nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒07‒30
93 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Optimal Fiscal Policy with Labor Selection By Sanjay K. Chugh; Wolfgang Lechthaler; Christian Merkl
  2. Monetary Policy, External Instruments and Heteroskedasticity By Maximilian Podstawski; Thore Schlaak; Malte Rieth
  3. A risk-centric model of demand recessions and macroprudential policy By Ricardo Caballero; Alp Simsek
  4. A new theory of optimal inflation By Reich, Jens
  5. A shadow rate without a lower bound constraint By De Rezende, Rafael B.; Ristiniemi, Annukka
  6. Long and Plosser Meet Bewley and Lucas By Dong, Feng; Wen, Yi
  7. Assessing the Impact of Demand Shocks on the US Term Premium By Russell Barnett; Konrad Zmitrowicz
  8. Missing Wage Inflation? Estimating the Natural Rate of Unemployment in a Nonlinear DSGE Model By Yuto Iwasaki; Ichiro Muto; Mototsugu Shintani
  9. Should Central Banks Prick Asset Price Bubbles? An Analysis Based on a Financial Accelerator Model with an Agent-Based Financial Market By Alexey Vasilenko
  10. International Credit Markets and Global Business Cycles By Pintus, Patrick A.; Wen, Yi; Xing, Xiaochuan
  11. Monetary Policy and Macroprudential Policy: Different and Separate? By Svensson, Lars E O
  12. Payments, credit and asset prices By Monika Piazzesi; Martin Schneider
  13. Optimal Fiscal Policy with Labor Selection By Chugh, Sanjay K.; Lechthaler, Wolfgang; Merkl, Christian
  14. Shadow Banks and the Risk-Taking Channel of Monetary Policy Transmission in the Euro Area By Arina Wischnewsky; Matthias Neuenkirch
  15. Rules-Based Monetary Policy and the Threat of Indeterminacy when Trend Inflation is Low By Hashmat Khan; Louis Phaneuf; Jean Gardy Victor
  16. Optimal Trend Inflation By Klaus Adam; Henning Weber
  17. Stabilisation policies to strengthen Euro area resilience By Jan Stráský; Guillaume Claveres
  18. Monetary Policy Announcements and Market Interest Rates’ Response: Evidence from China By Sun, Rongrong
  19. When are credit gap estimates reliable? By Elena Deryugina; Alexey Ponomarenko; Anna Rozhkova
  20. Positive Trend Inflation and Determinacy in a Medium-Sized New Keynesian Model By Jonas E. Arias; Guido Ascari; Nicola Branzoli; Efrem Castelnuovo
  21. Should We Use Linearized Models To Calculate Fiscal Multipliers? By Lindé, Jesper; Trabandt, Mathias
  22. Fiscal policy transmission in a non-Ricardian model of a monetary union By Christoph Bierbrauer
  23. Risk management-driven policy rate gap By Giovanni Caggiano; Efrem Castelnuovo; Gabriela Nodari
  24. Short and medium term financial-real cycles: An empirical assessment By Engelbert Stockhammer; Robert Calvert Jump; Karsten Kohler; Julian Cavallero
  25. Uncertainty Shocks in a Model of Effective Demand: Reply By Basu, Susanto; Bundick, Brent
  26. Heterogeneity and Persistence in Returns to Wealth By Andreas Fagereng; Luigi Guiso; Davide Malacrino; Luigi Pistaferri
  27. Understanding International Long-Term Interest Rate Comovement By Chin, Michael; Graeve, Ferre De; Filippeli, Thomai; Theodoridis, Konstantinos
  28. The global factor in neutral policy rates: Some implications for exchange rates, monetary policy, and policy coordination By Richard Clarida
  29. Long-Term Finance and Investment with Frictional Asset Markets By Kozlowski, Julian
  30. Economic Policy Uncertainty and Unemployment in the United States: A Nonlinear Approach By Giovanni Caggiano; Efrem Castelnuovo; Juan Manuel Figueres
  31. Conditional exchange rate pass-through: evidence from Sweden By Corbo, Vesna; Di Casola, Paola
  32. The Rise and Fall of the Natural Interest Rate By Fiorentini, Gabriele; Galesi, Alessandro; Pérez-Quirós, Gabriel; Sentana, Enrique
  33. Quantifying fiscal multipliers in New Zealand: The evidence from SVAR models By Anna Hamer-Adams; Martin Wong
  34. Monetary policy and household inequality By Ampudia, Miguel; Georgarakos, Dimitris; Slacalek, Jiri; Tristiani, Oreste; Vermeulen, Philip; Violante, Giovanni L.
  35. Requiem for the Interest-Rate Controls in China By Sun, Rongrong
  36. National Fiscal Stimulus Packages And Consolidation Strategies In A Monetary Union By Christoph Bierbrauer
  37. Quantitative Description of Financial Transactions and Risks By Olkhov, Victor
  38. The impact of monetary policy on household borrowing - a high-frequency IV identification By Sandström, Maria
  39. Box-Jenkins ARIMA approach to predicting net FDI inflows in Zimbabwe By Nyoni, Thabani
  40. Learning on the Job and the Cost of Business Cycles By Walentin, Karl; Westermark, Andreas
  41. On the dynamics of stock price bubbles: comments on a model by Miao and Wang By Gerhard Sorger
  42. On "rusting" money: Silvio Gesell's Schwundgeld reconsidered By Rehme, Günther
  43. On the determination of the granular size of the economy By Blanco-Arroyo, Omar; Ruiz-Buforn, Alba; Vidal-Tomás, David; Alfarano, Simone
  44. Trade Credit and Pricing:An Empirical Evaluation By Amberg, Niklas; Jacobson, Tor; von Schedvin , Erik
  45. Bayesian Forecast Combination in VAR-DSGE Models By Kuo-Hsuan Chin; Xue Li
  46. Contribución fiscal de la industria extractiva del carbón a las finanzas nacionales y territoriales: avances y retos para el departamento de La Guajira 2000-2016 By Alfredo Fuentes; Martha Delgado
  47. Trade and Currency Weapons By Agnes Benassy-Quere; Matthieu Bussière; Pauline Wibaux
  48. Wage-led vs. profit-led growth: a comprehensive empirical analysis By Oyvat, Cem; Öztunalı, Oğuz; Elgin, Ceyhun
  49. Population Aging, Social Security and Fiscal Limits By Burkhard Heer; Vito Polito; Michael Wickens
  50. Why choosing dominated personal pension plans: sales force and financial literacy effects By Giuseppe Marotta
  51. Not All Regions Are Alike: Evaluating the Effect of Oil Price Shocks on Local and Aggregate Economies By Arlan Brucal; Michael J. Roberts
  52. Optimal Capital Taxation Revisited By Chari, V. V.; Nicolini, Juan Pablo; Teles, Pedro
  53. Using job vacancies to understand the effects of labour market mismatch on UK output and productivity By Turrell, Arthur; Speigner, Bradley; Djumalieva, Jyldyz; Copple, David; Thurgood, James
  54. When Short-Time Work Works By Cahuc, Pierre; Kramarz, Francis; Nevoux, Sandra
  55. Numerical fiscal rules: framework or barrier for public policymaking? By Joanna Dzia?o; Beata Guziejewska
  56. Can We Identify the Fed's Preferences? By Jean-Bernard Chatelain; Kirsten Ralf
  57. Uncertain booms and fragility By Lee, Michael Junho
  58. Do the rich pay their taxes early? By Andreas M. Fischer; Lucca Zachmann
  59. Lending standards and output growth By Kirti, Divya
  60. Product market integration in the Euro area By Irena Raguž Krištić; Lucija Rogić Dumančić
  61. Offshore Profit Shifting and Domestic Productivity Measurement By Guvenen, Fatih; Mataloni Jr., Raymond J.; Rassier, Dylan G.; Ruhl, Kim J.
  62. Political Economy of Taxation, Debt Ceilings, and Growth By Tetsuo Ono; Yuki Uchida
  63. Shadow Economy in Pakistan: Its Size and Interaction with Official Economy By Mughal, Khurrum; Schneider, Friedrich; Hayat, Zafar
  64. Monetary Policy Analysis when Planning Horizons are Finite By Michael Woodford
  65. Wages and Employment: The Role of Occupational Skills By Esther Mirjam Girsberger; Miriam Rinawi; Matthias Krapf
  66. Wages and Employment: The Role of Occupational Skills By Girsberger, Esther Mirjam; Rinawi, Miriam; Krapf, Matthias
  67. A note on IYLM, ISLM and General Theory-compatible modelling By Angel Asensio
  68. Macroeconomic modelling of electrified mobility systems in 2030 European Union By Frédéric Ghersi
  69. A Test of Two Open-Economy Theories: Oil Price Rise and the Netherlands By Kavous Ardalan
  70. Evergreening in the Euro Area: Facts and Explanation By Sven Steinkamp; Aaron Tornell; Frank Westermann
  71. Exploiting the Irish Border to Estimate Minimum Wage Impacts in Northern Ireland By McVicar, Duncan; Park, Andrew; McGuinness, Seamus
  72. The Aggregate Consequences of Tax Evasion By Alessandro Di Nola; Georgi Kocharkov; Almuth Scholl; Anna-Mariia Tkhir
  73. Do Recessions Accelerate Routine-Biased Technological Change? Evidence from Vacancy Postings By Brad J. Hershbein; Lisa B. Kahn
  74. Making sense of a crank case: monetary diversity in Argentina (1999–2003) By Gómez, Georgina M.; Dini, Paolo
  75. Fertility, Income Growth and Inflation By Masaya Yasuoka
  76. Sorting On-line and On-time By Stefano Banfi; Sekyu Choi; Benjamín Villena-Roldán
  77. Optimal Monetary Policy in the Presence of Food Price Subsidies By William Ginn; Marc Pourroy
  78. The Productivity-Wage Premium: Does Size Still Matter in a Service Economy? By Giuseppe Berlingieri; Sara Calligaris; Chiara Criscuolo
  79. Contribución de la Operación de Bavaria S.A. a la Economía Colombiana By María Angélica Arbeláez Restrepo; Alejandro Becerra
  80. Extrapolating Long-Maturity Bond Yields for Financial Risk Measurement By Christensen, Jens H. E.; Lopez, Jose A.; Mussche, Paul
  81. Retail Prices: New Evidence From Argentina By Daruich, Diego; Kozlowski, Julian
  82. Macroeconomic evidence suggests that asylum seekers are not a “burden” for Western European countries By Hippolyte D'Albis; Ekrame Boubtane; Dramane Coulibaly
  83. U.S. Economic Outlook. Quarterly developments By -
  84. Does technology cause business cycles in the USA? A Schumpeter-inspired approach By Konstantakis, Konstantinos N.; Michaelides, Panayotis G.
  85. Income terms of trade and economic convergence: Evidence from Latin America By Trofimov, Ivan D.
  86. Indicele de Stabilitate Financiară estimat de către Institutul de Studii Financiare By Stancu, Ion; Panait, Iulian
  87. Simulating the Macroeconomic Effects of Unconventional Monetary Policies By Hess Chung; Cynthia L. Doniger; Cristina Fuentes-Albero; Bernd Schlusche; Wei Zheng
  88. Nonlinear Relationship between Exchange Rate Volatility and Economic Growth By Andrew Phiri
  89. The "uncovered inflation rate parity" condition in a monetary union By Nicola Acocella; Parolo Pasimeni
  90. Curvas Laffer de la Tributación en Colombia By Ignacio Lozano-Espitia; Fernando Arias-Rodríguez
  91. Ibn Khaldun's Economic Thought By Mujahidin, Muhamad
  92. International Evidence on Professional Interest Rate Forecasts: The Impact of Forecasting Ability By Alex Cukierman; Thomas Lustenberger
  93. El agente representativo: ¿supuesto fuerte y equívoco u opción reductora de dificultades analíticas para el estudio macroeconómico? By Juan Pablo Navarrete Ruiz

  1. By: Sanjay K. Chugh; Wolfgang Lechthaler; Christian Merkl
    Abstract: This paper characterizes long-run and short-run optimal fiscal policy in the labor selection framework. In a calibrated non-Ramsey decentralized equilibrium, labor market volatility is inefficient. Keeping fixed the structural parameters, the Ramsey government achieves efficient labor market volatility; doing so requires labor-income tax volatility that is orders of magnitude larger than the “tax-smoothing” results based on Walrasian labor markets, but a few times smaller than the results based on search and matching markets. We analytically characterize selection-model-consistent wedges and inefficiencies in order to understand optimal tax volatility.
    Keywords: labor market frictions, hiring costs, efficiency, optimal taxation, labor wedge, zero intertemporal distortions
    JEL: E24 E32 E50 E62 E63 J20
    Date: 2018
  2. By: Maximilian Podstawski; Thore Schlaak; Malte Rieth
    Abstract: We develop a vector autoregressive framework for combining the information in an external instrument with the information in the second moments of the data to identify latent monetary shocks in the United States. We show that the framework improves the identification of the structural model and allows testing the validity of instruments proposed in the literature. Using a valid instrument, we then document that surprise monetary contractions lead to a medium-sized significant decline in economic activity, that the contractionary effect is also present during the great moderation, and that the role of monetary shocks in driving real and financial fluctuations is small in low and big in high volatility regimes.
    Keywords: Monetary policy, structural vector autoregressions, identification with external instruments, heteroskedasticity, Markov switching
    JEL: E52 C32 E58 E32
    Date: 2018
  3. By: Ricardo Caballero; Alp Simsek
    Abstract: When investors are unwilling to hold the economy's risk, a decline in the interest rate increases the Sharpe ratio of the market and equilibrates the risk markets. If the interest rate is constrained from below, risk markets are instead equilibrated via a decline in asset prices. However, the latter drags down aggregate demand, which further drags prices down, and so on. If investors are pessimistic about the recovery, the economy becomes highly susceptible to downward spirals due to dynamic feedbacks between asset prices, aggregate demand, and potential growth. In this context, belief disagreements generate highly destabilizing speculation that motivates macroprudential policy.
    Keywords: risk gap, output gap, risk-premium shocks, aggregate demand, liquidity trap,"rstar", Sharpe ratio, monetary and macroprudential policy, heterogeneous beliefs, speculation, endogenous volatility
    JEL: E00 E12 E21 E22 E30 E40 G00 G01 G11
    Date: 2018–07
  4. By: Reich, Jens
    Abstract: Central banks like the Bank of England or the Bundesbank have highlighted recently that the supply of currency is achieved not by means of printing and spending but by means of credit. This clarification raises further issues. This article addresses the issue of seigniorage and optimal inflation. So far approaches to seigniorage and optimal inflation are still based on the assumption of a currency which is printed and spend by a central authority. From this perspective central banks’ inflation targets and optimal inflation targets are at odds with those suggested by economic theory. The so-called Friedman-rule, the common core of optimal inflation theory, determines optimal inflation via the (opportunity) cost of producing currency. This basic approach is amended by “external effects”, e.g. the impact of monetary non-neutrality or wage rigidities and so on. However, even under consideration of external effects there remains a significant gap between actual inflation targets and optimal rates as suggested by theory. The supply by means of credit, however, involves “costs of production” which do not appear in Friedman’s case: losses from borrower defaults. Incorporating expected losses into economic theory contributes significantly in aligning central banks’ optima with economic theory and provides a new theory of seigniorage for a credit currency.
    Keywords: Optimal inflation, seigniorage, monetary policy, central banking.
    JEL: E31 E51 E52 E58
    Date: 2017–11–01
  5. By: De Rezende, Rafael B. (Monetary Policy Department, Central Bank of Sweden); Ristiniemi, Annukka (Financial Stability Department, Central Bank of Sweden)
    Abstract: We propose a shadow rate that measures the expansionary (contractionary) interest rate effects of unconventional monetary policies that are present when the lower bound is not binding. Using daily yield curve data we estimate shadow rates for the US, Sweden, the euro-area and the UK, and find that they fall (rise) when market participants expect monetary policy to become more expansionary (contractionary), and price this information into the yield curve. This ability of the shadow rate to track the stance of monetary policy is identified on announcements of policy rate cuts (hikes), balance sheet expansions (contractions) and forward guidance, with shadow rates responding timely, and in line with government bond yields. We show two applications for our shadow rate. First, we decompose shadow rate responses to monetary policy announcements into conventional and unconventional monetary policy surprises, and assess the pass-through of each type of policy to exchange rates. We find that exchange rates respond more to conventional than to unconventional monetary policy. Lastly, a counterfactual experiment in a DSGE model suggests that inflation in Sweden would have been around 0.47 percentage points lower had the Riksbank not used unconventional monetary policy since February 2015.
    Keywords: unconventional monetary policy; monetary policy stance; term structure of interest rates; short-rate expectations; term premium
    JEL: E43 E44 E52 E58
    Date: 2018–06–01
  6. By: Dong, Feng (Antai College of Economics and Management, Shanghai Jiao Tong University); Wen, Yi (Federal Reserve Bank of St. Louis)
    Abstract: We develop a N-sector business cycle network model a la Long and Plosser (1983), featuring heterogenous money demand a la Bewley (1980) and Lucas (1980). Despite incomplete markets and a well-defined distribution of real money balances across heterogeneous households, the enriched N-sector network model remains analytically tractable with closed-form solutions up to the aggregate level. Relying on the tractability, we establish several important results: (i) The economy's input-output network linkages become endogenously time-varying over the business cycle—thanks to the influence of the endogenous distribution of money demand on cross-sector allocations of commodities. (ii) Despite flexible prices, money is neither neutral nor superneutral and transitory monetary injections can generate highly persistent effects on sectoral output, thanks to the time-varying distribution of money demand and its effect on input-output coefficients. (iii) Although money injection is distributed equally across households by design, the real effects are asymmetric across production sectors, e.g., the impact of money is strongest on downstream sectors that purchase intermediate goods from the rest of the economy, but weakest on upstream sectors that supply intermediate goods to the other sectors, in sharp contrast to the case of sectoral technology shocks and government spending shocks. Our model also shows that movements in the distribution of money demand could be an important source of the measured labor wedge documented by the business cycle accounting literature.
    Keywords: Production Networks; Distributional Effect of Monetary Policy; Heterogeneous Money Demand; Incomplete Markets; Time-Varying Velocity of Money; Time-Varying Labor Wedge
    JEL: E12 E13 E23 E31 E32 E41 E43 E51
    Date: 2018–04–01
  7. By: Russell Barnett; Konrad Zmitrowicz
    Abstract: During and after the Great Recession of 2008–09, conventional monetary policy in the United States and many other advanced economies was constrained by the effective lower bound (ELB) on nominal interest rates. Several central banks implemented large-scale asset purchase (LSAP) programs, more commonly known as quantitative easing or QE, to provide additional monetary stimulus. Gauging the effectiveness of LSAPs is important, since the ELB may be a constraint on conventional monetary policy more frequently in the future than it was in the past. In this paper we analyze two distinct periods where we observe exogenous demand shocks for 10-year US Treasury bonds to assess their impact on the term premium. Our results show that official sector demand factors, measured by purchases of securities by the foreign official sector and the Federal Reserve’s asset purchase program, are important drivers explaining movements in the term premium. They suggest that asset purchases (QE) can help provide additional monetary stimulus even once the policy rate has reached its ELB. Robustness tests also suggest that the estimated impact of official sector demand factors is the most robust driver of the term premium across alternative specifications, while the estimates on risk factors appear more sensitive to the choice of term premium specification. Based on external projections and authors’ assumptions, our results suggest that the US term premium will rise gradually from an average of about -20 basis points in the fourth quarter of 2016 to around +10, 32 and 60 basis points by the end of 2017, 2018 and 2019, respectively, before stabilizing around 100 basis points in the medium term.
    Keywords: Financial markets, Interest rates, Monetary policy framework, Monetary policy implementation, Transmission of monetary policy
    JEL: E E4 E43 E5 E52 E58 E6 E61 E65 G G1 G12
    Date: 2018
  8. By: Yuto Iwasaki (Director and Senior Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Ichiro Muto (Director and Senior Economist, Institute for Monetary and Economic Studies (currently, Head of Price Statistics Division, Research and Statistics Department), Bank of Japan (E-mail:; Mototsugu Shintani (Research Center for Advanced Science and Technology, University of Tokyo (E-mail:
    Abstract: During the recovery from the global financial crisis, most advanced economies have experienced a surprisingly weak response of wage inflation to the decline in unemployment. In this study, we investigate whether downward wage rigidity (DWR) is the source of the flattening wage Phillips curve and the lack of wage inflation in the four advanced economies: Japan, the euro area, the UK, and the US. Specifically, we apply Markov chain Monte Carlo methods with a particle filter to estimate a nonlinear New Keynesian dynamic stochastic general equilibrium model incorporating asymmetric wage adjustment costs. This enables us to jointly estimate the degree of DWR as well as the natural rate of unemployment, that is, the rate of unemployment expected in the absence of (downward) wage rigidity. Our results indicate that wage adjustment costs are highly asymmetric in Japan, the euro area, and the UK, but not in the US. Especially, an L-shaped wage Phillips curve between wage inflation and the unemployment gap clearly emerges in Japan, due to the presence of DWR. As for the US, wage adjustment costs are large but symmetric, which means that wages are inherently quite sticky both in an upward and downward direction. Our results suggest that missing wage inflation in Japan, the euro area, and the UK is attributable largely to DWR, but not in the US.
    Keywords: downward wage rigidity, natural rate of unemployment, Phillips curve, particle filter
    JEL: E24 E31 E32
    Date: 2018–07
  9. By: Alexey Vasilenko (Bank of Russia, Russian Federation;National Research University Higher School of Economics, Laboratory for Macroeconomic Analysis; University of Toronto, Joseph L Rotman School of Management.)
    Abstract: This paper studies whether and how the central bank should prick asset price bubbles, if the effect of interest rate policy on bubbles can significantly vary across periods. For this purpose, I first construct a financial accelerator model with an agent-based financial market that can endogenously generate bubbles and account for their impact on the real sector of the economy. Then, I calculate the effect of different nonlinear interest rate rules for pricking asset price bubbles on social welfare and financial stability. The results demonstrate that pricking asset price bubbles can enhance social welfare and reduce the volatility of output and inflation, especially if asset price bubbles are caused by credit expansion. Pricking bubbles is also desirable when the central bank can additionally implement an effective communication policy to prick bubbles, for example, effective verbal interventions aimed at the expectations of agents in the financial market.
    Keywords: monetary policy, asset price bubble, New Keynesian macroeconomics, agent-based financial market.
    JEL: E44 E52 E58 G01 G02
    Date: 2018–06
  10. By: Pintus, Patrick A. (CNRS-InSHS and Aix-Marseille University); Wen, Yi (Federal Reserve Bank of St. Louis); Xing, Xiaochuan (Yale University)
    Abstract: This paper stresses a new channel through which global financial linkages contribute to the co-movement in economic activity across countries. We show in a two-country setting with borrowing constraints that international credit markets are subject to self-fulfilling variations in the world real interest rate. Those expectation-driven changes in the borrowing cost in turn act as global shocks that induce strong cross-country co-movements in both financial and real variables (such as asset prices, GDP, consumption, investment and employment). When firms around the world benefit from unexpectedly low debt repayments today, they borrow and invest more, which leads to excessive supply of collateral and of loanable funds at a low interest rate, thus fueling a boom in both home and foreign economies. As a consequence, business cycles are synchronized internationally. Such a stylized model thus offers one way to rationalize both the existence of world business-cycle factor documented by recent empirical studies through dynamic factor analysis and such a factor’s intimate link to global financial markets.
    Keywords: World Interest Rate; International Co-Movement; Self-Fulfilling Equilibria
    JEL: E21 E22 E32 E44 E63
    Date: 2018–05–14
  11. By: Svensson, Lars E O
    Abstract: The paper discusses how monetary and macroprudential policies can be distinguished, how appropriate goals for the two policies can be determined, whether the policies are best conducted separately or coordinately and by the same or different authorities, and how they can be coordinated when desired. The institutional frameworks in Canada, Sweden, and the UK are briefly compared. The Swedish example of monetary policy strongly "leaning against the wind" and the subsequent policy turnaround is summarized, as well as what estimates have been found of the costs and benefits of leaning against the wind.
    Keywords: Financial crises; Financial Stability; leaning against the wind
    JEL: E44 E52 E58 G01 G28
    Date: 2018–07
  12. By: Monika Piazzesi; Martin Schneider
    Abstract: This paper studies a modern monetary economy: trade in both goods and securities relies on money provided by intermediaries. While money is valued for its liquidity, its creation requires costly leverage. In ation, security prices and the transmission of monetary policy then depend on the institutional details of the payment system. The price of a security is higher if it helps back inside money, and lower if more inside money is used to trade it. In ation can be low in security market busts if bank portfolios suffer, but also in booms if trading absorbs more money. The government has multiple policy tools: in addition to the return on outside money, it affects the mix of securities used to back inside money.
    Keywords: payments, monetary policy, liquidity trap, liquidity, asset prices, collateral premium, leverage, leverage costs, convenience yield, banking, scarce reserves, abundant reserves
    JEL: E00 E13 E41 E42 E43 E44 E51 E52 E58 G1 G12 G21
    Date: 2018–07
  13. By: Chugh, Sanjay K. (Boston College); Lechthaler, Wolfgang (Kiel Institute for the World Economy); Merkl, Christian (University of Erlangen-Nuremberg)
    Abstract: This paper characterizes long-run and short-run optimal fiscal policy in the labor selection framework. In a calibrated non-Ramsey decentralized equilibrium, labor market volatility is inefficient. Keeping fixed the structural parameters, the Ramsey government achieves efficient labor market volatility; doing so requires labor-income tax volatility that is orders of magnitude larger than the "tax-smoothing" results based on Walrasian labor markets, but a few times smaller than the results based on search and matching markets. We analytically characterize selection-model-consistent wedges and inefficiencies in order to understand optimal tax volatility.
    Keywords: labor market frictions, hiring costs, efficiency, optimal taxation, labor wedge, zero intertemporal distortions
    JEL: E24 E32 E50 E62 E63 J20
    Date: 2018–06
  14. By: Arina Wischnewsky; Matthias Neuenkirch
    Abstract: In this paper, we provide evidence for a risk-taking channel of monetary policy transmission in the euro area that works through an increase in shadow banks’ total asset growth and their risk assets ratio. Our dataset covers the period 2003Q1 - 2017Q3 and includes, in addition to the standard variables for real GDP growth, inflation, and the monetary policy stance, the aforementioned two indicators for the shadow banking sector. Based on vector autoregressive models for the euro area as a whole, we find for conventional monetary policy shocks that a portfolio reallocation effect towards riskier assets is more pronounced, whereas for unconventional monetary policy shocks we detect stronger evidence for a general expansion of assets. Country-specific estimations confirm these findings for most of the euro area countries, but also reveal some heterogeneity in the shadow banks’ reaction.
    Keywords: European Central Bank, macroprudential policy, monetary policy transmission, risk-taking channel, shadow banks, vector autoregression
    JEL: E44 E52 E58 G11 G23 G28
    Date: 2018
  15. By: Hashmat Khan (Department of Economics, Carleton University); Louis Phaneuf (Université du Québec à Montréal); Jean Gardy Victor (Inter-American Development Bank)
    Abstract: Low inflation is not perceived as a potential threat to determinacy and macroeconomic stability. Should the Fed return to a rules-based monetary policy, the prospect of indeterminacy would be particularly acute if the Fed adopted a mixed policy rule with the nominal interest rate responding to the output gap and output growth. This is true for a rate of inflation as low as that observed on average since the early 1990s. This finding contrasts sharply with the existing literature where the threat of indeterminacy was high before 1983 and almost nonexistent afterwards. Key to our result is a strong interaction between low trend inflation, sticky wages and technological trend growth. Accounting for a cost channel of monetary policy and a roundabout production process increases the threat of indeterminacy under low inflation. When removing the output gap or output growth from the mixed rule, we find that a rule responding to output growth sharply widens the scope for stability. By stark contrast, the results obtained under a rule reacting to the output gap only essentially mimic those with the mixed rule.
    Keywords: Low trend inflation; Taylor rule; Output gap; Output growth; Indeterminacy; Sticky wages; Trend growth; Working capital; Roundabout production.
    JEL: E31 E32 E37
  16. By: Klaus Adam (University of Mannheim & CEPR (E-mail:; Henning Weber (Deutsche Bundesbank (E-mail:
    Abstract: Sticky price models featuring heterogeneous firms and systematic firm-level productivity trends deliver radically different predictions for the optimal inflation rate than their popular homogenous- firm counterparts: (1) the optimal steady-state inflation rate generically differs from zero and (2) inflation optimally responds to productivity disturbances. We show this by aggregating a heterogenous- firm model with sticky prices in closed form. Using firm-level data from the U.S. Census Bureau, we estimate the historically optimal inflation path for the U.S. economy. In the year 1977, the optimal inflation rate stood at 1.5%, but subsequently declined to around 1.0% in the year 2015. Inflation rates up to twice these numbers can be rationalized if one considers product demand elasticities more in line with the trade literature or if one considers firms that (partially) index prices to lagged inflation rates.
    Keywords: optimal inflation rate, sticky prices, firm heterogeneity
    JEL: E52 E31 E32
    Date: 2018–07
  17. By: Jan Stráský; Guillaume Claveres
    Abstract: The euro area sovereign debt crisis highlighted important weaknesses in the euro area design. Fiscal policy did not build sufficient buffers before the crisis, which forced some countries to tighten fiscal policy too rapidly during the downturn to restore market confidence in sovereign borrowing. Despite this, sovereign stress remained high, weakening further the banking sectors highly exposed to government bonds, which in return reduced further market confidence in fiscal sustainability in case of banks’ bailout. As a result, monetary policy was the main public instrument to support the activity, but its effectiveness was reduced by the fragmentation of financial markets along national lines as the crisis deepened. In order to durably sever the links between banks and their sovereigns, euro area countries agreed on a banking union. The creation of a common supervisor was a very important step in that direction. However, further progress is needed in reducing and sharing risks, creating a common deposit guarantee scheme and the application of existing rules to ensure sufficient risk sharing can take place in case of crisis. At the same time, incentives need to be put in place for banks to progressively move away from a too high exposure to domestic sovereign bonds. A step in that direction could be the introduction of euro area safe asset, which would pool sovereign issuance from various countries, in parallel with gradual introduction of capital surcharges on sovereign exposures. Such progress may not be sufficient, however, for national fiscal policies and monetary policy to smooth a major crisis. The introduction of common fiscal stabilisation capacity is necessary to buttress the euro area in case of a deep recession, both at the country level and euro area level. Finally, policies aiming at further cross-border integration of capital markets should reinforce private risk sharing, reducing the burden on macro policies. This Working Paper relates to the 2018 OECD Economic Survey of the Euro Area. ( m)
    Keywords: Capital markets union, European deposit insurance, European safe asset, fiscal integration, macroeconomic stabilisation, risk-sharing, sovereign debt exposures of banks
    JEL: E32 E61 E62 F42 G21 H87
    Date: 2018–07–24
  18. By: Sun, Rongrong
    Abstract: This paper uses the event study to estimate the impact of various monetary policy announcements on market interest rates in China over the 2002-2017 period. I find that financial markets understand the quantitative signals better: the market response to an announced adjustment of the regulated retail interest rate and the required reserve ratio is positive and significant at all maturities of bond rates, but smaller at the long end of the yield curve. However, the market barely responds to announced changes in the qualitative policy stance index, which contains limited vague information and is easily anticipated. Two newly introduced central bank lending rates do not appear to be sufficient to replace the retail interest rate and the reserve ratio in guiding market rates in the post-deregulation era. My results suggest that the PBC adopts a publicly announced short-term interest-rate operating target regime, similar to the Fed’s federal funds rate target.
    Keywords: announcement effect, event study, monetary policy, monetary transmission, China
    JEL: E52 E58
    Date: 2018–04
  19. By: Elena Deryugina (Bank of Russia, Russian Federation); Alexey Ponomarenko (Bank of Russia, Russian Federation); Anna Rozhkova (Bank of Russia, Russian Federation)
    Abstract: We evaluate the reliability of credit gap measures estimated over time samples of different lengths. We augment our empirical analysis (which turned out to be somewhat inconclusive) with Monte Carlo experiments. For this purpose we build an agent-based model that realistically reproduces credit cycles and use it to generate the artificial data set. We found that 12-15 years of available data is sufficient for the estimation of reliable credit gaps (i.e. the reliability of credit gap estimates will not improve substantially as more data are added to the sample).
    Keywords: credit gap, credit cycle, countercyclical capital buffer, agent-based models
    JEL: C63 E37 E44 E51
    Date: 2018–07
  20. By: Jonas E. Arias; Guido Ascari; Nicola Branzoli; Efrem Castelnuovo
    Abstract: This paper studies the challenge that increasing the inflation target poses to equilibrium determinacy in a medium-sized New Keynesian model without indexation fitted 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 significantly 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 E30 C22
    Date: 2018
  21. By: Lindé, Jesper (Monetary Policy Department, Central Bank of Sweden); Trabandt, Mathias (Chair of Macroeconomics)
    Abstract: We calculate the magnitude of the government consumption multiplier in linearized and nonlinear solutions of a New Keynesian model at the zero lower bound. Importantly, the model is amended with real rigidities to simultaneously account for the macroeconomic evidence of a low Phillips curve slope and the microeconomic evidence of frequent price changes. We show that the nonlinear solution is associated with a much smaller multiplier than the linearized solution in long-lived liquidity traps, and pin down the key features in the model which account for the difference. Our results caution against the common practice of using linearized models to calculate scal multipliers in long-lived liquidity traps.
    Keywords: Monetary Policy; Fiscal Policy; Liquidity Trap; Zero Lower Bound
    JEL: E52 E58
    Date: 2017–12–01
  22. By: Christoph Bierbrauer (Hochschule Darmstadt)
    Abstract: We present an analytically tractable two-country New Open Economy Macroeconomics model of a currency union featuring an overlapping generations structure of the Blanchard (1985)-Yaari (1965) type. It enables us to study the transmission and spillover effects of a wider range of fiscal shocks in comparison to the standard model. We show that, depending on the financing decision of the government, fiscal policy measures can have very different effects on key macroeconomic variables such as consumption and output. Moreover, the spillovers of national fiscal policy depend on the composition of government spending, the type of the fiscal measure and the cross-country substitutability between goods.
    Keywords: Overlapping generations; New open economy macroeconomics; Public Debt; Decentralized fiscal policy; Monetary union
    JEL: E62 F33 F41 H31 H50 H63
    Date: 2017–10–29
  23. By: Giovanni Caggiano; Efrem Castelnuovo; Gabriela Nodari
    Abstract: We employ real-time data available to the US monetary policy makers to estimate a Taylor rule augmented with a measure of financial uncertainty over the period 1969-2008. We find evidence in favor of a systematic response to financial uncertainty over and above that to expected inflation, output gap, and output growth. However, this evidence regards the Greenspan-Bernanke period only. Focusing on this period, the “risk-management” approach is found to be responsible for monetary policy easings for up to 75 basis points of the federal funds rate.
    Keywords: Risk management-driven policy rate gap, uncertainty, monetary policy, Taylor rules, real-time data.
    JEL: C2 E4 E5
    Date: 2018–07
  24. By: Engelbert Stockhammer; Robert Calvert Jump; Karsten Kohler; Julian Cavallero
    Abstract: Theories such as Minsky's financial instability hypothesis or New Keynesian financial accelerator models assign a key role to financial factors in business cycle dynamics. We present descriptive statistics and a simple estimation framework to examine the financial-real interaction mechanisms that are at the core of these theories. Specifically, we examine cycle frequencies in seven OECD countries over the period 1970 to 2015, and find that interest rates, business debt, and household debt exhibit cycle lengths of 4-6, 8-11, and 14-26 years, respectively. We then estimate bivariate VAR models which provide evidence for financial-real interaction mechanisms, (i) at high frequencies between interest rates and GDP, and (ii) at low frequencies between business debt and GDP. In contrast, there is no evidence for a cycle mechanism between household debt and GDP.
    Keywords: Minsky, financial accelerator, financial cycle, business cycle
    JEL: E32 G01
    Date: 2018
  25. By: Basu, Susanto; Bundick, Brent (Federal Reserve Bank of Kansas City)
    Abstract: de Groot, Richter, and Throckmorton (2018) argue that the model in Basu and Bundick (2017) can match the empirical evidence only because the model assumes an asymptote in the economy’s response to an uncertainty shock. In this Reply, we provide new results showing that our model’s ability to match the data does not rely either on assuming preferences that imply an asymptote nor on a particular value of the intertemporal elasticity of substitution. We demonstrate that shifting to preferences that are not vulnerable to the Comment’s critique does not change our previous conclusions about the propagation of uncertainty shocks to macroeconomic outcomes.
    Keywords: Uncertainty shocks; Monetary policy; Sticky-price models
    JEL: E32 E52
    Date: 2018–07–13
  26. By: Andreas Fagereng; Luigi Guiso; Davide Malacrino; Luigi Pistaferri
    Abstract: We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, during our sample period individuals earn markedly different average returns on their financial assets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the financial wealth distribution increases the return by 3 percentage points - and by 17 percentage points when the same exercise is performed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time. We argue that while this persistence partly reflects stable differences in risk exposure and assets scale, it also reflects persistent heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.
    Keywords: wealth inequality, returns to wealth, financial wealth, net worth, heterogeneity, intergenerational mobility
    JEL: D31 D91 E21 E24 G11
    Date: 2018
  27. By: Chin, Michael (Norges Bank Investment Management); Graeve, Ferre De (KU Leuven); Filippeli, Thomai (Queen Mary University); Theodoridis, Konstantinos (Cardiff Business School)
    Abstract: Long-term interest rates of small open economies correlate strongly with the US long-term rate. Can central banks in those countries decouple from the US? An estimated DSGE model for the UK (vis-`a-vis the US) establishes three structural empirical results. (1) Comovement arises due to nominal fluctuations, not through real rates or term premia. (2) The cause of comovement is the central bank of the small open economy accommodating foreign inflation trends, rather than systematically curbing them. (3) Small open economies may find themselves much more affected by changes in US inflation trends than the US itself.
    Keywords: DSGE Model, Small Open Economy, Yield Curve, Long-Term Interest Rates, Term Premia, Comovement
    JEL: E43 E44 F30 F44 G15
    Date: 2018–07
  28. By: Richard Clarida
    Abstract: This paper highlights some of the theoretical and practical implications for monetary policy and exchange rates that derive specifically from the presence of a global general equilibrium factor embedded in neutral real policy rates in open economies. Using a standard two country DSGE model, we derive a structural decomposition in which the nominal exchange rate is a function of the expected present value of future neutral real interest rate differentials plus a business cycle factor and a PPP factor. Country specific "r*" shocks in general require optimal monetary policy to pass these through to the policy rate, but such shocks will also have exchange rate implications, with an expected decline in the path of the real neutral policy rate reflected in a depreciation of the nominal exchange rate. We document a novel empirical regularity between the equilibrium error in the VECM representation of the empirical Holston Laubach Williams (2017) four country r* model and the value of the nominal trade weighted dollar. In fact, the correlation between the dollar and the 12 quarter lag of the HLW equilibrium error is estimated to be 0.7. Global shocks to r* under optimal policy require no exchange rate adjustment because passing though r* shocks to policy rates 'does all the work' of maintaining global equilibrium. We also study a richer model with international spill overs so that in theory there can be gains to international policy cooperation. In this richer model we obtain a similar decomposition for the nominal exchange rate, but with the added feature that r* in each country is a function global productivity and business cycle factors even if these factors are themselves independent across countries. We argue that in practice, there could well be significant costs to central bank communication and credibility under a regime formal policy cooperation, but that gains to policy coordination could be substantial given that r*'s are unobserved but are correlated across countries.
    Keywords: monetary policy, policy coordination, exchange rates, r*
    JEL: E4 E5 F3 F31
    Date: 2018–07
  29. By: Kozlowski, Julian (Federal Reserve Bank of St. Louis)
    Abstract: This paper develops a theory of investment and maturity choices and studies its implications for the macroeconomy. The novel ingredient is an explicit secondary market with trading frictions which leads to a liquidity spread which increases with maturity and generates an upward sloping yield curve. As a result, trading frictions induce firms to borrow and invest at shorter horizons than in a frictionless benchmark. Economies with more severe frictions exhibit a steeper yield curve which further affects maturity and investment choices of rms. A model calibrated to match cross-country moments suggests that reductions in trading frictions-a new channel of financial development-can promote economic development. A policy intervention with government-backed financial intermediaries in the secondary market can improve liquidity and reduce the cost of long-term finance which promotes investment in longer-term projects and generates substantial welfare gains.
    Keywords: Debt maturity; Over-the-counter market; Liquidity; Secondary markets
    JEL: E44 G30 O16
    Date: 2017–12–29
  30. By: Giovanni Caggiano; Efrem Castelnuovo; Juan Manuel Figueres
    Abstract: We model U.S. post-WWII monthly data with a Smooth Transition VAR model and study the effects of an unanticipated increase in economic policy uncertainty on unemployment in recessions and expansions. We find the response of unemployment to be statistically and economically larger in recessions. A state-contingent forecast error variance decomposition analysis confirms that the contribution of EPU shocks to the volatility of unemployment at business cycle frequencies is markedly larger in recessions.
    Keywords: economic policy uncertainty shocks, unemployment dynamics, Smooth Transition Vector AutoRegressions, recessions, expansions
    JEL: C32 E32 E52
    Date: 2018
  31. By: Corbo, Vesna (Monetary Policy Department, Central Bank of Sweden); Di Casola, Paola (Monetary Policy Department, Central Bank of Sweden)
    Abstract: The pass-through from exchange rate changes to inflation differs depending on the underlying shock. This paper quantifies the conditional exchange rate pass-through (CERPT) to prices, i.e. the change in prices relative to that in the exchange rate following a certain exogenous shock, with a structural econometric approach using data for Sweden, a small economy that is very open to trade. We find that the pass-through to consumer prices following an exogenous exchange rate shock is rather small. Importantly, this shock is not the most important driver of exchange rate uctuations, unlike what standard structural macroeconomic models would indicate. For Sweden, the CERPT is negative not only for domestic but also for global demand shocks. The estimated combination of shocks with positive and negative CERPT implies that the average pass-through to consumer prices is roughly zero.
    Keywords: Exchange rate; pass-through; consumer prices; import prices; monetary policy; SVAR.
    JEL: E31 E52 F31 F41
    Date: 2018–03–01
  32. By: Fiorentini, Gabriele; Galesi, Alessandro; Pérez-Quirós, Gabriel; Sentana, Enrique
    Abstract: We document a rise and fall of the natural interest rate (r*) for several advanced economies, which starts increasing in the 1960's and peaks around the end of the 1980's. We reach this conclusion after showing that the Laubach and Williams (2003) model cannot estimate r* accurately when either the IS curve or the Phillips curve is flat. In those empirically relevant situations, a local level specification for the observed interest rate can precisely estimate r*. An estimated Panel ECM suggests that the temporary demographic effect of the young baby-boomers mostly accounts for the rise and fall.
    Keywords: demographics; Kalman filter; Natural rate of interest; observability
    JEL: C18 C32 E43 E52
    Date: 2018–07
  33. By: Anna Hamer-Adams; Martin Wong (Reserve Bank of New Zealand)
    Abstract: Fiscal policy has a substantial impact on aggregate demand both directly via government spending, and indirectly via changes to the disposable income of households and businesses though variations in taxation and transfers (e.g. superannuation). For fiscal policy-makers to accurately forecast the impact of fiscal policy, and for monetary policy-makers to respond appropriately, both need to understand the likely aggregate impact of fiscal changes on economic activity over time. Furthermore, this impact could vary across different fiscal policies, e.g. changes in government spending versus tax changes. To address these questions, this Analytical Note uses Structural Vector Auto-Regression (SVAR) models to quantify the historical magnitude of fiscal policy changes on economic activity in New Zealand. The economic impact is measured by the GDP multiplier, which shows the percentage-point (ppt) change in GDP in response to an increase in government expenditure or decrease in revenue equivalent to 1 percent of GDP. The analysis in this Analytical Note builds on previous empirical studies by using updated data for the period 1990 to 2017 and estimating multipliers for specific components of fiscal policy rather than just aggregate multipliers. This Note also brings more attention to the interaction of monetary and fiscal policy and how the results can be applied in macroeconomic forecasting. We find that New Zealand’s fiscal multipliers are comparable to other developed countries and that different fiscal policies have very different economic effects. At the aggregate level, the GDP multiplier in the first year for an increase in aggregate government spending (0.24 ppts) is larger than for a decrease in taxes net of transfers (-0.10 ppts), in line with previous New Zealand studies. At the more disaggregated level, the multiplier for a change in public consumption is large and positive (0.82 ppts), while the multiplier for public investment is negative (-0.59 ppts). The weak multiplier for an increase in public investment appears sensitive to several assumptions, highlighting concerns around the accuracy of this estimate. An increase in transfers and decrease in total tax revenue have large multipliereffects, 0.76 ppts and 1.29 ppts respectively. The duration of the GDP response to a change to fiscal policy also varies depending on the type of policy used. The impulse on aggregate demand from an increase in transfers and public investment appears to be short-lived, with the peak impact occurring within the first two quarters. On the other hand, the positive impact on GDP from an increase to public consumption or decrease in tax revenue is more long-lasting. The results can provide a useful indication of how future policy changes could affect the economy, but it should be noted that the results of the model have been extracted from a 30-year period, and hence represent the dynamics that one would expect on average. If the nature of the economy today is significantly different from its history, then users need to take this into consideration when applying the estimates. The estimated multipliers for government spending and its components appear more robust to the choice of variables, identification assumptions and sample period compared with taxes and transfer spending. The endogeneity problem between economic conditions and taxes and transfers may be more serious than it is for government spending.
    Date: 2018–06
  34. By: Ampudia, Miguel; Georgarakos, Dimitris; Slacalek, Jiri; Tristiani, Oreste; Vermeulen, Philip; Violante, Giovanni L.
    Abstract: This paper considers how monetary policy produces heterogeneous effects on euro area households, depending on the composition of their income and on the components of their wealth. We first review the existing evidence on how monetary policy affects income and wealth inequality. We then illustrate quantitatively how various channels of transmission — net interest rate exposure, inter-temporal substitution and indirect income channels— affect individual euro area households. We find that the indirect income channel has an overwhelming importance, especially for households holding few or no liquid assets. The indirect income channel is therefore also a substantial driver of changes in consumption at the aggregate level. JEL Classification: D14, D31, E21, E52, E58
    Keywords: household heterogeneity, inequality, monetary policy, quantitative easing
    Date: 2018–07
  35. By: Sun, Rongrong
    Abstract: This paper reviews the retail interest-rate-control deregulation in China over the 1993-2015 period and provides a preliminary assessment of the PBC's replacement monetary framework. I show that the interest-rate controls triggered the development of deposit substitutes that banks used to circumvent the restrictions, which in turn drove deposits out of commercial banks.This gave rise to concerns about deterioration of bank profits and build-up of financial frangibility, which have pushed up the PBC's deregulation acceleration over the post-2012 period. I quantify the distortionary effects of these controls: disintermediation, a rising shadow banking system and financial repression. Despite the official lift-off of the controls, the retail interest rates are still subject to the PBC’s window guidance and other pricing mechanism guidance. The interest-rate corridor does not function well in confining money market rates. This suggests that the PBC adopt a target money market rate system.
    Keywords: interest-rate control, deregulation, China, financial repression, interest-rate corridor
    JEL: E52 E58
    Date: 2018–06
  36. By: Christoph Bierbrauer (Hochschule Darmstadt)
    Abstract: We present a two-country New Open Economy Macroeconomics model of a currency union featuring an overlapping generations structure of the Blanchard (1985)-Yaari (1965) type as well as monopolistic frictions and staggered adjustment in the goods and labor market. We allow for public investment and distortionary taxation. We study the effects of fiscal policy measures such as public spending, tax cuts targeted to households and public investment as suggested by the European Commission (2008). In particular, we explore the effects of fiscal policy as a function of the financing decision of the implementing government. We find that the impact of fiscal measures on national variables as well as the spillovers depend on the assumed degree of household myopia and again, the financing decision of the government. However, the introduction of a complex fiscal sector which enables the government to choose between alternative financing schemes is an important determinant of the effects of fiscal expansions on key macroeconomic variables such as, output and consumptions. Thus, modeling a complex fiscal sector on both sides of the budgets is crucial for the results and therefore the effectiveness of fiscal stimulus packages.
    Keywords: Overlapping generations; New open economy macroeconomics; Public Debt; Decentralized fiscal policy; Monetary union
    JEL: E62 F33 F41 H31 H50 H63
    Date: 2017–11–22
  37. By: Olkhov, Victor
    Abstract: This paper presents a quantitative model of financial transactions between economic agents on economic space. Risk ratings of economic agents play role of their coordinates. Aggregate amounts of agent’s financial variables at point x define macro financial variables as functions of time and coordinates. Financial transactions between agents define evolution of agent’s financial variables. Aggregate amounts of financial transactions between agents at points x and y define macro financial transactions as functions of x and y. Macro transactions determine evolution of macro financial variables. To describe dynamics and interactions of macro transactions we derive hydrodynamic-like equations. Description of macro transactions permits model evolution of macro financial variables and hence develop dynamics and forecasts of macro finance. As example for simple model interactions between macro transactions we derive hydrodynamic-like equations and obtain wave equations for their perturbations. Waves of macro transactions induce waves of macro financial variables on economic space. Diversities of financial waves of macro transactions and macro financial variables on economic space in simple models uncover internal complexity of macro financial processes. Any developments of financial models and forecast should take into account financial wave processes and their influences.
    Keywords: Macro Finance; Risk Ratings; Economic Space; Wave Equations
    JEL: C02 E32 G00 G17
    Date: 2017
  38. By: Sandström, Maria (Financial Stability Department, Central Bank of Sweden)
    Abstract: This paper combines identication of monetary policy shocks from high-frequency financial market data with local projections IV to study the effects of monetary policy on household borrowing using Swedish data. The results are uncertain but indicate that the stock of household loans is 1.6 percent lower two years after a 1 percentage point shock to the repo rate. This is a relatively modest effect considering that the stock of household loans on average grew by 7.8 percent per year over this period.
    Keywords: Monetary policy; Household credit; High-frequency identification; External instrument; Local projections
    JEL: C26 E51 E52 G14
    Date: 2018–02–01
  39. By: Nyoni, Thabani
    Abstract: This study attempts to model and forecast net FDI inflows in Zimbabwe over the next 2 decades. Spanning from 1980 – 2017, annual time series data for net FDI inflows in Zimbabwe was used. The ADF test indicates that FDI data is I (1). The study identifies the minimum AIC value and subsequently presents ARIMA (1, 1, 1) model as the optimal model to forecast FDI in Zimbabwe. The ADF test also indicates that the residuals of the ARIMA (1, 1, 1) model are I (0), thus confirming its adequacy. A diagnosis of the inverse roots of AR/MA polynomials confirms that our estimated model is stable. The predicted net FDI inflows over the next 2 decades show a relatively poor and unimpressive growth trend. Amongst the main policy prescriptions, the study recommends that policy makers in Zimbabwe ought to come up with investor – friendly policies in order to attract the much needed FDI.
    Keywords: AR, ARIMA, ARMA, Foreign Direct Investment (FDI), forecasting, MA, Zimbabwe
    JEL: E0 E3 E37 E6 G1
    Date: 2018–07–03
  40. By: Walentin, Karl (Research Department, Central Bank of Sweden); Westermark, Andreas (Research Department, Central Bank of Sweden)
    Abstract: We show that business cycles reduce welfare through a decrease in the average level of employment in a labor market search model with learning on-the-job and skill loss during unemployment. A negative correlation between unemployment and vacancies implies, via the concavity of the matching function, that business cycles reduce the average number of new jobs and employment. Learning on-the-job implies that the decrease in employment reduces aggregate human capital. This, in turn, reduces the incentives to post vacancies, further decreasing employment and human capital. We quantify this mechanism and nd large output and welfare costs of business cycles.
    Keywords: Search and matching; labor market; human capital; stabilization policy; skill loss
    JEL: E32 J64
    Date: 2018–04–01
  41. By: Gerhard Sorger
    Abstract: We consider the model by Miao and Wang [3], in which the existence of endogenous collateral constraints allows for the existence of stock price bubbles. Whereas Miao and Wang [3] characterize the local dynamics around stationary equilibria only under the assumption of risk neutral households, we extend this characterization to the case of risk aversion.
    JEL: E22 E44 G10
    Date: 2018–07
  42. By: Rehme, Günther
    Abstract: Silvio Gesell hypothesized that money depreciation is economically and socially beneficial, ideas that have often been contended. Here I analyze that in a Sidrauski model in which households additionally have a "love of wealth"-motive. It is shown Gesell's claims may be valid in a demand-determined, short-run equilibrium and why money depreciation overcomes the zero lower bound on nominal interest rates. However, for a typical long-run equilibrium introducing money depreciation in isolation may be bad. But money depreciation, when coupled with expansionary monetary policy, is a necessary condition for a positive Mundell-Tobin effect on long-run real variables and so creates wealth in the model. It is found that this also holds in the transition to the long-run equilibrium. Hence, the spirit of Gesell's hypotheses can be verified for a plausible, long-run environment.
    Keywords: Economic Performance,Depreciating Money,Zero Lower Bound,Demonetization,Love of Wealth
    JEL: E1 E5 O4
    Date: 2018
  43. By: Blanco-Arroyo, Omar; Ruiz-Buforn, Alba; Vidal-Tomás, David; Alfarano, Simone
    Abstract: Introducing the granular hypothesis, Gabaix (2011) shows that the idiosyncratic shocks of a few “granular” firms account for a significant fraction of aggregate fluctuations of the US business cycle. In the literature, however, the question of how many are the granular firms in an economy is left unanswered. Using Spanish data, we propose a novel methodology to calibrate the granular size of the economy, i.e. the number of granular firms.
    Keywords: Business cycle, idiosyncratic shocks, productivity, granular residual, granularity index
    JEL: C20 E32
    Date: 2018–06–26
  44. By: Amberg, Niklas (Department of Finance); Jacobson, Tor (Research Department, Central Bank of Sweden); von Schedvin , Erik (Research Department, Central Bank of Sweden)
    Abstract: We empirically investigate the proposition that firms charge premia on cash prices in transactions involving trade credit. Using a comprehensive Swedish panel dataset on product-level transaction prices and firm-characteristics, we relate trade credit issuance to price setting. In a recession characterized by tightened credit conditions, we find that prices increase significantly more on products sold by firms issuing more trade credit, reflecting their larger exposures to increased funding costs and counterparty risks. Our results thus demonstrate the importance of trade credit for price setting and show that trade credit issuance induces a channel through which financial frictions affect prices.
    Keywords: Trade credit; prices; inflation; liquidity; counterparty risk
    JEL: D22 E31 E32 G30 L11
    Date: 2018–06–01
  45. By: Kuo-Hsuan Chin (Department of Economics, Feng Chia University); Xue Li (Department of Economics, Institute of Chinese Financial Studies, Southwestern University of Finance and Economics)
    Abstract: We evaluate the performance of the individual and combination forecasts in the estimated Bayesian VARs with economic and non-economic information. Specifically, we conduct an out-of-sample forecasting experiment in the model with statistical and/or DSGE priors over the time period before and after the financial crisis. In the most of cases, we obtain the unbiased forecasts of the interest rate but the biased forecasts of output growth and inflation rates under the unbiasedness test. In particular, we find the estimation of Bayesian VARs with economic information about the financial friction is helpful to improve the forecasting performance of the interest rate, evaluated in terms of the modified DM test, point and density forecasts. Moreover, the combination forecasts of the interest rate generated from the model with both statistical and DSGE priors are unbiased, and they also perform better than the combination or the individual forecasts generated with only statistical priors at statistically significant level of 5%. The selection of the weighting-scheme in forecast combination, adopting equal weights for the simple average or the log predictive likelihoods in Bayesian model averaging, is irrelevant to the conclusion made above.
    Keywords: Bayesian Model Averaging, DSGE-VAR, Financial Friction, Forecast Combination.
    JEL: E37 E44 E47
    Date: 2017–07
  46. By: Alfredo Fuentes; Martha Delgado
    Abstract: Los tributos pagados por la operación minera de Cerrejón han crecido sustancialmente, tanto a nivel nacional como territorial, en beneficio de las finanzas nacionales y territoriales. Ello debido principalmente al continuado esfuerzo exportador de la compañía, que le permitió elevar sus exportaciones de aproximadamente 20 a 34 millones de toneladas de carbón entre los años 2000 y 2016. Durante estos años Cerrejón logró exportar a los mercados internacionales 482 millones de toneladas del mineral, con importante incidencia en la balanza comercial del país y en otros indicadores de la economía nacional y regional. No obstante, la correspondiente contribución fiscal derivada de las operaciones de producción y comercio exterior de Cerrejón ha estado afectada por las fluctuaciones de los precios internacionales del mineral, las variaciones de la tasa de cambio y los cambios registrados en las regulaciones tributarias. En especial, la disminución de precios promedio de exportación registrada desde el año 2012 se reflejó en el comportamiento de algunos tributos del orden nacional, como el impuesto de renta pagado por dicha operación minera, y en los pagos de regalías con destino a los fondos del nuevo Sistema General de Regalías conformados mediante Acto Legislativo 05 de 2011, como se explicará en este informe. Además de impuestos y contribuciones, Cerrejón apoya con elevadas inversiones a las comunidades del área de influencia de sus operaciones mediante un conjunto de actividades de responsabilidad social corporativa dirigidas a mejorar el bienestar de las comunidades indígenas, el acceso al agua, la generación de proyectos inclusivos en sectores de bienes y servicios diferentes a la producción de carbón, y el fortalecimiento institucional de las entidades a cargo de la planeación y gestión de la inversión social territorial. En este propósito se han desplegado diversos programas y proyectos a través del Sistema de Fundaciones y del grupo de gestión social de la compañía.
    Keywords: Industria Extractiva del Carbón, Cerrejón, Carbón, Industria Carbonera, Minería del Carbón, Finanzas Públicas, Finanzas Territoriales, Regalías, Inversiones Sociales, Inversiones Públicas, Responsabilidad Social, La Guajira, Colombia.
    JEL: L71 E60 H54 O16 E22
    Date: 2017–11–30
  47. By: Agnes Benassy-Quere; Matthieu Bussière; Pauline Wibaux
    Abstract: The debate on trade wars and currency wars has re-emerged since the Great recession of 2009. We study the two forms of non-cooperative policies within a single framework. First, we compare the elasticity of trade flows to import tariffs and to the real exchange rate, based on product level data for 110 countries over the 1989-2013 period. We find that a 1 percent depreciation of the importer’s currency reduces imports by around 0.5 percent in current dollar, whereas an increase in import tariffs by 1 percentage point reduces imports by around 1.4 percent. Hence the two instruments are not equivalent. Second, we build a stylized short-term macroeconomic model where the government aims at internal and external balance. We find that, in this setting, monetary policy is more stabilizing for the economy than trade policy, except when the internal transmission channel of monetary policy is muted (at the zero-lower bound). One implication is that, in normal times, a country will more likely react to a trade “aggression” through monetary easing rather than through a tariff increase. The result is reversed at the ZLB.
    Keywords: tariffs, exchange rates, trade elasticities, protectionism
    JEL: F13 F14 F31
    Date: 2018
  48. By: Oyvat, Cem; Öztunalı, Oğuz; Elgin, Ceyhun
    Abstract: This study investigates the impact of various economic factors in determining the relationship between functional income distribution and economic growth. Inspired by the seminal paper of Bhaduri and Marglin (1990), we base our analysis on a demand-driven distribution and growth model for an open economy that allows for either profit-led or wage-led growth. To this end, we use a cross-country panel dataset consisting of 41 countries from 1961 to 2011. In the first step of the empirical analysis, we first estimate whether growth regime is wage-led or profit-led in each country. Next, in the second step, using probit and meta-regression approaches with cross-country data, we analyse the effects of various macroeconomic variables on the nature of economic growth. Our results strongly reflect that a higher level of trade openness is associated with a lower probability of being wage-led. Moreover, we find evidence that lower wage inequality would make an economy more wage-led and that countries with a greater private credit-to-GDP ratio are more likely to be profit-led.
    Keywords: Distribution; demand; economic growth; trade openness; Keynesian economics;
    JEL: E12 E25 E61 O47
    Date: 2018–07–12
  49. By: Burkhard Heer; Vito Polito; Michael Wickens
    Abstract: We study the sustainability of pension systems using a life-cycle model with distortionary taxation that sets an upper limit to the real value of tax revenues. This limit implies an endogenous threshold dependency ratio, i.e. a point in the cross-section distribution of the population beyond which tax revenues can no longer sustain the planned level of transfers to retirees. We quantify the threshold using a computable life-cycle model calibrated on the United States and fourteen European countries which have dependency ratios among the highest in the world. We examine the effects on the threshold and welfare of a number of policies often advocated to improve the sustainability of pension systems. New tax data on dynamic Laffer effects are provided.
    Keywords: dependency ratio, fiscal space, Laffer effects, pensions, fiscal policy sustainability
    JEL: E62 H20 H55
    Date: 2018
  50. By: Giuseppe Marotta
    Abstract: We investigate the puzzle of choices of dominated personal pension instruments in Italy, with insurers’ products (PIPs) much more subscribed than shares of open pension funds offered by banks (FPAs). We find evidence, using the three waves of Bank of Italy’s Survey of Household Income and Wealth (SHIW) between 2010 and 2014, of a sales force effect deriving from a network of post offices and independent financial advisors associated with insurance companies much more widespread than bank branches. We document that financial literacy has a significant dampening effect on the supply push factor only for PIPs, and especially for the subset with voluntary matching employers’ contributions. The effect is detected mostly in the 2014 SHIW wave, the one fully affected by the implementation of the pension system reform legislated in December 2011.
    Keywords: ension system reform, Financial literacy, Retail financial products distribution, Italy
    JEL: D91 E21 G11 H55
    Date: 2018–07
  51. By: Arlan Brucal (London School of Economics); Michael J. Roberts (University of Hawai’i at MÄ noa)
    Abstract: Using a sample of 48 contiguous U.S. states for the period 1973-2013, we study how oil price shocks influence state-level economic growth. The analysis incorporates (1) a structural decomposition of the supply and demand factors that drive the real price of crude oil; (2) heterogeneity of states in terms of their production and consumption of oil and natural gas; and (3) economic spillovers across neighboring states. Oil price effects vary across states, depending on the underlying source of the price shock and a state’s average production of oil relative to its average consumption. Oil- exporting states are more vulnerable to unanticipated changes in oil prices, and the direct effect of oil price shocks can magnify or temper effects on neighboring states. Aggregated predictions from the state-level model also differ modestly from stand-alone aggregate model (Kilian , 2009 ). The aggregated state-level model implies that the recent (2005-2016) decline in U.S. dependence on foreign oil reduced aggregate sensitivity to exogenous supply shocks by more than a third.
    Keywords: Oil price shocks, economic spillovers, dynamics
    JEL: E32 Q43
    Date: 2018–06
  52. By: Chari, V. V. (Federal Reserve Bank of Minneapolis); Nicolini, Juan Pablo (Federal Reserve Bank of Minneapolis); Teles, Pedro (Banco de Portugal)
    Abstract: We revisit the question of how capital should be taxed, arguing that if governments are allowed to use the kinds of tax instruments widely used in practice, for preferences that are standard in the macroeconomic literature, the optimal approach is to never distort capital accumulation. We show that the results in the literature that lead to the presumption that capital ought to be taxed for some time arise because of the initial confiscation of wealth and because the tax system is restricted.
    Keywords: Capital income tax; Long run; Uniform taxation
    JEL: E60 E61 E62
    Date: 2018–07–06
  53. By: Turrell, Arthur (Bank of England); Speigner, Bradley (Bank of England); Djumalieva, Jyldyz (Bank of England); Copple, David (Bank of England); Thurgood, James (Bank of England)
    Abstract: Mismatch in the labour market has been implicated as a driver of the UK’s productivity ‘puzzle’, the phenomenon describing how the growth rate and level of UK productivity have fallen behind their respective pre-Great Financial Crisis trends. Using a new dataset of around 15 million job adverts originally posted online, we examine the extent to which eliminating occupational or regional mismatch would have boosted productivity and output growth in the UK in the post-crisis period. To show how aggregate labour market data hide important heterogeneity, we map the naturally occurring vacancy data into official occupational classifications using a novel application of text analysis. The effects of mismatch on aggregate UK productivity and output are driven by dispersion in regional or occupational productivity, tightness, and matching efficiency. We find, contrary to previous work, that unwinding occupational mismatch would have had a weak effect on growth in the post-crisis period. However, unwinding regional mismatch would have substantially boosted output and productivity relative to their realised paths, bringing them in line with their pre-crisis trends.
    Keywords: Vacancies; matching; mismatch
    JEL: E24 J63
    Date: 2018–07–06
  54. By: Cahuc, Pierre; Kramarz, Francis; Nevoux, Sandra
    Abstract: Short-time work programs were revived by the Great Recession. To understand their operating mechanisms, we first provide a model showing that short-time work may save jobs in firms hit by strong negative revenue shocks, but not in less severely-hit firms, where hours worked are reduced, without saving jobs. The cost of saving jobs is low because short-time work targets those at risk of being destroyed. Using extremely detailed data on the administration of the program covering the universe of French establishments, we devise a causal identification strategy based on the geography of the program that demonstrates that short-time work saved jobs in firms faced with large drops in their revenues during the Great Recession, in particular when highly levered, but only in these firms. The measured cost per saved job is shown to be very low relative to that of other employment policies.
    Keywords: employment; Short-time work; unemployment
    JEL: E24 J22 J65
    Date: 2018–07
  55. By: Joanna Dzia?o (University of Lodz, Faculty of Economics and Sociology); Beata Guziejewska (University of Lodz, Faculty of Economics and Sociology)
    Abstract: The paper aims to assess the role of fiscal rules in the process of consolidating public finances and maintaining macroeconomic stability in the EU Member States in the period of the economic crisis. Additionally, the paper presents the case study on the efficiency of fiscal rules at the self-government (local) level in Poland. The article puts forward the thesis that fiscal rules were not an effective instrument for ensuring fiscal discipline in times of crisis. It presents the most important issues of the process of evolution of the rules during the crisis. A review and an analysis of legislation and literature on reforms implemented in the area of fiscal rules, confirms this thesis. The paper points to the need to create such fiscal rules that could contribute not only to fiscal stability but also to macroeconomic stability of the economy and concludes with recommendations for the creation of effective fiscal rules and their desirable features. The rules should be based on the structural balance or the over the cycle balance (but, in order for such rules to be effective, the structural deficit should be relatively low). Effective enforcement of the rules is necessary as well as a strong legal basis for the rules.
    Keywords: fiscal policy, fiscal rules, public debt, budget deficit
    JEL: E62 H74
    Date: 2017–07
  56. By: Jean-Bernard Chatelain (PSE - Paris School of Economics, 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); Kirsten Ralf (Ecole Supérieure du Commerce Extérieur - ESCE - International business school)
    Abstract: Using US data, we estimate optimal policy with a probability below one that the Fed reneges on its commitment ("limited credibility") versus discretionary policy where the Fed reneges on its commitment at all periods with a probability equal to one ("zero credibility"). The transmission mechanism is the new-Keynesian Phillips curve with auto-correlated cost-push shock. It includes the labor cost channel or the working capital channel. Discretion with zero credibility of the Fed is rejected. The working capital channel fits the data before Volcker's mandate. The labor cost channel fits the data since Volcker's mandate.
    Keywords: Ramsey optimal policy,zero-credibility policy,Identification,Central bank preferences,New-Keynesian Phillips curve,Working capital channel
    Date: 2017–12
  57. By: Lee, Michael Junho (Federal Reserve Bank of New York)
    Abstract: I develop a framework of the buildup and outbreak of financial crises in an asymmetric information setting. In equilibrium, two distinct economic states arise endogenously: “normal times,” periods of modest investment, and “booms,” periods of expansionary investment. Normal times occur when the intermediary sector realizes moderate investment opportunities. Booms occur when the intermediary sector realizes many investment opportunities, but also occur when it realizes very few opportunities. As a result, investors face greater uncertainty in booms. During a boom, subsequent arrival of negative information about an intermediary asset results in large downward shifts in investors’ confidence about the underlying quality of long-term assets. A crisis of confidence ensues. Investors collectively force costly early liquidation of the intermediated assets and move capital to safe assets, in a flight-to-quality episode.
    Keywords: financial crises; financial intermediation; asymmetric information; booms; financial fragility
    JEL: D82 E02 G01
    Date: 2018–07–23
  58. By: Andreas M. Fischer; Lucca Zachmann
    Abstract: This paper examines the effects of household income on interest credits from early tax payments. The hypothesis that the richest households from high-income municipalities pay their income taxes early is tested in a demand specification for interest credit for early tax payments. The empirical analysis uses regional data from 170 municipalities in the canton of Zurich from 2007 to 2013. A one standard deviation increase in the ratio for household income between the mean and the 75th percentile increases the ratio of interest tax credit to total taxes by 5%. The finding that high-income households pay their taxes early supports the view that institutional arrangements supporting early tax payments make the (effective) tax system more regressive for high-income households.
    Keywords: Early tax payment, demand for interest credit on early tax payment
    JEL: D14 D30 E21 E41 H31
    Date: 2018
  59. By: Kirti, Divya
    Abstract: While some credit booms are followed by economic underperformance, many are not. Can lending standards help separate good credit booms from bad credit booms contemporaneously? To observe lending standards internationally, I use information from primary debt capital markets. I construct the high-yield (HY) share of bond issuance for a panel of 38 countries. The HY share is procyclical, suggesting that lending standards in bond markets are extrapolative. Credit booms with deteriorating lending standards (rising HY share) are followed by lower GDP growth in the subsequent three to four years. Such booms deserve attention from policy makers. JEL Classification: E32, E44, G12
    Keywords: behavioral finance, credit cycles, lending standards, risky debt share
    Date: 2018–07
  60. By: Irena Raguž Krištić (Faculty of Economics and Business, University of Zagreb); Lucija Rogić Dumančić (Faculty of Economics and Business, University of Zagreb)
    Abstract: The goal of this paper is to determine if the euro area (EA) accession and membership had a significant impact on the product market integration in the EA countries. The paper employs LM and RALS-LM unit root tests with two breaks on the seasonally adjusted monthly Harmonized Index of Consumer Prices (HICP), from 1996:01 to 2017:05. We find EA-accession related breaks in most of the EA11 countries, but, apart from Malta, no such breaks for the later-EA-joiners. However, EA formation had a significant impact on both EA and non-EA countries at that time. We also find greater product market integration and less adverse effects after negative shocks in the EA member countries. However, based on unit root analysis, we find that EA membership in not a sufficient condition for product market integration and integration is not necessarily related to being an EA member.
    Keywords: prices, Euro area, stochastic convergence, unit root, structural breaks
    JEL: E31 O52
    Date: 2018–07–17
  61. By: Guvenen, Fatih (Federal Reserve Bank of Minneapolis); Mataloni Jr., Raymond J. (Bureau of Economic Analysis); Rassier, Dylan G. (Bureau of Economic Analysis); Ruhl, Kim J. (Pennsylvania State University)
    Abstract: Official statistics display a significant slowdown in U.S. aggregate productivity growth that begins in 2004. We show how offshore profit shifting by U.S. multinational enterprises affects GDP and, thus, productivity measurement. Under international statistical guidelines, profit shifting causes part of U.S. production generated by multinationals to be excluded from official measures of U.S. production. Profit shifting has increased significantly since the mid-1990s, resulting in lower measures of U.S. aggregate productivity growth. We construct an alternative measure of value added that adjusts for profit shifting. The adjustments raise aggregate productivity growth rates by 0.09 percent annually for 1994-2004, 0.24 percent annually for 2004-2008, and lowers annual aggregate productivity growth rates by 0.09 percent after 2008. Our adjustments mitigate, but do not eliminate, the measured productivity slowdown. The adjustments are especially large in R&D-intensive industries, which most likely produce intangible assets that facilitate profit shifting. The adjustments boost value added in these industries by as much as 8 percent in the mid-2000s.
    Keywords: Tax havens; Formulary apportionment; Productivity slowdown
    JEL: E01 F23 O4
    Date: 2018–04–24
  62. By: Tetsuo Ono (Graduate School of Economics, Osaka University); Yuki Uchida (Faculty of Economics, Seikei University)
    Abstract: This study presents an overlapping-generations model with physical and human capital accumulation and considers probabilistic voting over capital and labor taxes and public debt to finance public education expenditure. Our analysis shows that the greater political power of the old induces the government to raise the labor tax on the young and lower the capital tax on the old as well as issue debt. The analysis also shows that the introduction of a debt ceiling rule calls for a rise in the labor tax and thus lowers the welfare of the currently working generation. However, it increases the growth rate, and this growth effect raises the welfare of future generations. These benefits last for a long period even if the rule is imposed only for a limited time.
    Keywords: Capital taxation, Public debt, Economic growth, Probabilistic vot- ing, Overlapping-generations model
    JEL: D70 E24 H63
    Date: 2018–07
  63. By: Mughal, Khurrum; Schneider, Friedrich; Hayat, Zafar
    Abstract: Shadow economy encompasses wide array of activities that influence the official economy and government policies, either directly or indirectly. In this paper we estimate the shadow economy of Pakistan using currency demand approach with two econometric approached, i.e. one using Auto Regressive Distributed Lag (ARDL) model and two with Engel Granger two step approach. Additionally, we use a variant of currency demand approach where along with tax variable we include unemployment rate and intensity of government control as indicator variables of shadow economy, for the first time in case of Pakistan. The average shadow economy of Pakistan estimated from 1973-2015 as percentage of GDP is 26.41, 25.29, and 26.11 from Models 1, 2, and 3 respectively. Furthermore, we analyzed interaction between the official and shadow sector using ARDL model. Our results show a significantly increasing shadow economy in Pakistan with positive impact on the official sector in long run while negative impact in the short run. This again is a novelty in our paper where we observe short and long run impacts separately along with dynamic simulations to show Pakistan’s GDP per Capita in the absence of shadow economy.
    Keywords: Shadow Economy, Pakistan, Impact of the official Sector, Currency Demand Approach
    JEL: E26 H26 K42 O17
    Date: 2018–05–30
  64. By: Michael Woodford
    Abstract: It is common to analyze the effects of alternative monetary policy commitments under the assumption of fully model-consistent expectations. This implicitly assumes unrealistic cognitive abilities on the part of economic decision makers. The relevant question, however, is not whether the assumption can be literally correct, but how much it would matter to model decision making in a more realistic way. A model is proposed, based on the architecture of artificial intelligence programs for problems such as chess or go, in which decision makers look ahead only a finite distance into the future, and use a value function learned from experience to evaluate situations that may be reached after a finite sequence of actions by themselves and others. Conditions are discussed under which the predictions of a model with finite-horizon forward planning are similar to those of a rational expectations equilibrium, and under which they are instead quite different. The model is used to re-examine the consequences that should be expected from a central-bank commitment to maintain a fixed nominal interest rate for a substantial period of time. Neo-Fisherian predictions are shown to depend on using rational expectations equilibrium analysis under circumstances in which it should be expected to be unreliable.
    Keywords: forward guidance, neo-Fisherianism, Fisher equation, bounded rationality
    JEL: E52
    Date: 2018
  65. By: Esther Mirjam Girsberger; Miriam Rinawi; Matthias Krapf
    Abstract: How skills acquired in vocational education and training (VET) affect wages and employment is not clear. We develop and estimate a search and matching model for workers with a VET degree. Workers differ in interpersonal, cognitive and manual skills, while firms require and value different combinations of these skills. Assuming that match productivity exhibits worker-job complementarity, we estimate how interpersonal, cognitive and manual skills map into job offers, unemployment and wages. We find that firms value cognitive skills on average almost twice as much as interpersonal and manual skills, and they prize complementarity in cognitive and interpersonal skills. The average return to VET skills in hourly wages is 9%, similar to the returns to schooling. Furthermore, VET appears to improve labour market opportunities through higher job arrival rate and lower job destruction. Workers thus have large benefits from acquiring a VET degree.
    Keywords: occupational training, vocational education, labor market search, sorting, multidimensional skills
    JEL: E24 J23 J24 J64
    Date: 2018
  66. By: Girsberger, Esther Mirjam (University of Lausanne); Rinawi, Miriam (Swiss National Bank); 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 J23 J24 J64
    Date: 2018–06
  67. By: Angel Asensio (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In a recent article titled 'IYLM: a General Theory-compatible replacement to ISLM', Roderick O'Donnell and Colin Rogers (2016, Cambridge J. of Econ. 40(1), 349-364) offer a model claimed to be 'a representation of the GT's central general propositions' substantially different from the ISLM version. In this short note, it is shown that: a) the IY equation (product market equilibrium condition) is mis-specified, b) once the additional ‘overall equilibrium condition' i = mec is added, the IY-LM model is formally an IS-LM model. It is argued furthermore that the effects of the entrepreneurs' long-term expectations and of the state of liquidity preference can be made explicit in the investment and money demand functions to account for those highly Keynesian features within the IS-LM framework.
    Keywords: ISLM, IYLM, Keynes, macroeconomics, model
    Date: 2017–10–17
  68. By: Frédéric Ghersi (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - AgroParisTech - EHESS - École des hautes études en sciences sociales - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement)
    Abstract: This working paper details in 3 sections (i) the data collection and treatment that were necessary to apply IMACLIM-P to a 28-country European Union (EU); (ii) the particulars of a version of IMACLIMP dedicated to a prospective outlook on the penetration of electric passenger cars in the EU, including how results of the PAN-EU TIMES model of energy systems can be imported in IMACLIMP, together with the complete set of equations of the model; (iii) model implementation.
    Date: 2018–01–24
  69. By: Kavous Ardalan (Marist College)
    Abstract: Two major open-economy theories are the Keynesian and Monetarist theories. The goal of the study is to empirically discriminate between the two theories. Keynesian and monetarist views about the homeostatic mechanism are fundamentally different and provide a basis for constructing discriminatory empirical tests. The Keynesian theory holds that there is no, or only a very weak, homeostatic mechanism and, in the absence of government intervention, real income tends to remain below the level of full employment. In the monetary interpretation, the homeostatic mechanism is strong, and real income can be treated as though it were exogenous. This study examines the response of the Netherlands to the sharp increase in oil prices in late 1973. The experience of the Netherlands, as an oil-importing country, supports the Keynesian view.
    Keywords: Open Economy; Keynesian; Monetarist; Controversy; Oil Price Rise; Macroeconomics
    JEL: E00
    Date: 2017–07
  70. By: Sven Steinkamp (Osnabrueck University); Aaron Tornell (University of California, Los Angeles); Frank Westermann (Osnabrueck University)
    Abstract: Since the beginning of the financial crisis in 2007/8, new lending in the Euro-Area has slowed sharply and the old loans experienced “evergreening,” i.e. bad loans have been rolled over rather than being liquidated. Even though ameliorating evergreening is key to promote lending for new investment projects and growth, no systematic evergreening measures exist. In this paper, we propose a new cross-country evergreening index and develop a model to explain why evergreening may reflect the incentives of regulators to forebear. Our evergreening index is based on a survey we designed, and was administered by the ifo institute to about 1,000 experts in over 80 countries. We bring the model to the data using a heteroscedastic probit model and find that evergreening is higher in: (i) Euro-Area countries than in the rest of the world; (ii) in countries facing bank distress; and (iii) is highest in countries which experience banking distress and are members of the Euro Area. These results are consistent with our theoretical model.
    Keywords: Evergreening; Central bank credit; Survey data; Forbearance
    JEL: F33 F55 E58
  71. By: McVicar, Duncan (Queen's University Belfast); Park, Andrew (University of Ulster); McGuinness, Seamus (Economic and Social Research Institute, Dublin)
    Abstract: This paper examines employment and hours impacts of the 1999 introduction of the UK National Minimum Wage (NMW) and the 2016 introduction of the UK National Living Wage (NLW) in Northern Ireland (NI). NI is the only part of the UK with a land border where the NMW and NLW cover those working on one side of the border (NI) but not those working on the other side of the border (Republic of Ireland). This discontinuity in minimum wage coverage enables a research design that estimates the impacts of the NMW and NLW on employment and hours worked using difference-in-differences. We find a small decrease in the employment rate of 22-59/64 year olds in NI, of up to two percentage points, in the year following the introduction of the NMW, but no impact on hours worked. We find no evidence that the introduction of the NLW impacted either employment or hours worked in NI.
    Keywords: minimum wages, Northern Ireland, employment, hours
    JEL: E24 J31 J38
    Date: 2018–06
  72. By: Alessandro Di Nola (University of Konstanz); Georgi Kocharkov (Goethe University Frankfurt); Almuth Scholl (University of Konstanz); Anna-Mariia Tkhir (University of Konstanz)
    Abstract: There is a sizable overall tax gap in the U.S., albeit tax non-compliance differs sharply across income types. While only small percentages of wages and salaries are underreported, the estimated misreporting rate of self-employment business income is substantial. This paper studies how tax evasion in the self-employment sector affects aggregate outcomes and welfare. We develop a dynamic general equilibrium model with incomplete markets in which heterogeneous agents choose between being a worker or self-employed. Self-employed agents may hide a share of their business income but face the risk of being detected by the tax authority. Our model replicates important quantitative features of the U.S. economy in terms of income, wealth, self-employment, and tax evasion. Our quantitative ndings suggest that tax evasion leads to a larger self-employment sector but it depresses the average size and productivity of self-employed businesses. Tax evasion generates positive aggregate welfare effects because it acts as a subsidy for the self-employed. Workers, however, suffer from substantial welfare losses.
    Keywords: Tax evasion, Self-employment, Wealth inequality, Tax policy
    JEL: H24 H25 H26 C63 E62 E65
    Date: 2018–07–26
  73. By: Brad J. Hershbein (W.E. Upjohn Institute for Employment Research); Lisa B. Kahn (Yale University)
    Keywords: Job polarization, job postings, RBTC, recessions, routine-biased technological change, upskilling, vacancies
    JEL: D22 E32 J23 J24 M51 O33
  74. By: Gómez, Georgina M.; Dini, Paolo
    Abstract: Based on empirical data, this study discusses the introduction, acceptance and circulation of two complementary currencies in Argentina that do not fit well in the main approaches to the nature of money. These two monetary circuits, provincial and community currencies, were introduced as units of account to denominate the value of debt and circulated as means of payment to overcome monetary stringency during the crisis of 1999-2003. After discussing several theories on the nature of money, we reflect on the institutional significance of currency circuits as concurrent and rather stable pairs of trade and money. We suggest that several theories of money need to be combined to account for the variety and heterogeneity of daily monetary practices in a broad spectrum of countries.
    Keywords: Ontology of money; Monetary plurality; Community currencies; Subnational currencies; Argentina
    JEL: E5 O2 Z1
    Date: 2016–09–01
  75. By: Masaya Yasuoka (School of Economics, Kwansei Gakuin University)
    Abstract: This paper sets an endogenous fertility model with human capital accumulation and monetary policy in a closed economy, with subsequent examination of how fertility, education investment for children, and the inflation rate change. Results of theoretical analysis indicate that the child allowance raises fertility and reduces educational investment. However, the effect of the subsidy for education investment on fertility and educational investment is ambiguous because of the closed economy. Because of the change of fertility and income growth, the inflation rate can be changed by the child care policy. An increase in monetary stock policy raises human capital growth because the physical capital accumulation is facilitated.
    Keywords: Child care Policy, Education, Fertility, Inflation
    JEL: J11 J14 E31 H22
    Date: 2018–07
  76. By: Stefano Banfi; Sekyu Choi; Benjamín Villena-Roldán
    Abstract: Using proprietary data from a Chilean online job board, we find strong, positive assortative matching at the worker-position level, both along observed dimensions and on unobserved characteristics (OLS Mincer residual wages). We also find that this positive assortative matching is robustly procyclical. Then, we use the generalized deferredacceptance algorithm to simulate ex post matches to compare our results to the existing empirical literature. Under all considered scenarios of our simulations, positive assortative matching is preserved from the application stage to the realized matches. JEL Codes: E24, E32, J24, J60. Key words: Keywords: Online search, assortative matching, labor markets.
    Date: 2018
  77. By: William Ginn (FAU - Friedrich-Alexander Universität Erlangen-Nürnberg); Marc Pourroy (CRIEF - Centre de Recherche sur l'Intégration Economique et Financière - Université de Poitiers)
    Abstract: Food price subsidies are a prevalent means by which fiscal authorities may counteract food price volatility in middle-income countries (MIC). We develop a DSGE model for a MIC that captures this key channel of a policy induced price smoothing mechanism that is different to, yet in parallel with, the classic Calvo price stickiness approach, which can have consequential effects for monetary policy. We then use the model to address how the joint fiscal and monetary policy responds to an increase in inflation driven by a food price shock can affect welfare. We show that, in the presence of credit constrained households and households with a significant share of food expenditures , a coordinated reaction of fiscal and monetary policies via subsidized price targeting can improve aggregate welfare. Subsidies smooth prices and consumption, especially for credit constrained households, which can consequently result in an interest rate reaction less intensely with subsidized price targeting compared with headline price targeting.
    Keywords: Monetary Policy,Fiscal Policy,Food subsidies,DSGE Model,Subsidies,Commodities,Middle income countries
    Date: 2018–07–05
  78. By: Giuseppe Berlingieri; Sara Calligaris; Chiara Criscuolo
    Abstract: Ever since Moore (1911) a large empirical and theoretical literature has established the existence of a firm size-wage premium. At the same time, a second regularity in empirical work, linking size and productivity, has inspired a vast literature in multiple fields. However, the majority of the existing evidence is based on manufacturing data only. With manufacturing nowadays accounting for a very small share of the economy in many countries, whether productivity, size, and wages are closely linked, and how tight this link is across sectors, is still an open question. Using a unique dataset that collects micro-aggregated firm-level information on productivity, size, and wages for the entire economy in 17 countries over the 1994-2012 period, this paper unveils a much more subtle picture. First, while in the manufacturing sector both productivity and wages increase monotonically with firm size, the same is not true in the service sector. Second, a tight and positive link between wages and productivity is instead found in both manufacturing and services. The combination of these results suggests that, when looking at data for a much larger share of the economy, the ``size-wage premium' becomes more a "productivity-wage premium'". Unbundling the relationship between size, wages, and productivity has first-order policy implications for both workers and firms.
    Keywords: productivity, size-premium, wages
    JEL: E2 D2 J3
    Date: 2018–07
  79. By: María Angélica Arbeláez Restrepo; Alejandro Becerra
    Abstract: El estudio cuantifica la contribución de la operación de Bavaria S.A. a la economía colombiana de una manera integral a través de la metodología insumo-producto. El análisis considera no sólo los efectos directos de la producción de Bavaria S.A. sino también los impactos indirectos, e inducidos de forma tal que pueda capturarse el aporte a la economía a nivel agregado. Para esto, el análisis tiene en cuenta las interrelaciones económicas de Bavaria S.A. con el resto de sectores de la economía, así como con otros agentes como los hogares y el Gobierno plasmadas en una Matriz de Contabilidad Social (SAM). Se encuentra que los efectos indirectos en producción, valor agregado, empleo, salarios y pago de impuestos son importantes, incluso en muchos casos superiores a la contribución directa de la compañía.
    Keywords: Metodología Insumo-Producto, Sector Cervecero, Bavaria S.A., Industria Cervecera, Industria de Bebidas Alcohólicas, Economía Colombiana, Desarrollo Productivo
    JEL: B41 E20 C67 L66
    Date: 2018–02–12
  80. By: Christensen, Jens H. E. (Federal Reserve Bank of San Francisco); Lopez, Jose A. (Federal Reserve Bank of San Francisco); Mussche, Paul (Federal Reserve Bank of San Francisco)
    Abstract: Insurance companies and pension funds have liabilities far into the future and typically well beyond the longest maturity bonds trading in fixed-income markets. Such long-lived liabilities still need to be discounted, and yield curve extrapolations based on the information in observed yields can be used. We use dynamic Nelson-Siegel (DNS) yield curve models for extrapolating risk-free yield curves for Switzerland, Canada, France, and the U.S. We find slight biases in extrapolated long bond yields of a few basis points. In addition, the DNS model allows the generation of useful financial risk metrics, such as ranges of possible yield outcomes over projection horizons commonly used for stress-testing purposes. Therefore, we recommend using DNS models as a simple tool for generating extrapolated yields for long-term interest rate risk management.
    JEL: E43 E47 G12 G22 G28
    Date: 2018–07–06
  81. By: Daruich, Diego (New York University); Kozlowski, Julian (Federal Reserve Bank of St. Louis)
    Abstract: We create a new database of retail prices in Argentina with over 10 million observations per day. Our main novel finding is that, different from Kaplan, Menzio, Rudanko, and Trachter (2016), chains, rather than stores, explain most of the price variation in our data. We show this in three ways: (a) Even though chains have on average 158 stores, there are on average less than 2.5 unique prices per product by chain; (b) Among products that change prices in one store, the probability that other stores of the same chain also change the price of the same product in the same day is 2.4 times the probability for other stores of any chain; and (c) A formal variance decomposition shows that only 28% of the price dispersion (for the same product, day, and city) is explained by stores setting different prices within a chain. This finding is relevant for retail-pricing theories since there are significantly fewer chains than stores, which matters for the degree of competition in the market. This paper also studies the heterogeneity in price changes and price dispersion across product categories.
    Keywords: Retail Prices; Price Adjustment; Price Dispersion
    JEL: D40 E31 L11
    Date: 2018–07–13
  82. By: Hippolyte D'Albis (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); Ekrame Boubtane (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Dramane Coulibaly (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper aims to evaluate the economic and fiscal effects of inflows of asylum seekers into Western Europe from 1985 to 2015. It relies on an empirical methodology that is widely used to estimate the macroeconomic effects of structural shocks and policies. It shows that inflows of asylum seekers do not deteriorate host countries' economic performance or fiscal balance, because the increase in public spending induced by asylum seekers is more than compensated for by an increase in tax revenues net of transfers. As asylum seekers become permanent residents, their macroeconomic impacts become positive.
    Keywords: panel VAR,growth,unemployment,public finances,asylum seekers,net migration
    Date: 2018–06
  83. By: -
    Abstract: In the first quarter of 2018, the U.S. economy grew at an annualized rate of 2%, a slower pace than previously thought, but growth is expected to rebound in the current quarter. Growth was held back by the slowdown in consumer spending, which grew only 0.9% in the first quarter, after a 4% growth in the fourth quarter of last year. U.S. employers added 1,287,000 jobs during the first half of 2018. Unemployment rate was at 4% at the end of June. Compared with its pace before the 2008 recession, productivity growth is disappointingly slow. On a year-ago basis, unit labor costs were up 1.1% in the first quarter while productivity increased 1.3%, indicating acceleration in wages that nevertheless falls short of prerecession rates.
    Date: 2018–07–16
  84. By: Konstantakis, Konstantinos N.; Michaelides, Panayotis G.
    Abstract: The purpose of this paper is to deal with questions of instability and economic crisis, deriving theoretical arguments from Schumpeter’s works and presenting relevant empirical evidence for the case of the US manufacturing sector in the time period 1958-2006, just before the first signs of the global recession made their appearance. More precisely, we use a wide dataset that contains 473 manufacturing industries, that are clustered based on their annual change of hourly earnings per worker and we make an attempt to interpret the economic fluctuations in the clusters formed. Meanwhile, we study the causal relationships between the crucial variables dictated by Schumpeterian theory. In this context, a number of relevant techniques have been used, such as hierarchical clustering, canonical discriminant analysis, cointegration analysis, periodograms and Granger causality tests. Our findings seem to give credit to certain aspects of the Schumpeterian theory of business cycles. The results are discussed in a broader context, related to the US economy.
    Keywords: Economic Crisis; US Manufacturing sector; Schumpeter; Business Cycles.
    JEL: J1 G32
    Date: 2017–06–23
  85. By: Trofimov, Ivan D.
    Abstract: The paper considers the effects of income terms of trade (ToT) on GDP per capita in Latin American economies and examines whether improvement in the income ToT (in absolute and relative terms) contributes to the stochastic convergence between respective economies and the US. It is shown that in the majority of the economies, income ToT had positive effects on the level of GDP per capita. The stochastic convergence was documented in Chile, Dominican Republic, and Uruguay. The positive effects of income ToT increase on GDP per capita convergence were documented only in Chile and Uruguay. The growth of the volume of exports played a key role in the process, while the effects on the part of net barter ToT were insignificant. In both economies, the improvement in the income ToT relative to the US level played a positive role in convergence.
    Keywords: Terms of trade, convergence, Prebisch-Singer thesis
    JEL: C22 F02 F14 N76
    Date: 2018–06–26
  86. By: Stancu, Ion; Panait, Iulian
    Abstract: Începând cu primul număr al Revistei de Studii Financiare, ne propunem să vă prezentăm Indicele de Stabilitate Financiară ca barometru al celor mai reprezenativi indicatori financiari privind evoluţia pieţei financiare şi, corelativ, a economiei reale.
    Keywords: stabilitate financiară
    JEL: E63 G01 G23
    Date: 2016–11–30
  87. By: Hess Chung; Cynthia L. Doniger; Cristina Fuentes-Albero; Bernd Schlusche; Wei Zheng
    Abstract: In this note, we describe a method for calculating simulation results and demonstrate the benefits of the integrated model by analyzing a policy that entails an endogenous balance sheet response.
    Date: 2018–07–20
  88. By: Andrew Phiri
    Abstract: In this paper, we challenge the traditional assumption of a linear relationship between exchange rate volatility and economic growth in South Africa. By using data collected from 1970 to 2016 applied to a smooth transition regression (STR) model, we are able to prove that the exchange rate-economic growth correlation is indeed nonlinear within the sampled time period. In particular, we find that regime switching behaviour is facilitated by government size in which exchange rate volatility positively and significantly influences economic growth when growth in government spending is below 6 percent. Above this 6 percent threshold, volatility exerts an insignificant effect on economic growth. In light of the adoption of a free floating exchange rate regime by the Reserve Bank, our results emphasize the importance of the role which fiscal authorities play on the extent to which exchange rate movements affect economic growth.
    Keywords: Exchange rates; economic growth, smooth transition regression (STR) model; thresholds; nonlinearity; volatility; South Africa; monetary policy; fiscal policy.
    JEL: C01 C22 C52 E52 F31 O40
    Date: 2018–06–08
  89. By: Nicola Acocella; Parolo Pasimeni
    Abstract: The uncovered interest rate parity condition lies at the heart of the "impossible trinity", stating that the three objectives of fixed exchange rates, free capital flows, and independent monetary policy cannot be pursued simultaneously. We argue that although monetary unification does indeed eliminate the tension between exchange rates and nominal interest rates, it does not solve the problem of the intrinsic instability of the system. By eliminating the intra-area exchange rates (with a single currency) and interest rate differentials (with a single common policy rate set by the common central bank), the problem of instability is simply transferred to inflation rate differentials, what we call the (impossibility of the) "uncovered inflation rate parity condition" in a monetary union. The analysis of the actual divergences and imbalances in the EMU, then, suggests that failure to respect the "uncovered inflation rate parity condition" in a monetary union may lead to increasing economic and political tensions. Thus we conclude with the application of the Rodrik's political trilemma to the EMU, which epitomises the existential challenges that the EU faces nowadays.
    Keywords: Monetary Union, interest rate, exchange rate, inflation differentials, political trilemma
    JEL: E42 F33 F41 F42
    Date: 2018
  90. By: Ignacio Lozano-Espitia (Banco de la República de Colombia); Fernando Arias-Rodríguez (Banco de la República de Colombia)
    Abstract: En este documento se estiman las curvas de Laffer para los impuestos al trabajo, al capital y al consumo en Colombia. Se utiliza un modelo neoclásico de crecimiento con capital humano del tipo insinuado por Trabandt y Uhlig (2011), el cual es calibrado con la información de las cuentas nacionales para el período 1994 a 2015. Los resultados permiten, por una parte, comparar las tarifas impositivas efectivas actuales sobre los factores de producción frente aquellas que maximizaría los recaudos del gobierno y, por consiguiente, derivar el espacio fiscal que eventualmente tiene el gobierno por el lado de los impuestos. Por otra, permiten simular ejercicios de la política fiscal mediante el uso de sus principales instrumentos y, finalmente, contrastar las tarifas tributarias efectivas y las curvas de Laffer en Colombia frente a la de los países de la OECD. **** This paper estimates the Laffer curves in Colombia for taxes on labor income, capital gains, and consumption. We used a neoclassical growth model with human capital, as that suggested by Trabandt and Uhlig (2011), inputting data from the national accounts system, for the period 1994 to 2015. The results permit to compare the current effective tax rates on the factors of production against that which would maximize the government's revenues, and therefore derive the government's possible taxrelated fiscal space. Furthermore, they help us perform some fiscal-policy simulations employing the policy's main tools, and they let us contrast Colombia's effective tax rates and Laffer curves with those of the OECD countries. Classification JEL: E13, E62, H20, H30, H60
    Keywords: Curva de Laffer, Política Fiscal, Impuestos al Trabajo, Impuestos al Capital, Impuestos al Consumo, Laffer curves, Fiscal Policy, Taxes on Consumption, Taxes on labor and capital incomes
    Date: 2018–07
  91. 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. The results of this study indicate the economic concept of Ibn Khaldun implying an economic system that requires five components is the Shari'a, 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
  92. By: Alex Cukierman; Thomas Lustenberger
    Abstract: This paper develops a model of honest rational professional forecasters with different abilities and submits it to empirical verification using data on 3- and 12-months ahead forecasts of short-term interest rates and of long-term bond yields for up to 33 countries collected by Consensus Economics. The main finding is that in many countries, less-precise forecasters weigh public information more heavily than more-precise forecasters who weigh their own private information relatively more heavily. One implication of this result is that less-precise forecasters herd after more-precise forecasters even in the absence of strategic considerations. We also document differences between the average forecasting errors of more- and less-able forecasters as well as substantial correlations between the forecast errors of different forecasters.
    Keywords: Forecasting interest rates and bond yields, impact of forecasting ability on forecast formation
    JEL: E47 G17
    Date: 2018
  93. By: Juan Pablo Navarrete Ruiz
    Abstract: En el presente documento se realiza un breve análisis del pensamiento de autores clásicos aún vigentes para el estudio económico de la sociedad moderna, con el fin de comparar sus metodologías de análisis con las metodologías actuales. Específicamente, se hace seguimiento al supuesto de agentes representativos y las consecuencias que su consideración tiene en los modelos de crecimiento neoclásicos básicos a partir de los cuales se hace política económica. Se reconoce la importancia de los supuestos en conjunto dentro del análisis neoclásico y su formalización, pero se considera su impacto en el análisis de los efectos distributivos del crecimiento y la desigualdad. Se encuentra que se debe tener especial precaución al sacar conclusiones de modelos que integren a este supuesto debido a que los efectos redistributivos no son despreciables.
    Keywords: Agente representativo, supuestos, desigualdad, macroeconomía
    JEL: B31 D01 E13
    Date: 2018–07–16

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