bubbles, leaning against the wind, inflation targeting
    JEL: D81 D84 E52
    Date: 2018
  27. By: Balázs Égert
    Abstract: This paper summarises earlier OECD work aimed at quantifying the impact of structural reforms on economic outcomes. It overviews: i.) insights obtained for the linear relationships linking policies and economic outcomes (including multi-factor productivity, capital deepening and employment) for an almost complete set of OECD countries, ii.) non-linear results on how policies interact with each other in OECD countries, and iii.) results extended for emerging-market economies looking at whether policy effects vary across countries depending on the level of economic development and whether institutions have an influence on economic outcomes. The paper lists of policies and institutions that could be used to quantify the effect of reforms. It also gives some guidance on how to quantify reforms in OECD and non-OECD countries. It provides mid-point estimates of the long-run effects on per capita income levels through the three supply-side channels. Finally, it raises the issue of estimation and model uncertainty.
    Keywords: emerging market, employment, institutions, investment, OECD, product and labour market regulation, productivity, structural reform
    JEL: D24 E17 E22 E24 J08
    Date: 2018–07–04
  28. By: Portugal, Pedro (Banco de Portugal); Rua, António (Banco de Portugal)
    Abstract: To better understand unemployment dynamics it is key to assess the role played by job creation and job destruction. Although the U.S. case has been studied extensively, the importance of job finding and employment exit rates to unemployment variability remains unsettled. The aim of this paper is to contribute to this debate by adopting a novel lens, wavelet analysis. We resort to wavelet analysis to unveil time- and frequency-varying features regarding the contribution of the job finding and job separation rates for the U.S. unemployment rate dynamics. Drawing on this approach, we are able to reconcile some apparently contradictory findings reported in previous literature. We find that the job finding rate is more influential for the overall unemployment behavior but the job separation rate also plays a critical role, especially during recessions.
    Keywords: worker flows, job separation rate, job finding rate, wavelets
    JEL: C10 E24 E32
    Date: 2018–05
  29. By: Takefumi Yamazaki (Policy Research Institute, Ministry of Finance)
    Abstract: There are two literature strands that explain stylized facts in emerging economies: the stochastic productivity trend or financial frictions. However, financial frictions are driven by both trend and stationary productivity shocks, thus distinguishing their impact from the direct role of output fluctuations is essential. We estimate sovereign default models, full-nonlinear dynamic stochastic general equilibrium (DSGE) with micro-founded financial imperfections, applying a particle filter, and evaluate the source of financial frictions. The main finding is that stationary shocks rather than trend shocks account for financial frictions and the resulting countercyclicality, except for the post-1977 period in Mexico; however, the exception disappears for 1902?2005 as long-run data. The sources of financial frictions are determined by the persistence and volatility of shocks, asymmetric domestic cost of sovereign default, and mismatch between sovereign default and business cycles.
    Keywords: Sovereign default, Business cycles, Financial imperfections, Particle filter, Sequential Monte Carlo, Full nonlinear DSGE
    JEL: E32 E62 F41 F44
    Date: 2018–02
  30. By: Thomas Hintermaier; Winfried Koeniger
    Abstract: This paper quantifies the extent of heterogeneity in consumption responses to changes in real interest rates and house prices in the four largest economies in the euro area: France, Germany, Italy, and Spain. We first calibrate a life-cycle incomplete-markets model with a liquid financial asset and illiquid housing to match the large heterogeneity of households asset portfolios, observed in the Household Finance and Consumption Survey (HFCS) for these countries. We then show that the heterogeneity in household finances implies that responses of consumption to changes in the real interest rate and in house prices differ substantially across the analyzed countries, and across age groups within these countries. The different consumption responses quantified in this paper point towards important heterogeneity in monetary-policy transmission within the euro area.
    Keywords: European household portfolios, consumption, monetary policy transmission, international comparative finance, housing
    JEL: D14 D31 E21 E43 G11
    Date: 2018
  31. By: Dejuán, Óscar (University of Castilla – La Mancha (UCLM)); McCombie, John S.L. (University of Cambridge, Cambridge, UK)
    Abstract: Credit explosion, debt overhang and asset bubbles, of the size observed in the period 1995-2008, have been a recurrent problem of advanced capitalism. In this paper we analyse the causes and consequences of over-indebtedness from a supermultiplier model that takes into account the debt-service. We contend that the accelerator of investment is a stable and stabilizing mechanism when investment depends on the expected increases in “permanent” demand. The problems of instability are rooted in the consumption-multiplier when it does not depend on fixed parameters (like the tax rate) but on coefficients that evolve endogenously; namely the debt-burden and the debt service. To control the financial sources of this instability, monetary authorities should prevent that credit rises systematically above the growth of nominal GDP.
    Keywords: Financial Instability; Supermultiplier; Post-Keynesian Economics; Sraffian Economics
    JEL: E11 E12 E32
    Date: 2018–07
  32. By: Martín, Alberto; Moral-Benito, Enrique; Schmitz, Tom
    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: credit; Financial Frictions; Financial Transmission; housing bubble; investment; Spain
    JEL: E32 E44 G21
    Date: 2018–06
  33. By: Gerlach, Stefan; Stuart, Rebecca
    Abstract: This paper studies the information content of the slope of the term structure for recessions, using monthly US data spanning 1857-1913. We find that the term spread predicts future recessions up to about 12 months ahead, as does the current value of the recession dummy. We also find that stock prices are significant in the probit models we use to predict future recessions, but that business failures and growth in industrial production are generally insignificant. Overall, the results give broad support to the findings of Bordo and Haubrich (2004, 2008a, 2008b), who use quarterly data from 1875 to study the ability of the term structure to forecast real GNP growth. C25
    Keywords: Federal Reserve; Recessions; term structure
    JEL: C25 E00 E43
    Date: 2018–06
  34. By: Christina Christou (Open University of Cyprus, School of Economics and Finance. Cyprus); Ruthira Naraidoo (Department of Economics, University of Pretoria, Pretoria, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: This paper offers new insight on how the Federal Reserve (Fed) and other monetary policy makers (Bank of England, Bank of Japan and the European Central Bank), reacted in the aftermath of the financial crisis. To this end, the paper makes use of a quantile-based approach that estimates the response of interest rates to inflation and the output gap at various points of the conditional distribution of interest rates. Furthermore to gauge the importance of monetary policy making at the zero lower bound, and to test the propositions that policy shows greater aggression in expansionary measures as interest rates reach low levels, and increasing aggression as the lower bound is approached, we make use of the shadow short rate of interest and a measure of uncertainty to capture this fact. While the results show no detectable evidence of increasing aggression to inflation as the zero lower bound is approached, yet the decreased reaction of the Fed and other monetary policy makers towards uncertainty particularly at lower quantiles of interest rates lends support to expansionary mechanism in place during this time.
    Keywords: Interest rate rule, zero lower bound, shadow rate of interest, uncertainty, advanced economies
    JEL: C22 E52
    Date: 2018–06
  35. By: Gilles Dufrenot (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE); Meryem Rhouzlane (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE)
    Abstract: This paper attempts to provide an overview of the main challenges facing industrialized in a context of secular stagnation. There is no consensus on the meaning of this concept and various alternative views coexist. We present the key issues in the debates today, accounting for phenomena like the slowdown in factor productivity, liquidity and safety traps, the decline of natural interest rates, the historical downward trend of potential growths and low inflation rates. We provide a bird’s eye survey of the available literature on the causes of secular stagnation from a historical perspective, the symptoms, the main causes as well as some policies proposed to overcome it. We give some illustrations for the United Kingdom, the United States, the euro area and Japan.
    Keywords: secular stagnation, natural interest rates, history, industrialized countries
    JEL: E31 E52 F3 F44
    Date: 2018–06
  36. By: Kobielarz, Michal (Tilburg University, School of Economics and Management)
    Abstract: The dissertation consists of three chapters in International Macroeconomics devoted to studying the dynamic behavior of a small open economy within a monetary union. The first two chapters explore the role of expectations and informational frictions for a member country of a monetary union. The first chapter addresses the question of sovereign debt crisis contagion in a model where sovereign default and an exit from a monetary union are separate but interrelated decisions. The second chapter investigates instability driven by inflation expectations, and suggests heterogeneous inflation histories as one of the factors responsible for the large macroeconomic imbalances within the Eurozone. The study of issues related to monetary unions and economic crises involves the use of models where non-linearities and uncertainty matter, but those features pose computational challenges to the modeler. Therefore, the last chapter proposes a novel method for solving dynamic stochastic models, that preserves the original non-linearity of the model, takes into account uncertainty, but at the same time allows approximating the model locally and, hence, avoiding the curse of dimensionality.
    Date: 2018
  37. By: Bernd Hayo (University of Marburg); Edith Neuenkirch
    Abstract: This paper provides background information, questionnaires, and basic descriptive statistics for a representative survey of the German population conducted on our behalf by GfK in 2011. Our aim is to discover the German public’s knowledge about the ECB specifically, and monetary policy in general. We also examine our respondents’ self-perception of their knowledge and how they use media relating to the topic. A detailed descriptive analysis reveals that the German public’s factual knowledge is far from perfect, and their self-perception of this knowledge is equally poor. The general public is reasonably interested in information about the ECB and mainly watches TV or reads newspapers to keep informed. We discover significant differences in knowledge and media use across socio-demographic subgroups. On average, male respondents and those with higher levels of education or income are more interested in the ECB, more knowledgeable about it, and more confident in their own knowledge.
    Keywords: Household survey, Germany, Monetary policy, European Central Bank, Public preferences, Economic literacy
    JEL: A20 E52 E58
    Date: 2018
  38. By: Ben Fung; Scott Hendry; Warren E. Weber
    Abstract: This paper examines the experience of Sweden with government notes and private bank notes to determine how well the Swedish experience corresponds to that of Canada and the United States. Sweden is important to study because it has had government notes in circulation for more than 350 years, and it had government notes before private bank notes. Several differences between the experience of Sweden and that of Canada and the U.S. emerge. (i) Swedish bank notes were safe; in some cases, those of Canada and the U.S. were not. (ii) At certain times, Swedish government notes were not safe; government notes in Canada and the U.S. always were. (iii) Swedish private bank notes were a uniform currency without government intervention. Uniformity required government intervention in Canada and the U.S. (iv) Private notes and government notes coexisted in all three countries until governments took actions to drive private bank notes out of circulation. Using the experience of the three countries, the paper concludes that fiduciary digital currencies will likewise not be perfectly safe without government intervention. Further, the introduction of government digital currency will not drive out existing private digital currencies nor will it preclude private digital currencies from entering the market. Government intervention likely will be required for private and government digital currencies to be a uniform currency.
    Keywords: Bank notes, Digital Currencies, Financial services
    JEL: E41 E42 E58
    Date: 2018
  39. By: Luke Petach; Daniele Tavani
    Abstract: Four alarming stylized facts have characterized the recent economic history of the United States: (i) a fall in labor productivity; (ii) a fall in the labor share, (iii) an increase in the capital income ratio, and (iv) an increase in the wealth share owned by top income earners. In this paper, we offer a non-Neoclassical explanation for these facts that merges the Pasinetti (1962) approach to differential saving propensities among classes with the theory of induced technical change (ITC) by Kennedy (1964). First, we provide a simple microeconomic rationale for workers' saving propensity being lower than capitalists' based on the empirically-supported argument that consumption peer effects are more prevalent at lower brackets of the income distribution (Petach and Tavani, 2018). We then show that institutional changes that lower the labor share - a decline in unionization, an increase in monopsony power in the labor market, the so-called 'race to the bottom' fostered by a hyper-competitive global environment, or the exhaustion of path-breaking scientific discoveries as argued by Gordon (2015) - can explain the decline in labor productivity growth because of the reduced incentives to innovate to save on labor costs. Combined with ITC, differential savings delivers a direct relationship between the capitalist share of wealth and the capital-income ratio independent of the elasticity of substitution between capital and labor. Finally, we argue that these tendencies are not inevitable: tax policy can be used to implement any wealth distribution, similarly to Zamparelli (2016); while worker-crushing institutional arrangements can be reversed through counteracting policy changes. However, both policy changes appear unlikely given the current institutional and global climate.
    Keywords: Capital-Income Ratio, Secular Stagnation, Factor Shares, Wealth Inequality.
    JEL: D31 E24 E25
    Date: 2018
  40. By: Tallman, Ellis W. (Federal Reserve Bank of Cleveland); Zaman, Saeed (Federal Reserve Bank of Cleveland)
    Abstract: This paper constructs hybrid forecasts that combine both short- and long-term conditioning information from external surveys with forecasts from a standard fixed-coefficient vector autoregression (VAR) model. Specifically, we use relative entropy to tilt one-step ahead and long-horizon VAR forecasts to match the nowcast and long-horizon forecast from the Survey of Professional Forecasters. The results indicate meaningful gains in multi-horizon forecast accuracy relative to model forecasts that do not incorporate long-term survey conditions. The accuracy gains are achieved for a range of variables, including those that are not directly tilted but are affected through spillover effects from tilted variables. The forecast accuracy gains for inflation are substantial, statistically significant, and are competitive with the forecast accuracy from both time-varying VARs and univariate benchmarks. We view our proposal as an indirect approach to accommodating structural change and moving end points.
    Keywords: Bayesian analysis; relative entropy; survey forecasts; nowcasts; density forecasts; real-time data;
    JEL: C11 C32 C53 E17
    Date: 2018–06–22
  41. By: Argentiero, Amedeo; Cerqueti, Roy; Sabatini, Fabio
    Abstract: Abstract Social capital has been credited with playing a role in many desirable economic outcomes. We analyze how these potentially beneficial effects translate into the macro-performance of economies by developing a dynamic stochastic general equilibrium (DSGE) model featuring the role of social capital in the explanation of the Solow residual. We then simulate and estimate the model with Bayesian techniques using Italian data. Our framework fits actual data better than a standard DSGE model, suggesting that social capital may improve the economic performance via its impact on total factor productivity.
    Keywords: social capital; total factor productivity; Solow residual; DSGE models
    JEL: A13 A14 E22 O11
    Date: 2018–05–31
  42. By: Michael Bordo, Klodiana Istrefi
    Abstract: Narrative records in US newspapers reveal that about 70 percent of Federal Open Market Committee (FOMC) members who served during the last 55 years are perceived to have had persistent policy preferences over time, as either inflation-fighting hawks or growth-promoting doves. The rest are perceived as swingers, switching between types, or remained an unknown quantity to markets. What makes a member a hawk or a dove? What moulds those who change their tune? We highlight ideology by education and early life economic experiences of members of the FOMC from 1960s to 2015. This research is based on an original dataset.
    Keywords: Monetary Policy Committees; Federal Reserve; Policy Preferences
    JEL: E50 E61
    Date: 2018
  43. By: Richard Disney (Institute for Fiscal Studies and University of Sussex); Helen Miller (Institute for Fiscal Studies and Institute for Fiscal Studies); Thomas Pope (Institute for Fiscal Studies and Institute for Fiscal Studies)
    Abstract: Firm-level investment paths are commonly characterised by periods of low or zero investment punctuated by large investment ‘spikes’. We document that such spikes are important for understanding ?rm and aggregate level investment in the UK. We show that annual variation in aggregate investment is driven by variation in the number of ?rms undertaking investment spikes rather than in the size of spikes or in investment outside of spikes. Our main contribution is to set out and estimate a ?rm-level model of the timing of investment spikes that: (i) incorporates measures of macroeconomic conditions and can be used to replicate movements in aggregate investment; (ii) incorporates a role for ?rm capital structure, which we demonstrate explains part of ?rms’ heterogeneous investment responses to the Great Recession. We ?nd an important role for low demand growth in depressing investment in the recession and for ongoing uncertainty in prolonging investment weakness in later years. The minority of ?rms that persistently operate with high debt levels were signi?cantly less likely to undertake an investment spike after the recession, which is consistent with them having been more exposed to ?nancial distress.
    Keywords: Business investment; adjustment cost; recession; hazard functions; capital structure
    JEL: C41 D22 E22 E32 G31 G32 L25
    Date: 2018–02–07
  44. By: Mariacristina De Nardi (University College London (UCL); Federal Reserve Bank of Chicago; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR); The National Bureau of Economic Research (NBER)); Giulio Fella (Queen Mary University of London; Centre for Macroeconomics (CFM); Institute for Fiscal Studies); Gonzalo Paz-Pardo (University College London (UCL))
    Abstract: Earnings dynamics are much richer than typically assumed in macro models with heterogeneous agents. This holds for individual-pre-tax and household-post-tax earnings and across administrative (Social Security Administration) and survey (Panel Study of Income Dynamics) data. We study the implications of two processes for household, post-tax earnings in a standard life-cycle model: a canonical earnings process (that includes a persistent and a transitory shock) and a rich earnings dynamics process (that allows for age-dependence of moments, non-normality, and nonlinearity in previous earnings and age). Allowing for richer earnings dynamics implies a substantially better fit of the evolution of cross-sectional consumption inequality over the life cycle and of the individual-level degree of consumption insurance against persistent earnings shocks. Richer earnings dynamics also imply lower welfare costs of earnings risk, but, as the canonical earnings process, do not generate enough concentration at the upper tail of the wealth distribution.
    Keywords: Earnings risk, Savings, Consumption, Inequality, Life cycle
    JEL: D14 D31 E21 J31
    Date: 2018–06
  45. By: Alessio Ciarlone (Banca d'Italia); Andrea Colabella (Banca d'Italia)
    Abstract: In this paper we provide evidence that the effects of the different waves of asset purchase programmes implemented by the ECB from 2009 onwards have spilled over into asset price volatility developments of a group of six Central and Eastern European economies belonging to the EU but not to the euro area. This has partly shielded their financial markets from the negative shocks that have influenced international investors’ degree of risk aversion in recent years. By means of a dynamic conditional correlation multivariate GARCH model, and by resorting to three different proxies to describe the functioning and measure the impact of the ECB’s asset purchase programmes, we show that such non-standard monetary measures have played a significant role in dampening volatility spikes in the financial markets of the countries at stake. This probably reflects how both a ‘risk taking’ and a ‘liquidity’ channel of transmission actually work. The results are generally robust to an extensive series of tests, and to changes made in the estimation methodology.
    Keywords: unconventional monetary policy, ECB, Central and Eastern Europe, international spillovers, asset prices, volatility, GARCH models
    JEL: C32 E52 E58 F3 F4 F16 F37 G1 G11 G14
    Date: 2018–06
  46. By: Manuel Gonzalez-Astudillo; Daniel Baquero
    Abstract: This paper proposes a model to nowcast the annual growth rate of real GDP for Ecuador. The specification combines monthly information of 28 macroeconomic variables with quarterly information of real GDP in a mixed-frequency approach. Additionally, our setup includes a time-varying mean coefficient on the annual growth rate of real GDP to allow the model to incorporate prolonged periods of low growth, such as those experienced during secular stagnation episodes. The model produces reasonably good nowcasts of real GDP growth in pseudo out-of-sample exercises and is marginally more precise than a simple ARMA model.
    Keywords: Ecuador ; Secular stagnation ; Nowcasting model ; Time-varying coefficients
    JEL: C33 C53 E37
    Date: 2018–07–05
  47. By: Ho Thuy Ai; Ping, Lin
    Abstract: What is the role of economic institutions in the effectiveness of fiscal policy? This paper argues that the extent to which fiscal policy affects long-term growth depends on how economically free a country enjoys. The authors use a sample of 72 countries over the period 1990 through 2015 to provide empirical evidence on the interrelationship between government spending, economic freedom and economic growth. The non-linear effect of fiscal policy on growth is investigated by extending the classical growth regression with an interaction term between fiscal policy and economic freedom. The results suggest that it is economic freedom that determines the effect of fiscal policy on economic growth. Public investment in infrastructure can enhance long-term growth better in countries with less degree of freedom. Meanwhile, public consumption does not benefit growth but its adverse impact is mitigated if a country is more economically free. The authors also find that the determining role of institutions in emerging countries is more prominent than that in advanced economies which are pretty homogenous in economic development and have already been at a high level of economic freedom.
    Keywords: fiscal policy,government expenditure,institutions,economic freedom,economic growth
    JEL: E62 H50 O43
    Date: 2018
  48. By: Aleksandar Vasilev (Independent researcher)
    Abstract: We augment an otherwise standard business cycle model with a richer government sector, and add monopolistic competition in the product market, and rigid prices, as well as rigid wages a la Calvo (1983) in the labor market. This specification with the nominal wage rigidity, when calibrated to Bulgarian data after the introduction of the currency board (1999-2016), allows the framework to reproduce better observed variability and correlations among model variables, and those characterizing the labor market in particular. As nominal wage frictions are incorporated, the variables become more persistent, especially output, capital stock, investment and consumption, which helps the model match data better.
    Keywords: business cycles, monopolistic competition, rigid (Calvo) prices, rigid (Calvo) nominal wages
    JEL: D43 D58 E32
    Date: 2018–07
  49. By: Benjamin W. Pugsley; Peter Sedlacek; Vincent Sterk
    Abstract: Only half of all startups survive past the age of five and surviving businesses grow at vastly different speeds. Using micro data on employment in the population of U.S. Businesses, we estimate that the lion's share of these differences is driven by ex-ante heterogeneity across firms, rather than by ex-post shocks. We embed such heterogeneity in a firm dynamics model and study how ex-ante differences shape the distribution of firm size, "up-or-out" dynamics, and the associated gains in aggregate output. "Gazelles" - a small subset of startups with particularly high growth potential - emerge as key drivers of these outcomes. Analyzing changes in the distribution of ex-ante firm heterogeneity over time reveals that the birth rate and growth potential of gazelles has declined, creating substantial aggregate losses.
    Keywords: Firm Dynamics, Startups, Macroeconomics, Big Data
    JEL: D22 E23 E24
    Date: 2018–06
  50. By: Won Jun Nah; Marc Lavoie
    Abstract: This paper incorporates the role of an independently growing autonomous demand component into a neo-Kaleckian model of growth and distribution where the distribution of income reacts to changes in the employment rate. A peculiar feature of these autonomous expenditures is that in contrast to investment they are non-capacity creating. The model combines the Sraffian multiplier, a conflicting-claims theory of inflation, a Harrodian instability mechanism and effects tied to the size of the reserve army of labor. The long-run version of the model converges conditionally to stable rates of employment and inflation, at the normal rate of capacity utilization. The model vindicates some of the main Keynesian or Kaleckian tenets, in the sense that an increase in the marginal propensity to save out of profits or in the bargaining power of firms generate lower average rates of capital accumulation and capacity utilization during the traverse.
    Keywords: neo-Kaleckian; wage-led growth; autonomous expenditures; conflicting claims
    JEL: E11 F41 O41
    Date: 2018
  51. By: Joshua C.C. Chan; Eric Eisenstat
    Abstract: Empirical questions such as whether the Phillips curve or the Okun’s law is stable can often be framed as a model comparison—e.g., comparing a vector autoregression (VAR) in which the coefficients in one equation are constant versus one that has time-varying parameters. We develop Bayesian model comparison methods to compare a class of time-varying parameter VARs we call hybrid TVP-VARs—VARs with time-varying parameters in some equations but constant coefficients in others. Using US data, we find evidence that the VAR coefficients in some, but not all, equations are time varying. Our finding highlights the empirical relevance of these hybrid TVP-VARs.
    Keywords: state space, marginal likelihood, Bayesian model comparison
    JEL: C11 C52 E32 E52
    Date: 2018–06
  52. By: Ba M. Chu; Kim Huynh; David T. Jacho-Chávez; Oleksiy Kryvtsov
    Abstract: We propose a functional principal components method that accounts for stratified random sample weighting and time dependence in the observations to understand the evolution of distributions of monthly micro-level consumer prices for the United Kingdom (UK). We apply the method to publicly available monthly data on individual-good prices collected in retail stores by the UK Office for National Statistics for the construction of the UK Consumer Price Index from March 1996 to September 2015. In addition, we conduct Monte Carlo simulations to demonstrate the effectiveness of our methodology. Our method allows us to visualize the dynamics of the price distribution and uncovers interesting patterns during the sample period. Further, we demonstrate the efficacy of our methodology with an out-of-sample forecasting algorithm that exploits the time dependence of distributions. Our out-of-sample forecast compares favorably with the random walk forecast.
    Keywords: Econometric and statistical methods, Inflation and prices
    JEL: C14 C83 E31 E37
    Date: 2018
  53. By: Tullio Jappelli (Università di Napoli Federico II, CSEF and CEPR); Luigi Pistaferri (Stanford University, SIEPR, NBER and CEPR)
    Abstract: We use panel data on reported marginal propensity to consume (MPC) in the 2010 and 2016 Italy’s Survey of Household Income and Wealth. We uncover a strong negative relationship between cash-on-hand and MPC. This relation is attenuated by using regression methods that control for unobserved heterogeneity. The estimates are used to show that the effectiveness of revenue-neutral fiscal policies is much weaker relative to a case in which both observed and unobserved heterogeneity are not taken into account, particularly for policies that target the bottom part of the distribution of household resources.
    Keywords: Transitory Income Shocks; Marginal Propensity to Consume; Panel Data
    JEL: D12 D14 E21
    Date: 2018–06–29
  54. By: Raputsoane, Leroi
    Abstract: This paper quantifies economic recovery following the recent global financial crisis in South Africa. In particular, the paper measures the causal impact of the economic policy interventions following the global financial crisis. The results show that real GDP growth recorded an average of 1.9 percent and a cumulative of 13.0 percent post the global financial crisis. The counterfactual prediction shows that the economy could have recorded the average real GDP growth of 3.0 percent and a cumulative of 21.0 percent in the period post the global financial crisis had the economic policy interventions been successful. Thus the causal impact of the economic policy interventions is the average real GDP growth of -1.2 percent and a cumulative of -8.1 percent so that the relative causal impact of the economic policy interventions is -38.0 percent. The paper, therefore, concludes that perhaps the economic policy interventions to restore economic performance to the pre global financial crisis period levels did not achieve the desired results.
    Keywords: Global financial crisis, Policy interventions, Economic recovery
    JEL: C11 C53 E61 G01
    Date: 2018–06–14
  55. By: Giovanni Caggiano; Efrem Castelnuovo; Juan Manuel Figueres
    Abstract: We estimate a nonlinear VAR to quantify the impact of economic policy uncertainty shocks originating in the US on the Canadian unemployment rate in booms and busts. We find strong evidence in favor of asymmetric spillover effects. Unemployment in Canada is shown to react to uncertainty shocks in economic busts only. Such shocks explain about 13% of the variance of the 2-year ahead forecast error of the Canadian unemployment rate in periods of slack vs. just 2% during economic booms. Counterfactual simulations lead to the identification of a novel “economic policy uncertainty spillovers channel”. According to this channel, jumps in US uncertainty foster economic policy uncertainty in Canada in the first place and, because of the latter, lead to a temporary increase in the Canadian unemployment rate. Evidence of asymmetric spillover effects due to US EPU shocks are also found for the UK economy. This evidence, which refers to a large economy having a low trade intensity with the US, supports our view that a channel other than trade could be behind our empirical results.
    Keywords: economic policy uncertainty shocks, spillover effects, unemployment dynamics, smooth transition vector autoregressions, recessions
    JEL: C32 E32 E52
    Date: 2018
  56. By: Bo Zhang; Joshua C.C. Chan; Jamie L. Cross
    Abstract: We introduce a new class of stochastic volatility models with autoregressive moving average (ARMA) innovations. The conditional mean process has a flexible form that can accommodate both a state space representation and a conventional dynamic regression. The ARMA component introduces serial dependence which renders standard Kalman filter techniques not directly applicable. To overcome this hurdle we develop an efficient posterior simulator that builds on recently developed precision based algorithms. We assess the usefulness of these new models in an inflation forecasting exercise across all G7 economies. We find that the new models generally provide competitive point and density forecasts compared to standard benchmarks, and are especially useful for Canada, France, Italy and the US.
    Keywords: autoregressive moving average errors, stochastic volatility, inflation forecast, state space models, unobserved components model
    JEL: C11 C52 C53 E37
    Date: 2018–06
  57. By: Andri Chassamboulli; Pedro Gomes
    Abstract: We set up a model with search and matching frictions to understand the effects of employment and wage policies, as well as non-meritocratic hiring in the public sector, on unemployment, rent seeking and education decisions. Wages and employment of skilled and unskilled public-sector workers affect educational attainment; the extent of that effect depends on the structure of the labor market and how non-meritocratic public-sector hiring is. Conditional on inefficiently high public-sector wages, less-meritocratic hiring in the public sector lowers the unemployment rate and might raise welfare because it limits the size of queues for public-sector jobs. Public-sector wage and employment policies impose an endogenous constraint on the number of workers the government can hire through connections.
    Keywords: Public-sector employment; meritocracy; public-sector wages; unemployment; skilled workers; human capital accumulation
    JEL: E24 J31 J45 J64
    Date: 2018–07
  58. By: Briganti, Edoardo; Favero, Carlo A.; Karamysheva, Madina
    Abstract: A large and increasing body of empirical evidence has established that fiscal adjustments based on government spending cuts are less costly in terms of losses in output growth than those based on tax increases. We show that the propagation of fiscal adjustment plans through the industrial network can in theory explain this evidence and that it does so in practice for the US economy. The heterogenous effects of tax-based and expenditure-based adjustments might depend on the difference in their propagation channels in the network of industries. A tax-based adjustment plan is mainly a supply shock which propagates downstream (from supplier industries to customer industries) while an expenditure based plan is a demand shock which propagates upstream (from customer industries to supplier industries). Empirical investigation of these channels on US data based on Spatial Vector Autoregressions reveals that tax based plans propagate through the network with an average output multiplier of close to -2, while the propagation of expenditure based plans does not lead to any statistically significant effect on growth.
    Keywords: fiscal adjustment plans; industrial networks; output growth
    JEL: E60 E62
    Date: 2018–06
  59. By: Christine de la Maisonneuve; Hedi Larbi; Raja Dridi
    Abstract: Le niveau de vie moyen des Tunisiens a augmenté de façon continue depuis plusieurs décennies tandis que la pauvreté et les inégalités ont largement diminué grâce à la mise en oeuvre de nombreux programmes sociaux. L’accès aux infrastructures de base telles que l’eau potable ou l’électricité a également été développé. Néanmoins, le taux d’emploi demeure faible, surtout pour les femmes; environ un tiers des jeunes est au chômage et le travail informel est répandu. Il est urgent de promouvoir des formations répondant aux besoins des employeurs et de favoriser l'emploi des femmes. L’allégement des cotisations sociales pesant sur le travail salarié permettra la création d’emplois de qualité. La mise en oeuvre de la stratégie d’inclusion financière facilitera l’accès au financement. Les disparités régionales en termes de chômage et de niveau de vie entre les régions côtières et les régions de l’intérieur sont importantes. Une nouvelle politique de développement régional, valorisant les atouts spécifiques de chaque région autour du développement de pôles urbains, est nécessaire. La Constitution de 2014, qui prévoit l’accroissement de l’autonomie et des compétences des collectivités locales, représente une opportunité pour réaliser cet objectif. This Working Paper relates to the 2018 OECD Economic Survey of Tunisia ( y-tunisia.htm).
    Keywords: chômage, décentralisation, développement régional, emploi des femmes, emplois de qualité, inclusion financière, informalité, inégalités, urbanisation, éducation
    JEL: E24 E26 I2 I3 J16 J21 J24 R1 R5
    Date: 2018–07–11
  60. By: Angelini, Giovanni; Costantini, Mauro; Easaw, Joshy (Cardiff Business School)
    Abstract: This paper investigates how macroeconomic uncertainty shocks spillover over four Eurozone countries. It also evaluates their impact on real economic activity. The paper proposes a simple two-country model with a core and a periphery economy, where uncertainty shocks spread from one country to another, with potential feedback fromthe periphery economy to the core one. An empirical analysis is conducted using a Structural Vector Autoregressive (SVAR) model with two regimes: pre-crisis period and crisis period. The findings point to uncertainty spillovers among the Eurozone countries, with some feedback from periphery economies to the core economies during the financial crisis period. Further, there is a need to account for spillovers when studying the impact of uncertainty on real economic activity.
    Keywords: Uncertainty, EuroArea, Spillover effects, Real Economic Activity
    JEL: C32 C50 E32
    Date: 2018–06
  61. By: Huber, Joseph
    JEL: E42 E52
    Date: 2017
  62. By: Buch, Claudia M.; Bussiere, Matthieu; Goldberg, Linda; Hills, Robert
    Abstract: This paper presents the novel results from an internationally coordinated project by the International Banking Research Network (IBRN) on the cross-border transmission of conventional and unconventional monetary policy through banks. Teams from seventeen countries use confidential micro-banking data for the years 2000 through 2015 to explore the international transmission of monetary policies of the U.S., euro area, Japan, and United Kingdom. Two other studies use international data with different degrees of granularity. International spillovers into lending to the private sector do occur, especially for U.S. policies, and bank-specific heterogeneity influences the magnitudes of transmission. The effects are supportive of the international bank lending channel and the portfolio channel of monetary policy transmission. They also show that the frictions that banks face matter; in particular, foreign currency funding and hedging considerations can be a key source of heterogeneity. The forms of bank balance sheet heterogeneity that differentiate spillovers across banks are not uniform across countries. International spillovers into lending can be large for some banks, even while the average international spillovers of policies into nonbank lending generally are not large.
    Keywords: monetary policy,international spillovers,cross-border transmission,global bank,global financial cycle
    JEL: E52 F3 F4 G15 G21
    Date: 2018
  63. By: Giovanni Caggiano; Efrem Castelnuovo; Olivier Damette; Antoine Parent; Giovanni Pellegrino
    Abstract: This paper estimates a nonlinear Threshold-VAR to investigate if a Keynesian liquidity trap due to a speculative motive was in place in the U.S. Great Depression and the recent Great Recession. We find clear evidence in favor of a breakdown of the liquidity effect after an unexpected increase in M2 in the 1921-1940 period. This evidence, which is consistent with the Keynesian view on a liquidity trap, is shown to be state contingent. In particular, it emerges only when a speculative regime identified by high realizations of the Dow Jones index is considered. A standard linear framework is shown to be ill-suited to test the hypothesis of a Keynesian liquidity trap. An investigation performed with the same data for the period 1991-2010 confirms the presence of a liquidity trap just in the speculative regime. This last result emerges significantly only when we consider the federal funds rate as the policy instrument and we model the Divisia M2 measure of liquidity.
    Keywords: Keynesian liquidity trap, Threshold-VAR, monetary and financial cliometrics, Great Depression, Great Recession
    JEL: B22 C52 E52 N12 N22
    Date: 2018
  64. By: Satoshi URASAWA
    Abstract: The Japanese economy has experienced massive structural changes since the end of the 1990s, including a decline in the working-age population, along with a decade of deflation, an increase in the number of non-regular workers, which has almost doubled since the early 1990s, contributing to a large reduction in wage costs, and a rapid advance in globalization. What are the implications of such changes for the understanding of Japan’s business cycle dynamics? This paper analyses the stylized facts of Japanese business cycle fluctuations under structural change. The empirical evidence, based on traditional frequency domain analysis using more than 60 quarterly macroeconomic time series, provides robust facts. Among the most interesting findings is that the role of scheduled hours worked as a buffer for labor input has become increasingly important, suggesting that Japanese firms tend to adjust their labor input through hours worked, owing, in part, to the increasing number of non-regular workers, which allows firms to adjust labor input in a relatively flexible manner while keeping the number of employees unchanged. The increased role of hours worked is confirmed by an analysis based on a time-varying parameter structural vector autoregression (TVP-VAR) model taking the time-varying nature of the underlying structure of the economy into account. Meanwhile, in other areas such as private consumption and investment, wages, deflators and prices, and financial market indicators, the basic nature of business cycle fluctuations has remained broadly unchanged, implying that structural change does not necessarily affect the cyclical regularities in all macroeconomic time series.
    Date: 2017–10
  65. By: Mark Setterfield (Department of Economics, New School for Social Research); Yun K. Kim (Department of Economics, University of Massachusetts-Boston)
    Abstract: We model US household debt accumulation during the neoliberal boom as a response to emulation e ects and the decline of the social wage, which has "privatized" an increasing share of the costs of providing for services such as health and education. The debt dynamics of the US economy are then studied under alternative assumptions about the con guration of distributional variables, which is shown to differ across varieties of capitalism that have "neoliberalized" to di erent degrees. A key result is that distributional change alone will not make US neoliberal capitalism financially sustainable due, in part, to the paradoxical nature of inequality as a spur to household borrowing, and hence a source of both demand-formation and financial fragility. Achieving sustainability requires, instead, more wide-ranging reform.
    Keywords: Varieties of capitalism, neoliberalism, inequality, growth, financial fragility, financial sustainability
    JEL: E12 E44 O41
    Date: 2018–07
  66. By: Michaelis Nikiforos
    Abstract: This paper presents a methodological discussion of two recent "endogeneity" critiques of the Kaleckian model and the concept of distribution-led growth. From a neo-Keynesian perspective, it is criticized because it treats distribution as quasi-exogenous, while in Skott (2017), distribution is viewed as endogenously determined by a series of (exogenous) institutional factors and social norms, and therefore one should focus on these instead of the functional distribution of income per se. The paper discusses how abstraction is used in science and economics, and uses the criteria proposed by Lawson (1989) for what constitutes an appropriate abstraction. Based on this discussion, it concludes that the criticisms are weak, although the issues raised by Skott provide some interesting directions for future work within the Kaleckian framework.
    Keywords: Kaleckian model, distribution-led, abstraction, closure
    JEL: B22 B41 B50 E11 E12
    Date: 2018
  67. By: Colonnello, Stefano; Curatola, Giuliano; Gioffré, Alessandro
    Abstract: We develop a model that reproduces the average return and volatility spread between sin and non-sin stocks. Our investors do not necessarily boycott sin companies. Rather, they are open to invest in any company while trading off dividends against ethicalness. We show that when dividends and ethicalness are complementary goods and investors are sufficiently risk averse, the model predicts that the dividend share of sin companies exhibits a positive relation with the future return and volatility spreads. Our empirical analysis supports the model's predictions.
    Keywords: Asset Pricing,General Equilibrium,Sin Stocks
    JEL: D51 D91 E20 G12
    Date: 2018
  68. By: Afonso-Rodríguez, Julio A. (Department of Applied Economics and Quantitative Methods, University of La Laguna); Santana-Gallego, María (Department of Applied Economics, University of the Balearic Islands)
    Abstract: This paper study the mechanism of transmission between the money and the retail credit markets stated in terms of the long-run relationship between the harmonized interest rates for different credit categories and for a subset of countries of the EMU (European Monetary Union). This mechanism, known as the interest rate pass-through (IRPT) phenomenon, has been analyzed in many empirical studies using a variety of econometric techniques, for different samples of countries and periods of time, and the general conclusion is that the pass-through seems to be incomplete in the long-run. Except for a few recent works, the analysis is performed on the basis on a time-invariant long-run relationship which may not be appropriate in this case and could condition this result. To evaluate the robustness of these findings we extend the analysis through a non-linear model for the long-run relationship between the money and the retail markets that incorporates in a very flexible form, and with minimum requirements on tuning parameters, the nonlinearity in the form of time-varying parameters. To that end we follow the approach initiated in Bierens (1997) and also propose some new tools to test for the existence of a stable time-varying cointegration relationship. The results obtained seems to support the former evidence of an incomplete pass-through.
    Keywords: retail interest rates, monetary policy, cointegration analysis, structural instability, time-varying cointegration
    JEL: E52 F36 C22
    Date: 2018–01
  69. By: Bachmann, Ronald (RWI); Cim, Merve (RWI); Green, Colin (Norwegian University of Science and Technology (NTNU))
    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: 2018–05
  70. By: Laun, Tobias (Department of Economics); Markussen, Simen (Ragnar Frisch Centre for Economic Research); Vigtel, Trond Christian (Ragnar Frisch Centre for Economic Research); Wallenius, Johanna (Department of Economics, Stockholm School of Economics,)
    Abstract: In this paper, we study alternative pension reforms designed to achieve fiscal sustainability in the face of demographic change. We are particularly interested in the heterogeneous effects across demographic groups, as improvements in health and longevity have not been uniform across the population. To this end, we develop a dynamic, structural life cycle model of heterogeneous agents who face health, mortality and income risk. We consider the following policy reform measures: (1) increasing the early access age to pensions, (2) raising income taxes, (3) lowering pension benefits and (4) lowering pension and disability benefits. We find that, of the considered policies, proportionally lowering pension and disability benefits results in the highest average welfare and the lowest degree of inequality. It is also successful at boosting employment, particularly among the less educated.
    Keywords: Life cycle; Retirement; Disability insurance; Health
    JEL: E24 J22 J26
    Date: 2018–05–08
  71. By: Chen, Li-Shiun; Wang, Ping; Yao, Yao
    Abstract: Cigarette smoking leads to large healthcare and morbidity costs, and mortality losses, and smoking cessation plays a key role in reducing health risk and economic costs. While medical evidence suggests that some smokers are more likely to respond to medication treatment than others depending on genetic markers, it remains unexplored whether pharmacogenetic testing is cost-effective in treating potential quitters of smoking. We address this knowledge gap by developing a lifecycle model in which individuals make smoking, health investment and consumption-savings decisions. Depending on an individual’s genotype and demographics, smoking may bring enjoyment but deteriorates one’s health, and the dynamic evolution of health capital determines life expectancy. We incorporate various aspects of behavioral considerations that justify policy intervention. We calibrate this model to fit key economic and medical observations in the U.S. We then propose three smoking cessation policies, two with standard treatments and one personalized depending on genetic markers, all under the same program costs. We construct two unified measures of effectiveness and subsequently compute the cost-effectiveness ratio. We find that personalized treatment is the most cost-effective: for each dollar of program cost, it generates $4:59 value in effectiveness, which is 22 43% higher than those under standard treatments. The result is robust to several variations to the benchmark setting, including most importantly second-hand smoking, incomplete health knowledge, and bounded rationality.
    Keywords: Smoking and Cessation behavior, Lifecycle Decision and Health Evolution, Cost-Effectivenss of Personalized Treatments, Cigarette Smoking,
    Date: 2018
  72. By: Daniel Jeongdae Lee (Macroeconomic Policy and Financing for Development Division, United Nations Economic and Social Commission for Asia and the Pacific); Jose Antonio Pedrosa-Garcia (Macroeconomic Policy and Financing for Development Division, United Nations Economic and Social Commission for Asia and the Pacific); Kiatkanid Pongpanich (Macroeconomic Policy and Financing for Development Division, United Nations Economic and Social Commission for Asia and the Pacific)
    Abstract: While financial stability is not an explicit objective for most central banks, it is clearly an issue of concern given its implications for the real economy. Given the current environment of relatively robust economic growth and benign inflation, central banks and other relevant authorities should focus especially on aspects of financial stability. This is particularly urgent for countries suffering from high or rapidly rising household debt and corporate leverage, as well as those suffering from distressed bank loans. Macroprudential measures complement monetary policy in securing financial stability. In view of the high degree of interconnectedness among financial institutions, a shock can spread rapidly across the entire system. Hence, there has been growing consensus that financial regulation should move from a "micro" approach based on individual institutions towards a "macro" framework. Macroprudential measures are aimed at reducing systemic risks and safeguarding the stability of the financial system as a whole, as opposed to microprudential measures which are targeted at specific segments or even institutions
  73. By: Marie-Hélène Felt
    Abstract: This paper proposes a new bootstrap procedure for mean squared errors of robust small-area estimators. We formally prove the asymptotic validity of the proposed bootstrap method and examine its finite sample performance through Monte Carlo simulations. The results show that our procedure performs well and outperforms existing ones. We also apply our procedure to the estimation of the total volume and value of cash, debit card and credit card transactions in Canada as well as in its provinces and subgroups of households. In particular, we find that there is a significant average annual decline rate of 3.1 percent in the volume of cash transactions, and that this decline is relatively higher among high-income households living in heavily populated provinces. Our bootstrap estimator also provides indicators of quality useful in selecting the best small-area predictors from among several alternatives in practice.
    Keywords: Bank notes, Digital Currencies, Econometric and statistical methods
    JEL: C C14 D14 E41
    Date: 2018
  74. By: Atkeson, Andrew (Federal Reserve Bank of Minneapolis); d'Avernas, Adrien (Stockholm School of Economics); Eisfeldt, Andrea L. (University of California, Los Angeles); Weill, Pierre-Olivier (University of California, Los Angeles)
    Abstract: Banks' ratio of the market value to book value of their equity was close to 1 until the 1990s, then more than doubled during the 1996-2007 period, and fell again to values close to 1 after the 2008 financial crisis. Sarin and Summers (2016) and Chousakos and Gorton (2017) argue that the drop in banks' market-to-book ratio since the crisis is due to a loss in bank franchise value or profitability. In this paper we argue that banks' market-to-book ratio is the sum of two components: franchise value and the value of government guarantees. We empirically decompose the ratio between these two components and find that a large portion of the variation in this ratio over time is due to changes in the value of government guarantees.
    Keywords: Banking; Bank valuation; Bank financial soundness; Bank regulation; Risk shifting; Bank leverage
    JEL: E44 G21 G28 G32 G38 H12
    Date: 2018–06–19
  75. By: Arora, Vipin
    Abstract: I estimate the response of real US GDP to changes in the natural gas price. A 10% increase in the natural gas price due to an unexpected fall in supply leads to a 0.15% decrease in GDP when using data after 2005. I also find that price increases driven by export demand became a net positive for GDP between 2006 and 2017—an interesting result that requires further research. Finally, the response of GDP to an increase in natural gas production is small and positive since 2005.
    Keywords: economic activity; natural gas; shale; rules of thumb
    JEL: C11 C32 E37 Q43
    Date: 2018–06–11
  76. By: Takahiro Hattori (Policy Research Institute, Ministry of Finance)
    Abstract: This paper analyzes swap-covered interest parity by comparing US Treasury bonds with USD denominated foreign assets replicated using cross-currency basis swaps. We find that the deviations of these yield spreads declined substantially after the financial crisis, which is in sharp contrast with the variation in the cross-currency basis. The analysis in this paper also shows the existence of cointegrating relationships between the cross-currency basis and domestic/foreign swap spreads, and conclude that the US swap spread tightening is related to the negative currency basis.
    Keywords: Covered interest parity, Cross-currency basis swap, Cointegration, Swap spread, Term structure
    JEL: E43 F31 G15
    Date: 2017–03
  77. By: Thomas Palley
    Abstract: Post Keynesian (PK) growth models typically fail to model unemployment. That shows up in the absence of any equilibrium condition requiring the growth of employment equal effective labor supply growth. Consequently, the models can have an imploding or exploding unemployment rate. The underlying analytical problem is failure to resolve the Harrod (1939) knife edge problem. This paper shows how the knife-edge problem can be resolved via a Kaldor - Hicks technological progress function. The paper applies the concept to several different PK growth models. In the Harrod, super-multiplier, Cambridge, and neo-Kaleckian models the warranted rate rules the roost and natural rate forces have no impact on the equilibrium growth rate. However, in a modified neo-Kaleckian model with labor market distribution conflict both warranted rate and natural rate forces impact steady state growth.
    Keywords: Growth, unemployment, Harrod Knife-edge, endogenous technical progress, Hicks, Kaldor
    JEL: O4 O41 O33 E12
    Date: 2018
  78. By: Yoshino, Naoyuki (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Nili, Farhad (Asian Development Bank Institute)
    Abstract: Deposit insurance is a key element in modern banking, as it guarantees the financial safety of deposits at depository financial institutions. It is necessary to have at least a dual fair premium rate system based on the creditworthiness of financial institutions, as a singular premium system for all banks will have a moral hazard. In this paper, we develop a theoretical as well as an empirical model for calculating dual fair premium rates. Our definition of a fair premium rate is a rate that can cover the operational expenditures of the deposit insuring organization, provides it with sufficient funds to enable it to pay a certain percentage share of deposit amounts to depositors in the case of bank default, and provides it with sufficient funds as precautionary reserves. To identify and classify healthier and more stable banks, we use credit rating methods that employ two major dimensional reduction techniques. For forecasting nonperforming loans, we develop a model that can capture both macro shocks and idiosyncratic shocks to financial institutions in a vector error correction model. Our results show that deposit insurance premium rates need to vary in relation to banks’ creditworthiness.
    Keywords: deposit insurance premium rate; forecasting nonperforming loans; idiosyncratic shocks
    JEL: E44 G21 G28
    Date: 2017–07–05
  79. By: Raphael Corbi; Elias Papaioannou, Paolo Surico
    Abstract: A series of discontinuities in the allocation mechanism of federal transfers to municipal governments in Brazil allow us to identify the causal effect of public spending on local labor markets, using a ‘fuzzy’ Regression Discontinuity Design (RDD). Our estimates imply a cost per job of about 8,000 US dollars per year and a local income multiplier around two. The effect comes mostly from employment in the retail, education and services sectors and is more pronounced among smaller municipalities in the North, with lower income and lower bank penetration.
    Keywords: natural experiment; ‘fuzzy’ RD; government spending; employment; wages
    JEL: E62 H72 C26
    Date: 2018–07–11
  80. By: Rampini, Adriano A.
    Abstract: This paper studies how the durability of assets affects financing. We show that more durable assets require larger down payments making them harder to finance, because durability affects the price of assets and hence the overall financing need more than their collateral value. Durability affects technology adoption, the choice between new and used capital, and the rent versus buy decision. Constrained firms invest in less durable assets and buy used assets. More durable assets are more likely to be rented. Economies with weak legal enforcement invest more in less durable, otherwise dominated assets and are net importers of used assets.
    Keywords: Collateral; Durability; Financial constraints; leasing; Technology adoption; Vintage capital
    JEL: D21 D86 E22 G31 G32 O16
    Date: 2018–06
  81. By: Bhandari, Anmol (Federal Reserve Bank of Minneapolis); Birinci, Serdar (Federal Reserve Bank of Minneapolis); McGrattan, Ellen R. (Federal Reserve Bank of Minneapolis); See, Kurt (University of Minnesota)
    Abstract: This paper examines the reliability of survey data for research on pass-through businesses activities. Passthrough businesses account for over half of all net income to businesses in the United States and most of the rise in top income shares. We examine all surveys that ask questions about these businesses and compare outcomes across surveys and with aggregated administrative data. We document large inconsistencies in business incomes, receipts, and number of returns. We highlight problems due to non-representative samples and measurement errors. Non-representativeness is reflected in undersampling of businesses, especially in categories of owners with low total incomes. Measurement errors arise because respondents do not refer to relevant documents when answering survey questions and also because some questions are framed in a manner that is confusing to respondents. Finally, we discuss measurement issues for statistics of interest, such as returns and valuations of ongoing private businesses, that are inherently latent and cannot be recovered using either survey or administrative data.
    Keywords: Survey data; Intangibles; Business taxes and valuation
    JEL: C83 E22 H25
    Date: 2018–06–21
  82. By: Baqaee, David Rezza; Farhi, Emmanuel
    Abstract: The goal of this paper is to simultaneously unbundle two interacting reduced-form building blocks of traditional macroeconomic models: the representative agent and the aggregate production function. We introduce a broad class of disaggregated general equilibrium models with Heterogeneous Agents and Input-Output networks (HA-IO). We elucidate their properties through two sets of results describing the propagation and aggregation of shocks. First, we characterize how shocks affect prices and quantities of goods and factors. Even with purely microeconomic shocks, the mapping from structural primitives to observed effects is complicated by ``local'' general equilibrium forces. Our framework shows how to account for these forces, and helps interpret IV-based cross-sectional regression results. We also uncover a surprising property of a large class of efficient representative agent models: they feature symmetric propagation in that a shock to producer i affects the sales of producer j in exactly the same way that a shock to j affects the sales of i. This improbable symmetry breaks in the presence of heterogeneous agents or distortions. Second, we provide aggregation results characterizing the responses of industry-level variables such as markups and productivity. The behavior of these aggregates is particularly delicate in inefficient economies: they respond to microeconomic shocks outside of the industry; and they can give rise to fallacies of composition whereby aggregates move in the opposite direction of their microeconomic counterparts. Our results shed light on many seemingly disparate applied questions, such as: sectoral co-movement in business cycles; factor-biased technical change in task-based models; structural transformation; the effects of corporate taxation; and the dependence of fiscal multipliers on the composition of government spending.
    Keywords: aggregation; comovement; Heterogeneous Agents; production networks; propagation
    Date: 2018–06
  83. By: Elisabeth Pröhl (University of Geneva and Swiss Finance Institute)
    Abstract: Dynamic stochastic general equilibrium models with ex-post heterogeneity due to idiosyncratic risk have to be solved numerically. This is a nontrivial task as the cross-sectional distribution of endogenous variables becomes an element of the state space due to aggregate risk. Existing global solution methods have assumed bounded rationality in terms of a parametric law of motion of aggregate variables in order to reduce dimensionality. In this paper, we remove that assumption and compute a fully rational equilibrium dependent on the whole cross-sectional distribution. Dimensionality is tackled by polynomial chaos expansions, a projection technique for square-integrable random variables, resulting in a nonparametric law of motion. We establish conditions under which our method converges and approximation error bounds. Economically, we find that the bounded rationality assumption leads to significantly more inequality than in a fully rational equilibrium. Furthermore, more risk sharing in form of redistribution can lead to higher systemic risk.
    Keywords: Dynamic stochastic general equilibrium, Incomplete markets, Heterogeneous agents, Aggregate uncertainty, Convergence, Numerical solutions, Polynomial chaos
    JEL: C62 C63 D31 D52 E21
    Date: 2017–12
  84. By: Yoshino, Naoyuki (Asian Development Bank Institute); Taghizadeh-Hesary, Farhad (Asian Development Bank Institute)
    Abstract: The main obstacle to developing green energy projects is lack of access to finance. For larger energy projects (e.g., large hydropower projects), insurance and pensions are sustainable financing alternatives. Large energy projects are long-term investment projects; banks are not able to provide long-term loans because their resources (deposits) are short- to medium-term. Pension funds and insurance companies hold long-term savings, so these institutions could be a proper alternative for financing mega-size energy projects. On the other hand, because electricity tariffs are often regulated by the government, to increase the investment incentives the spillover effects originally created by energy supplies need to be used, and tax revenues refunded to the investors in energy projects. For smaller-size green projects, the paper provides a theoretical model for combining utilisation of carbon tax and a new way of financing risky capital, i.e., hometown investment trust funds (HITs). Because of the Basel capital requirement, and because most green energy projects from the point of view of financers are considered risky projects, many financers are reluctant to lend to them or they lend at high interest rates. We show that by taxing carbon dioxide (CO2), sulphur dioxide (SO2), and nitrogen oxides (NOx) and allocating those tax revenues to HITs, green projects will become more feasible and more interesting for hometown investors; hence the supply of investment money to these funds will increase.
    Keywords: carbon tax; green energy; renewable energy; hometown investment trust funds; HITs
    JEL: E62 G21 Q21
    Date: 2017–07–11
  85. By: Antoine Goujard; Pierre Guérin
    Abstract: Poland’s productivity has grown strongly over the past two decades. However, the public and private capital stock is weak, and investment remains focused on the adoption of existing technologies, which weighs on future productivity gains and innovation. Many micro enterprises have low productivity, and structural bottlenecks reduce start-ups' growth and their chances of survival. The EU and the government are stepping up funding for business research and development, collaboration with the public sector, entrepreneurship and innovation. This is an opportunity to improve the management of public business support, and the large new programmes should be carefully discussed with stakeholders and regularly evaluated to avoid the risks of subsidising low-productivity firms and to strengthen the take up from the most productive small and medium-sized enterprises. The sustainability of this ambitious package of measures will also require significant public revenues and promoting alternative market-based financing instruments will be critical over the medium term. Ongoing improvements in insolvency procedures and efforts to reduce the regulatory burden are set to ease reallocation of resources through the economy. However, the level of state involvement would remain important, and ensuring the independence of the network industry regulators and the Competition Authority and a level playing field between alternative technologies, as well as easing labour mobility would be good moves.
    Keywords: business environment, financial markets, financing, innovation, investment, Poland
    JEL: E22 G24 O16 O38 O44 O47
    Date: 2018–06–29
  86. By: Taghizadeh-Hesary, Farhad (Asian Development Bank Institute); Rasoulinezhad, Ehsan (Asian Development Bank Institute); Yoshino, Naoyuki (Asian Development Bank Institute)
    Abstract: We attempt to ascertain how sharp oil price changes can affect oil-exporting and oil-importing economies. To this end, we applied a simultaneous equation model (SEM) through a weighted two-stage least squares estimation method to different countries with business relations from Q1 2000 to Q4 2015. In the case of oil-exporting countries—Iran, the Russian Federation, United Arab Emirates, Indonesia, and Kazakhstan—our findings revealed that they totally benefit from oil price increases. In the case of oil-importing countries, the effects are more diverse. To derive a better interpretation, we divided them into four groups: European Union (EU) members (Germany, Italy, the Netherlands, and Poland); East Asian economies (Japan; the People’s Republic of China; the Republic of Korea; Viet Nam; Taipei,China; Singapore; and Hong Kong, China); Commonwealth of Independent States (Ukraine and Belarus); and others (United States, India, and Turkey). Our results showed that all these countries importing oil face a negative supply shock, except Turkey, which benefits directly from an oil price shock. Furthermore, the indirect effect coefficient received through trade for all these countries was positive.
    Keywords: crude oil price; trade linkage; direct and indirect effect of oil shocks
    JEL: C30 E32 Q43
    Date: 2017–09–07
  87. By: Alberto Troccoli
    Abstract: Geography, including climatic factors, have long been considered potentially important elements in shaping socio-economic activities. However, it has been argued that other possible drivers, particularly institutions, can be more important factors. Here we demonstrate that geography/climate variables satisfactorily explain the worldwide economic activity as measured by the per capita Gross Cell Product (GCP-PC) at a high geographical resolution, typically much higher than country average. A 1{\deg} by 1{\deg} GCP-PC dataset has been key for establishing and testing a direct relationship between 'local' geography/climate and GCP-PC. Not only have we tested the geography/climate hypothesis using many possible explanatory variables, importantly we have also predicted and reconstructed GCP-PC worldwide by retaining the most significant predictors. While this study confirms that latitude is the most important predictor for GCP-PC when taken in isolation, the accuracy of the GCP-PC prediction is greatly improved when other factors mainly related to variations in climatic variables, rather than average climatic conditions, are considered. However, latitude diminishes in importance when only the wealthier parts of the globe are considered. This work points to specific features of the climate system which appear key to driving economic activity, such as the variability in air pressure or the seasonal variations of dew point temperature. The implications of these findings range from a better understanding of why socio-economically better-off societies are geographically placed where they are, in the present, past and future, to informing where new economic activities could be established in order to yield favourable economic outcomes based on geography/climate conditions.
    Date: 2018–06
  88. By: Peter J Kunzel; Phil De Imus; Edward R Gemayel; Risto Herrala; Alexei P Kireyev; Farid Talishli
    Abstract: The Caucasus and Central Asia (CCA) countries are at an important juncture in their economic transition. Following significant economic progress during the 2000s, recent external shocks have revealed the underlying vulnerabilities of the current growth model. Lower commodity prices, weaker remittances, and slower growth in key trading partners reduced CCA growth, weakened external and fiscal balances, and raised public debt. the financial sector was also hit hard by large foreign exchange losses. while commodity prices have recovered somewhat since late 2014, to boost its economic potential, the region needs to find new growth drivers, diversify away from natural resources, remittances, and public spending, and generate much stronger private sector-led activity.
    Keywords: Armenia;Azerbaijan;Economic integration;Economic integration;Georgia;Kazakhstan;Kyrgyz Republic;Middle East;Tajikistan;Trade liberalization;Turkmenistan;Uzbekistan;Central Asia and the Caucasus;Economic integration; Trade liberalization; Macroeconomic Frameworks, Financial Aspects of Economic Integration
    Date: 2018–06–13
  89. By: Julien Acalin (Johns Hopkins University)
    Abstract: Sovereign state-contingent bonds, in particular growth-indexed bonds (GIBs), have rarely been issued in practice despite their theoretical benefits. This paper provides support for this apparent sovereign noncontingency puzzle by deriving the impact of GIBs on the upper tail of the distribution of the public debt-to-GDP ratio. Although this impact varies importantly across countries and indexation formulas, empirical estimates show there is almost no reduction in the upper tail of the distribution under the realistic assumption that GIBs only represent 20 percent of the stock of debt. Moreover, a sustained premium of 100 basis points would actually increase the upper tail of the distribution for most countries.
    Keywords: Growth-indexed bonds, State-contingent bonds, Debt sustainability, Monte Carlo simulations
    JEL: E62 F34 H63
    Date: 2018–07
  90. By: Lopez, Jose A. (Federal Reserve Bank of San Francisco); Rose, Andrew K. (University of California, Berkeley); Spiegel, Mark M. (Federal Reserve Bank of San Francisco)
    Abstract: We examine the effect of negative nominal interest rates on bank profitability and behavior using a cross-country panel of over 5,100 banks in 27 countries. Our data set includes annual observations for Japanese and European banks between 2010 and 2016, which covers all advanced economies that have experienced negative nominal rates, including currency union members as well as both fixed and floating exchange rates countries. When we compare negative nominal interest rates with low positive rates, banks experience losses in interest income that are almost exactly offset by savings on deposit expenses and gains in non-interest income, including capital gains on securities and fees. We find heterogeneous effects of negative rates: floating exchange rates, small banks, and banks with low deposit ratios drive most of our results. Low-deposit banks have enjoyed particularly striking gains in non-interest income, likely from capital gains on securities. There have only been modest differences between high and low deposit-ratio banks’ changes in interest expenses; high deposit banks do not seem disproportionately vulnerable to negative rates. Overall, our results indicate surprisingly benign implications of negative rates for commercial banks thus far.
    JEL: E43 G21
    Date: 2018–06–20
  91. By: Lopez, Jose A; Rose, Andrew K; Spiegel, Mark
    Abstract: We examine the effect of negative nominal interest rates on bank profitability and behavior using a cross-country panel of over 5,100 banks in 27 countries. Our data set includes annual observations for Japanese and European banks between 2010 and 2016, which covers all advanced economies that have experienced negative nominal rates, including currency union members as well as both fixed and floating exchange rates countries. When we compare negative nominal interest rates with low positive rates, banks experience losses in interest income that are almost exactly offset by savings on deposit expenses and gains in non-interest income, including capital gains on securities and fees. We find heterogeneous effects of negative rates: floating exchange rates, small banks, and banks with low deposit ratios drive most of our results. Low-deposit banks have enjoyed particularly striking gains in non-interest income, likely from capital gains on securities. There have only been modest differences between high and low deposit-ratio banks' changes in interest expenses; high deposit banks do not seem disproportionately vulnerable to negative rates. Overall, our results indicate surprisingly benign implications of negative rates for commercial banks thus far.
    Keywords: data; deposit; effective; empirical; firm; panel; regression; zero bound
    JEL: E43 G21
    Date: 2018–06
  92. By: Giorgio Canarella (University of Nevada Las Vegas, US); Luis A. Gil-Alana (University of Navarra, Pamplona, Spain); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Stephen M. Miller (University of Nevada Las Vegas, US)
    Abstract: We propose a modeling approach for the historical series of real and nominal house prices in the United States and the United Kingdom that permits the simultaneous estimation of persistence at zero frequency (trend) and at frequency away from zero (cycle). We also consider the separate cases of a standard I(d) process, with a pole at the zero frequency, and a cyclical I(d) model that incorporates a singularity at a non-zero frequency. We use annual data from 1830 to 2016 for the United States and 1845 to 2016 for the United Kingdom. We find, in general, that the degree of fractional integration associated with the long run or zero frequency is less than one, but greater than 0.5, while the degree of fractional integration associated with the cyclical frequency is greater than zero and less than 0.5. Thus, the long-run component of house prices is nonstationary but mean reverting, while the cyclical component is stationary. This contrasts with the results of the standard model and much of the empirical literature, where the rejection of the unit root seldom occurs. Some policy implications of the results appear in the conclusion.
    Keywords: Long memory, house prices, fractional integration, cycles
    JEL: C22 H21 H31
    Date: 2018–06
  93. By: Acharya, Sushant (Federal Reserve Bank of New York); Wee, Shu Lin (Carnegie Mellon University)
    Abstract: A large and growing share of hires in the United States are replacement hires. This increase coincides with a growing productivity-wage gap. We connect these trends by building a model where firms post long-lived vacancies and engage in on-the-job search for more productive workers. These features improve a firm's bargaining position while raising workers' job insecurity and the wedge between hiring and meeting rates. All three channels lower wages while raising productivity. Quantitatively, increased replacement hiring explains half the increase in the productivity-wage gap. The socially efficient outcome features fewer low-productivity jobs and a 10 percent narrower productivity-wage gap.
    Keywords: replacement hiring; productivity-wage gap; unemployment; labor share; efficiency
    JEL: E32 J63 J64
    Date: 2018–06–01
  94. By: Mark Gradstein; Michael Kaganovich
    Abstract: The aftermath of the recent economic crisis saw the largest U.S. government bailout of corporate entities ever. While the bailout was carried out with the explicit goal of restoring stability, it aroused much controversy and public criticism based on moral hazard concerns as well as the exorbitant cost to the taxpayer. This paper examines the bailout design on behalf of an imperfectly informed legislature aimed at shaping the incentives of a policymaker to whom bailout decisions are delegated. We show that important elements of the design entail legislative procedural hurdles such as criteria for appointing policymaking executives with future bailout powers, which favor selection of the types who are less susceptible to the costs of an economic crises.
    Keywords: political economy, corporate bailouts
    JEL: E60 H11
    Date: 2018
  95. By: Yvan Guillemette; David Turner
    Abstract: This paper presents long-run economic projections for 46 countries, extending the short-run projections of the Spring 2018 OECD Economic Outlook. It first sets out a baseline scenario under the assumption that countries do not carry out institutional and policy reforms. This scenario is then used as a reference point to illustrate the potential impact of structural reforms in alternative scenarios, including better governance and educational attainment in the large emerging-market economies and competition-friendly product market and labour market reforms in OECD economies. Flexibility-enhancing labour market reforms not only boost living standards but, by raising the employment rate, also help alleviate fiscal pressures associated with population ageing. Another scenario illustrates the potential positive impact of linking the pensionable age to life expectancy on the participation rate of older workers, and in particular that of women. Additional scenarios illustrate the potential economic gains from raising public investment and spending more on research and development. A final ‘negative’ scenario shows how slipping back on trade liberalisation – returning to 1990 average tariff rates – might depress standards of living everywhere.
    Keywords: conditional convergence, fiscal sustainability, governance reform, labour market reform, long-term growth, long-term projection, retirement age
    JEL: E6 H68 J11 O4
    Date: 2018–07–12
  96. By: Serhan Cevik; Guohua Huang
    Abstract: This how-to note focuses on the management of the fiscal costs associated with natural disaster risks. Unlike other types of fiscal risks (for example, unexpected macroeconomic changes or materialization of contingent liabilities), a natural disaster presents a unique challenge to fiscal risk-management and budget processes because of its exogenous nature and potentially overwhelming scale. This note discusses how governments can build fiscal resilience against natural hazards and strengthen fiscal management after a disaster, including through budgeting frameworks and other fiscal policies. The note aims to answer three central questions: How large should fiscal buffers be? How should fiscal buffers be built up? How should fiscal buffers be used efficiently and transparently once a natural disaster has struck? These three questions directly relate to fiscal policy, fiscal risk management, and the budget process—all core areas of IMF expertise. To address them, the note focuses on fiscal strategies for financing recovery efforts and considers approaches to mitigate disaster impact. The note also provides guidance on how to conduct regular risk analyses of natural disasters’ potential fiscal consequences and outlines best practices for defining and accounting for the contingent liabilities associated with natural disasters in budgeting frameworks. Finally, the note touches on approaches for risk reduction, disaster risk financing strategies, and risk transfer mechanisms, such as various insurance instruments.
    Keywords: Fiscal management;Fiscal policy;Fiscal sustainability;Natural disaster assistance;Climate changes;Fiscal management, Fiscal policy, Fiscal sustainability, Natural disaster assistance, Climate changes
    Date: 2018–06–11
  97. By: Mariolis, Theodore; Leriou, Eirini; Soklis, George
    Abstract: Using input-output table data and a system of basic and derivative indices, the analysis in this paper provides a dissection of the Greek economy for the years 2005 and 2010. The findings suggest that: (i) the structural features of the economy have been shaped well before the emergence of the so-called Greek (or PIIGS) crisis; (ii) a well-targeted effective demand management policy could be mainly based on the service and primary production sectors; and (iii) industrial policy would be necessary and could primarily focus on nine highly import-dependent commodities of the industry sector. Therefore, it seems that a change in the intersectoral structure of the Greek economy is necessary.
    Keywords: Domestic and foreign value added; Greek economy; Industrial policy; Interindustry linkages and leakages; Management of effective demand; Structural transformation
    JEL: C67 D57 E61 F14 O25
    Date: 2018–06–25
  98. By: Hendricks, Lutz (University of North Carolina, Chapel Hill); Herrington, Christopher (Virginia Commonwealth University); Schoellman, Todd (Federal Reserve Bank of Minneapolis)
    Abstract: We harmonize the results of 42 different data sets and studies dating back to the early 20th century to construct a time series of college attendance patterns for the United States. We find an important reversal around the time of World War II: before that time, family characteristics such as income were the better predictor of college attendance; afterwards, academic ability was the better predictor. We construct a model of college choice that can explain this reversal. The model's central mechanism is an exogenous rise in the demand for college that leads better colleges to become oversubscribed. These colleges institute selective admissions and raise their quality relative to the remaining colleges, as in Hoxby (2009). Rising quality at better colleges attracts high-ability students, while falling quality at the remaining colleges dissuades low-ability students, generating the reversal.
    Keywords: College access; Intergenerational mobility; Human capital
    JEL: E24 I24 N32 O15
    Date: 2018–07–02

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