nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒10‒08
ninety papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. タイトル:カレツキアン・モデルの基本骨格――短期モデルと長期モデル―― By Sasaki, Hiroaki
  2. Monetary Policy Uncertainty: A Tale of Two Tails By Tatjana Dahlhaus; Tatevik Sekhposyan
  3. Households' balance sheets and the effect of fiscal policy By Javier Andrés; José E. Boscá; Javier Ferri; Cristina Fuentes-Albero
  4. Quantitative or qualitative forward guidance: Does it matter? By Gunda-Alexandra Detmers; Özer Karagedikli
  5. Do Market Segmentation and Preferred Habitat Theories Hold in Japan? : Quantifying Stock and Flow Effects of Bond Purchases By Nao Sudo; Masaki Tanaka
  6. A Reaction Function for the Bank of the Central African States in a Context of Fiscal Dominance By BIKAI, J. Landry; MBOHOU M., Moustapha
  7. Banking and Financial Participation Reforms, Labor Markets, and Financial Shocks By Epstein, Brendan; Finkelstein Shapiro, Alan
  8. An Estimated DSGE Model with a Deflation Steady State By Yasuo Hirose
  9. ECB spillovers and domestic monetary policy effectiveness in small open economies By Saskia Ter Ellen; Edvard Jansen; Nina Larsson Midthjell
  10. Sobre volatilidad macroeconómica y dolarización de la riqueza: el caso argentino By Cesteros, Santiago Rodrigo
  11. Money and business cycle: Evidence from India By Ashima Goyal; Abhishek Kumar
  12. Determinants of inflation in CEMAC: the role of money By BIKAI, J. Landry; BATOUMEN M., Hardit; FOSSOUO, Armand
  13. Quarterly Projection Model for Croatia By Rafael Ravnik; Nikola Bokan
  14. Predetermined Interest Rates in a Analytical RBC model By Fève, Patrick; Moura, Alban; Pierrard, Olivier
  15. Missing Events in Event Studies: Identifying the Effects of Partially-Measured News Surprises By Refet S. Gürkaynak; Burçin Kısacıkoğlu; Jonathan H. Wright
  16. The macroeconomic effects of macroprudential policy By Björn Richter; Moritz Schularick; Ilhyock Shim
  17. Real and Imagined Constraints on Euro Area Monetary Policy By Patrick Honohan
  18. Balance Sheet Implications of the Czech National Bank's Exchange Rate Commitment By Michal Franta; Tomas Holub; Branislav Saxa
  19. "Exchange rates, catch up, and lagging behind in Europe since 1870" By Jonas Ljungberg; Anders Ögren
  20. Understanding Monetary Policy and its Effects: Evidence from Canadian Firms Using the Business Outlook Survey By Matthieu Verstraete; Lena Suchanek
  21. Chinese resource demand or commodity price shocks: Macroeconomic effects for an emerging market economy By Renée Fry-McKibbin; Rodrigo da Silva Souza
  22. Frosted glass or raised eyebrow? Testing the Bank of England’s discount window policies during the crisis of 1847 By Kilian Rieder; Michael Anson; David Bholat; Miao Kang; Ryland Thomas
  23. Pursuing the Philips curve in an African monarchy: A Swazi case study By Andrew Phiri
  24. Effect of Aging on Urban Land Prices in China By Sun, Tianyu; Chand, Satish; Sharpe, Keiran
  25. Exchange Rates and Prices: Evidence from the 2015 Swiss Franc Appreciation By Auer, Raphael; Burstein, Ariel; Lein, Sarah M.
  26. The Ins and Outs of Involuntary Part-time Employment By Borowczyk-Martins, Daniel; Lalé, Etienne
  27. Short-term forecasting economic activity in Germany: A supply and demand side system of bridge equations By Pinkwart, Nicolas
  28. Optimal Growth Policies in a Two-Sector Model with Financial Market Imperfections By Nguyen, Quoc Hung
  29. Flooded through the Back Door: Firm-Level Effects of Banks' Lending Shifts By Oliver Rehbein
  30. An intermediation-based model of exchange rates By Semyon Malamud; Andreas Schrimpf
  31. Wage Growth Puzzles and Technology By Geoff Weir
  32. The Silver Standard as a discipline on money over-issuance: The mechanism of paper money in Yuan China By Hanhui Guan; Jie Mao
  33. Scarcity and Spotlight Effects on Liquidity and Yield: Quantitative Easing in Japan By Loriana Pelizzon; Marti G. Subrahmanyam; Reiko Tobe; Jun Uno
  34. Search and Credit Frictions in the Housing Market By Victor Ortego-Marti; Miroslav Gabrovski
  35. Reserve requirements and capital flows in Latin America By Michael Brei; Ramon Moreno
  36. Why you should use the Hodrick-Prescott filter - at least to generate credit gaps By Mathias Drehmann; James Yetman
  37. An Assessment of Association between Natural Resources Agglomeration and Unemployment in Pakistan By Ali, Amjad; Zulfiqar, Kalsoom
  38. Financial cycle and conduct of monetary policy: The amplifier/divider theory By CHAFIK, Omar
  39. Financial cycle and conduct of monetary policy: theory and empirical evidence By CHAFIK, Omar
  40. Trinidad and Tobago; 2018 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  41. Implications of Lower Trend Productivity Growth for Tax Policy By Karen Dynan
  42. Drivers and Impact of Food Inflation in India By Bhattacharya, Rudrani; Sen Gupta, Abhijit
  43. Modelling Economic Development: The Lewis Model Updated By Carmel Chiswick
  44. Uniting European fiscal rules: How to strenghten the fiscal framework By Christofzik, Désirée; Feld, Lars P.; Reuter, Wolf Heinrich; Yeter, Mustafa
  45. What drives local lending by global banks? By Stefan Avdjiev; Uluc Aysun; Ralf Hepp
  46. The evolving impact of global, region-specific and country-specific uncertainty By Haroon Mumtaz; Alberto Musso
  47. Pricing and hedging GDP-linked bonds in incomplete markets By Andrea Consiglio; Stavros A Zenios
  48. Postkeynesianismus: Ein heterodoxer Ansatz auf der Suche nach einer Fundierung By Heise, Arne
  49. Claiming the Usefulness of Relative Welfare Indicators in General Equilibrium Analysis:A Comprehensive Comparison of VAT Reforms. By Ana-Isabel Guerra
  50. Fiscal Convergence in Africa: What Role for Regional Economic Communities? By Daouda SEMBENE; Vigninou GAMMADIGBE; Ismaël ISSIFOU; Sampawende J.-A. TAPSOBA
  51. Fiscal Convergence in Africa: What Role for Regional Economic Communities? By Daouda SEMBENE; Vigninou GAMMADIGBE; Ismaël ISSIFOU; Sampawende J.-A. TAPSOBA
  52. The economics of the super-multiplier By Thomas Palley
  53. The political economy of reforms in central bank design: evidence from a new dataset By Davide Romelli
  54. Fiscal Sustainability in the EU After the Global Crisis: Is there any Progress? By Maciej Wysocki; Cezary Wójcik
  55. Optimal Asset Allocation for Commodity Sovereign Wealth Funds By Irarrazabal, Alfonso A.; Ma, Lin
  56. Expectations, Price Fluctuations and Lorenz Attractor By Olkhov, Victor
  57. The Falling Elasticity of Global Trade to Economic Activity: Testing the Demand Channel By Marc Auboin; Floriana Borino
  58. A novel Optimization Plan for Multiple-Area Economic Dispatch : An Electro Search Optimization Approach By Kapoor, Advik; Kaur, Vijay
  59. Estimating the Benefits of New Products By Diewert, Erwin; Feenstra, Robert
  60. US Monetary Policy, Global Risk Aversion, and New Zealand Funding Conditions By Eric Tong
  61. If France continues this strategy, taxes will destroy domestic investment and economic growth By Bakari, Sayef
  62. If France continues this strategy, taxes will destroy domestic investment and economic growth By Bakari, Sayef
  63. Commodity Prices, Monetary Policy and the Taylor Rule By Siami-Namini, Sima; Hudson, Darren; Trindade, A. Alexandre; Lyford, Conrad
  64. Forecasting with Second-Order Approximations and Markov Switching DSGE Models By Sergey Ivashchenko; Semih Emre Çekin; Kevin Kotzé; Rangan Gupta
  65. Public Debt Frontier. A toolkit for analyzing fiscal policy and debt sustainability By Gonzalo F. de-Córdoba; Benedetto Molinari; José L. Torres
  66. Sectoral FDI and the Real Exchange Rate: The Role of Financial Development By Coletta Frenzel Baudisch
  67. Scanner Data, Elementary Price Indexes and the Chain Drift Problem By Diewert, Erwin
  69. The Relations Between Unemployment and Entrepreneurship in Turkey: Schumpeter or Refugee Effect? By Apaydın, Şükrü
  70. Stocks and Bonds: Flight-to-Safety for Ever? By Sessi Tokpavi; Christophe Boucher
  71. ‘Déjà vol’ revisited: Survey forecasts of macroeconomic variables predict volatility in the cross-section of industry portfolios By Conrad, Christian; Glas, Alexander
  72. Det koster at være lille. Grønlands hjemtagelser 1980 til 1993 og smådriftsulemper By Lund, Lars
  73. Central Bank Communication and the Yield Curve: A Semi-Automatic Approach using Non-Negative Matrix Factorization By Ancil Crayton
  74. Evaluating India's exchange rate regime under global shocks By Ashima Goyal
  75. Cajas de conversión no ortodoxas y crisis gemelas: a casi dos décadas de la experiencia argentina By Flavio E. Buchieri
  76. Global silver: Bullion or Specie? Supply and demand in the making of the early modern global economy By Irigoin, Alejandra
  77. Long-term Changes in Married Couples’ Labor Supply and Taxes: Evidence from the US and Europe Since the 1980s By Alexander Bick; Bettina Brüggemann; Nicola Fuchs-Schündeln; Hannah Paule-Paludkiewicz
  78. Offshoring, Mismatch, and Labor Market Outcomes By Arseneau, David; Epstein, Brendan
  79. Globalisation and Economic Growth: A panel data approach By Cândida Ferreira
  80. Capital Income Risk and the Dynamics of the Wealth Distribution By Hoang Khieu; Klaus Wälde
  81. A structural approach to identify financial transmission in distinguished scenarios of crises By Herwartz, Helmut; Roestel, Jan
  82. Financial stress in lender countries and capital outflows from emerging market economies By Ilhyock Shim; Kwanho Shin
  83. Effects of Low Productivity Growth on Fiscal Sustainability in the United States By Louise Sheiner
  84. Did Treasury Debt Markets Anticipate the Persistent Decline in Long-Term Interest Rates?: Working Paper 2017-07 By Edward N. Gamber (CBO)
  85. Time-Varying Vector Autoregressions: Efficient Estimation, Random Inertia and Random Mean By Legrand, Romain
  86. Assessing the Impact of Ease of Doing Business and Corruption on Economic Growth for Africa Free Trade Zone (AFTZ) Member States By Bonga, Wellington G.; Mahuni, Kenneth
  87. A Piecewise Linear Model of Credit Traps and Credit Cycles:A Complete Characterization. By Kiminori Matsuyama; Iryna Sushko; Laura Gardini
  88. Spurious Cross-Sectional Dependence in Credit Spread Changes By Marcin Jaskowski; Michael McAleer
  89. Droughts and Corruption By Wenzel, Daniela
  90. Drivers of market liquidity - Regulation, monetary policy or new players? By Clemens Bonner; Eward Brouwer; Iman van Lelyveld

  1. By: Sasaki, Hiroaki
    Abstract: This study explains the basic framework of the short-run Kaleckian model and the long-run Kaleckian model. The short-run Kaleckian model is a model in which the rate of capacity utilization is adjusted in response to excess demand and excess supply of the goods market with given capital stock. The long-run Kaleckian model is a model in which capital stock is adjusted in response to the difference between the desired rate of capital accumulation and the actual rate of capital accumulation. Moreover, we endogenize the profit share by introducing the reserve-army effect. By adding different elements to these basic Kaleckian models, one can build an extended Kaleckian model according to his/her purpose.
    Keywords: Kaleckian model; short-run model; long-run model
    JEL: E12 E24 E25 E32 O41
    Date: 2018–09–13
  2. By: Tatjana Dahlhaus; Tatevik Sekhposyan
    Abstract: We document a strong asymmetry in the evolution of federal funds rate expectations and map this observed asymmetry into measures of monetary policy uncertainty. We show that periods of monetary policy tightening and easing are distinctly related to downside (policy rate is higher than expected) and upside (policy rate is lower than expected) uncertainty. Downside monetary policy uncertainty decreases over time, while upside uncertainty remains rather stable, reflecting the asymmetry in the behavior of the expectational errors—a finding that we attribute to changes in the conduct of monetary policy. We show that this behavior cannot be entirely explained by uncertainty in macroeconomic fundamentals: the asymmetry remains even when we control for macroeconomic uncertainty, emphasizing the importance of monetary policy implementation. Finally, we assess the macroeconomic effects of monetary policy uncertainty. We find that the effects are non-linear and conditional on the economy being in an easing or tightening regime. Though uncertainty is, in general, recessionary, its effects are stronger in a monetary easing regime relative to a tightening one.
    Keywords: Business fluctuations and cycles, Econometric and statistical methods, Monetary policy communications, Transmission of monetary policy, Uncertainty and monetary policy
    JEL: C18 C32 E02 E43 E52
    Date: 2018
  3. By: Javier Andrés (University of Valencia); José E. Boscá (University of Valencia and FEDEA); Javier Ferri (University of Valencia and FEDEA); Cristina Fuentes-Albero (Federal Reserve Board of Governors)
    Abstract: Using households’ balance sheet composition in the Panel Survey of Income Dynamics, we identify six household types. Since 1999, there has been a decline in the share of patient households and an increase in the share of impatient households with negative wealth. Using a six-agent New Keynesian model with search and matching frictions, we explore how changes in households’ shares affect the transmission of government spending shocks. We show that the relative share of households in the left tail of the wealth distribution plays a key role in the aggregate marginal propensity to consume, the magnitude of fiscal multipliers, and the distributional consequences of government spending shocks. While the output and consumption multipliers are positively correlated with the share of households with negative wealth, the size of the employment multiplier is negatively correlated. Moreover, our calibrated model delivers jobless fiscal expansions.
    Keywords: panel survey of income dynamics, household balance sheet, fiscal policy, six-agent New Keynesian model, search and matching.
    JEL: E21 E62
    Date: 2018–10
  4. By: Gunda-Alexandra Detmers; Özer Karagedikli
    Abstract: Every monetary policy decision by the Reserve Bank of New Zealand (RBNZ) is accompanied by a written statement about the state of the economy and the policy outlook, but only every second decision by a published interest rate forecast. We exploit this difference to study the relative influences of qualitative and quantitative forward guidance. We find that announcements that include an interest rate forecast lead to very similar market reactions across the yield curve as announcements that only include written statements. We interpret our results as implying that central bank communication is important, but that the exact form of that communication is less critical. Our results are also consistent with market participants understanding the conditional nature of the RBNZ interest rate forecasts.
    Keywords: monetary policy, forward guidance, interest rate forecasts
    JEL: E43 E44 E52 E58 G12
    Date: 2018–08
  5. By: Nao Sudo (Bank of Japan); Masaki Tanaka (Bank of Japan)
    Abstract: While major central banks confronting the global financial crisis conducted government bond purchases on an unprecedented scale, macroeconomists began re-examining carefully the once-accepted wisdom that long-term government bond purchases by the central bank reduce long-term yields. This paper follows this shift in economic thought and examines if the wisdom holds in Japan by estimating a dynamic stochastic general equilibrium model that features imperfect substitutability of bonds with different maturities, due to market segmentation and preferred habitats, using Japan's data from the 1980s to 2017. We focus specifically on the transmission mechanism, to determine which matters most: the size of the bond purchases at each period (flow effects), or the total amount of bonds taken away from the private sectors (stock effects). We find that, (i) Japan's data accords well with market segmentation and preferred habitat theories, which implies that government bond purchases conducted by the Bank of Japan have compressed the term premium, exerting an expansionary effect on economic activity and prices; (ii) the effect of bond purchases has been most pronounced since Quantitative and Qualitative Monetary Easing was introduced, compressing the term premium about 50 to 100 basis points as of the end of 2017; and (iii) the compression of the term premium has been mainly driven by stock effects, which underscores the importance of the amount outstanding of the Bank's government bond holdings in determining the term premium.
    Keywords: Monetary Policy; Term Premium; DSGE Model
    JEL: C54 E43 E44 E52
    Date: 2018–10–01
  6. By: BIKAI, J. Landry; MBOHOU M., Moustapha
    Abstract: The aim of this study is to estimate the reaction function of the BEAC and to assess the extent to which the monetary policy is influenced by the evolution of the financial situation of the States members of the CEMAC. We estimated two reaction functions of the Central Bank according to its two main monetary policy instruments: the monetary base and the policy rate, by taking into account the potential role of fiscal dominance. Estimates of quarterly data for Mc Callum rule for the monetary base and Taylor rule for the key interest rate in the CEMAC countries, over the period 1996 to 2013, revealed four major results. Firstly, we find that in the event of economic overheating, BEAC contracts the monetary base and releases it to support activity in the slowdown phases, revealing the sensitivity of the Central Bank to the evolution of the economic situation in the CEMAC when manipulating its monetary base. Secondly, the BEAC policy rate does not respond to the output gap or the inflation, due in part to the weakness of the transmission mechanisms and the inoperability of the interest rate channel. Thirdly, our results indicate that BEAC carries out a very high rate smoothing and the associated coefficient is of the order of 0.98, reflecting the uncertainties on the effects of its action. As for the fourth result, he indicates that the conduct of monetary policy is influenced by the financial situation of the States thus validating the hypothesis of fiscal dominance. We find, however, that fiscal dominance is more pronounced in the policy of managing the monetary base than in the policy rate setting strategy.
    Keywords: monetary policy, prices stability, central bank.
    JEL: E43 E52 E58
    Date: 2016–11–30
  7. By: Epstein, Brendan; Finkelstein Shapiro, Alan
    Abstract: The degree of bank competition as well as firms’ and households’ participation in the domestic banking system differ considerably in emerging economies (EMEs) relative to advanced economies (AEs). We build a small-open-economy model with endogenous firm entry, monopolistic banks, household and firm heterogeneity in par- ticipation in the banking system, and labor search to analyze the labor market and aggregate consequences of financial participation and banking reforms in EMEs. We find that there is a pre-reform threshold of firm participation in the banking system below which reform implementation leads to sharper unemployment and aggregate fluctuations amid foreign interest rate and aggregate productivity shocks. Our find- ings suggest that comprehensive banking reforms that foster household participation and bank competition in tandem can reduce labor market and aggregate volatility, but only under a high-enough pre-reform level of firm participation in the banking system and a non-negligible increase in bank competition.
    Keywords: Emerging economies, structural reforms, foreign interest rate shocks, business cycles, banking sector, unemployment, financial participation.
    JEL: E24 E32 E44 F41 G21
    Date: 2017
  8. By: Yasuo Hirose (Faculty of Economics, Keio University)
    Abstract: Benhabib et al. (2001) argue that there exists a deflation steady state when the zero lower bound on the nominal interest rate is considered in a Taylor-type monetary policy rule. This paper estimates a medium-scale DSGE model with a deflation steady state for the Japanese economy during the period from 1999 to 2013, when the Bank of Japan conducted a zero interest rate policy and the inflation rate was almost always negative. Although the model exhibits equilibrium indeterminacy around the deflation steady state, a set of specific equilibria is selected by Bayesian methods. According to the estimated model, positive shocks to households' preferences and wage markup, and a negative shock to monetary policy do not necessarily have an inflationary effect, in contrast to a standard model with a targeted-inflation steady state. An economy in the deflation equilibrium could experience unexpected volatility because of sunspot fluctuations, but it turns out that sunspot shocks have a limited effect on Japan's output fluctuations and rather contribute to stabilizing the economy after the global financial crisis.
    Keywords: Deflation, Zero interest rate, Equilibrium indeterminacy, Bayesian estimation
    JEL: E31 E32 E52
    Date: 2018–09–10
  9. By: Saskia Ter Ellen (Norges Bank); Edvard Jansen (Formuesforvaltning); Nina Larsson Midthjell (Norges Bank)
    Abstract: In this paper we study financial spillovers from the European Central Bank's (ECB) monetary policy and communication, and whether they have consequences for the effectiveness of domestic monetary policy of small open economies. Recent work suggests that the "trilemma" in international economics as we used to know it, is actually a dilemma: small open economies with floating exchange rate regimes can only have independent monetary policies when the capital account is managed. Our findings show that domestic monetary policy is still effective, but that spillover effects, particularly from the ECB's communication, reduce domestic control over the longer end of the yield curve.
    Keywords: monetary policy, forward guidance, international spillovers, asset prices, small open economies
    JEL: E43 E44 E52 E58 G12
    Date: 2018–09–25
  10. By: Cesteros, Santiago Rodrigo
    Abstract: Portfolios dollarization, understood as the holding of assets in foreign currency by domestic agents, has become a recurrent process in economies that present high levels of macroeconomic and exchange rate stress, among which the Argentine Republic stands out. One of the objectives of this paper aims to explain, on the one hand, the origins and causes of the accentuated macroeconomic volatility in Argentina from its link with monetary and fiscal policies. In conjunction with these phenomena, we seek to analyze the genesis of the dollarization of wealth in the country through a consumption based asset pricing model. In turn, a third objective will be the study of the effects of dollarization on monetary policy, especially in those cases in which the central monetary authority implements an inflation targeting regime. One of the conclusions of this paper is that the dollar has played an appropriate role in safeguarding the value of the wealth of the Argentine private sector, working as an efficient insurance against the exchange volatility that has occurred historically in Argentina (as well as against recurrent inflationary episodes). In connection with this, it is also found that this saving vehicle has empirically presented a dynamic consistent with that thrown as a result of the calibration of the consumption based asset pricing model. Finally, it is concluded that the available evidence and the Latin American experience show that dollarization per se is not an obstacle to successfully implement an inflation targeting scheme and that, in addition, those countries that applied this type of regimes have managed to reduce their coefficient of transfer of the exchange rate to prices.
    Keywords: reservas de valor, modelos de valuación de activos basados en consumo, volatilidad macroeconómica, dolarización.
    JEL: E30 E31 G11 G12
    Date: 2018–07
  11. By: Ashima Goyal (Indira Gandhi Institute of Development Research); Abhishek Kumar (Indira Gandhi Institute of Development Research)
    Abstract: In this paper we take a New Keynesian model with non-separable money in utility to Indian data using maximum likelihood. The identification problem in isolating the effect of money on output and inflation is solved by adjusting real balances for shifts in money demand. Estimates with an extended model with relevant features like partial indexation in prices, markup shock and time varying inflation target, show that real balances do affect output and inflation even after correcting for money demand unlike results for the United States and Eurozone. A regression estimate and multivariate structural vector autoregression give similar results. Types of money matter. Reserve money has the largest impact, pointing to the importance of the informal sector. The estimated income elasticity of narrow money is more than twice that of broad money, pointing to the dependence of firms on banks. Interest semi elasticity of money demand is close to one. Responsiveness of output to real interest rate is high. We find that interest rate setting is quite persistent. Coefficient of lagged interest rate varies from 0.71 to 0.95. We conclude that there is a significant asymmetry in the role of money in India (an emerging economy) in comparison to United States and Eurozone (advanced economies).
    Keywords: India, IS, LM, Money Demand, Maximum Likelihood, Inflation, Monetary Policy, Supply Shock
    JEL: E31 E32 E52
    Date: 2018–09
  12. By: BIKAI, J. Landry; BATOUMEN M., Hardit; FOSSOUO, Armand
    Abstract: The aim of this study is to investigate the causes of inflation in CEMAC, with a particular attention to the monetary dimension. Using a Panel Vector Autoregressive (PVAR) approach on CEMAC countries and data from 1990 to 2014, we show that money supply and imported inflation are the two main sources of inflation in CEMAC countries. These factors seem to explain inflation better than oil prices, budget balance and output gap. Specifically, the results show that money supply causes about 24% of inflation’s variation while imported inflation explains about 6% of inflation’s fluctuations. However, an important inflation’s inertia is observed (64% in mean), enlightening some structural problems, in particular, the slowness of expectations adjustment of agents in CEMAC.
    Keywords: Panel VAR, Inflation, Monetary Policy, Central Bank Policy
    JEL: C33 E30 E52 E58
    Date: 2016–11–30
  13. By: Rafael Ravnik (The Croatian National Bank, Croatia); Nikola Bokan (European Central Bank)
    Abstract: This paper provides the documentation for a Quarterly Projection Model (QPM) used in regular forecasting exercises in the Croatian National Bank. The proposed model is a reduced-form representation of an Open Economy New Keynesian general equilibrium model, expanded with some ad hoc features in order to capture empirical evidence about the Croatian economy. Special attention is paid to open economy features of the model, financial stability issues related to the high degree of credit euroization and monetary policy modeling. The main contribution to the existing literature is the monetary policy rule, which is represented by an exchange rate reaction function with a slow-moving exchange rate target. The simulation and forecasting exercises conducted in this paper show that the model is able to produce precise forecasts of the main macroeconomic variables and to explain important relationships and the transmission mechanisms of the Croatian economy.
    Keywords: projection model, unconventional monetary policy rule, nominal exchange rate, euroization
    JEL: E37 E47 E52 F33 F41 H68
    Date: 2018–09
  14. By: Fève, Patrick; Moura, Alban; Pierrard, Olivier
    Abstract: We solve a version of the analytical Real Business Cycle (RBC) model with a predetermined rate of return on household saving. The solution differs from that of the benchmark RBC model along two dimensions: (i) Policy functions depend on the variance of the technology shock. (ii) There is a suboptimal pattern of excess saving. We discuss the economic intuition underlying these properties. We also demonstrate that unconditional welfare can be higher in the suboptimal model with predetermined interest rates, providing a clear illustration of the pitfall with unconditional welfare comparisons.
    Keywords: RBC model; predetermined interest rates; over-saving; conditional and unconditional welfare
    JEL: E21 E32 E43
    Date: 2018–09
  15. By: Refet S. Gürkaynak; Burçin Kısacıkoğlu; Jonathan H. Wright
    Abstract: Macroeconomic news announcements are elaborate and multi-dimensional. We consider a framework in which jumps in asset prices around macroeconomic news and monetary policy announcements reflect both the response to observed surprises in headline numbers and latent factors, reflecting other details of the release. The details of the non-headline news, for which there are no expectations surveys, are unobservable to the econometrician, but nonetheless elicit a market response. We estimate the model by the Kalman filter, which essentially combines OLS- and heteroscedasticity-based event study estimators in one step, showing that those methods are better thought of as complements rather than substitutes. The inclusion of a single latent factor greatly improves our ability to explain asset price movements around announcements.
    Keywords: event study, bondmarkets, high-frequency data, identification
    JEL: E43 E52 E58 G12 G14
    Date: 2018
  16. By: Björn Richter; Moritz Schularick; Ilhyock Shim
    Abstract: Central banks increasingly rely on macroprudential measures to manage the financial cycle, but the effects of such policies on the core objectives of monetary policy to stabilise output and inflation are largely unknown. In this paper, we quantify the effects of changes in maximum loan-to-value (LTV) ratios on output and inflation. We rely on a narrative identification approach based on detailed reading of policymakers' objectives when implementing the measures. We find that over a four-year horizon, a 10 percentage point decrease in the maximum LTV ratio leads to a 1.1% reduction in output. As a rule of thumb, the impact of a 10 percentage point LTV tightening can be viewed as roughly comparable to that of a 25 basis point increase in the policy rate. However, the effects are imprecisely estimated and the effect is only present in emerging market economies. We also find that tightening LTV limits has larger economic effects than loosening them. At the same time, we show that changes in maximum LTV ratios have substantial effects on credit and house price growth. Using inverse propensity weights to re-randomise LTV actions, we show that these effects are likely causal.
    Keywords: macroprudential policy, loan-to-value ratios, local projections, narrative approach
    JEL: E58 G28
    Date: 2018–08
  17. By: Patrick Honohan (Peterson Institute for International Economics)
    Abstract: Although the European Central Bank (ECB) has been pursuing an aggressively expansionary policy since 2012, previously the ECB was behind the curve in lowering interest rates and making asset purchases to combat the prolonged euro area recession. This paper argues that part of the delay can be attributed to the multi-country nature of the euro area. Over-interpreting the limitations of the ECB’s statutory mandate, some ECB decision makers were wary of being accused of circumventing the prohibition on monetary financing by intervening in the market of the debt of weaker governments. Some were also mesmerized by the relatively strong performance of the German economy in the crisis and attributed the slower post-crisis recovery of most other member states to national policy failures that should not be offset by euro area monetary policy. All of this was exacerbated by the ECB’s adoption of and (at least until 2011) adherence to a seductive but analytically flawed “separation principle,” which misled some of its decision makers into overestimating the adequacy of the monetary expansion that was being applied. The ECB’s toolbox is indeed somewhat limited by its statute, reflecting multi-country considerations, but abandonment of the separation principle should help ensure a more effective, holistic approach to monetary policy design in the future.
    Keywords: European Central Bank, monetary policy, financial crises, European Union, political economy
    JEL: E52 E58 G01
    Date: 2018–08
  18. By: Michal Franta; Tomas Holub; Branislav Saxa
    Abstract: We present projections of the Czech National Bank's balance sheet after the discontinuation of the exchange rate commitment. Our model addresses the situation of a large central bank balance sheet with assets consisting almost exclusively of foreign exchange reserves in the circumstances of a catching-up economy exhibiting an exchange rate appreciation trend. Apart from the baseline projection, several counter-factual scenarios are discussed. The scenarios concern the evolution of the balance sheet in the cases of no exchange rate commitment and a commitment with earlier discontinuation. The simulated counter-factual duration of negative CNB equity, and thus the period of no profit distribution to the government, does not differ substantially from the baseline. The fiscal implications of the exchange rate commitment are thus estimated to be relatively small and related only to the period after the year 2030. Our stochastic simulations, however, show that the uncertainty bands are very wide. In addition, we show that the simulation tool can be employed to discuss the consequences of a long-run decline in currency in circulation, the composition of the asset side and the resumption of foreign exchange income sales by the central bank.
    Keywords: Central bank balance sheet, deterministic simulations, stochastic simulations
    JEL: E47 E52 E58
    Date: 2018–09
  19. By: Jonas Ljungberg (Lund University); Anders Ögren (Lund University)
    Abstract: "It is well known that a country by manipulating the value of its currency can push up its competitiveness in international markets. This notwithstanding, it is much overlooked how exchange rates have influenced economic growth and convergence of income among nations in a longer perspective. In particular, among countries involved in market integration, one could presume that those on a lower level of income should have a higher inflation. The higher inflation, with a concomitant rise of wages, should then erode their competitiveness and counteract convergence. A somehow flexible exchange rate might compensate for this loss and contribute to the catch-up of countries still behind. The theoretical point of departure in this paper is that countries with lower levels of income have also lower levels of prices and wages than richer countries. When poorer countries catch-up with the richer, they necessarily have higher inflation and wage growth. Unless these asymmetries in prices and wages are compensated for by nominal exchange rates, the poorer countries will decline in relative competitiveness. Since we deal with trends over longer periods and not temporary shocks, it is not necessary to determine when a currency is undervalued or overvalued. Instead, the focus can be on the relative change of exchange rates and their long term effects. The paper examines how exchange rate movements have interacted with economic growth and price changes across European countries since 1870. In that purpose, we look at how exchange rates have exposed countries to each other through foreign trade. The contribution of the paper is that effective exchange rates are brought into a long-term analysis of (mostly west-) European growth and convergence. The next section of the paper shortly reviews the treatment of exchange rates and growth in the literature. Section three introduces the history of exchange rates across seventeen European countries, and how the effective exchange rates are estimated. Section four explores the pattern of long-term convergence and divergence of GDP per capita in Western Europe. Section five discusses the interaction between growth, prices, and exchange rates over 1870-2010 divided in five different sub-periods. Section six concludes with a discussion of further implications."
    Keywords: "exchange rates, economic growth, convergence, Europe"
    JEL: E43 E58 E65
    Date: 2017–04
  20. By: Matthieu Verstraete; Lena Suchanek
    Abstract: Using real time data, we show that the monetary policy rule in Canada is better described by a Taylor rule augmented with business sentiment which is captured in survey data. Stronger survey results are correlated with a significantly higher policy rate over the period of study (2001–18). Taylor rules including a measure of business sentiment have significantly better predictive accuracy. Using these modified Taylor rules in vector autoregressions and data from the Bank of Canada’s quarterly, we study the impact of monetary policy on firms’ expectations of sales and prices, financing conditions and investment decisions. Given our short sample, we focus on estimates of firms’ responses to monetary shocks obtained by local projections ( =10.1257/0002828053828518 2005). A 100-basis-point shock in the Bank’s target rate leads firms to expect significantly lower sales and slower output price growth, report tighter credit conditions and lower investment intentions. Results are robust to (2018) new monetary policy measure.
    Keywords: firm dynamics, transmission of monetary policy, interest rates
    JEL: D22 E52 E44
    Date: 2018
  21. By: Renée Fry-McKibbin; Rodrigo da Silva Souza
    Abstract: This paper empirically addresses the hypothesis that of the external commodity based sector, Chinese resource demand is the most important driver of emerging market economy business cycles using Brazil as a representative case. Using a structural VAR to examine the effects of Chinese resource demand, world commodity prices and foreign output on domestic macroeconomic variables, we show that shocks to Chinese demand induce an expansion in Brazilian resource exports, the non-tradeable primary commodity sector and other domestic activity. Commodity price shocks are less favorable than Chinese resource demand shocks. Our findings identify the important role of the interest rate in amplifying the real effects of the commodity sector boom, in contrast to the role of the interest rate in developed countries. By incorporating Chinese resource demand in addition to commodity prices, commodity prices play a smaller role in explaining the variance of domestic output than found in previous literature.
    Keywords: Brazil, EME business cycles, Dutch disease, SVAR
    JEL: C51 E32 F43
    Date: 2018–09
  22. By: Kilian Rieder (University of Oxford); Michael Anson (Bank of England); David Bholat (Bank of England); Miao Kang (Bank of England); Ryland Thomas (Bank of England)
    Abstract: "It is well-known that quantitative credit restrictions, rather than Bagehot-style “free lending” con- stituted the standard response to financial crises in the early days of central banking. But why did central banks in the past frequently restrict the supply of loans during financial crises? In this paper, we draw on a large novel, hand-collected loan-level data set to study the Bank of England’s policy response to the crisis of 1847. We find that credit rationing due to residual imperfect informa- tion `a la Stiglitz and Weiss (1981) alone cannot be a convincing explanation for quantitative credit restrictions during the crisis of 1847. We provide preliminary evidence which could suggest that discriminatory credit rationing on the basis of loan applicants’ type and identity characterized the BoE’s response to the crisis of 1847. Our results also show that “collateral” characteristics played an important role in the BoE’s loan decisions, even after one controls for the identity of loan applicants. This finding confirms the hypothesis in Capie (2002) and Flandreau and Ugolini (2011, 2013, 2014) that the characteristics of bills of exchange submitted to the discount window mattered. Since our results suggest that the Bank also took decisions on the basis of the identity of loan applicants, our preliminary findings would seem to challenge Capie’s “frosted glass” metaphor, but more work is required to confirm these conjectures."
    JEL: E44 E52 E58 G01 G21 N10 N13 N20 N23
    Date: 2018–04
  23. By: Andrew Phiri (Department of Economics, Nelson Mandela University)
    Abstract: The purpose of this study is to examine whether we can identify a Philips curve fit for the Kingdom of Swaziland as a low middle income Sub-Saharan Africa monarchy using data collected between 1991 and 2016. In our approach we rely on the recently introduced nonlinear autoregressive distributive lag (N-ARDL) model to a variety of Phillips curve specifications. For robustness sake, we further employ three filters (one-sided HP, two-sided HP and Corbae-Oularis filters) to extract the gap variables necessary for empirical analysis. Our findings point to a linear, short-run traditional Philips curve whereas we find strong support for concave shaped unemployment-gap and output –gap based Phillips curve specifications. Given the specific form of concavity discovered in the Phillips curves, the low inflation rate experienced over the last couple of decades can be attributed to a worsening labour and goods markets. Moreover, our evidence also cautions Swazi policymakers of ‘overheating’ of the economy during economic booms in which stabilization tools are required to implemented in such instances. Given the overall absence of empirical studies establishing the Philips curve for the Swazi economy our study makes a valid contribution to the literature.
    Keywords: Inflation, Unemployment, Phillips curve, Central Bank of Swaziland (CBS), Hodrick-Prescott (HP) filter, Corbae-Oularis (C-O) filter, Emerging Economies.
    JEL: C22 C32 C52 E24 E31
    Date: 2018–09
  24. By: Sun, Tianyu; Chand, Satish; Sharpe, Keiran
    Abstract: This paper investigates the effect of demographic changes on land prices in urban China using an Overlapping Generation (OLG) model. The model suggests that the rapid rise in land prices could be explained by the rise in per capita income and demographic changes. This finding is validated by fitting the historical data of China. We then simulate land price dynamics for China from 2000 to 2100. The simulation indicates that the rate of rising in land prices is softening. From 2035 to 2055, the effect of demographic changes on urban land prices in China will be close to zero. After 2055, the effect will turn to negative until the end of this century; however, a meltdown is unlikely.
    Keywords: Aging Population; OLG Model; Urban Land Prices; Forecast
    JEL: E21 E31 J11 R21 R31
    Date: 2018–06–26
  25. By: Auer, Raphael; Burstein, Ariel; Lein, Sarah M. (University of Basel)
    Abstract: The removal of the lower bound on the EUR/CHF exchange rate in January 2015 provides a unique setting to study the implications of a large and sudden appreciation in an otherwise stable macroeconomic environment. Using transaction-level data on non-durable goods purchases by Swiss consumers, we measure the response of border and consumer retail prices to the CHF appreciation and how household expenditures responded to these price changes. Consumer prices of imported goods and of competing Swiss-produced goods fell by more in product categories with larger reductions in border prices and a lower share of CHF-invoiced border prices. These price changes resulted in substantial expenditure switching between imported and Swiss-produced goods. While the frequency of import retail price reductions rose in the aftermath of the appreciation, the average size of these price reductions fell (and more so in product categories with larger border price declines and a lower share of CHF-invoiced border prices), contributing to low pass-through into import prices.
    Keywords: Large exchange rate shocks; exchange rate pass-through; invoicing currency; expenditure switching; price-setting; nominal and real rigidities; monetary policy
    JEL: D4 E31 E50 F41 L11
    Date: 2018–09
  26. By: Borowczyk-Martins, Daniel (Department of Economics, Copenhagen Business School); Lalé, Etienne
    Abstract: We develop an adjustment procedure to construct U.S. monthly time series of involuntary part-time employment stocks and flows from 1976 until today. Armed with these new data, we provide a comprehensive account of the dynamics of involuntary part-time work. Transitions from full-time to involuntary part-time employment dominate this dynamics, spiking up at recessions' onsets and persisting well into recovery periods. On the other hand, weaknesses in job creation contribute little to these fluctuations. Our data and findings are relevant to inform a broader assessment of labor market performance and to develop models of cyclical labor adjustment.
    Keywords: Involuntary part-time employment; Unemployment; Labor market flows; Business cycles
    JEL: E24 E32 J21
    Date: 2018–08–01
  27. By: Pinkwart, Nicolas
    Abstract: We present a comprehensive disaggregate approach for short-term forecasting economic activity in Germany by explicitly taking into account the supply or production side and the demand side of GDP. The GDP figures calculated by the two sides usually yield different results and the official GDP release is somewhere in between. We make use of this statistical procedure by separately modeling the two sides of GDP in a system of bridge equations at the most disaggregate level available and combining the resulting two aggregate GDP forecasts. Comparing several specification schemes in an out-of-sample forecast evaluation setup, we are able to find informative forecasts for most of the underlying GDP components. We then show first, that both approaches already yield informative aggregate forecasts for forecast horizons of up to 28 weeks and second, that combining the production side and the demand side projections substantially improves the forecast performance, in particular for the shorter forecast horizons.
    Keywords: German Economy,GDP,Disaggregation,Forecasting,Nowcasting,Bridge Equations
    JEL: C22 C53 E32 E37
    Date: 2018
  28. By: Nguyen, Quoc Hung
    Abstract: This paper studies the pro-growth policies in an endogenous growth model where heterogeneous entrepreneurs face collateral constraints, skilled workers accumulate human capital, and the government intervenes to promote human and physical capital formation. It shows that the model has a balanced-growth path whose rate depends on government policy and financial development level. The theoretical analysis also shows that when the distribution of idiosyncratic productivity is heavy-tailed, the government must subsidize productive entrepreneurs to achieve optimal pro-growth policies.
    Keywords: Heterogeneity; Financial Deepening; Growth Policies
    JEL: E10 E22 E44 O16
    Date: 2018–09–08
  29. By: Oliver Rehbein
    Abstract: I show that natural disasters transmit to firms in non-disaster areas via their banks. This spillover of non-financial shocks through the banking system is stronger for banks with less regulatory capital. Firms connected to a disaster-exposed bank with below median capital, reduce their employment by 11\% and their fixed assets by 20\% compared to firms in the same region without such a bank during the 2013 flooding in Germany. Low bank capital thus carries a negative externality because it amplifies regional shock spillovers. I show that bank liquidity, and firm capital and liquidity are less relevant to prevent shock transmission.
    Keywords: natural disaster, real effects, shock transmission, bank capital
    JEL: G21 G29 E44 E24
    Date: 2018–09
  30. By: Semyon Malamud; Andreas Schrimpf
    Abstract: We develop a general equilibrium model with intermediaries at the heart of international financial markets. In our model, intermediaries bargain with their customers and extract rents for providing access to foreign claims. The behavior of intermediaries, by tilting state prices, generates an explicit, non-linear risk structure in exchange rates. We show how this endogenous risk structure helps explain a number of anomalies in foreign exchange and international capital markets, including the safe haven properties of exchange rates and the breakdown of covered interest parity.
    Keywords: financial intermediation, exchange rates, safe haven, covered interest parity deviations
    JEL: E44 E52 F31 F33 G13 G15 G23
    Date: 2018–09
  31. By: Geoff Weir (Financial Sector Services)
    Abstract: Economists have been grappling with both a long-run and a shorter-run wage 'puzzle'. The long-run wage puzzle is why real wages have for decades been growing slower than labour productivity: that is, why the labour share of national income has been falling. The shorter-run puzzle is why nominal wages have for some years been growing slower than model-based forecasts have predicted. This paper suggests that an important part of the explanation for both puzzles may lie at the individual firm level, rather than at the macro level. The uneven take-up of new technology is resulting in increasing dispersion in productivity performance across firms in a given industry. High productivity firms would appear to be using most of their higher levels of productivity to reduce prices and increase profit margins rather than passing most of it on to their workforce in higher wages, while the productivity 'laggards' have limited scope to pay higher wages. If employment growth is much less dispersed than productivity growth across firms, as overseas evidence suggests is the case, these observations may help to explain not just declining labour shares of national income but also low average productivity growth and subdued nominal wages growth. The paper sets out some research proposals designed to further explore these linkages. Given the broadening application across industries of new information and communication technology, if the above forces are indeed at play they may prove pervasive and long lasting, with important implications for monetary policy over the cycle.
    Keywords: labour share; wage growth; superstar firm hypothesis; digital technology
    JEL: D33 E24 E25 J3
    Date: 2018–09
  32. By: Hanhui Guan (Peking University); Jie Mao (University of International Business & Economics China)
    Abstract: "The Yuan was the first dynasty both in Chinese and world history to use paper money as its sole medium of circulation, and also established the earliest silver standard. This paper explores the impact of paper money in Yuan China. We find that: (1) At the beginning of its regime, due to the strict constraints of the silver standard on money issuances, the value of paper money was stable. (2) Since the middle stage of the dynasty, the central government had to finance fiscal deficits by issuing more paper money, and inflation was thus unavoidable. Our empirical results also demonstrate that fiscal pressure from multiple provincial rebellions was the most important factor driving the government to issue more paper money; however, the emperor’s largesse, which had been viewed as another source of fiscal deficits by most traditional historians, had no significant effect on the over-issuance of paper money. (3) When the monetary standard switched from silver to paper money, the impact of fiscal deficits, which were driving more paper money issuances, became much more severe. Based on these findings, we argue that the experience of Yuan China verified that metal standards could serve as a discipline on paper money over-issuances. This episode in Yuan China predates the money over-issuances observed during the era of the classic gold standard found in western countries by six centuries."
    Keywords: "silver standard, money over-issuance, paper money, convertibility, Yuan China"
    JEL: E42 N15 N45
    Date: 2018–04
  33. By: Loriana Pelizzon (SAFE Goethe University Frankfurt and Ca f Foscari University of Venice (; Marti G. Subrahmanyam (Leonard N. Stern School of Business, New York University (; Reiko Tobe (Waseda University (; Jun Uno (Waseda University (
    Abstract: We investigate the determinants of the term structures of market liquidity and bond yield in the case of the Quantitative Easing ( QE) programs implemented by the Bank of Japan (BoJ). We distinguish between two opposing effects of QE on the liquidity of Japanese Government Bonds, the gscarcity effect, h which is gradually manifested as a negative impact on liquidity, due to the shrinkage in the available supply of bonds; and the gspotlight effect, h which induces an immediate improvement in liquidity, reflecting BOJ fs massive demand. Between 2011 and 2016, we find that government bonds show an improvement in liquidity through the spotlight effect, but also experience a deterioration in liquidity through the scarcity effect. As for the yield, both the spotlight and scarcity effects work in the same direction (i.e., they raise bond prices) against theoretical expectation. Illiquidity caused by scarcity amplifies the yield decline rather than adding to the illiquidity premium.
    Keywords: Sovereign Bonds, Quantitative Easing, Market Liquidity, Scarcity, Spotlight
    JEL: C54 E43 E52 E58 G12 G14
    Date: 2018–09
  34. By: Victor Ortego-Marti (Department of Economics, University of California Riverside); Miroslav Gabrovski (University of Hawaii at Manoa)
    Abstract: This paper develops a model of the housing market with search and credit frictions. The interaction between the two frictions gives rise to a novel channel through which the financial sector affects prices and liquidity in the housing market. Furthermore, an interesting feature of the model is that both frictions combined lead to multiple equilibria. A numerical exercise suggests that credit shocks have a relatively larger impact on mortgage debt and liquidity than on prices.
    Keywords: Housing market; Credit Frictions; Search and Matching; Multiple Equilibria; Mort- gages
    JEL: E2 E32 R21 R31
    Date: 2018–09
  35. By: Michael Brei; Ramon Moreno
    Abstract: The experience of a number of central banks in emerging economies indicates that capital flows can pose a dilemma. For example, raising policy rates can attract more capital inflows by raising deposit rates. It has been suggested, however, that raising reserve requirements instead of the policy rate can address this dilemma, as deposit rates will not necessarily increase, even if lending rates rise. To investigate this possibility, this paper examines how banks adjust loan and deposit rates in response to changes in reserve requirements. We use data on 128 banks from seven Latin American countries over the period 2000-14. Our results indicate that higher reserve requirements are associated with higher loan rates, whereas deposit rates remain unchanged during normal times and decrease during periods of large capital inflows. Reserve requirements may therefore be a way to mitigate the dilemma posed by capital inflows in some Latin American economies.
    Keywords: reserve requirements, monetary policy, capital flows
    JEL: C53 E43 E52 G21
    Date: 2018–08
  36. By: Mathias Drehmann; James Yetman
    Abstract: The credit gap, defined as the deviation of the credit-to-GPD ratio from a Hodrick-Prescott (HP) filtered trend, is a powerful early warning indicator for predicting crises. Basel III therefore suggests that policymakers should use it as part of their countercyclical capital buffer frameworks. Hamilton (2017), however, argues that you should never use an HP filter as it results in spurious dynamics, has end-point problems and its typical implementation is at odds with its statistical foundations. Instead he proposes the use of linear projections. Some have also criticised the normalisation by GDP, since gaps will be negatively correlated with output. We agree with these criticisms. Yet, in the absence of clear theoretical foundations, all proposed gaps are but indicators. It is therefore an empirical question which measure performs best as an early warning indicator for crises - the question we address in this paper. We run a horse race using quarterly data from 1970 to 2017 for 42 economies. We find that no other gap outperforms the baseline credit-to-GDP gap. By contrast, credit gaps based on linear projections in real time perform poorly.
    Keywords: early warning indicators, credit gaps, HP filter
    JEL: E44 G01
    Date: 2018–09
  37. By: Ali, Amjad; Zulfiqar, Kalsoom
    Abstract: Mostly, economists believe that due to non-existence of agglomeration economies, there are less chances of employment spatial distribution in an economy. Following the strands of previous literature about agglomeration special impacts, this study has uplifted the curtain from some interesting realities. This study has examined the association between unemployment and natural resources agglomeration in Pakistan from 1980 to 2016. For measuring natural resources agglomeration, an index has been constructed based on coal production, oil production, forest area and agricultural land as a percentage of total land area. The study utilized autoregressive distributed lag (ARDL) method of co-integration. The results show that natural resources agglomeration, secondary school enrollment, foreign direct investment and inflation have a negative and significant impact on unemployment in Pakistan. The results reveal that population is putting a positive impact on unemployment in Pakistan. The study finds that natural resources agglomeration is an important factor for reducing unemployment in Pakistan. There are some other factors for agglomeration economies, i.e. Local economic policies, natural resources availability and amount of manpower for employment spatial distribution in Pakistan. So, efforts are needed to mega scale for exploration, proper usage and the functioning of natural resources in Pakistan.
    Keywords: unemployment, natural resources, inflation, foreign direct investment
    JEL: E24 N50 P24
    Date: 2018
  38. By: CHAFIK, Omar
    Abstract: The financial cycle can play a decisive role in the transmission of monetary policy decisions. The impact of these decisions is amplified when the financial cycle is positive, and it is compressed when this cycle is negative. Considering this amplifier/divider mechanism in a semi-structural NKM, estimated for the US economy using Bayesian techniques, confirms this conclusion and improves the decision of raising or lowering the interest rate. The information on the financial cycle also allows a better identification of the inflationary and disinflationary pressures due to the impact of this cycle on the balance between supply and demand of the economy through its action on financing conditions.
    Keywords: Financial cycle, monetary policy, New Keynesian Model, output gap, Bayesian estimation.
    JEL: C11 C32 E3 E5
    Date: 2018–09–14
  39. By: CHAFIK, Omar
    Abstract: The financial cycle can play a decisive role in the transmission of monetary policy decisions. The impact of these decisions is amplified when the financial cycle is positive, and it is compressed when this cycle is negative. Considering this amplifier/divider mechanism’s in a semi-structural NKM, estimated for the US economy using Bayesian techniques, confirms this conclusion and could improve the decision of raising or lowering the interest rate. The information on the financial cycle also allows a better identification of the inflationary and disinflationary pressures due to the impact of this cycle on the balance between supply and demand of the economy through its action on financing conditions.
    Keywords: Financial cycle, monetary policy, New Keynesian Model, output gap, Bayesian estimation.
    JEL: C11 C32 E3 E5
    Date: 2018–09–14
  40. By: International Monetary Fund
    Abstract: The economy is slowly recovering from a prolonged recession driven by energy supply shocks and low energy prices. With signs of improvement in the energy sector growth from the second half of 2017, the economy is expected to return to positive growth in 2018 as the recovery takes hold in both the energy and non-energy sectors. Good progress has been made in implementing fiscal consolidation. The financial system remained stable notwithstanding the deep recession in the past two years, with well-capitalized and profitable banks, and low levels of non-performing loans. As the recovery gathers pace, policies need to focus on completing the fiscal adjustment while insulating the economy from future commodity price swings, and creating an enabling environment for the non-energy sector.
    Date: 2018–09–25
  41. By: Karen Dynan (Peterson Institute for International Economics)
    Abstract: This paper considers the implications of a sustained period of low productivity growth for the design of tax systems. While the specific changes needed will vary by country and depend on how other features of the economic environment change, several broad conclusions emerge. First, lower productivity growth will exacerbate future fiscal shortfalls associated with aging populations; even assuming that interest rates are also lower, tax systems may need to collect more revenue per dollar of GDP to support their older populations. Second, with lower productivity growth likely to result in lower wages, labor force participation rates may drop further, bolstering the case for more tax incentives for working. Third, the potentially flatter lifetime income profiles associated with lower productivity growth, along with the possibility that fiscal strains will lead to cuts in government retirement benefits, may warrant increasing tax incentives for retirement saving. Finally, the lower real interest rates that would likely accompany sustained low productivity growth may reduce the future efficacy of monetary policy as a macroeconomic stabilization tool, suggesting that countries would be well-served by building more automatic stabilizers into their tax systems.
    Keywords: productivity, secular stagnation, taxes, fiscal sustainability
    JEL: E1 H2 H6
    Date: 2018–09
  42. By: Bhattacharya, Rudrani; Sen Gupta, Abhijit
    Abstract: Average food inflation in India during 2006 to 2013 was one of the highest among emerging market economies, and nearly double the inflation witnessed in India during the previous decade. In this paper, we analyse the behavior and determinants of food inflation over the recent past. Our main findings include that recent surge in food inflation in India is a result of various factors. On the cost side, agricultural wage inflation is found to be a universal driver of food commodities inflation, as well as the aggregate food inflation. The contribution of agricultural wages has increased significantly in the post MGNREGA era. Fuel inflation has a moderate impact on food inflation and the effects vary across commodities. Our analysis indicates limited role of fuel and international prices, except for in tradeables. Finally, results suggest significant pass-through effects from food to non-food and to the headline inflation.
    Keywords: Food inflation, India, Agricultural wage growth, SVAR, SVECM
    JEL: E31 E37
    Date: 2017
  43. By: Carmel Chiswick (George Washington University)
    Abstract: This analysis updates the dual-economy model of economic development suggested by W. Arthur Lewis in 1954. The updated aggregate model incorporates advances since then in modern labor economics and the findings of empirical studies of LDC economies and it removes Lewis’ implicit assumption that capital-formation is costless to the host LDC country. Specifying investment in human capital for both sectors refocuses attention on workers’ well-being as the ultimate measure of development. Specifying the cost of capital formation permits the distinction between earnings that recover investment costs and the “surplus†available to workers for consumption. Policy implications include resolution of tradeoffs between “trickle-down†vs. “grass roots†development policies.
    Keywords: Economic development, growth, human capital, dual-economy model
    JEL: E24 J24 O11 O15 O41
    Date: 2018–05
  44. By: Christofzik, Désirée; Feld, Lars P.; Reuter, Wolf Heinrich; Yeter, Mustafa
    Abstract: The current European fiscal framework is highly complex. The multitude of fiscal rules and the discretion in their enforcement precludes an effective oversight and weakens the effectiveness of fiscal rules substantially. Against this background, we present a proposal for a careful refocusing of the framework to promote fiscal sustainability. The proposal is centered around an expenditure rule as an annual operational target supplemented by a debt-correction factor and a multi-purpose adjustment account which implements a medium-term structural balance rule. Together with a significant reduction in exemptions and escape clauses as well as less discretion in the imposition of sanctions, the proposal increases transparency and efficacy of fiscal rules at the European level.
    Keywords: Expenditure rule,Fiscal rules,Public finance,European fiscal framework
    JEL: H50 H60 E62
    Date: 2018
  45. By: Stefan Avdjiev; Uluc Aysun; Ralf Hepp
    Abstract: We find that the lending behavior of global banks' subsidiaries throughout the world is more closely related to local macroeconomic conditions and their financial conditions than to those of their owner-specific counterparts. This inference is drawn from a panel dataset populated with bank-level observations from the Bankscope database. Using this database, we identify ownership structures and incorporate them into a unique methodology that identifies and compares the owner and subsidiary-specific determinants of lending. A distinctive feature of our analysis is that we use multi-dimensional country-level data from the BIS international banking statistics to account for exchange rate fluctuations and cross-border lending.
    Keywords: bankscope, G-SIB, bank-level data, global banks, BIS international banking statistics
    JEL: E44 F32 G15 G21
    Date: 2018–09
  46. By: Haroon Mumtaz (Queen Mary University of London); Alberto Musso (European Central Bank)
    Abstract: We develop a dynamic factor model with time-varying parameters and stochastic volatility, estimate it with several variables for a large number of countries and decompose the variance of each variable in terms of contributions from uncertainty common to all countries (global uncertainty), region-specific uncertainty and country-specific uncertainty. Among other findings, the estimates suggest that global uncertainty plays a primary role in explaining the volatility of inflation, interest rates and stock prices, although to a varying extent over time, while all uncertainty components are found to play a non-negligible role for real economic activity, credit and money for most countries.
    Keywords: Dynamic Factor Model, Time-Varying Parameters, Stochastic Volatility, Uncertainty Shocks, Global Uncertainty
    JEL: C15 C32 E32
    Date: 2018–09–01
  47. By: Andrea Consiglio (University of Palermo); Stavros A Zenios (University of Cyprus and Wharton Financial Institutions Center)
    Abstract: Download PDF: Working Paper 29 This paper shows how to design, price, and hedge GDP-linked bonds and provides favourable evidence for their use, based on results for both advanced economies and emerging markets. Authors: Andrea Consiglio (University of Palermo) and Stavros A. Zenios (University of Cyprus and Wharton Financial Institutions Center, University of Pennsylvania)
    Abstract: We model the super-replication of payoffs linked to a country's GDP as a stochastic linear program on a discrete time and state-space scenario tree to price GDP-linked bonds. As a by-product of the model we obtain a hedging portfolio. Using linear programming duality we compute also the risk premium. The model applies to coupon-indexed and principal-indexed bonds, and allows the analysis of bonds with different design parameters (coupon, target GDP growth rate, and maturity). We calibrate for UK and US instruments, and carry out sensitivity analysis of prices and risk premia to the risk factors and bond design parameters. We also compare coupon-indexed and principal-indexed bonds. Further results with calibrated instruments for Germany, Italy and South Africa shed light on a policy question, whether the risk premia of these bonds make them beneficial for sovereigns. Our findings affirm that designs are possible for both coupon-indexed and principal-indexed bonds that can benefit a sovereign, with an advantage for coupon-indexed bonds. This finding is robust, but a nuanced reading is needed due to the many inter-related risk factors and design parameters that affect prices and premia.
    Keywords: Contingent bonds, debt restructuring, asset pricing, incomplete markets, risk premia, stochastic programming, super-replication
    JEL: C61 C63 D61 E3 E47 E62 F34 G21 G38 H63
    Date: 2018–03–22
  48. By: Heise, Arne
    Abstract: In diesem Beitrag geht es darum, den Postkeynesianismus als paradigmatische Alternative zum herrschenden neoklassischen Mainstream etwas näher kennenzulernen. Es zeigt sich sehr schnell, dass der Postkeynesianismus keine einheitliche Denkschule darstellt, sondern vielmehr eine Vielzahl von theoretischen Ansätzen darunter zu verstehen ist, die eine Reihe von methodologischen und epistemologischen Gemeinsamkeiten aufweist und die einige identitätsstiftende Postulate verbindet. Zum konkreten Nachvollzug dieser Postulate aus dem axiomatischen Kern des Postkeynesianismus wird dann darauf verzichtet, dass Kaleidoskop postkeynesinaischer Theorie mit kaleckianischer, kaldorianischer oder gar sraffianischer Grundlage aufzuzeigen, sondern es wird vielmehr nur ein Postkeynesianismus - die monetäre Theorie der Produktion - in seiner paradigmatischen und formalen Struktur beleuchtet und die darauf aufbauende Theorie der Marktteilnahme als alternative Theorie der Wirtschaftspolitik dargelegt.
    Keywords: Postkeynesianismus,heterodoxe Ökonomik,Neoklassik,Paradigma
    JEL: B41 B50 B59 E11 E12 E60
    Date: 2018
  49. By: Ana-Isabel Guerra
    Abstract: The evaluation of welfare effects should be clear and presented in an easy to interpret manner. In this paper, we show that on these grounds the true index of cost of living, first introduced by Konüs (1939), is preferable to the standard absolute indicators when evaluating welfare effects in static applied general equilibrium models i.e. the equivalent and the compensated variations. In these applied models, it is customary to use linearly homogeneous utility functions such as Cobb-Douglas or the more general CES specification. Under this class of utilities, the Konüs index is independent of the reference level of utility. This makes this index an unambiguous cost of living indicator. Lastly, to show the convenience of using the Konüs index in empirical work, we have carried out an original exercise with a novel data set for the Spanish economy. We report the macroeconomic and welfare impacts of two alternative Value-Added Tax Reforms through the application of an original simulation strategy.
    Keywords: Cost of living indices, applied general equilibrium analysis, tax reforms, fiscal policies.
    JEL: D58 D69 E62
    Date: 2018–10–01
  50. By: Daouda SEMBENE (Fonds monétaire international); Vigninou GAMMADIGBE (Université de Lomé); Ismaël ISSIFOU (Université d’Orléans); Sampawende J.-A. TAPSOBA (Fonds monétaire international)
    Abstract: The literature on Optimal Currency Areas (OCA) has identified several channels for the ex post justification of common monetary areas based on the synchronicity criterion. These include trade, cross-border investments, mobility of factors, mobility of goods and services, and fiscal convergence of member countries. We focus on the later for the African continent. We analyze the role of African regional economic communities (RECs) in convergence of fiscal policies from 1990 to 2015. Our estimates show that African RECs reduce significantly fiscal divergence between countries. We further find that common monetary areas are more effective in fostering fiscal convergence. This result is in line with the argument of self-validation of monetary arrangements in Africa, despite low levels of cycle synchronization and trade intensity.
    Keywords: Fiscal convergence, Common monetary areas, Africa
    JEL: E62 F15 O55
    Date: 2018–09
  51. By: Daouda SEMBENE (International Monetary Fund); Vigninou GAMMADIGBE (Université de Lomé); Ismaël ISSIFOU (Université d’Orléans); Sampawende J.-A. TAPSOBA (International Monetary Fund (IMF))
    Abstract: The literature on Optimal Currency Areas (OCA) has identified several channels for the ex post justification of common monetary areas based on the synchronicity criterion. These include trade, cross-border investments, mobility of factors, mobility of goods and services, and fiscal convergence of member countries. We focus on the later for the African continent. We analyze the role of African regional economic communities (RECs) in convergence of fiscal policies from 1990 to 2015. Our estimates show that African RECs reduce significantly fiscal divergence between countries. We further find that common monetary areas are more effective in fostering fiscal convergence. This result is in line with the argument of self-validation of monetary arrangements in Africa, despite low levels of cycle synchronization and trade intensity.
    Keywords: Fiscal convergence, Common monetary areas, Africa
    JEL: E62 F15 O55
    Date: 2018–09
  52. By: Thomas Palley
    Abstract: This paper links the super-multiplier to Keynesian macroeconomics, showing it to be the most Keynesian of growth perspectives. Next, the paper shows that the super-multiplier is a micro-economically coherent theory of investment and capital accumulation. Firms' decisions regarding capital accumulation coordinate demand and supply growth in goods markets. The paper then explores the implications of incorporating the super-multiplier in the Neo-Kaleckian and Cambridge growth models. Lastly, it shows how labor markets and unemployment can be added into super-multiplier models to provide a comprehensive growth model that addresses Solow's (1956) labor market knife-edge problem. Incorporating labor markets does not change the fundamental super-multiplier result that growth is determined by the growth of autonomous demand.
    Keywords: Super-multiplier, growth, unemployment, endogenous technical progress, Solow Knife-edge, Hicks, Kaldor
    JEL: O4 O41 O33 E12
    Date: 2018
  53. By: Davide Romelli (Trinity College Dublin)
    Abstract: What accounts for the worldwide changes in central bank design over the past four decades? Using a new dataset on central bank institutional design, this paper investigates the timing, pace and magnitude of reforms in a sample of 154 countries over the period 1972-2017. I construct a new dynamic index of central bank independence and show that initial reforms that increase the level of independence, as well as a regional convergence, represent important drivers of changes in central bank design. Similarly, an external pressure to reform, such as an IMF loan program, also increases the likelihood of reforms, while political factors or crises episodes have little impact. These results are robust to controlling for the direction and size of reforms, alternative indices of central bank independence and estimation strategies.
    Keywords: central banks, central bank independence, central bank governance, legislative reforms.
    JEL: E58 G28 N20 P16
    Date: 2018–09
  54. By: Maciej Wysocki; Cezary Wójcik
    Abstract: In response to the global crisis a number of new institutional measures have been introduced in the fiscal framework, both on the UE and on the member states’ level, and the question is: have these measures provided better fiscal sustainability outcomes? We approach this question by looking at the evolution of fiscal sustainability in Poland, which is an interesting case of a member state that without significant market pressure (the only EU country without recession during the crisis) actively promoted several changes in the EU fiscal framework (e.g. 6-pack) and effectively internalized some of these key changes in its domestic fiscal policy, including a domestic expenditure fiscal rule. Our analysis reveals that the fiscal sustainability in Poland has significantly improved in the post-crisis period of 2009-2017: we detect both improvement of the fiscal sustainability parameters and structural breaks in the fiscal outcomes after the crisis. Namely, in comparison to the whole sample of 2004-2017 the strength of reaction of the primary deficit to a change of the public debt increased in the post-crisis time by nearly 50%. Importantly, these results are robust with respect to the pension fund reform which led to a one-off redemption of T-bonds in amount of 8.5% of GDP. The analysis also reveals a cycle of structural breaks of 2-and 4 years lags: for the output gap in 2008 Q4, for the primary deficit in 2010 Q4 and for the public debt in 2014 Q1. The case of Poland seems to suggest that the post-crisis EU fiscal measures can be effectively used to increase fiscal sustainability, if properly approached and internalized into the domestic fiscal framework. More research should be devoted to understanding the political and economic conditions under which such positive outcomes were possible.
    Keywords: fiscal sustainability, fiscal policy, global crisis
    JEL: C22 E60 H63
    Date: 2018
  55. By: Irarrazabal, Alfonso A. (BI Norwegian Business School); Ma, Lin (School of Economics and Business, Norwegian University of Life Sciences)
    Abstract: This paper solves a dynamic asset allocation problem for a commodity sovereign wealth fund under incomplete markets. We calibrate the model using data from three countries: Norway, UAE and Chile. In our benchmark calibration for Norway, we find that the fund’s manager should initially invest all her wealth to stock and reduce this fraction gradually over time. We find that the solution is particularly sensitive to the assumption about the volatility of commodity prices. The solution for Chile implies that for relatively high risk aversion coefficients the manager should start at a small fraction of her wealth to increase later over the life cycle of the fund.
    Keywords: Dynamic asset allocation; portfolio management; sovereign wealth fund; income risk
    JEL: E21 G11
    Date: 2018–09–17
  56. By: Olkhov, Victor
    Abstract: This paper describes expectations and Buy-Sell transactions of selected Stokes between economic agents and Exchange on economic space as ground for modeling trading volume and price fluctuations. We study simple model of mutual relations between transactions and expectations and derive economic equations that describe disturbances of price, trading volume and expectations. We obtain simple harmonic oscillations for price fluctuations. We show that our model economic equations can take form of Lorenz attractor. Our approximation of transactions and expectations and economic equations on disturbances of price, trading volume and expectations allows apply dynamical systems methods for modeling chaotic behavior of economic and financial systems.
    Keywords: Financial Transactions; Expectations; Economic Space; Stochastic Prices
    JEL: C60 E00 E30 G02 G12 G17
    Date: 2018–09–20
  57. By: Marc Auboin; Floriana Borino
    Abstract: Since the recovery from the great financial crisis in 2010, global real trade flows grew much slower than pre-crisis, in both absolute terms (growth rates) and relative terms (relative to GDP, from 2:1 in the great 1990’s to 1:1 since 2012) A debate has arisen as to whether this global trade slowdown, and related falling trade-to-income elasticity, was structural or cyclical. Some papers emphasized the slowing pace of international vertical specialization. Other works emphasized the prominent role of aggregate demand, notably when weighted by its trade component. Our paper goes in this latter direction. We estimated the standard import equation for 38 advanced and developing countries over the period 1995-2015, using an import intensity-adjusted measure of aggregate demand (IAD), calculated from input-output tables at country level, and compared results with regressions using GDP. The integration of IAD allows us to predict 76% to 86% of the changes in global imports, a better performance than if using GDP. The use of IAD also enabled us to measure the relative importance of each component of demand, according to their trade intensity. The model is able to account for over 90% of the recent trade slowdown (2012-2015), with IAD alone explaining 80% of it. The slowdown in global value chains explains more than half of the remaining share of the global trade slowdown, not explained by demand factors. Protectionism does not come up as statistically significant.
    Keywords: investment, global outlook, trade policy, trade forecasting, business cycles
    JEL: E22 F01 F13 F17 F44
    Date: 2018
  58. By: Kapoor, Advik; Kaur, Vijay
    Abstract: Economic dispatch is an approach that can indirectly improve the power system resonance. A novel algorithm called JAYA is introduces in this manuscript to have an answer for the non-convex multiple-area economic dispatch (MAED). MAED comprises some zone which satisfy the load-generation balance in each area. The aggregated cost is minimized through transferring the energy from the area that has the lower cost to the zone owns the higher-cost. In above of the transmission line rating, our proposed approach provides the scientists with the multiple petroleum cost function for the generators as well as the prohibited zones for generating the power in the large-scale power generations. Moreover, a new procedure according to the electro search optimization algorithm (ESOA) is projected to obtain the global solution for the MAED problem, when all the limitations are simultaneously considered. The proposed approach is tested to validate its performance through a case system consist of seven generators located in two areas. The results show that the proposed ESOA procedure is more efficient in compare with the other approaches.
    Keywords: Economic Dispatch, Prohibited Operating Zone, Transmission line rating, Optimization approach.
    JEL: A23 E31 E37 I39 O21
    Date: 2018–09–12
  59. By: Diewert, Erwin; Feenstra, Robert
    Abstract: A major challenge facing statistical agencies is the problem of adjusting price and quantity indexes for changes in the availability of commodities. This problem arises in the scanner data context as products in a commodity stratum appear and disappear in retail outlets. Hicks suggested a reservation price methodology for dealing with this problem in the context of the economic approach to index number theory. Feenstra and Hausman suggested specific methods for implementing the Hicksian approach. The present paper evaluates these approaches and suggests some alternative approaches to the estimation of reservation prices. The various approaches are implemented using some scanner data on frozen juice products that are available online.
    Keywords: Hicksian reservation prices, virtual prices, Laspeyres, Paasche, Fisher, Törnqvist and Sato-Vartia
    JEL: C33 C43 C81 D11 D60 E31
    Date: 2018–07–26
  60. By: Eric Tong (The Treasury)
    Abstract: Instrumenting US monetary shocks with fed funds future contracts and extracting global risk sentiment from VIX, this paper uses a structural vector autoregression framework to estimate the causal impact of US monetary policy on New Zealand financial and real sectors. The paper finds that 20 basis points increase in US one-year rate leads to about 14 and 59 percent increase in domestic and external funding spreads of New Zealand banks, respectively. The paper also finds that credit default swap spread rises contemporaneously following a US monetary tightening shock. Similar patterns are documented in Australia, Canada, Sweden and United Kingdom. These results suggest the existence of a global financial cycle underpinned by US monetary policy, and prompt the reassessment of the relevance of Mundellian trilemma in an increasingly globalised economic system.
    Keywords: US monetary policy; risk aversion; NZ funding conditions
    JEL: F30 G21
    Date: 2018–09
  61. By: Bakari, Sayef
    Abstract: The aim of this article is to study empirically the nexus between tax revenue, domestic investment and economic growth in France, since it's never been done before. In addition, there were many problems and repercussions that criticized France's tax policy and its danger to the economic structure, which encourages us to do this research. To attempt this objective, annual data for the period 1972 - 2016 was tested by using correlation analysis and estimation based on vector error correction model. Our results suggest that in the long run there is a negative relationship between tax revenue, domestic investment and economic growth. It is seen that the strategy tax policy of France is not safe for domestic investment and economic growth. For this reason, immediate intervention should be encouraged to carry out the necessary measures before the situation becomes more disastrous.
    Keywords: Tax revenue, Domestic investment, Economic Growth, France
    JEL: E62 H21 O47 O52
    Date: 2018–07
  62. By: Bakari, Sayef
    Abstract: The aim of this article is to study empirically the nexus between tax revenue, domestic investment and economic growth in France, since it's never been done before. In addition, there were many problems and repercussions that criticized France's tax policy and its danger to the economic structure, which encourages us to do this research. To attempt this objective, annual data for the period 1972 - 2016 was tested by using correlation analysis and estimation based on vector error correction model. Our results suggest that in the long run there is a negative relationship between tax revenue, domestic investment and economic growth. It is seen that the strategy tax policy of France is not safe for domestic investment and economic growth. For this reason, immediate intervention should be encouraged to carry out the necessary measures before the situation becomes more disastrous.
    Keywords: Tax revenue, Domestic investment, Economic Growth, France
    JEL: E62 H21 O47 O52
    Date: 2018–07
  63. By: Siami-Namini, Sima; Hudson, Darren; Trindade, A. Alexandre; Lyford, Conrad
    Abstract: One way to analyze the impact of commodity price shocks on monetary policy is to think about short-term interest rates set by Fed according to the Taylor rule. Taylor (1993) suggested a policy reaction function for moderating short-term interest rates to achieve the two-fold goals of stabilizing economic growth in the short-term and inflation in the long-term. One important question is why monetary policy makers focus on core inflation instead of headline inflation. Therefore, the main goal of this research article is to study the pattern of monetary policy responses to commodity price shocks derived from an impulse response function (IRF). To do this, we first estimate two individual Taylor rules based on core and headline consumer price index (CPI) inflation by using real-time data of the US economy for the Greenspan years from 1987 to 2006 and predict the residuals. Then, we estimate two regressions for core and headline CPI inflation as our two individual dependent variables against some independent variables including commodity price shocks, and the Taylor rule residuals. At the end, we predict the monetary policy responses to commodity price shocks by using IRF analysis in multivariate systems of a vector autoregression (VAR) model.
    Keywords: Consumer/Household Economics, Financial Economics, Research Methods/ Statistical Methods
    Date: 2018–01–17
  64. By: Sergey Ivashchenko (The Institute of Regional Economy Problems (Russian Academy of Sciences), St. Petersburg, Russia; National Research University Higher School of Economics, St. Petersburg, Russia; The Faculty of Economics of Saint-Petersburg State University, St. Petersburg, Russia and Financial Research Institute, Ministry of Finance, Russian Federation, Moscow, Russia.); Semih Emre Çekin (Department of Economics, Turkish-German University, Istanbul, Turkey); Kevin Kotzé (School of Economics, University of Cape Town, Rondebosch, South Africa.); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: This paper compares the out-of-sample forecasting performance of first- and second- order perturbation approximations for DSGE models that incorporate Markov-switching behaviour in the policy reaction function and the volatility of shocks. These results are compared to those of a model that does not incorporate any regime-switching. The results suggest that second-order approximations provide an improved forecasting performance in models that do not allow for regime-switching, while for the MS-DSGE models, a first-order approximation would appear to provide better out-of-sample properties. In addition, we find that over short-horizons, the MS-DSGE models provide superior forecasting results when compared to those models that do not allow for regime-switching (at both perturbation orders).
    Keywords: Regime-switching, second-order approximation, non-linear MS-DSGE estimation, forecasting
    JEL: C13 C32 E37
    Date: 2018–09
  65. By: Gonzalo F. de-Córdoba (University of Malaga, Spain); Benedetto Molinari (University of Malaga, Spain; Rimini Centre for Economic Analysis); José L. Torres (University of Malaga, Spain)
    Abstract: This paper provides a twofold contribution. First, it proposes a synthetic and visual indicator to assess public debt sustainability. This indicator summarizes in a single diagram the linkage between economic activity, government’s budget, and the maximum amount of public debt that is sustainable in the long run. The backing theory is a neoclassical growth model augmented with endogenous tax revenues, disaggregated public spending, different production technologies for public and private goods, non-atomistic wage setters in public labor (unions), and a fully specified maturity curve for public bonds. The second contribution of the paper is to develop and present a stand-alone software that analyzes public debt sustainability in response to variations of fiscal policy. This toolkit is useful for managing public debt or to place an additional constraint on government’s budget. We provide an example of its usage for the emblematic case of Greece during the last public debt crisis.
    Keywords: Fiscal policy, Public debt sustainability, Endogenous Tax revenues, DSGE model, Debt-dependent government spending, Python
    JEL: E13 H61 E62 H63 H81 H30
    Date: 2018–09
  66. By: Coletta Frenzel Baudisch (University of Giessen)
    Abstract: Increasing FDI inflows into a booming sector resulting in an appreciation of the real exchange rate may entail further capital inflows and greater appreciation pressure on the real exchange rate up to an abrupt reversal of the capital (Botta, 2015). The macroeconomic instability of such boom-and-bust cycles is detrimental to economic growth, as is the appreciated real exchange rate. This paper applies dynamic system generalized methods of moments (GMM) estimation techniques to empirically find different effects of foreign direct investment (FDI) inflows into the main economic sectors on the real exchange rate in a panel of 66 developing and developed economies. While the effect of FDI in the primary sector appears to be insignificant, FDI in the manufacturing and in the service sector lead to a real depreciation and a real appreciation respectively. Furthermore, evidence suggests that financial sector development may help in dampening the real exchange rate movements induced by FDI in the latter two sectors, as well as distinctly attenuates the real appreciation effect of other capital inflows. Hence, deep financial markets seem to contribute to the mitigation of macroeconomic instability in consequence of capital inflows.
    Keywords: Capital Inflows, Sectoral Foreign Direct Investment, Financial Market Development, Dynamic Panel Data Models
    JEL: C33 E44 F21 F32
    Date: 2018
  67. By: Diewert, Erwin
    Abstract: Statistical agencies increasingly are able to collect detailed price and quantity information from retailers on sales of consumer products. Thus elementary price indexes (which are indexes constructed at the first stage of aggregation for closely related products) can now be constructed using this price and quantity information, whereas previously, statistical agencies had to construct elementary indexes using just retail outlet collected information on prices alone. Thus superlative indexes can now be constructed at the elementary level, which in theory, should lead to more accurate Consumer Price Indexes. However, retailers frequently sell products at heavily discounted prices, which lead to large increases in purchases of these products. This volatility in prices and quantities will generally lead to a chain drift problem; i.e., when prices return to their “normal†levels, quantities purchased are frequently below their “normal†levels and this leads to a downward drift in a superlative price index. The paper addresses this problem and looks at the likely bias in various index number formulae that are commonly used. The bias estimates are illustrated using some scanner data on the sales of frozen juice products that are available online.
    Keywords: Jevons, Dutot, Carli, Unit Value, Laspeyres, Paasche
    JEL: C43 C81 E31
    Date: 2018–08–30
  68. By: Iwona ?adysz (University of Lower Silesia)
    Abstract: Poland, like every European Union Member State, should treat financial security as a priority of its policy. Financial security of the state primarily concerns the safety of public finances. Ensuring good financial condition of the state not only allows its existence, but also its development. For that reason, limiting the value of the debt is necessary. At the same time, the state may take financial risks on the condition that it follows the order of law and its fundamental principles, allowing the building of mutual trust. The aim of the article is to present the state of public finances in Poland between 2007 and 2016 as one of the elements to build financial security of the country. An attempt was made to evaluate the stability of the financial policy conducted by the general government authorities as well as the level of the financial security. What should be particularly taken into account is the risk of a possible underestimation of the official debt, which may result in posing the threat to the financial security of Poland.
    Keywords: management, financial security, public finances, public debt, public deficit, public finance sector
    JEL: E69 E62
    Date: 2018–07
  69. By: Apaydın, Şükrü
    Abstract: The main purpose of this study is to determine the relations between unemployment and entrepreneurship in Turkey. Thus, it is empirically investigated whether the effects of Schumpeter and Refugee are valid or not. In the study, the Autoregressive Distributed Lag – ARDL method was adopted and Turkey’s 2000-2016 period data were used. The results of estimation show that there is an inverse relationship between entrepreneurship and unemployment. Accordingly, when the rate of entrepreneurship increases, unemployment decreases or vice versa. Causality is from entrepreneurship to unemployment. In other words, the while the Schumpeter effect is valid, it is concluded that the refugee effect is invalid.
    Keywords: Entrepreneurship, Unemployment, ARDL Method, Turkey.
    JEL: C22 C51 E24 L26 O31
    Date: 2018–05
  70. By: Sessi Tokpavi; Christophe Boucher
    Abstract: This paper gives new insights about flight-to-safety from stocks to bonds, asking whether the strength of this phenomenon remains the same in the current environment of low yields. The motivations lie on the conjecture that when yields are low, the traditional motives of flight-to-safety (wealth protection, liquidity) could not be sufficient, inducing weaker flight-to-safety events. Empirical applications using data for US government bonds and the S&P 500 index, show indeed that when yields are low, the strength of flight-to-safety from stocks to bonds weakens. Moreover, we develop a bivariate model of flight-to-safety transfers that measures to what extent the strength of flight-to-safety from stocks to bonds is related to the strength of flight-to-safety from stocks to other safe haven assets (gold and currencies). Results show that when the strength of flight-to-safety from stocks to bonds decreases the strength of flight-to-safety from stocks to gold increases. This result holds only in the current low-yield environment, suggesting a shift in the historical attractiveness of bonds as safe haven.
    Keywords: Bonds stocks relationship, Flight-to-Safety, Low-yield environment, Bond alternatives, Currencies, Gold.
    JEL: G11 G12 E43 E44
    Date: 2018
  71. By: Conrad, Christian; Glas, Alexander
    Abstract: We investigate the question of whether macroeconomic variables contain information about future stock volatility beyond that contained in past volatility. We show that forecasts of GDP growth from the Federal Reserve's Survey of Professional Forecasters predict volatility in a cross-section of 49 industry portfolios. The expectation of higher growth rates is associated with lower stock volatility. Our results are in line with both counter-cyclical volatility in dividend news as well as in expected returns. Inflation forecasts predict higher or lower stock volatility depending on the state of the economy and the stance of monetary policy. Forecasts of higher unemployment rates are good news for stocks during expansions and go along with lower stock volatility. Our results hold in- as well as out-of-sample and pass various robustness checks.
    Date: 2018–10–01
  72. By: Lund, Lars (Department of Economics, Copenhagen Business School)
    Abstract: After home rule in 1979 Greenland gradually takes over expenditure of general government from Denmark during the 1980ies. Step by step Denmark gives a subsidy to Greenland covering what were the Danish expenditures. Nearly the entire subsidy comes in four lumps, 1980, 1985, 1987 and 1992. Subsequently the subsidies have been regulated according to the increase in costs for the Danish general government in providing services. Supposing government expenditures being a constant fraction of GDP, we calculate what would have been the hypothetical Danish expenditures to the four areas and then compare these to the actual Greenlandic expenditures in 1994 and 2014. Actual expenditures are much higher than the projected Danish ones. Especially this is true for general public services and education where the level is more than twice the projection. The article’s point of view is that a large part of the overshooting is due to small scale diseconomies.
    Keywords: Greenland; Governemt Expenditure; Small Scale Disadvantages
    JEL: E62 O52 R50
    Date: 2017–12–01
  73. By: Ancil Crayton
    Abstract: Communication is now a standard tool in the central bank's monetary policy toolkit. Theoretically, communication provides the central bank an opportunity to guide public expectations, and it has been shown empirically that central bank communication can lead to financial market fluctuations. However, there has been little research into which dimensions or topics of information are most important in causing these fluctuations. We develop a semi-automatic methodology that summarizes the FOMC statements into its main themes, automatically selects the best model based on coherency, and assesses whether there is a significant impact of these themes on the shape of the U.S Treasury yield curve using topic modeling methods from the machine learning literature. Our findings suggest that the FOMC statements can be decomposed into three topics: (i) information related to the economic conditions and the mandates, (ii) information related to monetary policy tools and intermediate targets, and (iii) information related to financial markets and the financial crisis. We find that statements are most influential during the financial crisis and the effects are mostly present in the curvature of the yield curve through information related to the financial theme.
    Date: 2018–09
  74. By: Ashima Goyal (Indira Gandhi Institute of Development Research)
    Abstract: The paper assesses the performance of India's managed float with respect to maintaining a real competitive exchange rate, its effect on trade, on stability of currency and financial markets, and on inflation. It also derives the current range that balances these three effects.
    Keywords: India; exchange rate regime; trade; stability; capital flows; inflation
    JEL: F41 F31 E52
    Date: 2018–08
  75. By: Flavio E. Buchieri
    Abstract: Los episodios de crisis financieras y cambiarias, a los cuales se les suman situaciones críticas en materia de cumplimiento de los compromisos de deuda del Estado Nacional, en particular y producto de la propia inestabilidad macroeconómica de un país, han sido recurrentes en la historia reciente de Argentina. En el presente documento se analiza cómo ambos fenómenos interactúan y se retroalimentan bajo un contexto de Caja de Conversión no Orotodoxa, esto es, con disponibilidad acotada de un Prestamista de Última Instancia para proveer liquidez en un contexto de tensión bancaria. En el mismo se presenta un modelo téorico para analizar dicha situación, postulándose la hipótesis de que el contexto institucional mencionado genera dos equilibrios posibles: uno estable y otro inestable. A pesar de la existencia de un Prestamista de Última Instancia, este último equilibrio agrava el problema de riesgo moral de los bancos ante la ocurrencia de una corrida. Esto exige contratar mayores coberturas para dotar de la liquidez necesaria al sistema bancario para, de ese modo, no afectar el mantenimiento del arreglo cambiario elegido.
    Keywords: Cajas de Conversión, Margen de Emisión, Equilibrio Inestable, “Calidad” de la convertibilidad
    JEL: E42 G01
    Date: 2018–09
  76. 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. A word of caution (and a disclaimer): readers should not expect to find hard quantitative evidence on the monetary regime as the institutional setting produced no consistent statistical information of note. Instead, the essay offers an analytical narrative of the pre-modern world monetary system without central banks.
    Keywords: Silver specie, international currency, international trade, monetary capacity, currency trade, global Smithian growth, early modern global economy
    JEL: E52 N10 N13 N15 N16 N2 N7
    Date: 2018–09–05
  77. By: Alexander Bick (Arizona State University); Bettina Brüggemann (McMaster University); Nicola Fuchs-Schündeln (Goethe University Frankfurt); Hannah Paule-Paludkiewicz (Goethe University Frankfurt)
    Abstract: We document the time-series of employment rates and hours worked per employed by married couples in the US and seven European countries (Belgium, France, Germany, Italy, the Netherlands, Portugal, and the UK) from the early 1980s through 2016. Relying on a model of joint household labor supply decisions, we quantitatively analyze the role of non-linear labor income taxes for explaining the evolution of hours worked of married couples over time, using as inputs the full country- and year-specific statutory labor income tax codes. We further evaluate the role of consumption taxes, gender and educational wage premia, and the educational composition. The model is quite successful in replicating the time series behavior of hours worked per employed married woman, with labor income taxes being the key driving force. It does however capture only part of the secular increase in married women’s employment rates in the 1980s and early 1990s, suggesting an important role for factors not considered in this paper. We will make the non-linear tax codes used as an input into the analysis available as a user-friendly and easily integrable set of Matlab codes.
    Keywords: taxation, two-earner households, hours worked
    JEL: E60 H20 H31 J22
    Date: 2018–09
  78. By: Arseneau, David; Epstein, Brendan
    Abstract: We study the role of labor market mismatch in the adjustment to a trade liberalization that results in the offshoring of high-tech production. Our model features two-sided heterogeneity in the labor market: high- and low-skilled workers are matched in a frictional labor market with high- and low-tech frms. Mismatch employment occurs when high-skilled workers choose to accept a less desirable job in the low-tech industry. The main result is that this type of job displacement is actually benefcial for the labor market in the country doing the o¤shoring. The reason is that mismatch allows this economy to reallocate domestic high-skilled labor across both high- and low-tech industries. In doing so, this reallocation dampens both the increase in the aggregate unemployment rate and the decline in aggregate wages that come as a consequence of shifting domestic production abroad. From a policy perspective, this result is perhaps counter-intuitive because it suggests that some degree of job dislocation is actually desirable as it helps facilitate adjustment in the labor market following a trade liberalization.
    Keywords: search and matching; unemployment; vacancies; trade.
    JEL: E24 F16 J63
    Date: 2017
  79. By: Cândida Ferreira
    Abstract: Using different kinds of panel unit root and cointegration tests as well as panel estimations this paper seeks to improve upon the existing literature by testing the possible relationship between globalisation and the real GDP of 29 countries across almost all continents for the period 1970–2013. The results obtained allow us to confirm that globalisation is clearly relevant to economic growth, mostly when globalisation is proxied by variables related to international transactions, but also when it is proxied with the globalisation indexes and sub-indexes provided by the database of the Swiss think-tank KOF. There is also clear evidence that the long-run relationships, measured through panel cointegration, are stronger among the countries belonging to the same continent, Europe, as well as among those with a higher GDP per capita.
    Keywords: Economic growth; globalisation; KOF indexes; panel estimations; cointegration
    JEL: C22 E10 F41
    Date: 2018–09
  80. By: Hoang Khieu (Johannes Gutenberg-University); Klaus Wälde (Johannes Gutenberg-University)
    Abstract: In this paper, we develop and nummerically solve a model of idiosyncratic labour income and idiosyncratic interest rates to predict the evolution of a wealth dirstribution over time. Stochastic labour income follows a deterministic growth trend and it fluctuaues between a wage and unempolyment benefits. Stochastic interst rates are drawn initially (ex-ante heterogeneity) fluctuate between two values (ex-post heterogeneity) and can differ in their arrival rates (financial types). A low interest rate implies a stationary long-run wealth distribution, a high interest rate implies non-stationary wealth distribution. Our baseline model matches the evolution of the wealth distribution of the NLSY 79 cohort from 1986 to 2008 very well. When we start in 1986 and target 2008, we obtain a fit of 96.1%. The fit for non-targeted years is 77.0% on average. When targeting the evolution of wealth, the fit is 88.9%. With a more flexible interest rate distribution, the fit can even be increased to 96.7%. Comparing calibrated mean returns with data shows that the flexible interest rate distribution has empirically not convincing "superstar states". In the baseline model, mean returns are empirically convincing. Surprisingly, the standard deviation of model returns is an order of magnitude lower than empirical standard deviation.
    Keywords: dynamics of wealth distribution, NLSY 1979 cohort, capital income risk, Fokker-Planck equations
    JEL: C02 D31 E21
    Date: 2018–09–26
  81. By: Herwartz, Helmut; Roestel, Jan
    Abstract: This paper investigates the propagation of instability through key asset markets of the US financial system - equity, real estate, banking and treasury - between 1/3/2000 and 12/26/2014. For this purpose, we develop an identification method to uncover characteristic financial market interrelations under distinguished scenarios of crises. It refers to the logic behind narrative sign restrictions and allows to extract time varying contemporaneous effects and volatility transmission from conventional reduced form volatility models with dynamic correlations. We find the market value of banking institutions to be highly sensitive to news originating in other markets, with those originating in the real estate market being most important. Under stress, in turn, the banking sector tends to dominate financial market (co)variation, where it exhibits a marked feedback relation with both the real estate and the equity market.
    Keywords: Identification,Contemporaneous effects,Causality,Impulse response analysis,GARCH,Volatility transmission,Financial crises
    JEL: C39 C32 E44 G01
    Date: 2018
  82. By: Ilhyock Shim; Kwanho Shin
    Abstract: We investigate if financial stress in countries where international banks are headquartered is a major driver of banking outflows from emerging market economies (EMEs). We find that when financial stress measured by sovereign or bank CDS spread or corporate bond spread increases, international banks decrease their lending to EMEs, which acts as a major driver of capital outflows from EMEs. In particular, financial stress in lender countries is a more important driver than the local financial conditions and macroeconomic fundamentals of EMEs. Such results generally hold even after the Global Financial Crisis (GFC) period, but to a lesser extent. When we divide the total amount of international lending into subcomponents, cross-border lending to EMEs is more susceptible to financial stress in lender countries than is local lending, and that local lending in foreign currency is more stable than is cross-border lending. Our findings suggest that it is desirable for EME policymakers to promote diversification of lender countries and induce more borrowing from local subsidiaries than cross-border lenders.
    Keywords: capital outflows, cross-border claims, emerging market economies, financial stress, local claims
    JEL: E44 F15 F21 F34
    Date: 2018–09
  83. By: Louise Sheiner (The Brookings Institution)
    Abstract: Productivity growth has slowed in the United States in the past decade, and some analysts expect growth to remain low in coming years. Besides being an important determinant of living standards and GDP, productivity growth also affects the fiscal outlook, because expenditures and revenues tend to move with GDP and because productivity growth might have a direct effect on government borrowing costs. The author calculates the likely effects of slower productivity growth on the long-term budget outlooks of federal and state and local governments. In particular, she examines how projections of deficits and debt change if annual labor productivity growth is 0.6 percentage points slower than in Congressional Budget Office’s current baseline. For the federal government, she finds that the effect of slower productivity growth is to worsen primary deficits, because some outlays are invariant to changes in productivity growth while revenues move more than one for one with it. These increased deficits imply that the federal debt will reach 146 to 173 percent of GDP by 2042, compared with the baseline estimate of 130 percent of GDP, with the range depending on the assumption about how interest rates move with productivity growth. Changes in productivity growth appear less important for the state and local sector. Revenues are more likely to move one for one with productivity growth, because state and local income taxes are less progressive than federal taxes and because sales taxes and property taxes make up a much larger fraction of tax collections. A slowdown in productivity growth is likely to exert some upward pressure on state and local spending relative to GDP, stemming from the somewhat heavier burden of pension spending and increased eligibility for Medicaid and other poverty-related programs, but these increases are likely to be small.
    Keywords: Deficits, Debt, Fiscal outlook, Productivity growth, Sustainability, Federal budget, State and local budgets, Government revenues, Government spending, Interest rates, Debt dynamics
    JEL: H0 H1 H2 H3 H5 H6 H7 E6
    Date: 2018–09
  84. By: Edward N. Gamber (CBO)
    Abstract: Private-sector forecasters consistently missed the decline in long-term nominal interest rates over the past three decades, estimating rates that were higher (and, in some cases, much higher) than what actually occurred. This analysis examines whether bond-market participants anticipated with greater accuracy the decline in long-term rates. To explore that issue, the Congressional Budget Office compared the accuracy and bias in forecasts of long-term interest rates from the Blue Chip consensus with forecasts based on information derived from the
    JEL: E47
    Date: 2017–09–27
  85. By: Legrand, Romain
    Abstract: Time-varying VAR models have become increasingly popular and are now widely used for policy analysis and forecast purposes. They constitute fundamental tools for the anticipation and analysis of economic crises, which represent rapid shifts in dynamic responses and shock volatility. Yet, despite their flexibility, time-varying VARs remain subject to a number of limitations. On the theoretical side, the conventional random walk assumption used for the dynamic parameters appears excessively restrictive. It also conceals the potential heterogeneities existing between the dynamic processes of different variables. On the application side, the standard two-pass procedure building on the Kalman filter proves excessively complicated and suffers from low efficiency. Based on these considerations, this paper contributes to the literature in four directions: i) it introduces a general time-varying VAR model which relaxes the standard random walk assumption and defines the dynamic parameters as general auto-regressive processes with variable- specific mean values and autoregressive coefficients. ii) it develops an estimation procedure for the model which is simple, transparent and efficient. The procedure requires no sophisticated Kalman filtering methods and reduces to a standard Gibbs sampling algorithm. iii) as an extension, it develops efficient procedures to estimate endogenously the mean values and autoregressive coefficients associated with each variable-specific autoregressive process. iv) through a case study of the Great Recession for four major economies (Canada, the Euro Area, Japan and the United States), it establishes that forecast accuracy can be significantly improved by using the proposed general time-varying model and its extensions in place of the traditional random walk specification.
    Keywords: Time-varyings coefficients; Stochastic volatility; Bayesian methods; Markov Chain Monte Carlo methods; Forecasting; Great Recession
    JEL: C11 C15 C22 E32 F47
    Date: 2018–09–10
  86. By: Bonga, Wellington G.; Mahuni, Kenneth
    Abstract: A positive economic growth is one crucial macroeconomic objective of every nation. Many countries have formed regional as well as international trading blocs in an attempt to enhance economic growth and maximise welfare of each member state, the AFTZ member states are not an exception. This paper seeks to investigate the impact of ease of doing business and corruption on economic growth of AFTZ member states. The study employed a panel data analysis for the period 2010-2016, using Stata Statistical Software. The study findings for the bloc, indicated that corruption, trading across borders, getting credit, registration of property, dealing with construction permits, and starting business have a significant impact on the bloc’s economic growth; with insolvency resolving and investor protection of concern as well. Paying attention to country effects test, with the quest for efficient results, the study further divided the AFTZ bloc into 3 groups using average GDP as the determining variable. The usual 3 panel models were run for each group, with efficiency noted from the reported adjusted R-squared and overall R-squared. The study recommends each member state to pay particular attention to the identified affecting variables for improved economic growth. The onus to improve economic wellbeing of each state does not lie on the bloc only but on individual efforts as well, since individual differences prevail. All this will enable the broader efficacy and vision of AFTZ to be realised.
    Keywords: Economic Growth, Ease of Doing Business, Doing Business Indicators, Corruption, AFTZ, Panel Data Analysis
    JEL: C23 C33 E22 F15 F18 F42 N17 N47 N97 O55
    Date: 2018–09–10
  87. By: Kiminori Matsuyama (Northwestern University,USA); Iryna Sushko (Institute of Mathematics, National Academy of Science of Ukraine); Laura Gardini (Department of Economics, Society & Politics, Università di Urbino Carlo Bo)
    Abstract: We reconsider a regime-switching model of credit frictions which has been proposed in a general framework by Matsuyama for the case of CobbDouglas production functions. This results in a piecewise linear map with two discontinuity points and all three branches having the same slope. We offer a complete characterization of the bifurcation structure in the parameter space, as well as of the attracting sets and related basins of attraction in the phase space. We also discuss parameter regions associated with overshooting, leapfrogging, poverty traps, reversal of fortune, and growth miracle, as well as cycles with any kind of switching between the expansionary and contractionary phases.
    Keywords: Macroeconomic model of credit frictions; Poverty traps; Growth miracle; One-dimentional piecewise linear map; Border collision bifurcation
    Date: 2018
  88. By: Marcin Jaskowski (Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam, The Netherlands.); Michael McAleer (Department of Quantitative Finance National Tsing Hua University, Taiwan and Econometric Institute Erasmus School of Economics Erasmus University Rotterdam, The Netherlands and Department of Quantitative Economics Complutense University of Madrid, Spain And Institute of Advanced Sciences Yokohama National University, Japan.)
    Abstract: In order to understand the lingering credit risk puzzle and the apparent segmentation of the stock market from credit markets, we need to be able to assess the strength of the cross-sectional dependence in credit spreads. This turns out to be a non-trivial task due to the extreme data sparsity that is typical for any panel of credit spreads that is extracted from corporate bond transactions. The problem of data sparsity has led to some erroneous conclusions in the literature, including inferences that have been drawn from spurious cross-sectional dependence in credit spread changes. Understanding the pitfalls leads to a new and improved estimator of the latent factor in credit spread changes and its characteristics.
    Keywords: Credit spread puzzle; Market segmentation; Latent factors; Spurious cross-sectional dependence.
    JEL: G12 G13 G17 E43
    Date: 2018–09
  89. By: Wenzel, Daniela (Helmut Schmidt University, Hamburg)
    Abstract: Natural disasters are a challenge for good governance - this is the result of recent research investiga- ting the effects of natural disasters on one important antagonistic force to good governance, public corruption. However, a specific analysis of droughts is so far neglected in this young strand of the literature. This paper fills that gap by analysing the short- and long-term influence of droughts on cor- ruption within a unified panel estimation approach for 122 countries during the years 1985 to 2013. Relying on a meteorological drought index, we show that higher drought exposure is followed by increases in corruption. This effect holds true for subgroups of poor and rich countries although its ti- ming and intensity is different. In addition, we identify drought-induced corruption as a phenomenon of countries yielding high per capita income in the agricultural sector.
    Keywords: Drought; Natural Disasters; Public Sector Corruption; Institutions; Economic Development
    JEL: D73 E02 Q54 Q56
    Date: 2018–09–28
  90. By: Clemens Bonner; Eward Brouwer; Iman van Lelyveld
    Abstract: Using transaction level data of Dutch fixed income markets, we analyze the drivers of market liquidity between 2014 and 2016. Our results differ significantly across asset classes and during more volatile periods. Policy interventions, such as favourable treatment in liquidity regulation increases the liquidity of bonds. The effects of un- conventional monetary policy are mixed. On the whole it seems to reduce liquidity during normal times but supports it during more volatile periods. Market structure, i.e. the presence of High Frequency Traders (HFT), affects liquidity of sovereign but not of other bonds with reversed effects in more volatile periods. Bond specifics such as shorter maturity and higher ratings are consistently associated with higher liquidity.
    Keywords: Liquidity; Financial Markets; Monetary Policy; Regulation
    JEL: G18 G21 E42
    Date: 2018–09

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