nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒07‒23
eighty-six papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Financial Heterogeneity and Monetary Union By Simon Gilchrist; Raphael Schoenle; Jae W. Sim; Egon Zakrajsek
  2. Recession Probabilities for the Eurozone at the Zero Lower Bound: Challenges to the Term Spread and Rise of Alternatives By Ralf Fendel; Nicola Mai; Oliver Mohr
  3. Economic Transactions Govern Business Cycles By Olkhov, Victor
  4. Learning Financial Shocks and the Great Recession By Patrick Pintus; Jacek Suda
  5. The Business Cycle Model Beyond General Equilibrium By Olkhov, Victor
  6. Government Consumption and Investment: Does the Composition of Purchases Affect the Multiplier? By Christoph E. Boehm
  7. The natural rate of interest and the financial cycle By Krustev, Georgi
  8. How do consumers interpret the macroeconomic effects of oil price fluctuations? Evidence from U.S. survey data By Martin Geiger; Johann Scharler
  9. Institutional Setups of Monetary Policy and Banking Regulation and Supervision - A Survey By Diana Lima
  10. Real Business Cycles, Animal Spirits, and Stock Market Valuation By Lansing, Kevin J.
  11. Forecasting activity at Etla in 1971–2018 By Kotilainen, Markku
  12. Evaluating Inflation Targeting Regime - Case Study: Georgia By Nodar Kiladze
  13. How do people interpret macroeconomic shocks? Evidence from U.S. survey data By Martin Geiger; Johann Scharler
  14. Google it up! A Google Trends-based Uncertainty Index for the United States and Australia By Efrem Castelnuovo; Trung Duc Tran
  15. The Money View Versus the Credit View By Sarah S. Baker; J. David Lopez-Salido; Edward Nelson
  16. Robert J. Gordon and the introduction of the natural rate hypothesis in the Keynesian framework By Aurélien Goutsmedt; Goulven Rubin
  17. Uncertainty and Hyperinflation: European Inflation Dynamics after World War I By Lopez, Jose A.; Mitchener, Kris James
  18. Which Banks Smooth and at What Price? By Sotirios Kokas; Dmitri Vinogradov; Marios Zachariadis
  19. Estimating the Real Effects of Uncertainty Shocks at the Zero Lower Bound By Giovanni Caggiano; Efrem Castelnuovo; Giovanni Pellegrino
  20. Positive Trend In ation and Determinacy in a Medium-Sized New Keynesian Model By Jonas E. Arias; Guido Ascari; Nicola Branzoli; Efrem Castelnuovo
  21. Assessing monetary policy targeting regimes for small open economies By Harsha Paranavithana; Leandro Magnusson; Rod Tyers
  22. The quantification of structural reforms: Introducing country-specific policy effects By Balázs Égert; Peter Gal
  23. The changing dynamics of short-run output adjustment By Ertürk, Korkut Alp; Mendieta-Muñoz, Ivan
  24. Global recessions and booms: What do probit models tell us? By Baumann, Ursel; Gómez Salvador, Ramón; Seitz, Franz
  25. Self-confirming Price Dispersion in Monetary Economies By Garth Baughman; Stanislav Rabinovich
  26. Speed Limit Policy and Liquidity Traps By Taisuke Nakata; Sebastian Schmidt; Paul Yoo
  27. Bank Lending in the Knowledge Economy By DellAriccia, Giovanni; Kadyrzhanova, Dalida; lev, ratnovski; Minoiu, Camelia
  28. The Good, the Bad, and the Ugly: Impact of Negative Interest Rates and QE on the Profitability and Risk-Taking of 1600 German Banks By Urbschat, Florian
  29. The Impact of Monetary Policy on the Balance of Payments and Macroeconomic Indicators By Korishchenko, Konstantin; Morozov, Stepan; Bryanov, G
  30. Entrepreneurship, Labor Market Mobility and the Role of Entrepreneurial Insurance By Gaillard, Alexandre; Kankanamge, Sumudu
  31. Which Role for a European Minister of Economy and Finance in a European Fiscal Union? By Zareh Asatryan; Xavier Debrun; Annika Havlik; Friedrich Heinemann; Martin G. Kocher; Roberto Tamborini
  32. An Output Gap Measure for the Euro Area : Exploiting Country-Level and Cross-Sectional Data Heterogeneity By Manuel Gonzalez-Astudillo
  33. Inequality amid income stagnation: Italy over the last quarter of a century By Andrea Brandolini; Romina Gambacorta; Alfonso Rosolia
  34. Cyclical and Stuctural Variation in Resource Reallocation: Evidence for Europe By Eric Bartelsman; Paloma Lopez-Garcia; Giorgio Presidente
  35. A Survey-based Shadow Rate and Unconventional Monetary Policy Effects By Hibiki Ichiue; Yoichi Ueno
  36. The Effects of the Bank of Japan fs Corporate and Government Bond Purchases on Credit Spreads By Kenji Suganuma; Yoichi Ueno
  37. Measuring unemployment by means of official data and administrative records: Empirical and theoretical perspectives By Guerrazzi, Marco; Ksebi, Ilham
  38. Public expenditure management in Indonesia: Islamic economic review on state budget 2017 By Jaelani, Aan
  39. Country-specific fiscal reaction functions: what lessons for EMU ? By Amélie BARBIER-GAUCHARD; Nicolas MAZUY
  40. Revisiting effectiveness of interest rate as a tool to control inflation: evidence from Malaysia based on ARDL and NARDL By Hamzah, Nurrawaida Husna; Masih, Mansur
  41. Implications of EMU for the European Community By Chris Kirrane
  42. A note on re-switching and the neo-Austrian concept of the average period of production By Fratini, Saverio M.
  43. Credit Spreads, Daily Business Cycle, and Corporate Bond Returns Predictability By Alexey Ivashchenko
  44. The Unemployment Impact of Product and Labour Market Regulation: Evidence from European Countries By Piton, Céline; Rycx, Francois
  45. Do heterogeneous countries respond differently to oil price shocks? By Guerrero Santiago; Hernández del Valle Gerardo; Hernández Vega Marco A.
  46. Market disequilibrium, monetary policy, and financial markets: insights from new tools By Jean-Luc Gaffard; Mauro Napoletano
  47. Robert J. Gordon and the introduction of the natural rate hypothesis in the Keynesian framework By Aurélien Goutsmedt; Goulven Rubin
  48. Nothing is Certain Except Death and Taxes : The Lack of Policy Uncertainty from Expiring "Temporary" Taxes By Andrew C. Chang
  49. Benefits and costs of liquidity regulation By Hoerova, Marie; Mendicino, Caterina; Nikolov, Kalin; Schepens, Glenn; Heuvel, Skander Van den
  50. Endogenous Growth and Entropy By Tiago Neves Sequeira; Pedro Mazeda Gil; Óscar Afonso
  51. Hopf Bifurcation from New-Keynesian Taylor Rule to Ramsey Optimal Policy By Jean-Bernard Chatelain; Kirsten Ralf
  52. A Theorem for Okun's Law By Adama Zerbo
  53. Problems, solutions and new problems with the third wave of technological unemployment By Fabio D'Orlando
  54. On why gender employment equality in Britain has stalled since the early 1990s By Razzu, Giovanni; Singleton, Carl; Mitchell, Mark
  55. The Digital World: I - Bitcoin: from history to real live By Dominique Guégan
  56. Liquidity Traps and Large-Scale Financial Crises By Giovanni Caggiano; Efrem Castelnuovo; Olivier Damette; Antoine Parent; Giovanni Pellegrino
  57. Publish and Perish: Creative Destruction and Macroeconomic Theory By Jean-Bernard Chatelain; Kirsten Ralf
  58. Do economic and financial integration stimulate economic growth? A critical survey By Ehigiamusoe, Kizito Uyi; Hooi Hooi Lean
  59. National debts and government deficits within European Monetary Union: Statistical evidence of economic issues By Mario Coccia
  60. Consumption Response to Aggregate Shocks and the Role of Leverage By Agnes Kovacs; May Rostom; Philip Bunn
  61. Wages and employment: The role of occupational skills By Girsberger, Esther Mirjam; Rinawi, Miriam; Krapf, Matthias
  62. Money Function and Money Banking by Ibnu Taimiyah By Khalamillah, Fahmi
  63. Monetary Policy in a Schumpeterian Growth Model with Two R&D Sectors By Huang, Chien-Yu; Yang, Yibai; Zheng, Zhijie
  64. "An Alternative to Sovereign Bond-Backed Securities for the Euro Area" By Mario Tonveronachi
  65. Japan: Evaluating Aggressive Monetary Easing and Economic Performance By Ramana
  66. Analyzing the trends of natural resources rents of Pakistan By Alvi, Mohsin Hassan; Ansari, Sami ul Haque
  67. The Joint Distribution of Wealth and Income Risk: Evidence from Bern By Krapf, Matthias
  68. Exchange rates, sunspots and cycles By Mauro Bambi; Sara Eugeni
  69. Time-Dependency in Producers’ Price Adjustments: Evidence from Micro Panel Data. By Nilsen, Øivind A.; Pettersen, Per Marius; Bratlie, Joakim
  70. Nowcasting Mexican GDP using Factor Models and Bridge Equations By Gálvez-Soriano Oscar de Jesús
  71. The 2015 and 2016 diaries of consumer payment choice: technical appendix By Angrisani, Marco; Foster, Kevin; Hitczenko, Marcin
  72. Offshoring and the polarisation of the demand for capital By Bursian, Dirk; Nagengast, Arne J.
  73. The 2016 and 2017 surveys of consumer payment choice: summary results By Greene, Claire; Stavins, Joanna
  74. Financial Development, Economic Growth, and Electricity Demand: A Sector Analysis of an Emerging Economy By Roubaud, David; Shahbaz, Muhammad
  75. Institutional convergence in Europe By Schönfelder, Nina; Wagner, Helmut
  76. The concept of economic thought Ibn Khaldun By Mujahidin, Muhamad
  77. Estimating the Impacts of Payroll Taxes: Evidence from Canadian Employer-Employee Tax Data By Deslauriers, Jonathan; Dostie, Benoit; Gagné, Robert; Paré, Jonathan
  78. A Physical Review on Currency By Ran Huang
  79. On the optimal design of a Financial Stability Fund By Arpad Abraham; Eva Carceles-Poveda; Yan Liu; Ramon Marimon
  80. The impact of the interchange fee regulation on merchants: evidence from Italy By Guerino Ardizzi; Michele Savini Zangrandi
  81. The Heterogeneous Effects of the Minimum Wage on Employment Across States By Wang, Wuyi; Phillips, Peter C.B.; Su, Liangjun
  82. Macroeconomic Conditions and Child Schooling in Turkey By Gunes, Pinar; Ural Marchand, Beyza
  83. Financialisation and the Term Structure of Commodity Risk Premiums By Jonathan Hambur; Nick Stenner
  84. Where’s the Money Going? The Importance of Accounting for Rent Payments in Measuring a Household's Financial Obligations By Andrew C. Chang; Joanne W. Hsu; Sarah Pack; Michael G. Palumbo
  85. The effect of gender-targeted conditional cash transfers on household expenditures: evidence from a randomized experiment By Alex Armand; Orazio Attanasio; Pedro Carneiro; Valérie Lechene
  86. Evaluating Efficient Multilateral Interchange Fees: Evidence from End-User Benefits By Egor A. Krivosheya

  1. By: Simon Gilchrist; Raphael Schoenle; Jae W. Sim; Egon Zakrajsek
    Abstract: We analyze the economic consequences of forming a monetary union among countries with varying degrees of financial distortions, which interact with the firms' pricing decisions because of customer-market considerations. In response to a financial shock, firms in financially weak countries (the periphery) maintain{{p}}cashflows by raising markups--in both domestic and export markets--while firms in financially strong countries (the core) reduce markups, undercutting their financially constrained competitors to gain market share. When the two regions are experiencing different shocks, common monetary policy results in a substantially higher macroeconomic volatility in the periphery, compared with a flexible exchange rate regime; this translates into a welfare loss for the union as a whole, with the loss borne entirely by the periphery. By helping firms from the core internalize the pecuniary externality engendered by the interaction of financial frictions and customer markets, a unilateral fiscal devaluation by the periphery can improve the union's overall welfare.
    Keywords: Eurozone ; Financial crisis ; Fiscal devaluation ; Inflation dynamics ; Markups ; Monetary union
    JEL: E31 E32 F44
    Date: 2018–06–26
  2. By: Ralf Fendel; Nicola Mai; Oliver Mohr
    Abstract: This paper examines the recession probabilities for the Eurozone along four different dimensions: First, we identify the best performing indicators for a recession within the next 12 months based on 43 underlying single variables and their different transformations in a benchmark model. We find that a modified version of the yield curve incorporating the shadow interest rate removes the downward rigidity of the front-leg and restores part of the informational content of the term spread at the zero lower bound. However, the best performing single indicator of the benchmark model is Real M1 followed by the Purchasing Managers Index (PMI), the investment grade corporate bond spread and the Terms of Trade. Second, the paper establishes three submodels to increase the lead-time and the stability of recession models: (i) Monetary transmission channels via principal component analysis; (ii) Bivariate regressions to identify paramount combinations; (iii) Unstable surges vis-à-vis the Hodrick-Prescott trend to detect animal spirits and hawkish mistakes. Third, the analysis is extended over various forecasting horizons (6m, 18m and 24m). Fourth, the results are analyzed from the perspective of risk-affine and risk-averse investors.
    Keywords: recession probability, term spread, zero lower bound, ECB, monetary transmission channel, animal spirits
    JEL: E3 E32 E37 E5 E58
    Date: 2018–07–11
  3. By: Olkhov, Victor
    Abstract: This paper presents the business cycle model without using assumptions of general equilibrium. All economic agents are at risk but not for all agents risk assessments are performed. We propose that risk assessment can be completed for all agents and suggest use agents risk ratings as their coordinates x. We show that macroeconomics as ABM is described on bounded economic domain of economic space. Transactions between agents describe evolution of their economic and financial variables. Aggregations of economic or financial variables of agents in a unit volume near point x determine macro variables as functions of x. Aggregations of transactions between agents in unit volumes near points x and y determine macro transactions as functions of x and y. Macro transactions describe change of macro variables near points x and y. We explain how evolution of macro transactions can be described by economic equations on economic space. We show that business cycle fluctuations are consequence of these equations. We treat the nature of the business cycle fluctuations of particular macro variable as oscillations of “mean risk” of this economic variable on bounded economic domain. As example we describe interactions between transactions CL(t,x,y) that provide Loans from Creditors at point x to Borrowers at point y and transactions LR(t,x,y) that describe repayments from Borrowers at point y to Creditors at point x. Starting with economic equations we derive the system of ordinary differential equations that describe the business cycle fluctuations of macro Credits C(t) and macro Loan-Repayments LR(t) of the entire economics.
    Keywords: Business cycle; Economic Transactions; Risk Assessment; Economic Space
    JEL: C02 E00 E32 F44 G00
    Date: 2018
  4. By: Patrick Pintus (Institut des Sciences Humaines et Sociales CNRS (InSHS CNRS); Aix-Marseille Université); Jacek Suda (Narodowy Bank Polski; Szkoła Główna Handlowa; Group for Research in Applied Economics (GRAPE))
    Abstract: This paper develops a simple business-cycle model in which financial shocks have large macroeconomic effects when private agents are gradually learning the uncertain environment. Agents update their beliefs about the reduced-form structure of the economy. Because the persistence of leverage is overestimated by adaptive learners, the responses of output, investment, and other aggregates under adaptive learning are significantly larger than under rational expectations. In our benchmark case calibrated using US data on leverage, debt-to-GDP and land value-to-GDP ratios for 1996Q1-2008Q4, learning amplifies leverage shocks by a factor of about three, relative to rational expectations. When fed with actual leverage innovations observed over that period, the learning model predicts that the persistence of leverage shocks is increasingly overestimated after 2002 and that a sizeable recession occurs in 2008-10, while its rational expectations counterpart predicts a counter-factual expansion. In addition, we show that procyclical leverage reinforces the amplification due to learning and, accordingly, that macro-prudential policies that enforce countercyclical leverage dampen the effects of leverage shocks.
    Keywords: Collateral Constraints, Adaptive Learning, Financial Shocks, Great Recession
    JEL: E32 E44 G18
    Date: 2018
  5. By: Olkhov, Victor
    Abstract: This paper presents the business cycle model without using assumptions of general equilibrium. We use agent-based models, risk assessments and economic space as ground for modelling business cycles. All economic agents are at risk but not for all agents risk assessments are performed. We propose that for each agent risk assessment can be performed and suggest treat risk ratings x of agents as their coordinate x on economic space. Agents fill economic domain bounded by most secure and most risky agents. Economic processes, exogenous or endogenous shocks induce evolution of agent’s risk coordinates. We show how risk motions of agents on the bounded economic domain induce the business cycle. We derive the system of economic equations that describe macroeconomic evolution and the business cycle on economic space. As example, we study simple model that describe relations between macro Assets A(t,x) and Revenue-on-Assets B(t,x). To show how economic equations describe the business cycle we obtain from them the system of ordinary differential equations that describes business cycle time fluctuations of macroeconomic Assets A(t) and Revenue-on-Assets B(t).
    Keywords: Business cycle; Agent-Based Models; Risk Assessment; Economic Space
    JEL: C02 E00 E17 E32 F44
    Date: 2018
  6. By: Christoph E. Boehm (University of Texas, Austin)
    Abstract: I show that a large and conventional class of macroeconomic models predicts that short-lived government investment shocks have a much smaller fiscal multiplier than government consumption shocks. I test this prediction in a panel of OECD countries using real-time forecasts of government consumption and investment to purify changes in purchases of their predicted components. Consistent with theory, I estimate a government investment multiplier near zero and a government consumption multiplier of approximately 0.8. These findings suggest that fiscal stimulus packages which contain large government investment components may not be as effective at stimulating aggregate demand as commonly thought.
    Keywords: Fiscal multiplier, Durable goods, Investment, Government spending, Government investment, Government consumption
    JEL: E21 E32 E62 E63
    Date: 2018–05–07
  7. By: Krustev, Georgi
    Abstract: I extend the model of Laubach and Williams (2003) by introducing an explicit role for the financial cycle in the joint estimation of the natural rates of interest, unemployment and output, and the sustainable growth rate of the US economy. By incorporating the financial cycle – arguably an omitted variable from the system – the model is able to deliver more plausible estimates of business cycle dynamics. The sustained decline in the natural rate of interest in recent decades is confirmed, but I estimate that strong and persistent headwinds due to financial deleveraging have lowered temporarily the natural rate on average by around 1 p.p. below its long-run trend over 2008-14. This may have impaired the effectiveness of interest rate cuts to stimulate the economy and lift inflation back to target in the immediate aftermath of the GFC. JEL Classification: C32, E43, E44, E52
    Keywords: financial cycle, Kalman filter, monetary policy, natural rate of interest, output gap
    Date: 2018–07
  8. By: Martin Geiger; Johann Scharler
    Abstract: We use survey data to study how consumers assess the macroeconomic effects of structural oil market shocks on the U.S. economy using vector autoregressive models. To structurally decompose oil price changes, we impose sign restrictions on impulse responses. We find that the survey respondents' expectations are qualitatively in line with the actual developments in most cases. Nevertheless, survey respondents underestimate the adverse effects of oil market shocks in some cases. We also find that respondents expect the central bank to stabilize inflation as well as output and that expectations are consistent with a standard Taylor rule.
    Keywords: Macroeconomic Expectations, Michigan Survey, Structural Vector Autoregression, Zero and Sign Restrictions
    JEL: E00 E32 D84
    Date: 2018–07
  9. By: Diana Lima (Bank of Portugal)
    Abstract: Worldwide reforms to the institutional setup of banking supervision in the af- termath of the global nancial crisis aimed not only at revising improving the of banking supervision, but also at introducing a macroprudential oversight of the - nancial system, empowering central banks with new nancial stability objectives and instruments. This survey investigates the interaction of monetary policy and banking regulation and supervision in the light of these new developments and what it may imply for the design of their institutional setup. The survey nds a con- sensus around an institutional framework where central banks are entrusted with nancial stability and macroprudential policy mandate, since this setup would take the most of the similarities between macroprudential and monetary policies. In such an institutional set up, the microprudential dimension of banking regulation and su- pervision should be assigned to an independent authority. Finally, the literature review highlights the need for empirical evidence and theoretical analysis, regarding the impact of di erent nancial supervisory architectures on social welfare, speci - cally the assessment of the bene ts and costs associated to each type of institutional arrangement.
    JEL: E52 E58 E61 G21
    Date: 2018–07
  10. By: Lansing, Kevin J. (Federal Reserve Bank of San Francisco)
    Abstract: This paper develops a real business cycle model with five types of fundamental shocks and one "equity sentiment shock" that captures animal spirits-driven fluctuations. The representative agent's perception that movements in equity value are partly driven by sentiment turns out to be close to self-fulfilling. I solve for the sequences of shock realizations that allow the model to exactly replicate the observed time paths of U.S. consumption, investment, hours worked, the stock of physical capital, capital's share of income, and the S&P 500 market value from 1960.Q1 onwards. The model-identified sentiment shock is strongly correlated with survey-based measures of U.S. consumer sentiment. Counterfactual scenarios with the model suggest that the equity sentiment shock has an important influence on the paths of most U.S. macroeconomic variables.
    JEL: E32 E44 O41
    Date: 2018–07–04
  11. By: Kotilainen, Markku
    Abstract: The Research Institute of the Finnish Economy (Etla) started its business cycle forecasting activity in 1971. Forecasts have thus been published for almost half of a century. The foundations of forecasting have remained the same during this time. Some changes have, however, been implemented in the organization of the activity and in the tools used. In this memorandum the development of forecasting activity is described from its beginning. About twenty years the forecasts were produced by a matrix organization. The institute was divided into thematic research groups of which each produced the forecasts of its sector during the forecasting process. In 1989 a separate forecasting group was founded. At first, it was a part of a research program called ”forecasting activity”. Later, it was organized as a part of the research program ”macroeconomy, international economy and business cycles”. In the middle of the forecasting process have been the calculation framework based on the national accounts and the macroeconomic model of the institute. At first, these were integrated to each other. Nowadays they are separate. During the second half of the 1990s, the international macroeconomic model NiGEM was taken into use in forecasting and simulation of the international economy. Because Etla’s forecasts are detailed in terms of branches of industry, the institute’s input-output model is an important tool in producing the output forecasts. The main forecast publication is Suhdanne that has been published 2 times and occasionally even 4 times a year. In the 1990s the whole book was published in English, too, later just the extended summary. Since September 2016 Suhdanne is published also as an internet version, in addition to the paper one.
    Keywords: Research Institute of the Finnish Economy (Etla), forecasting, forecasting models
    JEL: E0 E17 E6
    Date: 2018–07–11
  12. By: Nodar Kiladze (Ivane Javakhishvili Tbilisi State University)
    Abstract: Inflation is an indicator used by economists to assess the economic performance of the country as it shows percentage growth of price level. High inflation means higher growth rate of prices which is bad for the economy and for the country mainly because of the reduction of average labor purchasing power, caused by stickiness of wages, which decreases economic welfare. Another important factor is divergence between the price levels of different goods and services. Zero lower bound inflation (or deflation) can also cause serious negative results such as output collapse in response to various shocks leading to economic stagnation and high rate of unemployment. Both too high and too low inflation are problem that should be solved by policymakers to achieve sustainable economic growth and long-run development of the country. Because of the above-mentioned reasons low and stable rate of inflation is to be considered the most efficient for reaching high rate of economic growth and development. This paper reviews mentioned problems and outlines why it is so crucial to have inflation rate at low level and why is it vital to keep it stable. Most of the countries desire to have their inflation rate at 2%. Inflation targets mostly vary from 2 to 5% depending on the central bank and economic development of the country but with a long run inflation target of maximum 2-3%.The National Bank of Georgia adopted Inflation Targeting regime in 2009 while some economists had misconceptions and debates about this decision and some papers were criticizing Georgia for not being ready for this change yet mostly because of its institutional setup and imperfect monetary transmission mechanism (Billmeier & Bakradze, 2007). The results of this adoption are reviewed in this paper by assessing economic performance during Monetary Targeting regime and comparing it to the period after Inflation Targeting regime. This paper uses price level stability comparison between these two periods as well as relative price variability among different commodity groups. The model investigates the relationship between inflation rate and the relative price variability and shows that adopting Inflation Targeting regime significantly improved economic performance of the country.
    Keywords: Inflation Targeting Regime, Monetary Targeting Regime, Monetary Policy, Central Banks
    JEL: E42 E31 E50
    Date: 2017–07
  13. By: Martin Geiger; Johann Scharler
    Abstract: We study the revision of survey expectations in response to macroeconomic shocks, which we identify in vector autoregressive models with sign restrictions. We find that survey respondents distinguish between movements along the Phillips curve and shifts of the Phillips curve, depending on the type of the shock that hits the economy. In addition, expectations about future interest rate dynamics are revised broadly in line with a Taylor rule. While the macroeconomic shocks account only for a small share of the forecast error variance of survey measures elicited from consumers, they are more relevant for the expectations of professional forecasters. This result is consistent with models of rational inattention.
    Keywords: Macroeconomic Expectations, Michigan Survey, Structural Vector Autoregression, Zero and Sign Restrictions
    JEL: E00 E32 D84
    Date: 2018–07
  14. By: Efrem Castelnuovo (University of Padova); Trung Duc Tran (University of Melbourne)
    Abstract: We develop uncertainty indices for the United States and Australia based on freely accessible, real time Google Trends data. Our Google Trends Uncertainty (GTU) indices are found to be positively correlated to a variety of alternative proxies for uncertainty available for these two countries. VAR investigations document an economically and statistically significant contribution to unemployment dynamics by GTU shocks in the United States. In contrast, the contribution of GTU shocks to unemployment dynamics in Australia is found to be much milder and substantially lower than that of monetary policy shocks.
    Keywords: Google Trends Uncertainty indices, Uncertainty shocks, Unemployment dynamics, VAR analysis
    JEL: C32 E32 E52
    Date: 2018–06
  15. By: Sarah S. Baker; J. David Lopez-Salido; Edward Nelson
    Abstract: We argue that Schularick and Taylor’s (2012) comparison of credit growth and monetary growth as financial-crisis predictors does not necessarily provide a valid basis for achieving one of their stated intentions: evaluating the relative merits of the “money view” and “credit view” as accounts of macroeconomic outcomes. Our own analysis of the postwar evidence suggests that money outperforms credit in predicting economic downturns in the 14 countries in Schularick and Taylor’s dataset. This contrasts with Schularick and Taylor’s (2012) highly negative verdict on the money view. In accounting for the difference in findings, we first explain that Schularick and Taylor’s characterization of the money view is defective, both because their criterion for its validity (that rapid monetary growth predicts financial crises) is misplaced, and because they incorrectly take the money view’s proponents as relying on the notion that monetary aggregates are a good proxy for credit aggregates. In fact, the money view of Friedman and Schwartz does not predict an automatic relationship between rapid monetary growth and (financial or economic) downturns, nor does it rest on money being a good proxy for credit. We further show that Schularick and Taylor’s data on money have systematic faults. For our reexamination of the evidence, we have constructed new, and more reliable, annual data on money for the countries studied by Schularick and Taylor.
    Keywords: Credit view ; Money view ; Recessions ; Financial crises
    JEL: E32 E51
    Date: 2018–06–25
  16. By: Aurélien Goutsmedt (Centre d'Economie de la Sorbonne, Chaire Energie et Prospérité); Goulven Rubin (LEM - Lille 2)
    Abstract: This article studies the dissemination of the Natural Rate of Unemployment Hypothesis (NRH) in macroeconomics during the 1970s, by studying the reaction of Robert J. Gordon to the argument of Milton Friedman (1968). In the early 1970s, Gordon displayed an empirical opposition to the NRH, arguing that the estimated parameter on expected inflation was below one, meaning that the adjustment of inflation in wages was not total. Confronting to new data and to the rise of inflation, Gordon adopted the NRH after 1973. Nevertheless the adoption anticipated any empirical proof of a parameter close to one. We explain that this conversion was due to Friedman's influence on Gordon, but also to the fact it did not prevent Gordon to support active stabilization policies. The article shows how a complex explanation of the 1960s and 1970s inflation was little by little replaced by the simpler accelerationist Phillips Curve. It enables to understand the dissemination of this particular Phillips Curve, relying on the NRH, as a process mainly led by economists close to the Keynesian framework
    Keywords: Expectations; Natural Rate of Unemployment; Phillips Curve; Stagflation
    JEL: B22 E12 E31
    Date: 2018–04
  17. By: Lopez, Jose A. (Federal Reserve Bank of San Francisco); Mitchener, Kris James (Santa Clara University)
    Abstract: Fiscal deficits, elevated debt-to-GDP ratios, and high inflation rates suggest hyperinflation could have potentially emerged in many European countries after World War I. We demonstrate that economic policy uncertainty was instrumental in pushing a subset of European countries into hyperinflation shortly after the end of the war. Germany, Austria, Poland, and Hungary (GAPH) suffered from frequent uncertainty shocks – and correspondingly high levels of uncertainty – caused by protracted political negotiations over reparations payments, the apportionment of the Austro-Hungarian debt, and border disputes. In contrast, other European countries exhibited lower levels of measured uncertainty between 1919 and 1925, allowing them more capacity with which to implement credible commitments to their fiscal and monetary policies. Impulse response functions show that increased uncertainty caused a rise in inflation contemporaneously and for a few months afterward in GAPH, but this effect was absent or much more limited for the other European countries in our sample. Our results suggest that elevated economic uncertainty directly affected inflation dynamics and the incidence of hyperinflation during the interwar period.
    JEL: E31 E63 F31 F33 F41 F51 G15 N14
    Date: 2018–05–09
  18. By: Sotirios Kokas; Dmitri Vinogradov; Marios Zachariadis
    Abstract: By adjusting lending, banks can smooth the macroeconomic impact of deposit fluctuations. This may however lead to extended periods of disproportionately high lending relative to deposit intake, resulting in the accumulation of risk in the banking system. Using bank-level data for 8,477 banks in 129 countries for the 24-year period from 1992 to 2015, we examine how individual banks’ market power and other characteristics may contribute to smoothing or amplification of shocks and to the accumulation of risk. We find that the higher their market power the lower is the growth rate of lending relative to deposits. As a result, in periods of falling deposits, higher market power for the average bank would be associated with a greater fall in lending resulting in amplification of adverse effects as deposits fall during relatively bad times. Strikingly, at very high levels of market power there is a threshold past which the effect of market power on the growth rate of lending relative to deposits turns positive so that “superpower” banks contribute to smoothing of adverse effects when deposits are falling. In periods of rising deposits, however, such banks lead to amplification and accumulation of risk in the economy
    Keywords: smoothing, amplification, risk accumulation, market power, competition, crisis.
    JEL: E44 E51 F3 F4 G21
    Date: 2018–06
  19. By: Giovanni Caggiano (University of Padova); Efrem Castelnuovo (University of Padova); Giovanni Pellegrino (University of Melbourne)
    Abstract: We employ a parsimonious nonlinear Interacted-VAR to examine whether the real effects of uncertainty shocks are greater when the economy is at the Zero Lower Bound. We find the contractionary effects of uncertainty shocks to be statistically larger when the ZLB is binding, with differences that are economically important. Our results are shown not to be driven by the contemporaneous occurrence of the Great Recession and high financial stress, and to be robust to different ways of modeling unconventional monetary policy. These findings lend support to recent theoretical contributions on the interaction between uncertainty shocks and the stance of monetary policy.
    Keywords: Uncertainty shocks, Nonlinear structural Vector AutoRegressions, Interacted VAR Generalized Impulse Response Functions, Zero Lower Bound
    JEL: C32 E32
    Date: 2018–06
  20. By: Jonas E. Arias (FRB Philadelphia); Guido Ascari (University of Oxford); Nicola Branzoli (Bank of Italy); Efrem Castelnuovo (University of Padova)
    Abstract: This paper studies the challenge that increasing the inflation target poses to equilibrium determinacy in a medium-sized New Keynesian model without indexation ï¬ tted to the Great Moderation era. For moderate targets of the inflation rate, such as 2 or 4 percent, the probability of determinacy is near one conditional on the monetary policy rule of the estimated model. However, this probability drops signiï¬ cantly conditional on model-free estimates of the monetary policy rule based on real-time data. The difference is driven by the larger response of the federal funds rate to the output gap associated with the latter estimates.
    Keywords: trend inflation, determinacy, monetary policy
    JEL: E52 E3 C22
    Date: 2018–06
  21. By: Harsha Paranavithana; Leandro Magnusson; Rod Tyers
    Abstract: This paper quantifies the performance of five monetary policy regimes in controlling macroeconomic volatility triggered by a variety of supply, demand and external shocks in small open economies. While the proposed macroeconomic model is generic, the application is to the case of Sri Lanka. The investigated regimes separately target the exchange rate, a monetary aggregate, nominal GDP, the CPI inflation rate and a Taylor composite of output gaps and inflation. The results suggest that inflation targeting offers the least macro-economic volatility overall. Consistent with earlier research and Mundell’s financial trilemma, its stabilising power is greatest under demand and external shocks, which have grown more prominent as product and financial markets have opened.
    Keywords: Macroeconomic volatility, Monetary policy, Mundell’s trilemma, Sri Lanka
    JEL: E47 E52 N15
    Date: 2018–07
  22. By: Balázs Égert; Peter Gal
    Abstract: This paper presents country-specific effects of structural reforms. It discusses how sizeable and interesting country-specific effects can be identified in a panel setting by conditioning the impact of individual policies on their own level or on the stance of other policies and institutions. This approach allows for the incorporation of a potentially large set of additional policy areas including institutions and policy areas with limited time-series availability (e.g. sub-components of the Product Market Regulation indicator, housing market regulations and policies, Doing Business indicators and the quality of institutions such as the rule of law indicator or the efficiency of the legal system). Results suggest that for instance, when more stringent product market regulation hurts more in more open economies. Better institutions amplify the positive effect of R&D spending. Tax wedge reduction leads to less employment gains when EPL is not very stringent.
    Keywords: employment, institutions, investment, non-linear effects, OECD, policy interactions, product and labour market regulation, productivity, structural reform
    JEL: D24 E17 E22 E24 J08
    Date: 2018–07–18
  23. By: Ertürk, Korkut Alp; Mendieta-Muñoz, Ivan
    Abstract: Much of macroeconomic theorizing rests on assumptions that define the short-run output adjustment of a mass-production economy. The demand effect of investment on output, assumed much faster than its supply effect, works through employment expanding pari passu with changes in capacity utilization while productivity remains constant. Using linear Structural VAR and Time-Varying Parameter Structural VAR models, we document important changes in the short-run output adjustment in the USA. The link between changes in employment, capacity utilization and investment has weakened, while productivity became more responsive following demand shifts caused by investment since the early 1990s.
    Keywords: changes in short-run output adjustment, capacity utilization, employment, mass-production economy, post-Fordism.
    JEL: B50 E10 E32
    Date: 2018–06–05
  24. By: Baumann, Ursel; Gómez Salvador, Ramón; Seitz, Franz
    Abstract: We present non-linear binary Probit models to capture the turning points in global economic activity as well as in advanced and emerging economies from 1980 to 2016. For that purpose, we use four different business cycle dating methods to identify the regimes (upswings, downswings). We find that especially activity-driven variables are important indicators for the turning points. Moreover, we identify similarities and differences between the different regions in this respect.
    Keywords: Global GDP,Probit,Turning Points
    JEL: C34 C35 E32
    Date: 2018
  25. By: Garth Baughman; Stanislav Rabinovich
    Abstract: In a monetary economy, we show that price dispersion arises as an equilibrium outcome without the need for costly simultaneous search or any heterogeneity in preferences, production costs, or search technologies. A distribution of money holdings among buyers makes sellers indifferent across a set of posted prices, leading to a non-degenerate price distribution. This price distribution, in turn, makes buyers indifferent across a range of money balances, rationalizing the non-degenerate distribution of money holdings. We completely characterize the distribution of posted prices and money holdings in any equilibrium. Equilibria with price dispersion admit higher maximum prices than observed in any single-price equilibrium. Also, price dispersion reduces welfare by creating mismatch between posted prices and money balances. Inflation exacerbates this welfare loss by shifting the distribution towards higher prices.
    Keywords: Inflation ; Money ; Price dispersion ; Search
    JEL: D43 E31 E40
    Date: 2018–07–10
  26. By: Taisuke Nakata (Board of Governors of the Federal Reserve System (E-mail:; Sebastian Schmidt (European Central Bank (E-mail:; Paul Yoo (UNC Kenan-Flagler Business School (E-mail:
    Abstract: The zero lower bound (ZLB) constraint on interest rates makes speed limit policies (SLPs) |policies aimed at stabilizing the output growth |less effective. Away from the ZLB, the history dependence induced by a concern for output growth stabilization improves the inflation- output tradeoff for a discretionary central bank. However, in the aftermath of a deep recession with a binding ZLB, a central bank with an objective for output growth stabilization aims to engineer a more gradual increase in output than under the standard discretionary policy. The anticipation of a more restrained recovery exacerbates the declines in inflation and output when the lower bound is binding.
    Keywords: Liquidity Traps, Markov-Perfect Equilibrium, Speed Limit Policy, Zero Lower Bound
    JEL: E52 E61
    Date: 2018–06
  27. By: DellAriccia, Giovanni; Kadyrzhanova, Dalida; lev, ratnovski; Minoiu, Camelia
    Abstract: We study bank portfolio allocations during the transition of the real sector to a knowledge economy in which firms increasingly use intangible assets. We show that higher corporate investment in intangible assets slows down banks' commercial lending. Banks reallocate the resulting lending capacity to other assets, notably mortgages. The findings are consistent with financial intermediation frictions due to lower collateral value of corporate intangible assets. Additional tests rule out alternative explanations such as higher mortgage demand. We estimate that higher corporate intangible assets conservatively explain 25-40% of the decline in bank commercial lending since the mid-1980s.
    Keywords: bank lending; commercial loans; corporate intangible assets; real estate loans
    JEL: E22 E44 G21
    Date: 2018–06
  28. By: Urbschat, Florian
    Abstract: The recent negative interest rate policy (NIRP) and quantitative easing (QE) programme by the ECB have raised concerns about the pass-through of monetary policy. On the one hand, negative rates could lead to declining bank profitability making an expansionary monetary policy contractionary. Also, if interest rates are too low for too long banks could be induced to take too much risky credit. On the other hand, several economists argue that there is nothing special about negative interest rates per se. This paper uses a large micro level data set of the German bank universe to examine how banks behave in this uncharted territory. The evidence found suggests that bank’s business model, i.e. the share of overnight deposits, plays a crucial role. While some banks may benefit in the short run via for instance reduced refinancing costs or lower loan loss provisions, many banks with high deposit ratios face lower net interest income and lower credit growth rates. If continued for too long QE and NIRP erode bank profits for most banks eventually.
    Keywords: Negative Interest Rate Policy; Banks' Profitability; Net Interest Rate Margin; Risk-Taking Channel
    JEL: C53 E43 E52 G11 G21
    Date: 2018–07–09
  29. By: Korishchenko, Konstantin (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Morozov, Stepan (Russian Presidential Academy of National Economy and Public Administration (RANEPA)); Bryanov, G (Russian Presidential Academy of National Economy and Public Administration (RANEPA))
    Abstract: The paper studies the implementation of the monetary policy of the Central Bank of the Russian Federation, namely, the transition from the exchange rate policy to the inflation targeting policy conducted since November 2014, and illuminates the issues of the world experience in the conduct of monetary policy by the example of central banks of foreign countries and discloses such methods of implementing monetary policy as (1) inflation targeting,(2) exchange rate regulation and (3) the targeting of money supply.
    Date: 2018–06
  30. By: Gaillard, Alexandre; Kankanamge, Sumudu
    Abstract: This paper introduces a quantitative general equilibrium model with risky entrepreneurship and search frictions designed to endogenously match the magnitude of the occupational flows between entrepreneurship, paid-employment and unemployment. The model also accounts for the general shape of these flows as well as key entrepreneurial and labor market features in the US, based mostly on micro CPS and SCF data. We use this model to examine the mitigation of the bias created by most current unemployment insurance programs in favor of paid-employment and at the expense of self-employment. We show that an entrepreneurial insurance program can significantly reduce this bias and we decompose the elements that most contribute to this reduction. Comparing this policy to an entrepreneurial subsidy, we find that entrepreneurial insurance selects more talented, wealthier, faster growing and longer lasting entrepreneurs from the unemployment pool. Finally, we find that UI system attributes have a significant impact on entrepreneurship, which might be an important additional concern for optimal UI design.
    Keywords: entrepreneurship; labor market mobility; unemployment; insurance;
    JEL: E24 E61 J68
    Date: 2018–06
  31. By: Zareh Asatryan; Xavier Debrun; Annika Havlik; Friedrich Heinemann; Martin G. Kocher; Roberto Tamborini
    Abstract: The European Commission has proposed to inaugurate a European Minister of Economy and Finance with the broad purpose of streamlining the complex and fragmented decision-making processes within the European Monetary Union. The Minister would jointly serve as Vice-President of the Commission and President of the Eurogroup, and have the tasks of coordinating budgetary instruments and structural reforms, designing and implementing adequate fiscal policies for the euro area, coordinating the enforcement of the Stability and Growth Pact, among others. This policy report discusses the potential role the Minister could play in the development of the European Fiscal Union. The report lays out the main challenges along the current institutional solutions facing several dimensions of the Fiscal Union, in particular related to fiscal sustainability, macroeconomic shocks, incentives of structural reforms, and the optimum provision of European public goods. The report then discusses whether and to what degree the new European Minister of Economy and Finance can provide appropriate solutions to these challenges for the Fiscal Union.
    Date: 2018
  32. By: Manuel Gonzalez-Astudillo
    Abstract: This paper proposes a methodology to estimate the euro-area output gap by taking advantage of two types of data heterogeneity. On the one hand, the method uses information on real GDP, inflation, and the unemployment rate for each member state; on the other hand, it jointly considers this information for all the euro-area countries to extract an area-wide output gap measure. The setup is an unobserved components model that theorizes a common cycle across euro-area economies in addition to country-specific cyclical components. I estimate the model with Bayesian methods using data for the 19 countries of the euro area from 2000:Q1 through 2017:Q2 and perform model comparisons across different specifications of the output trend. The estimation of the model preferred by the data indicates that, because of negative shocks to trend output during global the financial crisis, output remained slightly above potential in that period, but an output gap of about negative 3½ percent emerged during the European debt crisis. At the end of the sample period, output is estimated to be about 1 percent above potential.
    Keywords: Okun's law ; Output gap ; Phillips curve ; Unobserved components model ; Euro area
    JEL: C13 C32 C52 E32
    Date: 2018–06–22
  33. By: Andrea Brandolini (Bank of Italy); Romina Gambacorta (Bank of Italy); Alfonso Rosolia (Bank of Italy)
    Abstract: The paper analyses the evolution of inequality in Italy from 1989 to 2014, focusing on three business-cycle phases: the 1992 currency crisis, the moderate growth from 1993 to 2007, and the double-dip recession from 2008 to 2013. Data from the national accounts and the Bank of Italy’s Survey on Household Income and Wealth are used. Results show that income inequality, as measured by the Gini coefficient, rose sharply during the recession of the early 1990s but much less during the recent double-dip recession, though the share of people at risk of poverty rose similarly during the two crises. The stability of (synthetic) distributive inequality measures is explained by the fact that the reduction in income during the double-dip recession hit the whole population. Despite this apparent stability, two changes stand out: the widening gap between the young and the elderly and the fact that the deterioration in living conditions was borne wholly by households whose primary earner was foreign born.
    Keywords: inequality, household income distribution
    JEL: D31 E24
    Date: 2018–06
  34. By: Eric Bartelsman (VU Amsterdam); Paloma Lopez-Garcia (ECB); Giorgio Presidente (World Bank)
    Abstract: This paper uses cross-country micro-aggregated data on rm dynamics and productivity from the ECB CompNet database to provide empirical evidence on factor reallocation in the EU. The analysis fi nds that reallocation is towards more productive firms although the magnitude varies across countries and over time. Variation in reallocation is related to structural di fferences in firm size distribution across countries as well as to variation in labor and product market institutions. Productivity enhancing reallocation generally rises in downturns but, similar to findings for the US, it did not pick up in the great recession. The sharp drop in exports and tightness in credit markets are seen to provide a partial explanation for this lack of a silver lining.
    Keywords: Great Recession; Factor Reallocation
    JEL: C8 D24 E32 F4
    Date: 2018–06–17
  35. By: Hibiki Ichiue (Head of Economic Research Division, Research and Statistics Department, Bank of Japan (E-mail:; Yoichi Ueno (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: Many studies estimate a shadow interest rate, which can be negative when the short-term rate is at the effective lower bound, and use it as the monetary policy indicator. This study proposes a novel method to estimate the shadow rate using survey forecasts of macroeconomic variables and allowing the shadow rate to be negative even when the short-term rate is positive. The estimated U.S. shadow rate remained negative in 2015-17, when the Federal Reserve continued to hike its policy rate but kept its holdings of assets at sizable levels. The shadow spread, which is defined as the shadow rate minus the short-term rate, is negatively correlated with the Federal Reserve fs holdings of assets, particularly mortgage-backed securities. The impact of the unconventional monetary policy on inflation was 0.5 percentage points at its peak.
    Keywords: Monetary Policy, Effective Lower Bound, Zero Lower Bound, Shadow Rate, Survey Forecasts
    JEL: E52
    Date: 2018–06
  36. By: Kenji Suganuma (Deputy Director and Economist, Institute for Monetary and Economic Studies (currently Monetary Affairs Department), Bank of Japan (E-mail:; Yoichi Ueno (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: We examine the effects of corporate and government bond purchases by the Bank of Japan (BOJ) on Japanese firms f credit spreads. Using a micro dataset covering 5,614 corporate bonds over the period from 1997 to 2016, we empirically show that credit spreads are explained by the risk-taking channel and the local and global supply channels, in addition to the conventional default risk channel. We quantify the effects of the BOJ fs bond purchases on credit spreads through these three channels. In so doing, we emphasize that policy effects through the local and global supply channels crucially depend on the degree of risk appetite at the financial institutions.
    Keywords: Credit spreads, Default risk channel, Local supply channel, Global supply channel, Risk taking channel, Monetary policy
    JEL: E44 E58 G12
    Date: 2018–06
  37. By: Guerrazzi, Marco; Ksebi, Ilham
    Abstract: This paper addresses the measurement of unemployment in the Italian regional context. Specifically, retrieving data from Tuscany, we compare the picture of unemployment that emerges by exploring official data and administrative records over the period after the burst of the Great Recession. Consistently with previous findings, we find that registered unemployment is higher, more persistent and more concentrated on women than its official measure. However, despite those heterogeneities, we show that the cyclical behaviour of registered job seekers is similar to the one of official job seekers. Moreover, we provide a way to reconcile the two measures of unemployment. Thereafter, we develop a model that provides a rationale for the coexistence of official and registered job seekers and we explore how it reacts to productivity shocks and its policy implications. Finally, we offer some insights about the desirability of an integrated use of these data.
    Keywords: Unemployment; Official data; Administrative records; Unconstructive search; Claimants in employment
    JEL: E24 J64
    Date: 2018–06–08
  38. By: Jaelani, Aan
    Abstract: This paper discusses the management of public expenditures in Indonesia in State Budget 2017. The data collected from fiscal policy documents, especially about government spending plans in 2017, and then be reviewed by policy analysis, the theory of public expenditures, and the theory of public goods, and compared with the theory of public expenditure in Islamic economics. Public expenditure management in Indonesia has implemented a distribution system that divided public expenditure for central government expenditures, transfers to the regions, and the village fund. In terms of fiscal policy, public expenditure priorities to support the achievement of sustainable economic growth, job creation, poverty reduction, and the reduction of gaps in the welfare of the whole community. In Islamic economics, public expenditure is used to meet the needs of the community based on the principles of general interest derived from the shari'a. Public expenditure on Indonesia's government as an effective tool to divert economic resources and increase the income of society as a whole, and focused on the embodiment of the people's welfare
    Keywords: State budget; fiscal policy; public expenditure; Islamic Economic
    JEL: E62 H11 H41 H5 O23 P5 P50
    Date: 2018–04–10
  39. By: Amélie BARBIER-GAUCHARD; Nicolas MAZUY
    Abstract: This paper deals with heterogeneous fiscal behaviors of euro area countries. We estimate EMU Members States fiscal reaction function using time series approach covering the period 1990 :Q1-2017 :Q2. Among the major lessons from this analysis, three general and striking results are worth highlighting : (1) factors explaining national fiscal reaction function in the short run differ from those in the long run, (2) some explanatory variables seem common to all countries while others only concern a small number of countries and (3) the sign of the impact of these explanatory variables can also differ between the countries. Finally, this paper raises the implications of heterogeneous fiscal policies on the functioning of monetary union and asks the question of fiscal convergence in the euro area.
    Keywords: fiscal reaction functions, euro area, error correction model, heterogeneity.
    JEL: E62 H61 H62 C33 C41
    Date: 2018
  40. By: Hamzah, Nurrawaida Husna; Masih, Mansur
    Abstract: Public policy remains a paradox and a challenging pursuit in finding a delicate balance between conflicting economic goals and outcomes. Nevertheless, interest rate is a commonly used monetary policy tool to maintain a low and stable inflation. However, the effectiveness of interest rate in controlling inflation remains unanswered conclusively. Undertaking a wrong policy stance will lead to huge costs to the economy and society as a whole. Therefore, the purpose of this study is to investigate the lead-lag relationship between inflation and interest rate, and whether the relationship between the two variables is linear. These will determine whether interest rate is an effective tool in the context of Malaysia. This study extends prior literature by using a more recent monthly time series data and advanced techniques known as NARDL and ARDL. Based on this study, it is found that inflation rate is the most exogenous variable while interest rate is the most endogenous variable, hence policy makers have no influence over inflation. A crucial policy implication is policy makers should not use interest rate to control inflation but instead, they should focus on supply side policies to manage inflation.
    Keywords: Monetary policy, NARDL, ARDL, Inflation, Interest rate
    JEL: C22 C58 E4
    Date: 2018–06–15
  41. By: Chris Kirrane
    Abstract: Monetary integration has both costs and benefits. Europeans have a strong aversion to exchange rate instability. From this perspective, the EMS has shown its limits and full monetary union involving a single currency appears to be a necessity. This is the goal of the EMU project contained in the Maastricht Treaty. This paper examines the pertinent choices: independence of the Central Bank, budgetary discipline and economic policy coordination. Therefore, the implications of EMU for the economic policy of France will be examined. If the external force disappears, the public sector still cannot circumvent its solvency constraint. The instrument of national monetary policy will not be available so the absorption of asymmetric shocks will require greater wage flexibility and fiscal policy will play a greater role. The paper includes three parts. The first concerns the economic foundations of monetary union and the costs it entails. The second is devoted to the institutional arrangements under the Treaty of Maastricht. The third examines the consequences of monetary union for the economy and the economic policy of France.
    Date: 2018–05
  42. By: Fratini, Saverio M.
    Abstract: The neo-Austrian average period of production is calculated by taking the shares of costs referable to each period out of the total amount of costs as weights. Once this notion had been introduced, its inverse relationship with the rate of interest prompted some scholars to believe that it could serve as a good measure of capital intensity. As will be shown, however, this new average period poses some problems. On the one hand, the inverse relationship mentioned above does not preclude the re-switching of production methods. On the other, if re-switching occurs, the most roundabout method may paradoxically be the one that gives the smallest net output per worker. This result can affect the revival of the Austrian business-cycle theory.
    Keywords: average period of production; degree of roundaboutness; capital; re-switching; Austrian business-cycle theory
    JEL: B25 B53 D24 D33 E32
    Date: 2018–06
  43. By: Alexey Ivashchenko (University of Lausanne and Swiss Finance Institute)
    Abstract: The part of credit spread that is not explained by corporate credit risk forecasts future economic activity. I show that the link with aggregate business risk and bond liquidity risk explains this fi nding. Once I project spreads on these two risk factors, which are readily measurable with the daily frequency, in addition to corporate credit risk, the forecasting power of the residual spread reduces substantially for some macro variables and disappears entirely for the others. Such residual, however, turns out to be an out-of-sample forecast of corporate bond market returns. An investment strategy based on such forecasts delivers risk-adjusted returns 50% higher than the corporate bond market.
    Keywords: credit spreads, corporate bond returns, business cycle, predictability of returns
    JEL: E44 G12 G17
    Date: 2017–04
  44. By: Piton, Céline (National Bank of Belgium); Rycx, Francois (Free University of Brussels)
    Abstract: This paper provides robust estimates of the impact of both product and labour market regulations on unemployment using data for 24 European countries over the period 1998-2013. Controlling for country-fixed effects, endogeneity and a large set of covariates, results show that product market deregulation overall reduces the unemployment rate. This finding is robust across all specifications and in line with theoretical predictions. However, not all types of reforms have the same effect: deregulation of state controls and in particular involvement in business operations tends to push up the unemployment rate. Labour market deregulation, proxied by the employment protection legislation index, is detrimental to unemployment in the short run while a positive impact (i.e. a reduction of the unemployment rate) occurs only in the long run. Analysis by sub-indicators shows that reducing protection against collective dismissals helps in reducing the unemployment rate. The unemployment rate equation is also estimated for different categories of workers. While men and women are equally affected by product and labour market deregulations, workers distinguished by age and by educational attainment are affected differently. In terms of employment protection, young workers are almost twice as strongly affected as older workers. Regarding product market deregulation, highly-educated individuals are less impacted than low- and middle-educated workers.
    Keywords: unemployment, structural reform, product market, labour market, regulation, employment protection
    JEL: E24 E60 J48 J64 L51
    Date: 2018–06
  45. By: Guerrero Santiago; Hernández del Valle Gerardo; Hernández Vega Marco A.
    Abstract: The article studies the macroeconomic impact of oil price changes in 17 highly heterogeneous countries classified in six groups: advanced, emerging, oil producer, non-oil producers, with energy price controls and without energy price controls. The results show that despite analyzed countries differ in several dimensions, most differences regarding oil price shocks impacts can be captured comparing two groups: advanced vs. emerging. Moreover, most of the differences in the way countries react to oil price shocks come from the source of the shock rather than by the group which the countries belong to. Remarkably, there are no significant differences in the response of industrial production between oil and non-oil producer countries. We posit, as potential explanations of the later finding the decline in the energy intensity of the global economy and the degree of trade openness.
    Keywords: Oil Price Shocks;Macroeconomic Impacts;Oil Market
    JEL: E31 Q31 Q43
    Date: 2018–06
  46. By: Jean-Luc Gaffard; Mauro Napoletano
    Abstract: We revisit the main building blocks of the theoretical models underlying the monetary policy consensus before the Great Recession. We highlight how the failure of these models to prevent the crisis and to provide guidance during the recession were due to the excessive confidence in the ability of markets to coordinate demand and supply, and to the neglect of the role of finance. Furthermore, we outline the main elements of an alternative approach to monetary policy that put emphasis on the processes driving coordination in markets, and on the externalities transmitted by financial inter-linkages. Many elements of this new approach are captured by new classes of models, namely, agent-based and financial network models. We discuss some insights from these models for the conduct of monetary policy, and for its interactions with fiscal and macro- prudential policies.
    Keywords: output-inflation dynamics, new-keynesian models, disequilibrium analysis, agent-based models, fiscal-monetary policy interactions, quantitative easing policies
    Date: 2018–06–20
  47. By: Aurélien Goutsmedt (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, UP1 - Université Panthéon-Sorbonne, Chaire Energie & Prospérité - ENS Paris - École normale supérieure - Paris - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - Institut Louis Bachelier); Goulven Rubin (LEM - Lille - Economie et Management - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This article studies the dissemination of the Natural Rate of Unemployment Hypothesis (NRH) in macroeconomics during the 1970s, by studying the reaction of Robert J. Gordon to the argument of Milton Friedman (1968). In the early 1970s, Gordon displayed an empirical opposition to the NRH, arguing that the estimated parameter on expected inflation was below one, meaning that the adjustment of inflation in wages was not total. Confronting to new data and to the rise of inflation, Gordon adopted the NRH after 1973. Nevertheless the adoption anticipated any empirical proof of a parameter close to one. We explain that this conversion was due to Friedman's influence on Gordon, but also to the fact it did not prevent Gordon to support active stabilization policies. The article shows how a complex explanation of the 1960s and 1970s inflation was little by little replaced by the simpler accelerationist Phillips Curve. It enables to understand the dissemination of this particular Phillips Curve, relying on the NRH, as a process mainly led by economists close to the Keynesian framework.
    Keywords: Expectations,Natural rate of unemployment,Phillips curve,Stagflation
    Date: 2018–05
  48. By: Andrew C. Chang
    Abstract: What is the policy uncertainty surrounding expiring taxes? How uncertain are the approvals of routine extensions of temporary tax policies? To answer these questions, I use event studies to measure cumulative abnormal returns (CARs) for firms that claimed the U.S. research and development (R&D) tax credit from 1996-2015. In 1996, the U.S. R&D tax credit was statutorily temporary but was routinely extended ten times until 2015, when it was made permanent. I take the event dates as both when these ten extensions of the R&D tax credit were introduced into committee and when the extensions were signed by the U.S. president into law. On average, I find no statistically significant CARs on these dates, which suggests that the market anticipated these extensions to become law. My results support the fact that a routine extension of a temporary tax policy is not a generator of policy uncertainty and, therefore, that a routine extension of temporary tax policy is not a fiscal shock.
    Keywords: Cumulative abnormal returns ; Excess returns ; Event study ; Fiscal policy ; R&D ; Research and Development ; Sunset provision ; Tax extension ; Temporary tax ; Uncertainty shocks ; User cost of capital
    JEL: E62 G12 G14 G17 H25 H39 K34 O31
    Date: 2018–06–22
  49. By: Hoerova, Marie; Mendicino, Caterina; Nikolov, Kalin; Schepens, Glenn; Heuvel, Skander Van den
    Abstract: This paper investigates the costs and benefits of liquidity regulation. We find that liquidity tools are beneficial but cannot completely remove the need for Lender of Last Resort (LOLR) interventions by the central bank. Full compliance with current Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) rules would have reduced banks’ reliance on publicly provided liquidity during the global financial crisis without removing such assistance altogether. The paper also investigates the output costs of introducing the LCR and NSFR using two macro-financial models. We find these costs to be modest. JEL Classification: E44, E58, G21, G28
    Keywords: banking, capital requirements, Central bank, Lender of Last Resort, liquidity regulation
    Date: 2018–07
  50. By: Tiago Neves Sequeira (Univ. Beira Interior and CEFAGE-UBI); Pedro Mazeda Gil (University of Porto, Faculty of Economics, and CEF.UP); Óscar Afonso (University of Porto, Faculty of Economics, CEF.UP, and CEFAGE-UBI)
    Abstract: This paper offers novel insights regarding the role of complexity in both the transitional and the long-run dynamics of the economy. We devise an endogenous growth model using the concept of entropy as a state-dependent complexity effect. This allows us to gradually diminish scale effects as the economy develops along the transitional dynamics, which conciliates evidence on the existence of scale effects in history with evidence of no or reduced scale effects in today’s economies. We show that empirical evidence supports entropy as a “first principle” operator of the complexity effect. The model features endogenous growth, with null or small (positive or negative) scale effects, or stagnation, in the long run. These different long-run possibilities have also policy implications. Then, we show that the model can replicate well the take-off after the industrial revolution and the productivity slowdown in the second half of the XXth century. Future scenarios based on in-sample calibration are discussed, and may help to explain (part of) the growth crises affecting the current generation.
    Keywords: endogenous economic growth, complexity effects, entropy
    JEL: O10 O30 O40 E22
  51. By: Jean-Bernard Chatelain (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)
    Abstract: This paper compares different implementations of monetary policy in a new- Keynesian setting. We can show that a shift from Ramsey optimal policy under short term commitment (based on a negative-feed back mechanism) to a Taylor rule (based on a positive-feed back mechanism) corresponds to a Hopfbifurcation with opposite policy advice and a change of the dynamic properties. This bifurcation occurs because of the ad hoc assumption that interest rate is a forward-looking variable when policy targets (inflation and out put gap) a reforward-looking variables in the new-Keynesian theory.
    Keywords: Bifurcations,Taylor rule,Taylor principle,new-Keynesian model,Ramsey optimal policy,Finite horizon commitment
    Date: 2018–04
  52. By: Adama Zerbo (GED, Université de Bordeaux)
    Abstract: This paper has stated the theoretical framework of Okun's law (LO) and an integrated IS-LM-LO model to better understand the effects of economic policies on unemployment. Stated and demonstrated, the Okun law theorem confirms the existence of a negative link between economic growth and variation in the unemployment rate. However, this Okun relation cannot be considered stable. Among other things, demographic shocks, shocks onto the average real wage, real gross profits, importation duties and net taxes on goods and services induce structural changes in Okun's relation. The structural change in Okun's relation can be virtuous or vicious. When economic dynamic generates a vicious structural change in Okun's relation so that the Okun new threshold it induces is always higher than the observed economic growth rate, the unemployment rate increases. Economic growth has a greater impact on unemployment when it is strong and engenders a virtuous structural change in Okun's relation. Thus, analysis of the IS-LM-LO model shows that, though fiscal or monetary policy have a positive effect on economic growth, it would lead to an increasing unemployment if it engenders a vicious structural change in Okun’s relation. The most effective economic recovery policy to take on unemployment is the one that, in addition to accelerating economic growth, induces a virtuous structural change in Okun's relation. Ce papier a développé les fondements théoriques de la loi d’Okun (LO) et un modèle intégré IS-LM-LO permettant de mieux cerner les effets de politiques économiques sur le chômage. Enoncé et démontré, le théorème de la loi d’Okun confirme l’existence d’une relation négative entre le taux de croissance économique et la variation du taux de chômage. Cependant, cette relation d’Okun ne peut pas être considérée comme stable. Entre autres, les chocs démographiques, les chocs sur le salaire réel moyen, les profits bruts réels, les droits à l’importation et taxes nettes sur les biens et services induisent des changements structurels dans la relation d’Okun. Le changement structurel dans la relation d’Okun peut être vertueux ou vicieux. Lorsque la dynamique économique engendre un changement structurel vicieux dans la relation d’Okun de sorte que le nouveau seuil d’Okun qu’elle induit est toujours supérieur au taux de croissance observé, le taux de chômage augmente. La croissance économique a un impact plus important sur le chômage lorsqu’elle est forte et engendre un changement structurel vertueux dans la relation d’Okun. Ainsi, de l’analyse du modèle IS-LM-LO, il ressort que la politique budgétaire et/ou monétaire, bien qu’ayant un effet positif sur la croissance économique, entrainerait une hausse du chômage si elle engendre un changement structurel vicieux dans la relation d’Okun. La politique de relance économique la plus efficace dans la lutte contre le chômage est celle qui, en plus d’accélérer la croissance, induit un changement structurel vertueux dans la relation d’Okun.(Full text in english)
    JEL: E24 E63
    Date: 2018–04
  53. By: Fabio D'Orlando (University of Cassino and Lazio Meridionale)
    Abstract: The aim of this paper is to discuss possible solutions to the “third wave” of technological unemployment and their main drawbacks. The process has just started and will only be fully realized in the future, but its main novelty is already well known and concerns robots (and artificial intelligence) entering the production process. Robots do not simply increase labor productivity, in cooperation with humans, but can totally substitute labor, making it possible to produce commodities without the use of human input. This in turn generates technological unemployment. Past “compensation” theories have argued that technological unemployment could be reabsorbed thanks to wage reduction and demand (and production) increase. But these theories have ignored robots. If robots are more productive and less expensive than humans, wage reduction may be insufficient due to the minimum wage subsistence boundary; and, in any case, an increase in demand would only determine an increase in the production of goods by robots alone, without any impact on human employment. Meanwhile, the resulting mass unemployment will require redistributive policies. The paper discusses the most relevant among these policies, emphasizing their drawbacks and their unwanted implications, and proposes an alternative rooted in Tietenberg’s tradable permits approach.
    JEL: B12 D21 D30 E24 J64
    Date: 2018–07
  54. By: Razzu, Giovanni; Singleton, Carl; Mitchell, Mark
    Abstract: Using over four decades of British micro data, this paper asks why progress in closing the gender employment rate gap has stalled since the early 1990s. We find that how partner characteristics affected women’s likelihood of employment explain most of the gap’s shift in trend. Instead, changes to the structure of employment both between and within industry sectors impacted the gap at approximately constant rates throughout the period. There is evidence that continuing improvements in women’s employment when they had children or higher qualifications worked towards narrowing the gap, even after progress overall had stalled.
    Keywords: gender employment gaps; structural change; micro time series dataset
    JEL: E24 J16 J21
    Date: 2018–05–01
  55. By: Dominique Guégan (Université Paris1 Panthéon-Sorbonne, Centre d'Economie de la Sorbonne, LabEx ReFi and Ca' Foscari University of Venezia)
    Abstract: Bitcoin can be considered as a medium exchange restricted to online markets, but it is not a unit of account and a store of value, and thus cannot be considered as a money. Bitcoin value is very volatile and traded for different prices in different exchanges platforms, and thus can be used for arbitrage purpose. His behavior can be associated with a high volatile stock, and most transactions in Bitcoin are aimed to speculative instruments. The high volatility in Bitcoin and the occurrence of speculative bubble depend on positive sentiment and confidence about Bitcoin market: several variables may be considered as indicators (volume of transactions, number of transactions, number of Google research, wikipedia requests). The star of the crypto-currencies has attained the 19 716 dollars in December 2017 and decreased to 6 707 dollars March 29, 2018. In capitalization it is at this time the 30th mondial currency. We explain some limits and interests of the Bitcoin system and why the central bankers and regulators need to take some decision on its existence, and what could be the possible evolution of the Bitcoin Blockchain
    Keywords: Bitcoin; Blockchain
    JEL: C10 E4 E5
    Date: 2018–03
  56. By: Giovanni Caggiano (University of Padova); Efrem Castelnuovo (University of Padova); Olivier Damette (BETA-CNRS); Antoine Parent (Sciences Po Lyon); Giovanni Pellegrino (University of Melbourne)
    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: 2018–06
  57. By: Jean-Bernard Chatelain (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)
    Abstract: A number of macroeconomic theories, very popular in the 1980s, seem to have completely disappeared and been replaced by the dynamic stochastic general equilibrium (DSGE) approach. We will argue that this replacement is due to a tacit agreement on a number of assumptions, previously seen as mutually exclusive, and not due to a settlement by "nature". As opposed to econometrics and microeconomics and despite massive progress in the access to data and the use of statistical softwares, macroeconomic theory appears not to be a cumulative science so far. Observational equivalence of different models and the problem of identification of parameters of the models persist as will be highlighted by examining two examples: one in growth theory and a second in testing inflation persistence.
    Keywords: Macroeconomic theory,controversies,identification,economic growth,convergence,inflation persistence,B22, B23, B41, C52, E31, O41, O47
    Date: 2018–03
  58. By: Ehigiamusoe, Kizito Uyi; Hooi Hooi Lean
    Abstract: The recent vote by Britain to quit European Union (EU) and the political pressures in some member countries to exit EU necessitates a critical evaluation of the long-run economic benefits of economic integration or union to member countries. Consequently, this paper examines recent empirical studies on the nexus between economic integration and economic growth in developed and developing countries. It also investigates the literature on the impact of financial integration on economic growth. Evidence from the study shows that though other views exist, but there are overwhelming supports for growth-enhancing effects of economic integration, albeit common currency adoption has insignificant effect on growth. The channels through which economic integration exerts its influence on growth include, capital accumulation, productivity growth, trade and financial integration. However, the study shows that the impact of financial integration on economic growth is inconclusive. Based on the findings, the study draws some implications and policy options.
    Keywords: economic integration,financial integration,economic growth
    JEL: E44 F15
    Date: 2018
  59. By: Mario Coccia
    Abstract: This study analyzes public debts and deficits between European countries. The statistical evidence here seems in general to reveal that sovereign debts and government deficits of countries within European Monetary Unification-in average- are getting worse than countries outside European Monetary Unification, in particular after the introduction of Euro currency. This socioeconomic issue might be due to Maastricht Treaty, the Stability and Growth Pact, the new Fiscal Compact, strict Balanced-Budget Rules, etc. In fact, this economic policy of European Union, in phases of economic recession, may generate delay and rigidity in the application of prompt counter-cycle (or acyclical) interventions to stimulate the economy when it is in a downturn within countries. Some implications of economic policy are discussed.
    Date: 2018–06
  60. By: Agnes Kovacs (University of Oxford); May Rostom (Bank of England; Centre for Macroeconomics (CFM); University College London (UCL)); Philip Bunn (Bank of England)
    Abstract: This paper investigates the relationship between mortgage leverage and consumption around the 2008 financial crisis. Using data from the UK’s Family Expenditure Survey and Wealth and Asset Survey, we first show that high-leveraged households made larger cuts to consumption following the financial crisis, and this was largely driven by young households. Second, using a life-cycle framework, we investigate the channels by which high-leveraged households may have reduced consumption by more than others. Our key finding is that credit supply tightening is the main driver of the empirical co-movement between pre-crisis leverage and consumption growth after 2008.
    Keywords: Life-cycle models, Consumption, Household leverage, Debt, Financial crisis
    JEL: D10 D11 D14 E21
    Date: 2018–07
  61. By: Girsberger, Esther Mirjam; Rinawi, Miriam; Krapf, Matthias (University of Basel)
    Abstract: How skills acquired in vocational education and training (VET) affect wages and employment is not clear. We develop and estimate a search and matching model for workers with a VET degree. Workers differ in interpersonal, cognitive and manual skills, while firms require and value different combinations of these skills. Assuming that match productivity exhibits worker-job complementarity, we estimate how interpersonal, cognitive and manual skills map into job offers, unemployment and wages. We find that firms value cognitive skills on average almost twice as much as interpersonal and manual skills, and they prize complementarity in cognitive and interpersonal skills. The average return to VET skills in hourly wages is 9%, similar to the returns to schooling. Furthermore, VET appears to improve labour market opportunities through higher job arrival rate and lower job destruction. Workers thus have large benefits from acquiring a VET degree.
    Keywords: Occupational training; vocational education; labor market search; sorting; multidimensional skills
    JEL: E24 J33 J24 J64
    Date: 2018–06–08
  62. By: Khalamillah, Fahmi
    Abstract: Ibn Taimiyah Is an Islamic thinker and scholar of Harran, Turkey, According to Ibn Taimiyah in terms of money, he said that the main function is as means demand value and as a medium to facilitate the exchange of an item. The method of research in this article using a descriptive method that aims to discuss the function of money and money trading according to Ibn Taimiyah. The results of this study show that Islam has its own concept of the main function of money only as a means of exchange in transactions.
    Keywords: Ibn Taimiyah, Money, Trade
    JEL: B20 E40 E51
    Date: 2018–03–23
  63. By: Huang, Chien-Yu; Yang, Yibai; Zheng, Zhijie
    Abstract: This study investigates the effects of monetary policy on economic growth and social welfare in a Schumpeterian economy with an upstream and a downstream sector in which the R&D investment of these sectors is subject to a cash-in-advance (CIA) constraint. We show that a higher nominal interest rate reallocates labor from a more cash-constrained R&D sector to a less one, which could generate an inverted-U effect on economic growth. In addition, we examine the necessary and sufficient conditions for the (sub)optimality of the Friedman rule by relating the underinvestment and overinvestment of R&D in the decentralized economy, and find that this relationship is crucially determined by the presence of CIA constraints, the relative productivity between upstream R&D and downstream R&D, and the strength of markup.
    Keywords: CIA constraint; Endogenous growth; Monetary policy; Two R&D sectors
    JEL: E41 O30 O40
    Date: 2018–06–18
  64. By: Mario Tonveronachi
    Abstract: The European Commission's proposal for the regulation of sovereign bond-backed securities (SBBSs) follows the release of a high-level taskforce report, sponsored by the European Systemic Risk Board, on the feasibility of an SBBS framework. The proposal and the SBBS scheme, Mario Tonveronachi argues, would fail to yield the intended results while undermining financial stability. Tonveronachi articulates his alternative, centered on the European Central Bank's issuance of debt certificates along the maturity spectrum to create a common yield curve and corresponding absorption of a share of each eurozone country’s national debts. Alongside these financial operations, new reflationary but debt-reducing fiscal rules would be imposed.
    Date: 2018–06
  65. By: Ramana
    Abstract: Japan has had an outsized influence on global monetary policy. Avoiding becoming Japan has been a powerful force for Quantitative Easing. This paper argues, that despite popular perceptions, Japanese economic performance has not been a calamity; living standards have risen consistently over time and a full-fledged deflationary spiral avoided. These outcomes render making judgements about the Bank of Japan’s (BOJ) track record challenging despite the failure to meet the inflation target. The BOJ’s conceptual evolution on monetary policy and the various measures adopted over time are analysed for a fuller assessment of the effectiveness of monetary policy in Japan. The paper discusses the nascent, but increasingly influential academic research on the limitations of QE and its collateral effects on the economy, and what that portends for future BOJ policy.
    Keywords: Quantitative Easing, Bank of Japan, deflation
    JEL: E4 E5 F3
    Date: 2018–06–20
  66. By: Alvi, Mohsin Hassan; Ansari, Sami ul Haque
    Abstract: An attempt was made to reveal the trends of natural resources in graphical form. Rental incomes which contribute to GDP were taken into account. For this purpose, economic statistics of Pakistan was taken from World Bank’s published data source. Data was put in SPSS-20 and comparative analysis chart was created to obtain the objectives. Results revealed no significant constant or linear trends in any factor of natural resources. It was concluded that oil and natural gas contributed significantly in the start of 21st Century. Mineral has been treated as neglected factor in contributing to GDP. A research can further expand to explore more trends of rental incomes in different regions of world. We would like to express our gratitude towards initial reviewer of draft and thank to people who helped us in completion of this study.
    Keywords: Oil Rents, Natural Gas Rents, Mineral Rents, Forest Rents, Coal Rents, Trend Analysis
    JEL: A1 E21 E6 E64 Y1
    Date: 2018–06–13
  67. By: Krapf, Matthias (University of Basel)
    Abstract: Using detailed tax data from the Swiss canton of Bern, I examine how changes in wealth are related to income risk. I find that only among elderly individuals high kurtosis of income risk may be positively correlated with wealth accumulation. Additionally, I document that a substantial share of taxpayers have negative net wealth. While wealth and income are positively correlated for positive net wealth taxpayers, this correlation is negative for negative net wealth taxpayers. These negative net wealth investors experience sharp increases in wealth and income in subsequent periods. Finally, wealth risk is more dispersed than income risk.
    Keywords: wealth; income risk
    JEL: D14 D31 E21
    Date: 2018–05–08
  68. By: Mauro Bambi (University of York); Sara Eugeni (Durham University Business School)
    Abstract: OThe empirical evidence on nominal exchange rate dynamics shows a long-run relationship of this variable with the fundamentals of the economy, although such relationship disappears at shorter horizons ("exchange rate disconnect" puzzle). This apparently contrasting behaviour of the nominal exchange rate can be explained in an overlapping-generations model where the two currencies are not perfect substitutes. In this framework, we show that the nominal exchange rate is pinned down by the fundamentals of the economy at the monetary steady state. However, uctuations of the nominal exchange rate around its long-run value, which are not driven by shocks to fundamentals, can emerge. Firstly, we prove the existence of endogenous (deterministic) business cycles in the nominal exchange rate. Secondly, we construct stationary sunspot equilibria where random uctuations of the nominal exchange rate arise as a result of self-ful lling beliefs.
    Date: 2018–05
  69. By: Nilsen, Øivind A. (Dept. of Economics, Norwegian School of Economics and Business Administration); Pettersen, Per Marius (Dept. of Economics, Norwegian School of Economics and Business Administration); Bratlie, Joakim (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: Existing micro evidence of firms’ price changes tends to show a downward sloping hazard rate – the longer the price of a product has remained the same, the less likely it is that the price will change. Using a panel of Norwegian plant- and product-specific prices, we also find a downward sloping hazard when applying a Kaplan–Meier model. After having controlled for both observed and unobserved characteristics, we find flat hazards with spikes in the first and twelfth months. This suggests time-dependent price-setting by at least some of the producers. The spike after 12 months might be explained by seasonal demand effects, but also by the pricing season effect related to information acquisition and processing, negotiation and signing of price contracts. The revealed price adjustment pattern is at odds with the predictions of the Calvo model, a central element in many dynamic stochastic general equilibrium models, as this assumes constant frequencies of price adjustments over time. Our empirical findings instead point to a modified Calvo model where firms in some periods experience lower menu costs. Finally, the empirical findings may have implications for the effectiveness of monetary policy interventions.
    Keywords: Price-Setting; Micro Data
    JEL: C41 D22 E31
    Date: 2018–06–20
  70. By: Gálvez-Soriano Oscar de Jesús
    Abstract: This paper evaluates five Nowcasting models that forecast Mexico's quarterly GDP: a Dynamic Factor Model (MFD), two Bridge Equation Models (BE) and two Principal Components Models (PCA). The results indicate that the average of the BE forecasts is statistically better than the rest of the models under consideration, according to the Diebold-Mariano (1995) accuracy test. In addition, using real-time information, the BE average is found to be more accurate than the median of the forecasts provided by the analysts surveyed by Bloomberg and the median of the experts who answer Banco de México's Survey of Professional Forecasters.
    Keywords: Nowcasting;Dynamic Factor Model;Bridge Equations;Principal Component Analysis;Quarterly GDP;Diebold-Mariano test
    JEL: C32 C38 C53 E52
    Date: 2018–06
  71. By: Angrisani, Marco (University of Southern California); Foster, Kevin (Federal Reserve Bank of Atlanta); Hitczenko, Marcin (Federal Reserve Bank of Atlanta)
    Abstract: This document serves as the technical appendix to the 2015 and 2016 editions of the Diary of Consumer Payment Choice (DCPC) administered by the Center for Economic and Social Research. The DCPC is a study designed primarily to collect data on financial transactions over a three-day period by U.S. consumers ages 18 and older. In this data report, we detail the technical aspects of the survey design, implementation, and analysis.
    Keywords: survey design; sample selection; raking; survey cleaning; poststratification estimates
    JEL: D12 D14 E4
    Date: 2018–03–01
  72. By: Bursian, Dirk; Nagengast, Arne J.
    Abstract: While there is a consensus in the literature that offshoring has a polarising effect on the skill structure of labour demand, little is known about its impact on the capital side. In this paper, we analyse the effect of offshoring on the demand for capital by asset class using a rich country-sector panel dataset. Estimating a system of factor demand equations, we document that offshoring reduces the relative demand for non-ICT capital, thereby also polarising the demand for capital. Our results are robust against a wide range of specifications and methodological choices including an IV approach to address endogeneity concerns.
    Keywords: offshoring,trade,global value chains,demand for capital,user costs of capital,ICT
    JEL: F14 F20 E22
    Date: 2018
  73. By: Greene, Claire (Federal Reserve Bank of Atlanta); Stavins, Joanna (Federal Reserve Bank of Boston)
    Abstract: Despite the introduction of new technology and new ways to make payments, the Survey of Consumer Payment Choice (SCPC) finds that consumer payment behavior has remained stable over the past decade. In the 10 years of the survey, debit cards, cash, and credit cards consistently have been the most popular payment instruments. In 2017, U.S. consumers ages 18 and older made 70 payments per month on average. Debit cards accounted for 31.8 percent of those monthly payments, cash for 27.4 percent, and credit cards for 23.2 percent. The SCPC continues to measure new ways to shop and pay and found that the increase in the number of purchases made online between 2015 and 2017 is statistically significant. In 2017, consumers on average made 5.6 online purchases per month, which account for 8 percent of all transactions and are up from 6.9 percent of all transactions in 2015. Use of mobile technologies continued to grow: In 2017, one-third of consumers made a mobile payment, compared with one-fourth in 2015. Compared with the findings for 2015, a greater share of credit card adopters paid their balance in full at the end of the month in 2017: 45 percent in 2017 versus 41 percent in 2015.
    Keywords: cash; checks; checking accounts; debit cards; credit cards; prepaid cards; electronic payments; payment preferences; unbanked; Survey of Consumer Payment Choice
    JEL: D12 D14 E42
    Date: 2018–05–10
  74. By: Roubaud, David; Shahbaz, Muhammad
    Abstract: We employ an augmented production function to examine the association between electricity consumption and economic growth at the aggregate and sectoral levels for the period 1972-2014 for Pakistan. We posit that financial development is an important driver of electricity consumption and economic growth. The unit root test, combined cointegration framework, and VECM Granger causality approach are applied. There is a long-term association between the variables at the aggregate and sectoral levels. Electricity consumption and financial development stimulate economic growth. The causality analysis validates the presence of the feedback effect between economic growth and electricity consumption. Bidirectional causality exists between financial development and electricity consumption in the agriculture and services sectors. Financial development drives electricity consumption in the industrial sector. Policies have to be implemented to maintain sufficient electricity supply for economic growth. The financial sector should incentivize investment in renewable energy to reduce Pakistan’s heavy reliance on oil imports.
    Keywords: Financial development, Electricity consumption, Economic growth, Energy policy, Bidirectional causality, Feedback effect, Electricity demand–supply gap, Non-renewable energy, Carbon Emissions, Pakistan
    JEL: E0
    Date: 2018–06–01
  75. By: Schönfelder, Nina; Wagner, Helmut
    Abstract: This paper applies the statistical concepts of σ-convergence and unconditional β-convergence to institutional development within several country groups hierarchized to the degree of European integration (e.g., euro area). Two sets of indicators are employed to measure institutional development: first, the Worldwide Governance Indicators, and second, the product market regulation indicator of the OECD and the Doing Business distance to frontier indicator of the World Bank. The authors can clearly confirm institutional β-convergence within the EU and its aspirants, which is mainly driven by the new Member States and acceding, candidate, and potential candidate countries. However, euro-area countries converge only in the area of product market and business regulation- not in the area of governance. In fact, the authors show evidence for β-divergence in rule of law within the first twelve euro-area members. Concerning σ-convergence, the results are less clear. Only the EU including the EU aspirants reduced the cross-country variance in all aspects of institutional development.
    Keywords: institutional convergence,governance,product market regulation,business regulation,European integration
    JEL: E02 K20 L50
    Date: 2018
  76. By: Mujahidin, Muhamad
    Abstract: This article describes the economic thinking of Ibn Khaldun. This study uses the historical approach of Islamic economic thinking through textual exegesis (text analysis). The results of this study indicate that the economic thought of Ibn Khaldun explains the concept of multidimensional economy involving various social aspects. Ibn Khaldun's economic concept implies an economic system that requires five components, namely sharia, government, society, ownership, free and fair economic activity.
    Keywords: Islamic Economics, Ibn Khaldun, Social, Fair, Free
    JEL: A10 A11 A13 B00 B11 E20
    Date: 2018–03–02
  77. By: Deslauriers, Jonathan (HEC Montreal); Dostie, Benoit (HEC Montreal); Gagné, Robert (HEC Montreal); Paré, Jonathan (HEC Montreal)
    Abstract: In this paper, we use linked employer-employee administrative tax data from Canada to estimate the impact of payroll taxes on a variety of firms and workers outcomes. At the firm level, we use geographic and time variations in tax rates to identify the effect of payroll taxes on wage growth at the worker level. For one province, we exploit a clean overtime change in the payroll tax rate to estimate its impact on the firm's level of employment, average wage and productivity, with difference-in-differences models, taking into account firm-level unobserved heterogeneity. Additionally, taking advantage of the nature of linked data, we estimate wage equations with both fixed worker and firm fixed effects. We find no impact on employment, productivity and profits, but significant impacts on wages, implying that payroll taxes are passed almost entirely to workers in the form of lower wages.
    Keywords: payroll taxes, wages, productivity, employment, linked employer-employee data
    JEL: E62 J21 L25
    Date: 2018–06
  78. By: Ran Huang
    Abstract: A theoretical self-sustainable economic model is established based on the fundamental factors of production, consumption, reservation and reinvestment, where currency is set as a unconditional credit symbol serving as transaction equivalent and stock means. Principle properties of currency are explored in this ideal economic system. Physical analysis reveals some facts that were not addressed by traditional monetary theory, and several basic principles of ideal currency are concluded: 1. The saving-replacement is a more primary function of currency than the transaction equivalents; 2. The ideal efficiency of currency corresponds to the least practical value; 3. The contradiction between constant face value of currency and depreciable goods leads to intrinsic inflation.
    Date: 2018–04
  79. By: Arpad Abraham; Eva Carceles-Poveda; Yan Liu; Ramon Marimon
    Abstract: A Financial Stability Fund set by a union of sovereign countries can improve countries' ability to share risks, borrow and lend, with respect to the standard instrument used to smooth fluctuations: sovereign debt financing. Efficiency gains arise from the ability of the fund to over long-term contingent financial contracts, subject to limited enforcement (LE) and moral hazard (MH) constraints. In contrast, standard sovereign debt contracts are uncontingent and subject to untimely debt roll-overs and default risk. We develop a model of the Financial Stability Fund (Fund) as a long-term partnership with LE and MH constraints. We quantitatively compare the constrained-efficient Fund economy with the incomplete markets economy with default. In particular, we characterize how (implicit) interest rates and asset holdings differ, as well as how both economies react differently to the same productivity and government expenditure shocks. In our economies, "calibrated" to the euro area "stressed countries", substantial efficiency gains are achieved by establishing a well-designed Financial Stability Fund; this is particularly true in times of crisis. Our theory provides a basis for the design of a Fund - for example, beyond the current scope of the Euroepan Stability Mechanism (ESM) - and a theoretical and quantitative framework to assess alternative risk-sharing (shock-absorbing) facilities, as well as proposals to deal with the euro area "debt overhang problem."
    Date: 2018
  80. By: Guerino Ardizzi (Bank of Italy); Michele Savini Zangrandi (Bank of Italy)
    Abstract: Interchange fees (IF) are fees that a cardholder’s bank (issuer) receives from the merchant’s bank (acquirer) when a card payment is executed. Interchange fees are an important part of the fees charged to merchants by acquirers. Because of their level and fragmentation, interchange fees can restrict competition and have thus been regulated in the EU. The Interchange Fee Regulation (IFR) came into effect for all EU member states in 2015 and sets maximum limits on interchange fees. By using a panel of Italian banks we assess the impact of introducing the IF regulation on the fees that acquiring banks charge to merchants (merchant fees), and on the merchants’ acceptance of card-based payments. We find that, in line with the regulatory intent, the ceiling imposed on interchange fees has led to a sizeable drop in merchant fees and to an increase in the acceptance of card payments, measured as transactions per terminal.
    Keywords: interchange fee, payment card, acquiring, point of sale, banking panel data
    JEL: E41 G14 G21 G38 L14 L42 L51
    Date: 2018–06
  81. By: Wang, Wuyi (School of Economics, Singapore Management University); Phillips, Peter C.B. (Yale University); Su, Liangjun (School of Economics, Singapore Management University)
    Abstract: This paper studies the relationship between the minimum wage and the employment rate in the US using the framework of a panel structure model. The approach allows the minimum wage, along with some other controls, to have heterogeneous effects on employment across states which are classified into a group structure. The effects on employment are the same within each group but differ across different groups. The number of groups and the group membership of each state are both unknown a priori. The approach employs the C-Lasso technique, a recently developed classification method that consistently estimates group structure and leads to oracle-efficient estimation of the coefficients. Empirical application of C-Lasso to a US restaurant industry panel over the period 1990 - 2006 leads to the identification of four separate groups at the state level. The findings reveal substantial heterogeneity in the impact of the minimum wage on employment across groups, with both positive and negative effects and geographical patterns manifesting in the data. The results provide some new perspectives on the prolonged debate on the impact of minimum wage on employment.
    Keywords: Classification; C-Lasso; Latent group structures; Minimum wage; Unemployment.
    JEL: C33 C38 E24
    Date: 2018–06–25
  82. By: Gunes, Pinar (University of Alberta, Department of Economics); Ural Marchand, Beyza (University of Alberta, Department of Economics)
    Abstract: This paper examines the effects of macroeconomic shocks on child schooling in Turkey using household labor force surveys from 2005-2013. We use variation in local labor demand as an instrumental variable, particularly regional industry composition and national industry employment growth rates. The results demonstrate that child schooling is pro-cyclical in Turkey, with the most acute effects among children with less educated parents and living in rural areas. Finally, as hypothesized, we find asymmetric effects on child schooling based on skill composition of economic growth. Higher unemployment among unskilled workers increases schooling, whereas higher unemployment among skilled workers decreases schooling.
    Keywords: Schooling; Unemployment; Business Cycles; Turkey
    JEL: J13 J24 O15
    Date: 2018–07–14
  83. By: Jonathan Hambur (Reserve Bank of Australia); Nick Stenner (Reserve Bank of Australia)
    Abstract: Commodities, such as oil and wheat, are important inputs into the real economy. They have a significant influence on the welfare of individuals through their role as consumption goods and as inputs into other goods. As such, it is important to understand how commodity prices are set and whether there are any distortions to these prices. One component of commodity futures prices is the risk premium, which reflects the return investors demand to take on producers' and consumers' natural exposures to commodity prices. Therefore, to better understand the determination of commodity futures prices this paper examines commodity risk premiums and their determinants. We find evidence that commodity risk premiums vary across futures contract maturities, and that the shape of the commodity risk premium 'curve' differs across commodities and over time. This suggests information could be contained in the shape of the risk premium curve. We also find strong evidence of a relationship between the net of producers' (short) and consumers' (long) hedging positions – the net hedging position – and risk premiums, as would be suggested by the net hedging pressure theory. The evidence is generally more significant for longer-dated futures contracts. In addition, we consider whether the large increase in the size of commodity-related financial markets over the 2000s – commodity market financialisation – has affected commodity risk premiums. We find little statistical evidence that financialisation has had a significant effect on the 'residual' or idiosyncratic portion of commodity risk premiums for a broad basket of commodities. But we do find some evidence of smaller residual risk premiums for wheat, particularly for short-maturity contracts. This could reflect either decreased market segmentation or a secular increase in demand for long positions. We also find evidence that financialisation increased the systematic portion of commodity risk premiums by increasing the correlation between returns on commodity futures and returns on the 'market' portfolio. This was more evident for longer-maturity contracts of 6–18 months.
    Keywords: commodity prices; financial markets
    JEL: G13 Q02
    Date: 2017–05
  84. By: Andrew C. Chang; Joanne W. Hsu; Sarah Pack; Michael G. Palumbo
    Abstract: To get a more comprehensive picture of how families' uncommitted income has evolved since the financial crisis, we analyze a broader measure of households’ committed monthly payments that includes rent for renters, as well as payments to cover mortgages for homeowners and other debt obligations for all families.
    Date: 2018–06–20
  85. By: Alex Armand (Institute for Fiscal Studies and University of Navarra (Spain)); Orazio Attanasio (Institute for Fiscal Studies and University College London); Pedro Carneiro (Institute for Fiscal Studies and University College London); Valérie Lechene (Institute for Fiscal Studies and University College London)
    Abstract: This paper studies the differential effect of targeting cash transfers to men or women on the structure of household expenditures on non-durables. We study a policy intervention in the Republic of Macedonia, offering cash transfers to poor households, conditional on having their children attending secondary school. The recipient of the transfer is randomized across municipalities, with payments targeted to either the mother or the father of the child. We show that the gender of the recipient has an effect on the structure of expenditure shares. Targeting transfers to women increases the expenditure share on food by about 4 to 5 percentage points. At low levels of food expenditure, we observe a shift towards a more nutritious diet as a result of targeting women.
    Keywords: CCT, intra-household, gender, expenditure.
    JEL: D12 D13 E21 O12
    Date: 2018–06–01
  86. By: Egor A. Krivosheya (National Research University Higher School of Economics)
    Abstract: This article evaluates the efficiency of current MIF rates for the Russian market and identifies the effects of their changes. In order to estimate the demand of end users and end-user surpluses the study uses the adopted version of the Bedre-Defolie and Calvano (2013) model as well as representative samples of 800 traditional (offline) Russian merchants, 1500 Russian individuals and 7 banks from the top 20 that cover more than 80% of the Russian issuing and acquiring markets and the end-user benefits. Results confirm the efficiency of currently set MIF rates. Comparative statics analysis confirms that the changes in MIF rates never lead to a Pareto improvement, while the total surplus changes are asymmetric across different market parts. The article also shows that once the realistic assumptions are introduced to the models (e.g., information asymmetry, imperfect pass-through of changes) the end-user welfare is distorted more severely as a result of the MIF rates changes. The first-best policy for the Russian regulator and legislators is the use of alternative (non-tariff) stimulating measures for a cashless economy in order to isolate the effect of changes to the intended groups
    Keywords: Retail payments; payment cards; interchange fees; efficiency; optimal regulation
    JEL: G21 D53 E42 L14
    Date: 2018

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