nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒09‒17
88 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Efectos de reducir el impuesto a la ganancia (equilibrio parcial versus equilibrio general) By Carlos Esteban Posada
  2. Empirical analysis of fiscal dominance and the conduct of monetary policy in Nigeria By Afolabi, Joseph Olarewaju; Atolagbe, Oluwafemi
  3. Islamic Finance at Crossroads By Al-Jarhi, Mabid
  4. The Cyclical Behavior of Labor Force Participation By Tuzemen, Didem; Van Zandweghe, Willem
  5. Banks, money and the zero lower bound By Kumhof, Michael; Wang, Xuan
  6. Economic Transactions Govern Business Cycles By Olkhov, Victor
  7. Analysis of Unemployment Determinants in North Africa Countries, à Panel Data co-integration Approach By RABAH BELABBAS; rabia bellatreche; talal zaghba
  8. Virtual currencies and their potential impact on financial markets and monetary policy By Marek Dabrowski; Lukasz Janikowski
  9. Macroprudential Policy with Leakages By Bengui, Julien; Bianchi, Javier
  10. The Political Economy of Exchange Rate Stability During the Gold Standard. Spain 1874—1914 By MARTÍNEZ-RUIZ, Elena; NOGUES-MARCO, Pilar
  11. Lean against the wind or float with the storm? Revisiting the monetary policy asset price nexus by means of a novel statistical identification approach By Herwartz, Helmut; Maxand, Simone; Rohloff, Hannes
  12. Closing ranks between prevention and management of systemic crises: A proposal to couple the ESRB with the ESM By Thomasius, Sebastian
  13. Over-reaction in Macroeconomic Expectations By Pedro Bordalo; Nicola Gennaioli; Yueran Ma; Andrei Shleifer
  14. South Africa; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for South Africa By International Monetary Fund
  15. Fiscal policy and the real exchange rate: Some evidence from Spain By Oscar Bajo-Rubio; Burcu Berke; Vicente Esteve
  16. Reforming fiscal institutions in resource-rich Arab economies: Policy proposals By Kamiar Mohaddes; Jeffrey B. Nugent; Hoda Selim
  17. The stochastic lower bound By Masolo, Riccardo; Winant, Pablo
  18. The fiscal impact of 30 years of immigration in France: an accounting approach By Ndeye Penda Sokhna; Lionel Ragot; Xavier Chojnicki
  19. Global silver: bullion or specie? Supply and demand in the making of the early modern global economy By Irigoin, Alejandra
  20. Business investment, cash holding and uncertainty since the Great Financial Crisis By Smietanka, Pawel; Bloom, Nicholas; Mizen, Paul
  21. Brazil; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Brazil By International Monetary Fund
  22. 'Credit Risk, Excess Reserves and Monetary Policy: The Deposits Channel' By M.Emranul Haque; Paul Middleditch; Shuonan Zhang
  23. On the Propagation of Demand Shocks By George-Marios Angeletos; Chen Lian
  24. The Effect of Public Pension Wealth on Saving and Expenditure By Marta Lachowska; Michal Myck
  25. Requiem for the Interest-Rate Controls in China By Rongrong Sun
  26. Multiple Equilibria in Open Economy Models with Collateral Constraints: Overborrowing Revisited By Stephanie Schmitt-Grohé, Martín Uribe
  27. Hungary; 2018 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  28. When Short-Time Work Works By Pierre Cahuc; Francis Kramarz; Sandra Nevoux
  29. Countercyclical fiscal policy in a low r∗ world By Alisdair McKay; Ricardo Reis
  30. Macroeconomic policy and the price of risk By Rohan Kekre; Moritz Lenel
  31. Greece; 2018 Article IV Consultation and Proposal for Post-Program Monitoring-Press Release; Staff Report; and Statement by the Executive Director for Greece By International Monetary Fund
  32. Estimates of the Inflation Effect of a Global Carbon Price on Consumer, Investment, Export, and Import Prices By Andersson, Fredrik N.G.
  33. The unemployment impact of product and labour market regulation: Evidence from European countries By Céline Piton
  34. Location as an Asset By Bilal, Adrien; Rossi-Hansberg, Esteban
  35. Bankruptcy and Aggregate Demand By Adrien Auclert; Kurt Mitman
  36. Producer Price Inflation Connectedness and Input-Output Networks By N. Melisa Bilgin; Kamil Yilmaz
  37. India; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for India By International Monetary Fund
  38. Singapore; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Singapore By International Monetary Fund
  39. Inequality in an OLG economy with heterogeneous cohorts and pension systems By Joanna Tyrowicz; Krzysztof Makarsk; Marcin Bielecki
  40. 'Credit Risk, Excess Reserves and Monetary Policy: The Deposits Channel' By George Bratsiotis
  41. When Losses Turn into Loans: The Cost of Undercapitalized Banks By Blattner, Laura; Farinha, Luisa; Rebelo, Francisco
  42. Dollarization and the “Unbundling” of Globalization in sub-Saharan Africa By Kazeem B. Ajide; Ibrahim D. Raheem; Simplice A. Asongu
  43. Market Power and Welfare in Asymmetric Divisible Good Auctions By Manzano, Carolina; Vives, Xavier
  44. Employment and Output Effects of Federal Regulations on Small Business By Jang-Ting Guo; Dustin Chambers
  45. International R&D Spillovers, Innovation by Learning from Abroad and Medium-Run Fluctuations By Toshihiro Okada
  46. The effects of tax changes on economic activity: a narrative approach to frequent anticipations By Sandra García- Uribe
  47. Revisionen der Volkswirtschaftlichen Gesamtrechnungen: Revisionspraxis des Statistischen Bundesamtes und ihre Auswirkungen auf Prognosen By Döhrn, Roland
  48. Macroeconomic Conditions and Child Schooling in Turkey By Güneş, Pinar Mine; Ural Marchand, Beyza
  49. Determining the Inflationary Effects of El Niño and La Niña in the Philippines By Agustin L. Arcenas
  50. Evaluating the Effects of Forward Guidance and Large-scale Asset Purchases By Xu Zhang
  51. Agnostic Structural Disturbances (ASDs): Detecting and Reducing Misspecification in Empirical Macroeconomic Models By Den Haan, Wouter; Drechsel, Thomas
  52. Monetary Policy News and Systemic Risk at the Zero Lower Bound By Pavel Kapinos
  53. A Class of Time-Varying Parameter Structural VARs for Inference under Exact or Set Identification By Bognanni, Mark
  54. Optimal Trend Inflation By Klaus Adam; Henning Weber
  55. Macroeconomic variables and current account balance in Namibia By Eita, Joel Hinaunye; Manuel, Victoria; Naimhwaka, Erwin
  56. Subnational government investment and dynamic fiscal rules By Sasa Drezgic
  57. Democratic Republic of São Tomé and Princípe; 2018 Article IV Consultation, Fifth Review Under the Extended Credit Facility Arrangement, Request for Waivers for Nonobservance of Performance Criteria, and Financing Assurances Review By International Monetary Fund
  58. Debt Sustainability in a Low Interest Rate World By Neil Mehrotra
  59. Loan-to-Value Ratio Restrictions and House Prices By Jed Armstrong; Hayden Skilling; Fang Yao
  60. The Risk-Taking Channel of Liquidity Regulations and Monetary Policy By Stephan Imhof; Cyril Monnet; Shengxing Zhang
  61. HANK meets Ramsey: Optimal Coordination of Monetary and Labor Market Policies By Nils Mattis Gornemann
  62. Household Savings Rate in National Accounts and Household Surveys in Japan (Japanese) By UNAYAMA Takashi; OHNO Taro
  63. Differences in wage determination in the Eurozone By Mariam Camarero; Gaetano D’Adamo; Cecilio Tamarit
  64. Analyse de l’impact des politiques fiscales et de protection sociale sur les inégalités et la pauvreté au Togo By Jon Jellema; Caroline Tassot
  65. High public debt in euro-area countries: comparing Belgium and Italy By André Sapir
  66. Information-driven Business Cycles: A Primal Approach By Ryan Chahrour; Robert Ulbricht
  67. Which Ladder to Climb? Wages of Workers by Job, Plant, and Education By Bayer, Christian; Kuhn, Moritz
  68. Fiscal decentralization and interregional capital misallocation: Evidence from China By Zheng Li; Jorge Martinez-Vazquez
  69. The Spread of Deposit Insurance and the Global Rise in Bank Asset Risk since the 1970s By Charles W. Calomiris; Sophia Chen
  70. Farm Prices, Redistribution, and the Severity of the Early Great Depression By Joshua Hausman; Johannes Wieland; Paul Rhode
  71. Moneda de facturación de las empresas uruguayas By Andrea Barón; Gerardo Licandro; Miguel Mello; Pablo Picardo
  72. The Paradox of Global Thrift By Luca Fornaro
  73. Insolvency After the 2005 Bankruptcy Reform By Stefania Albanesi; Jaromir Nosal
  74. The quest for fiscal rules By Feld, Lars P.
  75. Housing Leverage and Consumption Expenditure - Evidence from New Zealand Microdata By Karam Shaar; Fang Yao
  76. Bayesian Estimation of Fractionally Integrated Vector Autoregressions and an Application to Identified Technology Shocks By Ross Doppelt; Keith O'Hara
  77. The inherited inequality: How demographic aging and pension reforms can change the intergenerational transmission of wealth By KLIMAVICIUTE Jutina,; ONDER Harun,; PESTIEAU, Pierre,
  79. Incompleteness Shocks By Eduardo Davila; Thomas Philippon
  80. Misallocation in the Market for Inputs: Enforcement and the Organization of Production By Johannes Boehm; Ezra Oberfield
  81. Uninsured Unemployment Risk and Optimal Monetary Policy By Edouard Challe
  82. Rational Inattention-driven dispersion over the business cycle By Javier Turen
  83. Different Cultural Layers: Different Effects on Development? By Judit Kapas
  84. Markovian and multi-curve friendly parametrisation of HJM model used in valuation adjustment of interest rate derivatives By Marcin Dec
  85. Testing for Inflation Convergence among European Union Countries:A Panel Approach By Maria Tsafa-Karakatsanidou; Stilianos Fountas
  86. Gender mainstreaming: A strategic approach By Thomas, Margo; Córdova-Novion, César; de Haan, Arjan; de León, Gimena; Forest, Maxime; Iyer, Sandhya S.
  87. Earning while Working from Home: A New Employment Opportunity in the Philippines By Randy Tudy
  88. Is Swaziland on a path of convergence towards her main trading partners? By Phiri, Andrew

  1. By: Carlos Esteban Posada
    Abstract: En este documento se presenta un conjunto de estimaciones sobre los efectos de reducir la tarifa del impuesto a la ganancia de las empresas en el caso colombiano. La estimación realizada bajo un esquema de equilibrio parcial genera resultados diferentes y menos confiables que los de la estimación que se basa en un modelo de equilibrio general.
    Keywords: tarifa de impuesto a la ganancia; inversión; ahorro; PIB por trabajador; tasa de interés; modelo macroeconómico.
    JEL: E13 E17 E22 E27 E62
    Date: 2018–09–04
  2. By: Afolabi, Joseph Olarewaju; Atolagbe, Oluwafemi
    Abstract: The study empirically investigates fiscal dominance and the conduct of monetary policy in Nigeria, using quarterly data from 1986Q1 to 2016Q4. It adopts the vector error correction mechanism (VECM) and cointegration technique to analyze the data and make inference. The findings reveal that there is no evidence of fiscal dominance in Nigeria. The empirical results show that budget deficit, domestic debt and money supply have no significant influence on the average price level. However, budget deficit and domestic debt are shown to have significant influence on money supply, but only in the short-run. The policy implication is that the government should enforce fiscal discipline through the appropriate institution and the Central Bank should be given autonomy to perform the primary function of long-term price stability, among other functions.
    Keywords: Fiscal dominance, fiscal policy, monetary policy, VECM, Nigeria.
    JEL: E52 E58 E62 E63
    Date: 2018–09–02
  3. By: Al-Jarhi, Mabid
    Abstract: After more than 40 years of practice, the Islamic finance industry is riddled with products that have a camouflage of Islamic form, but lack Shari'ah validity of purpose. The increasing tendency to mimic conventional finance, had the industry converging to its conventional counterpart. It is therefore seriously threatened with increasing cynicism and popular decline in interest. The paper looks into the essence of Reba prohibition from an economic perspective, using a concise classification of transactions, and how popular monetary theory looks on a positive rate of interest with disfavor. It evaluates Shari'ah scholars approach to the validation of contracts as well as the attitude of monetary authorities towards the Shari'ah content of Islamic finance transactions. It reviews the macroeconomic advantages of Islamic finance within an Islamic macroeconomic environment. Then it tries to explain why managers of Islamic banking and finance institutions, IBFI, mimic conventional products despite such advantages. The paper surveys the literature that measures the extent of conversion as well as provides an alternative explanation. The study finds that IBFI violate the true paradigm of Islamic finance, because its advantages are all external and impossible to internalize. It lists several pieces of empirical evidence on increasing convergence. The paper concludes by drawing a plan composed of regulatory actions, research agenda as well as a series of dialogues with stakeholders.
    Keywords: Islamic economics, Islamic finance, interest rate, monetary theory, real and nominal transactions, Islamic finance regulation.
    JEL: E02 E4 E42 E44 P51 P52
    Date: 2017–10
  4. By: Tuzemen, Didem (Federal Reserve Bank of Kansas City); Van Zandweghe, Willem (Federal Reserve Bank of Kansas City)
    Abstract: We document that labor force participation declines in the short run following a positive technology shock. The countercyclical response of labor force participation to a technology shock contrasts with the well documented mild procyclical behavior of labor force participation in the business cycle. In a search model of the labor market that incorporates a participation choice, we show that a positive technology shock reduces labor force participation in the short run under a reasonable calibration. In the calibrated model, discount factor shocks induce a procyclical response of labor force participation. As a result, the model can generate both the countercyclical response to technology shocks and the procyclical behavior, consistent with the evidence. Our results indicate an important role of nontechnology shocks for explaining labor market fluctuations.
    Keywords: Labor Force Participation; Unemployment; Technology Shocks; Discount Factor Shocks
    JEL: E24 E32 J22 J64
    Date: 2018–08–01
  5. By: Kumhof, Michael (Bank of England); Wang, Xuan (University of Oxford)
    Abstract: We study a New Keynesian model where banks create deposits through loans, subject to increasing marginal cost of lending. Banks do not intermediate commodity deposits between savers and borrowers, instead they offer a payment system that intermediates ledger-entry deposits between different spenders. We discuss three implications. First, non-banks’ aggregate purchasing power consists not only of their income but also of new loans/deposits. Second, near the ZLB policy rate reductions compress spreads, and thereby reduce bank profitability, deposit creation and output. Third, near the ZLB Phillips curves are flatter, because lower factor cost inflation is partly offset by inflationary credit rationing.
    Keywords: Banks; financial intermediation; endogenous money creation; bank loans; bank deposits; money demand; deposits-in-advance; Phillips curve; zero lower bound; monetary policy rules.
    JEL: E41 E44 E51 G21
    Date: 2018–08–24
  6. By: Olkhov, Victor
    Abstract: This paper presents the business cycle model based on treatment of economic agents as simple units of macroeconomics. Agents (banks, corporations, households, etc.) have numerous economic and financial variables like Assets, Credits, Debts, Consumption, etc. Agents perform economic and financial transactions with other agents. All agents are at risk but not for all agents risk assessments are performed now. Let’s propose that risk assessment can be made for all agents and let’s use agents risk ratings x as their coordinates. Agents coordinates for n risks define n-dimensional economic space. Economic and financial transactions between agents describe evolution of their economic and financial variables. Aggregations of economic or financial variables of agents in a unit volume at point x determine macro variables as functions of x. Aggregations of transactions between agents in unit volumes at points x and y determine macro transactions as functions of x and y. Macro transactions describe rate of change of macro variables at points x and y. We derive economic equations that describe evolution of macro transactions. We show that business cycle fluctuations are consequence of these equations. We argue that business cycle fluctuations of particular macro variable can be treated as oscillations of “mean risk coordinates” of this economic variable. As example we study the business cycle determined by model interactions between transactions CL(t,x,y) that provide Loans from Creditors at point x to Borrowers at point y and transactions LR(t,x,y) that describe repayments from Borrowers at point y to Creditors at point x. Starting with economic equations we derive the system of ordinary differential equations that describe the business cycle fluctuations of macro Credits C(t) and macro Loan-Repayments LR(t) of the entire economics.
    Keywords: Business cycle; Economic Transactions; Risk Assessment; Economic Space
    JEL: C02 E00 E32 F44 G00
    Date: 2018–06–08
  7. By: RABAH BELABBAS (University of Mouhamed Boudiaf M?sila ALGERIA); rabia bellatreche (university of Bouira); talal zaghba (university of msila)
    Abstract: The aim of this study is to determine the Macroeconomic Determinants of unemployment in four countries of North Africa which are: Morocco, Algeria, Tunisia and Egypt. This study has applied the PANEL-VECM Model using annual data from 2000 to 2016 of unemployment rate, growth economic, government expenditure, money supply, oil price and population size, the data were taken From World Bank (WDI).Our results show that there is a long run relationship between unemployment and those macroeconomics variables in north Africa countries. in the short run, unemployment is defined by growth economic with a strong negative effect, but in the long run growth economic affects positively unemployment, but economic policies don?t affect unemployment in the short run, in the long run government expenditure and money supply affect negatively unemployment, but the impact of fiscal policy is more than monetary policy impact, oil price has a negative significant effect in the lag two, in the long run the impact of oil prices on unemployment is positive, population size don?t affect unemployment in the short run, however its impact is positively in the long run.
    Keywords: Unemployment, Economic Growth, economic policies, Panel Data Cointegration.
    JEL: C33 E52 J69
    Date: 2018–06
  8. By: Marek Dabrowski; Lukasz Janikowski
    Abstract: Virtual currencies are a contemporary form of private money. Thanks to their technological properties, their global transaction networks are relatively safe, transparent, and fast. This gives them good prospects for further development. However, they remain unlikely to challenge the dominant position of sovereign currencies and central banks, especially those in major currency areas. As with other innovations, virtual currencies pose a challenge to financial regulators, in particular because of their anonymity and trans-border character.
    Keywords: virtual currency, private money, sovereign currency, free banking, monetary policy, central bank, financial regulation, financial market, currency substitution
    JEL: E42 E58 F31 G18 G28 N21 N23
    Date: 2018
  9. By: Bengui, Julien (University of Montreal); Bianchi, Javier (Federal Reserve Bank of Minneapolis)
    Abstract: The outreach of macroprudential policies is likely limited in practice by imperfect regulation enforcement, whether due to shadow banking, regulatory arbitrage, or other regulation circumvention schemes. We study how such concerns affect the design of optimal regulatory policy in a workhorse model in which pecuniary externalities call for macroprudential taxes on debt, but with the addition of a novel constraint that financial regulators lack the ability to enforce taxes on a subset of agents. While regulated agents reduce risk taking in response to debt taxes, unregulated agents react to the safer environment by taking on more risk. These leakages undermine the effectiveness of macroprudential taxes but do not necessarily call for weaker interventions. A quantitative analysis of the model suggests that aggregate welfare gains and reductions in the severity and frequency of financial crises remain, on average, largely unaffected by even significant leakages.
    Keywords: Macroprudential policy; Regulatory arbitrage; Financial crises; Limited regulation enforcement
    JEL: D62 E32 E44 F32 F41
    Date: 2018–09–11
    Abstract: This article contributes to the literature on central bank independence and monetary stability during the classical gold standard era. On the eve of the First World War, European periphery had not achieved stable adherence to gold despite the protection of central banks against political pressures to monetize debt. In the 19th century, most issuing institutions were private banks whose main objective was profit maximization. As a result, monetary stability depended on negotiations between monetary and fiscal authorities and not directly on central bank independence as is the case nowadays. Strong governments were needed to impose the objective of monetary stability on central banks in negotiation practices. To test our argument, we have constructed indicators of government strength and central bank independence to measure bargaining power for the case of Spain. Results confirm that a highly independent private central bank avoided the responsibility of defending gold adherence when negotiating with weak government, even in a stable macroeconomic environment. Our research suggests that the success of central bank independence in generating monetary stability during the gold standard period depended on sound political institutions.
    Keywords: gold standard, monetary stability, political economy, central bank independence, institutional design, Spain
    JEL: E02 E42 E58 F33 N13
    Date: 2018–09
  11. By: Herwartz, Helmut; Maxand, Simone; Rohloff, Hannes
    Abstract: This paper revisits the monetary policy asset price nexus employing a novel identification approach for structural VARs in a framework of non-Gaussian independent shocks. This allows us to remain "agnostic" about the contemporaneous relations between the variables. We provide empirical evidence on the U.S. economy for monetary policy shocks and shocks originating from two asset markets: Equity and housing. Our results indicate that contractionary monetary policy shocks have a mildly negative impact on both asset prices. The effect is less pronounced for equity. Moreover, we find considerable differences in the speed of monetary policy transmission among both asset classes.
    JEL: C32 E44 E52
    Date: 2018
  12. By: Thomasius, Sebastian
    Abstract: On the occasion of related proposals by the European Commission and the Eurogroup, this paper proposes to entrust the ESM with the hosting of the ESRB in the medium term. The novel proposal aims at strengthening the macro-prudential expertise of the ESM and at enhancing the independence of the ESRB. Following a brief summary of related proposals, the main rationales and the key elements of the proposal are presented in detail.
    Keywords: financial stability,macroprudential policy and supervision,financial crisis prevention and resolution,conflict of interest,euro area
    JEL: E44 G28 H11 E58
    Date: 2018
  13. By: Pedro Bordalo; Nicola Gennaioli; Yueran Ma; Andrei Shleifer
    Abstract: We study the rationality of individual and consensus professional forecasts of macroeconomic and financial variables using the methodology of Coibion and Gorodnichenko (2015), which examines predictability of forecast errors from forecast revisions. We report two key findings: forecasters typically over-react to their individual news, while consensus forecasts under-react to average forecaster news. To reconcile these findings, we combine the diagnostic expectations model of belief formation from Bordalo, Gennaioli, and Shleifer (2018) with Woodford’s (2003) noisy information model of belief dispersion. The forward looking nature of diagnostic expectations yields additional implications, which we also test and confirm. A structural estimation exercise indicates that our model captures important variation in the data, yielding a value for the belief distortion parameter similar to estimates obtained in other settings
    JEL: E17 E32 E37
    Date: 2018–08
  14. By: International Monetary Fund
    Abstract: Reflecting slow progress on reforms, weakened governance, and elevated policy uncertainty, growth remains subdued. With the economy unable to create enough jobs, the quest for inclusive growth has been elusive, making South Africa one of the most unequal societies. Growing government spending has led to a doubling of public debt in the last decade. Credible monetary policy has kept inflation expectations anchored, albeit at near the top of the target band. The current account deficit remains financed by potentially volatile portfolio inflows. The new administration’s immediate priority has focused on improving governance and restoring confidence.
    Keywords: South Africa;Sub-Saharan Africa;
    Date: 2018–07–30
  15. By: Oscar Bajo-Rubio (Department of Economics, Universidad de Castilla-La Mancha, 13071 Ciudad Real, Spain); Burcu Berke (Department of Economics, Niğde Ömer Halisdemir University, 51240 Niğde, Turkey); Vicente Esteve (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia, Spain)
    Abstract: The factors influencing the real exchange rate are an important issue for a country’s price competitiveness, which is especially relevant to those countries belonging to a monetary union. In this paper, we analyse the relationship between fiscal policy and the real exchange rate for the case of Spain. In particular, we explore how changes in government spending, differentiating between consumption and investment, can affect the long-run evolution of the real exchange rate vis-à-vis the euro area. The distinction between two alternative definitions of the real exchange rate, based on consumption price indices and export prices, respectively, will also prove to be relevant for the results.
    Keywords: Real exchange rate, Government consumption, Government investment
    JEL: E62 F31 F41
    Date: 2018–08
  16. By: Kamiar Mohaddes; Jeffrey B. Nugent; Hoda Selim
    Abstract: This paper traces the evolution of fiscal institutions of Resource Rich Arab Economies (RRAEs) over time since their pre-oil days, through the discovery of oil to their build-up of oil exports. It then identifies challenges faced by RRAEs and variations in their severity among the different countries over time. Finally, it articulates specific policy reforms, which, if implemented successfully, could help to overcome these challenges. In some cases, however, these policy proposals may give rise to important trade-offs that will have to be evaluated carefully in individual cases.
    Keywords: Fiscal policy, fiscal institutions, fiscal sustainability, public spending efficiency, budget transparency, fiscal rules, volatility, oil curse, Arab World, oil exporters, and Middle East and North Africa.
    JEL: E02 E62 H50 H60 H61 O53
    Date: 2018–09
  17. By: Masolo, Riccardo (Bank of England); Winant, Pablo (Bank of England)
    Abstract: Since the Great Recession policy rates have been extremely low, but neither absolutely constant, nor exactly set to zero. We thus augment a standard zero lower bound model to study the effects of a stochastic lower bound (SLB) on policy rates. We find that a less predictable SLB helps keep inflation closer to target by lowering expectations of future values of the SLB when interest rate cuts are not an option.
    Keywords: Zero lower bound; DSGE
    JEL: E31 E52
    Date: 2018–08–24
  18. By: Ndeye Penda Sokhna; Lionel Ragot; Xavier Chojnicki
    Abstract: This article aims to evaluate the net contribution of immigration to the public finances of France between the late 1970s and the early 2010s. We developed an accounting method that disaggregates the primary deficit into the specific contributions of immigrant population and native population. We show that the net contribution of immigrants is generally negative over a relatively long period, but remains at an extremely low level (+/-0:5% of the french GDP, reduced to +/-0:2%, with the exception of 2011). The relatively negligible effect of immigrants on the public accounts is explained by a favourable demographic structure offsetting their lower net individual contribution. However, the 2008 financial crisis has significantly degraded the economic condition of immigrants. The net per capita contribution of EU immigrants has significantly declined since 2000 and is now similar to values from third country immigrants.
    Keywords: International Migration, Public Finances, Social Protection
    JEL: E62 F22 H62
    Date: 2018
  19. By: Irigoin, Alejandra
    Abstract: In the early modern period the world economy gravitated around the expansion of long distance commerce. Together with navigation improvements silver was the prime commodity which moved the sails of such trade. The disparate availability of, and the particular demand for silver across the globe determined the participation of producers, consumers and intermediaries in a growing global economy. American endowments of silver are a known feature of this process; however, the fact that the supply of silver was in the form of specie is a less known aspect of the integration of the global economy. This chapter surveys the production and export of silver specie out of Spanish America, its intermediation by Europeans and the re-export to Asia. It describes how the sheer volume produced and the quality and consistency of the coin provided familiarity with, and reliability to the Spanish American peso which made it current in most world markets. By the 18th century it has become a currency standard for the international economy which grew together with the production and coinage of silver. Implications varied according to the institutional settings to deal with specie and foreign exchange in each intervening economy. Generalized warfare in late 18th century Europe brought down governance in Spanish America and coinage fragmented along with the political fragmentation of the empire. The emergence of new sovereign republics and the end of minting as known meant the cessation of the silver standard that had contributed to the early modern globalization.
    Keywords: silver specie; international currency; international trade; monetary capacity; currency trade; global Smithian growth; early modern global economy
    JEL: E42 E44 E5 N10 N20 P5
    Date: 2018–09–01
  20. By: Smietanka, Pawel (Bank of England); Bloom, Nicholas (Stanford University); Mizen, Paul (University of Nottingham)
    Abstract: The Lehman Brothers event in 2008 created a large uncertainty shock that triggered an economic slowdown lasting a decade. The macroeconomic effects are well documented, but the effect on business decisions much less so. In this paper, we explore corporate data to investigate how economic uncertainty affected investment, dividend payouts and cash holdings, based on over 10,000 UK firm-year observations. We offer new insights into the relationship between business decisions and uncertainty, by exploiting two surveys of macroeconomic uncertainty from professional forecasters and CFOs collected by the Bank of England. These data demonstrate that heightened economic uncertainty lowered investment even after controlling for investment opportunities, sales growth, and the firm’s own stock volatility. Economic uncertainty also explains the rise in cash holdings and the fall in payouts. Hence, our results help explain why UK firms invested so little and held so much cash at a time of historically low interest rates, and also why they paid out smaller dividends. These results may help explain recent sluggish productivity in the UK economy, and they also are important, because they provide a benchmark for future studies of Brexit-related uncertainty.
    Keywords: uncertainty; investment; cash holdings; dividend policy; survey forecasts
    JEL: E22 G31 G32 G35
    Date: 2018–08–24
  21. By: International Monetary Fund
    Abstract: Recent developments. Following a severe recession in 2015-16, real GDP grew by 1 percent in 2017. Inflation declined below the inflation target range, prompting the Central Bank to cut interest rates to historic lows. Despite fiscal consolidation in 2017, public debt has reached 84 percent of GDP and fiscal reforms have stalled. Outlook. GDP is projected to grow at 1.8 and 2.5 percent in 2018 and 2019, respectively, driven by a recovery in domestic consumption and investment. The 2018 budget loosens the fiscal stance. Even if federal expenditure remains constant in real terms at its 2016 level, as mandated by a constitutional rule, public debt is expected to rise further and peak in 2023 at above 90 percent of GDP.
    Keywords: Brazil;Western Hemisphere;
    Date: 2018–08–03
  22. By: M.Emranul Haque; Paul Middleditch; Shuonan Zhang
    Abstract: This paper investigates the contrasting business cycle characteristics of China and the US, speci cally in terms of economic activity and total factor productivity. To help explain the differing pro les for these two variables for both countries, we build and estimate a DSGE model with extended fi nancial markets and endogenous technology creation to identify key structural parameters, comparing the decomposition of the shock processes in our analysis. We reveal stark differences in the contributing factors of business cycle fluctuations for both countries, and demonstrate the importance of the stock market for economic recovery after a sizable and persistent financial shock. Macroeconomic intervention in China works well but is unable to smooth total factor productivity (TFP) due to the presence of multiple shocks transmitted through the endogenous technology creation channel. Whilst the US achieves a similar pro le for economic activity with less volatility in TFP, it also contends with additional risks, fed in by the existence of the stock market. The stock market allows firms to hedge fi nance during periods of fi nancial instability, though this is not cost free.
    Date: 2018
  23. By: George-Marios Angeletos (M.I.T.); Chen Lian (MIT)
    Abstract: This paper develops a novel theory of how a drop in consumer spending, or aggregate demand, can trigger a series of feedback loops between spending, employment, and income, ultimately leading to a sizable recession. Unlike the one embedded in the New Keynesian framework, our theory does not hinge on nominal rigidities and on the failure of monetary policy to replicate flexible prices. Instead, it is based on the idea that firms and consumers alike are unable to disentangle idiosyncratic from aggregate shocks and to reach common knowledge of the latter. This in turn could be either because of an information friction or because of bounded rationality. As a result, our theory bypasses the empirical failings of old and new Philips curves. It also allows for sizable fiscal multipliers without commensurate inflationary pressures.
    Date: 2018
  24. By: Marta Lachowska (W.E. Upjohn Institute for Employment Research); Michal Myck (Centre for Economic Analysis)
    Keywords: retirement, pensions, Poland, savings
    JEL: D14 E21 H55 I38
  25. By: Rongrong Sun (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan)
    Abstract: This paper reviews the retail interest-rate-control deregulation in China over the 1993-2015 period and provides a preliminary assessment of the PBC’s replacement monetary framework. I show that the interest-rate controls triggered the development of deposit substitutes that banks used to circumvent the restrictions, which in turn drove deposits out of commercial banks. Concerned by deterioration of bank profits and build-up of financial frangibility, the PBC has been pushing strongly for interest-rate liberalization. I quantify the distortionary effects of these controls: disintermediation, a rising shadow banking system and financial repression. Despite the official lift-off of the controls, the retail interest rates are still subject to the PBC’s window guidance and other pricing mechanism guidance. The interest-rate corridor does not function well in confining money market rates. This suggests that the PBC adopt a target money market rate system.
    Keywords: interest-rate control, deregulation, China, financial repression, interest-rate corridor
    JEL: E52 E58
  26. By: Stephanie Schmitt-Grohé, Martín Uribe
    Abstract: This paper establishes the existence of multiple equilibria in infinite-horizon open- economy models in which the value of tradable and nontradable endowments serves as collateral. In this environment, the economy is shown to display self-fulfilling financial crises in which pessimistic views about the value of collateral induce agents to delever- age. The paper shows that under plausible calibrations, there exist equilibria with underborrowing. This result stands in contrast to the overborrowing result stressed in the related literature. Underborrowing emerges in the present context because in economies that are prone to self-fulfilling financial crises, individual agents engage in excessive precautionary savings as a way to self-insure.
    Keywords: Pecuniary externalities, collateral constraints, overborrowing, underborrowing, financial crises, capital controls
    JEL: E44 F41 G01 H23
    Date: 2018–01
  27. By: International Monetary Fund
    Abstract: Growth rebounded in 2017 and the first half of 2018 on the back of buoyant domestic demand due to the accelerated absorption of EU funds and strong disposable income. External debt declined substantially over the past few years and so did public debt, albeit much less. The policy stance remained highly procyclical, with a significant deterioration in the structural primary fiscal balance since 2015. At the same time, structural reforms are lagging and the external current account surplus has been moderating rapidly from its 2016 high peak. There has been some downward pressure on the forint (HUF) in the second quarter of 2018. The budget for 2019 is broadly cyclically neutral. The central bank (MNB) adjusted its communication, stressing its commitment to the inflation target and keeping all options open to achieve it.
    Keywords: Hungary;Europe;
    Date: 2018–08–03
  28. By: Pierre Cahuc; Francis Kramarz; Sandra Nevoux
    Abstract: Short-time work programs were revived by the Great Recession. To understand their operating mechanisms, we first provide a model showing that short-time work may save jobs in firms hit by strong negative revenue shocks, but not in less severely-hit firms, where hours worked are reduced, without saving jobs. The cost of saving jobs is low because short-time work targets those at risk of being destroyed. Using extremely detailed data on the administration of the program covering the universe of French establishments, we devise a causal identification strategy based on the geography of the program that demonstrates that short-time work saved jobs in firms faced with large drops in their revenues during the Great Recession, in particular when highly levered, but only in these firms. The measured cost per saved job is shown to be very low relative to that of other employment policies.
    Keywords: Short-time work, unemployment, employment.
    JEL: E24 J22 J65
    Date: 2018
  29. By: Alisdair McKay (Boston University); Ricardo Reis (London School of Economics)
    Abstract: If the natural rate of interest is lower in the future, monetary policy may be more constrained and discretionary fiscal policy may come with larger multipliers. Does this imply that countercyclical fiscal policy should be more active, or that there should be a larger role for automatic stabilizers? This paper investigates if this is so by analyzing a business cycle model with heterogeneous agents and nominal rigidities, which frequently hits the zero lower bound. If markets are complete, then fiscal policy should be more active in a low r∗ world only if its precision is large enough. If markets are incomplete, there may be a tradeoff between more active policy or more aggressive automatic stabilizers. We quantify these effects in a model calibrated to the U.S. economy.
    Date: 2018
  30. By: Rohan Kekre (University of Chicago); Moritz Lenel (University of Chicago)
    Abstract: We study the consequences of heterogeneity in risk tolerance in a New Keynesian environment with incomplete markets. When markets are incomplete, the distribution of net worth affects the economy's effective price of risk; when monetary policy is non-neutral, the price of risk affects investment rather than the risk-free rate. Redistribution towards the risk-tolerant or shocks which facilitate greater risk-sharing can reduce the price of risk and raise economic activity. The transmission mechanism of monetary policy operates in part through the endogenous adjustment in the risk premium. Because agents do not internalize the effect of private porfolios on aggregate investment, aggregate demand externalities generate scope for Pareto improvements.
    Date: 2018
  31. By: International Monetary Fund
    Abstract: Greece has stabilized its economy and begun to grow. The authorities deserve credit for largely eliminating macroeconomic imbalances, including via a significant fiscal adjustment, and for many other reforms undertaken in recent years. Reflecting these efforts, European partners have provided significant support, most recently agreeing to a final loan disbursement under the ESM program and additional debt relief. However, as the country exits the program era in August, crisis legacies and an unfinished policy reform agenda in most areas weigh on Greece’s prospects. High public debt, weak bank balance sheets, reliance on capital controls and emergency liquidity assistance, and worrisome social indicators, including still-high unemployment, all weigh on growth and social cohesion. Fiscal adjustment has been sizable, but has relied on distortionary high tax rates on still-narrow bases and growth-detrimental discretionary spending cuts, and efforts to bring down tax and spending arrears have been met with limited success. Social spending is better targeted, but many social needs remain unmet and the risk of poverty remains high. Bank credit continues to shrink. Structural reform efforts to address obstacles to growth and competitiveness—while significant—have fallen wellshort of what is needed, and competitiveness indicators remain below the Euro Area average. Notably, the planned reversal of reforms to the collective bargaining framework risks undoing previous gains in competitiveness.
    Keywords: Greece;Europe;
    Date: 2018–07–31
  32. By: Andersson, Fredrik N.G. (Department of Economics, Lund University)
    Abstract: This paper considers the potential inflation effects of a global carbon price on consumer prices, investment prices, export prices, and import prices. We estimate the effects under three different scenarios. The results clearly indicate that the inflation effects in developed countries of a 100 USD/ton carbon price are small. For developing countries, the inflation effect is larger and potentially too large for it to be politically feasible to introduce a global carbon price. However, a simple adjustment of the price based on the price level in each country equalizes the inflation effects across all countries, whereby a global carbon price is more likely to be implemented.
    Keywords: carbon price; inflation; consumer prices; export prices; imports prices; investment prices; monetary policy
    JEL: E31 E52 Q54 Q58
    Date: 2018–09–04
  33. 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
  34. By: Bilal, Adrien (Princeton University); Rossi-Hansberg, Esteban (Princeton University)
    Abstract: The location of individuals determines their job opportunities, living amenities, and housing costs. We argue that it is useful to conceptualize the location choice of individuals as a decision to invest in a ‘location asset’. This asset has a cost equal to the location’s rent, and a payoff through better job opportunities and, potentially, more human capital for the individual and her children. As with any asset, savers in the location asset transfer resources into the future by going to expensive locations with good future opportunities. In contrast, borrowers transfer resources to the present by going to cheap locations that offer few other advantages. As in a standard portfolio problem, holdings of this asset depend on the comparison of its rate of return with that of other assets. Differently from other assets, the location asset is not subject to borrowing constraints, so it is used by individuals with little or no wealth that want to borrow. We provide an analytical model to make this idea precise and to derive a number of related implications, including an agent’s mobility choices after experiencing negative income shocks. The model can rationalize why low wealth individuals locate in low income regions with low opportunities even in the absence of mobility costs. We document the investment dimension of location, and confirm the core predictions of our theory with French individual panel data from tax returns.
    JEL: D14 E21 J61 R13 R23 R30
    Date: 2018–08–07
  35. By: Adrien Auclert (Stanford); Kurt Mitman (IIES)
    Abstract: We study the effect of consumer default policy on macroeconomic stabilization. We focus on an economy with nominal rigidities, incomplete financial markets and heterogeneous households. Households face uninsurable idiosyncratic risk and have access to unsecured borrowing with limited commitment to repay. By adjusting the leniency of the bankruptcy code, the government can affect the extent of redistribution between high MPC borrowers and low MPC savers in downturns. If monetary policy cannot fully accommodate negative shocks, giving rise to an aggregate demand externality, macroprudential default policy can be welfare improving. We explore the welfare gains from both state-dependent and state-independent default policies.
    Date: 2018
  36. By: N. Melisa Bilgin (Koç University); Kamil Yilmaz (Koç University)
    Abstract: We analyze the transmission of producer price in inflation shocks across the U.S. manufacturing industries from 1947 to 2018 using the Diebold-Yilmaz Connectedness Index framework, which fully utilizes the information in generalized variance decompositions from vector autoregressions. The results show that the system-wide connectedness of the input-output network Granger-causes the producer price inflation connectedness across industries. The input-output network and the inflation connectedness nexus is stronger during periods of major supply-side shocks, such as the global oil and metal price hikes, and weaker during periods of aggregate demand shocks, such as the Volcker disinflation of 1981-84 and the Great Recession of 2008. These findings are consistent with Acemoglu et al. (2016)'s conjecture that supply shocks are transmitted downstream, whereas demand shocks are transmitted upstream. Finally, preliminary results show that Trump tariffs caused an increase in the system-wide inflation connectedness in the first half of 2018, due to shocks mostly transmitted from tariff-targeted industries, namely, basic metals, fabricated metals and machinery.
    Keywords: Input-output networks, Inflation, Connectedness, Supply-side shocks, Commodity prices, Business cycles, Vector autoregression, Variance decomposition.
    JEL: E3 D57 C32
    Date: 2018–09
  37. By: International Monetary Fund
    Abstract: India has been among the fastest-growing economies in the world over the past few years, lifting millions out of poverty. The authorities have initiated important structural reforms to spur India’s catch up with more advanced economies and to improve living standards for all. The main reforms include the inflation-targeting monetary policy framework, the Insolvency and Bankruptcy Code (IBC), the goods and services tax (GST), and steps to liberalize FDI flows and improve the business climate.
    Keywords: India;Asia and Pacific;
    Date: 2018–08–06
  38. By: International Monetary Fund
    Abstract: Singapore’s economy is on a strong cyclical upswing. Economic growth has recovered to a three-year high, led by externally-oriented sectors that benefitted from the synchronized global expansion. Economic momentum is becoming more broad-based, helping to reduce the labor market slack. Growth is expected at or above the potential rate in the near term, increasingly supported by domestic demand. Inflation is subdued but expected to rise modestly. The current account surplus, as a share of GDP, has remained large. Risks to the near-term outlook are broadly balanced and come mainly from external sources. Over the medium term, the structural transformation aimed to prepare Singapore for challenges from technological changes globally and population aging at home should help support higher productivity.
    Keywords: Asia and Pacific;Singapore;
    Date: 2018–07–27
  39. By: Joanna Tyrowicz (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University); Krzysztof Makarsk (Warsaw School of Economics); Marcin Bielecki (University of Warsaw)
    Abstract: We analyze the consumption and wealth inequality in an OLG model with mandatory pension systems. Our framework features within cohort heterogeneity of endowments and heterogeneity of preferences. We allow for population aging and gradual decline in TFP growth. We show four main results. First, increasing longevity translates to substantial increases in aggregate consumption inequality and wealth inequality. Second, a pension system reform from a defined benefit to a defined contribution works to reinforce consump- tion inequality and reduce wealth inequality. Third, minimum pension benefits are able to partially counteract an increase in inequality introduced by the defined contribution system, at a fiscal cost. Fourth the minimum pension benefit guarantee mostly addresses the sources of inequality which stem from differentiated endowments rather than those which stem from heterogeneous preferences.
    Keywords: consumption, wealth, inequality, longevity, defined contribution, defined benefit
    JEL: H55 E17 C60 C68 E21 D63
    Date: 2018–08
  40. By: George Bratsiotis
    Abstract: This paper examines the role of precautionary liquidity (reserves) and the interest on reserves as two potential determinants of the deposits channel that can help explain the role of monetary policy, particularly at the near zero-bound. Through the deposits channel and balance sheet channel either of these determinants can explain a number of effects including, (i) zero-bound optimal policy rates, (ii) a negative deposit rate spread, but also (iii) determinacy at the lower-zero bound. Similarly, through its effect on the deposits channel and balance sheet channel the interest on reserves can act as the main tool of monetary policy, that is shown to provide higher welfare gains in relation to a simple Taylor rule. This result is shown to hold at the zero-bound and it is independent of precautionary liquidity, or the fiscal theory of the price level.
    Date: 2018
  41. By: Blattner, Laura (Stanford University); Farinha, Luisa (Bank of Portugal); Rebelo, Francisco (Boston College)
    Abstract: We provide evidence that a weak banking sector contributed to low productivity following the European debt crisis. An unexpected increase in capital requirements provides a natural experiment to study the effects of reduced capital adequacy on productivity. Affected banks respond by cutting lending but also by reallocating credit to distressed firms with underreported loan losses. We develop a method to detect underreported losses using loan-level data. We show that the credit reallocation leads to a reallocation of production factors across firms. We find that the resulting factor misallocation accounts for 20% of the decline in productivity in Portugal in 2012.
    JEL: D24 E44 E51 G21 G28 O47
    Date: 2018–06
  42. By: Kazeem B. Ajide (University of Lagos, Nigeria); Ibrahim D. Raheem (University of Kent, Canterbury, UK); Simplice A. Asongu (Yaoundé/Cameroon)
    Abstract: This study contributes to the dollarization literature by expanding its determinants to account for different dimensions of globalization, using the widely employed KOF index of globalization. Specifically, globalization is “unbundled” into three different layers namely: economic, social and political dimensions. The study focuses on 25 sub-Saharan African (SSA) countries for the period 2001-2012.Using the Tobit regression approach, the following findings are established. First, from both economic and statistical relevance, the social and political dimensions of globalization constitute the key dollarization amplifiers, while the explanatory power of the economic component is weaker on dollarization. Second, consistent with the theoretical underpinnings, macroeconomic instabilities (such as inflation and exchange rate volatilities) have the positive expected signs. Third, the positive association between the accumulation of international reserves and dollarization is also apparent. Policy implications are discussed.
    Keywords: Dollarization; Globalization; sub-Saharan Africa; Tobit regression
    JEL: E41 F41 C21
    Date: 2018–01
  43. By: Manzano, Carolina (Rovira i Virgili University); Vives, Xavier (IESE Business School)
    Abstract: We analyze a divisible good uniform-price auction that features two groups each with a finite number of identical bidders. Equilibrium is unique, and the relative market power of a group increases with the precision of its private information but declines with its transaction costs. In line with empirical evidence, we .nd that an increase in transaction costs and/or a decrease in the precision of a bidding group.s information induces a strategic response from the other group, which thereafter attenuates its response to both private information and prices. A "stronger" bidding group -which has more precise private information, faces lower transaction costs, and is more oligopsonistic- has more market power and so will behave competitively only if it receives a higher per capita subsidy rate. When the strong group values the asset no less than the weak group, the expected deadweight loss increases with the quantity auctioned and also with the degree of payoff asymmetries. Market power and the deadweight loss may be negatively associated.
    Keywords: demand/supply schedule competition; private information; liquidity auctions; Treasury auctions; electricity auctions;
    JEL: D44 D82 E58 G14
    Date: 2017–01–16
  44. By: Jang-Ting Guo (Department of Economics, University of California Riverside); Dustin Chambers (Salisbury University)
    Abstract: This paper examines the disparate impact of US federal regulations on small businesses. In the context of a two-sector dynamic general equilibrium macroeconomic model, we obtain three empirically testable implications of higher regulation: 1) the total number of small firms is reduced, 2) the employment share of small firms shrinks, and 3) small firms’ share of total output declines. Since the first of these testable hypotheses has already been confirmed in previous studies, we focus our attention on the latter two, and find strong empirical support for both. Specifically, we estimate that a ten percent increase in federal regulations reduces the employment share of small firms by nearly 0.7%, and an equally large increase in federal regulations decreases the output share of small firms by nearly 1.5%.
    Keywords: regulation, small business, firm size, industry concentration, dynamic general equilibrium.
    JEL: C23 E23 L11 L51
    Date: 2018–09
  45. By: Toshihiro Okada (School of Economics, Kwansei Gakuin University)
    Abstract: Many developed economies experienced large and correlated fluctuations in the medium run during the postwar period. A good number of industrialized countries experienced high productivity growth during the 1960s and low growth between the early 1970s and the early 1980s. This paper develops a model of medium-run fluctuations incorporating research and development (R&D)-based endogenous growth and international R&D spillovers from a technologically leading country to a technologically lagging country. An important feature of the model is that a key role of the lagging country's R&D is innovation by leaning (IBL) from abroad. After calibration using U.S. and Japanese data, the model shows that changes in U.S.R&D expenditure alone can substantially explain Japan's medium-run fluctuations.The paper argues that the diffusion of U.S. innovations (generated by U.S. R&D) to Japan plays an important role in determining Japan's medium-run fluctuations
    Keywords: International R&D spillovers, technology diffusion, endogenous growth, medium-run fluctuations.
    JEL: E32 O19 O33 O41
    Date: 2018–09
  46. By: Sandra García- Uribe (Banco de España)
    Abstract: This paper studies the effects of anticipations of tax changes in the USA through the release of tax news in the media. I construct a new measure that captures the anticipation of tax bill approvals by exploiting the content of news in the US television. Since this information typically flows faster than standard measures of GDP, I propose a mixed frequency dynamic factor model to estimate both the economic activity latent factor and the effects of anticipated tax shocks on it. I find that onemonth-ahead media anticipations of tax approvals significantly stimulate current economic activity. This stimulation comes from anticipations of tax cuts.
    Keywords: fiscal policy, taxation, mass media, information, beliefs, random forests
    JEL: E62 H20 N12 D80
    Date: 2018–09
  47. By: Döhrn, Roland
    Abstract: Eine wesentliche Grundlage für makroökonomische Analysen sind die Volkswirtschaftlichen Gesamtrechnungen (VGR). Für Deutschland werden diese vom Statistischen Bundesamt vierteljährlich veröffentlicht. Die erste Veröffentlichung basiert noch auf unvollständigen Daten, so dass die Angaben noch mehrfach revidiert werden, bis etwa dreieinhalb Jahre nach Ende eines Jahres der endgültige Wert vorliegt. Überlagert werden diese laufenden Revisionen von sogenannten Generalrevisionen, mit denen systematische Änderungen in den VGR umgesetzt werden. Beobachten lassen sich nur die Revisionen insgesamt, während mit Blick auf die Arbeit der statistischen Ämter und den Gesetzgeber eher das Ausmaß der laufenden Revisionen von Interesse ist. Der vorliegende Beitrag isoliert mit Hilfe eines einfachen Ansatzes die laufenden Revisionen und untersucht deren Ausmaß sowie, ob sie Systematiken folgen. Dabei lassen sich für eine Reihe preisbereinigter Verwendungsaggregate der VGR wie auch für die Erwerbstätigkeit Systematiken wie Verzerrung, Autokorrelation der Revisionen und Korrelation von Ausmaß der der Revision mit der Zuwachsrate der betreffenden Größe finden. Dies weist auf Möglichkeiten hin, durch bessere Datennutzung die Revisionsanfälligkeit der VGR zu verringern. Dies ist auch mit Blick auf die Genauigkeit von Prognosen wünschenswert, denn die Arbeit zeigt am Beispiel der Gemeinschaftsdiagnose, dass die Fehler der im Herbst veröffentlichten Prognosen eng mit den Revisionen der Daten für das erste Halbjahr des betreffenden Jahres korrelieren.
    Keywords: Volkswirtschaftliche Gesamtrechnungen,Datenrevisionen,Prognosegenauigkeit
    JEL: C82 E01 E66
    Date: 2018
  48. By: Güneş, Pinar Mine (University of Alberta); Ural Marchand, Beyza (University of Alberta)
    Abstract: This paper examines the effects of macroeconomic shocks on child schooling in Turkey using household labor force surveys from 2005-2013. We use variation in local labor demand as an instrumental variable, particularly regional industry composition and national industry employment growth rates. The results demonstrate that child schooling is pro-cyclical in Turkey, with the most acute effects among children with less educated parents and living in rural areas. Finally, as hypothesized, we find asymmetric effects on child schooling based on skill composition of economic growth. Higher unemployment among unskilled workers increases schooling, whereas higher unemployment among skilled workers decreases schooling.
    Keywords: schooling, unemployment, business cycles, Turkey
    JEL: J13 J24 O15
    Date: 2018–07
  49. By: Agustin L. Arcenas (School of Economics, University of the Philippines Diliman)
    Abstract: This paper investigates whether climate "shocks" (or short-term but sharp changes in climatic conditions), El Niño and La Niña, have significant impacts on inflation in the country. Using regional panel data and information from PAGASA, this study finds that both of these weather shocks have significant effects on the general price level in the Philippines, along with interest rate, foreign exchange, and unemployment rate. Further, the results also indicate that long-term changes in climatic conditions, specifically average temperature and rainfall, do not have any significant impacts on prices. These findings are consistent with the literature that point to the fact that successful adaptation to long-term changes in climatic conditions negates any potential negative impacts to the economy. The study concludes that adaptation must be expanded not only to respond to long-term changes in climatic conditions, but also to short-term but intense changes in temperature and rainfall.
    Keywords: Inflation; El Niño; La Niña; climate change
    JEL: Q10 Q11 Q54 E00
    Date: 2018–04
  50. By: Xu Zhang (University of California, San Diego)
    Abstract: This paper evaluates the effects of forward guidance and large-scale asset purchases (LSAP) when the nominal interest rate reaches the zero lower bound. I investigate the effects of the two policies in a dynamic new Keynesian model with financial frictions adapted from Gertler & Karadi (2011, 2013), with changes implemented so that the framework delivers realistic predictions for the effects of each policy on the entire yield curve. I then match the change that the model predicts would arise from a linear combination of the two shocks with the observed change in the yield curve in a high-frequency window around Federal Reserve announcements, allowing me to identify the separate contributions of each shock to the effects of the announcement. My estimates correspond closely to narrative elements of the FOMC announcements. My estimates imply that forward guidance was more important in influencing inflation, while LSAP was more important in influencing output.
    Date: 2018
  51. By: Den Haan, Wouter; Drechsel, Thomas
    Abstract: Exogenous random structural disturbances are the main driving force behind fluctuations in most business cycle models and typically a wide variety is used. This paper documents that a minor misspecification regarding structural disturbances can lead to large distortions for parameter estimates and implied model properties, such as impulse response functions with a wrong shape and even an incorrect sign. We propose a novel concept, namely an agnostic structural disturbance (ASD), that can be used to both detect and correct for misspecification of the structural disturbances. In contrast to regular disturbances and wedges, ASDs do not impose additional restrictions on policy functions. When applied to the Smets-Wouters (SW) model, we find that its risk-premium disturbance and its investment-specific productivity disturbance are rejected in favor of our ASDs. While agnostic in nature, studying the estimated associated coefficients and the impulse response functions of these ASDs allows us to interpret them economically as a risk-premium/preference and an investment-specific productivity type disturbance as in SW, but our results indicate that they enter the model quite differently than the original SW disturbances. Our procedure also selects an additional wage mark-up disturbance that is associated with increased capital efficiency.
    Keywords: DSGE; full-information model estimation; structural disturbances
    JEL: C13 C52 E30
    Date: 2018–08
  52. By: Pavel Kapinos (FRB Dallas)
    Abstract: This paper employs a recent contribution to the construction of the shadow nominal interest rate during the zero lower bound episode of the Great Recession of 2008-2009 and the Greenbook forecasts to obtain a measure of monetary policy shocks over that time period. It then identifies monetary policy news shocks as a novel measure of the forward-looking conduct of monetary policy in the U.S. Using the data from 1987-2010 and impulse responses from the method of local projections, it shows that contractionary monetary surprise and news shocks tended to reduce systemic risk measures over the full sample. In contrast, expansionary monetary news shocks reduced systemic risk at the zero lower bound, whereas surprises had little effect. These findings suggest that the Federal Reserve's efforts at providing expansionary forward guidance at the zero lower bound were successful in stabilizing measures of systemic risk during the Great Recession.
    Date: 2018
  53. By: Bognanni, Mark (Federal Reserve Bank of Cleveland)
    Abstract: This paper develops a new class of structural vector autoregressions (SVARs) with time-varying parameters, which I call a drifting SVAR (DSVAR). The DSVAR is the first structural time-varying parameter model to allow for internally consistent probabilistic inference under exact—or set—identification, nesting the widely used SVAR framework as a special case. I prove that the DSVAR implies a reduced-form representation, from which structural inference can proceed similarly to the widely used two-step approach for SVARs: beginning with estimation of a reduced form and then choosing among observationally equivalent candidate structural parameters via the imposition of identifying restrictions. In a special case, the implied reduced form is a tractable known model for which I provide the first algorithm for Bayesian estimation of all free parameters. I demonstrate the framework in the context of Baumeister and Peersman’s (2013b) work on time variation in the elasticity of oil demand.
    Keywords: structural vector autoregressions; time-varying parameters; Gibbs sampling; stochastic volatility; Bayesian inference;
    JEL: C11 C15 C32 C52 E3 E4 E5
    Date: 2018–09–11
  54. By: Klaus Adam (University of Mannheim); Henning Weber (Bundesbank)
    Abstract: We present a sticky-price model incorporating heterogeneous firms and systematic firm-level productivity trends. Aggregating the model in closed form, we show that it delivers radically different predictions for the optimal inflation rate than canonical sticky price models featuring homogenous firms: (1) the optimal steady- state inflation rate generically differs from zero and (2) inflation optimally responds to productivity disturbances. Using micro data from the US Census Bureau to es- timate the inflation-relevant productivity trends at the firm level, we find that the optimal US inflation rate is positive. It was slightly above 2 percent in the year 1986, but continuously declined thereafter, reaching about 1 percent in the year 2013.
    Date: 2018
  55. By: Eita, Joel Hinaunye; Manuel, Victoria; Naimhwaka, Erwin
    Abstract: This paper investigates macroeconomic determinants of the current account balance in Namibia. The results show that there is evidence of twin deficit hypothesis in Namibia. Evidence of twin deficit hypothesis suggest that it is important for Namibia to have fiscal discipline in order to improve its current account. Increase in capital flows, real GDP or per capita, results in a deterioration of the current account. Increase in interest rate, commodity prices and population cause the current account balance to improve. This suggest that contractionary monetary policy contributed to reduction of unproductive imports and improved the current account balance.
    Keywords: current account, balance of payments, cointegration, Namibia
    JEL: C19 F3 F30 F32
    Date: 2018–03–13
  56. By: Sasa Drezgic (University of Rijeka Faculty of Economics)
    Abstract: The paper tries to deal with issue how to increase local government investment finance without jeopardizing fiscal position of local government as well as overall macroeconomic stability. One of the key challenges is to resolve an everlasting conflict between central and subnational government tier related to different perspectives of each jurisdiction. Namely, central government level is more concerned for macroeconomic position and usually is more inclined to centralise debt management and limit borrowing powers of subnational government. On the other hand, subnational government utilizes borrowing for large local communal infrastructure needs but faces short-term perspective of political mandate, which demands control aimed for prevention of excessive borrowing. In addition, heterogeneity of local governments in terms of fiscal capacity and fiscal position makes general deficit sharing mechanisms as poor solution to intergovernmental fiscal management. General deficit sharing mechanisms usually base on fixed budgetary limits, which do not enable control for weak subnational government units and exert too high limitations for more progressive ones. Introduction of more precise dynamic fiscal rules, which account for specific fiscal standing of each local government and fiscal system, would provide incentive for more productive borrowing policies. Such mechanism overcomes short-term financing perspective that comes from short-term political horizon and mid-term focus of budgetary documentation. The results of the research brings clear policy recommendations. It is possible to replace existing deficit sharing mechanisms by more productive and efficient dynamic system. This would bring not just improved debt management control but provide incentive for more efficient borrowing.
    Keywords: subnational government investment, fiscal rules, borrowing, dynamic fiscal rules, deficit sharing
    JEL: E62 H60 H70
    Date: 2018–06
  57. By: International Monetary Fund
    Abstract: Progress has been made in fiscal consolidation and structural reform in the past year. Nevertheless, the country still faces a high debt level, has a low ratio of tax revenue to GDP, and relies heavily on external support. While the economy grew steadily at about 4 percent in the past three years, accelerating growth through consolidating macroeconomic stability and continued structural reforms will be essential for poverty reduction in a country with a young population.
    Keywords: Sub-Saharan Africa;
    Date: 2018–08–02
  58. By: Neil Mehrotra (Brown University)
    Abstract: Drawing on a new, confidential Census Bureau dataset of financial statements of a representative sample of 80000 manufacturing firms from 1977 and 2014, we provide new evidence on the link between size, cyclicality, and financial frictions. First, we only find evidence of lower cyclicality among the very largest firms (the top 1% by size). Second, due to high and rising concentration of sales and investment, the lower sensitivity of the top 1% firms dominates the behavior of aggregate fluctuations. Third, we show that this differential sensitivity does not appear to be driven by financial frictions. The higher sensitivity of the bottom 99% does not disappear after controlling for measures of financial strength, is not statistically significant after identified monetary policy shocks, and does not appear in debt financing flows. Evidence from 3-digit industries suggests a non-financial explanation: the largest 1% of firms are less sensitive due to a more diversified customer base.
    Date: 2018
  59. By: Jed Armstrong; Hayden Skilling; Fang Yao (Reserve Bank of New Zealand)
    Abstract: This paper contributes to the international policy debate on the effect of macroprudential policy on housing-market dynamics. We use detailed New Zealand housing market data to evaluate the effect of loan-to-value ratio (LVR) restrictions on house prices. The main challenge in identifying these effects is that housing markets are affected by a range factors over and above LVR policy. For example, New Zealand experienced a raft of policy changes and macroeconomic shocks during the periods in which LVR policy changes were implemented. Many of these shocks and policies are likely to have affected the housing market. For example, when the first LVR policy was implemented, retail interest rates were rising alongside an increasing expectation for monetary policy tightening, while the New Zealand Treasury was adjusting housing-related policies at the time of the second LVR policy. This paper uses the exemption for new builds from the LVR restrictions as a natural experiment to identify the effect of LVR policy. We find that, over the one year window around the new home exemption, the first LVR policy (referred to as ‘LVR 1’) had a 3 percent moderating effect on house prices, and this moderating effect is broadly similar across both Auckland and the rest of New Zealand. Interestingly, our estimates show that LVR 2 (which tightened restrictions on Auckland properties and loosened restrictions elsewhere) did not significantly stop Auckland house prices from rising. By contrast, house prices in the rest of New Zealand (RONZ) increased by 3 percent due to the relative loosening of the LVR restriction. In LVR 3, the RBNZ further tightened the LVR restrictions on property investors nationwide. The moderating effect of LVR 3 was clearly seen in Auckland with a 2.7 percent reduction in house prices. This LVR 3 effect is both statistically and economically significant, as during the same period the average house price increased by 5.8 percent. Overall, we estimate that the LVR policies reduced house price pressures by almost 50 percent. However, the effect of LVR policy is highly non-linear. When it becomes binding, LVR policy can be very effective in curbing housing prices.
    Date: 2018–04
  60. By: Stephan Imhof; Cyril Monnet; Shengxing Zhang
    Abstract: We develop a theoretical model to study the implications of liquidity regulations and monetary policy on deposit-making and risk-taking. Banks give risky loans by creating deposits that firms use to pay suppliers. Firms and banks can take more or less risk. In equilibrium, higher liquidity requirements always lower risk at the cost of lower investment. Nevertheless, a positive liquidity requirement is always optimal. Monetary conditions affect the optimal size of liquidity requirements, and the optimal size is countercyclical. It is only optimal to impose a 100% liquidity requirement when the nominal interest rate is sufficiently low.
    Date: 2018
  61. By: Nils Mattis Gornemann (International Finance Board of Governors)
    Abstract: We study the design of coordinated labor market and monetary policy in a heterogeneous agent model with incomplete markets, search frictions, and nominal rigidities. We allow for self-insurance through savings and moral hazard in search behavior. In such a model a rise in labor market risk during a recession causes an increase in desired precautionary savings by households leading to a fall in aggregate demand which amplifies the initial downturn. Increasing unemployment benefits or cutting interest rates can both help to counteract this amplification effect. Therefore, gains from coordinating policies arise which are the focus of our analysis. Extending recent methods for the solution of heterogeneous agent models with aggregate risk we solve a sequence of Ramsey problems with a varying sets of policy instruments in this economy to quantify the effects of policy coordination and optimal policy behavior over the business cycle.
    Date: 2018
  62. By: UNAYAMA Takashi; OHNO Taro
    Abstract: Following the methodology developed in our previous papers (Unayama and Ohno, 2017a and 2017b), we construct household income and expenditure data that are consistent with macro data, or national accounts, yet are based on micro data. We improve the methodology and update to the latest data of the 2014 National Survey of Family Income and Expenditure (NSFIE). According to the constructed data, the decreasing trend in the macro savings rate has been induced by the elderly. We further observe that while consumption has been stable over birth cohorts, disposable income has become lower for later generations. This trend was brought by the lower interest income associated with the zero interest policy and the lower public pension income. Since the lower public pension benefits are a result of population aging given the pay-as-you-go finance system, the lower savings rate is regarded as a result of population aging.
    Date: 2018–08
  63. By: Mariam Camarero (Jaume I University. Department of Economics, Av. de Vicent Sos Baynat s/n, E-12071 Castellón, Spain); Gaetano D’Adamo (University of Valencia, Department of Applied Economics II, Av. dels Tarongers, s/n Eastern Department Building E-46022 Valencia, Spain); Cecilio Tamarit (University of Valencia, INTECO Joint Research Unit. Department of Applied Economics II. PO Box 22.006 - E-46071 Valencia, Spain)
    Abstract: This paper estimates a simple equilibrium wage equation for a subset of Eurozone countries over the period 1995-2015 using panel cointegration methods that account for cross-country heterogeneity and allow for structural breaks. Results show that the equilibrium wage has been affected by a structural change contemporaneous to the international financial crisis. Moreover, it has different determinants across euro area countries, among which two relatively distinct groups can be identified. In particular, the wage equation in Germany, Austria, Belgium, the Netherlands and Finland is more homogeneous and seem to respond more to macroeconomic conditions than in the group composed of Italy, Spain, Portugal, France and Ireland. This result is highly policy relevant in the context of a single monetary policy, as it may explain the diverging behavior of wages across the Eurozone and also be a potential source of asymmetric shocks and/or asymmetric response to a common shock.
    Keywords: panel cointegration, wage setting, labor market, productivity, real exchange rate
    JEL: E24 C23
    Date: 2018–09
  64. By: Jon Jellema; Caroline Tassot
    Abstract: Le gouvernement togolais a entrepris des réformes importantes après la crise des années 90 dans le but d’améliorer les conditions de vie de la population grâce à des politiques publiques adaptées, notamment à travers la Stratégie de croissance accélérée et de promotion de l’emploi (SCAPE) 2013-17. Malgré des améliorations du niveau d’éducation et une augmentation de l’espérance de vie, les défis en termes de pauvreté et d’inégalités restent très importants. Cette étude estime l’impact redistributif des revenus fiscaux (les impôts) et des dépenses fiscales à travers les transferts monétaires, non monétaires, et les subventions, sur les revenus des ménages et les inégalités. Deux conclusions ressortent de cette analyse : la politique fiscale réduit les inégalités au Togo, mais appauvrit les ménages les plus pauvres.
    Keywords: Dépenses publiques, Politique fiscale, Taxation
    JEL: E62 H20 H50
    Date: 2018–09–17
  65. By: André Sapir
    Abstract: During the 1970s and 1980s, Belgium and Italy accumulated huge amounts of public debt. In the early 1990s, at the time of the Maastricht Treaty, public debt reached a peak of nearly 140 percent of GDP in Belgium and nearly 130 percent in Italy. After Maastricht, both countries made major fiscal efforts in order to qualify for membership of the euro. When the euro was launched in 1999, public debt had been brought down substantially in the two countries, to roughly 110 percent of GDP. At the time Belgium and Italy were also identical in another respect - GDP per capita. Today the situation is very different. The level of public debt is 130 percent of GDP in Italy against only 100 percent in Belgium. Worse, in GDP per capita terms, Italy is now 20 percent poorer than Belgium. No wonder Italians are dissatisfied with their lot. This Policy Contribution looks at the evolution of public debt in Belgium and Italy since 1990 and seeks to explain the contrasting evolution in the two countries in the run-up to the introduction of the euro, during the early years of the euro and since the beginning of the crisis. It finds that, after substantial fiscal efforts during a relatively brief period before the launch of the euro, Italy’s efforts tailed off, while Belgium continued to consolidate its debt at an impressive pace. Italy also did too little to improve its growth performance, which lagged significantly behind Belgium’s and that of all other euro-area countries. When the crisis hit the two countries, Italy was therefore much more vulnerable to market sentiment than Belgium, especially when the sovereign debt crisis spread from Greece to other euro-area countries. Italy responded to the onslaught of markets with austerity measures, which made matters worse, sending GDP growth into negative territory and increasing the debt-to-GDP ratio. Politics has been central to the contrasting debt dynamics in the two countries. Bad domestic politics prior to Maastricht were responsible for the huge accumulation of public debt in Belgium and Italy up to the early 1990s. Maastricht brought fiscal discipline to both countries, but the constraint proved more binding on Belgium than on Italy once the two countries joined the euro. During the crisis, Belgium fared better than Italy because its political class displayed an absolute commitment to debt sustainability and to euro membership that was at times lacking in Italy.
    Date: 2018–09
  66. By: Ryan Chahrour (Boston College); Robert Ulbricht (Toulouse School of Economics)
    Abstract: We develop a methodology to characterize equilibrium in DSGE models, free of parametric restrictions on information. First, we define a “primal” economy in which deviations from full information are captured by wedges in agents' expectations. Then, we provide conditions ensuring some information-structure can implement these wedges. We apply the approach to estimate a business cycle model where firms and households have dispersed information. The estimated model fits the data, attributing the majority of fluctuations to a single shock to households' expectations. The responses are consistent with an implementation in which households become optimistic about local productivities and gradually learn about others' optimism.
    Date: 2018
  67. By: Bayer, Christian (University of Bonn); Kuhn, Moritz (University of Bonn)
    Abstract: Wages grow but also become more unequal as workers age. Using German administrative data, we largely attribute both life-cycle facts to one driving force: some workers progress in hierarchy to jobs with more responsibility, complexity, and independence. In short, they climb the career ladder. Climbing the career ladder explains 50% of wage growth and virtually all of rising wage dispersion. The increasing gender wage gap by age parallels a rising hierarchy gap. Our findings suggest that wage dynamics are shaped by the organization of production, which itself likely depends on technology, the skill set of the workforce, and labor market institutions.
    Keywords: Human capital; Life-cycle wage growth; Wage inequality; Careers
    JEL: D33 E24 J31
    Date: 2018–09–12
  68. By: Zheng Li (School of Economics and Finance, Xi’an Jiaotong University, China); Jorge Martinez-Vazquez (International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State Univeristy)
    Abstract: Misallocation of factors of production has been recently viewed as a promising explanation accounting for the large difference in total factor productivity (TFP) across countries. This paper differs from previous studies by concentrating on interregional capital misallocation and by focusing on the role of fiscal decentralization in shaping misallocation. Using a municipal level panel data set, we measure intra-provincial and inter-municipal capital misallocation in China over 2003-2015. The empirical results based on provincial level panel data suggest that revenue decentralization mitigates interregional misallocation while expenditure decentralization fails to exert a significant impact. We further find that this positive effect is more significant and much larger when it is the market rather than government intervention that is driving the flow of capital. The results are robust to different specifications, IV estimations and alternative measurement of interregional misallocation. Our study complements the literature on the causes of misallocation and enriches the understanding of the consequences of fiscal decentralization, especially in terms of economic growth and interregional inequality.
    Date: 2018–09
  69. By: Charles W. Calomiris; Sophia Chen
    Abstract: We construct a new measure of the changing generosity of deposit insurance for many countries, empirically model the international influences on the adoption and generosity of deposit insurance, and show that the expansion of deposit insurance generosity increased asset risk in banking systems. We consider three asset risk measures: higher loans-to-assets, a higher proportion of lending to households, and a higher proportion of mortgage lending. None of the observed increases in these indicators is offset by declines in banking system leverage. We show that increased asset risk explains at least part of the positive association between deposit insurance and the likelihood and severity of systemic banking crises.
    JEL: E32 F55 G01 G18 G21 G28
    Date: 2018–08
  70. By: Joshua Hausman (University of Michigan); Johannes Wieland (UCSD); Paul Rhode (University of Michigan)
    Abstract: We investigate the extent to which the size and characteristics of the agriculture sector explain a large part of why initial, negative shocks resulted in a large downturn. Preliminary evidence suggests the following causal chain: As a recession began in the U.S. and abroad in summer 1929, farm prices plummeted; this, in turn, reduced farm incomes. As lower farm incomes interacted with fixed nominal debt burdens, farm consumption collapsed. And lower farm prices not only depressed the incomes of farmers, they also led to economy-wide deflation.
    Date: 2018
  71. By: Andrea Barón (Banco Central del Uruguay); Gerardo Licandro (Banco Central del Uruguay); Miguel Mello (Banco Central del Uruguay); Pablo Picardo (Banco Central del Uruguay)
    Abstract: En este trabajo se presenta el resultado de una encuesta a empresas uruguayas sobre prácticas de facturación por moneda tanto en comercio exterior como en el mercado doméstico. El cuestionario fue distribuido a una muestra representativa de las empresas grandes que forman el marco de la encuesta de actividad económica del INE en junio de 2016. Encontramos que cerca de un 50% de las empresas hacen al menos algo de su facturación doméstica en moneda extranjera, mientras que un 34% realiza más de un 10% de la facturación en esa moneda. La facturación en moneda extranjera en el mercado doméstico está positivamente relacionada con el nivel de exportaciones de la empresa, con la participación de los insumos importados en los costos totales y con la participación de los insumos domésticos facturados en moneda extranjera en los insumos totales. A su vez, las empresas grandes tienen menor incidencia de la facturación doméstica en moneda extranjera. Asimismo, una gran proporción de las empresas toma la decisión de facturación doméstica por moneda de forma no dicotómica lo que sugiere la importancia de prácticas de manejo de riesgos financieros (en particular de tipo de cambio) en la decisión de moneda de facturación. Nuestros resultados en materia de facturación de comercio exterior son generalmente consistentes con la literatura internacional, y reafirman el rol que el dólar tiene como moneda vehículo de comercio en el Uruguay.
    Keywords: facturación doméstica, moneda de facturación, comercio internacional, dolarización, precios, insumos importados, Uruguay
    JEL: E42 F10 F31 F33
    Date: 2017
  72. By: Luca Fornaro (CREI and Universitat Pompeu Fabra)
    Abstract: This paper describes a paradox of global thrift. Consider a world in which interest rates are low and monetary policy is frequently constrained by the zero lower bound. Now imagine that governments implement prudential financial and fiscal policies, aiming at increasing national savings in good times to sustain aggregate demand and employment during busts. We show that these policies, while effective from the perspective of individual countries, might backfire if applied on a global scale. The reason is that prudential policies by booming countries generate a rise in the global supply of savings or, equivalently, a fall in global aggregate demand. In turn, weaker global aggregate demand exacerbates the recession in countries currently stuck in a liquidity trap. Therefore, paradoxically, the world might very well experience a fall in employment and output following the implementation of prudential policies.
    Date: 2018
  73. By: Stefania Albanesi; Jaromir Nosal
    Abstract: The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) is the most important reform of personal bankruptcy in the United States in recent years. This legislation overhauled eligibility requirements and increased monetary costs of filing for bankruptcy. Using administrative credit file data from a nationally representative panel, we quantify the effects of the reform on bankruptcy, insolvency, and foreclosure, we explore the mechanism generating these responses and examine the consequences for households. We find that the reform caused a 50% permanent drop in Chapter 7 filings, a 25% permanent rise in insolvency, but had no effect on Chapter 13 filings. Exploiting the cross-district variation in filing costs resulting from the reform, we show that these responses are driven by liquidity constraints associated with the higher monetary cost of filing for bankruptcy. We show that insolvency is associated with worse outcomes than bankruptcy, in terms of access to credit and credit scores, suggesting that BAPCPA may have removed an important form of relief for financially distressed borrowers.
    JEL: E21 E49 G18 K35
    Date: 2018–08
  74. By: Feld, Lars P.
    Abstract: James Buchanan pioneered the political economics of public debt 60 years ago. In this paper, we contrast his thinking of the burden of debt, the public choice mechanisms that lead to excessive debt and the demand for constitutional restraints on public debt with its development, its sustainability, the evidence on the political economy of debt and on the effects of institutions. It turns out that Buchanan farsightedly anticipated the problems that would emerge from excessive indebtedness in the developed world. The introduction of fiscal rules appear as a late triumph of Buchanan's thinking. However, socialism is dead, but Leviathan lives on. Opposition to sound fiscal policies has increasingly dominated the public debates since the Great Recession.
    Keywords: James Buchanan,Public Debt,Fiscal Commons Problems,Fiscal Rules
    JEL: H6 E6 D72 K39
    Date: 2018
  75. By: Karam Shaar; Fang Yao (Reserve Bank of New Zealand)
    Abstract: Understanding household consumption spending is crucial for modelling business cycles and designing macroeconomic policy. This paper investigates how household debt affects the marginal propensity to consume out of housing wealth. We use microdata from Statistics New Zealand’s "Household Economic Survey" (HES) to investigate how household leverage affects the marginal propensity to consume (MPC) out of housing wealth. HES data provide detailed information on household spending, income and loans. Empirically, estimating the effect of housing wealth changes on household expenditure faces two types of endogeneity issues. First, any evidence of an association between housing wealth variations and consumption changes could be driven by unobservable confounding factors such as future income expectations or household preferences. Second, naive regressions with total household spending can suffer from reversed causality, in which high housing-related spending leads to higher property values. We combine HES data with Real Estate Institute of New Zealand (REINZ) micro house price data to address the endogeneity issues that arise from using household-level cross-sectional data. In the empirical analysis, we first assess the validity of average local house prices as an instrument for individual house prices. The first stage regression suggests that the instrument can explain up to 22 percent of the variation in individual house prices reported in HES. We then run a benchmark regression of total household expenditure excluding housing-related spending on housing wealth. The IV estimation suggests that using household-level prices leads to downward bias, which is the result of various causes of endogeneity issues discussed above. The average MPC out of a one-dollar increase in exogenous housing wealth is around 2.2 cents. All regressions control for income, household characteristics, and regional and time fixed effects. We also split non-housing expenditure into durables and non-durables. In line with other studies in the literature, we find that durable consumption is more sensitive to changes in housing wealth than non-durables. We then focus on the role of household leverage in determining the MPC out of housing wealth. In this analysis, we study how leverage measures, such as the loan-to-house-value ratio (LVR) and the DTI, affect the estimated MPC out of housing wealth. Overall, we find that household leverage weakens the MPC associated with housing. To examine the robustness of these findings, we investigate whether household spending responds differently depending on the age and type 5 of home ownership. The findings confirm that the consumption of mortgagors is less sensitive to housing wealth as compared to outright homeowners. The regression with an age-housing wealth interaction also shows that the response of younger households to changes in their housing wealth is weaker than the response of older households, which tend to be less leveraged.
    Date: 2018–04
  76. By: Ross Doppelt (Penn State); Keith O'Hara (New York University)
    Abstract: We introduce a new method for Bayesian estimation of fractionally integrated vector autoregressions (FIVARs). The FIVAR, which nests a standard VAR as a special case, allows each series to exhibit long memory, meaning that low frequencies can play a dominant role — a salient feature of many macroeconomic and financial time series. Although the parameter space is typically high-dimensional, our inferential procedure is computationally tractable and relatively easy to implement. We apply our methodology to the identification of technology shocks, an empirical problem in which business-cycle predictions depend on carefully accounting for low-frequency fluctuations.
    Date: 2018
  77. By: KLIMAVICIUTE Jutina, (Université de Liège); ONDER Harun, (World Bank); PESTIEAU, Pierre, (Université de LIège, CORE, and PSE)
    Abstract: The role of inherited wealth in modern economies has increasingly come under scrutiny. This study presents one of the first attempts to shed light on how demographic aging could shape this role. It shows that, in the absence of retirement annuities, or for a given level of annuitization, both increasing longevity and decreasing fertility should reduce the inherited share of total wealth in a given economy. Thus, aging is not likely to explain a recent surge in this share in some advanced economies. Shrinking retirement annuities, however could offset and potentially reverse these effects. The paper also shows that individual bequests will be more unequally distributed if aging is driven by a drop in fertility. In comparison, the effect of increasing longevity on their distribution is non-monotonic.
    Keywords: inherited wealth, inheritance, aging, inequality, social security
    JEL: D14 D31 D64 D91 E21 H55 J11
    Date: 2018–03–16
    Abstract: This study investigated the foreign exchange market in Nigeria to determine the significance of past exchange rates in predicting the present exchange rates which is a test of weak form efficiency. It examined the cointegration between selected pairs of exchange rates to determine the semi strong form efficiency, and inspected the variant of the Random Walk Model that exchange rates in Nigeria conformed to. Secondary data sourced mainly from the Central Bank of Nigeria Statistical Bulletin 2014 and its official websites were used. The study?s data were the spot and nominal monthly average foreign exchange rate series from the official market of Naira to Dollar, Naira to Pounds, Naira to Yen, Naira to Swiss Franc and Naira to CFA Franc between January, 1986 and December, 2015. Methods used include the autocorrellation function, unit root test and Johansen Cointegration test Autocorrelation and unit root tests revealed that all the series were non-stationary at level and became stationary at first difference. In addition, the Johansen cointegration test revealed that there were no cointegrating equations between selected pairs of exchange rates and the coefficients of determination were highest with the assumption of intercept and trend. The findings implied that the foreign exchange market in Nigeria within the sample period was efficient in the weak and semi strong forms, that is, information in past exchange rate series and public information were fully reflected in current exchange rates, the exchange rate series lacked exploitable pattern and conformed to the Random Walk Model with intercept and deterministic trend. The study therefore recommended that a more liberalized flexible exchange rate regime and improvements in money supply, national income, local and foreign bonds.
    Keywords: Exchange Market Efficiency, Nigeria foreign exchange market, Unit root, Cointegration, Granger causality test.
    JEL: E44
    Date: 2018–06
  79. By: Eduardo Davila (New York University); Thomas Philippon (New York University)
    Abstract: This paper studies the effects of shocks to the degree of market completeness. We present a dynamic stochastic economy where agents can trade in complete markets in normal times, but where financial markets can stochastically become incomplete. When this happens, agents cannot trade in state contingent assets and cannot re-hedge their risks. Our model formalizes a new type of purely financial shock, which we call an incompleteness shock. Even if we allow our agents to hedge the incompleteness shock itself, we find that these shocks are sufficient to trigger a recession with misallocation of capital, lower aggregate output, and consumption. Our results imply that financial market disruptions will unavoidably generate a recession, even if they are perfectly anticipated and agents can freely reallocate resources ex-ante.
    Date: 2018
  80. By: Johannes Boehm; Ezra Oberfield
    Abstract: The strength of contract enforcement determines how firms source inputs and organize production. Using microdata on Indian manufacturing plants, we show that production and sourcing decisions appear systematically distorted in states with weaker enforcement. Specifically, we document that in industries that tend to rely more heavily on relationship-specific intermediate inputs, plants in states with more congested courts shift their expenditures away from intermediate inputs and appear to be more vertically integrated. To quantify the impact of these distortions on aggregate productivity, we construct a model in which plants have several ways of producing, each with different bundles of inputs. Weak enforcement exacerbates a holdup problem that arises when using inputs that require customization, distorting both the intensive and extensive margins of input use. The equilibrium organization of production and the network structure of input-output linkages arise endogenously from the producers' simultaneous cost minimization decisions. We identify the structural parameters that govern enforcement frictions from cross-state variation in the first moments of producers' cost shares. A set of counterfactuals show that enforcement frictions lower aggregate productivity to an extent that is relevant on the macro scale.
    JEL: E23 F12 O11
    Date: 2018–08
  81. By: Edouard Challe (CREST & Ecole Polytechnique)
    Abstract: I study optimal monetary policy in a New Keynesian economy wherein house- holds precautionary-save against uninsured, endogenous unemployment risk. In this economy greater unemployment risk raises desired savings, causing aggregate demand to fall and ul- timately feed back to greater unemployment risk. I show this deationary feedback loop to be constrained-ine¢ cient and to call for an accommodative monetary policy response: after a contractionary aggregate shock the policy rate should be kept signi cantly lower and for longer than in the perfect-insurance benchmark. For example, the usual prescription obtained under perfect insurance of a hike in the policy rate in the face of a bad supply (i.e., productivity or cost-push) shock is easily overturned. If implemented, the optimal policy e¤ectively breaks the deflationary feedback loop and takes the dynamics of the imperfect-insurance economy close to that of the perfect-insurance benchmark.
    Date: 2018
  82. By: Javier Turen (UCL)
    Abstract: This paper develops a model in which firms acquire costly information to make pricing decisions. Prices are set by tracking an unobserved target whose volatility depends on a persistent state of the economy. Firms are Rationally Inattentive since they face different information processing costs when learning the target. By embedding heterogeneous time-invariant information costs in this persistent volatility setting, I show that the model endogenously generates countercyclical dispersion in price changes, as documented by re- cent empirical findings. Costly information generates a delay in the rate at which firms’ recognize any change of state, leading to different pricing decisions through the transition. Endogenous information and heterogeneous costs alone are enough to replicate the empirical time-varying evolution of the dispersion of price changes, as well as the positive co-movement between the dispersion and frequency of price changes.
    Date: 2018
  83. By: Judit Kapas (University of Debrecen)
    Abstract: This paper relies on the idea that culture has several layers which can be separated on the basis of the degree of stickiness between a particular cultural component and formal institutions. This procedure, by allowing us to focus on more specific questions as to how culture affects development, helps improve the somewhat controversial empirical results of the literature.As an extension of the theory of institutional stickiness (Boettke et al. 2008), I distinguish two cultural layers: a rigid and a slow-moving layer. The rigid layer includes values reflecting the most basic norms, judgments, and beliefs, which do not change. The slow-moving layer includes those cultural components that depend upon individuals? circumstances and the prevailing institutions, and can change if these change. The degree of stickiness between the slow-moving layer and institutions is very high because institutions find their roots directly in that cultural layer. However, the rigid layer and institutions are a bit ?farther? from one other, which allows a certain degree of divergence from a perfect correspondence between them. In the cross-country empirical analyses, including IV estimations, I check the hypotheses derived from this stickiness model, and focus on how a particular cultural layer operating in conjunction with institutions affects development. When it comes to the rigid layer proxied by individual values (Schwartz 1999), besides establishing that both values and institutions are strong determinants of development, I also find that their interaction acts as a separate factor. This means that values are not fully embodied in institutions. The effect of the slow-moving layer proxied by trust (WVS), however, is very different: trust does not exert an impact on development once institutions are controlled for, and there is no interaction between them, meaning that trust is crystallized in institutions. The results are very robust to alternative variables and specifications.
    Keywords: instututions, culture, economic development
    JEL: E02 O43
    Date: 2018–06
  84. By: Marcin Dec
    Abstract: We consider feasible Heath-Jarrow-Morton framework specifications that are easily implementable in XVA engines when pricing linear and non-linear interest rate derivatives in multicurve environment. Our particular focus is on relatively less liquid markets (Polish PLN) and the calibration problems arising from that fact. We first develop necessary tool-kit for multicurve construction and XVA integration and then show and discuss various specifications of HJM model with regard to their practical usage. We demonstrate the importance of Cheyette subclass and derive dynamics of instantaneous forward rates in generic form. We performed calibrations of several one-factor models of that form and found out that even with relatively simple specification i.e. Hull-White with two summands we may achieve satisfactory results in terms of calibration's quality and calculation time.
    Keywords: instantaneous forward rate models, multi-curve valuation, valuation adjustments, XVA, Heath-Jarrow-Morton, volatility surface calibration, HJM framework, Monte Carlo simulation, Cheyette model, Gaussian models
    JEL: G12 G13 E43
    Date: 2018–06
  85. By: Maria Tsafa-Karakatsanidou (Department of Economics, University of Macedonia); Stilianos Fountas (Department of Economics, University of Macedonia)
    Abstract: This paper attempts to test for inflation convergence in a sample of twenty-four European Union countries. To tackle this issue, first- and second-generation panel unit root and stationarity tests are employed so as to provide evidence of inflation convergence before and after the launch of the single currency, the euro. We also test for and then allow for cross-sectional dependence. In general, the findings reveal that conditional inflation convergence exists for all panels under study. The estimation of half lives shows that the evidence for faster speed of convergence applies for the new member states followed by the core countries and the old member states.
    Keywords: Inflation Convergence, EU, Maastricht Criteria, Panel data.
    JEL: C33 E3 F33
    Date: 2018–09
  86. By: Thomas, Margo; Córdova-Novion, César; de Haan, Arjan; de León, Gimena; Forest, Maxime; Iyer, Sandhya S.
    Abstract: As a starting point, this paper recognizes the importance of gender equity for economic growth, societal well-being, and sustainable development. Moreover, the paper acknowledges that while women make up half of the world's population, most policy, program and government initiatives affect women and men differently. To address gaps in policies, implementation and impacts the authors propose a strategic approach to gender mainstreaming that strengthens inclusive policy making by adding a gender lens and tools for assessing the impact of policies on women and other under-represented groups and targets the determinants of gender inequity, based on three pillars: systematic reviews of policies, laws and regulations that limit women's economic activity; gender budgeting; and improving the quality of gender disaggregated data to support impact assessments, policy analyses, and advocacy. The commitment of the Argentine presidency to fostering a gender mainstreaming strategy across the whole G20 agenda and boosting "women's empowerment, the elimination of gender disparities in employment, science, technology and education, and protection from all forms of gender-based violence." provides an opportunity for bringing this issue forward for the 2018 G20.
    Keywords: budgeting,economic empowerment,gender,gender equity,impact assessments,mainstreaming,policy,process
    JEL: E61 H61
    Date: 2018
  87. By: Randy Tudy (Cor Jesu College)
    Abstract: Unemployment is global phenomenon even among advanced countries. The phenomenon of people working from home is gaining interest for many people, especially those still looking for jobs. The main purpose of this study was to explore on the work experiences of people working from home or the virtual professionals. This study employed a qualitative research design using phenomenological tradition. Twelve participants from different parts of the Philippines willingly responded to the Key Informant Interviews (KII). In terms of how the participants described their life, including the advantages, the findings revealed the following themes: Freedom, Flexibility, Family Time, Learning Experience, Convenience and Financial Advantage. As to the challenges they experienced, Internet Interruption, Distractions, and Less Social Life were the three major themes that came out. For their suggestions to those still looking for jobs, three themes emerged: Online Work, Confidence and Skills Development. The participants were happy with their work, giving the fact that they have more time with their family and enjoy other benefits. The findings of the study were sources of inspiration for those who are still jobless, for parents who want to be with their kids, but still earn a living, and even for people with disabilities (PWD). Indeed, without much government intervention and investment, the virtual professionals are finding jobs and are paving the way for combating unemployment. The implication of the study is for government and other agencies to understand this new phenomenon and to create mechanisms to support and promote it.
    Keywords: Economics, Work from home, Virtual Professionals, Employment, Phenomenology, Philippines
    JEL: A10 O15 E24
    Date: 2018–06
  88. By: Phiri, Andrew
    Abstract: The Kingdom of Swaziland is a small, open economy which is heavily dependent on trade activity with neighboring and other industrialized countries. This study implements the recently-developed fractional frequency flexible Fourier form (FFFFF) unit root to examine the income convergence hypothesis for a dataset of per capita income differences between Swaziland and 5 of her main trading partners over a period of 1950 to 2016. With the exception of Japan, the empirical evidence indicates non-convergence of Swaziland towards her main trading partners.
    Keywords: Income convergence; fractional frequency flexible Fourier form (FFFFF) unit root test; Swaziland.
    JEL: C21 C22 E23
    Date: 2018–09–03

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