nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒10‒15
71 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The effectiveness of Japan's Negative Interest rate policy By Yoshino, Naoyuki Yoshino; Hesary, Farhad Taghizadeh; Miyamoto, Hiroaki Miyamoto
  2. Bringing the helicopter to ground: a historical review of fiscal-monetary coordination to support economic growth in the 20th century By Josh Ryan-Collins; Frank van Lerven
  3. "Unconventional Monetary Policies and Central Bank Profits: Seigniorage as Fiscal Revenue in the Aftermath of the Global Financial Crisis" By Joerg Bibow
  4. Macroeconomic Environment and Taxes Revenues in Pakistan: An Application of ARDL Approach By Ali, Amjad; Audi, Marc
  5. The Neo-Fisher Effect: Econometric Evidence from Empirical and Optimizing Models By Martín Uribe
  6. Central bank Independence in New Zealand: Public Knowledge About and Attitude Towards the Policy Target Agreement By Bernd Hayo; Florian Neumeier
  7. Capital Reallocation By Andrea L. Eisfeldt; Yu Shi
  8. ARE CONSUMER INFLATION EXPECTATIONS AN INTERNATIONAL PHENOMENON? Results of spatial panel regressions models By Karolina Tura-Gawron; Maria Siranova; Karol Fisikowski
  9. What core inflation indicators measure? By Aleksandra Hałka; Grzegorz Szafrański
  10. The Greek crisis: A story of self-reinforcing feedback mechanisms By Juselius, Katarina; Dimelis, Sophia
  11. Why Does Credit Growth Crowd Out Real Economic Growth? By Stephen G. Cecchetti; Enisse Kharroubi
  12. Are habits important for the propagation of business cycle fluctuations in Bulgaria? By Vasilev, Aleksandar
  13. Non-Monetary News in Central Bank Communication By Anna Cieslak; Andreas Schrimpf
  14. Quantifying the Natural Rate of Interest in a Small Open Economy - The Czech Case By Tibor Hledik; Jan Vlcek
  15. Indeterminacy with preferences featuring multiplicative habits in consumption: lessons from Bulgaria (1999-2016) By Vasilev, Aleksandar
  16. The monetary dimension of arbitrage. A brief note By Andrea Mantovi
  17. Equilibrium foreign currency mortgages By Marcin Kolasa
  18. Predictable biases in macroeconomic forecasts and their impact across asset classes By Félix, Luiz; Kräussl, Roman; Stork, Philip
  19. Inflation, Debt, and Default By Hur, Sewon; Kondo, Illenin O.; Perri, Fabrizio
  20. International spillovers of monetary policy: lessons from Chile, Korea, and Poland By Krzysztof Gajewski; Alejandro Jara; Yujin Kang; Junghwan Mok; David Moreno; Dobromił Serwa
  21. Bubble on real estate: The role of altruism and fiscal policy By Lise Clain-Chamosset-Yvrard; Thomas Seegmuller
  22. MPC Heterogeneity in Europe: Sources and Policy Implications By Miguel Ampudia; Russell Cooper; Julia Le Blanc; Guozhong Zhu
  23. History Remembered: Optimal Sovereign Default on Domestic and External Debt By Pablo D'Erasmo; Enrique G. Mendoza
  24. Turnover Liquidity and the Transmission of Monetary Policy By Ricardo Lagos; Shengxing Zhang
  25. Income Inequality and Stock Market Returns By Agnieszka (A.P.) Markiewicz; Rafal Raciborski
  26. Monetary Policy across Space and Time By Liu, Laura; Matthes, Christian; Petrova, Katerina
  27. Macroprudential Policy with Leakages By Julien Bengui; Javier Bianchi
  28. Search and Credit Frictions in the Housing Market By Miroslav Gabrovski; Victor Ortego-Marti
  29. Normative Inference in Efficient Markets By Marek Weretka
  30. Is the debt brake behind Germany's successful fiscal consolidation? By Rietzler, Katja; Truger, Achim
  31. Measurement Error in Imputed Consumption By Scott R. Baker; Lorenz Kueng; Steffen Meyer; Michaela Pagel
  32. Immigrants, Labor Market Dynamics and Adjustment to Shocks in the Euro Area By Gaetano Basso; Francesco D'Amuri; Giovanni Peri
  33. Commodity Currencies and Monetary Policy By Michael B. Devereux; Gregor W. Smith
  34. Eliminating the Pass-Through: Towards FDI Statistics that Better Capture the Financial and Economic Linkages between Countries By Maria Borga; Cecilia Caliandro
  35. Analyzing Dynamic Connectedness in Korean Housing Markets By So Jung Hwang; Hyunduk Suh
  36. Asymmetric Consumption Response of Households to Positive and Negative Anticipated Cash Flows By Brian Baugh; Itzhak Ben-David; Hoonsuk Park; Jonathan A. Parker
  37. Zero-coupon interest rates: Evaluating three alternative datasets By Díaz, Antonio; Jareño, Francisco; Navarro, Eliseo
  38. Economic Policy in a Recession. Lessons from the Past By Gerald Roy Steele
  39. Exploring current economic conditions and the implications for monetary policy: remarks at the National Association for Business Economics (NABE) 60th Annual Meeting, Boston, Massachusetts, October 1, 2018 By Rosengren, Eric S.
  40. Racing With or Against the Machine? Evidence from Europe By Terry Gregory; Anna Salomons; Ulrich Zierahn
  41. Forecasting with Dynamic Panel Data Models By Laura Liu; Hyungsik Roger Moon; Frank Schorfheide
  42. Debt, Information, and Illiquidity By Efraim Benmelech; Nittai Bergman
  43. Life-cycle Wealth Accumulation and Consumption Insurance By Claudio Campanale; Marcello Sartarelli
  44. Seasonality Detection in Small Samples using Score-Driven Nonlinear Multivariate Dynamic Location Models By Licht, Adrian; Escribano Sáez, Álvaro; Blazsek, Szabolcs Istvan
  45. How do firms adjust to rises in the minimum wage? Survey evidence from Central and Eastern Europe By Katalin Bodnár; Ludmila Fadejeva; Stefania Iordache; Liina Malk; Desislava Paskaleva; Jurga Pesliakaitė; Nataša Todorović Jemec; Peter Tóth; Robert Wyszyński
  46. The Long-Run Non-Neutrality of Monetary Policy: A General Statement in a Dynamic General Equilibrium Model By Eric Kam; John Smithin; Aqeela Tabassum
  47. The effects of changes in local-bank health on household consumption By Cooper, Daniel H.; Peek, Joe
  48. Which Ladder to Climb? Wages of Workers by Job, Plant, and Education By Christian Bayer; Moritz Kuhn
  49. The German Productivity Paradox - Facts and Explanations By Steffen Elstner; Lars P. Feld; Christoph M. Schmidt
  50. The end of the flat tax experiment in Slovakia: An evaluation using behavioural microsimulation linked with a dynamic macroeconomic framework By Norbert Švarda
  51. The Stockholm School in a New Age – Erik Lundberg and the Swedish Model By Erixon, Lennart
  52. Do minimum wages increase search effort? By Laws, A.
  53. Scanner Data, Elementary Price Indexes and the Chain Drift Problem By Diewert, Erwin; Marandola, Tina
  54. Corporate cost and profit shares in the euro area and the US: the same story? By Vicente Salas; Lucio San Juan; Javier Vallés
  55. The Price of Capital, Factor Substitutability, and Corporate Profits By Hergovich, Philipp; Merz, Monika
  56. A concise test of rational consumer search By Lee, Chloe; Luengo-Prado, Maria Jose; Sorensen, Bent E.
  57. A Closer Look at the Behavior of Uncertainty and Disagreement: Micro Evidence from the Euro Area By Rich, Robert W.; Tracy, Joseph
  58. Labor Market Effects of Reducing the Gender Gap in Parental Leave Entitlements By Elena Del Rey; Maria Racionero; Jose I. Silva
  59. Pollution, carrying capacity and the Allee effect By Stefano BOSI; David DESMARCHELIER
  60. The effects of prudential regulation, financial development and financial openness on economic growth By Pierre-Richard Agénor; Leonardo Gambacorta; Enisse Kharroubi; Enisse Kharroubi
  61. Crowding out or Knowledge Spillovers: The Wind Power Industry´s Effect on Related Energy Machinery By Grafström, Jonas
  62. FIW Note No. 26 - September 2018 By Roman Stöllinger
  63. The paradox of tax competition: Effective corporate tax rates as a determinant of foreign direct investment in a modified neo-Kaleckian model By Woodgate, Ryan
  64. The Economic Effect of Immigration Policies: Analyzing and Simulating the U.S. Case By Andri Chassamboulli; Giovanni Peri
  65. Consumer Credit Card Choice: Costs, Benefits and Behavioural Biases By Mary-Alice Doyle
  66. ¿Cuál es la dimensión y en que se gastó la reciente bonanza en Colombia? By Lucas Marín-Llanes; Jaime Bonet-Morón; Gerson J. Pérez-Valbuena
  67. ¿Cuál es la dimensión y en que se gastó la reciente bonanza en Colombia? By Lucas Marín-Llanes; Jaime Bonet-Morón; Gerson J. Pérez-Valbuena
  68. Who Creates New Firms When Local Opportunities Arise? By Shai Bernstein; Emanuele Colonnelli; Davide Malacrino; Timothy McQuade
  69. Caractéristiques de l’entrepreneuriat féminin à Dakar au Sénégal By Ibrahima Dia; Rafik Abdesselam; Jean Bonnet
  70. The North-South Divide, the Euro and the World By Konstantinos Chisiridis; Kostas Mouratidis; Theodore Panagiotidis
  71. Current Account Balance in Emerging Asia By Kivanç Halil Ariç; Siok Kun Sek; Miguel Rocha de Sousa

  1. By: Yoshino, Naoyuki Yoshino; Hesary, Farhad Taghizadeh; Miyamoto, Hiroaki Miyamoto
    Abstract: This paper investigates the effect of zero and negative interest rate policy of Japan on the inflation rate and the role of exchange rate in conducting the zero and negative interest rate policy. The disappointing economic performance thus seems primarily due to a series of adverse economic shocks rather than an extraordinary policy error. The empirical analysis is based on, primarily, a stylized VAR model of the Japanese economy with the innovation that the interest rate policy, and the exchange rate—two important parameters for assessing the stance of monetary policy—are allowed to vary over time. Secondly, the estimated VAR model investigates whether alternative interest-rate policy approaches proposed in the literature could have improved macroeconomic performance. Though, Granger causality method has been used in the earlier literature to measure the causation of interest rate on inflation rate and it also used to see the block and instantaneous causality between the systems of variables. Next, using an estimated structural model, I identified a number of adverse shocks occurring after the 1990s. It thus follows that int. rate policy was not solely responsible for the stimulation neither in inflation growth performance nor in increasing the output growth. Aiming for a low inflation level and responding to the economy according to a conventional policy rule provided insufficient insurance against the contractionary shocks that occurred over the 1990s.
    Keywords: VAR, Generalized and Orthogonalized impulse response, Granger causality, Unit root test
    JEL: E4 E44 E60 F41
    Date: 2018–05–16
  2. By: Josh Ryan-Collins; Frank van Lerven (None)
    Abstract: In the face of the perceived high public and private debt levels and sluggish recovery that has followed the financial crisis of 2007-08, there have been calls for greater fiscal-monetary coordination to stimulate nominal demand. Policy debates have been focused upon the inflationary expectations that may be generated by monetary financing or related policies, consistent with New Consensus Macroeconomics theoretical frameworks. Historical examples of fiscal-monetary policy coordination have been largely neglected, along with alternative theoretical views, such as post-Keynesian perspectives that emphasise uncertainty and demand rather than rational expectations. This paper begins to address this omission. First, we provide an overview of the holdings of government debt by both central banks and commercial banks as an imperfect but still informative proxy for fiscal-monetary coordination in advanced economies in the 20th century. Second, we develop a new typology of forms of fiscal-monetary coordination that includes both direct and less direct forms of monetary financing, illustrating this with case-study examples. In particular, we focus on the 1930s-1970s period when central banks and ministries of finance cooperated closely, with less independence accorded to monetary policy and greater weight attached to fiscal policy. We find a number of cases where fiscal-monetary coordination proved useful in stimulating economic growth, supporting industrial policy objectives and managing public debt without excessive inflation.
    Keywords: monetary policy, monetary financing, inflation, central bank independence, fiscal policy, debt, credit creation
    JEL: B22 B25 E02 E12 E31 E42 E51 E52 E58 E63 N12 N22 O43
    Date: 2018–10
  3. By: Joerg Bibow
    Abstract: This study investigates the evolution of central bank profits as fiscal revenue (or: seigniorage) before and in the aftermath of the global financial crisis of 2008-9, focusing on a select group of central banks--namely the Bank of England, the United States Federal Reserve System, the Bank of Japan, the Swiss National Bank, the European Central Bank, and the Eurosystem (specifically Deutsche Bundesbank, Banca d'Italia, and Banco de Espana)--and the impact of experimental monetary policies on central bank profits, profit distributions, and financial buffers, and the outlook for these measures going forward as monetary policies are seeing their gradual "normalization." Seigniorage exposes the connections between currency issuance and public finances, and between monetary and fiscal policies. Central banks' financial independence rests on seigniorage, and in normal times seigniorage largely derives from the note issue supplemented by "own" resources. Essentially, the central bank's income-earning assets represent fiscal wealth, a national treasure hoard that supports its central banking functionality. This analysis sheds new light on the interdependencies between monetary and fiscal policies. Just as the size and composition of central bank balance sheets experienced huge changes in the context of experimental monetary policies, this study's findings also indicate significant changes regarding central banks' profits, profit distributions, and financial buffers in the aftermath of the crisis, with considerable cross-country variation.
    Keywords: Central Bank Profits; Seigniorage; Financial Crisis; Unconventional Monetary Policy; Monetary and Fiscal Policy; Central Bank Capital; Helicopter Money; Cryptocurrencies; Bitcoin
    JEL: E41 E52 E58 E62 E65 G01
    Date: 2018–10
  4. By: Ali, Amjad; Audi, Marc
    Abstract: Taxation intends to raise the necessary funds for government expenditures, redistribution of income and stabilization of the economy, influence the allocation of resources and to overcome the externalities. Taxation is also supportive of the process of stable economic growth. This study has examined the impact of macroeconomic situations on tax revenues in the case of Pakistan over the period of 1975 to 2016. The study has very interesting results as unemployment has a positive and significant impact on tax revenues. There is a positive and significant relationship between money supply tax revenues. Inflation has negative and significant relation with tax revenues in the case of Pakistan. The study shows that Pakistan needs a sound macroeconomic environment for enhancing tax revenues. A country with stable macroeconomic situations would create greater opportunities for investment and more jobs are created. This would further enhance purchasing power on the part of consumers and bearing taxes burden become easy for them. Moreover, there is a dire need of tax education to the masses.
    Keywords: taxes, inflation, unemployment
    JEL: E24 E31 H2
    Date: 2018
  5. By: Martín Uribe
    Abstract: This paper investigates whether permanent monetary tightenings increase inflation in the short run. It estimates, using U.S. data, an empirical and a New-Keynesian model driven by transitory and permanent monetary and real shocks. Temporary increases in the nominal interest-rate lead, in accordance with conventional wisdom, to a decrease in inflation and output and an increase in real rates. The main result of the paper is that permanent increases in the nominal interest rate lead to an immediate increase in inflation and output and a decline in real rates. Permanent monetary shocks explain more than 40 percent of inflation changes.
    JEL: E52 E58
    Date: 2018–09
  6. By: Bernd Hayo (University of Marburg); Florian Neumeier (Ifo Institute–Leibniz Institute for Economic Research at the University of Munich)
    Abstract: Employing unique representative survey data from New Zealand collected in 2016, we study public knowledge about and attitude towards a specific monetary policy institution, the Policy Target Agreement (PTA). The PTA contains the inflation target for the Reserve Bank of New Zealand (RBNZ). First, we assess how much the population knows about the PTA, finding the level of knowledge to be low. Second, we ask whether our respondents support a clause in the PTA that allows the government to over-ride the RBNZ if it deems it necessary. We interpret responses to that question as attitudes towards central bank independence (CBI). The population does not appear to have a clear view on whether or not to expand CBI, as roughly one third supports the overriding clause in the PTA, one third is against it, and one third is unsure. Using logit regression, we study which characteristics make people favour more CBI. Subjective and objective knowledge about the RBNZ and monetary policy increases support for CBI, whereas voting for a national-oriented party and trusting the government reduces it. Policy implications are derived from our findings.
    Keywords: Central Bank Independence, Public Attitude, Policy Target Agreement, Economic Literacy, New Zealand, Monetary Policy, Household Survey
    JEL: E42 E52 E58 Z1
    Date: 2018
  7. By: Andrea L. Eisfeldt; Yu Shi
    Abstract: Capital reallocation is procyclical, despite measured productive reallocative opportunities being acyclical, or even countercyclical. This paper reviews the advances in the literature studying the causes and consequences of capital reallocation (or lack thereof). We provide a comprehensive set of capital reallocation stylized facts for the US, and an illustrative model of capital reallocation in equilibrium. We relate capital reallocation to the broader literatures on business cycles with financial frictions, and on resource misallocation and aggregate productivity. Throughout, we provide directions for future research.
    JEL: E13 E22 E3 E32 E44 G31 G34
    Date: 2018–09
  8. By: Karolina Tura-Gawron (Gdansk University of Technology, Gdansk, Poland); Maria Siranova (University of Economics in Bratislava, Bratislava, Slovak Republik); Karol Fisikowski (Gdansk University of Technology, Gdansk, Poland)
    Abstract: This study examines the potential drivers and their spatial components of inflation expectations of consumers in 22 European Union countries by using the spatial Durbin model. The potential determinants are drawn from the macrosphere (oil prices, food prices, house prices, industrial production), financial sphere (money market interest rates, nominal effective exchange rate, key policy rate), and economic favourable cognition variables (consumer confidence indicator, short-term inflation volatility, medium–term memory reversal of inflation expectations). The implemented binary spatial weight matrices are based on the geographical and economic distances. The economic distance weights define the European Union global trade partners as the most proximal neighbours. Our results confirm the existence of an inherent spatial component in short-term consumers’ inflation expectations even when excluding effect of inflation rate anchoring. This finding may provide a possible explanation for disruptions found in monetary policy transmission mechanism in small and open economies. From other perspective, the more interlinked consumers’ expectations may open the path to better business cycle synchronisation and strengthen the process of EA convergence, improving the conditions for efficient and effective monetary policy conduct.
    Keywords: consumers’ inflation expectations, spatial analysis, European Union
    JEL: E52 E61 C21
    Date: 2018–09
  9. By: Aleksandra Hałka (Narodowy Bank Polski); Grzegorz Szafrański (Narodowy Bank Polski)
    Abstract: Whether excluding food and energy components from overall price indices produces a useful indicator for monetary policy purposes is widely debated. The proposals of model based measures of underlying inflation are scarce and the evidence on their performance is limited. In the paper the multidimensional performance of exclusion and model based core inflation indicators is compared in the period of persistently low inflation and interest rates. Providing new measures of underlying inflation we look for specific features of such indices as: tracking trend, appropriate smoothing, unbiasedness with respect to the cost-of-living index, good approximation of the demand pressure, and good short- to medium-term forecasting abilities. To this end, we extract permanent and transitory components of headline HICP and core inflation in the sample of 26 European Union countries for the period 2002-2016 using bivariate unobserved correlated components model and maximum likelihood estimator. We construct an aggregate performance measure, named Core Inflation Score, to capture different dimensions of underlying inflation indicators which could be of interest in monetary policy analysis.
    Keywords: core inflation, unobserved correlated components model, forecasting inflation.
    JEL: E31 E52
    Date: 2018
  10. By: Juselius, Katarina; Dimelis, Sophia
    Abstract: While there seems to be a well-established consensus about the underlying causes to the Greek crisis, less is known about internal and external transmission mechanisms that ultimately caused unemployment to increase rapidly over this period. Motivated by the structural slumps theory in Phelps (Structural slumps, 1994), the paper attempts, therefore, to uncover the dynamic mechanisms behind prices, interest rates, and external imbalances that contributed to the severity and the length of the crisis. The authors find that the strongly increasing real bond rate and unemployment rate together with a persistently appreciating real exchange rate and a deterioration of competitiveness in the euro-zone have contributed to persistently growing structural imbalances in the Greek economy. As the lack of confidence in the Greek economy grew steadily, the scene was set for a monumental structural slump. Over the crisis period, all variables exhibited self-reinforcing feedback adjustment somewhere in the system except for inflation rate. Unemployment took the burden of adjustment when the bond rate sky rocketed, competitiveness deteriorated, and confidence fell.
    Keywords: Greek crisis,unemployment,CVAR analysis,structural slumps,nonconstant natural rate,self-reinforcing adjustment
    JEL: C32 E24 E31 E65
    Date: 2018
  11. By: Stephen G. Cecchetti; Enisse Kharroubi
    Abstract: We examine the negative relationship between the rate of growth in credit and the rate of growth in output per worker. Using a panel of 20 countries over 25 years, we establish that there is a robust correlation: the higher the growth rate of credit, the lower the growth rate of output per worker. We then proceed to build a model in which this relationship arises from the fact that investment projects that are more risky have a higher return. As their borrowing grows more quickly over time, entrepreneurs turn to safer, hence lower return projects, thereby reducing aggregate productivity growth. We take this theoretical prediction to industry-level data and find that credit growth disproportionately harms output per worker growth in industries that have either less tangible assets or are more R&D intensive.
    JEL: D92 E22 E44 O4
    Date: 2018–09
  12. By: Vasilev, Aleksandar
    Abstract: We introduce internal consumption habits into a real-business-cycle setup augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the presence of internal consumption habits motive for the propagation cyclical fluctuations in Bulgaria. Allowing for habits in consumption improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework without habits, e.g., Vasilev (2009).
    Keywords: Business cycles,consumption habits,Bulgaria
    JEL: E32 E37
    Date: 2018
  13. By: Anna Cieslak; Andreas Schrimpf
    Abstract: We quantify the importance of non-monetary news in central bank communication. Using evidence from four major central banks and a comprehensive classification of events, we decompose news conveyed by central banks into news about monetary policy, economic growth, and separately, shocks to risk premia. Our approach exploits high-frequency comovement of stocks and interest rates combined with monotonicity restrictions across the yield curve. We find significant differences in news composition depending on the communication channel used by central banks. Non-monetary news prevails in about 40% of policy decision announcements by the Fed and the ECB, and this fraction is even higher for communications that provide context to policy decisions such as press conferences. We show that non-monetary news accounts for a significant part of financial markets' reaction during the financial crisis and in the early recovery, while monetary shocks gain importance since 2013.
    JEL: E43 E58 G12 G14
    Date: 2018–09
  14. By: Tibor Hledik; Jan Vlcek
    Abstract: We identify the natural rate of interest in the Czech Republic as the real rate consistent with output at its equilibrium level and inflation at the target. To identify the rate, we use a (semi-)structural model featuring rational expectations and a forward-looking interest rate rule. Compared to the mainstream literature, the model provides a comprehensive set of cross-restrictions with respect to unobserved variables, including that of the natural rate. Furthermore, we argue that the natural rate of interest in a small open economy is a function of equilibrium real growth adjusted for equilibrium real exchange rate appreciation. Our findings suggest that the natural interest rate in the Czech Republic was around 1 percent in 2017. The current decline of the natural rate from its peak in 2015 mainly reflects the renewed appreciation of the equilibrium real exchange rate on the back of robust real GDP growth.
    Keywords: Natural rate of interest, (semi-)structural model
    JEL: C32 E43 E52 O40
    Date: 2018–07
  15. By: Vasilev, Aleksandar
    Abstract: We introduce consumption habits into an exogenous growth model augmented with a detailed government sector, and calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We show that in contrast to the case without habits, e.g., Vasilev (2009), when the economy features saddle-path stability, the habit motive alone leads to equilibrium indeterminacy in the model. When habits enter multiplicatively in the representative agent's utility function, the setup exhibits "sink" dynamics, and equilibrium paths are determined by "animal spirits." These results are in line with the findings in the literature, e.g., Benhabib and Farmer (1994, 1996) and Farmer (1999), and have major implications for policy-making and welfare.
    Keywords: Equilibrium indeterminacy,animal spirits,multiplicative consumption habits,Bulgaria
    JEL: E32 E37
    Date: 2018
  16. By: Andrea Mantovi (Dipartimento di Scienze Economiche e Aziendali, Università di Parma, Italy; Rimini Centre for Economic Analysis)
    Abstract: Financial frictions give rise to the value of money. According to DeAngelo and Stulz (2015), such a principle lies at the foundations of banking. It is the aim of this short note to deepen the reach of such a principle with respect to the role of arbitrageurs of interacting with financial frictions. The methodological relevance of such a perspective for the current macroeconomic debate is thoroughly discussed, building on the stylization of “friction setting”. Recent advances in the analysis of market-making and limits of arbitrage provide concrete empirical backing for our approach, which is meant to shed light on the analogy between the macro-role of money and the nature of arbitrage. Potential implications for the theoretical analysis of shadow banking are briefly sketched.
    Keywords: Macro-Finance, Financial Frictions, Liquidity Transformation, Arbitrage
    JEL: E32 E44 G23
    Date: 2018–10
  17. By: Marcin Kolasa (Narodowy Bank Polski and SGH Warsaw School of Economics)
    Abstract: This paper proposes a novel explanation for why foreign currency denominated loans to households have become so popular in some emerging economies. Our argument is based on what we call the debt limit channel, which arises when multi-period contracts are offered to financially constrained borrowers against collateral that is established on newly acquired assets. Whenever the difference between domestic and foreign interest rates is positive, this effect biases borrowers’ choices towards foreign currency, even if the exchange rate is known to depreciate as implied by the interest parity condition. We demonstrate in a simple macroeconomic framework that the debt limit channel is quantitatively important and can result in dollarization of debt also when borrowing in foreign currency is risky. We next use a small open economy DSGE model and show that, if first-order effects related to the debt limit channel are neutralized by appropriate adjustment in debt contracts, the equilibrium share of foreign currency loans is small.
    Keywords: foreign currency loans, mortgages, portfolio choice, general equilibrium models.
    JEL: D58 E32 E44 F41 G11 G21
    Date: 2018
  18. By: Félix, Luiz; Kräussl, Roman; Stork, Philip
    Abstract: This paper investigates how biases in macroeconomic forecasts are associated with economic surprises and market responses across asset classes around US data announcements. We find that the skewness of the distribution of economic forecasts is a strong predictor of economic surprises, suggesting that forecasters behave strategically (rational bias) and possess private information. Our results also show that consensus forecasts of US macroeconomic releases embed anchoring. Under these conditions, both economic surprises and the returns of assets that are sensitive to macroeconomic conditions are predictable. Our findings indicate that local equities and bond markets are more predictable than foreign markets, currencies and commodities. Economic surprises are found to link to asset returns very distinctively through the stages of the economic cycle, whereas they strongly depend on economic releases being inflation- or growth-related. Yet, when forecasters fail to correctly forecast the direction of economic surprises, regret becomes a relevant cognitive bias to explain asset price responses. We find that the behavioral and rational biases encountered in US economic forecasting also exists in Continental Europe, the United Kingdom and Japan, albeit, to a lesser extent.
    Keywords: anchoring,rational bias,economic surprises,predictability,stocks,bonds,currencies,commodities,machine learning
    JEL: G14 F47 E44
    Date: 2018
  19. By: Hur, Sewon (Federal Reserve Bank of Cleveland); Kondo, Illenin O. (University of Notre Dame); Perri, Fabrizio (Federal Reserve Bank of Minneapolis)
    Abstract: We study how the co-movement of inflation and economic activity affects real interest rates and the likelihood of debt crises. First, we show that for advanced economies, periods with procyclical inflation are associated with lower real interest rates. Procyclical inflation implies that nominal bonds pay out more in bad times, making them a good hedge against aggregate risk. However, such procyclicality also increases sovereign default risk when the economy deteriorates, since the government needs to make larger (real) payments. In order to evaluate both effects, we develop a model of sovereign default on domestic nominal debt with exogenous inflation risk and domestic risk-averse lenders. Countercyclical inflation is a substitute with default, while procyclical inflation is a complement with it, by increasing default incentives. In good times, when default is unlikely, procyclical inflation yields lower real rates. In bad times, as default becomes more material, procyclical inflation can magnify default risk and trigger an increase in real rates.
    Keywords: inflation risk; domestic nominal debt; interest rates; sovereign default;
    JEL: E31 F34 G12 H63
    Date: 2018–09–28
  20. By: Krzysztof Gajewski (Narodowy Bank Polski); Alejandro Jara (Banco Central de Chile); Yujin Kang (Bank of Korea); Junghwan Mok (Bank of Korea); David Moreno (Banco Central de Chile); Dobromił Serwa (Narodowy Bank Polski)
    Abstract: In this paper, we assess evidence on international monetary policy spillovers to domestic bank lending in Chile, Korea, and Poland, using confidential bank-level data and different measures of monetary policy shocks in relevant currency areas. These three emerging market economies are small and open, their banking systems do not have significant presence overseas, and they can be considered as price takers in the world economy. Such features allow for better identification of binding financial constraints and foreign monetary policy shocks. We find that the monetary policy shocks spill over into domestic bank lending, modifying the degree to which financial frictions tighten or relax, and this evidence is consistent with international bank lending and portfolio channels.
    Keywords: monetary policy spillovers, international bank lending channel.
    JEL: E32 F32 F34 G21 G15
    Date: 2018
  21. By: Lise Clain-Chamosset-Yvrard (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824, F-69130 Ecully, France); Thomas Seegmuller (Aix-Marseille University, CNRS, EHESS, Centrale Marseille, AMSE)
    Abstract: In this paper, we are interested in the interplay between real estate bubble, aggregate capital accumulation and taxation in an overlapping generations economy with altruistic households. We consider a three-period overlapping generations model with three key elements: altruism, portfolio choice, and financial market imperfections. Households realise different investment decisions in terms of asset at different periods of life, face a binding borrowing constraint and leave bequests to their children. We show that altruism plays a key role on the existence of a productive real estate bubble, i.e. a bubble in real estate raising physical capital stock and aggregate output. The key mechanism relies on the fact that a real estate bubble raises income of retired households. Because of higher bequests, there children are able to invest more in productive capital. Introducing fiscal policy, we show that raising real estate taxation dampens capital accumulation.
    Keywords: Bubble, Altruism, Real estate, Credit, Overlapping generations
    JEL: E22 E44 G11
    Date: 2018
  22. By: Miguel Ampudia; Russell Cooper; Julia Le Blanc; Guozhong Zhu
    Abstract: This paper studies household financial choices in four EU countries. The estimation of key parameters uses a simulation method of moments approach to match moments on asset market participation rates, portfolio shares and wealth to income ratios by education group and country. The policy functions based upon the estimation are used to characterize the distributions of the marginal propensity to consume across households for each of the four countries. The distributions are directly related to the presence of hand-to-mouth households. With the estimated distributions, monetary policy, operating through its effects on household income and asset market returns, will have a differential impact on individuals within and across countries.
    JEL: E21 E52
    Date: 2018–09
  23. By: Pablo D'Erasmo; Enrique G. Mendoza
    Abstract: Infrequent but turbulent overt sovereign defaults on domestic creditors are a “forgotten history” in Macroeconomics. We propose a heterogeneous-agents model in which the government chooses optimal debt and default on domestic and foreign creditors by balancing distributional incentives v. the social value of debt for self-insurance, liquidity, and risk-sharing. A rich feedback mechanism links debt issuance, the distribution of debt holdings, the default decision, and risk premia. Calibrated to Eurozone data, the model is consistent with key long-run and debt-crisis statistics. Defaults are rare (1.2 percent frequency), and preceded by surging debt and spreads. Debt sells at the risk-free price most of the time, but the government's lack of commitment reduces sustainable debt sharply.
    JEL: E44 E6 F34 H63
    Date: 2018–09
  24. By: Ricardo Lagos; Shengxing Zhang
    Abstract: We provide empirical evidence of a novel liquidity-based transmission mechanism through which monetary policy influences asset markets, develop a model of this mechanism, and assess the ability of the quantitative theory to match the evidence.
    JEL: D83 E52 G12
    Date: 2018–09
  25. By: Agnieszka (A.P.) Markiewicz (Erasmus University Rotterdam); Rafal Raciborski (European Commission)
    Abstract: In this paper, we study the relationship between income inequality and stock market returns. We develop a quantitative general equilibrium model that links shifts in both labour and capital income inequality to stock market variables. An increase of the share of capital owners’ income from risky capital leads to higher equity premium and a rise in their non-risky, labor share of income reduces it. When we calibrate our model to match the empirical size of shifts in the last five decades, we find that the negative impact of the higher labour share of income of capital owners dominates and brings the equity premium below the historical value by 0.79 percentage points, in line with the data. If both capital and total income shares of top decile would continue growing at the historical rate between 1970 and 2014, the equity premium would continue decreasing to 6.11% in 2030, 0.92 percentage point lower than historical equity premium of 7.03%. If instead only the capital share of income continues to grow, the equity premium would be higher than the historical average by 0.57 percentage point. If the labour income dispersion remains constant, the historical equity premium of 7.03% would be reached by 2030 if the capital share of income was growing by 1.4% each year.
    Keywords: Asset Pricing; Risk Premium Dynamics; Income Inequality; Computational Macroeconomics
    JEL: D31 E32 E44 H21 O33
    Date: 2018–10–07
  26. By: Liu, Laura (Federal Reserve Board of Governors); Matthes, Christian (Federal Reserve Bank of Richmond); Petrova, Katerina (University of St. Andrews)
    Abstract: In this paper we ask two questions: (i) is the conduct of monetary policy stable across time and similar across major economies, and (ii) do policy decisions of major central banks have international spillover effects. To address these questions, we build on recent semi-parametric advances in time-varying parameter models that allow us to increase the VAR dimension and to jointly model three advanced economies (US, UK, and the Euro Area). In order to study policy spillovers, we jointly identify three economy-specific monetary policy shocks using a combination of sign and magnitude restrictions.
    Keywords: Monetary policy spillovers; time-varying parameters; changing volatility
    JEL: C54 E30 E58
    Date: 2018–08–13
  27. By: Julien Bengui; Javier Bianchi
    Abstract: The outreach of macroprudential policies is likely limited in practice by imperfect regulation enforcement, whether due to shadow banking, regulatory arbitrage, or other regulation circumvention schemes. We study how such concerns affect the design of optimal regulatory policy in a workhorse model in which pecuniary externalities call for macroprudential taxes on debt, but with the addition of a novel constraint that financial regulators lack the ability to enforce taxes on a subset of agents. While regulated agents reduce risk taking in response to debt taxes, unregulated agents react to the safer environment by taking on more risk. These leakages undermine the effectiveness of macruprudential taxes but do not necessarily call for weaker interventions. A quantitative analysis of the model suggests that aggregate welfare gains and reductions in the severity and frequency of financial crises remain, on average, largely unaffected by even significant leakages.
    JEL: E0 F0 F3 F32 F34
    Date: 2018–09
  28. By: Miroslav Gabrovski (University of Hawaii at Maona); Victor Ortego-Marti (University of California, Riverside)
    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, Mortgages
    JEL: E2 E32 R21 R31
    Date: 2018–10
  29. By: Marek Weretka (University of Wisconsin-Madison; Group for Research in Applied Economics (GRAPE))
    Abstract: This paper develops a non-parametric method to infer social preferences over policies from prices of securities when agents have non-stationary heterogeneous preferences. We allow for arbitrary efficient risk-sharing mechanisms, formal and informal, and consider a large class of policies. We present a condition on the distribution of aggregate wealth that is necessary and sufficient for the revelation of social preferences over a universal set of policies. We also provide a weaker condition that is sufficient for revelation of social preferences for an arbitrary finite collection of policies.
    Keywords: Collateral Constraints, Adaptive Learning, Financial Shocks, Great Recession
    JEL: E32 E44 G18
    Date: 2018
  30. By: Rietzler, Katja; Truger, Achim
    Abstract: Both the German federal as well as the general government recorded a surplus for the fourth time in a row in 2017. The fast consolidation after the Great Recession coincided with the transition period for the full introduction of the federal debt brake, which is sometimes interpreted as causality. At the same time Germany's economic performance is better than that of many other countries. For this reason it is nearly impossible to overrate the symbolic power of the debt brake as a seeming success story. In this paper we scrutinise the seeming success story of the debt brake. We carry out a comparative analysis of the "structural" consolidation of public finances in Germany for the period from 1991 until 2017 showing that the German debt brake is not the cause of the successful budget consolidation in Germany since 2010. The improvement of the general government finances since 2010 was smaller than in previous consolidation phases and was strongly supported by a favourable macroeconomic environment, and one-off effects. Finally, neither the general government sector nor the federal government would be in such a good fiscal shape, had the economy evolved less favourably since 2010. Without the blessing of a strong upswing Germany would hardly have become the fiscal role model for Europe and the German debt brake would not have become the blueprint for the European Fiscal Compact.
    Keywords: Germany,debt brake,consolidation,Euro crisis,sovereign debt
    JEL: E39 E62 H H62 H74
    Date: 2018
  31. By: Scott R. Baker; Lorenz Kueng; Steffen Meyer; Michaela Pagel
    Abstract: Because of limitations in survey-based measures of household consumption, a growing literature uses an alternative measure of consumer expenditures commonly referred to as "imputed consumption." This approach typically utilizes annual snapshots of household income and wealth from administrative tax registries to calculate household spending as the residual of the household budget constraint. In this paper we use transaction-level retail investment data to assess the measurement error that can result in imputed consumption due to intra-year changes in asset values and composition. We show that substantial discrepancies between imputed and actual spending can arise due to trading costs, asset distributions, variable trade timing, and volatile asset prices between two annual snapshots. While these errors tend to be quantitatively small and centered around zero on average, we demonstrate that they vary across individuals of different types and income levels and are highly correlated with the business cycle. We end by suggesting ways to minimize the impact of these imputation errors in future research and we discuss which research questions are least likely to suffer from such errors.
    JEL: C81 D12 D14 E21 G11
    Date: 2018–09
  32. By: Gaetano Basso; Francesco D'Amuri; Giovanni Peri
    Abstract: We analyze the role of labor mobility in cushioning labor demand shocks in the Euro Area. We find that foreign born workers’ mobility is strongly cyclical, while this is not the case for natives. Foreigners’ higher population to employment elasticity reduces the variation of overall employment rates over the business cycle: thanks to them, the impact of a one standard deviation change in employment on employment rates decreases by 6 per cent at the country level and by 7 per cent at the regional level. Additionally, we compare Euro Area mobility to that of another currency union, the US. We find that the population to employment elasticity estimated for foreign-born persons is similar in the Euro Area and the US, while EA natives are definitely less mobile across countries than US natives are across states in response to labor demand shocks. This last result confirms that in the Euro Area there is room for improving country specific shocks absorption through higher labor mobility. It also suggests that immigration helped labor market adjustments.
    JEL: E32 F22 J6
    Date: 2018–09
  33. By: Michael B. Devereux; Gregor W. Smith
    Abstract: Countries that specialize in commodity exports often exhibit a correlation between the relevant commodity price and the value of their currency. We explore a natural but little-studied explanation for this correlation. An increase in the commodity price leads to increases in the future values of the international differential in policy interest rates. The tightening of expected future monetary policy relative to the US then leads to an immediate appreciation. We show theoretically that this correlation depends on the stance of monetary policy. We then derive a statistical model that embodies this mechanism and test the over-identifying restrictions for Australia, Canada, and New Zealand. For all three countries, controlling for the effect of commodity prices in predicting current and future monetary policy leaves them no significant, remaining role in statistically explaining exchange rates.
    JEL: E52 F31 F41
    Date: 2018–09
  34. By: Maria Borga; Cecilia Caliandro
    Abstract: FDI plays a central role in managing global production networks, but FDI statistics also reflect other factors, including tax avoidance, that make it difficult to differentiate between FDI for “long-term” investments that serves as a source of growth and FDI that is purely financial and has little real economic impact as it merely passes through an economy. This latter FDI also obscures the ultimate sources and destinations of FDI. This paper addresses these challenges by developing a framework for consolidated FDI statistics based on the nationality of the MNE group that complements residency-based FDI statistics. While residency-based statistics are useful to identify where financial claims and liabilities are held, nationality-based statistics provide information on who makes the decisions, reaps the benefits, and bears the risk. Consolidated FDI statistics remove pass-through capital and are better for understanding ‘real’ financial integration between economies and for analysing the relationship between the financing of MNEs and their operations. While some countries produce separate FDI statistics for resident Special Purpose Entities (SPEs) to identify pass-through capital, we demonstrate that this only provides a partial view and that about one-quarter of the inward FDI positions in a selection of European countries reflects pass-through capital through non-SPEs.
    JEL: E01 F21
    Date: 2018–09
  35. By: So Jung Hwang (Department of Economics, Inha University); Hyunduk Suh (Department of Economics, Inha University)
    Abstract: Connectedness in housing markets can bea source of macro-financial systemicrisk. This study investigates regional housing market connectedness among 16 first-tier administrative divisionsin Koreaand 25 districtsin Seoul, the capital city. Connectedness is defined as in Diebold and Yilmaz (2014) and the time-varying parameter vector autoregressive model is used to capture its time-varying nature. The estimation results show that rapid increases in connectedness during the sample period are mostly associated with housing booms rather than downturns. Moreover, connectedness cycles for the whole country and for Seoul seem to diverge after the global financial crisis, just as their housing price cycles do. Cross-sectionally, as expected, Seoul and the surrounding Gyeonggi province have a strong influence on the connectedness network, especially during the 2006 connectedness surge episode. The influence of Gangnam-3 districts is not significantly high in either the 2006 or the 2017 connectedness surge episodes, but tends to lead the total connectedness index by a few months.
    Keywords: Korean housing market, Diebold-Yilmaz connectedness index, time-varying parameter vector autoregression
    JEL: E44 E58 R31
    Date: 2018–09
  36. By: Brian Baugh; Itzhak Ben-David; Hoonsuk Park; Jonathan A. Parker
    Abstract: We use account-level data to document that households respond differently to expected transitory cash receipts than to cash payments. Consumers increase consumption spending when they receive tax refunds; however, they do not reduce their spending when they make expected tax payments. The central asymmetry in response and its pattern across liquidity and income levels is consistent with the behavior of rational consumers with liquidity constraints, but this canonical model cannot explain the lack of spending days before arrival of a refund or the lack of spending response to information about taxes around filing.
    JEL: D12 E21 H31
    Date: 2018–09
  37. By: Díaz, Antonio; Jareño, Francisco; Navarro, Eliseo
    Abstract: The zero-coupon yield curve is a common input for most financial purposes. The authors consider three popular yield curve datasets, and explore the extent to which the decision as to what dataset to use for an application may have implications on the results. The paper illustrates why such decision may matter, examines the properties of each dataset, and explores what effect such datasets have on some important variables derived from the analysis of the time series of zero coupon yield curves. The authors provide guidance to final users for selecting a yield curve dataset.
    Keywords: term structure,yield curve data,volatility,forward rates,correlation,expectations hypothesis
    JEL: E43 F31 G12 G13 G15
    Date: 2018
  38. By: Gerald Roy Steele
    Abstract: When an economy drops suddenly into recession, the paramount objective of any policy initiative is to avoid deflation. To that end, quantitative easing has little to offer. Arguments from the 1930s are assessed within the context of the recent Global Financial Crisis, where the preceding twenty years of the Great Moderation had left economists high on hubris. In avoiding their deserved comeuppance, economists continue to parade an ever-more sophisticated intertwining of statistical data within mathematical relationships that is essentially divorced from social and political relevance. Though sorely needed, the broad strokes of a politico-historical perspective are rarely found within the purview of current mainstream economics.
    Keywords: Central Banking, Deflation, Keynes, Simons Sovereign debt
    JEL: B31 E58 H63
    Date: 2018
  39. By: Rosengren, Eric S. (Federal Reserve Bank of Boston)
    Abstract: While inflation remains well contained to date, pushing the economy too hard risks inflationary concerns or financial-stability risks. Either of these outcomes might necessitate a more forceful monetary policy response. While a more forceful policy might be appropriate under such conditions, it is not a risk-free strategy and could put at risk the continued expansion. The history of rapid rate increases in the U.S. suggests that such a risk is real, and as a result my preference for a strategy that allows a continued, but gradual, pace of monetary tightening.
    Keywords: labor markets; economic outlook; financial stability; short-term rates; global risks; dual mandate
    Date: 2018–10–01
  40. By: Terry Gregory; Anna Salomons; Ulrich Zierahn
    Abstract: A fast-growing literature shows that digital technologies are displacing labor from routine tasks, raising concerns that labor is racing against the machine. We develop a task-based framework to estimate the aggregate labor demand and employment effects of routine-replacing technological change (RRTC), along with the underlying mechanisms. We show that while RRTC has indeed had strong displacement effects in the European Union between 1999 and 2010, it has simultaneously created new jobs through increased product demand, outweighing displacement effects and resulting in net employment growth. However, we also show that this finding depends on the distribution of gains from technological progress.
    Keywords: labor demand, employment, routine-replacing technological change, tasks, local demand spillovers
    JEL: E24 J23 J24 O33
    Date: 2018
  41. By: Laura Liu; Hyungsik Roger Moon; Frank Schorfheide
    Abstract: This paper considers the problem of forecasting a collection of short time series using cross sectional information in panel data. We construct point predictors using Tweedie's formula for the posterior mean of heterogeneous coefficients under a correlated random effects distribution. This formula utilizes cross-sectional information to transform the unit-specific (quasi) maximum likelihood estimator into an approximation of the posterior mean under a prior distribution that equals the population distribution of the random coefficients. We show that the risk of a predictor based on a non-parametric kernel estimate of the Tweedie correction is asymptotically equivalent to the risk of a predictor that treats the correlated-random-effects distribution as known (ratio-optimality). Our empirical Bayes predictor performs well compared to various competitors in a Monte Carlo study. In an empirical application we use the predictor to forecast revenues for a large panel of bank holding companies and compare forecasts that condition on actual and severely adverse macroeconomic conditions.
    JEL: C11 C14 C23 C53 G21
    Date: 2018–09
  42. By: Efraim Benmelech; Nittai Bergman
    Abstract: We analyze the empirical determinants of liquidity in debt markets in light of predictions stemming from debt-based information theories. We conduct a battery of tests confirming predictions of asymmetric information models of bond liquidity, including those that predict a``hockey-stick" relation between bond liquidity and underlying fundamental value. When debt is deep in the money, it becomes informationally insensitive and more liquid. In contrast, when firm value deteriorates towards the left tail, the value of debt becomes informationally sensitive and less liquid. We alleviate endogeneity concerns using exogenous variation in firm value that is plausibly not driven by bond liquidity. Our results shed new empirical light on the determination of liquidity in debt markets.
    JEL: E44 E51 G01 G12 G14 G32
    Date: 2018–09
  43. By: Claudio Campanale (Universidad de Alicante); Marcello Sartarelli (Dpto. Fundamentos del Análisis Económico)
    Abstract: Households appear to smooth consumption in the face of income shocks much more than implied by life-cycle versions of the standard incomplete market model under reference calibrations. In the current paper we explore in detail the role played by the life-cycle pro¿le of wealth accumulation. We show that a standard model parameterized to match the latter can rationalize between 83 and more than 97 percent of the consumption insurance against permanent earnings shocks empirically estimated by Blundell, Pistaferri and Preston (2008), depending on the tightness of the borrowing limit.
    Keywords: precautionary savings, Epstein-Zin, consumption insurance coe¿cients, life-cycle.
    JEL: E21
    Date: 2018–10
  44. By: Licht, Adrian; Escribano Sáez, Álvaro; Blazsek, Szabolcs Istvan
    Abstract: We suggest a new mechanism to detect stochastic seasonality of multivariate macroeconomic variables, by using an extension of the score-driven first-order multivariate t-distribution model. We name the new model as the quasi-vector autoregressive (QVAR) model. QVAR is a nonlinear extension of Gaussian VARMA (VAR moving average). The location of dependent variables for QVAR is updated by the score function, thus QVAR is robust to extreme observations. For QVAR, we present the econometric formulation, computation of the impulse response function (IRF), maximum likelihood (ML) estimation, and conditions of the asymptotic properties of ML that include invertibility. We use quarterly macroeconomic data for the period of 1987:Q1 to 2013:Q2 inclusive, which include extreme observations from three I(0) variables: percentage change in crude oil real price, United States (US) inflation rate, and US real gross domestic product (GDP) growth. The sample size of these data is relatively small, which occurs frequently in macroeconomic analyses. The statistical performance of QVAR is superior to that of VARMA and VAR. Annual seasonality effects are identified for QVAR, whereas those effects are not identified for VARMA and VAR. Our results suggest that QVAR may be used as a practical tool for seasonality detection in small macroeconomic datasets.
    JEL: C52 C32
    Date: 2018–09–12
  45. By: Katalin Bodnár (Magyar Nemzeti Bank and European Central Bank); Ludmila Fadejeva (Latvijas Banka); Stefania Iordache (Banca Naţională a României); Liina Malk (Eesti Pank); Desislava Paskaleva (Българска народна банка); Jurga Pesliakaitė (Lietuvos Bankas); Nataša Todorović Jemec (Institute of Macroeconomic Analysis and Development of the Republic of Slovenia); Peter Tóth (Národná banka Slovenska); Robert Wyszyński (Narodowy Bank Polski)
    Abstract: We study the transmission channels for rises in the minimum wage using a unique firm-level dataset from eight Central and Eastern European countries. Representative samples of firms in each country were asked to evaluate the relevance of a wide range of adjustment channels following specific instances of rises in the minimum wage during the recent post-crisis period. The paper adds to the rest of literature by presenting the reactions of firms as a combination of strategies, and evaluates the relative importance of those strategies. Our findings suggest that the most popular adjustment channels are cuts in non-labour costs, rises in product prices, and improvements in productivity. Cuts in employment are less popular and occurs mostly through reduced hiring rather than direct layoffs. Our study also provides evidence of potential spillover effects that rises in the minimum wage can have on firms without minimum wage workers.
    Keywords: minimum wage, adjustment channels, firm survey.
    JEL: D22 E23 J31
    Date: 2018
  46. By: Eric Kam (Department of Economics, Ryerson University, Toronto, Canada); John Smithin (Department of Economics, York University, Toronto, Canada); Aqeela Tabassum (The Business School, Humber College, Toronto, Canada)
    Abstract: This paper provides an explanation of the long-run neutrality of monetary policy in a dynamic general equilibrium model with micro-foundations. If the rate of time preference is endogenous there is no natural rate of interest. Therefore, if the central bank follows an interest rate rule this will affect the real rate of interest in financial markets and thereby the real economy. In principle, there is a negative relationship between the real rate of interest and the rate of inflation. This turns out to be nothing other than the historical “forced savings effect”, or the twentieth century Mundell-Tobin effect.
    Date: 2018–09
  47. By: Cooper, Daniel H. (Federal Reserve Bank of Boston); Peek, Joe (Federal Reserve Bank of Boston)
    Abstract: Focusing on localized measures of bank health and economic activity, and renters as well as homeowners, this paper uses an innovative approach to identifying households likely in need of credit to investigate the effect on household spending of a deterioration in local-bank health. The analysis shows that local-bank health tends to impact the expenditures of renters more than homeowners, with the strongest effects for households that likely need credit—those experiencing a negative income shock and having limited liquid wealth. These findings contribute to the discussion of the linkages between the financial sector and real economic activity.
    Keywords: consumption; local-bank health; credit constraints
    JEL: E21 G21
    Date: 2018–10–01
  48. By: Christian Bayer; Moritz Kuhn
    Abstract: Wages grow but also become more unequal as workers age. Using German administrative data, we largely attribute both life-cycle facts to one driving force: some workers progress in hierarchy to jobs with more responsibility, complexity, and independence. In short, they climb the career ladder. Climbing the career ladder explains 50% of wage growth and virtually all of rising wage dispersion. The increasing gender wage gap by age parallels a rising hierarchy gap. Our findings suggest that wage dynamics are shaped by the organization of production, which itself likely depends on technology, the skill set of the workforce, and labor market institutions.
    Keywords: human capital, life-cycle wage growth, wage inequality, careers
    JEL: D33 E24 J31
    Date: 2018
  49. By: Steffen Elstner; Lars P. Feld; Christoph M. Schmidt
    Abstract: Despite massive digitization efforts, the German economy has experienced a marked slowdown in its productivity growth. This paper analyzes the reasons behind this disconcerting development. A major factor is the turnaround of the labor market that commenced around 2005. The successful integration of five million predominantly low-productivity workers into the labor market induced an attenuating effect on productivity growth. This does not explain the slowdown entirely, however. As a potentially important countervailing force, technological advances associated with digitization would have had the potential to lift productivity growth more strongly, but they frequently translated into employment growth instead.
    Keywords: labor productivity, labor markets, technology shocks, digitalization, structural VARs
    JEL: O40 E24 C32
    Date: 2018
  50. By: Norbert Švarda
    Abstract: The paper introduces a new way of linking microsimulation models with dynamic general equilibrium frameworks to obtain an evaluation of the impact of detailed tax and benefit measures on the aggregate economy. In the approach presented in this paper, income heterogeneity interacts with the macro-economy via aggregated individual labour supply decisions which influence, and are influenced by, the dynamic evolution of the real wage rate. The method involves a reduced-form representation of the information flow between the macroeconomic and microeconomic blocks. The practical usefulness of the approach is demonstrated by evaluating actual and hypothetical tax reforms that involve abandoning the flat tax system in Slovakia. A hypothetical move to a highly progressive tax structure is shown to generate some employment gains but is associated with a drop in aggregate income and tax revenue.
    Keywords: microsimulation, dynamic general equilibrium, unemployment, labour supply elasticity, tax reform, flat tax
    JEL: E24 H24 H31 J22
    Date: 2018–10–04
  51. By: Erixon, Lennart (Dept. of Economics, Stockholm University)
    Abstract: The Stockholm-school member Erik Lundberg is the economist who devoted most attention to the economic theory and policy of the Swedish postwar model. The established view is that Lundberg was a steadfast opponent of the so-called Rehn- Meidner model, an economic and wage policy program developed by two Swedish trade-union economists in the early postwar years. The model recommends fiscal policies in the medium term, extensive labor market programs and wage policies of solidarity to simultaneously obtain price stability, full employment, income equality and high growth. This article maintains that Lundberg shared many of the premises of the Rehn-Meidner model already at the beginning of his debate with Gösta Rehn in the early 1950s. Furthermore, in their debate, Lundberg approached Rehn’s policy program and underlying theory of the working of the Swedish economy. Despite his ideological qualms, Lundberg’s ambiguous attitude to the Rehn-Meidner model turned into a complete adoption of the model in the 1960s. By highlighting the innovative nature of the Rehn-Meidner theory, Lundberg also correctly downplayed the impact of the Stockholm School.
    Keywords: Swedish model; Rehn-Meidner model; Stockholm School; Economic policy; Wage policy of solidarity; Labor-market policy
    JEL: B25 E31 E62 J23 J61 O43
    Date: 2018–09–21
  52. By: Laws, A.
    Abstract: Minimum wages often generate a perplexing set of empirical impacts, including little to no employment consequences but large wage consequences. This paper tests arguably the most promising explanation - search models of minimum wages - in a more direct manner than has been possible to date. The analysis combines extensive data on UK workers' search behaviour with quasi-experimental analysis of the UK minimum wage policy structure, including the 2016 introduction of the National Living Wage. I find robust evidence of increased labour force participation and extensive margin search in response to higher minimum wages with no corresponding change in employment rates. Evidence of decreased average search intensity is uncovered and the duration of unemployed search increases. Taken together, the unemployed search results suggest that minimum wages do impact on labour flow frictions in important ways. In contrast, no significant estimates are found for any on-the-job search moments, i.e. I find no evidence for potential concerns that higher minimum wages provide a disincentive for workers to progress up job ladders.
    Keywords: Equilibrium search models, Minimum wages, Quasi-experimental analysis
    JEL: E24 J21 J64
    Date: 2018–10–11
  53. By: Diewert, Erwin; Marandola, Tina
    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: 2018–10–10
  54. By: Vicente Salas (Universidad de Zaragoza); Lucio San Juan (Banco de España); Javier Vallés (Banco de España)
    Abstract: This paper presents evidence of how the shares of labour and capital costs and profits in the gross value added of corporate sectors of France, Germany, Italy, Spain and the US varied between 1995 and 2016, and seeks to explain the differences between countries and how they have developed over time. The descriptive evidence does not support the hypothesis of a convergence in the composition of the countries’ corporate gross value added in the period, either within the euro area or between Europe and the US, nor is there evidence of a generalised downward trend in the share of labour costs over time. The parallel upward trend in the corporate profit share of the US and Germany between 2000 and 2016 stands out, with German corporate profit share consistently above that of the US. The evidence presented here supports the claim made by other studies that increasing corporate market power is the main driver of changes in the composition of gross value added over time in the case of the US. In the euro area countries, labour and capital shares are also sensitive to changes in the relative input prices of labour and capital (consistent with an inferred elasticity of substitution between labour and capital in production that is less than one, compared with the inferred value of one for the US). Finally, to explain the high and increasing German corporate profit share, it is necessary to account for the sustained comparative production cost advantage of German corporations.
    Keywords: labour and capital cost shares; economic profit shares; elasticity of substitution between labour and capital; market power; euro area countries and the US.
    JEL: E25 E22 O4
    Date: 2018–10
  55. By: Hergovich, Philipp (Vienna Graduate School of Economics); Merz, Monika (University of Vienna)
    Abstract: The capital-to-labor ratio has steadily risen in the U.S. and elsewhere during the post-WWII period. Since the 1970s this rise has been accompanied by a rise in the level and variability of corporate profits whereas the labor share of income has declined. In this paper we ask whether these trends are related in that they can be explained by a common determinant such as the observed decline in the relative price of new capital goods, or the change in production technology towards in- creased factor substitutability. We use a dynamic stochastic equilibrium model of competitive search in the labor market augmented by a CES production function that allows firms to substitute between capital and labor at varying degrees. By assumption, firms can adjust capital more easily than labor. Profits arise from rents paid to quasi-fixed factors of production. We find that the declining relative price of capital and the increase in factor substitutability each causes the capital-to-labor ratio and the level and volatility of corporate profits to rise, but only increased factor substitutability generates the observed decrease in the labor share of income.
    Keywords: factor substitutability, quasi-fixed production factor, competitive search, profits
    JEL: E24 G32 J64
    Date: 2018–08
  56. By: Lee, Chloe (Federal Reserve Bank of Boston); Luengo-Prado, Maria Jose (Federal Reserve Bank of Boston); Sorensen, Bent E. (University of Houston)
    Abstract: A simple model of time allocation between work and price-search predicts that consumers spend relatively more time searching for better prices for goods of which they consume relatively more. Using scanner data, we confirm empirically that consumers pay lower (higher) prices for goods that they buy more (less) of than other consumers. Our results are conservative, because we compare goods that are defined as narrowly as possible by UPC codes, and provide a lower bound for the savings obtained from bargain hunting.
    Keywords: consumption; consumer search; time use
    JEL: D12 E21
    Date: 2018–06–18
  57. By: Rich, Robert W. (Federal Reserve Bank of Cleveland); Tracy, Joseph (Federal Reserve Bank of Dallas)
    Abstract: This paper examines point and density forecasts of real GDP growth, inflation and unemployment from the European Central Bank’s Survey of Professional Forecasters. We present individual uncertainty measures and introduce individual point- and density-based measures of disagreement. The data indicate substantial heterogeneity and persistence in respondents’ uncertainty and disagreement, with uncertainty associated with prominent respondent effects and disagreement associated with prominent time effects. We also examine the co-movement between uncertainty and disagreement and find an economically insignificant relationship that is robust to changes in the volatility of the forecasting environment. This provides further evidence that disagreement is not a reliable proxy for uncertainty.
    Keywords: disagreement; uncertainty; point forecasts; density forecasts; heterogeneity; ECB Survey of Professional Forecasters;
    JEL: C10 C23 E37
    Date: 2018–09–28
  58. By: Elena Del Rey; Maria Racionero; Jose I. Silva
    Abstract: We explore the effect of parental leave entitlements for mothers and fathers on wages and unemployment rates. To do so we extend the labour search and matching model in Del Rey, Racionero and Silva (2017) to include two types of workers, males and females, who compete for the same jobs. We show that an increase in leave duration has an ambiguous effect both on job creation and wages. We identify the mechanisms underlying this ambiguity. Given the variety of possible final effects we calibrate the model for several countries (Denmark, France, Italy and Portugal) and simulate policy changes. In all countries considered an increase in the duration of either leave negatively affects job creation and the wage of the directly affected worker. As a result, both wages fall while unemployment rates increase in equilibrium. Finally, we explore the effect of closing the gender gap in leave duration and show that, since fathers tend to take the leave less often, increasing the duration of the male-specifc leave is less effective in closing the wage and unemployment gaps than decreasing the female-specific one.
    JEL: E24 J38
    Date: 2018–09
  59. By: Stefano BOSI; David DESMARCHELIER
    Abstract: In ecology, one of the simplest representation of population dynamics is the logistic equation. This basic view can be enriched by considering two important variables : (1) the maximal population density Nature cansupport (carrying capacity) and (2) the critical density threshold under which the population disappear (Allee effect). The economic literature on biodiversity and renewable resources ignores both these variables. Evidence suggests also that these variables are affected by the pollution leveldue to economic activity. Indeed, a degraded environment is unsuitablefor wildlife and reduces the carrying capacity, while the climate change entails the habitat fragmentation and, lowering the wildlife reproduction possibilities, raises the Allee effect. The present paper aims to incorporate both endogenous carrying capacity and Allee effect in a Ramsey model augmented with biodiversity as a renewable resource. Our extendedframework enables us to study the effect of a Pigouvian tax on anthropogenic mass extinction. We find that, when the household overvalues biodiversity with respect to consumption, a higher green-tax rate is beneficial in three respects entailing: (1) a lower pollution and a higher biodiversity, (2) a welfare improvement and (3) a less likely mass extinction.
    Keywords: Allea effect, carrying capacity, pollution, Ramsey model, logistic dynamics, Hopf bifurcation.
    JEL: E32 O44
    Date: 2018
  60. By: Pierre-Richard Agénor; Leonardo Gambacorta; Enisse Kharroubi; Enisse Kharroubi
    Abstract: This paper studies the effects of prudential regulation, financial development, and financial openness on economic growth. Using both existing models and a new OLG framework with banking and prudential regulation in the form of capital requirements, the first part presents an analytical review of the various channels through which prudential regulation can affect growth. The second part provides a reduced-form empirical analysis, based on panel regressions for a sample of 64 advanced and developing economies. The results show that growth may be promoted by prudential policies whose goal is to mitigate financial risks to the economy. At the same time, financial openness tends to reduce the growth benefits of these policies, possibly because of either greater opportunities to borrow abroad or increased scope for cross-border leakages in regulation.
    Keywords: economic growth, prudential regulation, financial development, financial openness
    JEL: E44 G28 O41
    Date: 2018–10
  61. By: Grafström, Jonas (The Ratio Institute)
    Abstract: There is a risk that if a government adopts a R&D spending policy directed towards wind power technology crowding out of other technologies might occur due to fiscal constraints and changes in relative prices. The purpose of this paper is to provide a backward-looking analysis of how the accumulation of wind energy patents and public R&D spending affected the domestic and neighboring country output of granted patents in the “related energy machinery field”. The econometric analysis, a Poisson fixed-effects estimator based on the Hausman, Hall and Griliches (1984) method, relies on a data set consisting of eight countries in Western Europe with the highest rates of patent production in the field of wind power between 1978 and 2008. The results show that an accumulation of a national wind power stock is a statistically significant negative determinant of a country’s related energy machinery patenting outcomes. However, no crowding out effects of public R&D spending were found.
    Keywords: knowledge spillovers; wind power; R&D; patents; renewable energy; innovation
    JEL: E61 O32 Q20 Q58
    Date: 2018–08–24
  62. By: Roman Stöllinger
    Abstract: FIW publishes biannually FIW Notes. They present an overview of the most important Austrian and international developments regarding International Economics.
    Keywords: Austrian Foreign Trade, Economic Outlook Austria, International Trade, FDI, exports
    JEL: E66 F01
    Date: 2018–09
  63. By: Woodgate, Ryan
    Abstract: After demonstrating the empirical relevance of tax competition effects across OECD countries, we incorporate such effects into a Kaleckian model. Corporate tax rates are seen as affecting investment by the effect on the location of multinational enterprise (MNE) investment, not on the total size of worldwide MNE investment. Hence, unlike the neoclassical approach, in our analysis investment is not driven by tax rates affecting the cost of capital, which is objectionable from a post-Keynesian perspective. With this locational qualification in place, we augment a traditional neo-Kaleckian model with the effects of MNE investment and determine under what conditions a country's policymakers can stimulate demand by raising corporate tax rates (via the usual Kaleckian redistribution channel) or lowering tax rates (via the tax competition FDI channel). The result of this exercise shows that our model predicts countries of small economic size will be more likely to engage in tax competition. Moreover, if the usual Keynesian stability condition holds, we can show that the effect of higher corporate tax rates on demand is much more likely to be negative than positive. To see how an interdependent world system of corporate tax rates may interact and develop over time, we use a procedural-based simulation approach using the conditions derived from our modified neo-Kaleckian model to inform the behavioural rules of our simulated policymakers. The simulations show a propensity of corporate tax rates around the world to convergence and to fall in systems with realistic parameter ranges, offering an explanation for the empirical phenomenon of the so-called "race to the bottom" in corporate tax rates. The "bottom" is shown within our model to be a bad equilibrium, from which tax coordination is proposed as a means of escape.
    Keywords: tax competition,Kalecki,multinational enterprises,race to the bottom,simulation,foreign direct investment,policy coordination
    JEL: E11 E12 E62 F55 H25
    Date: 2018
  64. By: Andri Chassamboulli; Giovanni Peri
    Abstract: In this paper we analyze the economic effects of changing immigration policies in a realistic institutional set-up, using a search model calibrated to the migrant flows between the US and the rest of the world. We explicitly differentiate among the most relevant channels of entry of immigrants to the US: family-based, employment-based and undocumented. Moreover we explicitly account for earning incentives to migrate and for the role of immigrant networks in generating job-related and family-related immigration opportunities. Hence, we can analyze the effect of policy changes in each channel, accounting for the response of immigrants in general equilibrium. We find that all types of immigrants generate higher surplus for US firms relative to natives, hence restricting their entry has a depressing effect on job creation and, in turn, on native labor markets. We also show that substituting a family-based entry with an employment-based entry system, and maintaining the total inflow of immigrants unchanged, job creation and natives' income increase.
    JEL: E24 F22 J64
    Date: 2018–09
  65. By: Mary-Alice Doyle (Reserve Bank of Australia)
    Abstract: The credit card market offers consumers a wide range of options when choosing a card. While many factors may influence this choice, this paper focuses on the main financial costs and benefits of holding a credit card. I summarise these costs and benefits as the net monetary benefit associated with a card. Theory might suggest that a rational consumer will choose a card that maximises their net monetary benefit. But in reality, consumers' decisions may be systematically biased, leading them to select higher-cost credit cards when lower-cost alternatives are available. To test this possibility, I first estimate the net monetary cost or benefit that individuals in a nationally representative survey obtain from their credit card. I then use these estimates to examine whether principles from behavioural economics – such as optimism bias, bounded rationality and present bias – can help to explain consumers' choice of credit card. I find that approximately 40 per cent of Australian credit card holders receive a positive net monetary benefit from their card (that is, they receive benefits from rewards points and their interest-free period that outweigh annual fees and interest payments). Generally these are higher-wealth and higher-income consumers. Of the remaining 60 per cent, around half break even, while half incur a net cost. Moreover, most cardholders, including those who receive a net benefit, appear not to choose cards that best suit their use patterns – for instance, I estimate that consumers who use their card to borrow and pay interest could reduce their annual costs by around $250 by choosing a more appropriate card. Behavioural explanations are consistent with some, but not all, of the patterns observed. Consumers appear to be subject to optimism bias, underestimating how much they will borrow on their card, and a subset of consumers tend to hold inflated estimates of the net monetary benefits that they receive from their card. In contrast, consumers do not appear to be present biased in responding to temporary sign-up offers. Finally, I find that around half of the respondents who made a net loss held high-cost cards, but had not considered switching to a lower-cost card; indicative evidence of cognitive, as well as practical, barriers to switching cards.
    Keywords: bounded rationality; switching behaviour; optimism bias; optimal credit card choice; present bias; retail payments
    JEL: D12 D30 D90 E42
    Date: 2018–10
  66. By: Lucas Marín-Llanes; Jaime Bonet-Morón; Gerson J. Pérez-Valbuena
    Abstract: En las primeras décadas del siglo XXI, Colombia experimentó una de las bonanzas más importantes de su historia. Este artículo identifica y cuantifica las más recientes del país, y los sectores en los que aumentó el gasto público en el período 2008-2016. Además, contrasta los resultados con un grupo de países suramericanos. Surgen cuatro mensajes: (i) en comparación con sus países vecinos, Colombia ha experimentado menos bonanzas, con una duración promedio similar a la mediana regional; (ii) mientras los otros países tienden a tener un sector económico que origina siempre la bonanza, Colombia tuvo un cambio sectorial al pasar de alimentos (café) a combustibles (hidrocarburos); (iii) el tamaño de la bonanza de hidrocarburos fue cerca de cinco veces la del café, lo que tuvo un impacto significativo en el presupuesto público; y (iv) al comparar el periodo anterior y posterior a la bonanza, se encuentra un cambio de tendencia simultáneo en la inversión pública con aumentos en rubros que, desde un perspectiva teórica, podrían haber tenido un impacto positivo en el desarrollo económico. **** ABSTRACT: Colombia experienced one of the major economic booms in its history during the first two decades of the 21st century. This paper characterizes and quantifies them and identifies the sectors where public expenditures increased over the period 2008-2016. Additionally, it compares these results with a group of South American countries. Four conclusions arise: (i) Colombia experienced fewer booms than its neighbors, although the average duration is similar to the regional median; (ii) while other countries maintain a historic leading sector, in Colombia a sectoral change occurred from food (coffee) to fuels (oil); (iii) income windfall of the oil boom in Colombia was around five times larger than the coffee boom, which significantly increased public budget and spending; and (iv) trend changes in public investment occurred during the recent oil boom in a way that, could have had a positive impact in economic development.
    Keywords: bonanzas, recursos naturales, Colombia, booms, natural resources, Colombia
    JEL: E30 Q33
    Date: 2018–10–09
  67. By: Lucas Marín-Llanes; Jaime Bonet-Morón; Gerson J. Pérez-Valbuena
    Abstract: En las primeras décadas del siglo XXI, Colombia experimentó una de las bonanzas más importantes de su historia. Este artículo identifica y cuantifica las más recientes del país, y los sectores en los que aumentó el gasto público en el período 2008-2016. Además, contrasta los resultados con un grupo de países suramericanos. Surgen cuatro mensajes: (i) en comparación con sus países vecinos, Colombia ha experimentado menos bonanzas, con una duración promedio similar a la mediana regional; (ii) mientras los otros países tienden a tener un sector económico que origina siempre la bonanza, Colombia tuvo un cambio sectorial al pasar de alimentos (café) a combustibles (hidrocarburos); (iii) el tamaño de la bonanza de hidrocarburos fue cerca de cinco veces la del café, lo que tuvo un impacto significativo en el presupuesto público; y (iv) al comparar el periodo anterior y posterior a la bonanza, se encuentra un cambio de tendencia simultáneo en la inversión pública con aumentos en rubros que, desde un perspectiva teórica, podrían haber tenido un impacto positivo en el desarrollo económico. **** ABSTRACT: Colombia experienced one of the major economic booms in its history during the first two decades of the 21st century. This paper characterizes and quantifies them and identifies the sectors where public expenditures increased over the period 2008-2016. Additionally, it compares these results with a group of South American countries. Four conclusions arise: (i) Colombia experienced fewer booms than its neighbors, although the average duration is similar to the regional median; (ii) while other countries maintain a historic leading sector, in Colombia a sectoral change occurred from food (coffee) to fuels (oil); (iii) income windfall of the oil boom in Colombia was around five times larger than the coffee boom, which significantly increased public budget and spending; and (iv) trend changes in public investment occurred during the recent oil boom in a way that, could have had a positive impact in economic development.
    Keywords: bonanzas, recursos naturales, Colombia, booms, natural resources, Colombia
    JEL: E30 Q33
    Date: 2018–10
  68. By: Shai Bernstein; Emanuele Colonnelli; Davide Malacrino; Timothy McQuade
    Abstract: New firm formation is a critical driver of job creation, and an important contributor to the responsiveness of the economy to aggregate shocks. In this paper we examine the characteristics of the individuals who become entrepreneurs when local opportunities arise due to an increase in local demand. We identify local demand shocks by linking fluctuations in global commodity prices to municipality level agricultural endowments in Brazil. We find that the firm creation response is almost entirely driven by young and skilled individuals, as measured by their level of experience, education, and past occupations involving creativity, problem-solving and managerial roles. In contrast, we find no such response within the same municipalities among skilled, yet older individuals, highlighting the importance of lifecycle considerations. These responsive individuals are younger and more skilled than the average entrepreneur in the population. The entrepreneurial response of young individuals is larger in municipalities with better access to finance, and in municipalities with more skilled human capital. These results highlight how the characteristics of the local population can have a significant impact on the entrepreneurial responsiveness of the economy.
    JEL: E26 J24 L26 O12 O13 O17 O20
    Date: 2018–09
  69. By: Ibrahima Dia (Université des Antilles Pôle Martinique et associé Normandie Univ, Unicaen CNRS ,CREM, 14000 CAEN, France); Rafik Abdesselam (Université Lumière Lyon 2, COACTIS (Conception de l’Action en Situation), EA 4161, 16 quai Claude Bernard, F-69365 Lyon, France); Jean Bonnet (African Population Health Research Centre, Nairobi, Kenya)
    Abstract: Cet article vise principalement à mieux comprendre la participation des femmes aux activités entrepreneuriales de la région de Dakar. À partir de modèles théoriques bien connus, nous créons le modèle de l’entrepreneure sénégalaise en mettant l’accent sur la culture entrepreneuriale. Des méthodes d’analyse de données multidimensionnelles, à partir de données primaires collectées auprès de 153 femmes entrepreneures, nous permettent de créer des typologies supervisées de l’entrepreneuriat féminin selon les secteurs (formel, informel). Les résultats montrent que la création dépend du capital humain, social et culturel de l’entrepreneure, et confirment l’importance du capital social dans l’entrepreneuriat féminin des pays en développement.
    Keywords: entrepreneuriat féminin, secteur informel, modèles intentionnels, analyses discriminantes, Dakar
    JEL: L26 E26 M13 M14
    Date: 2018–10
  70. By: Konstantinos Chisiridis (Department of Economics, University of Macedonia, Greece); Kostas Mouratidis (Department of Economics, University of Sheffield, UK); Theodore Panagiotidis (Department of Economics, University of Macedonia, Greece)
    Abstract: The European north-south divide has been an issue of a long-standing debate. We employ a Global VAR model for 28 developed and developing countries to examine the interaction between the global trade imbalances and their impact within the euro-area framework. The aim is to assess the propagation mechanisms of real shocks, focusing on the interconnections among the north euro area and the south euro area. We incorporate theory-based long-run restrictions and examine the effects of (i) non-export real output shocks, (ii) expansionary shocks and (iii) real exchange rate shocks. The results provide support for symmetric adjustment in the euro area; an expansionary policy of the north euro area and increased competitiveness in the south euro area can alleviate trade imbalances of the debtor euro area economies. From the south euro area perspective, internal devaluation is the most beneficial policy. North euro area and U.S. origin shocks to domestic output exert a dominant influence in the rest of the Europe and Asia while the strong linkage between trade flows within the euro area is confirmed.
    Keywords: North-South Euro Area Trade Imbalances, Global Trade Imbalances, International Linkages, Global VAR, Spillover Effects
    JEL: C33 E27 F14
    Date: 2018–10
  71. By: Kivanç Halil Ariç (Sivas Cumhuriyet University, Faculty of Economics and Administrative Sciences, Department of International Trade and Logistics, Sivas, Turkey); Siok Kun Sek (School of Mathematical Sciences, Universiti Sains Malaysia 11800 Minden, Penang, Malaysia); Miguel Rocha de Sousa (Department of Economics; Center for Research in Advanced Studies in Management and Economics (CEFAGE); Research Center in Political Science (CICP) Universidade de Évora, Portugal)
    Abstract: The current account balance is an important indicator which reveals information on a country’s economic situation such as investments, capital flows, and indebtedness. The main purpose of this study is to examine the current account balance conditions in emerging Asian countries. In this respect, the long-run and causality relationship between current account balance, economic growth, government expenditure, real interest rates, and foreign direct investment was examined. The panel data analysis was applied using the data dated 1986 to 2015. Our results revealed a causal effect from economic growth and government expenditure to current account balance mainly dependent on saving tendency.
    Keywords: Asia; Current Account Balance; Economic growth; Emerging Asia; FDI; Panel Data Cointegration Analysis; Real Interest rates.
    JEL: C23 C33 E13 F32 F43 F47 P52
    Date: 2018

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