nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒10‒29
75 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Inflation dynamics during the Financial Crisis in Europe: cross-sectional identification of long-run inflation expectations By Dany-Knedlik, Geraldine; Holtemöller, Oliver
  2. Monetary policy transmission in systemically important economies and China’s impact By Domenico Lombardi; Pierre L. Siklos; Xiangyou Xie
  3. The government spending multiplier, fiscal stress, and the zero lower bound By Strobel, Felix
  4. The effect of the Eurosystem expanded Asset Purchase Programme on inflation expectations: evidence from the ECB Survey of Professional Forecasters By Guido Bulligan
  5. Spread the Word: International Spillovers from Central Bank Communication By Armelius, Hanna; Bertsch, Christoph; Hull, Isaiah; Zhang, Xin
  6. An RBC model with Epstein-Zin (non-expected-utility) recursive preferences: lessons from Bulgaria (1999-2016) By Vasilev, Aleksandar
  7. Exchange rate pass-through into euro area inflation. An estimated structural model By Lorenzo Burlon; Alessandro Notarpietro; Massimiliano Pisani
  8. What drives updates of inflation expectations? A Bayesian VAR analysis for the G-7 countries By Belke, Ansgar; Beckmann, Joscha; Dubova, Irina
  9. Theories, techniques and the formation of German business cycle forecasts: Evidence from a survey of professional forecasters By Döpke, Jörg; Waldhof, Gabi; Fritsche, Ulrich
  10. Interest rate spreads and forward guidance By Bredemeier, Christian; Kaufmann, Christoph; Schabert, Andreas
  11. The Size and Destination of China's Portfolio Outflows By Walter Engert; Ben S. C. Fung; Scott Hendry
  12. Government borrowing cost and balance sheets: do assets matter? By Jemima Peppel-Srebrny
  13. Risk Premiums, Nominal Rigidities and Limited Asset Market Participation By Lorenzo, Menna; Patrizio, Tirelli;
  14. Interdependence between Macroeconomic and Financial Stability Indicators: Macro-Feedback Effect By Tsotne Marghia
  15. We develop a VAR that allows the estimation of the impact of monetary policy shocks on volatility. Estimates for the US suggest that an increase in the policy rate by 1% is associated with a rise in unemployment and inflation volatility of about 15%. Using a New Keynesian model, with search and matching labour frictions and Epstein-Zin preferences we show that these volatility effects are driven by the coexistence of agents' fears of unemployment and concerns about the (in) ability of the monetary authority to reverse deviations from the policy rule with the impact magnified by the agents' preferences. By Mumtaz, Haroon; Theodoridis, Konstantinos
  16. Granular sources of the Italian business cycle By Nicolò Gnocato; Concetta Rondinelli
  17. Money, Inflation, and Unemployment in the Presence of Informality By Ait Lahcen, Mohammed
  18. Endogenous Time-Varying Volatility and Emerging Market Business Cycles By Jan-Philipp Dueber
  19. Enforcement of banking regulation and the cost of borrowing By Deli, Yota; Delis, Manthos D.; Hasan, Iftekhar; Liu, Liuling
  20. Competition and the pass-through of unconventional monetary policy: evidence from TLTROs By Matteo Benetton; Davide Fantino
  21. Macroeconomic Impacts of Oil Price Shocks in Venezuela By Raúl J. Crespo; José A. Zambrano
  22. Can Capitalists Afford Recovery? A 2018 Update By Nitzan, Jonathan; Bichler, Shimshon
  23. How the Financial Market Can Dampen the Effects of Commodity Price Shocks By Myunghyun Kim
  24. Revenue- versus spending-based consolidation plans: the role of follow-up By Beetsma, Roel; Furtuna, Oana; Giuliodori, Massimo
  25. Capital Utilization and Search Unemployment in Dynamic General Equilibrium By Ian King; Frank Stähler
  26. Falling Behind: Has Rising Inequality Fueled the American Debt Boom? By Drechsel-Grau, Moritz; Greimel, Fabian
  27. A Roundabout Path in the “Snapback” of Long-term Bond Yields By Xing, Victor
  28. Central banking through the centuries By Ivo Maes
  29. Dynamic Scoring: An Assessment of Fiscal Closing Assumptions By Rachel, Moore; Pecoraro, Brandon
  30. Tax Cuts Starve the Beast! Evidence from Germany By Stöhlker, Daniel; Neumeier, Florian; Fuest, Clemens
  31. The Fiscal Theory of the Price Level in non-Ricardian Economy By Rym Aloui; Michel Guillard
  32. Parental Time Investment and Intergenerational Mobility By Minchul Yum
  33. ALICE: A new inflation monitoring tool By de Bondt, Gable J.; Hahn, Elke; Zekaite, Zivile
  34. Unemployment Volatility in a Behavioural Search Model By Martin, Chris; Wang, Bingsong
  35. Incentives for the finance sector: How the ECB affects banks' business assembling By Bernard Michael Gilroy; Alexander Golderbein; Christian Peitz; Nico Stöckmann
  36. Imputing Away the Ladder: Implications of Changes in National Accounting Standards for Assessing Inter-country Inequalities By Jacob Assa; Ingrid H. Kvangraven
  37. Bayesian estimation of DSGE models: identification using a diagnostic indicator By Chadha, Jagjit S.; Shibayama, Katsuyuki
  38. Understanding and Confronting Uncertainty: Revisions to UK Government Expenditure Plans By Jagjit Chadha; Arno Hantzsche; Adrian Pabst; Thomas Lazarowizc; Garry Young
  39. The Role of Shadow Banking for Financial Regulation By Gebauer, Stefan; Mazelis, Falk
  40. Trade Policy toward Supply Chains after the Great Recession By Chad P. Bown
  41. Nearly exact Bayesian estimation of non-linear no-arbitrage term structure models By Marcello Pericoli; Marco Taboga
  42. Sovereign risk and cross-country heterogeneity in the transmission of monetary policy to bank lending in the euro area By Pietro Grandi
  43. Gold Price and Exchange Rates: A Panel Smooth Transition Regression Model for the G7 Countries By Nikolaos Giannellis; Minoas Koukouritakis
  44. Optimal Tax Structure for Consumption and Income Inequality:an Empirical Assessment By António Afonso; José Alves
  45. The Political Economy of Debt and Entitlements By Laurent Bouton; Alessandro Lizzeri; Nicola Persico
  46. Data, measurement and initiatives for inclusive digitalization and future of work By Nofal, María B.; Coremberg, Ariel; Sartorio, Luca
  47. Identifying shocks via time-varying volatility By Lewis, Daniel J.
  48. Population Aging-Impacts and Policy Imperatives_Executive Summary By Economic Research Institute, the Bank of Korea
  49. On the external validity of experimental inflation forecasts: A comparison with five categories of field expectations By Camille Cornand; Paul Hubert
  50. A new solution to an old problem: a temporary equilibrium version of the Ramsey model By Enrico Bellino; Secondo Autore; Terzo Autore; Quarto Autore
  51. Should I default on my mortgage even if I can pay? Experimental evidence By Marina Pavan; Iván Barreda-Tarrazona
  52. Identifying Uncertainty Shocks due to Geopolitical Swings in Korea By Seohyun Lee; Inhwan So; Jongrim Ha
  53. The natural rate of interest from a monetary and financial perspective By Dennis Bonam; Peter van Els; Jan Willem van den End; Leo de Haan; Irma Hindrayanto
  54. Oil Price-Inflation Pass-Through in the United States over 1871 to 2018: A Wavelet Coherency Analysis By Aviral Kumar Tiwari; Juncal Cunado; Abdulnasser Hatemi-J; Rangan Gupta
  55. Time-Varying Causal Relationship between Stock Market and Unemployment in the United Kingdom: Historical Evidence from 1855 to 2017 By Xolani Sibande; Rangan Gupta; Mark E. Wohar
  56. Philippines; 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Philippines By International Monetary Fund
  57. IW-Studentenwohnpreisindex 2018: Mietpreisunterschiede zwischen Hochschulstandorten weiten sich By Oberst, Christian; Voigtländer, Michael
  58. Long-Term Changes in Married Couples' Labor Supply and Taxes: Evidence from the US and Europe since the 1980s By Bick, Alexander; Brüggemann, Bettina; Fuchs-Schündeln, Nicola; Paule-Paludkiewicz, Hannah
  59. Monetary Policy and Income Inequality in Korea By Jongwook Park
  60. How do politics affect economic sentiment? The effects of uncertainty and policy preferences By Osterloh, Steffen
  61. Macroeconomic Effects of Tax Rate and Base Changes: Evidence from Fiscal Consolidations By Era Dabla-Norris; Frederico Lima
  62. "Two Harvard Economists on Monetary Economics: Lauchlin Currie and Hyman Minsky on Financial Systems and Crises" By Ivan D. Velasquez
  63. Faraway, so close! technology diffusion and firm heterogeneity in the medium term cycle of advanced economies By Mónica Correa-López; Beatriz de Blas
  64. Fiscal Stimulus at the Zero Lower Bound: the role of expectations and policy coordination By Cyntia Freitas Azevedo
  65. What Do Monetary Contractions Do? Evidence From An Algorithmic Identification Procedure By Tim Willems
  66. An Index for Transparency for Inflation-Targeting Central Banks: Application to the Czech National Bank By Rania A. Al-Mashat; Ales Bulir; N. Nergiz Dinçer; Tibor Hlédik; Tomás Holub; Asya Kostanyan; Douglas Laxton; Armen Nurbekyan; Rafael A Portillo; Hou Wang
  67. Life cycle assessment of cash payments By Randall Hanegraaf; Nicole Jonker; Steven Mandley; Jelle Miedema
  68. Diabetes, Employment and Behavioural Risk Factors in China: Marginal Structural Models versus Fixed Effects Models By Seuring, Till; Serneels, Pieter; Suhrcke, Marc; Bachmann, Max
  69. Austria’s Economic Competitiveness in a Neighbourhood Context: Is Austria’s Economy Locked-in to the CESEE Region? By Mahdi Ghodsi; Doris Hanzl-Weiss; Philipp Heimberger; Mario Holzner; Olga Pindyuk; Roman Stöllinger
  70. The legislative and institutional framework for South Africa's new Twin Peaks model of financial regulation By Corlia Van Heerden
  71. The dynamics of exploitation and inequality in economies with heterogeneous agents By Giorgos Galanis; Roberto Veneziani; Naoki Yoshihara
  72. La Macroéconomie des PSEM : état des lieux et relations avec l’Union Européenne By Serge Rey
  73. Reform Reversal in Former Transition Economies (FTEs) of the European Union: Areas, Circumstances and Motivations By Székely, István P.; Ward-Warmedinger, Melanie E.
  74. Harnessing the opportunities of inclusive technologies in a global economy By Beliz, Gustavo; Basco, Ana Inés; de Azevedo, Belisario
  75. Sovereign Bond Yields Spreads Spillovers in the EMU By António Afonso; Mina Kazemi

  1. By: Dany-Knedlik, Geraldine; Holtemöller, Oliver
    Abstract: We investigate drivers of Euro area inflation dynamics using a panel of regional Phillips curves and identify long-run inflation expectations by exploiting the cross-sectional dimension of the data. Our approach simultaneously allows for the inclusion of country-specific inflation and unemployment-gaps, as well as time-varying parameters. Our preferred panel specification outperforms various aggregate, uni- and multivariate unobserved component models in terms of forecast accuracy. We find that declining long-run trend inflation expectations and rising inflation persistence indicate an altered risk of inflation expectations de-anchoring. Lower trend inflation, and persistently negative unemployment-gaps, a slightly increasing Phillips curve slope and the downward pressure of low oil prices mainly explain the low inflation rate during the recent years.
    Keywords: inflation dynamics,inflation expectations,trend inflation,nonlinear state space model,panel UCSV model,Euro area
    JEL: C32 C33 E31 E5
    Date: 2018
  2. By: Domenico Lombardi; Pierre L. Siklos; Xiangyou Xie
    Abstract: This paper examines the monetary policy transmission mechanism in four systemically important economies. The impact of monetary policy is found to be broadly comparable for China, the US, the Eurozone, and Japan. Identifying a role for the financial sector is essential to unpacking various channels through which monetary policy operates. Global factors play a significant role and their impact is strongest for China and weakest for Japan. China’s impact is significant with the Eurozone displaying the most interdependence and Japan the least. Time-varying VARs suggest that contrasts in the responses to monetary policy shocks persist highlighting some of the remaining differences in the transmission mechanism. Finally, there is no apparent structural change in the estimated relationships around the time when the Fed intervened after 2008. It is conjectured that Quantitative Easing may well have prevented such a break.
    Keywords: monetary policy transmission, systemically important economies, QE, Factor VAR, time-varying Factor VAR
    JEL: E63 E52 E58 E32 E31
    Date: 2018–10
  3. By: Strobel, Felix
    Abstract: The recent sovereign debt crisis in the Eurozone was characterized by a monetary policy, which has been constrained by the zero lower bound (ZLB) on nominal interest rates, and several countries, which faced high risk spreads on their sovereign bonds. How is the government spending multiplier affected by such an economic environment? While prominent results in the academic literature point to high government spending multipliers at the ZLB, higher public indebtedness is often associated with small government spending multipliers. I develop a DSGE model with leverage constrained banks that captures both features of this economic environment, the ZLB and fiscal stress. In this model, I analyze the effects of government spending shocks. I find that not only are multipliers large at the ZLB, the presence of fiscal stress can even increase their size. For longer durations of the ZLB, multipliers in this model can be considerably larger than one.
    Keywords: Government spending multiplier,Fiscal stress,Zero lower bound,Financial frictions
    JEL: E32 E44 E62 H30 H60
    Date: 2018
  4. By: Guido Bulligan (Banca d’Italia)
    Abstract: This paper investigates the effect of ECB asset purchases on inflation expectations in the euro area, as measured by the ECB Survey of Professional Forecasters. To identify the effects on individual expectations we adopt a panel approach, where the Eurosystem Asset Purchase Programme (APP) shocks are used as covariates to explain the revisions in the individual inflation forecasts; controls for updates in macroeconomic and financial developments are also included. Our results indicate that the first APP announcement in January 2015 resulted in a statistically significant upwards revision of medium term inflation expectations and lowered the forecasters’ assessment of the probability of a low inflation regime. The average effect however masks significant differences among forecasters: forecasters that were relatively more accurate prior to the announcement were also those who revised their inflation forecasts more markedly.
    Keywords: monetary policy announcements, event study, inflation expectations, unconventional monetary policy
    JEL: E31 E52 E58 E65 G14
    Date: 2018–10
  5. By: Armelius, Hanna (Payments Department); Bertsch, Christoph (Research Department, Central Bank of Sweden); Hull, Isaiah (Research Department, Central Bank of Sweden); Zhang, Xin (Research Department, Central Bank of Sweden)
    Abstract: We use text analysis and a novel dataset to measure the sentiment component of central bank communications in 23 countries over the 2002-2017 period. Our analysis yields three key results. First, using directed networks, we show that comovement in sentiment across central banks is not reducible to trade or financial ow exposure. Second, we find that geographic distance is a robust and economically significant determinant of comovement in central bank sentiment, while shared language and colonial ties are economically significant, but less robust. Third, we use structural VARs to show that sentiment shocks generate cross-country spillovers in sentiment, policy rates, and macroeconomic variables. We also find that the Fed plays a uniquely in uential role in generating such sentiment spillovers, while the ECB is primarily in uenced by other central banks. Overall, our results suggest that central bank communication contains systematic biases that could lead to suboptimal policy outcomes.
    Keywords: communication; monetary policy; international policy transmission
    JEL: E52 E58 F42
    Date: 2018–09–01
  6. By: Vasilev, Aleksandar
    Abstract: We introduce Epstein-Zin (1989, 1991) preferences 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 "early resolution of uncertainty" motive for the propagation of cyclical fluctuations in Bulgaria. Allowing for Epstein-Zin preferences improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework, e.g., Vasilev (2009).
    Keywords: business cycle fluctuations,Epstein-Zin preferences,Bulgaria
    JEL: E32 E22 E37
    Date: 2018
  7. By: Lorenzo Burlon; Alessandro Notarpietro (Bank of Italy); Massimiliano Pisani (Bank of Italy)
    Abstract: We evaluate the exchange rate pass-through (ERPT) into euro area (EA) inflation by estimating an open economy New Keynesian model with Bayesian methods. In the model ERPT is incomplete because of local currency pricing and distribution services, with the latter allowing to distinguish between ERPT at the border and ERPT at the consumer level. Our main results are the following ones. First, ERPT into EA prices is, in general, high. Second, it is particularly high in correspondence of exchange rate and monetary policy shocks. Third, the EA monetary stance is relevant for ERPT; in particular, ERPT is higher if the stance is accommodative in correspondence of expansionary demand shocks.
    Keywords: exchange rate, import prices, pass-through, monetary policy, euro area.
    JEL: C11 E40 E47 E52 F41
    Date: 2018–09
  8. By: Belke, Ansgar; Beckmann, Joscha; Dubova, Irina
    Abstract: Inflation expectations play a crucial role for monetary policy transmission, having become even more important since the emergence of unconventional monetary policy. Based on survey data provided by Consensus Economics, we assess determinants of professional inflation expectations for the G7 economies. We emphasize the role of international spillovers in inflation expectations stemming from monetary policy decisions in the US. We also consider several possible determinants, such as changes in the path of monetary policy, oil price shocks and uncertainty measures. Based on a Bayesian VAR, we find significant evidence for international spillovers stemming from expectations about US monetary policy based on impulse-response functions and forecast error decompositions. We also provide similar evidence on spillovers from the dispersion across inflation forecasts.
    Keywords: Bayesian VAR,expectations,inflation,survey data,updating
    JEL: C22 E31 E52
    Date: 2018
  9. By: Döpke, Jörg; Waldhof, Gabi; Fritsche, Ulrich
    Abstract: We report results of a survey among active forecasters of the German business cycle. Using data for 82 respondents from 37 different institutions, we investigate what models and theories forecasters subscribe to and find that they are pronounced conservative in the sense, that they overwhelmingly rely on methods and theories that have been well-established for a long time, while more recent approaches are relatively unimportant for the practice of business cycle forecasting. DSGE models are mostly used in public institutions. In line with findings in the literature there are tendencies of \leaning towards consensus" (especially for public institutions) and \sticky adjustment of forecasts" with regard to new information. We find little evidence that the behaviour of forecasters has changed fundamentally since the Great Recession but there are signs that forecast errors are evaluated more carefully. Also, a stable relationship between preferred theories and methods and forecast accuracy cannot be established.
    Keywords: Forecast error evaluation,questionnaire,survey,business cycle forecast,professional forecaster
    JEL: E32 E37 C83
    Date: 2018
  10. By: Bredemeier, Christian; Kaufmann, Christoph; Schabert, Andreas
    Abstract: We provide evidence that liquidity premia on assets that are more relevant for private agents’ intertemporal choices than near-money assets increase in response to expansionary forward guidance announcements. We introduce a structural specification of liquidity premia based on assets’ differential pledgeability to a basic New Keynesian model to replicate this finding. This model predicts that output and inflation effects of forward guidance do not increase with the length of the guidance period and are substantially smaller than if liquidity premia were neglected. This indicates that there are no puzzling forward guidance effects when endogenous liquidity premia are taken into account. JEL Classification: E32, E42, E52
    Keywords: forward guidance, liquidity premium, unconventional monetary policy
    Date: 2018–10
  11. By: Walter Engert; Ben S. C. Fung; Scott Hendry
    Abstract: The use of bank notes in Canada for payments has declined consistently for some time, and similar trends are evident in other countries. This has led some observers to predict a cashless society in the future. This paper considers the implications of the abandonment of the use of cash in the future. More specifically, we look at a variety of ways in which the emergence of a cashless society could affect key concerns of a central bank, including seigniorage, monetary policy, payments and financial stability considerations. We find that a cashless society would not generally cause material, system-wide problems. There are a few areas, however, where concerns could emerge: the maintenance of both operational reliability and contestability in retail payments, and the provision of a safe store of value in an (extreme) financial crisis. We note policy options to address these potential concerns.
    Keywords: Bank notes; Digital currencies; Financial services; Payment clearing and settlement systems
    JEL: E E4 E41 E42 E5
    Date: 2018
  12. By: Jemima Peppel-Srebrny
    Abstract: Abstract Government net worth – total assets less liabilities – has declined considerably relative to national income in a number of OECD countries in recent decades, including the United States, the United Kingdom, Japan and Germany. Notably, however, in thinking about the links between fiscal policy and bond markets, the focus of policy and academic debates has tended to be on the liabilities side of the government balance sheet. Typically, not much attention has been paid to the extent to which any increase in government debt is accompanied by government asset accumulation and hence affects government net worth. Using novel data on both sides of the government balance sheet both for a panel of OECD countries in recent decades and for the United States over the long term, we provide panel data and time series-based evidence that for bond markets, not all government debt is created equal: for explaining government borrowing cost empirically, (i) government assets are significant in addition to government liabilities, and (ii) it is government net worth rather than government liabilities that matters when both are included. The central country-specific fiscal factor driving bond yields hence appears to be government net worth.
    Keywords: Government debt, government assets, fiscal policy, long-term interest rates, OECD countries, United States
    JEL: E44 E62 H54 H63
    Date: 2018–10–18
  13. By: Lorenzo, Menna; Patrizio, Tirelli;
    Abstract: Recent developments in the asset pricing literature show that a combination of technology and distributive shocks can rationalize observed risk premia when firm ownership is concentrated in the hands of few households. We find that distributive shocks are unnecessary when nominal price rigidity is taken into account. Our results are driven by the income redistribution associated to procyclical variations in profit margins when firms ownership is concentrated, prices are sticky and technology shocks hit the economy. In this regard, standard DSGE models that allow for firm ownership concentration have the potential to replicate both business cycle facts and the moments of financial variables.
    Keywords: asset pricing, equity premium, limited asset market participa- tion, business cycle, DSGE, sticky prices.
    JEL: E32 G12
    Date: 2018–10–25
  14. By: Tsotne Marghia (International School of Economics at TSU (ISET))
    Abstract: Standard stress tests consider only first round effect from macroeconomic variables to financial stability indicators. However, the occurred shocks in banking sector reflect on macroeconomic indicators throughout different transmission mechanisms, such as expectations of economic agents, expected responses of banking sector to increased credit risk and etc. This creates the necessity of expansion and improvement of existing types of models, which will also include second round (macro-feedback) effects. The study explores the dynamic relationship between macroeconomic variables and indicators of financial stability, proving the relevance of considering second-round effects for better policy analysis. This paper develops a macro stress testing model incorporating feedback effects between financial system and the real economy. The study uses VAR approach to analyze various interactions between indicators through Impulse Response Functions (IRFs) and conducts different stress scenarios on exogenous variables. According to empirical results for the case of Georgia, there is significant relationship between real and financial variables, proving the countercyclical nature of NPLs with respect to different estimates of GDP gap. The signs of the impacts are robust with respect to different estimates of GDP gap. However, the magnitude of the effect of change in NPLs on GDP gap and vice versa varies with different estimate of GDP gap. In addition, using historical decomposition of GDP gap, the study shows that the effects of financial variables on variables of real economy differ from each other depending on the observed time interval (pre-crisis or post-crisis). The transmission of the impact goes though ?credit crunch?. The model proves the fact that change in NPL ratio strongly impacts credit growth represented as change in Credit to GDP ratio. At the same time, change in Credit to GDP ratio explain significant part of output gap forecast error and has significant contribution to business cycle fluctuations, strengthening the impact of NPLs and financial stability as a whole on the real economy. The estimated model can be used for generating different scenarios and shocks for improving systemic risk analysis (effect of banking sector?s solvency on real economy) and for providing better policy recommendations.
    Keywords: Stress testing, Macro feedback effects, Solvency risk, Non-performing loans, Hodrick-Prescott filter, Kalman filter, Band Pass filter, GDP gap, Macro-financial linkages, Business fluctuations, VAR
    JEL: E37 E44 G17
    Date: 2018–07
  15. By: Mumtaz, Haroon (Queen Mary University); Theodoridis, Konstantinos (Cardiff Business School)
    Keywords: DSGE, Non-Linear SVAR, New Keynesian, Search and Matching Frictions, Epstein-Zin preferences, Stochastic Volatility
    JEL: E30 E40 E52 C11 C13 C15 C50
    Date: 2018–10
  16. By: Nicolò Gnocato (Bank of Italy); Concetta Rondinelli
    Abstract: A recent strand of literature has investigated the granular sources of the business cycle, i.e. to what extent firm-level dynamics have an impact on aggregate fluctuations. From a conceptual point of view, in the presence of fat-tailed firm-size distributions, shocks to large firms may not average out and may then have a direct effect on aggregate fluctuations; in addition, firm-to-firm linkages can propagate shocks to individual firms, leading to movements at the aggregate level. Using Cerved and INPS data, we test the granular hypothesis on a large sample of Italian firms, covering the period 1999-2014. Idiosyncratic Total Factor Productivity (TFP) shocks are found to explain around 30 per cent of aggregate TFP volatility; furthermore, the contribution of these linkages to firm-specific aggregate volatility is more important than that of the direct effect, especially for the manufacturing sector.
    Keywords: aggregate fluctuations, firm-level dynamics, productivity
    JEL: D24 E32 L25
    Date: 2018–09
  17. By: Ait Lahcen, Mohammed
    Abstract: This paper studies the impact of informality on the long-run relationship between inflation and unemployment in developing economies. I present a dynamic general equilibrium model with informality in both labor and goods markets and where money and credit coexist. An increase in inflation affects unemployment through two channels: the entry channel (size) and the hiring channel (composition). On one hand, higher inflation reduces the surplus of monetary trades thus lowering firms entry and increasing unemployment. On the other hand, it shifts firms hiring decision from high separation informal jobs to low separation formal jobs thus reducing unemployment. The net effect depends on the difference in separation rates and the availability of credit in formal transactions. The model is calibrated to match certain long-run statistics of the Brazilian economy. Numerical results indicate that inflation has a small negative effect on unemployment while producing a significant impact on labor allocation between formal and informal jobs. These results point to the importance of accounting for informality when considering the inflation-unemployment trade-off in the conduct of monetary policy.
    Keywords: informality,Phillips curve,money,labor,search and matching
    JEL: E26 E41 J64 H26 O17
    Date: 2018
  18. By: Jan-Philipp Dueber
    Abstract: Time-varying volatility plays a crucial role in understanding business cycles in emerging market economies. However, the literature treats volatility as an exogenous process. This paper endogenizes time-varying volatility in the debt premium and total factor productivity into a standard small open economy model and assesses the quality of the model by comparing it to emerging market data. An additional volatility channel that operates through the debt premium on the interest rate faced by a small open economy can generate countercyclical net exports and excess volatility in consumption as observed in data on emerging market business cycles.
    Keywords: Endogenous Volatility, DSGE, Emerging Markets
    JEL: E32 F41 F44
    Date: 2018–10
  19. By: Deli, Yota; Delis, Manthos D.; Hasan, Iftekhar; Liu, Liuling
    Abstract: We show that borrowing firms benefit substantially from important enforcement actions issued on U.S. banks for safety and soundness reasons. Using hand-collected data on such actions from the main three U.S. regulators and syndicated loan deals over the years 1997-2014, we find that enforcement actions decrease the total cost of borrowing by approximately 22 basis points (or $4.6 million interest for the average loan). We attribute our finding to a competition-reputation effect that forces banks to lower their cost of credit, irrespective of other changes in their business models after the enforcement action.
    JEL: E44 E51 G21 G28
    Date: 2018–10–18
  20. By: Matteo Benetton (Berkeley); Davide Fantino (Bank of Italy)
    Abstract: We make use of an allocation rule by the ECB for Targeted Longer-Term Refinancing Operations (TLTROs) to provide causal evidence on the effect of unconventional monetary policy on the cost of loans to firms. Using transaction-level data from Italy’s Central Credit Register and a difference-in-difference identification strategy, we show that treated banks decrease loan rates to the same firm by approximately 20 basis points compared with control banks. We then study how the effects of the liquidity injection vary according to the competition in the banking sector, exploiting the local nature of bank-firm lending relationships and exogenous variations in the number of pawnshops across Italian cities during the Renaissance. Our results suggest that banks' market power can significantly impair the effectiveness of unconventional monetary policy, especially for safer and smaller firms.
    Keywords: Unconventional monetary policy, bank competition, pass-through.
    JEL: E51 E52 L11
    Date: 2018–07
  21. By: Raúl J. Crespo; José A. Zambrano
    Abstract: The paper evaluates the effects of oil price shocks on several macroeconomic variables for the Venezuelan economy during the periods 1921-1970 and 1985-2015. Bivariate vector autoregression models are estimated to examine the links in the causal chain between the real price of oil and the macroeconomic variables of interest through a series of Granger non-causality tests. Similarly, different symmetry slope-based tests are conducted to determine whether or not there is empirical evidence supporting the view that the effects of oil price shocks on macroeconomic aggregates are asymmetric. Finally, the time profile described by an economic variable that has been hit by an oil price shock, and the importance of these shocks as a source of short-run fluctuations are analysed through the estimation of a series of impulse response functions and forecast error variance decompositions, respectively. The main findings in the paper can be summarised as follows: firstly, the predictability from real oil price to real output (and other macroeconomic variables) was found to be not significant in the period 1921-1970 while its importance has increased substantially in more recent years. Secondly, evidence of asymmetric effects of oil price shocks was found only for variables such as real output in the oil sector and investment during the years 1985-2015; unexpected oil price increases are significantly correlated with a rise in the economic variables while oil price decreases show not significant correlation. Thirdly, positive association between oil price movements and most macroeconomic variables as well as the relevance of oil price shocks as an important source of business cycle fluctuations in the economy has been observed; although significant differences are found in the responses of these variables to the shock for different time spans.
    Keywords: Oil price shocks, Macroeconomic fluctuations, Granger causality.
    JEL: E32
    Date: 2018–10–14
  22. By: Nitzan, Jonathan; Bichler, Shimshon
    Abstract: . . . Looking forward, the prognosis for capitalists seems negative. Over the last few years, unemployment has fallen sharply, and if the predictive power of our chart remains intact, the capitalist income-share-read-power is bound to contract further, raising the ante for a prolonged accumulation crisis. Eventually, though, capitalists are likely the resolve their CasP crisis, as they have done repeatedly for nearly a century, by offloading it onto the underlying population in the form of rising unemployment.
    Keywords: income distribution,power,sabotage,unemployment,crisis
    JEL: P16 D3 E24
    Date: 2018
  23. By: Myunghyun Kim (Economic Research Institute, The Bank of Korea)
    Abstract: Commodities have begun to function as an asset class during the past decade, as trading in commodity derivatives has increased massively since the 2000s. This paper studies the role of commodities as an asset class in accounting for the recently lessened impacts of commodity price shocks on the economy, by constructing a model with financial frictions and with financial intermediaries that own two assets ? tied to commodities as well as to capital. Simulation results of the model show that financial intermediaries¡¯ holdings of commodities as assets have contributed to the recent reduction in the effects of commodity price shocks.
    Keywords: Commodity price shocks, Commodity derivatives
    JEL: E30 E44 Q43
    Date: 2018–09–28
  24. By: Beetsma, Roel; Furtuna, Oana; Giuliodori, Massimo
    Abstract: The literature on fiscal multipliers finds that spending-based fiscal consolidations tend to have more benign macro-economic consequences than revenue-based consolidations. By directly comparing expost data with consolidation plans, we present evidence of a systematically weaker follow-up of spending-based consolidation plans. Next, using a newly-developed dataset of consolidation announcements, panel VAR regressions confirm the weaker follow-up of spending-based plans and their more benign macro-economic effects compared to those of revenue-based plans. We disentangle the role of the difference in follow-up from that of the difference in the composition of revenue- and spending-based consolidations. While the latter channel, which works through the difference between revenue and spending multipliers, explains the largest fraction of the difference in economic trajectories, the difference in follow-up plays a non-negligible role as well. JEL Classification: E21, E62, H5
    Keywords: fiscal consolidation announcements, fiscal multipliers, follow-up, narrative identification, panel vector auto-regression
    Date: 2018–09
  25. By: Ian King (School of Economics, The University of Queensland); Frank Stähler (School of Business and Economics, University of Tübingen)
    Abstract: We present a dynamic general equilibrium model in which both unemployment and capital utilization are determined endogenously in an environment with directed search frictions. The model allows for proportions of both labor and capital to be idle in equilibrium, where the degree of capital utilization determines its depreciation. We show that, under certain conditions, multiple steady state equilibria exist. In stable equilibria, both unemployment and capital utilization rates decline as productivity increases.
    Keywords: Search unemployment, capital utilization, multiple equilibria
    JEL: E24
  26. By: Drechsel-Grau, Moritz; Greimel, Fabian
    Abstract: We want to explain the rise of household debt in the US since 1980. We present a mechanism that is consistent with the following stylized facts: (i) Real mortgage debt, (ii) debt-service-to-income ratios and (iii) house sizes (in sqft) have increased since the 1980 across all income quintiles. This is despite (iv) real incomes have stagnated for the bottom 50% since the 1980s. Our mechanism is based on other-regarding preferences. Rich agents upgrade their houses to match their risen incomes. Poorer agents want to substitute future consumption for a bigger house today (in order to “keep up with the richer Joneses”). Holding prices constant, debt will necessarily increase since houses are durable and require large payment upfront, but only low maintenance costs in the future. We build a tractable model consistent with these facts and extend it to quantitative a model to show that the partial equilibrium results go through in general equilibrium.
    Keywords: household debt,debt boom,social comparisons,consumption network,keeping up with the Joneses
    JEL: D14 D31 E21 E44
    Date: 2018
  27. By: Xing, Victor
    Abstract: BIS’s Shin noted that a “snapback” in long-term interest rates represents the biggest risk in the global economy, as a decade of policy-induced yield-chasing not only directly lowered long-term rates but also begot further demand. With term premium decompress amid waning policy support, higher long-term bond yields will induce further duration shedding to threaten risk sentiment. Nevertheless, the "snapback" in yields will likely take a roundabout path as flight-to-quality flows from deleveraging exert transient downward pressure in bond yields.
    Keywords: Term premium, monetary policy, fixed income, long-maturity bond yields, financial conditions
    JEL: E0 E4 E5 G1 G23
    Date: 2018–10–14
  28. By: Ivo Maes (National Bank of Belgium and Robert Triffin Chair, Université catholique de Louvain and ICHEC Brussels Management School)
    Abstract: Anniversaries are occasions for remembrance and reflections on one’s history. Many central banks take the occasion of an anniversary to publish books on their history. In this essay we discuss five recent books on the history of central banking and monetary policy. In these volumes, the Great Financial Crisis and the way which it obliged central banks to reinvent themselves occupies an important place. Although this was certainly not the first time in the history of central banking, the magnitude of the modern episode is remarkable. As comes clearly to the fore in these volumes, there is now, also in the historiography of central banking, much more attention to the (shifting) balance between price stability and financial stability. The history of central banking is more perceived as one of an institution whose predominant concern varied between “normal” times and “extraordinary” times. So, central banks will have to remain vigilant, as one should expect financial crises to return. Moreover, the new world of central banking, with a greater responsibility of central banks for financial stability, will make life more complicated for central banks. It may have also consequences for central bank independence, as the modalities of the two mandates, price and financial stability, are not the same. Another aspect which comes to the fore in these volumes is the relationship between central banking and state formation. Historically, central banks have been embedded in processes of nation-building. By extending their network of branches across the country, or by being at a center of a system of liquidity provision, ultimately tied to the national currency, they played a key role in the shaping of “national economies”.
    Keywords: central banking, financial stability, price stability, Great Financial Crisis
    JEL: E42 E58 G28 N10
    Date: 2018–10
  29. By: Rachel, Moore; Pecoraro, Brandon
    Abstract: Analysis of fiscal policy changes using general equilibrium models with forward-looking agents typically requires the modeler to assume a counterfactual adjustment to some fiscal instrument in order to achieve the debt sustainability implied by the government's intertemporal budget constraint. Since the fiscal instrument chosen to close the model can induce economic behavior unrelated to the policy change in models where Ricardian Equivalence does not hold, noise may be introduced into the analysis. In this paper we use such an overlapping generations framework to examine the impact of alternative fiscal closing assumptions on projected changes to economic aggregates over the ten-year `budget window' following a change in tax policy, assessing the extent to which the noise associated with a particular fiscal instrument can be mitigated. We find that while quantitative differences in projected macroeconomic activity can be observed across alternative fiscal instruments, these differences tend to shrink as the date that fiscal instruments begin to adjust is delayed into the future. Since the particular fiscal instrument chosen to achieve debt sustainability can then become relatively unimportant, the reliability of policy analysis obtained using this class of models may be improved.
    Keywords: dynamic scoring; fiscal closing assumptions; sustainable fiscal policy
    JEL: C63 E62 H63
    Date: 2018–10–01
  30. By: Stöhlker, Daniel; Neumeier, Florian; Fuest, Clemens
    Abstract: This paper empirically evaluates how fiscal policy reacts to changes in the government's fiscal situation. Utilizing panel data from the German states covering the period from 1992 to 2011, we assess to what extent exogenous changes in tax revenues affect total public revenues, aggregate public expenditure as well as specific sub-categories of government spending. Applying the narrative approach pioneered by Romer and Romer (2010), we construct a measure of exogenous tax shocks, allowing us to identify the causal effect of tax changes on fiscal policy. Our findings indicate that tax changes trigger expenditure adjustments into the same direction after 2 to 3 years, specifically with respect to spending on governmental administration, health expenditures and spending on infrastructure.
    Keywords: Taxation,Fiscal Policy,Tax-Spend,Public Expenditure,Narrative Approach
    JEL: E62 H11 H20 H62 H72
    Date: 2018
  31. By: Rym Aloui (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824. 93, Chemin des Mouilles, F-69130 Ecully, France); Michel Guillard (EPEE and TEPP (FR CNRS 3126), Université d'Evry Val d' Essonne, Boulevard François Mitterrand, 91025, Evry, France.)
    Abstract: The Fiscal Theory of the Price Level (FTPL) is an important theory that recognizes the interaction between monetary and fiscal policy. In its simplest form, the FTPL assumes that the government commits to a fixed and exogenous present value of primary surpluses implying the adjustment of the price level to equate the real government debt to the present value of primary surpluses. The FTPL relies on the presence of primary surpluses to work. We show that this condition is not necessary in a non-Ricardian economy. The FTPL still hold even when exogenous primary surpluses are null. We consider an overlapping generations of infinitely-lived dynasties model with simple fiscal and monetary policies, where the effective lower bound on nominal interest rates is taken into account. A bubble-like component of government debt appears inducing the determination of the price level by the fiscal policy, when the effective lower bound on nominal interest rates is binding and even when the government primary surpluses equal zero.
    Keywords: Wealth Effects, Liquidity Trap, Deflation, Zero Lower Bound, Fiscal Theory of the Price Level, Monetary and Fiscal Rules, Public Debt
    JEL: E63 E52
    Date: 2018
  32. By: Minchul Yum
    Abstract: This paper investigates di¤erences in parental time investment as a determinant of intergenerational persistence of lifetime income. Using a quantitative model that replicates a series of important untargeted aspects of the data including the U.S. income quintile transition matrix, I …nd that the parental time investment channel accounts for nearly half of the observed intergenerational income persistence. Heterogeneity in parental time investment across households strengthens intergenerational association and hinders aggregate e¢ciency. Policy experiments suggest that an e¤ective way of improving intergenerational mobility, aggregate output, and welfare is to narrow discrepancies in the quantity and quality of parental time investments.
    Keywords: Intergenerational elasticity; quintile transition matrix; parental time; college education; misallocation
    JEL: E24 I24 J22
    Date: 2018–10
  33. By: de Bondt, Gable J.; Hahn, Elke; Zekaite, Zivile
    Abstract: This paper develops Area-wide Leading Inflation CyclE (ALICE) indicators for euro area headline and core inflation with an aim to provide early signals about turning points in the respective inflation cycle. The series included in the two composite leading indicators are carefully selected from around 160 candidate leading series using a general-to-specific selection process. The headline ALICE includes nine leading series and has a lead time of 3 months while the core ALICE consists of seven series and leads the reference cycle by 4 months. The lead times of the indicators increase to 5 and 9 months, respectively, based on a subset of the selected leading series with longer leading properties. Both indicators identify main turning points in the inflation cycle ex post and perform well in a simulated real-time exercise over the period from 2010 to the beginning of 2018. They also have performed well in forecasting the direction of inflation. In terms of the quantitative forecast accurracy, the headline ALICE has on average performed broadly similarly to the Euro Zone Barometer survey, slightly worse than the Eurosystem/ECB Staff macroeconomic projections and better than the Random Walk model, albeit this is not the case for the core ALICE. JEL Classification: C32, C52, C53, E31, E37
    Keywords: band pass filter, euro area inflation, forecasting, leading indicators, trend-cycle decomposition
    Date: 2018–09
  34. By: Martin, Chris (University of Bath); Wang, Bingsong (University of Warwick)
    Abstract: Recent evidence that the opportunity cost of employment is pro cyclical implies that existing models based around search frictions in the labour market cannot match the large volatilities of unemployment and vacancies observed in the data. In this paper, we incorporate insights from behavioural economics into the search frictions framework. The resultant model can match observed volatilities even if the opportunity cost is strongly pro cyclical. The key mechanism in the model is that the pro-cyclicality of the opportunity cost has a limited impact on the reference wage of workers ; this feeds through into a limited volatility of the wage and so to a large unemployment volatility
    Keywords: behavioural economics ; search frictions ; unemployment volatilty
    JEL: E23 E32 J23 J30 J64
    Date: 2018
  35. By: Bernard Michael Gilroy (Paderborn University); Alexander Golderbein (Paderborn University); Christian Peitz (Paderborn University); Nico Stöckmann (Paderborn University)
    Abstract: Central banks implement negative interest rate policies (NIRP) to incentivize economic subjects to spend and invest money for long term economic growth. Although nominal negative interest rates can not be effectively explained by economic theory, when inflation is included there are currently real negative interest rates in almost all industrial nations. We investigate the difference in banks' performances regarding their core business composition in the short run after zero interest rate policy is announced first. Assigning European banks in the interval from a pure commercial bank to an investment bank leads to the observed heterogeneity within the industry.
    Keywords: Monetary Policy, Bank Profitability, Globalisation, Financial Crisis
    JEL: E52 G21
    Date: 2018–06
  36. By: Jacob Assa (Department of Economics, New School for Social Research); Ingrid H. Kvangraven (University of York)
    Abstract: Over the last half century, a large literature has developed on both the nature and the drivers of uneven development. While different methodologies and theoretical approaches to the issue of convergence abound, the use of GDP growth as a measure of economic growth has, remarkably, gone unquestioned. This paper reviews the convergence debates to date, and examines what the changes to the System of National Accounts (SNA) - the international standard for constructing macroeconomic indicators such as GDP - imply for assessing economic convergence. The 1993 and 2008 revisions to the SNA include several major changes to how production is measured - including the reclassification of financial intermediation services, R&D, weapons systems and owner-occupied dwellings as productive activities - all areas in which developed countries have had an advantage in recent decades. We argue that these changes to the production boundary constitute a form of ‘kicking away the ladder,’ i.e. redefining the yardstick of development to fit the new strengths of developed economies. We analyze data series for a range of countries concurrently available under the 1968 SNA, 1993 SNA and 2008 SNA standards. The earlier measure shows a larger and faster convergence of most countries in ‘the Rest’ with those of ‘the West’. Going a step further, we build on Basu and Foley’s (2013) Measured Value-Added concept as a proxy of ‘Core GDP’. This indicator omits any sector for which value-added is imputed based on net incomes, in the absence of an independent measure of output. This allows us to examine more countries and a longer, more consistent time series than concurrent SNA data, but the conclusions are the same - developing countries have caught up more in Core-GDP terms than the contemporary imputation-heavy measure of GDP would suggest. These findings suggest that the current measure of GDP has become decoupled from core employment-generating activities, and is therefore a misleading measure of growth in an economy. Furthermore, it is inconsistent with the understanding the Sustainable Development Goals of inclusive and sustainable growth. Finally, the paper considers the political economy implications of the changes in GDP methodology, such as the justification of voting shares in international financial institutions, epistemological consequences, and domestic political economy considerations.
    JEL: C82 E01 O1 O47
    Date: 2018–10
  37. By: Chadha, Jagjit S.; Shibayama, Katsuyuki
    Abstract: Koop, Pesaran and Smith (2013) suggest a simple diagnostic indicator for the Bayesian estimation of the parameters of a DSGE model. They show that, if a parameter is well identiÖed, the precision of the posterior should improve as the (artiÖcial) data size T increases, and the indicator checks the speed at which precision improves. As it does not require any additional programming, a researcher just needs to generate artiÖcial data and estimate the model with increasing sample size, T. We apply this indicator to the benchmark Smets and Woutersí(2007) DSGE model of the US economy, and suggest how to implement this indicator on DSGE models
    Keywords: Bayesian estimation; dynamic stochastic general equilibrium models; identification.
    JEL: C51 C52 E32
    Date: 2018–09
  38. By: Jagjit Chadha; Arno Hantzsche; Adrian Pabst; Thomas Lazarowizc; Garry Young
    Abstract: We develop a simple model that motivates fiscal stabilisation policy, in the presence of economic and control uncertainty. An examination of a real-time database of economic variables and forecasts shows that our knowledge of the current and future state of the economy is subject to significant revisions over time. Multi-year government spending plans are also significantly revised over successive fiscal events. We show the risk for any given government expenditure plan by constructing measures of historical expenditure revisions. We also show that the most significant factor in explaining public expenditure revisions are changes to the expected path of GDP growth. We illustrate how to model the components of public expenditure and are thus able to remark on the extent to which expenditure is warranted. Finally we report on findings from interviews with key policymakers in the past 25 years on how fiscal expenditure was managed and uncertainty confronted.
    Keywords: expenditure control, monetary-fiscal interactions, revisions, uncertainty
    JEL: C68 E32 E63
    Date: 2018–10
  39. By: Gebauer, Stefan; Mazelis, Falk
    Abstract: Macroprudential policies for financial institutions have received increasing prominence since the global financial crisis. These policies are often aimed at the commercial banking sector, while a host of other non-bank financial institutions, or shadow banks, may not fall under their jurisdiction. We study the effects of tightening commercial bank regulation on the shadow banking sector. For this purpose, we develop a DSGE model that differentiates between regulated, monopolistically competitive commercial banks and a shadow banking system that relies on funding in a perfectly competitive market for investments. After estimating the model using euro area data from 1999 – 2014 including information on shadow banks, we find that tighter capital requirements on commercial banks increase shadow bank lending, which may have adverse financial stability effects. In a counterfactual analysis we compare how a macroprudential policy implemented before the crisis on all financial institutions, or just on commercial banks, would have dampened the leverage cycle.
    Keywords: Macroprudential Regulation,Shadow Banking,Financial Frictions
    JEL: E12 E61 G23 G28
    Date: 2018
  40. By: Chad P. Bown (Peterson Institute for International Economics)
    Abstract: How does trade policy treat intermediate inputs relative to other imported products? Slow economic and trade growth during the recovery from the Great Recession, as well as recent political developments in the United Kingdom and the United States, pose a threat to cross-border supply chains and have thus brought this question to the forefront of policy circles. By examining new and detailed data on the Group of 20 (G-20) countries, this paper investigates trade policy use through 2016, with special emphasis on changes in policymaking behavior since 2010. First, there is no evidence that the G-20 economies made significant changes to their applied import tariffs during this period. However, there has been a modest increase in import protection arising through other policy instruments of note such as the temporary trade barriers (TTBs) of antidumping, countervailing duties, and safeguards. More importantly, there is evidence of changes in how countries have applied their TTBs. TTBs were increasingly imposed on imports not only from China but also from other countries, reversing a post-2001 trend. Furthermore, TTB protection has moved away from imports of final goods and toward imports of intermediate inputs. These shifts in policy have several potential contributing causes as well as economic consequences, including for cross-border supply chains.
    Keywords: antidumping, safeguards, temporary trade barriers, tariffs, WTO, supply chains, intermediate inputs
    JEL: F13
    Date: 2018–10
  41. By: Marcello Pericoli (Bank of Italy); Marco Taboga (Bank of Italy)
    Abstract: We propose a general method for the Bayesian estimation of nonlinear no-arbitrage term structure models. The main innovations we introduce are: 1) a computationally efficient method, based on deep learning techniques, for approximating no-arbitrage model-implied bond yields to any desired degree of accuracy; and 2) computational graph optimizations for accelerating the MCMC sampling of the model parameters and of the unobservable state variables that drive the short-term interest rate. We apply the proposed techniques for estimating a shadow rate model with a time-varying lower bound, in which the shadow rate can be driven by both spanned unobservable factors and unspanned macroeconomic factors.
    Keywords: yield curve, shadow rate, deep learning, artificial intelligence
    JEL: C32 E43 G12
    Date: 2018–09
  42. By: Pietro Grandi (Université Panthéon Assas (Paris 2), LEMMA - Laboratoire d'économie mathématique et de microéconomie appliquée - UP2 - Université Panthéon-Assas - Sorbonne Universités)
    Abstract: Is the transmission of monetary policy to bank lending heterogeneous across euro area countries? This paper employs annual bank level data to test whether the bank lending channel of monetary policy was heterogeneous in the euro area over the period 2007-2016. To do so it follows a simple procedure that allows direct testing of how monetary policy affected similar banks located in different countries. Results indicate that the transmission of monetary policy to bank lending was heterogeneous across countries that were differently exposed to the sovereign debt crisis. On average, the same 1% cut in the policy rate led to a 1.6% increase in lending by banks located in non-stressed countries as opposed to a 0.4% increase for banks located in countries under severe sovereign stress. Unconventional monetary policy – as captured by the ECB shadow rate – was also unevenly transmitted to bank lending. Exposure to sovereign risk is identified as a key source of heterogeneity. Within stressed countries, banks with larger sovereign exposures reacted to monetary easing by expanding lending by less than banks with smaller exposures. As a result, monetary accommodation was smoothly transmitted to lending only by banks with limited exposure to sovereign risk. In response to the same 1% policy rate cut, the credit expansion of highly exposed stressed countries banks was instead 2.75% weaker than that of banks in non-stressed countries. These findings support existing evidence on sovereign risk having direct adverse consequences for bank lending and highlight the extent to which sovereign risk aggravated heterogeneities in the transmission on monetary policy to the real economy via the banking system during the euro area debt crisis.
    Keywords: Bank lending channel,Monetary policy transmission,Cross-country heterogeneity,Sovereign risk,Financial structures,Banking integration
    Date: 2018–09–21
  43. By: Nikolaos Giannellis (Department of Economics); Minoas Koukouritakis
    Abstract: In this paper we investigate whether the price of gold is affected by internal and external macroeconomic performance, which is reflected in exchange rate movements
    Keywords: G7, external balance model, panel cointegration, misalignment rate, panel smooth transition regression model
    JEL: E42 F31 F41
    Date: 2018–10–20
  44. By: António Afonso; José Alves
    Abstract: In the present empirical analysis, we try to assess the impact of taxation on investment, growth. In particular, and by using gross fixed capital formation as a proxy for investment, we intend to evaluate the impact of the taxation structure in investment dynamics, in a short and a long-run perspectives. This empirical exercise was conducted for all OECD countries, during the 1980-2015 period. Through panel data econometric techniques, we find optimal tax-investment threshold values, especially higher for short-term than for long-term horizon. In addition, we find optimal income taxation around 9%, in percentage of GDP, an average optimal value of 12.7% for consumption taxes to promote annual investment growth.
    Keywords: Investment Growth;Tax systems;Fiscal Policy;Optimal taxation
    JEL: E62 H21 O47
    Date: 2018–10
  45. By: Laurent Bouton (Department of Economics, Georgetown University); Alessandro Lizzeri; Nicola Persico
    Abstract: We present a political-economic model of total government obligations-debt and entitlements. In our model, both are tools by which temporarily powerful groups extract resources from groups that will be powerful: debt transfers resources across periods; entitlements directly target the future allocation of resources. We prove four results. First, debt and entitlements are strategic substitutes: constraining one increases the other. Second, it is sometimes beneficial to relax a constraint on debt, and always to limit but not eliminate entitlements. Third, debt and entitlements respond in opposite ways to political instability. Finally, polarization can cause joint growth of debt and entitlements.
    Keywords: Government debt, entitlement programs, fiscal rules, political economy
    JEL: D72 E62 H60
    Date: 2018–10–19
  46. By: Nofal, María B.; Coremberg, Ariel; Sartorio, Luca
    Abstract: As the pace of digitalization and automation accelerates globally, and more disruptive innovations in machine learning, artificial intelligence and robotics are expected, new data sources and measurement tools are needed to complement existing valuable statistics and administrative data. This is necessary to better understand the impact of technological change on the labor market and the economy and better inform policy decisions for inclusive people centered growth. In accordance with G20 Roadmap for Digitalisation (2017), points 10, 5 and 7, the authors propose to: i) track technological developments globally in a multidisciplinary and coordinated fashion; ii) develop new methods of measurement for the digital economy; iii) harmonize occupational taxonomies and develop new sources of data and indicators at the international level; iv) Build International Collaborative Platforms for Digital Skills and the Digital Transformation of SMES.
    Keywords: globalization,labor markets,employment polarization,labor share,skills,productivity,innovation,technological change,economic growth
    JEL: E01 J23 J24 J31 E25 O33 O4
    Date: 2018
  47. By: Lewis, Daniel J. (Federal Reserve Bank of New York)
    Abstract: An n-variable structural vector auto-regression (SVAR) can be identified (up to shock order) from the evolution of the residual covariance across time if the structural shocks exhibit heteroskedasticity (Rigobon (2003), Sentana and Fiorentini (2001)). However, the path of residual covariances is available only under specific parametric assumptions on the variance process. I propose a new identification argument that identifies the SVAR up to shock orderings using the autocovariance structure of second moments of the residuals implied by an arbitrary stochastic process for the shock variances. These higher moments are available without parametric assumptions like those required by existing approaches. I offer intuitive criteria to select among shock orderings; this selection does not impact inference asymptotically. The identification scheme performs well in simulations. I apply it to the debate on fiscal multipliers. I obtain estimates that are lower than those of Blanchard and Perotti (2002) and Mertens and Ravn (2014), but in line with those of more recent studies.
    Keywords: identification; impulse response function; structural shocks; SVAR; fiscal multiplier; time-varying volatility; heteroskedasticity
    JEL: C32 C58 E20 E62 H30
    Date: 2018–10–01
  48. By: Economic Research Institute, the Bank of Korea (Economic Research Institute, The Bank of Korea)
    Abstract: The Republic of Korea is aging rapidly, as the average woman in her childbearing years gives birth to only 1.17 children--among the world's lowest numbers as of 2016--while people are also living longer. The country is projected to enter into the status of an aged society from 2018, with a share of the elderly in its population of 14.3%, and to become a super-aged society with a share of 20% in 2025. Population aging, characterized by low fertility rates and growing life expectancy, influences the whole economy: it alters macroeconomic variables such as output growth, consumption, the current account and inflation as well as household finance, the housing and labor markets, and the industrial structure. It also causes significant changes in the fiscal and monetary policy environment. It is therefore important to assess the impact of aging from a broad, long-term perspective, so as to prepare for it in advance. The Korean government set the low fertility rate and population aging as items on its national agenda back in 2004, and since 2006 has pursued three five-year plans to tackle these issues, albeit without visible results. Given that it takes at least a generation's time to see the effects of a population policy, failing to identify and address the current shortcomings could lead to irreversible consequences later. Against this backdrop, the Bank of Korea has been conducting broad research to analyze the situation related to population aging and devise appropriate policies in response. Under the overarching title Population Aging: Impacts and Policy Imperatives, this volume contains 15 papers, including an assessment of the macro and long-run impacts of population aging, case studies of other countries, and evaluations of and suggestions for the policies as well as the governance framework in Korea. Following this introduction in Part 1, Part 2 provides an overview of how population aging is unfolding in Korea, after which Part 3 undertakes a comprehensive evaluation of the macroeconomic implications of population aging. Part 4 then looks into the impacts of population aging on the various economic sectors, and the related policy challenges. Lastly, Part 5 provides the economic outlook for Korea as population aging progresses, and suggests policy imperatives.
    Keywords: Population Aging
    Date: 2018–10–01
  49. By: Camille Cornand (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Paul Hubert (OFCE - OFCE - Sciences Po, IEP Paris - Sciences Po Paris - Institut d'études politiques de Paris)
    Abstract: Establishing the external validity of laboratory experiments in terms of inflation forecasts is crucial for policy initiatives to be valid outside the laboratory. Our contribution is to document whether different measures of inflation expectations based on various categories of agents (participants to experiments, households, industry forecasters, professional forecasters, financial market participants and central bankers) share common patterns by analyzing: the forecasting performances of these different categories of data; the information rigidities to which they are subject; the determination of expectations. Overall, the different categories of forecasts exhibit common features: forecast errors are comparably large and autocorrelated, forecast errors and forecast revisions are predictable from past information, which suggests the presence of information frictions. Finally, the standard lagged inflation determinant of inflation expectations is robust to the data sets. There is nevertheless some heterogeneity among the six different sets. If experimental forecasts are relatively comparable to survey and financial market data, central bank forecasts seem to be superior.
    Keywords: inflation expectations,experimental forecasts,survey forecasts,market-based forecasts,central bank forecasts
    Date: 2018
  50. By: Enrico Bellino (DISCE, Università Cattolica); Secondo Autore (DISCE, Università Cattolica); Terzo Autore (DISCE, Università Cattolica); Quarto Autore (DISCE, Università Cattolica)
    Abstract: Convergence toward the optimal capital accumulation path in infinite horizon has always been tackled in the literature by means of the assumption that individuals (or a central planner) are able to select the unique convergent (saddle-)path among the infinitely many paths which satisfy the equi-marginality condition of the intertemporal choice problem (the Euler's condition). This is tantamount to assuming that individuals have 'colossal' rational capabilities. Conversely, any minor deviation from the saddle-path would inevitably lead to a crash on a 0 per-capita consumption path. This paper aims to show that this contraposition is false. An asymptotic convergence result to the optimal equilibrium path will be obtained for an individual who plans myopically, that is, that optimizes his present and future consumption levels under a rudimentary hypothesis about future savings. He then partially readjusts his choices in each subsequent period, like people normally do. A similar result was already proved by the author for the central planner problem. In this paper, a 'market' solution is provided, following a temporary equilibrium approach à la Hicks.
    Keywords: Optimal capital accumulation; Ramsey-Cass-Koopmans model, saddle-path (in)stability; myopic behaviour; temporary equilibrium.
    JEL: C61 D50 E13 E21
    Date: 2018–06
  51. By: Marina Pavan (LEE & Economics Department, Universitat Jaume I, Castellón-Spain); Iván Barreda-Tarrazona (LEE & Economics Department, Universitat Jaume I, Castellón-Spain)
    Abstract: We study strategic default in the laboratory, i.e. in a controlled experiment. Subjects are initially endowed with a house and a mortgage (we use neutral wording in the experiment), and must decide at each period in which their mortgage is alive among three options: making the mortgage payment, selling the house, or walking away from their house and defaulting on their mortgage. At each point in time, we can observe whether defaulters can afford to make the mortgage payment, and thus, directly compute the number of strategic defaulters. Subjects default in the right periods and quite fast learn what they should consume. We find experimental support for the “double trigger” hypothesis: individuals faced with low income and low house prices are more likely to default. We observe that subjects default less than optimal, and this decision is significantly affected by social norm concerns in the context of the experiment. Individuals under-consume in the first periods of life: they are “cautious” when indebted. Both introducing a 50% probability of recourse and a Responsible Homeowner Reward are very effective in preventing default in the lab, especially by individuals receiving a bad shock to income.
    Keywords: Strategic Mortgage Default, Negative Equity, Household Indebtedness, Housing, Laboratory Experiment
    JEL: C91 E21
    Date: 2018
  52. By: Seohyun Lee (Macroeconomics Team, Economic Research Institute, The Bank of Korea); Inhwan So (International Department, The Bank of Korea); Jongrim Ha (The World Bank)
    Abstract: Using a novel set of instrumental variables in a structural VAR framework, we investigate the economic impact of uncertainty shocks stemming from geopolitical swings in South Korea. We construct robust instrumental variables for examining the variations in uncertainty due to geopolitical swings by observing high-frequency changes in financial asset returns and their volatilities at around the times of such geopolitical events. Our empirical results show that heightened (reduced) geopolitical uncertainty has a negative (positive) impact on macroeconomic outcomes in South Korea. We provide evidence that financial and capital market movements - fluctuations in exchange rates and sovereign spreads, changes in financial asset prices and market volatility, and swings in foreign investment - play important roles in the transmission of uncertainty shocks.
    Keywords: Uncertainty, Geopolitical risk, IV SVAR, South and North Korea.
    JEL: C32 D81 E32
    Date: 2018–09–04
  53. By: Dennis Bonam; Peter van Els; Jan Willem van den End; Leo de Haan; Irma Hindrayanto
    Abstract: The natural rate of interest (r*) is an important monetary policy variable in economic literature. It serves as a benchmark for the policy rate in an equilibrium. It also plays a role in the ongoing debate about unconventional monetary policy, for instance in the development of opinions on the lower bound of the policy rate and on the current low market interest rates. To illustrate: the 'secular stagnation' hypothesis posits that the low real market interest rates are an expression of a negative value of r*. This hypothesis argues that this has consequences for monetary policy, which - according to the predominant theory - stimulates the economy by lowering the policy rate (adjusted for inflation) to below r*. When r* is negative, however, this is not possible because of the lower bound set for the policy rate. This, it is argued, impedes the ability of monetary policy to stimulate the economy.
    Date: 2018–06
  54. By: Aviral Kumar Tiwari (Montpellier Business School, Montpellier, France); Juncal Cunado (University of Navarra, School of Economics, Edificio Amigos, E-31080 Pamplona, Spain); Abdulnasser Hatemi-J (Department of Finance, UAE University, Al-Ain, UAE); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: This paper analyzes the oil price-inflation pass-through by studying the relationship between oil prices and U.S. Consumer Price Index (CPI) over the period January 1871- June 2018, at different frequencies, using a wavelet coherency analysis. Our main results suggest that the relationship between oil prices and CPI has changed over the analyzed time period, implying a decrease in the oil price- inflation pass-through over time. Furthermore, this relationship also varies across frequencies, suggesting that the evidence of oil price-inflation pass-through with oil prices leading CPI is weaker in the short-run.
    Keywords: Oil prices, Consumer Price Index, Pass-through, Wavelet coherency
    JEL: C49 E31 Q43
    Date: 2018–10
  55. By: Xolani Sibande (Department of Economics, University of Pretoria, Pretoria, South Africa); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Mark E. Wohar (College of Business Administration, University of Nebraska, USA and School of Business and Economics, Loughborough University, Leicestershire, UK)
    Abstract: The influence of financial markets on the real economy, including that of stock market returns on unemployment, is a key focus in the literature. Using DCC-MGARCH tests, we analyse time-varying causality between stock market returns and unemployment in the UK using monthly data from 1855 to 2017. The tests reveal that there is significant evidence of information spillover between the stock market and the labour market. This information spillover was found to be significant in the direction of stock market returns to unemployment, insignificant in the opposite direction, and significant bi-directionally. The results were also found to be congruent to the macroeconomic history of the UK.
    Keywords: Time-varying Granger causality, stock market returns, unemployment
    JEL: C12 C32 J01 G14
    Date: 2018–10
  56. By: International Monetary Fund
    Abstract: The Philippines economy continues to do well but is facing new challenges from rising inflation and a less benign external environment, in addition to persistent poverty and inequality. The new environment requires adjustment of the policy mix to balance growth and stability objectives, while fostering inclusion.
    Date: 2018–09–27
  57. By: Oberst, Christian; Voigtländer, Michael
    Abstract: Die Zahl der Studenten ist seit 2010 um etwa 28 Prozent in Deutschland gestiegen, in manchen der betrachteten Hochschulstandorte lag der Zuwachs sogar bei 40 Prozent und mehr. Gleichzeitig hinkt die Bautätigkeit dem Einwohnerwachstum in vielen Städten hinterher, so dass der Markt für studentisches Wohnen angespannt ist. Der IW-Studentenwohnpreisindex zeigt für alle betrachteten Städten Mietpreisanstiege an. Bezogen auf 2010 haben die Mieten vor allem in München (+51 Prozent) und in Berlin (+67 Prozent) stark zugelegt. Auch im 1. Halbjahr 2018 sind die Mieten für studentisches Wohnen weiter gestiegen, besonders in Berlin mit einem Preisanstieg gegenüber dem Vorjahr um 9,8 Prozent. Doch auch in Heidelberg, Frankfurt und Bamberg sind die Mieten mit über 6 Prozent zuletzt deutlich gestiegen. Für eine Musterwohnung müssen Studenten in München am meisten zahlen, dort beträgt die Warmmiete 634 Euro in Monat. Der nächstteuerste Hochschulstandort ist Frankfurt mit 500 Euro pro Monat. Insgesamt zeigt die Analyse, dass die Streuung der Durchschnittsmieten zugenommen hat und insbesondere hochpreisige Angebote die durchschnittlichen Mieten nach oben ziehen. Allerdings gibt es auch Hochschulstandorte, die deutlich günstiger sind. In sechs der achtzehn betrachteten Hochschulstandorte liegt der Preis für eine Musterwohnung bei unter 350 Euro, im Ruhrgebiet, in Magdeburg und in Leipzig sogar unter 300 Euro. Auch die Zuwachsraten bei den Mieten liegen in diesen Hochschulstandorten deutlich unter den Werten für Berlin, München oder Köln. Mieten werden damit zunehmend wichtiger für die Hochschulwahl - und dieser Trend bietet Chancen für die regionale Entwicklung. Schließlich können starke Hochschulen abseits der Großstädte Wachstumsimpulse geben und damit gleichsam die angespannten Wohnungsmärkte der Großstädte entlasten.
    JEL: C43 E30 R11 R31
    Date: 2018
  58. By: Bick, Alexander (Arizona State University); Brüggemann, Bettina (McMaster University); Fuchs-Schündeln, Nicola (Goethe University Frankfurt); Paule-Paludkiewicz, Hannah (Goethe University Frankfurt)
    Abstract: We document the time-series of employment rates and hours worked per employed by married couples in the US and seven European countries (Belgium, France, Germany, Italy, the Netherlands, Portugal, and the UK) from the early 1980s through 2016. Relying on a model of joint household labor supply decisions, we quantitatively analyze the role of non-linear labor income taxes for explaining the evolution of hours worked of married couples over time, using as inputs the full country- and year-specific statutory labor income tax codes. We further evaluate the role of consumption taxes, gender and educational wage premia, and the educational composition. The model is quite successful in replicating the time series behavior of hours worked per employed married woman, with labor income taxes being the key driving force. It does however capture only part of the secular increase in married women's employment rates in the 1980s and early 1990s, suggesting an important role for factors not considered in this paper. We will make the non-linear tax codes used as an input into the analysis available as a user-friendly and easily integrable set of Matlab codes.
    Keywords: taxation, two-earner households, hours worked
    JEL: E60 H20 H31 J22
    Date: 2018–09
  59. By: Jongwook Park (Economic Research Institute, The Bank of Korea)
    Abstract: This paper analyzes the relationships between monetary policy and income inequality in Korea. We calculate Gini coefficient for various income range using data from the Household Income and Expenditure Survey and then estimate a block-exogeneity VAR representing Korean and US economies to examine the effects of monetary policies on income inequality. The results show that following a one-standard deviation contractionary (expansionary) monetary policy shock, market income Gini coefficient increases (decreases) significantly after one year, reaching its peak to 0.0014 (0.14%p) while GDP and CPI decrease (increase) significantly by 0.48% and 0.15%, respectively. The contributions of monetary policy shocks to income inequality are found to be small as shown by forecast error variance and historical decompositions. In addition, earnings heterogeneity channel is most important among various channels through which monetary policy affects income inequality. Finally, a counterfactual analysis implies that if Bank of Korea held the call rate constant at 5.13% from 2008:Q3 and thereafter, the average of market income Gini coefficient would be higher by 0.009 (0.9%p) during 2008:Q4 - 2015:Q1 under the assumption of static expectations.
    Keywords: Monetary Policy, Income Inequality, Block-exogeneity, VAR
    JEL: E5 E4 C1
    Date: 2018–09–07
  60. By: Osterloh, Steffen
    Abstract: Expectations of consumers and investors are drivers of consumption and investment, and consequently the business cycle. In this paper, we study whether these expectations, as proxied by economic sentiment indicators, are affected by the political environment. First, we study the impact of political uncertainty related to elections and weak governments. Surprisingly, we do not find evidence for a negative effect of uncertainty on consumer and business sentiment. On the contrary, our results suggest that consumer confidence even increases in the forefront of elections. This increase is most pronounced in situations where consumers perceive the economic situation as bad, which suggests that positive expectation effects outweigh the negative uncertainty effects. Second, we study the effect of the political preferences of governments on economic sentiment. As measure of political preferences, we use data on party preferences derived from the content analysis of election manifestos. Our results suggest that during the reign of governments whose platforms support economic orthodox policies, such as fiscal consolidations, consumer and, to a lesser extent, business is subdued. Conversely, consumer confidence increases when governments focus on the strengthening of institutions, whereas business sentiment reacts positively to governments highlighting technology and infrastructure.
    Keywords: economic sentiment,uncertainty,ideology,political economy,panel data
    JEL: E60 H11 P16
    Date: 2018
  61. By: Era Dabla-Norris; Frederico Lima
    Abstract: This paper examines the macroeconomic effects of tax changes during fiscal consolidations. We build a new narrative dataset of tax changes during fiscal consolidation years, containing detailed information on the expected revenue impact, motivation, and announcement and implementation dates of nearly 2,500 tax measures across 10 OECD countries. We analyze the macroeconomic impact of tax changes, distinguishing between tax rate and tax base changes, and further separating between changes in personal income, corporate income, and value added tax. Our results suggest that base broadening during fiscal consolidations leads to smaller output and employment declines compared to rate hikes, even when distinguishing between tax types.
    Date: 2018–09–28
  62. By: Ivan D. Velasquez
    Abstract: In November 1987, Hyman Minsky visited Bogota, Colombia, after being invited by a group of professors who at that time were interested in post-Keynesian economics. There, Minsky delivered some lectures, and Lauchlin Currie attended two of those lectures at the National University of Colombia. Although Currie is not as well-known as Minsky in the American academy, both are outstanding figures in the development of non-orthodox approaches to monetary economics. Both alumni of the economics Ph.D. program at Harvard had a debate in Bogota. Unfortunately, there are no formal records of this, so here a question arises: What could have been their respective positions? The aim of this paper is to discuss Currie's and Minsky's perspectives on monetary economics and to speculate on what might have been said during their debate.
    Keywords: Lauchlin Currie; Hyman Minsky; Monetary Economics; Monetary Policies; Fiscal Policies
    JEL: B22 B31 B50 E12 E50
    Date: 2018–10
  63. By: Mónica Correa-López (Banco de España); Beatriz de Blas (Universidad autónoma de Madrid)
    Abstract: Large US firms, by diffusing embodied technology through trade in intermediates, appear to drive Europe’s output over the medium term. We develop a two-country model of endogenous growth in varieties, cross-country firm heterogeneity and trade to match this evidence. A US TFP slowdown generates a pronounced recession in Europe, while a negative investment-specific shock also imparts a protracted recession in the US, since GDP and firm productivity stay below trend beyond a decade. Heterogeneous firms, with endogenously changing productivity cut-offs, and the responses of innovators and adopters determine medium-term adjustment, as import switching processes unfold.
    Keywords: international business cycles, heterogeneous firms, embodied growth, trade
    JEL: E32 F14 L11 F44 O33
    Date: 2018–10
  64. By: Cyntia Freitas Azevedo
    Abstract: In this article, we discuss the role expectations regarding future policies play in determining the depth of a crisis when the economy hits the zero lower bound on nominal interest rates. We show that when analyzing the impact of a fiscal stimulus during a zero interest rate episode, there is more than just short-run output multipliers. We extend the analysis in Eggertsson (2011) by allowing for a transitional state in which the zero lower bound is no longer binding, but policies can be expected to credibly deviate from their steady-state values. The main result of the paper is that, to have larger positive effects on output, monetary and fiscal policies should last longer than the duration of the shock and be coordinated. This coordination is required not only during the crisis but also in the commitment to future policy actions. It is fundamental to the fiscal authority to be able to respond quickly to the shock, minimizing implementation delays and correctly signaling the duration of the stimulus. We also show that a thoughtful evaluation of a fiscal stimulus in terms of the implied welfare losses should account not only for the effects of policies on short-run output and inflation, but also for the present discounted value of output and inflation in future periods as well
    Date: 2018–10
  65. By: Tim Willems
    Abstract: As the “Volcker shock” is believed to have generated useful information on the effects of monetary policy, this paper develops a simple procedure to identify other unanticipated monetary contractions. The approach is applied to a panel data set spanning 162 countries (over the period 1970-2017), in which it identifies 147 large monetary contractions. The procedure selects episodes where a protracted period of loose monetary policy was suddenly followed by sizeable nominal interest rate increases. Focusing on contractions of significant size increases the signal-to-noise ratio, while they are unlikely to be accompanied by confounding “information effects” (markets interpreting a rate hike as the Central Bank being optimistic about the real side of the economy). A subsequent panel VAR analysis suggests that a 100-basis point rate hike reduces real GDP by 0.5 percent. This reduction in output seems to be persistent, pointing to a certain degree of hysteresis. The price level falls by 1.5 percent, indicating that the medium-/long-run impact of contractionary monetary shocks is not characterized by a neo-Fisherian response. Advanced economies appear to display more price stickiness than emerging/developing countries, as the former combine a more muted price response with a larger effect on output.
    Date: 2018–09–28
  66. By: Rania A. Al-Mashat; Ales Bulir; N. Nergiz Dinçer; Tibor Hlédik; Tomás Holub; Asya Kostanyan; Douglas Laxton; Armen Nurbekyan; Rafael A Portillo; Hou Wang
    Abstract: This paper develops a new central bank transparency index for inflation-targeting central banks (CBT-IT index). It applies the CBT-IT index to the Czech National Bank (CNB), one of the most transparent inflation-targeting central banks. The CNB has invested heavily in developing a Forecasting and Policy Analysis System (FPAS) to implement a full-fledged inflation-forecast-targeting (IFT) regime. The components of CBT-IT index include measures of transparency about monetary policy objectives, the FPAS designed to support IFT, and the monetary policymaking process. For the CNB, all three components have shown substantial improvements over time but a few gaps remain. The CNB is currently working on eliminating some of these gaps.
    Keywords: Central banks;Inflation targeting;Transparency;Monetary policy;monetary policy, inflation targeting, transparency, central banks.
    Date: 2018–09–28
  67. By: Randall Hanegraaf; Nicole Jonker; Steven Mandley; Jelle Miedema
    Abstract: Purpose: This study quantifies the impact of the Dutch cash payment system on the environment and on climate change using a life cycle assessment (LCA). It examines both the impact of coins and of banknotes. In addition, it identifies areas within the cash payment system where the impact on the environment and on the climate can be reduced. Methods: The ReCiPe endpoint (H) impact method was used for this LCA. The cash payment system has been divided into five subsystems: the production of banknotes, the production of coins, the operation phase, the end of life of banknotes and the end of life of coins. Two functional units were used: 1) cumulative cash payments in the Netherlands in 2015 and 2) the average single cash payment in the Netherlands in 2015. Input data for all processes within each subsystem was collected through interviews and literature study. Ten key companies and authorities in the cash payment chain contributed data, i.e. the Dutch central bank, the Royal Dutch Mint, a commercial bank, a cash logistic service provider, two cash-in-transit companies, two printing works, an ATM manufacturer and a municipal waste incinerator. Results and discussion: The environmental impact of the Dutch cash payment system in 2015 was 2.35 MPt (expressed in eco points) and its global warming potential (GWP) was 17 million kg CO2 equivalents (CO2e). For an average single cash transaction the environmental impact was 637 µPt and the GWP was 4.6 g CO2e. The operation phase (e.g. energy use of ATMs, transport of banknotes and coins) (64%) and coin production phase (32%) had the largest impact on the environment, while the operation phase also had the largest impact on climate change (88%). Finally, scenario analysis shows that reductions of the environmental impact (51%) and the impact on climate change (55%) could be achieved by implementing a number of measures, namely: reducing the number of ATMs, stimulating the use of renewable energy in ATMs, introducing hybrid trucks for cash transport and matching coins with other countries in the euro area. Conclusions: This is the first study that investigates the environmental impact and GWP of the cash payment system in the Netherlands, by taking both the impact of banknotes and coins into account. The total environmental impact of cash payments in 2015 was 2.35 MPt and their GWP was 17 million kg CO2e.
    Keywords: Cash payment system; coins; banknotes; LCA; environmental impact; GWP
    JEL: E42 Q54 Q56
    Date: 2018–10
  68. By: Seuring, Till (Leibniz Institute for Prevention Research and Epidemiology (BIPS)); Serneels, Pieter (University of East Anglia); Suhrcke, Marc (University of York); Bachmann, Max (University of East Anglia)
    Abstract: A diabetes diagnosis can motivate its recipients to reduce their health risks by changing lifestyles but can adversely affect their economic activity. We investigate the effect of a diabetes diagnosis on employment status and behavioural risk-factors taking into account their potentially intertwined relationships. Longitudinal data from the China Health and Nutrition Survey covering the years 1997 to 2011 are used to estimate the effect of a diabetes diagnosis on employment probabilities, alcohol consumption, smoking cessation, body mass index, physical activity and hypertension. To deal with potential confounding, two complementary statistical techniques - marginal structural and fixed effects models - are applied. The marginal structural and fixed effects models generate similar results despite their different underlying assumptions. Both strategies find patterns distinct for males and females, suggesting a decrease in employment probabilities after the diagnosis for women but not for men. Further, few improvements and even further deterioration of behavioural risk factors are found for women, while for men these risk factors either improve or remain the same. These results suggest differences in the impact of diabetes between sexes in China and highlight the potential of reducing behavioural risk factors for women to narrow these inequities.
    Keywords: China, diabetes, employment, behavioural risk factors, marginal structural model
    JEL: D83 E24 I12 I14 J24
    Date: 2018–09
  69. By: Mahdi Ghodsi (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw); Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Roman Stöllinger (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Since the Eastern enlargement of the EU in 2004, Austria has lost global export market shares. At the same time exports to Central, East and Southeast Europe (CESEE) have gained a significant portion of Austria’s total exports. Moreover, in recent years Austrian GDP growth has slowed down and unemployment increased. In this context our main research question is whether the opening to the East has had a structural lock-in effect for Austria’s economy. In a novel approach on the territorial lock-in effect we apply a multi-perspective view from a microeconomic (firm-level), mesoeconomic (industry-level) and macroeconomic (country-level) perspective. The major finding is that by and large Austria is not subject to a lock-in effect into CESEE markets. On the contrary, the results suggest a growing internationalisation of the Austrian export structure. Nevertheless, policy recommendations that aim at further improving Austria’s competitiveness include a productivity‑oriented wage policy, an industrial policy that aims at technological upgrading, support for European policy measures that speed up income convergence across the continent as well as additional measures to internationalise Austrian businesses with a focus on the booming emerging markets in India and Africa.
    Keywords: competitiveness, lock-in effect, total factor productivity, value added trade, real exchange rate, Eastern Europe, Austria
    JEL: D24 F14 F41 E64
    Date: 2018–10
  70. By: Corlia Van Heerden (University of Pretoria, South Africa)
    Abstract: In response to the lessons learnt from the 2008 Global Financial Crisis, South Africa has recently moved from a model of silo sectoral financial regulation to a Twin Peaks model captured in the new Financial Sector Regulation Act 9 of 2017. Notably South Africa is the first emerging market from the African continent to adopt such a refined regulatory model which is a sui generis adaptation of the model originally introduced by Michael Taylor.The South African model in fact has three peaks comprising of the central bank that is tasked with the promotion and maintenance of financial stability and the newly established Prudential Authority (tasked with systemwide prudential regulation) as well as the newly established Financial Sector Conduct Authority (tasked to oversee market conduct on a systemwide basis). It is submitted that it may be instructive from an international perspective to consider the carefully designed legal framework for the execution of the central bank's financial stability mandate that includes emergency powers to deal with systemic events and also the power to designate SIFIs. It would also be instructive to consider the objectives and functions of the Prudential Authority and Financial Sector Conduct Authority and how the legislative framework facilitates their contribution to financial stability and inter-agency cooperation.
    Keywords: Twin Peaks; central bank; financial stability
    JEL: E58
    Date: 2018–07
  71. By: Giorgos Galanis (University of London); Roberto Veneziani (Queen Mary University of London); Naoki Yoshihara (School of Economics and Management, Kochi University of Technology)
    Abstract: This paper analyses the relation between growth, inequalities, and exploitation as the unequal exchange of labour (UE exploitation). An economy with heterogeneous, intertemporally optimising agents is considered which generalises John Roemer's [52, 53] seminal models. First, a correspondence between pro ts and the existence (and intensity) of UE exploitation is proved in the dynamic context. This result is important, positively, because the pro t rate is one of the key determinants of investment decisions, and, normatively, because it provides a link between UE exploitation and the functional distribution of income. Second, it is shown that asset inequalities are fundamental for the emergence of UE exploitation, but they are not sufficient for its persistence, both in equilibria with accumulation and growth, and, perhaps more surprisingly, in stationary intertemporal equilibrium paths. Labour-saving technical progress, however, may yield sustained growth with persistent UE exploitation by keeping labour abundant relative to capital. Persistent inequalities in income and labour exchanged arise from the interaction between labour market conditions and differential ownership of productive assets.
    Keywords: Dynamics, accumulation, exploitation, inequalities
    JEL: D51 D63 C61 E11
    Date: 2018–10
  72. By: Serge Rey (CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour)
    Abstract: Pour la période 1970-2010, on examine la situation macroéconomique et financière des PSEM, et on la compare notamment avec celle des pays de l'UE. Dans l'ensemble les performances macroéconomiques des PSEM paraissent plutôt bonnes. L'inflation est maîtrisée, la croissance économique est au rendez-vous, même si elle est en deçà de celle des grands pays émergents, les déficits publics et les dettes sont contenus. De ce point de vue, le bilan économique est positif et on ne saurait y trouver les racines des troubles politiques récents. Néanmoins, si on y regarde de plus près un indicateur économique pose problème, c'est le chômage. Ces pays ont en commun une population jeune, et souvent éduquée, qui peine à trouver un emploi. Avec des taux de chômage des jeunes autour de 20%, voire 30% pour la Tunisie et 40% pour l'Algérie, les "bons chiffres" de l'inflation et des finances publiques ne pourront faire longtemps illusion.
    Keywords: PSEM,macroéconomie,chômage,inflation,finances publiques
    Date: 2018–09–24
  73. By: Székely, István P. (European Commission); Ward-Warmedinger, Melanie E. (European Central Bank)
    Abstract: The rapid journey from central planning to EU (euro area) membership stress-tested the social learning processes of the Former Transition Economies (FTEs). The desire for a higher standard of living, to be anchored to the West, and to enter the EU, spurred major reform waves and led to the very rapid introduction of best-practice institutions. Although social learning accompanied this process, in many FTEs it was not fast enough to keep pace with the rapid reforms, leaving best-practice institutions with social norms that were not sufficiently strong to maintain them. As a result, wide-spread reform reversals emerged in the region. Such reform reversals appeared as formal reversals, which changed legislation (or formal rules), and behavioral reversals, which eroded the quality of an institution by materially changing the way it worked. It was frequently the interaction of reversals in different sectors that created a full-blown reform reversal episode, with the financial sector particularly prone to behavioral reversals, both in public and private institutions. External anchors such as the Washington institutions played a dominant role in shaping the transition process. Along with the EU accession process, the EU acted as a strong anchor that could prevent or reverse formal reform reversals in areas covered by EU law, but could play a much weaker role in the case of behavioral reversals. Our analysis naturally leads to the conclusion that the ultimate solution to prevent reform reversals is to accelerate social learning processes that strengthen the national ownership of reforms. It is also important to focus on the quality and internal coherence of reforms and newly created institutions.
    Keywords: reform reversals, social norms, institution building, European Union, transition economies
    JEL: E6 H5 G2 J48 O5 P2
    Date: 2018–10
  74. By: Beliz, Gustavo; Basco, Ana Inés; de Azevedo, Belisario
    Abstract: In this paper the authors propose that G20 countries endorse and facilitate the creation of a T20 digital platform for "Accelerating the Jobs of the Future". In a world driven by a new wave of technological change, the platform would revalue the role of think tanks, research institutions and knowledge hubs to move the global agenda in an issue of central importance for the future of society: the creation of the jobs of the future. Building on and complementing existing experiences, the T20 platform would be a digital hub for producing knowledge, informing policies and connecting potential partners to accelerate the jobs of the future, within the context of an increasing integrated global economy. It would also contribute to the development of consensual views among the research community, allowing to discard extreme visions about the jobs of the future, dispelling both overly optimistic visions with no evidence base and unwarranted fears.
    Keywords: employment,future,digitalization,technology,industry 4.0,artificial intelligence,skills,inequality,gender gap,G20
    JEL: J01 E24 O30
    Date: 2018
  75. By: António Afonso; Mina Kazemi
    Abstract: We study the sovereign bond market co-movements and spillovers within 10 EMU countries, the so-called "periphery" and "core" countries, during the period 1999:01 to 2016:07. Implementing Generalized Methods for Moments (GMM) within a panel setting and bivariate VAR analysis, we find that an increase in the lagged spreads of Italian and Austrian bonds negatively affect the spreads of the whole sample while in the increase in the Irish, Portuguese, Belgian and French lagged yields increased the overall spreads. In the VAR analysis we find that spillover effects within the sample are mostly positive.
    Keywords: sovereign yields spreads, spillovers, euro area, panel data
    JEL: C23 E52 G10
    Date: 2018–10

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