nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒09‒10
98 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The Boundaries of Central Bank Independence: Lessons from Unconventional Times By Athanasios Orphanides
  2. Asset Prices in a Production Economy with Long Run and Idiosyncratic Risk By Ivan Sutoris
  3. "Twenty Years of the German Euro Are More than Enough" By Joerg Bibow
  4. Reserves for All? Central Bank Digital Currency, Deposits, and their (Non)-Equivalence By Dirk Niepelt
  5. Money as an Inflationary Phenomenon By Markus Pasche
  6. The Monetary and Fiscal History of Venezuela 1960-2016 By Diego Restuccia
  7. Some Implications of Uncertainty and Misperception for Monetary Policy By Christopher J. Erceg; James Hebden; Michael T. Kiley; J. David Lopez-Salido; Robert J. Tetlow
  8. Price Rigidity and the Origins af Aggregate Fluctuations By Ernesto Pasten; Raphael S. Schoenle; Michael Weber
  9. The Demand for Money at the Zero Interest Rate Bound By Tsutomu Watanabe; Tomoyoshi Yabu
  10. Is Unemployment on Steroids in Advanced Economies? By Di Bella, Gabriel; Grigoli, Francesco; Ramírez, Francisco
  11. The Heterogeneous Effects of Global and National Business Cycles on Employment in U.S. States and Metropolitan Areas By Chudik, Alexander; Koech, Janet; Wynne, Mark A.
  12. Credit Channel and Business Cycle: The Role of Tax Evasion By Bruno Chiarini; Maria Ferrara; Elisabetta Marzano
  14. The Greek crisis: A story of self-reinforcing feedback mechanisms By Katarina Juselius; Sophia Dimelis
  15. Socio-Political Instability and Growth Dynamics By Manoel Bittencourt; Rangan Gupta; Philton Makena; Lardo Stander
  16. Is the South African economy likely to fall back into recession in 2018-2019? By Francis Bismans
  17. Output Hysteresis and Optimal Monetary Policy By Sanjay Singh
  18. Risk Management-Driven Policy Rate Gap By Giovanni Caggiano; Efrem Castelnuovo; Gabriela Nodari
  19. Measuring Real-Financial Connectedness in the U.S. Economy By Erhan Uluceviz; Kamil Yilmaz
  20. Reviving American Entrepreneurship? Tax Reform and Business Dynamism By Sedlacek, Petr; Sterk, Vincent
  21. What to expect from the lower bound on interest rates: evidence from derivatives prices By Mertens, Thomas M.; Williams, John C.
  22. Macroprudential Policy: Promise and Challenges By Enrique Mendoza
  23. Arab Republic of Egypt; Third Review Under the Extended Arrangement Under the Extended Fund Facility, and Requests for a Waiver of Nonobservance of a Performance Criterion and for Modification of a Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt By International Monetary Fund
  24. A Business-cycle-model with a Modified Cash-in-advance Feature, Government Sector and Oneperiod Nominal Wage Contracts: The Case of Bulgaria By Aleksandar Vasilev
  25. Fiscal Rules in a Monetary Economy: Implications for Growth and Welfare By Tetsuo Ono
  26. Ramsey-optimal Tax Reforms and Real Exchange Rate Dynamics By Stephane Auray; Aurelien Eyquem; Paul Gomme
  27. Euro Area Policies; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Member Countries By International Monetary Fund
  28. Housing Finance, Boom-Bust Episodes, and Macroeconomic Fragility By Carlos Garriga; Aaron Hedlund
  29. A Model of the Fed’s View on Inflation By Hasenzagl, Thomas; Pellegrino, Filippo; Reichlin, Lucrezia; Ricco, Giovanni
  30. Wealth Taxes and Inequality By Borri, Nicola; Reichlin, Pietro
  31. The Role of Money in Federal Reserve Policy By Qureshi, Irfan
  32. Delphic and Odyssean monetary policy shocks: Evidence from the euro-area By Filippo Ferroni
  33. Reallocation Effects of Monetary Policy By OIKAWA Koki; UEDA Kozo
  34. Somalia; Second and Final Review Under the Staff Monitored Program and Request for a New Staff Monitored Program-Press Release and Staff Report By International Monetary Fund
  35. Why is there so much Inertia in Inflation and Output? A Behavioral Explanation By Yuemei Ji
  36. Central African Republic; Fourth Review Under the Extended Credit Facility Arrangement, Requests for Waiver of Nonobservance of Performance Criterion, Modification of Performance Criteria, Augmentation of Access, and Financing Assurances Review-Press Release; Staff Report; and Statement by the Executive Director for the Central African Republic By International Monetary Fund
  37. Senegal; Sixth Review Under the Policy Support Instrument-Press Release; Staff Report; and Statement by the Executive Director for Senegal By International Monetary Fund
  38. Common and country specific factors in the distribution of real wages By Eleni Chatzivgeri; Haroon Mumtaz; Daniela Tavasci; Luigi Ventimiglia
  40. Guyana; 2018 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  41. Structural Interpretation of Vector Autoregressions with Incomplete Information: Revisiting the Role of Oil Supply and Demand Shocks: Comment By Kilian, Lutz; Zhou, Xiaoqing
  42. Structural Interpretation of Vector Autoregressions with Incomplete Identification: Revisiting the Role of Oil Supply and Demand Shocks: Comment By Lutz Kilian; Xiaoqing Zhou
  43. Fiscal space and government-spending & tax-rate cyclicality patterns: A cross-country comparison, 1960-2016 By Aizenman, Joshua; Jinjarak, Yothin; Nguyen, Hien Thi Kim; Park, Donghyun
  44. Disagreement and Monetary Policy By Elisabeth Falck; Mathias Hoffmann; Patrick Hürtgen
  45. Solving heterogeneous agent models in discrete time with many idiosyncratic states by perturbation methods By Bayer, Christian; Luetticke, Ralph
  46. Technological change and economic development: endogenous and exogenous fluctuations By Marianna Epicoco
  47. Measuring the origins of macroeconomic uncertainty By Haroon Mumtaz
  48. Intertemporal Similarity of Economic Time Series By Franses, Ph.H.B.F.; Wiemann, T.
  49. Should we care about central bank profits? By Francesco Chiacchio; Grégory Claeys; Francesco Papadia
  50. Investigating Predictors of Inflation in Nigeria: BMA and WALS Techniques By Tumala, Mohammed M; Olubusoye, Olusanya E; Yaaba, Baba N; Yaya, OlaOluwa S; Akanbi, Olawale B
  51. The unemployment impact of product and labour market regulation: Evidence from European countries By Céline Piton
  52. Forecasting Nigerian Inflation using Model Averaging methods: Modelling Frameworks to Central Banks By Tumala, Mohammed M; Olubusoye, Olusanya E; Yaaba, Baba N; Yaya, OlaOluwa S; Akanbi, Olawale B
  53. Monetary Policy Shifts and Central Bank Independence By Qureshi, Irfan
  54. The Formation of Consumer Inflation Expectations: New Evidence From Japan's Deflation Experience By Jess Diamond; Kota Watanabe; Tsutomu Watanabe
  55. The Formation of Consumer Inflation Expectations: New Evidence From Japan's Deflation Experience By Jess Diamond; Kota Watanabe; Tsutomu Watanabe
  56. The Value of Constraints on Discretionary Government Policy By Fernando Martin
  57. Macroeconomic implications of shadow banks: A DSGE analysis By Bora Durdu; Molin Zhong
  58. How Should Unemployment Insurance vary over the Business Cycle? By Serdar Birinci; Kurt Gerrard See
  59. Welfare Effects of Fiscal Procyclicality: Public Insurance with Heterogeneous Agents By Alvaro Aguirre
  60. Growth Accelerations Strategies By Alessio Terzi; Michele Peruzzi
  61. Recent Trade Dynamics in Asia: Examples from Specific Industries By Marc Auboin; Floriana Borino
  62. Responses of macroeconomy and stock markets to structural oil price shocks: New evidence from Asian oil refinery By Hong Thai Le; Marta Disegna
  63. Monitoring Bank Failures in a Data-Rich Environment By Jean Armand Gnagne; Kevin Moran
  64. The Economics of Cryptocurrencies - Bitcoin and Beyond By Chiu, Jonathan; Koeppl, Thorsten
  65. Does exchange rate depreciation have contractionary effects on firm-level investment? By Jose Maria Serena; Ricardo Sousa
  66. Vietnam; 2018 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  67. International Value-Added Linkages in Development Accounting By Alejandro Cuñat; Robert Zymek
  68. Monetary Policy Announcement and Algorithmic News Trading in the Foreign Exchange Market By Keiichi Goshima; Yusuke Kumano
  69. Reserve Accumulation, Macroeconomic Stabilization and Sovereign Risk By Javier Bianchi; Cesar Sosa-Padilla
  70. The European Social Welfare Function Shaped on a Difference Principle: A Normative Rawlsian Approach in Favour of Fiscal Union By Klaudijo Klaser
  71. Central Bank Balance Sheet Policies Without Rational Expectations By Iovino, Luigi; Sergeyev, Dmitriy
  72. Inequality and finance in a rent economy By Botta, Alberto; Caverzasi, Eugenio; Russo, Alberto; Gallegati, Mauro; Stiglitz, Joseph E.
  73. Informality, Labor Regulation, and the Business Cycle By Gustavo Leyva; Carlos Urrutia
  74. Super-inertial interest rate rules are not solutions of Ramsey optimal monetary policy By Jean-Bernard Chatelain; Kirsten Ralf
  75. Central African Economic and Monetary Community (CEMAC); Staff Report on the Common Policies in Support of Member Countries Reform Programs By International Monetary Fund
  76. Benin; Second Review under the Extended Credit Facility and Request for Modification of Performance Criteria – Press Release; and Staff Report By International Monetary Fund
  77. The changing dynamics of short-run output adjustment By Korkut Alp Erturk; Ivan Mendieta-Munoz
  78. Searching for a theory that fits the data: A personal research odyssey By Katarina Juselius
  80. Trade Policy Toward Supply Chains after the Great Recession By Bown, Chad P.
  81. Commodity Currencies and Monetary Policy By Michael B. Devereux; Gregor W. Smith
  82. A Puzzle about the Monetary Expression of Labor Time : An Equilibrating Mechanism or Just A Coincidence? By Hyun Woong Park; Dong–Min Rieu
  83. Monetary Easing, Investment and Financial Instability By Acharya, Viral V; Plantin, Guillaume
  84. Is Hard Brexit Detrimental to EU Integration? Theory and Evidence By Irena Mikolajun; Jean-Marie Viaene
  85. The Marginal Propensity to Hire By Davide Melcangi
  86. The Long-term Debt Accelerator By Joachim Jungherr; Immo Schott
  87. Oligopoly, Macroeconomic Performance, and Competition Policy By José Azar; Xavier Vives
  88. Model simplification and variable selection: A Replication of the UK inflation model by Hendry (2001) By Blazejowski, Marcin; Kufel, Paweł; Kwiatkowski, Jacek
  89. Euro Area Policies; Financial Sector Assessment Program-Technical Note-Insurance, Investment Firm, and Macroprudential Oversight By International Monetary Fund
  90. Vehicle Currency Pricing and Exchange Rate Pass-Through By Chen, Natalie; Chung, Wanyu; Novy, Dennis
  91. Macroeconomic Independence and Optimum Currency Area in the Eurozone: An Alternative Assessment By Simeon Nanovsky
  92. Analysis of Inflation/Deflation: Clusters of micro prices matter! By KICHIKAWA Yuichi; AOYAMA Hideaki; FUJIWARA Yoshi; IYETOMI Hiroshi; YOSHIKAWA Hiroshi
  93. Tunisia; Third Review under the Extended Fund Facility, and Request for Waiver of Applicability and Modification of Performance Criteria By International Monetary Fund
  94. Firm-Level Labor Demand for and Macroeconomic Increases in Non-Regular Workers in Japan By Hiroshi Teruyama; Yasuo Goto; Sebastien Lechevalier
  95. Market Constraints, Misallocation, and Productivity in Vietnam Agriculture By Stephen Ayerst; Loren Brandt; Diego Restuccia
  96. History Dependence in the Housing Market By Philippe Bracke; Silvana Tenreyro
  97. The Transmission of Monetary Policy Shocks By Miranda-Agrippino, Silvia; Ricco, Giovanni
  98. Can GDP measurement be further improved? Data revision and reconciliation By Jan P. A. M. Jacobs; Samad Sarferaz; Jan-Egbert Sturm; Simon van Norden

  1. By: Athanasios Orphanides (Professor of the Practice of Global Economics and Management at the MIT Sloan School of Management (E-mail:
    Abstract: What institutional arrangements for an independent central bank with a price stability mandate promote good policy outcomes when unconventional policies become necessary? Unconventional monetary policy poses challenges. The large scale asset purchases needed to counteract the zero lower bound on nominal interest rates have uncomfortable fiscal and distributional consequences and require central banks to assume greater risks on their balance sheets. Lack of clarity on the precise definition of price stability, coupled with concerns about the legitimacy of large balance sheet expansions, hinders policy: It encourages the central bank to eschew the decisive quantitative easing needed to reflate the economy and instead to accommodate too-low inflation. The experience of the Bank of Japan fs encounter with the zero lower bound suggests important benefits from a clear definition of price stability as a symmetric 2% goal for inflation, which the Bank of Japan adopted in 2013.
    Keywords: Bank of Japan, Zero lower bound, Quantitative easing, Central bank independence, Price stability, Inflation target, Balance sheet risk
    JEL: E52 E58 E61 N15
    Date: 2018–08
  2. By: Ivan Sutoris
    Abstract: This paper studies risk premia in an incomplete-markets economy with households facing idiosyncratic consumption risk. If the dispersion of idiosyncratic risk varies over the business cycle and households have preference for early resolution of uncertainty, asset prices will be affected not only by news about current and expected future aggregate consumption (as in models with a representative agent), but also by news about current and future changes in cross-sectional distribution of individual consumption. I investigate whether this additional effect can help to explain high risk premia in a production economy, where the aggregate consumption process is endogenous and thus can potentially be affected by the presence of idiosyncratic risk. Analyzing a neoclassical growth model combined with Epstein-Zin preferences and a tractable form of household heterogeneity, I find that countercyclical idiosyncratic risk increases the risk premium, but also effectively lowers willingness of households for intertemporal substitution and thus changes dynamics of aggregate consumption. Nevertheless, with the added flexibility of EpsteinZin preferences, it is possible to both increase risk premia and maintain the same dynamics of quantities if we allow for higher intertemporal elasticity of substitution at the individual level.Creation-Date: 2018-06
    Keywords: incomplete markets; idiosyncratic risk; production economy; risk premium;
    JEL: E13 E21 E44 G12
  3. By: Joerg Bibow
    Abstract: This paper reviews the performance of the euro area since the euro's launch 20 years ago. It argues that the euro crisis has exposed existential flaws in the euro regime. Intra-area divergences and the corresponding buildup of imbalances had remained unchecked prior to the crisis. As those imbalances eventually imploded, member states were found to be extremely vulnerable to systemic banking problems and abruptly deteriorating public finances. Debt legacies and high unemployment continue to plague euro crisis countries. Its huge current account surplus highlights that the euro currency union, toiling under the German euro and trying to emulate the German model, has become very vulnerable to global developments. The euro regime is flawed and dysfunctional. Europe has to overcome the German euro. Three reforms are essential to turn the euro into a viable European currency. First, divergences in competitiveness positions must be prevented in future. Second, market integration must go hand in hand with policy integration. Third, the euro is lacking a safe footing for as long as the ECB is missing a federal treasury partner. Therefore, establishing the vital treasury/central bank axis that stands at the center of power in sovereign states is essential.
    Keywords: Euro; Euro Crisis; Banking Crisis; Debt Crisis; Monetary Policy; Lender of Last Resort; Fiscal Policy
    JEL: E30 E44 E58 E61 E62 F34
    Date: 2018–08
  4. By: Dirk Niepelt
    Abstract: I offer a macroeconomic perspective on the “Reserves for All” (RFA) proposal to let the general public use electronic central bank money. After distinguishing RFA from cryptocurrencies and relating the proposal to discussions about narrow banking and the abolition of cash I propose an equivalence result according to which a marginal substitution of outside for inside money does not affect macroeconomic outcomes. I identify key conditions on bank and government (central bank) incentives for equivalence and argue that these conditions likely are violated, implying that RFA would change macroeconomic outcomes. I also relate my analysis to common arguments in the discussion about RFA and point to inconsistencies and open questions.
    Keywords: central bank digital currency, Fedcoin, CADcoin, e-krona, e-Peso, J Coin, reserves for all, deposits, narrow banking, cash, equivalence, central bank, lender of last resort, politico-economic equivalence
    JEL: E42 E51 E58 E61 E63 H63
    Date: 2018
  5. By: Markus Pasche (FSU Jena)
    Abstract: Empirical tests of the quantity theory and particularly the neutrality of money are based on the idea that money growth "explains", to some extent, inflation. Modern macroeconomic theory, however, considers inflation targeting central banks which use the interest rate as a policy tool, while money is seen as an endogenous outcome of financial intermediation, i.e. credit creation. A simple NKM model with fiat money demonstrates that money growth is tied to inflation, changes of output and interest rate changes. The latter are determined by inflation and output gap if we consider an inflation-targeting central bank. The quantity equation emerges from the macroeconomic transmission process but the economic causalities run from output and inflation to money creation. Hence, money growth does not explain inflation. Besides, the result does not require a sophisticated microfoundation of money demand but simply emerges from the transmission process.
    Keywords: quantity equation, endogenous money, New Keynesian Macroeconomics, inflation targeting, money demand
    JEL: E44 E51
    Date: 2018–08–29
  6. By: Diego Restuccia
    Abstract: I document the salient features of monetary and fiscal outcomes for the Venezuelan economy during the 1960 to 2016 period. Using the consolidated government-budget accounting framework of Chapter 2, I assess the importance of fiscal balance, seigniorage, and growth in accounting for the evolution of debt ratios. I find that extraordinary transfers, mostly associated with unprofitable public enterprises, and not central-government primary deficits, account for the increase in financing needs in recent decades. Seigniorage has been a consistent source of financing of deficits and transfers, especially in the last decade, with increases in debt ratios being important in some periods.
    Keywords: monetary, fiscal, policy, inflation, debt, growth, oil, Venezuela.
    JEL: E00 E02 E3 E4 E5 E6 O1 O4
    Date: 2018–08–22
  7. By: Christopher J. Erceg; James Hebden; Michael T. Kiley; J. David Lopez-Salido; Robert J. Tetlow
    Abstract: When choosing a strategy for monetary policy, policymakers must grapple with mismeasurement of labor market slack, and of the responsiveness of price inflation to that slack. Using stochastic simulations of a small-scale version of the Federal Reserve Board’s principal New Keynesian macroeconomic model, we evaluate representative rule-based policy strategies, paying particular attention to how those strategies interact with initial conditions in the U.S. as they are seen today and with the current outlook. To do this, we construct a current relevant baseline forecast, one that is loosely constructed based on a recent FOMC forecast, and conduct our experiments around that baseline. We find the initial conditions and forecast that policymakers face affects decisions in a material way. The standard advice from the literature, that in the presence of mismeasurement of resource slack policymakers should substantially reduce the weight attached to those measures in setting the policy rate, and substitute toward a more forceful response to inflation, is overstated. We find that a notable response to the unemployment gap is typically beneficial, even if that gap is mismeasured. Even when the dynamics of inflation are governed by a 1970s-style Phillips curve, meaningful response to resource utilization is likely to turn out to be worthwhile, particularly in environments where resource utilization is thought to be tight to begin with and inflation is close to its target level.
    Keywords: Stochastic simulation ; Mismeasurement ; Monetary policy ; Policy analysis ; Uncertainty
    JEL: E31 E32 E52 C63
    Date: 2018–08–23
  8. By: Ernesto Pasten; Raphael S. Schoenle; Michael Weber
    Abstract: We document a novel role of heterogeneity in price rigidity: It strongly amplifies the capacity of idiosyncratic shocks to drive aggregate fluctuations. Heterogeneity in price rigidity also completely changes the identity of sectors from which fluctuations originate. We show these results both theoretically and empirically through the lens of a multi-sector model featuring heterogeneous GDP shares, input-output linkages, and idiosyncratic productivity shocks. Quantitatively, we calibrate our model to 341 sectors and find sectoral productivity shocks can give rise to aggregate fluctuations that are half as large as those arising from an aggregate productivity shock. Heterogeneous price rigidity amplifies the aggregate fluctuations by a factor of more than 2 relative to a flexible-price or homogeneous sticky price economy. Hence, idiosyncratic shocks and heterogeneous price rigidity can account for large parts of aggregate fluctuations and there is hope we will not “forever remain ignorant of the fundamental causes of economic fluctuations” (Cochrane (1994)).
    Keywords: input-output linkages, nominal price rigidity, idiosyncratic shocks
    JEL: E31 E32 O40
    Date: 2018
  9. By: Tsutomu Watanabe (Graduate School of Economics,University of Tokyo); Tomoyoshi Yabu (Faculty of Business and Commerce, Keio University)
    Abstract: This paper estimates a money demand function using US data from 1980 onward, including the period of near-zero interest rates following the global financial crisis. We conduct cointegration tests to show that the substantial increase in the money-income ratio during the period of near-zero interest rates is captured well by the money demand function in log-log form, but not by that in semi-log form. Our result is the opposite of the result obtained by Ireland (2009), who, using data up until 2006, found that the semi-log specification performs better. The difference in the result from Ireland (2009) mainly stems from the difference in the observation period employed: our observation period contains 24 quarters with interest rates below 1 percent, while Ireland’s (2009) observation period contains only three quarters. We also compute the welfare cost of inflation based on the estimated money demand function to find that it is very small: the welfare cost of 2 percent inflation is only 0.04 percent of national income, which is of a similar magnitude as the estimate obtained by Ireland (2009) but much smaller than the estimate by Lucas (2000).
    Keywords: : money demand function; cointegration; zero lower bound; near-zero interest rates; welfare cost of inflation; log-log form; semi-log form; interest elasticity of money demand
    JEL: C22 C52 E31 E41 E43 E52
    Date: 2018–09
  10. By: Di Bella, Gabriel; Grigoli, Francesco; Ramírez, Francisco
    Abstract: Despite conventional macroeconomic theory is based on the idea that demand shocks can only have temporary effects on unemployment, several European economies display highly persistent unemployment dynamics. The theory of hysteresis challenges this view and points out that, under certain conditions, demand disturbances can have permanent effects. In this paper, we find strong empirical evidence of unemployment hysteresis in advanced economies since the 1990s. Relying on an identification scheme instigated by an insider/outsider model, we study the effects of demand shocks allowing for cross-country heterogeneous dynamics, and exploit such heterogeneity to investigate what institutional settings have the potential to soften or amplify the effects of demand shocks. Our results indicate that strengthening labor market institutions that promote a faster adjustment of real wages, removing disincentives for firms to hire and for workers to be employed, and improving the matching between labor supply and labor demand can lessen the effects of adverse demand shocks and lead to a faster reversion of unemployment rates to pre-shock levels.
    Keywords: Advanced economies,hysteresis,panel VAR,persistence,unemployment,unit root
    JEL: E24 E31 E32
    Date: 2018
  11. By: Chudik, Alexander (Federal Reserve Bank of Dallas); Koech, Janet (Federal Reserve Bank of Dallas); Wynne, Mark A. (Federal Reserve Bank of Dallas)
    Abstract: The growth of globalization in recent decades has increased the importance of external factors as drivers of the business cycle in many countries. Globalization affects countries not just at the macro level but at the level of states and metro areas as well. This paper isolates the relative importance of global, national and region-specific shocks as drivers of the business cycle in individual U.S. states and metro areas. We document significant heterogeneity in the sensitivity of states and metro areas to global shocks, and show that direct trade linkages are not the only channel through which the global business cycle impacts regional economies.
    Keywords: Global and regional business cycles; U.S. state and metro employment fluctuations; Global VAR (GVAR) approach
    JEL: E24 E32
    Date: 2018–08–22
  12. By: Bruno Chiarini; Maria Ferrara; Elisabetta Marzano
    Abstract: This paper examines the role of tax evasion in explaining the business cycle in a DSGE model with a financial accelerator. For this purpose, we assume that financially constrained agents are tax evaders, taking advantage of an additional margin of flexibility in coping with adverse shocks. In this setting, we simulate a risk shock that propagates its effects in the credit channel via the financial accelerator mechanism. The results show that tax evasion is pro cyclical and strengthens the effects of the financial accelerator. Unlike the standard literature, in which tax evasion cushions business cycle fluctuations, here we find that it amplifies macroeconomic fluctuations considerably.
    Keywords: tax evasion, financial accelerator, business cycle, risk shocks, DSGE modeling
    JEL: E32 E44 H26
    Date: 2018
  13. By: Giovanni Scarano
    Abstract: Since 2013 various eminent mainstream economists have proposed reviving the doctrine of “secular stagnation”. According to these authors, the only explanation for this new trend could be a negative Wicksellian natural rate of interest, produced by an excess of saving over investment at any positive interest rate. But the idea that the real world economy has entered into a new stagnation trend is really the other side of the coin in explaining the extraordinary long-term growth that characterised the aftermath of World War II. This peculiar growth period has been the main research objective of Régulation Theory, which found accumulation regimes and corresponding modes of regulation as its major determinants. In the paper the theoretical explanations of the new secular stagnation theory are compared with those of Régulation theory and with the original Marxist approaches that initially inspired the French régulation theorists.
    Keywords: Equilibrium Interest Rate, Business Cycles, Crisis, Rate of Profit, Profitability
    JEL: B51 E11 E12 E32 E43
    Date: 2018–09
  14. By: Katarina Juselius (Department of Economics, University of Copenhagen); Sophia Dimelis (Athens University of Economics and Business)
    Abstract: While there seems to be a well established consensus about the underlying causes to the Greek crisis, less is known about internal and external transmission mechanisms that ultimately caused unemployment to increase rapidly over this period. Motivated by the structural slumps theory in Phelps (1994), the paper attempts, therefore, to uncover the dynamic mechanisms behind prices, interest rates, and external imbalances that contributed to the severity and the length of the crisis. We find that the strongly increasing real bond rate and unemployment rate together with an persistently appreciating real exchange rate and a deterioration of competitiveness in the eurozone have contributed to persistently growing structural imbalances in the Greek economy. As the lack of confidence in the Greek economy grew steadily, the scene was set for a monumental structural slump. We find strong evidence of (i) a Phillips curve relation with a non-constant natural rate being a function of relative costs and the real exchange rate; (ii) a vicious circle of strongly increasing bond rate and unemployment rate; and (iii) a relation associating confidence with the development of relative costs and the real exchange rate. Over the crisis period, all variables exhibited self-reinforcing feedback adjustment somewhere in the system except for inflation rate. Unemployment took the burden of adjustment when the bond rate sky rocketed, competitiveness deteriorated, and confidence fell.
    Keywords: Greek crisis, unemployment, CVAR analysis, structural slumps, non-constant natural rate, self-reinforcing adjustment
    JEL: C32 E24 E31 E65
  15. By: Manoel Bittencourt (School of Economic and Business Sciences, University of the Witwatersrand, Johannesburg); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Philton Makena (Department of Economics, University of Pretoria, Pretoria, South Africa); Lardo Stander (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: Since 2006, almost 60 percent of global protest events have been exclusively driven by economic injustice. Standard determinants of socio-political instability reported in the literature, do not fully explain the effect of monetary and fiscal policy decisions on the intended target audience of those policy outcomes. We develop an overlapping generation’s monetary endogenous growth model characterized by socio-political instability, to analyse growth dynamics and specifically, monetary policy outcomes in the presence of this augmentation. Socio-political instability is specified as the fraction of output being lost due to strikes, riots and protests and is positively related to inflation. Interesting, two distinct growth dynamics emerge, one convergent and the other divergent, if socio-political instability is a function of inflation. And by using a sample of 170 countries during the 1980 – 2012 period, and allowing for time and fixed effects, the results indicate that inflation correlates positively with socio-political instability. Policy makers should be cognisant that it is crucial to maintain long-run price stability, as failure to do so may result in high inflation emanating from excessive money supply growth, and high (er) socio-political instability, and ultimately, the economy being on a divergent balanced growth path.
    Keywords: Socio-political instability, inflation, endogenous growth, dynamics
    JEL: C51 E32 O42 P44
    Date: 2018–08
  16. By: Francis Bismans
    Abstract: This paper has two main objectives: on the one hand, to establish the occurrence of a recession of the South African economy during the years 2015-2016; on the other hand, to build a predictive model to determine whether South Africa is likely to fall back into contraction in the years 2018-2019. Consequently, we first propose a turning point chronology for the business cycle based on a classical conception of economic cycles and a non-parametric algorithm – called BBQ for BryBoschan Quarterly – applied to the real GDP series for the period 1970-2017. Its implementation allows us to detect one recession in the economic activity which lasted four quarters in 2015 and 2016. Special attention is given to the macroeconomic context of the analysis. Secondly, a dynamic probit model is built, which includes only one predictor, namely the total credit supply. In-sample results show that this dynamic specification performs very well. A real-time forecast leads to the result that the probability that the South African economy will fall back into recession during the 2018Q1-2019Q1 period, is extremely small.
    Keywords: Business cycles, forecasting, dynamic probit model, recessions, turning points.
    JEL: C41 C53 E32
    Date: 2018
  17. By: Sanjay Singh (University of California, Davis)
    Abstract: We analyze the implications for monetary policy when deficient aggregate demand can cause a permanent loss in potential output, a phenomenon termed as output hysteresis. We incorporate Schumpeterian endogenous growth into a business cycle model with nominal rigidities. In the model, incomplete stabilization of a temporary shortfall in demand reduces the return to innovation, thus reducing R&D and producing a permanent loss in output. Output hysteresis arises under a standard Taylor rule, but not under a strict inflation targeting rule when the nominal interest rate is away from the zero lower bound (ZLB). At the ZLB, a central bank unable to commit to future policy actions suffers from hysteresis bias: it does not offset past losses in potential output. A new policy rule that targets zero output hysteresis approximates the optimal policy by keeping output at the first-best level. Estimated structural impulse response functions for key variables align with predictions of the model. A quantitative model provides evidence of significant output hysteresis resulting from endogenous growth over the Great Recession.
    Date: 2018
  18. 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: C20 E40 E50
    Date: 2018
  19. By: Erhan Uluceviz (Gebze Technical University); Kamil Yilmaz (Koç University)
    Abstract: We analyze connectedness between the real and financial sectors of the U.S. economy. Using the weekly ADS index of the Philadelphia FED (the widely used business conditions indicator) to represent the real side, we find that during times of financial distress and/or business cycle turning points the direction of connectedness runs from the real sector to financial markets. The ADS index is derived from a model containing a measure of term structure along with real variables, therefore, it might not be the best representative of the real activity to be used in the connectedness analysis. As an alternative, we derive a real activity index (RAI) from a dynamic factor model of the real sector variables only. The behavior of RAI over time is quite similar to that of the ADS index. When we include RAI to represent the real side of the economy in the connectedness analysis, the direction of net connectedness reverses: financial markets generate positive net connectedness to the real side of the economy.
    Keywords: Macro-financial linkages, Connectedness, ADS index, Dynamic factor model, Volatility, Vector autoregression, Variance decomposition.
    JEL: C38 E44 E37 G10
    Date: 2018–09
  20. By: Sedlacek, Petr; Sterk, Vincent
    Abstract: The 2017 Tax Cuts and Jobs Act slashed tax rates on business income and introduced immediate expensing of investments. Using a quantitative heterogeneous firms model, we investigate the long-run effects of such tax reforms on firm dynamics. We find that they can substantially increase business dynamism, potentially off-setting the large decline in the U.S. startup rate observed over recent decades. This result is driven by indirect equilibrium forces: the tax reform stimulates firm entry, leading to an increase in labor demand and wages, which in turn makes firm selection more stringent. Related to this is a large boost of the number of firms and of aggregate output, investment and employment.
    JEL: D21 E22 E24 H25
    Date: 2018–07
  21. By: Mertens, Thomas M. (Federal Reserve Bank of San Francisco); Williams, John C. (Federal Reserve Bank of New York)
    Abstract: This paper analyzes the effects of the lower bound for interest rates on the distributions of expectations for future inflation and interest rates. We study a stylized New Keynesian model where the policy instrument is subject to a lower bound to motivate the empirical analysis. Two equilibria emerge: In the “target equilibrium,” policy is unconstrained most or all of the time, whereas in the “liquidity trap equilibrium,” policy is mostly or always constrained. We use options data on future interest rates and inflation to study whether the decrease in the natural rate of interest leads to forecast densities consistent with the theoretical model. We develop a lower bound indicator that captures the effects of the lower bound on the distribution of interest rates. Qualitatively, we find that the evidence is largely consistent with the theoretical predictions in the target equilibrium and find no evidence in favor of the liquidity trap equilibrium. Quantitatively, while the lower bound has a sizable effect on the distribution of future interest rates, its impact on forecast densities for inflation is relatively modest.
    Keywords: zero lower bound; inflation expectations; monetary policy; multiple equilibria
    JEL: E43 E52 G12
    Date: 2018–08–01
  22. By: Enrique Mendoza (Department of Economics, University of Pennsylvania)
    Abstract: Macroprudential policy holds the promise of becoming a powerful tool for preventing financial crises. Financial amplification in response to domestic shocks or global spillovers and pecuniary externalities caused by Fisherian collateral constraints provide a sound theoretical foundation for this policy. Quantitative studies show that models with these constraints replicate key stylized facts of financial crises, and that the optimal financial policy of an ideal constrained-efficient social planner reduces sharply the magnitude and frequency of crises. Research also shows, however, that implementing effective macroprudential policy still faces serious hurdles. This paper highlights three of them: (i) complexity, because the optimal policy responds widely and non-linearly to movements in both domestic factors and global spillovers due to regime shifts in global liquidity, news about global fundamentals, and recurrent innovation and regulatory changes in world markets, (ii) lack of credibility, because of time-inconsistency of the optimal policy under commitment, and (iii) coordination failure, because a careful balance with monetary policy is needed to avoid quantitatively large inefficiencies resulting from violations of Tinbergen’s rule or strategic interaction between monetary and financial authorities.
    JEL: E0 F0 G0
    Date: 2016–10–24
  23. By: International Monetary Fund
    Abstract: Macroeconomic conditions have continued to improve during 2017/18, with external and fiscal deficits narrowing, inflation and unemployment declining, and growth accelerating. The near-term growth outlook is favorable, supported by the recovery in tourism and rising natural gas production, while the current account deficit has fallen below 3 percent of GDP and gross international reserves stood at 7 months of prospective imports at end-May. Inflation is expected to temporarily rise in 2018/19, reflecting increases in fuel and electricity prices, but the monetary policy stance appears appropriate to contain second-round effects. The government debt ratio is projected to decline markedly in response to fiscal consolidation and high nominal GDP growth.
    Date: 2018–07–12
  24. By: Aleksandar Vasilev (Independent Researcher)
    Abstract: We augment an otherwise standard business cycle model with a richer government sector, and add a modified cash in advance considerations, and one-period-ahead nominal wage contracts. In particular, the cash in advance constraint of Cooley and Hansen (1989) is extended to include private investment and government consumption. This specification, together with the nominal wage rigidity, when calibrated to Bulgarian data after the introduction of the currency board (1999-2016), gives a role to money in propagating economic uctuations. In addition, the combinations of these ingredients allows the framework to reproduce better observed variability and correlations among model variables, and those characterizing the labor market in particular.
    Keywords: business cycles, modified cash-in-advance constraint, one-period nominal wage contracts
    JEL: E32
    Date: 2018–08
  25. By: Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: This study considers two fiscal rules, a debt rule that controls the debt-to- GDP ratio, and an expenditure rule that controls the expenditure-to-GDP ratio, in a monetary growth model with financial intermediation. Tightening fiscal rules promotes economic growth and thus benefits future generations. However, there could be two equilibria of the nominal interest rates, and the welfare effects of the rules on the current generation are different between the two equilibria. In particular, the effects of a decreased debt-to-GDP ratio depend on its initial ratio; a low (high) ratio country has an incentive (no incentive) to reduce the ratio further from the viewpoint of the current generation's welfare. This result offers a reason for difficulties with fiscal reform in countries with already high debt-to-GDP ratios.
    Keywords: Fiscal Rule; Government Debt; Economic Growth
    JEL: E62 E63 H63 O42
    Date: 2017–08
  26. By: Stephane Auray (CREST-Ensai and ULCO); Aurelien Eyquem (GATE, Universit\'e Lumiere Lyon 2, Institut Universitaire de France); Paul Gomme (Concordia University and CIREQ)
    Abstract: We solve the Ramsey-optimal tax plan for a small open economy with an endogenously-determined real exchange rate. The open economy constrains the government's setting of the capital income tax rate since physical capital cannot be dominated in rate of return by foreign assets. However, the endogenous real exchange rate loosens this constraint relative to a one good open economy model in which the real exchange rate is necessarily fixed. We find that, the dynamics of the two good small open economy model more closely resemble those of a closed economy model than a one good small open economy model.
    Keywords: optimal fiscal policy, tax reforms, welfare
    JEL: E32 E52 F41
    Date: 2018–08
  27. By: International Monetary Fund
    Abstract: This is a time to strengthen the resilience of the euro area and raise its long-term growth potential. Despite the recent slowdown and coming end of quantitative easing, growth remains strong and monetary conditions accommodative. Member countries should grasp the opportunity to address deep structural challenges, rebuild thin policy buffers, and rebalance externally. Mounting downside risks add urgency. The supportive monetary stance should be maintained until inflation is convincingly converging to objective. As net asset purchases draw to a close, clear forward guidance will become even more important.
    Date: 2018–07–19
  28. By: Carlos Garriga (Federal Reserve Bank of St. Louis); Aaron Hedlund (University of Missouri)
    Abstract: This paper analyzes how arrangements in the in the mortgage market impact the dynamics of housing (boom-bust episodes) and the economy using a structural equilibrium model with incomplete markets and endogenous adjustment costs. In response to mortgage rates and credit conditions, the model can generate movements in house prices, residential investment, and homeownership consistent with the U.S. housing boom-bust. The propagation to the macroeconomy is asymmetric with much higher consumption sensitivity during the bust than the boom due to the endogenous fragility caused by mortgage debt. Mortgages with adjustable-rate increase the sensitivity of house prices to credit conditions relative to an economy with fixed-rate loans without refinancing. Macro prudential policies can mitigate fragility by reducing the magnitude of house price movements without curtailing homeownership.
    Date: 2018
  29. By: Hasenzagl, Thomas; Pellegrino, Filippo; Reichlin, Lucrezia; Ricco, Giovanni
    Abstract: A view often expressed by the Fed is that three components matter in inflation dynamics: a trend anchored by long run inflation expectations; a cycle connecting nominal and real variables; and oil prices. This paper proposes an econometric structural model of inflation formalising this view. Our findings point to a stable expectational trend, a sizeable and well identified Phillips curve and an oil cycle which, contrary to the standard rational expectation model, affects inflation via expectations without being reflected in the output gap. The latter often overpowers the Phillips curve. In fact, the joint dynamics of the Phillips curve cycle and the oil cycles explain the inflation puzzles of the last ten years.
    Keywords: Financial Economics
    Date: 2017–12–20
  30. By: Borri, Nicola; Reichlin, Pietro
    Abstract: We analyze the optimal combination of wealth and labor tax rates in a model where wealth-to-income ratios and wealth inequality are rising endogenously due to unbalanced technological improvement in a two-sector economy. We consider rich and poor households, financial and housing wealth, and find that a "realistic" optimal steady state tax structure includes some taxation of labor, zero taxation of financial wealth, a housing wealth tax on rich households and a housing wealth subsidy on poor households. These findings are robust with respect to variations in the housing demand elasticity.
    Keywords: Housing; inequality; Wealth; Wealth Taxes
    JEL: E21 E62 G1 H2 H21
    Date: 2018–07
  31. By: Qureshi, Irfan
    Abstract: Is the classic Taylor rule misspecified? I show that the inability of the Taylor rule to explain the federal funds rate using real-time data stems from the omission of a money growth objective. I highlight the significant role played by money in the policy discourse during the Volcker-Greenspan era using new FOMC data, benchmarking a novel characterization of “good” policy. An application of this framework offers a unified policy-based explanation of the Great Moderation and Recession. Welfare analysis based on the New-Keynesian model endorses the rule with money. The evidence raises significant concerns about relying on the simple Taylor rule as a policy benchmark and suggests why money may serve as a useful indicator in guiding future monetary policy decisions.
    Keywords: Financial Economics
    Date: 2016–11–11
  32. By: Filippo Ferroni (Chicago FED)
    Abstract: We use euro intraday data to identify monetary policy surprises in the euro area. We find that communication right after the Governing Council meetings convey information that moves the yield curve far out. Moreover, the nature of information revealed via this communication changed over time. Until 2013, unexpected variations in future interest rates were positively correlated with changes in market-based measure of inflation expectations consistent with news on future macroeconomic conditions. That negative correlation disappeared roughly when forward guidance on future rates started to be given by the Governing Council. We use sign restrictions on the joint reaction of expected interest rates and inflation rates to the announcements to disentangle two types of monetary policy surprises: one about the future state of the economy (Delphic); the other about the future stance of the monetary authority (Odyssean). We find that a surprise that lowers future interest rates does not engineer a boom. By contrast, a surprise that lowers future interest rates because it signals future accommodation does.
    Date: 2018
  33. By: OIKAWA Koki; UEDA Kozo
    Abstract: Central banks across the globe are paying increasing attention to the distributional aspects of monetary policy. In this study, we focus on reallocation among heterogeneous firms triggered by nominal growth. Japanese firm-level data show that large firms tend to grow faster than small firms under higher inflation. We then construct a model that introduces nominal rigidity into endogenous growth with heterogeneous firms. The model shows that, under a high nominal growth rate, firms of inferior quality bear a heavier burden of menu cost payments than do firms of superior quality. This outcome increases the market share of superior firms, while some inferior firms exit the market. This reallocation effect, if strong, yields a positive effect of monetary expansion on both real growth and welfare. The optimal nominal growth can be strictly positive even under nominal rigidity, whereas standard New Keynesian models often conclude that zero nominal growth is optimal. Moreover, the presence of menu costs can improve welfare.
    Date: 2018–08
  34. By: International Monetary Fund
    Abstract: Recent developments are broadly favorable and policies are aligned with staff recommendations and program priorities. Reflecting the favorable rainy season, economic activities are recovering from the 2016–17 drought and inflation is easing. The authorities remain strongly committed to policy implementation under the second Staff-Monitored Program (SMP II) which expired in April 2018, and have requested a follow-up 12-month SMP.
    Keywords: Somalia;Middle East;
    Date: 2018–07–06
  35. By: Yuemei Ji
    Abstract: Serial correlation in macroeconomics is pervasive. Macroeconomic modellers find it impossible to model this feature without relying on serially correlated shocks. Using a behavioral macroeconomic model, I show that serial correlation in inflation and output can easily be explained in the context that agents do not have rational expectation. This important feature is missing in the standard New Keynesian rational expectations models. The rational expectation models need serially correlated exogenous shocks to account for the high serial correlation in inflation and output while the behavioral model produces serial correlation in these variables endogenously. I also show that inertia in the beliefs about the future is a strong force in producing the serial correlation in inflation and output.
    Keywords: behavioral macroeconomics, serial correlation, inflation, output gap, inertia in belief, endogenous business cycle
    JEL: E00
    Date: 2018
  36. By: International Monetary Fund
    Abstract: The economy of the Central African Republic (C.A.R.), a fragile state, is recovering gradually. Following the 2013 crisis, macroeconomic conditions have stabilized: growth has resumed, inflation has declined, domestic revenues have recovered, and debt ratios have decreased. The outlook, however, is clouded by persistent fragility amid repeated eruptions of violence. Half of the population depends on humanitarian assistance. Stronger and more inclusive growth is necessary to make a dent into widespread poverty. The government’s economic strategy is supported by a three-year arrangement under the Extended Credit Facility (ECF)—launched in July 2016—with total access of SDR 133.68 million (120 percent of quota).
    Keywords: Central African Republic;Sub-Saharan Africa;
    Date: 2018–07–09
  37. By: International Monetary Fund
    Abstract: Growth remained strong at 7.2 percent in 2017, with inflation contained at 1.3 percent. Higher oil prices and increased capital goods imports significantly widened the current account deficit. The macroeconomic framework in this staff report uses a new GDP series which updates the base year from 1999 to 2014 and is approximately 30 percent higher in nominal terms relative to the previously reported GDP data series.
    Keywords: Sub-Saharan Africa;Senegal;
    Date: 2018–07–09
  38. By: Eleni Chatzivgeri (Heriot-Watt University); Haroon Mumtaz (Queen Mary University of London); Daniela Tavasci (Queen Mary University of London); Luigi Ventimiglia (Queen Mary University of London)
    Abstract: We use a dynamic factor model to consider if real wage growth in the US, UK and Germany at different percentiles of the distribution can be explained by factors that are common across countries or specific to each country. Our results suggest that common factors explain a large proportion of the movement in wages when considering the left tail of the distribution indicating that shocks that are common across countries are important for low wage households.
    Keywords: Household wages, dynamic factor model
    JEL: C5 E1 E5 E6
    Date: 2017–07–30
  39. By: Bejamin Eden (Vanderbilt University)
    Abstract: I use a model of rational bubbles to account for housing cycles and to discuss the effects of government loans and its real interest policy on the possibility of cycles. Cycles occur when the government is willing to lend to the young generation. Cycles do not occur if the government does not lend and the interest rate is sufficiently high. The level of interest required to discourage cycles (in the no lending case) is high when the rate of technological change in the non-housing sector is high relative to the rate of technological change in the housing sector.
    Keywords: Housing-cycles, Interest Rate, Bubbles, Government loans.
    JEL: E0 G0
    Date: 2018–08–24
  40. By: International Monetary Fund
    Abstract: Economic growth slowed down, but became more broad-based. In 2017, real GDP growth was 2.1 percent, with the non-mining GDP rebounding from its contraction in 2016. The external balance turned negative due to weaker than expected export growth and higher oil prices. Inflation remains relatively low, and the monetary stance accommodative. Oil production is expected to commence in 2020, and additional oil discoveries have significantly improved the medium- and long-term outlook.
    Date: 2018–07–16
  41. By: Kilian, Lutz; Zhou, Xiaoqing
    Abstract: Recently, Baumeister and Hamilton (henceforth: BH) have argued that existing studies of the global oil market fail to account for uncertainty about their identifying assumptions. They recommend an alternative econometric approach intended to address this concern by formulating priors on the structural model parameters. We demonstrate that in practice BH are unable to parameterize identification uncertainty without falling back on ad hoc prior specifications. They are also unable to show that earlier studies did not impose all relevant identifying information. In fact, to the extent that BH's substantive conclusions differ from earlier studies, these differences do not reflect their use of a superior econometric methodology, but mainly the imposition of a highly unrealistic prior for the global impact price elasticity of oil supply. Once identification uncertainty about the global price elasticity of oil supply is accounted for by specifying a prior more in line with extraneous evidence and economic theory, the substantive results of earlier oil market studies are reaffirmed. We also refute BH's claim that existing oil market studies are invalid or not robust. Finally, we explain why the BH method is not a generalization of all existing methods. It is, in fact, not designed to be applied to state-or-the-art oil market models because key assumptions of the proposed approach are not met in these models.
    Keywords: Oil market models; oil supply elasticity; structural VAR. identification
    JEL: C32 E32 Q43
    Date: 2018–07
  42. By: Lutz Kilian; Xiaoqing Zhou
    Abstract: Recently, Baumeister and Hamilton (henceforth: BH) have argued that existing studies of the global oil market fail to account for uncertainty about their identifying assumptions. They recommend an alternative econometric approach intended to address this concern by formulating priors on the structural model parameters. We demonstrate that in practice BH are unable to parameterize identification uncertainty without falling back on ad hoc prior specifications. They are also unable to show that earlier studies did not impose all relevant identifying information. In fact, to the extent that BH’s substantive conclusions differ from earlier studies, these differences do not reflect their use of a superior econometric methodology, but mainly the imposition of a highly unrealistic prior for the global impact price elasticity of oil supply. Once identification uncertainty about the global price elasticity of oil supply is accounted for by specifying a prior more in line with extraneous evidence and economic theory, the substantive results of earlier oil market studies are reaffirmed. We also refute BH’s claim that existing oil market studies are invalid or not robust. Finally, we explain why the BH method is not a strict generalization of existing methods. It is, in fact, not designed to be applied to state-or-the-art oil market models because key assumptions of the proposed approach are not met in these models.
    Keywords: oil market models, structural VAR, identification, oil supply elasticity
    JEL: Q43 C32 E32
    Date: 2018
  43. By: Aizenman, Joshua; Jinjarak, Yothin; Nguyen, Hien Thi Kim; Park, Donghyun
    Abstract: The upward trajectory of OECD policy interest rates may impose growing fiscal challenges, thus testing the fiscal space of countries and their resilience. Against this background, we compare fiscal cyclicality across Asia, Latin America, OECD, and other regions from 1960-2016, then identify factors that explain countries’ government spending and tax-policy cyclicality. Our study reveals a mixed fiscal scenery, where more than half of the countries are recently characterized by limited fiscal space, and fiscal policy is either acyclical or procyclical (though not as high the level of 1980s), notably post-GFC becoming even more procyclical in government spending when accounting for net acquisition of nonfinancial assets and capital expenditure (spending components do matter). The cyclicality is asymmetric: on average, a more indebted (relative to tax base) government spent more in good times (positive growth) and cut back the spending even more in bad times (weak economy). Added to the public debt/GDP data, we construct the ‘limited-fiscal-capacity’ statistic, measured by the size of public debt/[average tax revenue] and its volatility, which is found positively associated with the fiscal pro-cyclicality. Further, we also find that country’s sovereign wealth fund has a countercyclical effect in our estimation. The analysis depicts a significant economic impact of an enduring interest rate rise on fiscal space: a 10% increase of public debt/tax base is associated with an upper bound of 6.1% increase in government-spending procyclicality. For both government-spending cyclicality and tax-rate cyclicality, we find no one-size-fit-all explanation for all (OECD/developing) countries at all (good/bad) times. Fiscal space, trade and financial openness, the share of natural resource/manufacturing exports, inflation, and institutional risks are associated with the cross-country patterns of fiscal cyclicality, suggesting the measured cyclicality is context specific and the fiscal-monetary-political economy interactions are at work. We rank the explanatory factors across countries and regions, and discuss policies to increase the fiscal capacity for countercyclical policy.
    Keywords: Fiscal space, Government spending, Fiscal cyclicality,
    Date: 2018
  44. By: Elisabeth Falck (Goethe University Frankfurt); Mathias Hoffmann (Deutsche Bundesbank); Patrick Hürtgen (Deutsche Bundesbank)
    Abstract: Time-variation in disagreement about inflation expectations is a stylized fact in survey data, but little is known on how disagreement interacts with the efficacy of monetary policy. In times of high disagreement we estimate that a 100 bps increase in the U.S. policy rate leads to a significant short-term increase in inflation and in inflation expectations of up to 1.0 percentage point, whereas in times of low disagreement we find a significant decline of close to 1.0 percentage point. We reconcile these state-dependent effects with a dispersed information New Keynesian model, where we calibrate the level of disagreement to U.S. data.
    Date: 2018
  45. By: Bayer, Christian; Luetticke, Ralph
    Abstract: This paper describes a method for solving heterogeneous agent models with aggregate risk and many idiosyncratic states formulated in discrete time. It extends the method proposed by Reiter (2009) and complements recent work by Ahn et al. (2017) on how to solve such models in continuous time. We suggest first solving for the stationary equilibrium of the model without aggregate risk. We then write the functionals that describe the recursive equilibrium as sparse expansions around their stationary equilibrium counterparts. Finally we use the perturbation method of Schmitt-Grohé and Uribe (2004) to approximate the aggregate dynamics of the model.
    Keywords: Heterogeneous Agent Models; incomplete markets; linearization; Numerical Methods
    JEL: C63 E32
    Date: 2018–07
  46. By: Marianna Epicoco
    Abstract: This paper aims at exploring the endogenous and exogenous forces that determine long-run fluctuations of innovative and economic activity. It proposes that technological paradigm shifts, structural change and major fluctuations of production are the result of the same endogenous process. This is defined as a co-evolutionary process between technological and economic variables based on cumulative multiplier and accelerator feedback effects between investments in innovation and demand. Exogenous factors are supposed to act upon this endogenous process, influencing the length and amplitude of fluctuations. This framework contributes to extant literature as it envisages an explicit endogenous mechanism explaining cyclical fluctuations of innovative and economic activity, and, at the same time, incorporates exogenous factors. Moreover, by combining the Schumpeterian analyses of innovation dynamics with the multiplier and accelerator effects coming from Keynesian theories, the framework integrates the impact of technological variables on economic activity and vice versa. To provide a preliminary supporting evidence, we have fitted the ICT cycle and the economic cycle to patent and productivity data, respectively. Our results suggest that the growth potential of ICT could be declining. This situation may represent an important opportunity, for public policy and socioinstitutional actors, to orient future development toward socially desirable directions.
    Keywords: technological paradigm shift, structural change, economic fluctuations, co-evolution, productivity slowdown, ICT.
    JEL: O33 O40 O11 E32
    Date: 2018
  47. By: Haroon Mumtaz (Queen Mary University of London)
    Abstract: This paper extends the procedure developed by Jurado et al. (2015) to allow the estimation of measures of uncertainty that can be attributed to specific structural shocks. This enables researchers to investigate the 'origin' of a change in overall macroeconomic uncertainty. To demonstrate the proposed method we consider two applications. First, we estimate UK macroeconomic uncertainty due to external shocks and show that this component has become increasingly important over time for overall uncertainty. Second, we estimate US macroeconomic uncertainty conditioned on monetary policy shocks with the results suggesting that while policy uncertainty was important during early 1980s, recent contributions are estimated to be modest.
    Keywords: FAVAR, Stochastic volatility, Proxy VAR, Uncertainty measurement
    JEL: C2 C11 E3
    Date: 2018–08–15
  48. By: Franses, Ph.H.B.F.; Wiemann, T.
    Abstract: This paper adapts the non-parametric Dynamic Time Warping (DTW) technique in an application to examine the temporal alignment and similarity across economic time series. DTW has important advantages over existing measures in economics as it alleviates concerns regarding a pre-defined fixed temporal alignment of series. For example, in contrast to current methods, DTW can capture alternations between leading and lagging relationships of series. We illustrate DTW in a study of US states’ business cycles around the Great Recession, and find considerable evidence that temporal alignments across states dynamic. Trough cluster analysis, we further document state-varying recoveries from the recession.
    Keywords: Business cycles, Non-parametric method, Dynamic Time Warping
    JEL: C14 C50 C87 E32
    Date: 2018–08–01
  49. By: Francesco Chiacchio; Grégory Claeys; Francesco Papadia
    Abstract: Central banks are not profit-maximising institutions; their objectives are rather of macroeconomic nature. The European Central Bank’s overriding objective is price stability. Nevertheless, there are three good reasons to conclude that it is preferable for central banks to achieve profits rather than to record losses. First, taxpayers endow central banks with large amounts of resources and one should be worried if this amount of resources did not produce any income. In a way, the efficient use by the central bank of the financial resources with which it is endowed is as relevant as the efficient use of the human resources at its disposal. Second, financial strength could affect the ability of monetary authorities to fulfil their mandates. In particular there is the fear that a central bank incurring systematic losses and ending up with negative capital would find it difficult to effectively pursue its macroeconomic objective. Third, profitable operations might be an indication that central banks are implementing the right policies - to achieve profits the central bank must purchase assets when they are undervalued and sell when they are overvalued, thus stabilising their prices. Overall, the Eurosystem has so far respected the principle of it being better to realise profits than losses. The accounts of the ECB, indeed of the entire Eurosystem, show that it generates a fairly stable profit flow. Monetary operations, ie refinancing operations, and securities purchases contribute substantially to these profits. This conclusion is confirmed by measuring the financial results of past purchases of foreign exchange and more recent purchases of securities from a mark-to-market perspective, instead of an accounting perspective. In the specific case of the Public Sector Purchase Programme (PSPP) this was because the coupons on the securities more than offset the capital losses - overall the Eurosystem has bought securities under the PSPP programme at prices higher than current ones. The considerations that might justify purchase operations, like the PSPP or other similar interventions, are very complex and require careful judgement. Once their macroeconomic desirability is established, however, the ECB has the necessary financial strength to implement them safely.
    Date: 2018–08
  50. By: Tumala, Mohammed M; Olubusoye, Olusanya E; Yaaba, Baba N; Yaya, OlaOluwa S; Akanbi, Olawale B
    Abstract: The recent economic conundrum arising from the fall in the international oil price has threatened the maintenance of price stability, a key function of the central bank, therefore the need to investigate predictors of inflationary measures arises. The model averaging method considers uncertainty as part of the model selection, and include information from all candidate models. We analysed a wide spectrum of inflation predictors and all the possible models for Nigeria CPI inflation using the Bayesian Model Averaging and Weighted Average Least Squares. The study uses fifty-nine (59) predictor variables cutting across all sectors of the Nigerian economy and three (3) measures of inflation, namely; all items consumer price index, core consumer price index and food consumer price index. The results from both model averaging techniques showed that maximum lending rate, world food price index and Bureau de change exchange rate are the significant drivers of inflationary measures among focus variables, while foreign assets, credit to private sectors, net credit to government and real effective exchange rate are the drivers of inflationary measures, for the auxiliary variables, strongly supporting the monetarist and open economy views on inflation. The structuralist view is reported to be relatively weaker because government expenditure is only significant at 10.0 per cent..
    Keywords: Bayesian estimation; BMA; Frequentist approach; Inflation rate
    JEL: C20 C4
    Date: 2017
  51. By: Céline Piton (Economics and Research Department, National Bank of Belgium and PhD candidate at the ULB)
    Abstract: This paper provides a robust estimation of the impact of both product and labour market regulations on unemployment using data for 24 European countries over the period 1998-2013. Controlling for country-fixed effects, endogeneity and various covariates, results show that product market deregulation overall reduces unemployment rate. This finding is robust to all specifications and in line with theoretical predictions. However, not all types of reforms have the same effect: deregulation of State controls and in particular involvement in business operations tends to push up the unemployment rate. Labour market deregulation, proxied by the employment protection legislation index, is detrimental to unemployment in the short run while a positive impact (i.e. a reduction of the unemployment rate) occurs only in the long run. Analysis by sub-indicators shows that reducing protection against collective dismissals helps in reducing the unemployment rate. The unemployment rate equation is also estimated for different categories of workers. While men and women are equally affected by product and labour market deregulations, workers distinguished by age and by educational attainment are affected differently. In terms of employment protection, young workers are almost twice as strongly affected as older workers. Regarding product market deregulation, highly-educated individuals are less impacted than low- and middle-educated workers.
    Keywords: unemployment, Structural reform, Product market, labour market, regulation, employment
    JEL: E24 E60 J48 J64 L51
    Date: 2018–06
  52. By: Tumala, Mohammed M; Olubusoye, Olusanya E; Yaaba, Baba N; Yaya, OlaOluwa S; Akanbi, Olawale B
    Abstract: As a result of the adverse macroeconomic effect of inflation on welfare, fiscal budgeting, trade performance, international competitiveness and the whole economy, inflation still remains a subject of utmost concern and interest to policy makers. The traditional Philips curve as well as other methodologies have been criticized for their inability to track correctly the pattern of inflation, particularly, these models do not allow for enough variables to be included as part of the regressors, and judgment is often made by a single model. In this work, model averaging techniques via Bayesian and frequentist approach were considered. Specifically, we considered the Bayesian model averaging (BMA) and Frequentist model averaging (FMA) techniques to model and forecast future path of CPI inflation in Nigeria using a wide range of variables. The results indicated that both in-sample and out-of-sample forecasts were highly reliable, judging from the various forecast performance criteria. Various policy scenarios conducted were highly fascinating both from the theoretical perspective and the prevailing economic situation in the country.
    Keywords: Bayesian model averaging; Forecasting; Frequentist approach; Inflation rate; Nigeria
    JEL: C30 C32 C5
    Date: 2017–12
  53. By: Qureshi, Irfan
    Abstract: Why does low central bank independence generate high macroeconomic instability? A government may periodically appoint a subservient central bank chairman to exploit the inflation-output trade-off, which may generate instability. In a New Keynesian framework, time-varying monetary policy is connected with a “chairman effect.” To identify departures from full independence, I classify chairmen based on tenure (premature exits), and the type of successor (whether the replacement is a government ally). Bayesian estimation using cross-country data confirms the relationship between policy shifts and central bank independence, explaining approximately 25 (15) percent of inflation volatility in developing (advanced) economies. Theoretical analyses reveal a novel propagation mechanism of the policy shock.
    Keywords: Financial Economics
    Date: 2017–09–09
  54. By: Jess Diamond (Department of Economics, Hosei University); Kota Watanabe (Canon Institute for Global Studies (GIGS) and University of Tokyo); Tsutomu Watanabe (Graduate School of Economics,University of Tokyo)
    Abstract: Using a new micro-level dataset we investigate the relationship between the inflation experience and inflation expectations of households in Japan. We focus on the period after 1995, when Japan began its era of deflation. Our key findings are fourfold. Firstly, we find that inflation expectations tend to increase with age. Secondly, we find that measured inflation rates of items purchased also increase with age. However, we find that age and inflation expectations continue to have a positive correlation even after controlling for the household-level rate of inflation. Further analysis suggests that the positive correlation between age and inflation expectations is driven to a significant degree by the correlation between cohort and inflation expectations, which we interpret to represent the effect of historical inflation experience on expectations of future inflation rates.
    Keywords: Inflation Expectations; Deflation; Monetary Policy; Household Level Inflation Data; Japan
    Date: 2018–08
  55. By: Jess Diamond (Department of Economics, Hosei University); Kota Watanabe (Canon Institute for Global Studies (GIGS) and University of Tokyo); Tsutomu Watanabe (Graduate School of Economics, University of Tokyo)
    Abstract: Using a new micro-level dataset we investigate the relationship between the inflation experience and inflation expectations of households in Japan. We focus on the period after 1995, when Japan began its era of deflation. Our key findings are fourfold. Firstly, we find that inflation expectations tend to increase with age. Secondly, we find that measured inflation rates of items purchased also increase with age. However, we find that age and inflation expectations continue to have a positive correlation even after controlling for the household-level rate of inflation. Further analysis suggests that the positive correlation between age and inflation expectations is driven to a significant degree by the correlation between cohort and inflation expectations, which we interpret to represent the effect of historical inflation experience on expectations of future inflation rates.
    Date: 2018–08
  56. By: Fernando Martin (Federal Reserve Bank of St. Louis)
    Abstract: Societies design institutions to restrict the behavior of undisciplined governments, which often take the form of simple policy constraints: monetary policy targets, limits on the deficit and debt ceilings. I study their relative effectiveness in a dynamic stochastic model where fiscal and monetary policy are jointly determined. For a variety of aggregate shocks considered, the best policy is always to impose a minimum primary surplus. For an economy calibrated to the postwar US, the surplus should be about half a percent of output. Most welfare gains arise from constraining government behavior during normal times, which to a large extent is sufficient to discipline policy in adverse times. Monetary policy targets are not generally desirable as they hinder the ability of governments to smooth distortions. Allowing for the effective use of inflation to affect the real value of public debt is a critical component of good institutional design. Debt ceilings are benign, but always dominated by deficit constraints.
    Date: 2018
  57. By: Bora Durdu (Federal Reserve Board); Molin Zhong (Federal Reserve Board)
    Abstract: Shadow banks have played an increasing role in the intermediation of credit as well as transmission of shocks to the rest of the economy over the last two decades. We examine the implications of these banks using a medium-scale DSGE model in which shadow banks differ from commercial banks in two aspects. First, shadow banks do not face capital requirements. Second, these banks do not receive deposit insurance from the government. Using the model, we highlight that shadow banks can mitigate the effects of an increase in capital requirements. A one percentage point increase in capital requirements leads to an annualized decline from 0.75% to around 0.05% in commercial bank default rates in the longer run. These declines in default rates are achieved with modest declines in economic activity; the change in capital requirement leads to a short-run decline in GDP of 0.6%, a long-run decline of 0.2%, and a total lending decline of 0.9%.
    Date: 2018
  58. By: Serdar Birinci (University of Minnesota); Kurt Gerrard See (University of Minnesota)
    Abstract: We study optimal unemployment insurance (UI) over the business cycle using a tractable heterogeneous agent job search model that features labor productivity driven business cycles and incomplete asset markets, and find that UI policy should be countercyclical. In this framework, besides providing consumption insurance upon job loss, generous UI payments allow individuals to maintain similar consumption levels even during recessions, when they would otherwise have had to accumulate savings by reducing consumption. Moreover, the presence of borrowing constraints disciplines the unemployed’s job search behavior, thus offsetting some of the moral hazard costs introduced by the generous UI payments in downturns. Even when the opportunity cost of employment is set to be high, these channels remain active to preserve the countercyclicality of the optimal UI policy.
    Date: 2018
  59. By: Alvaro Aguirre (Central Bank of Chile)
    Abstract: This paper pursues a welfare analysis of fiscal policy, specifically public spending, in an economy with heterogenous agents and incomplete markets. The main quantitative exercise consists in measuring the gains of switching from the (procyclical) spending path of the typical developing country to an acyclical or countercyclical path. The model emphasizes the role of transfer payments from the government to households in alleviating the costs of idiosyncratic shocks. Since these correlate with aggregate shocks, the way fiscal policy is conducted along the business cycle has important welfare effects. I find that the costs of procyclicality are relatively large and very heterogeneous. While wealth-rich agents don’t suffer from procyclicality, poor agents, being either unemployed or unskilled, lose the most. In terms of life-time consumption equivalents these agents may lose as much as 2% from fiscal procyclicality, considering only the fraction of spending that is allocated as transfer payments
    Date: 2018
  60. By: Alessio Terzi (Center for International Development at Harvard University); Michele Peruzzi
    Abstract: Setting a country’s structural growth rate on a higher path, i.e. sparking and sustaining a growth acceleration can have quantitatively huge implications for national income and, more broadly, for people’s wellbeing. We develop a novel statistical framework to identify systematically the set of binding constraints that were unlocked before the 135 growth acceleration episodes that took place between 1962 and 2002 worldwide. We employ this information to characterise the acceleration process, which tends to be preceded by a deep recession and major economic policy changes. Once we combined this information with a set of counterfactual analyses, we find however that successful acceleration strategies should not contain off-the-shelf approaches or necessarily all-encompassing “shock therapy” solutions. On the other hand, they call for a careful tailoring to local conditions. Richer countries tend to experience fewer accelerations, but once these have been ignited, they are better positioned to make the most out of them. Despite standard growth determinants doing a fairly good job at characterising successful accelerations, we note how take-offs remain extremely hard to engineer with a high degree of certainty.
    Keywords: growth accelerations, economic growth, economic reform, structural breaks
    JEL: B41 E02 E65 F43 O11
    Date: 2018–04
  61. By: Marc Auboin; Floriana Borino
    Abstract: This paper looks at the extent to which the shift in the lower value added production to countries in the following development “tier” is actually becoming a reality. Several countries in East Asia have been upgrading production patterns and moving up the value chain, this paper looks at how this helps and offers new opportunities to less advanced countries to integrate in world trade. The paper uses a combination of techniques, from an analysis of disaggregated trade flows by country and sectors, to the calculation of trade intensity indices by country and sector, and value-added trade by sector. It finds combined evidence of forward and backward trade increasing between several neighbouring Asian economies and China, in the most labour-intensive industries in particular. Econometric analysis shows that relative unit labour costs are an explanatory factor of increased trade links. In cases, the intensification of trade links on the export side can relate to a strongly expanding local market (for example India for electronic products such as smartphones), but mostly the intensification of trade links takes place both on the import and export sides with markets which are much smaller than China (Vietnam, Bangladesh, etc.), and which experienced increased outward-processing activities as a result of China's production upgrade.
    Keywords: investment, trade policy, business cycles
    JEL: E22 F13 F44
    Date: 2018
  62. By: Hong Thai Le (Department of Accounting, Finance and Economics, Bournemouth University); Marta Disegna (Department of Accounting, Finance and Economics, Bournemouth University)
    Abstract: In extensive oil-related literature, less attention has been paid to Asia and particularly little evidence is known for oil-refining countries. This paper examines how the economy of an oil-refining country reacts to an oil price shock and performs cross-country comparisons with oil-exporting and oil-importing countries. Singapore (oil refiner), Japan (oil importer), and Malaysia (oil exporter) have been analysed through a SVAR model using both macroeconomic and financial variables. Results show limited reactions of both macroeconomic indicators and stock returns to an oil supply shock and an oil aggregate demand shock negatively impacts economic activities. Our findings reveal that the country’s status in the oil market matters is important when an oil specific demand shock is analysed. Our findings inform policymakers of the effectiveness of using monetary policy tools such as interest rate and exchange rate to mitigate the adverse effects of an oil price shock.
    Keywords: oil price; oil refining; stock return; SVAR; Asian economies
    JEL: G10 E31 C58
    Date: 2018–08
  63. By: Jean Armand Gnagne; Kevin Moran
    Abstract: This paper develops a monitoring and forecasting model for the aggregate monthly number of commercial bank failures in the U.S. We extract key sectoral predictors from the large set of macroeconomic variables proposed by McCracken and Ng (2016) and incorporate them in a hurdle negative binomial model to predict the number of monthly commercial bank failures. We uncover a strong and robust relationship between the predictor synthesizing housing industry variables and bank failures. This relationship suggests the existence of a link between developments in the housing sector and the vulnerability of commercial banks to non-performing loans increases and asset deterioration. We assess different specifications
    Keywords: Financial Regulation, Financial Crises, Factors Models, Diffusion Index Models
    JEL: E60 F37 G01
    Date: 2018
  64. By: Chiu, Jonathan; Koeppl, Thorsten
    Abstract: How well can a cryptocurrency serve as a means of payment? We study the optimal design of cryptocurrencies and assess quantitatively how well such currencies can support bilateral trade. The challenge for cryptocurrencies is to overcome double-spending by relying on competition to update the blockchain (costly mining) and by delaying settlement. We estimate that the current Bitcoin scheme generates a large welfare loss of 1.4% of consumption. This welfare loss can be lowered substantially to 0.08% by adopting an optimal design that reduces mining and relies exclusively on money growth rather than transaction fees to nance mining rewards. We also point out that cryptocurrencies can potentially challenge retail payment systems provided scaling limitations can be addressed.
    Keywords: Demand and Price Analysis, Financial Economics
    Date: 2017–09
  65. By: Jose Maria Serena (BIS); Ricardo Sousa (ESM)
    Abstract: We assess the conditions under which exchange rate fluctuations are contractionary for firm-level investment. To address this question, we match firm-level balance sheet data with a large dataset of firm-level bonds for about 1,000 firms from 36 emerging market economies over the period 1998–2014. We augment a standard firm-level investment model to control for (country-specific) macroeconomic variables, and interact the effect of an exchange rate depreciation with several dimensions of bond composition, namely: 1) currency of issuance; 2) maturity structure of bonds; and 3) market of issuance. We find that, conditional on the amount of debt issued in foreign currency, an exchange rate depreciation can have a contractionary impact on a firm’s investment spending. We also find that the market of issuance and maturity structure, in particular, when coupled with foreign currency-denominated debt can influence this impact.
    Keywords: Investment, exchange rate, balance sheet, bonds, firm-level data, debt
    JEL: F2 F3 E2 E3
    Date: 2018–02–21
  66. By: International Monetary Fund
    Abstract: 2017 was a bumper year of broad-based and non-inflationary growth. Reforms continued, including in the banking sector, privatizations and cuts in red tape. The momentum is expected to continue, aided by reforms, higher potential output, and the global recovery. However, economic distortions and capacity constraints remain, as do external and domestic risks and longer-term challenges. The strong economy provides an opportunity for additional reforms to boost investment, ensure durable growth and resilient balance sheets, and reduce the external surplus.
    Keywords: Vietnam;Asia and Pacific;
    Date: 2018–07–10
  67. By: Alejandro Cuñat; Robert Zymek
    Abstract: We generalise the traditional development-accounting framework to an open-economy setting. In addition to factor endowments and productivity, relative factor costs emerge as a source of real-income variation across countries. These are shaped by bilateral trade determinants (which underpin the patterns of “international value-added linkages”) and the global distribution of factor endowments and final expenditures. We use information on endowments, trade balances and value-added trade to back out the relative factor costs of 40 major economies in a theory-consistent manner. This reduces the variation in “residual” productivity required to explain the observed per-capita income differences by more than one half.
    Keywords: world input-output, development accounting, productivity
    JEL: E01 F15 F40
    Date: 2018
  68. By: Keiichi Goshima (Economist, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Yusuke Kumano (Deputy Director and Economist, Institute for Monetary and Economic Studies (currently, Research and Statistics Department), Bank of Japan (E-mail:
    Abstract: We analyze the effects of algorithmic news trading (ANT) in the foreign exchange market around the time that the Bank of Japan makes public announcements of its policy decisions. To observe the activity level of ANT, we propose a novel measure based on a web access record to a central bank fs webpage. We find that our proposed measure appropriately captures the activity level of ANT. Employing an event study analysis and a VAR analysis, we find that ANT increases market volatility immediately after the monetary policy announcements, and that ANT activity indirectly decreases market liquidity through increasing volatility. In addition, we suggest that ANT trades based on changes of texts on monetary policy announcements.
    Keywords: Algorithmic trading, Monetary policy, High frequency data, Foreign exchange market, News trading, Market microstructure, Web access record
    JEL: E58 F31 G14
    Date: 2018–08
  69. By: Javier Bianchi (Federal Reserve Bank of Minneapolis); Cesar Sosa-Padilla (Notre Dame)
    Abstract: We study the use of foreign reserves for macroeconomic stabilization purposes in a small open economy. Three key features characterize our model economy: (i) nominal rigidities, (ii) fixed exchange rates, and (iii) sovereign default risk. We argue that these features are prevalent in a large number of emerging economies. In this setup, reserve accumulation not only serves a precautionary role (hedging against roll-over risk) but it is also useful for macro-stabilization goals: in bad times, when aggregate demand is low, involuntary unemployment arises and output is low, the country can use (i.e. run down) its reserves to boost aggregate demand and output. We study the country’s optimal external portfolio composition (debt and reserves), how the stabilization property of reserves interacts with the typical precautionary role, and how this affects the country’s default incentives.
    Date: 2018
  70. By: Klaudijo Klaser
    Abstract: Why might the European member states seek for Fiscal Union? Coordination, macro-stability purposes and provision of (European) public goods are certainly goals of paramount importance for the implementation of Fiscal Union at European level. However, there is an equally important component of moral-normative nature embodied in the constitution of any fiscal system: reallocation of resources. The core of the paper is the idea that Rawls’ social contract theory can provide some insights about the implementation of European Fiscal Union in the re-allocative perspective. The reasoning put forward in the paper shows how the current European framework can be essentially considered an appropriate object of Rawls’ theory of domestic justice since the European Union holds those two descriptive elements which are sufficient and necessary to raise redistributive issues, to apply Rawls’ pure procedural justice and then to derive a difference principle at European level: a) the mutually advantageous cooperation among its members and b) a set of formal institutions which constitute a basic structure. The European difference principle prescribes to redistribute resources in order to maximize the expectations of the most disadvantaged European citizen(s). A corollary of this conclusion is that the actual redistribution according to similar scheme is achievable by means of Fiscal Union at European level.
    Keywords: difference principle, European integration, European Union, Fiscal Union, John Rawls
    JEL: D30 E62 F55
    Date: 2018
  71. By: Iovino, Luigi; Sergeyev, Dmitriy
    Abstract: We study the effects of central bank balance sheet policies-namely, quantitative easing and foreign exchange interventions-in a model where people form expectations through the level-k thinking process, which is consistent with experimental evidence on the behavior of people in strategic environments. We emphasize two main theoretical results. First, under a broad set of conditions, central bank interventions are effective under level-k thinking, while they are neutral in the rational expectations equilibrium. Second, forecast errors about future endogenous variables are predictable by balance sheet interventions. We confirm these predictions using data on mortgage purchases by US government sponsored enterprises.
    Date: 2018–08
  72. By: Botta, Alberto; Caverzasi, Eugenio; Russo, Alberto; Gallegati, Mauro; Stiglitz, Joseph E.
    Abstract: The present paper aims at offering a contribution to the understanding of the interactions between finance and inequality. We investigate the ways through which income and wealth inequality may have influenced the development of modern financial systems in advanced economies, the US economy first and foremost, and how modern financial systems have then fed back on income and wealth distribution. We focus in particular on securitization and on the production of complex structured financial products. We analyse this topic by elaborating a simulated hybrid Agent-Based Stock-Flow-Consistent (AB-SFC) macroeconomic model, encompassing heterogeneous (i.e. households) and aggregate sectors. Our findings suggest that the increase in economic growth, favoured by the higher level of credit supply coming with securitization, may determine a more unequal and financially unstable economic system.
    Keywords: Inequality; securitization; rent economy; financial crisis; AB model; SFC approach
    Date: 2018–06–01
  73. By: Gustavo Leyva (Banco de Mexico); Carlos Urrutia (ITAM)
    Abstract: We analyze the joint impact of employment protection and informality on macroeconomic volatility and the propagation of shocks in emerging economies. For this, we propose a small open economy business cycle model with frictional labor markets, employment protection and an informal sector, modeled as self-employment. The model is calibrated to the Mexican economy, in particular to business cycle moments for employment and informality obtained from our own calculations with the ENOE survey. We show that interest shocks, which affect specifically job creation in the formal sector, are key to obtain a counter-cyclical informality rate. In our model, confronted with similar shocks, the economy without an informal sector features higher macroeconomic volatility. However, an economy with low levels of employment protection would experience larger volatility in employment but smaller TFP and output fluctuations.
    Date: 2018
  74. 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 (ESCE – International Business School)
    Abstract: Giannoni and Woodford (2003) found that the equilibrium determined by com- mitment to a super-inertial rule (where the sum of the parameters of lags of interest rate exceed ones and does not depend on the auto-correlation of shocks) corresponds to the unique bounded solution of Ramsey optimal policy for the new-Keynesian model. By contrast, this note demonstrates that commitment to an inertial rule (where the sum of the parameters of lags of interest rate is below one and depends on the auto-correlation of shocks) corresponds to the unique bounded solution.
    Keywords: Ramsey optimal policy,Interest rate smoothing,Super-inertial rule,Inertial rule,New-Keynesian model
    Date: 2018–08
  75. By: International Monetary Fund
    Abstract: While improving, CEMAC’s economic situation remains fragile. Growth picked up slightly but remains well below potential. Governments’ fiscal consolidation efforts, along with BEAC’s tighter monetary policy and stricter enforcement of foreign exchange regulations, have contributed to a significant reduction in the region’s fiscal and external imbalances. All CEMAC countries are committed to macroeconomic policies agreed with IMF staff to support the economic recovery and financial sustainability of each country and of the region. The regional central bank and banking supervisor continue to implement policies in support of the IMF-supported programs with CEMAC members. However, fiscal slippages in some countries contributed to the underperformance of international reserve accumulation in early 2018. Looking ahead, a further improvement in the economic and financial situation is projected, assuming full implementation of policy commitments by CEMAC member states and regional institutions. This outlook remains subject to substantial risks from possible weaker program implementation, lower oil prices, and insufficient external financing.
    Date: 2018–07–10
  76. By: International Monetary Fund
    Abstract: Economic growth remains strong, driven by cotton production, increased public investment, and a vibrant tertiary sector that benefited from the economic recovery in Nigeria since June 2017. The fiscal consolidation path envisages a lower than originally programmed fiscal deficit (including grants) in 2018—thanks to stronger domestic revenue mobilization—and attainment of the WAEMU convergence criterion of 3 percent of GDP in 2019. Program implementation remains satisfactory with all end-December 2017 quantitative performance criteria (QPCs) met. The ongoing rebasing of the national accounts initiated in 2017 is expected to be completed later in 2018.
    Date: 2018–07–11
  77. By: Korkut Alp Erturk; Ivan Mendieta-Munoz
    Abstract: Much of macroeconomic theorizing rests on assumptions that define the short-run output adjustment of a mass-production economy. The demand effect of investment on output, assumed much faster than its supply effect, works through employment expanding pari passu with changes in capacity utilization while productivity remains constant. Using linear Structural VAR and Time-Varying Parameter Structural VAR models, we document important changes in the short-run output adjustment in the USA. The link between changes in employment, capacity utilization and investment has weakened, while productivity became more responsive following demand shifts caused by investment since the early 1990s.
    Keywords: Changes in short-run output adjustment, capacity utilization, employment, mass-production economy, post-Fordism. JEL Classification: B50, E10, E32
    Date: 2018
  78. By: Katarina Juselius (Department of Economics, University of Copenhagen)
    Abstract: This survey paper discusses the Cointegrated VAR methodology and how it has evolved over the last 30 years. The ?first section is a description of major steps in the econometric development of the CVAR model that facilitated serious real world applications. The next three sections are primarily methodological and discuss (i) difficulties and puzzles when confronting theory with the data, (ii) the formulation of a viable link between theory and the data, a so called theory-consistent CVAR scenario, and (iii) how all this was inspired by Trygve Haavelmo and his Nobel prize winning monograph "The Probability Approach to Economics". The next two sections discuss early applications of the Cointegrated VAR model to monetary transmission mechanisms, international transmission mechanisms and wage, price and unemployment dynamics. They report puzzling evidence, discuss the need for new theory, and propose a method for combining partial CVAR analyses into a larger macroeconomic model. The following sections propose a new, empirically-based, approach to macroeconomics in which imperfect knowledge based expectations replace so called rational expectations and in which the fi?nancial sector plays a key role for understanding the long persistent movements in the data. The last section argues that the CVAR can act as a "design of experiment for passive observations" and illustrates with several applications including unemployment dynamics under crises periods and aid effectiveness in South Saharan African countries.
    Keywords: Cointegrated VAR methodology, Linking theory and evidence, Empirically based macroeconomics
    JEL: B41 C32 C51 C52
    Date: 2018–08–14
  79. By: CHRISTIANAH ADEKUNBI FALADE (Ekiti State University. Faculty of Education Department of Vocational and Technical Education)
    Abstract: The Federal Government of Nigeria wants every citizen to acquire functional, relevant, practical, and appropriate skills for developing competencies as equipment for the individuals to live and contribute to the development of the nation. This had lead to the introduction of Entrepreneurship Education at all level of education. Despite the importance of entrepreneurship education to Nigerian graduate upon graduation some graduate still finds it difficult to establish a business of their own because of fear of risk-taking involved. This paper discussed the relationship between entrepreneurship education and risk-taking behavior of Nigerian graduates upon graduation. The following points are mentioned in the article: entrepreneurship education, entrepreneur, attributes of an entrepreneur, entrepreneur risks and types of entrepreneur risks. Conclusion: to reduce the rate of unemployment among graduates in Nigeria, graduates must be willing to take a risk to establish their businesses. Recommendation: risk-taking attitude of students must change hence, they must develop a positive attitude towards risk-taking.
    Keywords: Risk-taking behavior, Entrepreneurship Education and Entrepreneur
    JEL: E24 L26 H50
    Date: 2018–07
  80. By: Bown, Chad P.
    Abstract: How does trade policy treat intermediate inputs relative to other imported products? Slow economic and trade growth during the recovery from the Great Recession, as well as recent political developments in the United Kingdom and United States, pose a threat to cross-border supply chains and have thus brought this question to the forefront of policy circles. This paper investigates by examining new and detailed data on Group of 20 (G20) trade policy use through 2016, with a special emphasis on changes in policymaking behavior since 2010. First, there is no evidence that the G20 economies made significant changes to their applied import tariffs during this period. However, there has been a modest increase in import protection arising through other policy instruments of note such as the temporary trade barriers (TTBs) of antidumping, countervailing duties and safeguards. More importantly, there is evidence of changes in how countries have applied their TTBs. TTBs were increasingly imposed on imports not only from China, but also on imports from other countries, reversing a post-2001 trend. Furthermore, TTB protection has moved away from imports of final goods and toward imports of intermediate inputs. These shifts in policy have several potential contributing causes as well as economic consequences, including for cross-border supply chains.
    Keywords: antidumping; intermediate inputs; safeguards; Supply Chains; tariffs; temporary trade barriers; WTO
    JEL: F13
    Date: 2018–07
  81. By: Michael B. Devereux (University of British Columbia); Gregor W. Smith (Queen's University)
    Abstract: Countries that specialize in commodity exports often exhibit a correlation between the relevant commodity price and the value of their currency. We explore a natural but little-studied explanation for this correlation. An increase in the commodity price leads to increases in the future values of the international differential in policy interest rates. The tightening of expected future monetary policy relative to the US then leads to an immediate appreciation. We show theoretically that this correlation depends on the stance of monetary policy. We then derive a statistical model that embodies this mechanism and test the over-identifying restrictions for Australia, Canada, and New Zealand. For all three countries, controlling for the effect of commodity prices in predicting current and future monetary policy leaves them no significant, remaining role in statistically explaining exchange rates.
    Keywords: commodity currency, exchange rate, monetary policy
    JEL: F31 F41 E52
    Date: 2018–08
  82. By: Hyun Woong Park (Denison University, Department of Economics); Dong–Min Rieu (Chungnam National University, Department of Economics)
    Abstract: In this paper, we report a puzzling result about the monetary expressions of labor time (MELTs) of the productive and unproductive sectors. Since part of the aggregate value produced in productive sectors is transferred to unproductive sectors, the productive sector’s MELT is a measure of value realized in productive sectors while the unproductive sector’s MELT is a measure of value transferred to unproductive sectors. Using the national income data for the U.S. economy during 1987-2016 and for the Korean economy during 1993-2016, it is found that the MELT of the aggregate productive sector and the MELT of the aggregate unproductive sector have been moving in a very close lockstep in both countries during the entire sample periods. We build a model which explicitly formalizes the unproductive sector as not producing any value but making the value production process efficient, and find that the co–movement of the two MELTs is not an optimal condition. We also suggest some ex post implications of it, including what the puzzling result implies on the relation between unproductive sector and capital accumulation.
    Keywords: unproductive labor, monetary expression of labor time
    JEL: B51 E11 D46
    Date: 2018
  83. By: Acharya, Viral V; Plantin, Guillaume
    Abstract: This paper studies a model in which a low monetary policy rate lowers the cost of capital for firms, thereby spurring productive investment. Low interest rates however also induce firms to lever up so as to increase payouts to shareholders. Such leveraged share buybacks and productive investment compete for funds, so much so that the former may crowd out the latter. Below an endogenous lower bound, monetary easing generates only limited capital expenditures that come at the cost of large and destabilizing financial risk-taking.
    Date: 2018–07
  84. By: Irena Mikolajun; Jean-Marie Viaene
    Abstract: In the struggle between the forces of free trade and the restrictive influence of insularism the latter recently seems to have the upper hand. This is illustrated by the referendum of June 23, 2016 where the United Kingdom (UK) voted to leave the European Union (EU). In this paper we evaluate the consequences of this event for EU integration. In particular, we analyze how the extent of EU economic integration would change once the UK leaves the Union. To that end we develop an integration benchmark that consists of the steady state production equilibrium characterized by arbitrage pricing and perfect factor mobility. We apply metrics to measure the distance between this benchmark and the data. We find that the integration in the EU is incomplete and its trend is non-linear while Brexit would not bring negative consequences to its development..
    Keywords: Brexit, regional integration, Euclidean distance, factor mobility, arbitrage pricing, reflected geometric Brownian motion
    JEL: E13 F15 F21 F40 O11 O53 O54
    Date: 2018
  85. By: Davide Melcangi (University College London)
    Abstract: This paper studies the link between firm-level financial constraints and employment decisions, as well as the implications for the propagation of aggregate shocks. I exploit the idea that, when the financial constraint binds, a firm adjusts its employment in response to cash flow shocks. I identify such shocks from changes to business rates, a UK tax based on a periodically estimated value of the property occupied by the firm. A 2010 revaluation implied that similar firms, occupying similar properties in narrowly defined geographical locations, experienced different tax changes, allowing me to control for confounding shocks to local demand. I find that, on average, for every £1 of additional cash flow, 39 pence are spent on employment. I label this response the Marginal Propensity to Hire (MPH). I then calibrate a firm dynamics model with financial frictions towards this empirical evidence. As in the data, small and leveraged firms in the model have a greater MPH. Simulating a tightening of credit conditions, I find that the model can account for much of the decline in UK aggregate output and employment observed in the wake of the financial crisis.
    Date: 2018
  86. By: Joachim Jungherr (IAE (CSIC), MOVE, and Barcelona GSE); Immo Schott (Université de Montréal)
    Abstract: We introduce risky long-term debt to a standard model of firm financing and investment. This allows us to identify a novel amplification mechanism: the Long-term Debt Accelerator. A negative shock triggers an adverse feedback loop between low investment and high credit spreads. Relative to a frictionless RBC setup, the Long-term Debt Accelerator amplifies shocks by about 160%. This amplification mechanism is absent from standard models including only short-term debt. Negative shocks are more severe than positive shocks of equal size and amplification is stronger for larger shocks. If fundamental volatility is lower and firms accumulate more debt, recessions become more severe. The Long-term Debt Accelerator is in line with the empirically observed cyclical behavior of credit spreads, leverage, and debt maturity.
    Date: 2018
  87. By: José Azar; Xavier Vives
    Abstract: We develop a macroeconomic framework in which firms are large and have market power with respect to both products and labor. Each firm maximizes a share-weighted average of shareholder utilities, which makes the equilibrium independent of price normalization. In a one-sector economy, if returns to scale are non-increasing, then an increase in “effective” market concentration (which accounts for overlapping ownership) leads to declines in employment, real wages, and the labor share. Moreover, if the goal is to foster employment then (i) controlling common ownership and reducing concentration are complements and (ii) government jobs are a substitute for either policy. Yet when there are multiple sectors, due to an intersectoral pecuniary externality, an increase in common ownership can stimulate the economy when the elasticity of labor supply is high relative to the elasticity of substitution in product markets. We find that neither the monopolistically competitive limit of Dixit and Stiglitz nor the oligopolistic one of Neary (when firms become small relative to the economy) are attained unless there is incomplete portfolio diversification with no intra-industry common ownership.
    Keywords: ownership, portfolio diversification, labor share, market power, oligopsony, antitrust policy
    JEL: L13 L21 L41 G11 E60 D63
    Date: 2018
  88. By: Blazejowski, Marcin; Kufel, Paweł; Kwiatkowski, Jacek
    Abstract: In this paper, we revisit the well-known UK inflation model by Hendry (Journal of Applied Econometrics 2001, 16:255-275. doi: 10.1002/jae.615). We replicate the results in a narrow sense using the gretl and PcGive programs. In a wide sense, we extend the study of model uncertainty using the Bayesian averaging of classical estimates (BACE) approach to compare model reduction strategies. Allowing for the investigation of other specifications, we confirm the same set of significant determinants but find that Hendrys' model is not the most probable.
    Keywords: BACE, gretl, model uncertainty, reduction strategy
    JEL: C11 C52 E31
    Date: 2018–08–30
  89. By: International Monetary Fund
    Abstract: While national authorities are still largely responsible for supervising the nonbank sector and applying the macroprudential framework, European Union (EU)-level organizations’ supervisory role is growing. Further convergence and strengthening of supervision of insurers and investment firms is consistent with the goals of an EU single market and financial stability. The macroprudential framework functions well but could be simplified and expanded to cover aspects of the nonbank sector.
    Date: 2018–07–19
  90. By: Chen, Natalie; Chung, Wanyu; Novy, Dennis
    Abstract: Using detailed firm-level transactions data for UK imports, this paper studies the relationship between invoicing currency choices and the response of import prices to exchange rate changes. We find that for transactions invoiced in a vehicle currency, import prices are much more sensitive to changes in the vehicle currency than in the bilateral exchange rate. Aggregate pass-through therefore substantially increases once we account for vehicle currencies. We also show how this translates into higher pass-through for UK consumer prices, in particular during the Great Recession and in the period following the Brexit referendum. Finally, we develop a theoretical framework to conceptualize exchange rate pass-through in the context of vehicle currency pricing. Overall, our results contribute to understanding the exchange rate disconnect puzzle, and have implications for the setting of monetary policy.
    Keywords: CPI; Dollar; Euro; Exchange Rate Pass-Through; Inflation; Invoicing; Sterling; UK; Vehicle Currency Pricing
    JEL: F14 F31 F41
    Date: 2018–07
  91. By: Simeon Nanovsky (Nazarbayev University)
    Abstract: This paper attempts to investigate the degree of macroeconomic autonomy among the 12 original members of the eurozone. We develop a new measure of macroeconomic independence based on the concept of the desired policy interest rate each country would have chosen if it had retained its own currency and independent monetary policy. If it is detached from the centrally imposed policy rate and the two behave differently, we take it as an indication that the country should be constrained by the common central bank and has low degree of macroeconomic independence (MAI).We find that the original twelve members have indeed enjoyed varying degrees of MAI. Austria, France, Germany, Italy, and Luxembourg retain highest degree of MAI while Ireland, Greece, and Spain seem to have suffered from the lowest degree of MAI. The newly proposed MAI performs well as an OCA index, if not better than existing indices. On the one hand, so called the ?core? countries show up as those that have maintained high MAI. On the one hand, the ?periphery? countries have retained low MAI in the currency union.
    Keywords: eurozone, optimum currency area, monetary independence
    JEL: F00 E40 E52
    Date: 2018–07
  92. By: KICHIKAWA Yuichi; AOYAMA Hideaki; FUJIWARA Yoshi; IYETOMI Hiroshi; YOSHIKAWA Hiroshi
    Abstract: Micro price data show that individual price settings are not time-invariant. Furthermore, the analysis of autocorrelations shows that interactions of micro prices with leads and lags play a significant role in explaining the behavior of aggregate price index. We present a new method of extracting information on the nature of such interactions of micro prices. For Japan's data, we identify two macro shocks—one external and the other domestic—to drive dynamics of prices, but find that irrespective of the sources of shocks, there exists a robust flow of changes of domestic prices from upstream to downstream. Prices change in clusters. We identify such clusters. Our analysis suggests that inertia arising from input/output relationships in production explains the behavior of aggregate prices.
    Date: 2018–08
  93. By: International Monetary Fund
    Abstract: The government has strengthened policy and reform implementation in recent months. All Quantitative Performance Criteria (QPCs) for end-March and three out of nine Structural Benchmarks (SBs) for the Third Review were met. One additional SB was implemented with delay. Growth picked up to 2.5 percent in the first quarter, and confidence has improved, albeit it continues to be affected by divisions in the coalition government, risks of security and migration spillovers from Libya, and higher international oil prices. Inflation has accelerated and weighs on the purchasing power notably of the less well-off, while international reserves remain below prudent levels.
    Keywords: Middle East;Tunisia;
    Date: 2018–07–10
  94. By: Hiroshi Teruyama; Yasuo Goto; Sebastien Lechevalier (CCJ - Chine, Corée, Japon - EHESS - École des hautes études en sciences sociales - UPD7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique, FFJ - Fondation France-Japon de l'EHESS - EHESS - École des hautes études en sciences sociales)
    Abstract: The purpose of this study is to account for the increase in non-regular workers, namely, part-time and dispatched workers, in the Japanese economy from the early 2000s. Our contribution is that we use a firm-level panel dataset extracted from an administrative survey and distinguish between the short-run and long-run determinants of non-regular labor demand. Using the estimated parameters of the labor demand function, we decompose the rate of increase in the macroeconomic non-regular worker ratio into determinant factor contributions. Our major results can be summarized as follows. First, the firm-level determinants of the demand for part-time and dispatched workers significantly differ. Second, our results suggest that the non-regular job creation stimulated by the increased female labor supply plays an essential role relative to direct demand-side factors. Third, the microeconomic demand conditions for non-regular labor are widely dispersed among firms. Neither the demand factors examined in this study nor industrial differences can explain this heterogeneity.
    Keywords: Nonregular Employment,Part-time worker,Dispatched Workers,Firm-Level Labor Demand,Female Labor Supply,Japan
    Date: 2018–07
  95. By: Stephen Ayerst; Loren Brandt; Diego Restuccia
    Abstract: We examine important changes in agriculture in Vietnam in the context of ongoing structural changes in the economy. We use a household-level panel dataset and a quantitative framework to document the extent and consequences of factor misallocation in agriculture during the period between 2006 and 2016. Despite rapid growth in agricultural productivity and a reallocation of factor inputs to more productive farmers, we find that misallocation across farmers remains high and increased during the period. Reallocation of factor inputs has not been strong enough to accommodate substantial changes in farm productivity over time. Our analysis also reveals important differences between the north and south regions.
    Keywords: agriculture, misallocation, Vietnam, productivity, regions.
    JEL: O11 O14 O4 E02 Q1
    Date: 2018–08–22
  96. By: Philippe Bracke; Silvana Tenreyro
    Abstract: Using data on the universe of housing transactions in England and Wales over a twenty-year period, we document a robust pattern of history dependence in housing markets. Sale prices and selling propensities are affected by house prices prevailing in the period in which properties were previously bought. We investigate the causes of history dependence complementing our analysis with administrative data on mortgages and online house listings, which we match to actual sales. We find that cognitive and financial frictions explain the history dependence in the data. Both contributed to the collapse and slow recovery of the volume of housing transactions in the post-crisis period.
    Keywords: housing market, fluctuations, down-payment effects, reference dependence, anchoring, loss aversion
    JEL: E30 R21 R31
    Date: 2018–08
  97. By: Miranda-Agrippino, Silvia; Ricco, Giovanni
    Abstract: Despite years of research, there is still uncertainty around the effects of monetary policy shocks. We reassess the empirical evidence by combining a new identification that accounts for informational rigidities, with a flexible econometric method robust to misspecifications that bridges between VARs and Local Projections. We show that most of the lack of robustness of the results in the extant literature is due to compounding unrealistic assumptions of full information with the use of severely misspecified models. Using our novel methodology, we find that a monetary tightening is unequivocally contractionary, with no evidence of either price or output puzzles.
    Keywords: Financial Economics
    Date: 2017–02–28
  98. By: Jan P. A. M. Jacobs; Samad Sarferaz; Jan-Egbert Sturm; Simon van Norden
    Abstract: Recent years have seen many attempts to combine expenditure-side estimates of U.S. real output (GDE) growth with income-side estimates (GDI) to improve estimates of real GDP growth. We show how to incorporate information from multiple releases of noisy data to provide more precise estimates while avoiding some of the identifying assumptions required in earlier work. This relies on a new insight: using multiple data releases allows us to distinguish news and noise measurement errors in situations where a single vintage does not. Our new measure, GDP++, fits the data better than GDP+, the GDP growth measure of Aruoba et al. (2016) published by the Federal Reserve Bank of Philadephia. Historical decompositions show that GDE releases are more informative than GDI, while the use of multiple data releases is particularly important in the quarters leading up to the Great Recession.
    Date: 2018–08

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