nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒11‒05
104 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The predictive relationship between exchange rate expectations and base metal prices By Pincheira, Pablo; Hardy, Nicolas
  2. Fiscal Policy and Inflation: Understanding the Role of Expectations in Mexico By López-Martín Bernabé; Ramírez de Aguilar Alberto; Sámano Daniel
  3. Predetermined interest rates in an analytical RBC model By Patrick Fève; Alban Moura; Olivier Pierrard
  4. Understanding Why Fiscal Stimulus Can Fail through the Lens of the Survey of Professional Forecasters By Kim, Hyeongwoo; Zhang, Shuwei
  5. Macroeconomic Effects of Financial Uncertainty By Dlugoszek, Grzegorz
  6. Central Bank Independence in New Zealand: Public Knowledge About and Attitude Towards the Policy Target Agreement By Bernd Hayo; Florian Neumeier
  7. The Federal Reserve Is Not Very Constrained by the Lower Bound on Nominal Interest Rates By Eric T. Swanson
  8. Fixed-Rate Loans and the Effectiveness of Monetary Policy By Sung Ho Park
  9. News Shock Spillovers: How the Euro Area Responds to Expected Fed Policy By Paul Rudel; Peter Tillmann
  10. Monetary Policy and Corporate Debt Structure By Stépahne Lhuissier; Urszula Szczerbowicz
  11. Central Bank Capital as an Instrument of Monetary Policy By Mojmir Hampl; Tomas Havranek
  12. When creativity strikes: news shocks and business cycle fluctuations By Miranda-Agrippino, Silvia; Hacıoglu Hoke, Sinem
  13. Factor augmented VAR revisited - A sparse dynamic factor model approach By Kaufmann, Sylvia; Beyeler, Simon
  14. Delphic and Odyssean Monetary Policy Shocks: Evidence from the Euro Area By Andrade, Philippe; Ferroni, Filippo
  15. The power of forward guidance and the fiscal theory of the price level By McClung, Nigel
  16. Disentangling the Information and Forward Guidance Effect of Monetary Policy Announcements on the Economy By Other, Lars
  17. Deciphering Monetary Policy Committee Minutes with Text Mining Approach: A Case of South Korea By Youngjoon Lee; Soohyon Kim; Ki Young Park
  18. Transmission of monetary policy with heterogeneity in household portfolios By Luetticke, Ralph
  19. Exploring the implications of di erent loan-to-value macroprudential policy designs By Rita Basto; Sandra Gomes; Diana Lima
  20. How does monetary policy affect income and wealth inequality? Evidence from quantitative easing in the euro area By Lenza, Michele; Slacalek, Jiri
  21. New Facts about Firms' Inflation Expectations: Simple Tests for a Sticky Information Model By Yosuke Uno; Saori Naganuma; Naoko Hara
  22. Central bank swap lines By Bahaj, Saleem; Reis, Ricardo
  23. The limits to robust monetary policy in a small open economy with learning agents By Marine Charlotte André; Meixing Dai
  24. New Facts about Firms' Inflation Expectations: Short- versus Long-Term Inflation Expectations By Yosuke Uno; Saori Naganuma; Naoko Hara
  25. A Monetary Model of Blockchain By Almosova, Anna
  26. Redistribution and Fiscal Uncertainty Shocks By Hikaru Saijo
  27. State dependence in labor market fluctuations: evidence, theory, and policy implications By Pizzinelli, Carlo; Theodoridis, Konstantinos; Zanetti, Francesco
  28. Monetary policy shocks, expectations and information rigidities By Czudaj, Robert; Beckmann, Joscha
  29. The Bank Lending Survey By Eva Hromadkova; Oldrich Koza; Petr Polak; Nikol Polakova
  30. Regime Changes in the Relationship between Stock Market Return and the Growth Rates of Output and Money Supply in Thailand By Jiranyakul, Komain
  31. Fiscal stimulus with learning-by-doing By d’Alessandro, Antonello; Fella, Giulio; Melosi, Leonardo
  32. Unemployment and Development By Ying Feng; David Lagakos; James E. Rauch
  33. La inconsistencia temporal y la inflación: evidencias empíricas para la economía colombiana By Juan Camilo Galvis Ciro
  34. Business Cycle Synchronisation in a Currency Union: Taking Stock of the Evidence By Fidrmuc, Jarko; Campos, Nauro F.; Korhonen, Iikka
  35. Differential effects of unconventional monetary policy on syndicated loan contracts By Takaoka, Sumiko; Takahashi, Koji
  36. The Ins and Outs of Involuntary Part-Time Employment By Borowczyk-Martins, Daniel; Lalé, Etienne
  37. Effect of Aging on Housing Prices: A Perspective from an Overlapping Generation Model By Sun, Tianyu; Chand, Satish; Sharpe, Keiran
  38. Weather-induced Short-term Fluctuations of Economic Output By Schreiber, Sven
  39. Macroeconomic shocks and risk premia By Pinter, Gabor
  40. Business investment in EU countries By Bańbura, Marta; Albani, Maria; Ambrocio, Gene; Bursian, Dirk; Buss, Ginters; de Winter, Jasper; Gavura, Miroslav; Giordano, Claire; Júlio, Paulo; Le Roux, Julien; Lozej, Matija; Malthe-Thagaard, Sune; Maria, José R.; Martínez Carrascal, Carmen; Meinen, Philipp; Michail, Nektarios; Papageorgiou, Dimitris; Pool, Sebastian; Ravnik, Rafael; San Juan del Peso, Lucio; Tóth, Máté; Zevi, Giordano
  41. More Amazon Effects: Online Competition and Pricing Behaviors By Alberto Cavallo
  42. David Kynaston's till time's last sand: a history of the Bank of England, 1694-2013: a review essay By Bean, Charles R.
  43. Global Trends in Interest Rates By Del Negro, Marco; Giannone, Domenico; Giannoni, Marc; Tambalotti, Andrea
  44. E-money: Legal Restrictions Theory and Monetary Policy By Ohik Kwon; Jaevin Park
  45. Speculative Eurozone Attacks and Departure Strategies By Homburg, Stefan
  46. Identifying Asymmetric Effects of Labor Market Reforms By Weber, Enzo; Gehrke, Britta
  47. Alternative Methods for Interpolating PPPs By Diewert, Erwin
  48. Exchange Rate Pass-Through to Consumer Prices and the Role of Energy Prices By Kim, Hyeongwoo; Lin, Ying
  49. Central bank digital currencies: An assessment of their adoption in Latin America By Noelia Camara; Enestor Dos Santos; Francisco Grippa; Javier Sebastian; Fernando Soto; Cristina Varela
  50. Forecasting Financial Vulnerability in the US: A Factor Model Approach By Hyeongwoo Kim; Wen Shi
  51. Intergenerational transfers: How do they shape the German wealth distribution? By von Werder, Marten
  52. Forecasting Financial Stress Indices in Korea: A Factor Model Approach By Hyeongwoo Kim; Wen Shi; Hyun Hak Kim
  53. Nonlinear household earnings dynamics, self-insurance, and welfare By De Nardi, Mariacristina; Fella, Giulio; Paz-Pardo, Gonzalo
  54. Optimal inflation and the identification of the Phillips Curve By McLeay, Michael; Tenreyro, Silvana
  55. Wage Floor Rigidity in Industry-Level Agreements: Evidence from France By Fougère, Denis; Gautier, Erwan; Roux, Sébastien
  57. New Evidence on Procyclical Bank Capital Regulation: The Role of Bank Loan Commitments By Ki Young Park
  58. Unemployment Insurance and Labour Productivity over the Business Cycle By W. Similan Rujiwattanapong
  59. A Path Integral Approach to Business Cycle Models with Large Number of Agents By Gosselin, Pierre; Lotz, Aïleen; Wambst, Marc
  60. The pricing of FX forward contracts: Micro evidence from banks' dollar hedging By Abbassi, Puriya; Bräuning, Falk
  61. Overcoming Wealth Inequality by Capital Taxes that Finance Public Investment By Linus Mattauch; David Klenert; Joseph E. Stiglitz; Ottmar Edenhofer
  62. Vacancy Durations and Entry Wages: Evidence from Linked Vacancy-Employer-Employee Data By Andreas Kettemann; Andreas I. Mueller; Josef Zweimüller
  63. Of gold and paper money By Chadha, Jagjit S.
  64. The importance of two-sided heterogeneity for the cyclicality of labour market dynamics By Bachmann, Ronald; Bechara, Peggy
  65. Improving Forecast Accuracy of Financial Vulnerability: PLS Factor Model Approach By Kim, Hyeongwoo; Ko, Kyunghwan
  66. Ciclo y composición del cambio en los salarios: una aproximación a la estructura salarial de Colombia By Francisco Lasso-Valderrama; Laura Rodríguez-Quintero
  67. Which Ladder to Climb? Wages of Workers by Job, Plant, and Education By Bayer, Christian; Kuhn, Moritz
  68. Investigating Properties of Commodity Price Responses to Real and Nominal Shocks By Kim, Hyeongwoo; Zhang, Yunxiao
  69. Agnostic structural disturbances (ASDs): detecting and reducing misspecification in empirical macroeconomic models By Den Haan, Wouter J.; Drechsel, Thomas
  70. Consumption response to aggregate shocks and the role of leverage By Kovacs, Agnes; Rostom, May; Bunn, Philip
  71. The Volatility and Cyclicality of Job Flows in German Exporters and Non-Exporters By Lindenthal, Volker
  72. Geography of Skills and Global Inequality By Burzynski, Michal; Deuster, Christoph; Docquier, Frédéric
  73. The Economic Consequences of Migration: An Input-Output Approach By Joao Lopes
  74. Lack of International Risk Management in BREXIT? By Paul J.J. Welfens
  75. Dollarization and the “Unbundling” of Globalization in sub-Saharan Africa By Ajide, Kazeem; Raheem, Ibrahim; Asongu, Simplice
  76. Cross-Border Bank Flows through Foreign Branches: Evidence from Korea By Youngjin Yun
  77. Post-FOMC Announcement Drift in U.S. Bond Markets By Jordan Brooks; Michael Katz; Hanno Lustig
  78. Mental Health before, during and in the aftermath of the Great Recession in Canada By Ehsan Latif
  79. Scanner Data, Elementary Price Indexes and the Chain Drift Problem By Diewert, Erwin
  80. Erratum To “What Drives Health Care Expenditure?—Baumol’s Model of ‘Unbalanced Growth’ Revisited” [J. Health Econ. 27 (2008) 603–623] By Akinwande Atanda; W. Robert Reed
  82. Wages, income distribution and economic growth in Scandinavia By Eric Bengtsson; Engelbert Stockhammer
  83. Dissecting long-term Bund yields in the run-up to the ECB's Public Sector Purchase Programme By Lemke, Wolfgang; Werner, Thomas
  84. A Real-Business-Cycle model with endogenous discounting and a government sector By Vasilev, Aleksandar
  85. Sharing Economy: Dynamic General Equilibrium Effects By Nalbach, Eva
  86. Under Threat: Rules-Based Fiscal Policy and How to Preserve It By Debrun, Xavier; Jonung, Lars
  87. How shifting investment towards low-carbon sectors impacts employment: three determinants under scrutiny By Quentin Perrier; Philippe Quirion
  88. Ctrl+C Ctrl+pay: Do people mirror payment behaviour of their peers? By Carin van der Cruijsen; Joris Knoben
  89. Regulation and Government Debt By Berggren, Niclas; Bjørnskov, Christian
  90. Corruption vs reforms: Why do voters prefer the former? By Fedotenkov, Igor
  91. The Shale Oil Boom and the U.S. Economy: Spillovers and Time-Varying Effects By Hilde C. Bjørnland; Julia Zhulanova
  92. Well-being Effects of Self-employment: A Spatial Inquiry By Abreu, Maria; Öner, Özge; Brouwer, Aleid; van Leeuwen, Eveline
  93. The Effects of Export Diversification on Macroeconomic Stabilization : Evidence from Korea By Jinsoo Lee; Bok-Keun Yu
  94. Unlucky Cohorts: Estimating the Long-term Effects of Entering the Labor Market in a Recession in Large Cross-sectional Data Sets By Hannes Schwandt; Till M. von Wachter
  95. Fiscal Sustainability in Japan: What to tackle? By Selahattin İMROHOROĞLU; KITAO Sagiri; YAMADA Tomoaki
  96. Informal Employment Dynamics in Paraguay By Pablo Adrian Garlati Bertoldi
  97. Financialization and Endogenous Technological Change: a Post-Kaleckian Perspective By Parui, Pintu
  98. A multi†country analysis of austerity policies in the European Union By Oscar Bajo-Rubio; Antonio G. Gómez-Plana
  99. Beyond Grim: Punishment Norms in the Theory of Cooperation By Gabriele Camera; Alessandro Gioffré
  100. The Real Term Premium in a Stationary Economy with Segmented Asset Markets By Chien, YiLi; Lee, Junsang
  101. What Remains of Cross-Country Convergence? By Johnson, Paul; Papageorgiou, Chris
  102. Assortative Matching or Exclusionary Hiring? The Impact of Firm Policies on Racial Wage Differences in Brazil By François Gerard; Lorenzo Lagos; Edson Severnini; David Card
  103. Determinants of Unemployment: Empirical Evidence from Palestine By Abugamea, Gaber
  104. Evaluation de l'impact du CICE par une méthode By Bruno Ducoudre; Nicolas Yol

  1. By: Pincheira, Pablo; Hardy, Nicolas
    Abstract: In this paper we show that survey-based-expectations about the future evolution of the Chilean exchange rate have the ability to predict the returns of the six primary non-ferrous metals: aluminum, copper, lead, nickel, tin and zinc. Predictability is also found for returns of the London Metal Exchange Index. Previous studies have shown that the Chilean exchange rate has the ability to predict copper returns, a world commodity index and base metal prices. Nevertheless, our results indicate that expectations about the Chilean peso have stronger predictive ability relative to the Chilean currency. This is shown both in-sample and out-of-sample. By focusing on expectations of a commodity currency, and not on the currency itself, our paper provides indirect but new and strong evidence of the ability that commodity currencies have to forecast commodity prices. Our results are also consistent with the present-value-model for exchange rate determination.
    Keywords: Forecasting; commodities; univariate time-series models; out-of-sample comparison; exchange rates; copper; base metals
    JEL: C1 C10 C2 C22 C3 C32 C49 C52 C53 C58 E0 E31 E32 E37 E4 E42 E44 E47 F31 F32 F37 F4 F44 F47 M21 Q3 Q31 Q37
    Date: 2018–10–09
  2. By: López-Martín Bernabé; Ramírez de Aguilar Alberto; Sámano Daniel
    Abstract: This paper estimates a hidden Markov model where inflation is determined by government deficits financed through money creation and by expectations dynamics. The baseline model, proposed by Sargent et al. (2009) is able to distinguish between causes and remedies of hyperinflation, such as persistent or transitory shocks to fiscal deficits, and the de-anchoring of inflation expectations. The estimated sequence of monetized deficits provides an adequate account of inflation for the period 196994. The paper then extends the model to analyze the possibility that fiscal policy can affect inflation expectations in a context of Central Bank independence, as is the case of Mexico after 1994. Evidence is found that the exchange rate and sovereign interest rate spreads influence the evolution of inflation.
    Keywords: Inflation;Inflation Expectations;Fiscal Deficit
    JEL: E31 E42 E52 E63
    Date: 2018–10
  3. By: Patrick Fève; Alban Moura; Olivier Pierrard
    Abstract: We solve a version of the analytical Real Business Cycle (RBC) model with a predetermined rate of return on household saving. The solution differs from that of the benchmark RBC model along two dimensions: (i) Policy functions depend on the variance of the technology shock. (ii) There is a suboptimal pattern of excess saving. We discuss the economic intuition underlying these properties. We also demonstrate that unconditional welfare can be higher in the suboptimal model with predetermined interest rates, providing a clear illustration of the pitfall with unconditional welfare comparisons.
    Keywords: RBC model, predetermined interest rates, over-saving, conditional and unconditional welfare.
    JEL: E13 E21 E32 E43
    Date: 2018–09
  4. By: Kim, Hyeongwoo; Zhang, Shuwei
    Abstract: This paper shows that fiscal policy in the U.S. has become ineffective due to lack of coordination between monetary and fiscal policy. We present a New Keynesian model that generates strong output effects of government spending shocks only when monetary policy coordinates well with fiscal policy. Employing the post-war U.S. data, we report strong stimulus effects of fiscal policy during the pre-Volcker era, which rapidly dissipate when we shift the sample period to the post-Volcker era. Finding a negligible role of the real interest rate in the propagation of government spending shocks, we propose an alternative explanation using a consumer sentiment channel. Employing the Survey of Professional Forecasters data, we show that forecasters tend to systematically over-estimate real GDP growth in response to positive innovations in government spending when policies coordinate well with each other. On the other hand, they are likely to formulate pessimistic forecasts when the monetary authority maintains a hawkish stance that conflicts with the fiscal stimulus. The fiscal stimulus, under such circumstances, may generate consumer pessimism, which decreases private spending and ultimately weakens the output effects of fiscal policy. We also provide statistical evidence that confirms an important role of the sentiment channel under different regimes of policy coordination.
    Keywords: Fiscal Policy; Time-varying Effectiveness; Policy Coordination; Consumer Sentiment; Survey of Professional Forecasters
    JEL: E32 E61 E62
    Date: 2018–10
  5. By: Dlugoszek, Grzegorz
    Abstract: This paper investigates the macroeconomic effects of uncertainty originating in the financial sector. My contribution is twofold. First, I document empirical relevenace of financial uncertainty using SVAR methods. Then, I employ the DSGE framework developed by Gertler and Karadi (2011) to uncover the underlying transmission mechanism. The model generates macroeconomic dynamics that are consistent with the SVAR evidence. In particular, an increase in financial uncertainty raises the risk premium and leads to a decline in output, consumption, investment and hours worked. This outcome arises mainly because of an endogenous tightening of the financial constraint, which in turn triggers the financial accelerator mechanism. Finally, internal habit formation and nominal rigidities act as additional amplification mechanisms for financial uncertainty shocks.
    Keywords: Stochastic Volatility,Financial Frictions,Financial Uncertainty
    JEL: E32 E44 E32 E44 E21
    Date: 2018
  6. By: Bernd Hayo; Florian Neumeier
    Abstract: Employing unique representative survey data from New Zealand collected in 2016, we study public knowledge about and attitude towards a specific monetary policy institution, the Policy Target Agreement (PTA). The PTA contains the inflation target for the Reserve Bank of New Zealand (RBNZ). First, we assess how much the population knows about the PTA, finding the level of knowledge to be low. Second, we ask whether our respondents support a clause in the PTA that allows the government to over-ride the RBNZ if it deems it necessary. We interpret responses to that question as attitudes towards central bank independence (CBI). The population does not appear to have a clear view on whether or not to expand CBI, as roughly one third supports the overriding clause in the PTA, one third is against it, and one third is unsure. Using logit regression, we study which characteristics make people favour more CBI. Subjective and objective knowledge about the RBNZ and monetary policy increases support for CBI, whereas voting for a national-oriented party and trusting the government reduces it. Policy implications are derived from our findings.
    Keywords: Central bank independence, public attitude, policy target agreement, economic literacy, New Zealand, monetary policy, household survey
    JEL: E42 E52 E58
    Date: 2018
  7. By: Eric T. Swanson
    Abstract: I survey the literature on monetary policy at the zero lower bound (ZLB) and effective lower bound (ELB) to make three main points: First, the Federal Reserve’s forward guidance and large-scale asset purchases are effective monetary policy tools at the Z/ELB. Second, during the 2008–15 U.S. ZLB period, the Fed was not very constrained in its ability to influence medium- and longer-term interest rates and the economy. Third, the risks of the Fed being significantly constrained by the ELB in the future are typically greatly overstated. I conclude that the Federal Reserve is not very constrained by the lower bound on nominal interest rates.
    JEL: E43 E52 E58
    Date: 2018–10
  8. By: Sung Ho Park (Economic Research Institute, The Bank of Korea)
    Abstract: Fixed-rate loans may contribute to financial stability because they lower the volatility of interest rates. This reduced volatility of interest rates, however, may undermine the effectiveness of monetary policy. Fixed-rate loans, also, may change the steady-states of economy because fixed interest rates are usually higher than variable interest rates, which can alter incentives of borrowers for loans. This paper tests how fixed-rate loans affect the steady-states of economy and the effectiveness of monetary policy, using the DSGE model. The steady-states in the economy are shown to vary in the ratio of fixed-rate loans. When the ratio of fixed-rate loans rises, borrowers bear more burden of interests because fixed interest rates are higher than variable interest rates. Therefore, borrowers reduce their loans, which lead into decreased weight of financial sector in the economy. Total output, however, remains almost unchanged regardless of the ratio of fixed-rate loans because households increase labor supply to compensate for their financial losses. The similar phenomenon happens when the mark-up of fixed interest rates over variable interest rates increases. Effects of fixed-rate loans on monetary policy turn out to be different in financial economy and real economy. Financial economy variables, such as interest rates and loans, respond differently to monetary policy shocks when the ratio of fixed-rate loans increases. These differences, however, are offset by each other within financial economy and not transmitted to real economy. That is, real economy variables, such as output, consumption, and price, react virtually the same to monetary policy shocks regardless of the ratio of fixed-rate loans. The same results occur when I vary the mark-up of fixed interest rates or the stickiness of fixed interest rates.
    Keywords: Fixed-rate loans, Monetary policy, DSGE model, Financial stability, Interest rate stickiness
    JEL: E43 E44 E52 E58
    Date: 2018–07–26
  9. By: Paul Rudel (Justus-Liebig-University Giessen); Peter Tillmann (Justus-Liebig-University Giessen)
    Abstract: Monetary policy increasingly relies on steering market expectations about future policy. This paper identifies a monetary policy news shock based on a VAR model. A monetary news shock is equivalent to new information about the Fed's future monetary policy becoming available today. One example of a monetary news shock is a Forward Guidance announcement, where the Fed unveils its prospectively (binding) monetary policy, today. In this paper, we study the spillover effects of news shocks. We estimate the response of the euro area to an expected future policy tightening of the Fed. The U.S. news shock improves sentiment and business cycle expectations in the euro area, which is consistent with the notion of the Fed revealing favorable news by a tightening announcement. We also distinguish the news shock from a conventional U.S. policy surprise and find that they lead to diverging responses in the euro area.
    Keywords: News shock, spillovers, forward guidance, monetary policy, interest rates, expectations
    JEL: E43 E58 F42
    Date: 2018
  10. By: Stépahne Lhuissier; Urszula Szczerbowicz
    Abstract: This paper evaluates and compares the effects of conventional and unconventional monetary policies on the corporate debt structure in the United States. It does so by using a vector autoregression in which policy shocks are identified through high-frequency external instruments. Our results show that conventional and unconventional expansionary monetary policies have similar positive effects on aggregate activity, but their impact on corporate debt structure goes in opposite directions: (i) conventional monetary easing increases loans to non-financial corporations and reduces corporate bond financing; (ii) unconventional monetary easing increases bond finance without affecting the loans.
    Keywords: Conventional and unconventional monetary policy, Vector autoregression, External instruments, Corporate debt structure, Bank lending, Bond issuance.
    JEL: E43 E44 E52
    Date: 2018
  11. By: Mojmir Hampl (Czech National Bank, Na prikope 28, 115 03 Prague 1, Czech Republic); Tomas Havranek (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na prikope 28, 115 03 Prague 1, Czech Republic)
    Abstract: We examine the use of central bank capital as an unconventional monetary policy tool. In this setting, a central bank employs digital currency to transfer digital cash to each household, thus supporting consumption directly when needed. The asset side of the central bank’s balance sheet remains unchanged, and the creation of new digital cash is offset by a decrease in central bank capital. The central bank thus incurs an immediate loss but does not take on any additional risks for its future income statements. We address several objections to this policy, paying particular attention to the claim that weakening the financial strength of the central bank endangers long-term price stability. Through a meta-analysis of 176 estimates reported previously in the literature, we find that central bank financial strength has not historically correlated with inflation performance.
    Keywords: Central bank capital, inflation, seigniorage, monetary policy, helicopter money, central bank digital currency
    JEL: E42 E52 E58
    Date: 2018–10
  12. By: Miranda-Agrippino, Silvia; Hacıoglu Hoke, Sinem
    Abstract: We use monthly US utility patent applications to construct an external instrument for identification of technology news shocks in a rich-information VAR. Technology diffuses slowly, and affects total factor productivity in an S-shaped pattern. Responsible for about a tenth of economic fluctuations at business cycle frequencies, the shock elicits a slow, but large and positive response of quantities, and a sluggish contraction in prices, followed by an endogenous easing in the monetary stance. The ensuing economic expansion substantially anticipates any material increase in TFP. Technology news are strongly priced-in in the stock market on impact, but measures of consumers’ expectations take sensibly longer to adjust, consistent with a New-Keynesian framework with nominal rigidities, and featuring informationally constrained agents.
    Keywords: technology news shocks; business cycle; identification with external instruments; patents applications.
    JEL: E22 E23 E32 O33 O34
    Date: 2018–08
  13. By: Kaufmann, Sylvia; Beyeler, Simon
    Abstract: We combine the factor augmented VAR framework with recently developed estimation and identification procedures for sparse dynamic factor models. Working with a sparse hierarchical prior distribution allows us to discriminate between zero and non-zero factor loadings. The non-zero loadings identify the unobserved factors and provide a meaningful economic interpretation for them. Applying our methodology to US macroeconomic data reveals indeed a high degree of sparsity in the data. We use the estimated FAVAR to study the effect of a monetary policy shock and a shock to the term premium. Factors and specific variables show sensible responses to the identified shocks.
    Keywords: Bayesian FAVAR,sparsity,factor identification
    JEL: C32 E32 E43 E52
    Date: 2018
  14. By: Andrade, Philippe (Banque de France); Ferroni, Filippo (Federal Reserve Bank of Chicago)
    Abstract: We use financial intraday data to identify monetary policy surprises in the euro area. We find that monetary policy statements and press conferences after European Central Bank (ECB) Governing Council meetings convey information that moves the yield curve far out. Moreover, the nature of the information revealed in a narrow window around these statements and press conferences evolved over time. Until 2013, unexpected variations in future interest rates were positively correlated with the changes in market-based measure of inflation expectations consistent with news on future macroeconomic conditions. That negative correlation disappeared roughly when forward guidance on future rates started to be given by the Governing Council. We use conditions on the joint reaction of expected interest rates and inflation rates to disentangle the two types of monetary policy shocks (i.e. the Delphic and Odyssean monetary policy surprise). A surprise that lowers future interest rates does not engineer a boom. A surprise that lowers future interest rates because it signals future accommodation does.
    Keywords: monetary policy; signaling; forward guidance; high frequency data; VAR with instrumented proxy; euro area
    JEL: C10 E32 E52
    Date: 2018–07–26
  15. By: McClung, Nigel
    Abstract: Standard New Keynesian models predict implausibly large and favorable responses of inflation and output to expansionary forward guidance on interest rates. We find that the introduction of permanent or recurring active fiscal policy dampens the response of output and inflation to forward guidance in the New Keynesian model. Moreover, the presence of regime-switching policy introduces expectation e ects that cause forward guidance to be less stimulative in our regime-switching model's active money, passive fiscal policy regime. Finally, the introduction of long-term debt a ects the magnitude of the stimulus resulting from forward guidance in models with active fiscal policy.
    JEL: E63 D84 E50 E52 E58 E60
    Date: 2018–10–29
  16. By: Other, Lars
    Abstract: When monetary policy announcements not only induce market participants to update their expectations about the future path of monetary policy but also about economic prospects, the identification of exogenous monetary policy shocks becomes challenging. Taking into account an information effect regarding economic prospects, this paper presents a novel strategy to decompose the information content of central bank announcements. Based on a formally derived prediction of the standard New Keynesian model, the identifying assumption reads that the information effect should be correlated with movements in 5-Year, 5-Year breakeven inflation rates on announcement days. Separating distinct dimensions of monetary policy with a clear structural interpretation, the effects of monetary policy announcements on the macroeconomy are investigated using a vector autoregression identified with external instruments. My results highlight the effectiveness of forward guidance in influencing output.
    Keywords: Monetary Policy Shocks,High-Frequency Identification,Forward Guidance,Central Bank Information,Proxy VAR
    JEL: E44 E52 E58
    Date: 2018
  17. By: Youngjoon Lee (Yonsei University); Soohyon Kim (Bank of Korea); Ki Young Park (Yonsei University)
    Abstract: We quantify the Monetary Policy Committee (MPC) minutes of the Bank of Korea (BOK) using text mining approach. We propose a novel approach using a field-specific Korean dictionary and contiguous sequence of words (n-grams) to better capture the subtlety of central bank communication. We find that our lexicon-based indicators help explain the current and future BOK monetary policy decisions when considering an augmented Taylor rule, suggesting that they contain additional information beyond the currently available macroeconomic variables. Our indicators remarkably outper- form English-based textual classifications, a media-based measure of economic policy uncertainty, and a data-based measure of macroeconomic uncertainty. Our empirical re- sults also emphasize the importance of using a field-specific dictionary and the original Korean text.
    Keywords: monetary policy; text mining; central banking; Bank of Korea; Taylor rule
    JEL: E43 E52 E58
    Date: 2018–10
  18. By: Luetticke, Ralph
    Abstract: Monetary policy affects both intertemporal consumption choices and portfolio choices between liquid and illiquid assets. The monetary transmission, in turn, depends on the distribution of marginal propensities to consume and invest. This paper assesses the importance of heterogeneity in these propensities for the transmission of monetary policy in a New Keynesian business cycle model with uninsurable income risk and assets with different degrees of liquidity. Liquidity-constrained households have high propensities to consume but low propensities to invest, which makes consumption more and investment less responsive to monetary shocks compared to complete markets. Redistribution through earnings heterogeneity and the Fisher channel from unexpected inflation further amplifies the consumption response but dampens the investment response.
    Keywords: monetary policy; heterogeneous agents; general equilibrium
    JEL: E21 E32 E52
    Date: 2018–06–21
  19. By: Rita Basto (Banco de Portugal); Sandra Gomes (Banco de Portugal); Diana Lima (Banco de Portugal)
    Abstract: This paper evaluates the macroeconomic effects of macroprudential policy measures consisting of changes in loan-to-value ratios in the euro area. The analysis is carried out within a fully structural, multi-country model, that prominently includes nancial frictions and a banking sector. Our main findings suggest that a permanent LTV tightening in a small euro area economy leads to a long-run decline in lending to the private sector. The short-run impact depends crucially on the policy design, being less pronounced when the measure is phased-in. This is consistent with policy goals of curbing credit growth but avoiding an abrupt immediate contraction in lending. A policy measure introduced at the euro area level implies larger long-run e ects but the short-run recessionary impact is attenuated by the monetary policy response.
    Keywords: Macroprudential policy; loan-to-value ratio; financial frictions
    JEL: E58 E61 F42
    Date: 2018–10
  20. By: Lenza, Michele; Slacalek, Jiri
    Abstract: This paper studies the effects of quantitative easing on income and wealth of individual euro area households. The aggregate effects of quantitative easing are estimated in a multi-country VAR model of the four largest euro area countries, in which key variables affecting household income and wealth are included, such as the unemployment rate, wages, interest rates, house prices and stock prices. The aggregate effects are distributed across the individual households by means of a reduced-form simulation on micro data from the Household Finance and Consumption Survey, capturing the income composition, the portfolio composition and the earnings heterogeneity channels of transmission. We find that the earnings heterogeneity channel plays a key role: quantitative easing compresses the income distribution since many households with lower incomes become employed. In contrast, monetary policy has only negligible effects on wealth inequality. JEL Classification: D14, D31, E44, E52, E58
    Keywords: Great Recession, household heterogeneity, income, inequality, monetary policy, quantitative easing, wealth
    Date: 2018–10
  21. By: Yosuke Uno (Bank of Japan); Saori Naganuma (Bank of Japan); Naoko Hara (Bank of Japan)
    Abstract: In this paper, we use a large dataset based on firm-level micro-data from the Tankan survey to examine firms' inflation expectations. We first present two basic findings: (i) firms' inflation expectations are downwardly rigid at zero, and (ii) differences in firms' inflation expectations are larger across firm sizes than across sectors. We then report three findings which are in line with predictions of the simple sticky information model proposed by Mankiw and Reis (2002). First, in each period, a number of firms do not revise their expectations. Second, the frequency of forecast revisions is constant over time. Third, our estimates of the frequency of forecast revisions based on the Tankan survey are much smaller than those in previous studies and are much closer to the value that Mankiw and Reis (2002) assumed in their simulation exercises.
    Keywords: inflation expectations; frequency of forecast revisions; sticky information model
    JEL: E31 E37
    Date: 2018–10–29
  22. By: Bahaj, Saleem; Reis, Ricardo
    Abstract: Swap lines between advanced-economy central banks are a new important part of the global financial architecture. This paper analyses their monetary policy effects from three perspectives. First, from the perspective of the central banks, it shows that the swap line mimics discount-window credit from the source central bank to the recipient-country banks using the recipient central bank as the bearer of the credit risk. Second, from the perspective of the transmission of monetary policy, it shows that the swap-line rate puts a ceiling on deviations from covered interest parity, and finds evidence for it in the data. Third, from the perspective of the macroeconomic effects of policy, it shows that the swap line ex ante encourages inflows from recipient-country banks into assets denominated in the source-country’s currency by reducing the ex post funding risk. We find support for these predictions using difference-in-difference empirical strategies that exploit the fact that only some currencies saw changes in the terms of their dollar swap line, only some bonds in banks’ investments are exposed to dollar funding risk, only some dollar bonds are significantly traded by foreign banks, and only some banks have a significant U.S. presence.
    Keywords: liquidity facilities; currency basis; bond portfolio flows
    JEL: E44 F33 G15
    Date: 2018–06
  23. By: Marine Charlotte André; Meixing Dai
    Abstract: We study in a small open economy New Keynesian model the consequences of adaptive learning for the design of optimal robust monetary policy. Compared to the rational expectations equilibrium, we find that the possiblity to conduct robust monetary policy is extremely limited in the open economy when private agents are learning. The misspecification that can be introduced into all equations of the model is very small and approaches zero at high speed as the learning gain rises.
    Keywords: Robust control, model uncertainty, adaptive learning, optimal monetary policy, small open economy.
    JEL: C62 D83 D84 E52 E58
    Date: 2018
  24. By: Yosuke Uno (Bank of Japan); Saori Naganuma (Bank of Japan); Naoko Hara (Bank of Japan)
    Abstract: In this paper, using large-scale firm-level micro-data from the Tankan survey we examine firms' inflation expectations at different time horizons. Our principle findings are twofold. First, with regard to long-term expectations, a number of firms offer no forecasts. Second, and more importantly, the frequency of forecast revisions is higher for longer time horizons.
    Keywords: long-term inflation expectations, frequency of forecast revisions
    JEL: E31 E58
    Date: 2018–10–29
  25. By: Almosova, Anna
    Abstract: The recent emergence of blockchain-based cryptocurrencies has received a considerable attention. The growing acceptance of cryptocurrencies has led many to speculate that the blockchain technology can surpass a traditional centralized monetary system. However, no monetary model has yet been developed to study the economics of the blockchain. This paper builds a model of the economy with a single generally acepted blockchain-based currency. In the spirit of the search and matching literature I use a matching function to model the operation of the blockchain. The formulation of the money demand is taken from a workhorse of monetary economics - Lagos and Wright (2005). I show that in a blockchain-based monetary system money demand features a precautionary motive which is absent in the standard Lagos-Wright model. Due to this precautionary money demand the monetary equilibrium can be stable for some calibrations. I also used the developed model to study how the equilibrium return on money is dependent on the blockchain parameters such as mining costs and rewards.
    Keywords: Blockchain,Miners,Cryptocurrency,Matching function
    JEL: E40 E41 E42
    Date: 2018
  26. By: Hikaru Saijo (University of California, Santa Cruz (E-mail:
    Abstract: This paper studies the macroeconomic impact of an uncertainty shock about fiscal policy in a dynamic general equilibrium framework. Motivated by the observation that many fiscal policies are redistributive and that a sizable fraction of U.S. households do not own capital, I introduce household heterogeneity in the form of limited capital market participation. I show that household heterogeneity significantly magnifies the aggregate effect and induces co-movement of macroeconomic variables in a contraction that is generated by a fiscal uncertainty shock. This is because the limited capital market participation model captures individual uncertainty about redistribution that is absent in representative agent models. When agents are ambiguity averse, this uncertainty about redistribution has first-order effects because it shows up as heterogeneous worst-case scenarios. As a result, the model matches the empirical responses of macro variables to fiscal uncertainty shocks better than the representative agent counterpart.
    Keywords: fiscal policy uncertainty, ambiguity, limited stock market participation, redistribution
    JEL: E32 E62
    Date: 2018–10
  27. By: Pizzinelli, Carlo; Theodoridis, Konstantinos; Zanetti, Francesco
    Abstract: This paper documents state dependence in labor market fluctuations. Using a Threshold Vector-Autoregression model, we establish that the unemployment rate, the job separation rate and the job finding rate exhibit a larger response to productivity shocks during periods with low aggregate productivity. A Diamond-Mortensen-Pissarides model with endogenous job separation and on-the-job search replicates these empirical regularities well. The transition rates into and out of employment embed state dependence through the interaction of reservation productivity levels and the distribution of match-specific idiosyncratic productivity. State dependence implies that the effect of labor market reforms is different across phases of the business cycle. A permanent removal of layoff taxes is welfare enhancing in the long run, but it involves distinct short-run costs depending on the initial state of the economy. The welfare gain of a tax removal implemented in a low-productivity state is 4.9 percent larger than the same reform enacted in a state with high aggregate productivity.
    Keywords: search and matching models; state dependence in business cycles; threshold vector autoregression.
    JEL: C11 E24 E32 J64
    Date: 2018–08
  28. By: Czudaj, Robert; Beckmann, Joscha
    Abstract: This paper contributes to the literature by assessing expectation effects from monetary policy for the G7 economies. We consider a sample period running from 1995M1 to 2016M6 based on a panel VAR framework, which accounts for international spillovers and time-variation. Relying on a broad set of expectation data from Consensus Economics, we start by analyzing whether monetary policy has changed the degree of information rigidity after the emergence of the subprime crisis. We proceed by estimating potential effects of interest rate changes on expectations, disagreements and forecast errors. We find strong evidence for information rigidities and identify higher forecast errors by professionals after monetary policy shocks. Our results suggest that the international transmission of monetary policy shocks introduces noisy information and partly increases disagreement among forecasters.
    Keywords: Bayesian econometrics,expectations,information rigidity,monetary policy,panel VAR
    JEL: E31 E52
    Date: 2018
  29. By: Eva Hromadkova (Czech National Bank, Na prikope 28, 115 03 Prague 1, Czech Republic; CERGE EI, Politickych veznu 7, 11000 Prague, Czech Republic); Oldrich Koza (Czech National Bank, Na prikope 28, 115 03 Prague 1, Czech Republic); Petr Polak (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Czech National Bank, Na prikope 28, 115 03 Prague 1, Czech Republic); Nikol Polakova (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)
    Abstract: This article describes the bank lending survey that the Czech National Bank has been using since 2012 to gather valuable qualitative information about the bank credit market as a complement to statistical reporting. The article sets out to conduct a quantitative assessment of the survey results and to determine the roles played in new credit developments in 2012–2016 by changes in credit supply and changes in demand for loans as reported by banks in the survey. The results of the analysis indicate that although some of banks’ survey responses are statistically significant in explaining the amounts of new loans reported by banks, the survey’s ability to explain credit growth is currently limited. Growth in new loans for house purchase can be attributed primarily to growth in demand driven by falling interest rates. According to the results, supply and demand factors both played a role in the case of loans to non-financial corporations. For consumer credit and other lending to households, the results of the analysis are ambiguous.
    Keywords: Bank lending survey, bank lending standards, macroprudential policy
    JEL: E44 E62 G01 G21
    Date: 2018–10
  30. By: Jiranyakul, Komain
    Abstract: This paper examines the relationship between stock market return and two main macroeconomic variables (output growth and money growth) in Thailand during 1997Q3 and 2017Q4. The results from Markov switching vector autoregressive model reveal that there is regime switching between the bull market and the bear market. The positive impact of output growth on stock market return is significant in the bear market while the impact of money growth on stock market return is positive and significant in the bull market. This implies that monetary policy is effective only during the bull market period. For the bear market period, measures that stimulate economic growth should be necessary.
    Keywords: stock return, regime changes, economic growth, monetary policy stance
    JEL: E32 E52 G10
    Date: 2018–09
  31. By: d’Alessandro, Antonello; Fella, Giulio; Melosi, Leonardo
    Abstract: Using a Bayesian SVAR analysis, we document that an increase in government purchases raises private consumption, the real wage and total factor productivity (TFP) while reducing inflation. Each of these facts is hard to reconcile with both neoclassical and New-Keynesian models. We extend a standard New-Keynesian model to allow for skill accumulation through past work experience, following Chang, Gomes and Schorfheide (2002). An increase in government spending increases hours and induces skill accumulation and higher measured TFP and real wages in subsequent periods. Future marginal costs fall lowering future expected inflation and, through the monetary policy rule, the real interest rate. Consumption increases as a result.
    Keywords: fiscal policy transmission; consumption; real wage
    JEL: E62 E63
    Date: 2018–05
  32. By: Ying Feng; David Lagakos; James E. Rauch
    Abstract: This paper draws on household survey data from countries of all income levels to measure how average unemployment rates vary with income per capita. We document that unemployment is increasing with GDP per capita. Furthermore, we show that this fact is accounted for almost entirely by low-educated workers, whose unemployment rates are strongly increasing in GDP per capita, rather than by high-educated workers, whose unemployment rates are not correlated with income. To interpret these facts, we build a model with workers of heterogeneous ability and two sectors: a traditional sector, in which self-employed workers produce output without reward for ability; and a modern sector, in which firms hire in frictional labor markets, and output increases with ability. Countries differ exogenously in the productivity level of the modern sector. The model predicts that as productivity rises, the traditional sector shrinks, as progressively less-able workers enter the modern sector, leading to a rise in overall unemployment and in the ratio of low-educated to high-educated unemployment rates. Quantitatively, the model accounts for around one third of the cross-country patterns we document.
    JEL: E24 E26 O11 O41
    Date: 2018–10
  33. By: Juan Camilo Galvis Ciro
    Keywords: Incoherencia temporal; inflación; desempleo. Time-inconsistency problem; inflation; unemployment.
    JEL: E61 E31 E24
    Date: 2018–01–01
  34. By: Fidrmuc, Jarko; Campos, Nauro F.; Korhonen, Iikka
    Abstract: This paper offers a first systematic evaluation of the evidence on the effects of currency unions on the synchronisation of economic activity. Focusing on Europe, we construct a database of about 3,000 business cycles synchronisation coefficients and their design and estimation characteristics. We find that: (1) synchronisation increased from about 0.4 before the introduction of the euro in 1999 to 0.6 afterwards; (2) this increase occurred in both euro and non-euro countries (larger in former); (3) there is evidence of country-specific publication bias; (4) our differences-in-differences estimates suggest the euro accounted for approximately half of the observed increase in synchronisation.
    Keywords: business cycles synchronisation,optimum currency areas,EMU,euro,meta-analys
    JEL: E32 F42
    Date: 2018
  35. By: Takaoka, Sumiko; Takahashi, Koji
    Abstract: We investigate the effects of monetary policy on the financing policies of firms through the expected market interest rate channel at the firm level with Japanese syndicated loan contracts from 2000 to 2016, when monetary policy in Japan was almost stuck at the zero bound and the Bank of Japan introduced various unconventional monetary policy measures. To identify the interest rate channels of this monetary policy, we control for both observed and unobserved firm heterogeneity and unobserved time-varying bank heterogeneity in loan contracts. The evidence presented here demonstrates that both pricing (loan spread) and non-pricing (loan maturity) terms of loan contracts are affected by monetary policy shocks. In particular, monetary policy shocks have heterogeneous effects on loan maturity. The response to a monetary policy shock associated with a decrease in long-term interest rates is significant only for the borrower group with access to bonds, that is, less financially constrained firms.
    Keywords: Syndicated loans, Monetary policy, Loan maturity, Loan spread
    JEL: E43 E52 G21
    Date: 2018–10–04
  36. By: Borowczyk-Martins, Daniel (Copenhagen Business School); Lalé, Etienne (University of Québec at Montréal)
    Abstract: We develop an adjustment procedure to construct U.S. monthly time series of involuntary part-time employment stocks and flows from 1976 until today. Armed with these new data, we provide a comprehensive account of the dynamics of involuntary part-time work. Transitions from full-time to involuntary part-time employment dominate this dynamics, spiking up at recessions' onsets and persisting well into recovery periods. On the other hand, weaknesses in job creation contribute little to these fluctuations. Our data and findings are relevant to inform a broader assessment of labor market performance and to develop models of cyclical labor adjustment.
    Keywords: involuntary part-time employment, unemployment, labor market flows, business cycles
    JEL: E24 E32 J21
    Date: 2018–09
  37. By: Sun, Tianyu; Chand, Satish; Sharpe, Keiran
    Abstract: This paper investigates the effect of aging on housing prices. It provides a theoretical explanation to address the on-going debate about this issue. The analysis demonstrates that aging has divergent effects on housing prices, depending on the net effects of a fall in fertility vis-à-vis a rise in longevity on demand for housing. In addition, the results suggest that aging could cause a turning point in the price dynamics. Before this turning point, aging would boost the prices; however, after this point, the prices are depressed because of aging. Furthermore, inequality of household utility is enlarged during the aging processes.
    Keywords: Aging Population; OLG Model; House Prices; Land Prices; Turning Point
    JEL: E21 E31 J11 R21 R31
    Date: 2018–02–10
  38. By: Schreiber, Sven
    Abstract: We contribute to the recent literature on the economic effects of those weather conditions that deviate from their regular seasonal pattern. To this end we use local temperature and snow measurements across Germany to analyze their impact on German monthly total industrial and construction-sector production. We find noticeable effects of the various (linear and nonlinear, contemporaneous and dynamic) weather regressors, which in the –seasonally adjusted– construction sector growth data imply an extra explanatory power of more than 50% of the variation, compared to benchmark predictive regressions. As expected, the impact is quite a bit less in total industrial production. From our estimates we obtain (seasonally as well as) weather adjusted production series, and our regression-based approach also yields confidence intervals for these adjustments. The estimated adjustments are quantitatively relevant also for broad output (quarterly GDP). In a mixed-frequency framework we find some value of the estimated monthly weather impact for quarterly GDP nowcasts in (quasi) real time.
    Keywords: weather,business cycle,nowcasting,MIDAS
    JEL: E32 E27
    Date: 2018
  39. By: Pinter, Gabor
    Abstract: What are the macroeconomic forces behind the cross-sectional and time-series variation in expected excess returns? To answer this question, this paper integrates models of empirical asset pricing with structural vector autoregressions (VAR). First, I use an unconditional asset pricing framework to construct an orthogonal shock in a macroeconomic VAR that best explains the cross-sectional variation in expected returns. The obtained “λ-shock” closely resembles identified monetary policy surprises and does not explain the recent US recessions. Second, I integrate return-forecasting methods to construct a second shock in the VAR, which best explains time-variation in expected returns. The obtained “γ-shock” turns out to be virtually orthogonal to the λ-shock, closely resembles demand-type financial shocks identified by macroeconomists, and explains most US recessions. I find that the λ-shock and the γ-shock jointly explain up to 80% of aggregate consumption fluctuations in the US.
    Keywords: SDF; VAR; shocks; cross-section of returns; time-varying risk premia
    JEL: C32 G12
    Date: 2018–08–03
  40. By: Bańbura, Marta; Albani, Maria; Ambrocio, Gene; Bursian, Dirk; Buss, Ginters; de Winter, Jasper; Gavura, Miroslav; Giordano, Claire; Júlio, Paulo; Le Roux, Julien; Lozej, Matija; Malthe-Thagaard, Sune; Maria, José R.; Martínez Carrascal, Carmen; Meinen, Philipp; Michail, Nektarios; Papageorgiou, Dimitris; Pool, Sebastian; Ravnik, Rafael; San Juan del Peso, Lucio; Tóth, Máté; Zevi, Giordano
    Abstract: The article analyses recent developments in business investment for a large group of EU countries, using a broad set of analytical tools and data sources. We find that the assessment of whether or not investment is currently low varies across benchmarks and countries. At the euro area level and for most countries, the level of business investment is broadly in line with the level of overall activity. However rates of capital stock growth have slowed down since the crisis. The main cyclical determinants of investment developments in the euro area include foreign and domestic demand, uncertainty and financial conditions. Uncertainty seems to have played a negative role during the financial and sovereign debt crises; however, given its low levels more recently, it has not acted as a drag on business investment overall during the recovery. Credit constraints appear to have hindered investment during the twin crises, especially in stressed countries. Aside from cyclical developments, important secular factors – relating to demographics, the changing nature and location of production, and the business environment – have influenced investment. Another factor that may have amplified the decline in private investment, particularly in countries that were hit hardest by the sovereign debt crisis, is the low level of public investment. This is because when public investment enhances the productivity of the private sector, there may be positive spillovers from the former to the latter, including across countries. Finally, intra-sector capital misallocation, measured as the within-sector dispersion across firms in the marginal revenue product of capital, has been increasing in Europe since 2002, which may in turn have exerted a significant drag on total factor productivity dynamics, and hence on aggregate output growth. JEL Classification: E32, E52, E62, D24, D61
    Keywords: business investment, capital misallocation, monetary policy, uncertainty
    Date: 2018–10
  41. By: Alberto Cavallo
    Abstract: I study how online competition, with its algorithmic pricing technologies and the transparency of the Internet, can change the pricing behavior of large retailers and affect aggregate inflation dynamics. In particular, I show that online competition has raised both the frequency of price changes and the degree of uniform pricing across locations in the U.S. over the past 10 years. These changes make retail prices more sensitive to aggregate ``nationwide" shocks, increasing the pass-through of both gas prices and nominal exchange rate fluctuations.
    JEL: E31 E5
    Date: 2018–10
  42. By: Bean, Charles R.
    Abstract: This essay reviews Till Time's Last Sand, David Kynaston's history of the Bank of England from its foundation in 1694 to the present day. I focus on three themes running through his narrative. First, for much of that time the Bank was a private company playing a public role; how did it manage to do this and why was it eventually brought into public ownership? Second, I examine the various attempts to constrain the Bank's monetary policy to follow a simple rule; these almost invariably proved unsustainable unless the rule provided enough room for discretion. Finally, I cover the Bank's journey to becoming the lender of last resort, together with its evolving attitude to the associated risk of moral hazard.
    JEL: E52 E58 G1 N13 N14 N23 N24
    Date: 2018–09–13
  43. By: Del Negro, Marco (Federal Reserve Bank of New York); Giannone, Domenico (Federal Reserve Bank of New York); Giannoni, Marc (Federal Reserve Bank of Dallas); Tambalotti, Andrea (Federal Reserve Bank of New York)
    Abstract: The trend in the world real interest rate for safe and liquid assets fluctuated close to 2 percent for more than a century, but has dropped significantly over the past three decades. This decline has been common among advanced economies, as trends in real interest rates across countries have converged over this period. It was driven by an increase in the convenience yield for safety and liquidity and by lower global economic growth.
    Keywords: World Interest Rate; Convenience Yield; Interest Rate Parity; VAR with Common Trends
    JEL: E43 E44 F31 G12
    Date: 2018–10–16
  44. By: Ohik Kwon (Economic Research Institute, The Bank of Korea); Jaevin Park (Department of Economics, The University of Mississippi)
    Abstract: This paper studies the efficiency of electronic money system by focusing on the decentralized setting of issuance. In the model competitive money issuers can create small denominated money (or e-money) backed by large denominated government bonds. Under the decentralized environment the issuers can also produce counterfeit collateral at a proportional cost. This moral hazard incentive requires the more government bonds for the issuers to provide the same amount of money. In general equilibrium the individual money issuers do not internalize the aggregate effect of money supply. Thus the equilibrium allocation is constrained inefficient with the moral hazard incentives. We suggest a pigouvian tax on money supply to correct the externality in aggregate money supply.
    Keywords: Limited Commitment, Moral Hazard, Externality, Open-market Operations
    JEL: E4 E5
    Date: 2018–06–19
  45. By: Homburg, Stefan
    Abstract: This paper shows that the eurozone payment system does not effectively protect member states from speculative attacks. Suspicion of a departure from the common currency induces a terminal outflow of central bank money in weaker member states. TARGET2 cannot inhibit this drain but only protects central bank assets. Evidence presented here suggests that a run on Italy is already on the way. The paper also considers departure strategies of strong and weak member states and the distributive effects of an orderly eurozone dissolution.
    Keywords: Currency speculation; TARGET2; eurozone; Italexit; Dexit; trilemma
    JEL: E52 E58
    Date: 2018–10
  46. By: Weber, Enzo; Gehrke, Britta
    Abstract: This paper proposes a novel approach to identify structural long-term driving forces of the labor market and their state dependent effects. Based on search and matching theory, our empirical model extracts these driving forces within an unobserved components approach. We relate changes in the labor market structures to reforms that enhance the flexibility of the labor market in expansion and recession. Results for Germany and Spain show that labor market reforms have substantially weaker beneficial effects in the short-run when implemented in recessions. From a policy perspective, these results highlight the costs of introducing reforms in recessions.
    Keywords: labor market reforms,search and matching,business cycle asymmetries,Markov switching
    JEL: C32 E02 E32 J08
    Date: 2018
  47. By: Diewert, Erwin
    Abstract: The paper draws on a previous paper by Diewert and Fox which addressed two problems: (i) how to measure aggregate real output and inflation for a group of countries and (ii) how to construct measures of real GDP for a group of countries where the country measures of real GDP are comparable across time and space. In order to address both problems, it is necessary that the group of countries construct Purchasing Power Parities (PPPs). The present paper looks at the related problem of interpolating PPPs between benchmark years when PPPs have been constructed. The paper shows that the method of interpolation that was suggested by Diewert and Fox is equivalent to a variant of the method used by the Penn World Tables to interpolate PPPs between benchmarks. The interpolation methods are compared to actual OECD PPPs for the years 2001-2017.
    Keywords: Purchasing Power Parities, PPPs, ICP, OECD country statistics, inflation, price and volume indexes, Fisher indexes
    JEL: C43 C82 E01
    Date: 2018–10–25
  48. By: Kim, Hyeongwoo; Lin, Ying
    Abstract: A group of researchers has asserted that the rate of exchange rate pass-through (ERPT) to domestic prices has declined substantially over the last few decades. We revisit this claim of a downward trend in the rate of ERPT to the Consumer Price Index (CPI) by employing the vector autoregressive (VAR) model for the U.S. macroeconomic data under the current floating exchange rate regime. Our VAR approach that nests the conventional single equation method reveals very weak evidence of ERPT during the pre-1990 era. On the other hand, we observe statistically significant evidence of ERPT during the post-1990 era, which sharply contrasts with previous findings. After statistically confirming a structural break in ERPT to the total CPI via Hansen's (2001) test procedure, we seek the source of the structural break using the disaggregate level CPIs, which pinned down a key role of energy prices in explaining the emergence of the break. The dependency of the U.S. energy consumption on imports has increased since the 1990s. This change magnifies the effects of the exchange rate shock on domestic energy prices, resulting in greater responses of the total CPI via this energy price channel.
    Keywords: Exchange Rate Pass Through; Disaggregated CPI; Structural Break; Oil Price Shock
    JEL: E31 F31 F40
    Date: 2018–09
  49. By: Noelia Camara; Enestor Dos Santos; Francisco Grippa; Javier Sebastian; Fernando Soto; Cristina Varela
    Abstract: This document focuses on identifying factors affecting the implementation of a Central Bank digital currency (CBDC) in Latin American countries. The adoption of a CBDC (non-universal) for the interbank and wholesale payment system would lead to a relatively minor level of disruption in the economy. In this case, the implementation costs is an important issue.
    Keywords: Working Paper , Digital Regulation , Central Banks , Digital economy , Financial Markets , Financial Inclusion , Latin America
    JEL: O33 E43 E58
    Date: 2018–10
  50. By: Hyeongwoo Kim; Wen Shi
    Abstract: This paper presents a factor-based forecasting model for the financial market vulnerability, measured by changes in the Cleveland Financial Stress Index (CFSI). We estimate latent common factors via the method of the principal components from 170 monthly frequency macroeconomic data in order to out-of-sample forecast the CFSI. Our factor models outperform both the random walk and the autoregressive benchmark models in out-of-sample predictability at least for the short-term forecast horizons, which is a desirable feature since financial crises often come to a surprise realization. Interestingly, the first common factor, which plays a key role in predicting the financial vulnerability index, seems to be more closely related with real activity variables rather than nominal variables. We also present a binary choice version factor model that estimates the probability of the high stress regime successfully.
    Keywords: Financial Stress Index; Method of the Principal Component; Out-of-Sample Forecast; Ratio of Root Mean Square Prediction Error; Diebold-Mariano-West Statistic; Ordered Probit Model
    JEL: E44 E47 G01 G17
    Date: 2018–10
  51. By: von Werder, Marten
    Abstract: This paper uses SOEP data to study the distributional effect of intergenerational transfers on the wealth distribution of German households. Similar to most other central European countries, Germany is likely to face a period of increasing aggregate bequest flows. At the same time, there is an ongoing debate on the distributional implications of such wealth shocks. This study adds to the discussion by providing causal estimates for the effect of transfer receipt on the savings behavior of households. The model allows for dynamic adjustment and variations in the savings behavior over the wealth distribution. I use the estimates to decompose the overall effect of transfers on wealth inequality in the effect of the aggregated transfer volume, the transfer incidence over the wealth distribution and the effect of the savings behavior. The results are very much in line with the literature, indicating that transfers tend to equalize wealth inequality, despite minor variations in the savings behavior over the wealth distribution and despite a strong relationship between initial household wealth and transfer accrual.
    Keywords: savings behavior,Intergenerational transfers,wealth distribution,inequality
    JEL: D63 E21
    Date: 2018
  52. By: Hyeongwoo Kim; Wen Shi; Hyun Hak Kim
    Abstract: We propose factor-based out-of-sample forecast models for Korea's financial stress index and its 4 sub-indices that are developed by the Bank of Korea. We extract latent common factors by employing the method of the principal components for a panel of 198 monthly frequency macroeconomic data after differencing them. We augment an autoregressive-type model of the financial stress index with estimated common factors to formulate out-of-sample forecasts of the index. Our models overall outperform both the stationary and the nonstationary benchmark models in forecasting the financial stress indices for up to 12-month forecast horizons. The first common factor that represents not only financial market but also real activity variables seems to play a dominantly important role in predicting the vulnerability in the financial markets in Korea.
    Keywords: Financial Stress Index; Principal Component Analysis; PANIC; In-Sample Fit; Out-of-Sample Forecast; Diebold-Mariano-West Statistic
    JEL: E44 E47 G01 G17
    Date: 2018–10
  53. By: De Nardi, Mariacristina; Fella, Giulio; Paz-Pardo, Gonzalo
    Abstract: Earnings dynamics are much richer than typically assumed in macro models with heterogeneous agents. This holds for individual-pre-tax and household-post-tax earnings and across administrative (Social Security Administration) and survey (Panel Study of Income Dynamics) data. We study the implications of two processes for household, post-tax earnings in a standard life-cycle model: a canonical earnings process (that includes a persistent and a transitory shock) and a rich earnings dynamics process (that allows for age-dependence of moments, non-normality, and nonlinearity in previous earnings and age). Allowing for richer earnings dynamics implies a substantially better fit of the evolution of cross-sectional consumption inequality over the life cycle and of the individual-level degree of consumption insurance against persistent earnings shocks. Richer earnings dynamics also imply lower welfare costs of earnings risk, but, as the canonical earnings process, do not generate enough concentration at the upper tail of the wealth distribution.
    Keywords: earnings risk; savings; consumption; inequality; life cycle
    JEL: D14 D31 E21 J31
    Date: 2018–06–15
  54. By: McLeay, Michael; Tenreyro, Silvana
    Abstract: This note explains why inflation follows a seemingly exogenous statistical process, unrelated to the output gap. In other words, it explains why it is difficult to empirically identify a Phillips curve. We show why this result need not imply that the Phillips curve does not hold – on the contrary, our conceptual framework is built under the assumption that the Phillips curve always holds. The reason is simple: if monetary policy is set with the goal of minimising welfare losses (measured as the sum of deviations of inflation from its target and output from its potential), subject to a Phillips curve, a central bank will seek to increase inflation when output is below potential. This targeting rule will impart a negative correlation between inflation and the output gap, blurring the identification of the (positively sloped) Phillips curve.
    JEL: J1
    Date: 2018–04–26
  55. By: Fougère, Denis (Sciences Po, Paris); Gautier, Erwan (Banque de France); Roux, Sébastien (CREST-INSEE)
    Abstract: This paper examines empirically the dynamics of wage floors defined in industry-level wage agreements in France. It also investigates how industry-level wage floor adjustment interacts with changes in the national minimum wage (NMW hereafter). For this, we have collected a unique dataset of approximately 3,200 industry-level wage agreements containing about 70,000 occupation-specific wage floors in 367 industries over the period 2006Q1-2017Q4. Our main results are the following. Wage floors are quite rigid, adjusting only once a year on average. They mostly adjust in the first quarter of the year and the NMW shapes the timing of industry-level wage bargaining. Inflation but also changes in past aggregate wage increases and in the real NMW are the main drivers of wage floor adjustments. Elasticities of wage floors with respect to these macro variables are 0.6, 0.4 and 0.3 respectively. Inflation and the NMW have both decreasing but positive effects all along the wage floor distribution.
    Keywords: collective bargaining, wages, minimum wage, inflation
    JEL: J31 J51 E24
    Date: 2018–09
  56. By: Sandoval Paucar, Giovanny
    Abstract: This article aims to present a literature review on financial contagion, both from a theoretical and empirical perspective, with special attention to the cases of emerging markets. It is found that the definition of financial contagion is a concept under construction and there is no concession regarding it. In turn, the theoretical literature seeks to explain this phenomenon through real, financial transmission channels and behaviors of investors and economic policymakers. In contrast, the empirical literature has evolved through two generations, which have advanced in the measurement of this phenomenon
    Keywords: Contagio Financiero, Economía Financiera, Macroeconomía Aplicada, canales de transmisión.
    JEL: E44 E52 G12 G28
    Date: 2018–10–16
  57. By: Ki Young Park (Yonsei University)
    Abstract: Previous research on procyclical bank capital regulation has largely focused on the role of increased loan losses and deteriorated credit ratings in economic downturns. We focus on the role of bank loan commitments, which have been increasingly popular from the 2000s, on the procyclicality of bank capital regulation. Using the bank-level data of U.S. commercial banks, we present another independent source of procyclicality working through bank loan commitments, which we call "loan commitments channel." We find that, as firms draw down more from their pre-existing credit lines when credit market conditions are tighter, this increased takedown raises bank risk-weighted assets via involuntary lending and thus lowers capital adequacy ratios of commercial banks, making them more procyclical. Our empirical results suggest that this loan commitments channel is quantitatively important and needs to be addressed in designing the regulatory framework for reducing credit procyclicality.
    Keywords: bank loan commitments, capital adequacy ratio (CAR), procyclical bank, capital regulation
    JEL: E44 G21 G32
    Date: 2018–10
  58. By: W. Similan Rujiwattanapong (Centre for Macroeconomics (CFM); Aarhus University)
    Abstract: This paper quantifies the effects of the increasing maximum unemployment insurance (UI) duration during recessions no the drop in the correlation between output and labour productivity in the U.S. since the early 1980’s – the so-called productivity puzzle. Using a general equilibrium search and matching model with stochastic UI duration, heterogeneous match quality, variable search intensity and on-the-job search. I demonstrate that the model can explain over 40 percent of the drop in this correlation (28 percent when the Great Moderation is taken into account). More generous UI extensions during recent recessions cause workers to be more selective with job offers and lower job search effort. The former channel raises the overall productivity in bad times. The later prolongs UI extensions since in the U.S. they are triggered by high unemployment.
    Keywords: Business cycles, Labour productivity, Unemployment insurance
    JEL: E32 J24 J64 J65
    Date: 2018–08
  59. By: Gosselin, Pierre; Lotz, Aïleen; Wambst, Marc
    Abstract: This paper presents an analytical treatment of economic systems with an arbitrary number of agents that keeps track of the systems' interactions and agents' complexity. This formalism does not seek to aggregate agents. It rather replaces the standard optimization approach by a probabilistic description of both the entire system and agents' behaviors. This is done in two distinct steps. A first step considers an interacting system involving an arbitrary number of agents, where each agent's utility function is subject to unpredictable shocks. In such a setting, individual optimization problems need not be resolved. Each agent is described by a time-dependent probability distribution centered around his utility optimum. The entire system of agents is thus defined by a composite probability depending on time, agents' interactions and forward-looking behaviors. This dynamic system is described by a path integral formalism in an abstract space - the space of the agents' actions - and is very similar to a statistical physics or quantum mechanics system. We show that this description, applied to the space of agents' actions, reduces to the usual optimization results in simple cases. Compared to a standard optimization, such a description markedly eases the treatment of systems with small number of agents. It becomes however useless for a large number of agents. In a second step therefore, we show that for a large number of agents, the previous description is equivalent to a more compact description in terms of field theory. This yields an analytical though approximate treatment of the system. This field theory does not model the aggregation of a microeconomic system in the usual sense. It rather describes an environment of a large number of interacting agents. From this description, various phases or equilibria may be retrieved, along with individual agents' behaviors and their interactions with the environment. For illustrative purposes, this paper studies a Business Cycle model with a large number of agents.
    Keywords: path integrals, statistical field theory, business cycle, budget constraint, multi-agent model, interacting agents.
    JEL: C02 C60 E00 E1
    Date: 2018–10
  60. By: Abbassi, Puriya; Bräuning, Falk
    Abstract: Using transaction-level data on foreign exchange (FX) forward contracts, we document large demand-driven heterogeneity in banks' dollar hedging costs. For identification, we exploit regulatory end-of-quarter reporting that penalizes banks' currency exposure with capital surcharges. Contracts that reduce quarter-end currency exposure trade at higher prices, specifically for banks with high dollar funding gaps and high leverage, while access to internal dollar capital markets and bargaining power reduces prices. Spreads between similar contracts with and without initial margin widen with leverage. Our results suggest that banks' shadow costs of capital are important for the international propagation of shocks through FX derivatives markets.
    Keywords: FX markets,hedging,price determination,global banks,international finance
    JEL: D40 E43 F30 F31 G15
    Date: 2018
  61. By: Linus Mattauch; David Klenert; Joseph E. Stiglitz; Ottmar Edenhofer
    Abstract: Wealth inequality is rising in rich countries. Capital taxation used simply to finance redistribution may not be able to counteract this trend, but can increased public investment financed by higher capital taxes? We examine how such a policy affects the distribution of wealth in a setting with distinct wealth groups: dynastic savers and life-cycle savers. Our main finding is that public investment financed through capital taxes always decreases wealth inequality when the elasticity of substitution between capital and labor is moderately high. Indeed, for all elasticities of substitution greater than a threshold value, at high enough capital tax rates, dynastic savers disappear in the long run. Below these rates, both types of households co-exist in equilibrium with life-cycle savers gaining from the higher capital tax rates. These results are robust with respect to the different roles of public investment in production. We calibrate our model to OECD economies and find the threshold elasticity to be 0.82.
    JEL: D31 E21 H31 H41 H54
    Date: 2018–10
  62. By: Andreas Kettemann; Andreas I. Mueller; Josef Zweimüller
    Abstract: This paper explores the relationship between the duration of a vacancy and the starting wage of a new job, using unusually informative data comprising detailed information on vacancies, the establishments posting the vacancies and the workers eventually filling the vacancies. We find that vacancy durations are negatively correlated with the starting wage and that this negative association is particularly strong with the establishment component of the starting wage. We also confirm previous findings that growing establishments fill their vacancies faster. To understand the relationship between establishment growth, vacancy filling and entry wages, we calibrate a model with directed search and ex-ante heterogeneous workers and firms. We find a strong tension between matching the sharp increase in vacancy filling for growing firms and the response of vacancy filling to firm-level wages. We discuss the implications of this finding as well as potential resolutions.
    JEL: E24 J31 J63
    Date: 2018–10
  63. By: Chadha, Jagjit S.
    Abstract: We consider the role of money as a means of payment, store of value and medium of exchange. I outline a number of quantitative and qualitative experiences of monetary management. Successful regimes have sprung up in a variety of surprising places, and been sustained with state (centralised) interventions. Although the link between state and money, and its standard of identity and account may be clear, particularly in earlier stages of economic development, the extent to which the state is widely felt to hold responsibility for 'sound money' is less clear in modern democracies, where there are many other public responsibilities implying ongoing trade-offs.
    Keywords: money; gold standard; paper money; Samuelson.
    JEL: B22 E31
    Date: 2018–07–11
  64. By: Bachmann, Ronald; Bechara, Peggy
    Abstract: Using administrative data on individual workers' employment history and firms, we investigate the cyclicality of worker flows on the German labour market. Focusing on heterogeneities on both sides of the labour market, we find that small firms hire much more workers from unemployment than large firms, and that they do so at the very beginning of an economic expansion. Later on in the expansion, overall hirings more frequently result from direct job-to-job transitions to larger firms. Transitions from unemployment to employment at large firms are generally found to be more (pro-)cyclical. However, this stylised fact disappears when the composition of the workforce is controlled for.
    Keywords: worker flows,accessions,hirings,separations,business cycle,job-to-job,employer-to-employer
    JEL: J63 J64 J21 E24
    Date: 2018
  65. By: Kim, Hyeongwoo; Ko, Kyunghwan
    Abstract: We present a factor augmented forecasting model for assessing the financial vulnerability in Korea. Dynamic factor models often extract latent common factors from a large panel of time series data via the method of the principal components (PC). Instead, we employ the partial least squares (PLS) method that estimates target specific common factors, utilizing covariances between predictors and the target variable. Applying PLS to 198 monthly frequency macroeconomic time series variables and the Bank of Korea's Financial Stress Index (KFSTI), our PLS factor augmented forecasting models consistently outperformed the random walk benchmark model in out-of-sample prediction exercises in all forecast horizons we considered. Our models also outperformed the autoregressive benchmark model in short-term forecast horizons. We expect our models would provide useful early warning signs of the emergence of systemic risks in Korea's financial markets.
    Keywords: Partial Least Squares; Principal Component Analysis; Financial Stress Index; Out-of-Sample Forecast; RRMSPE
    JEL: C38 C53 E44 E47 G00 G17
    Date: 2018–10
  66. By: Francisco Lasso-Valderrama (Banco de la República de Colombia); Laura Rodríguez-Quintero (Universidad Javeriana)
    Abstract: Este trabajo presenta evidencia empírica del impacto de los efectos composición del empleo, estructura salarial y del ciclo económico sobre la evolución salarial en Colombia. Se utilizan las encuestas aplicadas a la fuerza laboral de siete ciudades por el Departamento Administrativo Nacional de Estadística (DANE) desde 1984 a 2017. Esta es la serie de encuestas urbanas más larga y homogénea disponible en el país. Usando la técnica de función de influencia recentrada (RIF en inglés) en regresión cuantílica incondicional reponderada y una generalización de la descomposición estándar a la Oaxaca – Blinder se evidencia que los salarios exhiben un comportamiento pro-cíclico, y especialmente en la población de mayor remuneración, son flexibles y reaccionan significativamente ante los ciclos económicos. Este comportamiento está acompañado de un efecto composición favorable al incremento de los salarios reales y un efecto estructura salarial favorable a la disminución de la desigualdad salarial, siendo el capital humano (años de educación y experiencia laboral) el factor que más contribuye en ambos efectos. **** RESUMEN: This paper presents empirical evidence of the impact of the employment composition effects, wage structure and economic cycle on the evolution of wages in Colombia. The analysis is carried out using the labor force survey of the seven principal cities of Colombia applied by the Departamento Administrativo Nacional de Estadística (DANE) from 1984 to 2017. This one is the largest and homogeneous dataset available for urban sector in the country. The proposed methodology is based on the re-centered influence function (RIF), re-weighted unconditional quantile regressions and a generalization of the standard Oaxaca - Blinder decomposition. We find that wages present a pro-cyclical behavior, especially for the population that receives the greater remunerations. For this group, wages are also flexible and react significantly to economic cycles. The composition effect contributes towards greater real wages, and the salary structure effect reduce wage inequality. The human capital (number of years of education and work experience) is the factor that contributes the most in both effects.
    Keywords: Salarios, ciclo de los salarios, composición del empleo, desigualdad salarial, Colombia, regresión RIF, Wages, wages cycle, employment composition, wage inequality, Colombia, RIF regression.
    JEL: J31 E32 I24 C14 C23
    Date: 2018–10
  67. By: Bayer, Christian (University of Bonn); Kuhn, Moritz (University of Bonn)
    Abstract: Wages grow but also become more unequal as workers age. Using German administrative data, we largely attribute both life-cycle facts to one driving force: some workers progress in hierarchy to jobs with more responsibility, complexity, and independence. In short, they climb the career ladder. Climbing the career ladder explains 50% of wage growth and virtually all of rising wage dispersion. The increasing gender wage gap by age parallels a rising hierarchy gap. Our findings suggest that wage dynamics are shaped by the organization of production, which itself likely depends on technology, the skill set of the workforce, and labor market institutions.
    Keywords: human capital, life-cycle wage growth, wage inequality, careers
    JEL: D33 E24 J31
    Date: 2018–09
  68. By: Kim, Hyeongwoo; Zhang, Yunxiao
    Abstract: This paper studies dynamic adjustments of 49 world commodity prices in response to innovations in the nominal exchange rate and the world real GDP. After we estimate the dynamic elasticity of the prices with respect to these shocks, we obtain the kernel density of our estimates to establish stylized facts on the adjustment process of the commodity price toward a new equilibrium path. Our empirical findings imply, on average, that the law of one price holds in the long-run, whereas the substantial degree of short-run price rigidity was observed in response to the nominal exchange rate shock. The real GDP shock tends to generate substantial price fluctuations in the short-run because adjustments of the supply can be limited, but have much weaker effects in the long-run as the supply eventually counterbalances the increase in the demand. Overall, we report persistent long-lasting effects of the nominal exchange rate shock on commodity prices relative to those of the real GDP shock.
    Keywords: Commodity Prices; Price Stickiness; Dynamic Elasticity; Vector Autoregression; Impulse-Response Function; Kernel Density
    JEL: E31 F31 Q02
    Date: 2018–10
  69. By: Den Haan, Wouter J.; Drechsel, Thomas
    Abstract: Exogenous random structural disturbances are the main driving force behind fluctuations in most business cycle models and typically a wide variety is used. This paper documents that a minor misspecification regarding structural disturbances can lead to large distortions for parameter estimates and implied model properties, such as impulse response functions with a wrong shape and even an incorrect sign. We propose a novel concept, namely an agnostic structural disturbance (ASD), that can be used to both detect and correct for misspecification of the structural disturbances. In contrast to regular disturbances and wedges, ASDs do not impose additional restrictions on policy functions. When applied to the Smets-Wouters (SW) model, we find that its risk-premium disturbance and its investment-specific productivity disturbance are rejected in favor of our ASDs. While agnostic in nature, studying the estimated associated coefficients and the impulse response functions of these ASDs allows us to interpret them economically as a risk-premium/preference and an investment-specific productivity type disturbance as in SW, but our results indicate that they enter the model quite differently than the original SW disturbances. Our procedure also selects an additional wage mark-up disturbance that is associated with increased capital efficiency.
    Keywords: DSGE; full-information model estimation; structural disturbances
    JEL: C13 C52 E30
    Date: 2018–08–23
  70. By: Kovacs, Agnes; Rostom, May; Bunn, Philip
    Abstract: This paper investigates the relationship between mortgage leverage and consumption around the 2008 financial crisis. Using data from the UK’s Family Expenditure Survey and Wealth and Asset Survey, we first show that high-leveraged households made larger cuts to consumption following the financial crisis, and this was largely driven by young households. Second, using a life-cycle framework, we investigate the channels by which high-leveraged households may have reduced consumption by more than others. Our key finding is that credit supply tightening is the main driver of the empirical co-movement between pre-crisis leverage and consumption growth after 2008.
    Keywords: life-cycle models; consumption; household leverage; debt; financial crisis
    JEL: D10 D11 D14 E21
    Date: 2018–07–11
  71. By: Lindenthal, Volker
    Abstract: This paper exploits the administrative IAB establishment dataset for Germany to investigate the volatility and cyclicality of job flows within exporters and non-exporters. On average, exporters face a lower employment volatility, which suggests a diversification of sales across markets. A closer look at the export share, however, reveals that the employment volatility is increasing in the export share for small firms, while it is decreasing for large firms. Thus, large firms gain from more diversification of a higher export share, while small firms face more volatility when exporting a higher share. Small exporters with an export share above one third are even more volatile than similar domestic producers. Although the lion's share of these employment fluctuations is of idiosyncratic nature and aggregate fluctuations play only a minor role, we document heterogeneity between exporters and non-exporters. Controlling for size, exporters are cyclically more sensitive than non-exporters. This result is in line with aggregate exports being highly pro-cyclical and suggest that exporters specialize in the production of goods and services that are more cyclical. The contribution of exporters to the variance of aggregate flows, however, is limited and only about one third, which corresponds approximately to their employment share.
    JEL: F16 E32
    Date: 2018
  72. By: Burzynski, Michal (LISER); Deuster, Christoph (IRES, Université catholique de Louvain); Docquier, Frédéric (Université catholique de Louvain)
    Abstract: This paper analyzes the factors underlying the evolution of the worldwide distribution of skills and their implications for global inequality. We develop and parameterize a two-sector, two-class, world economy model that endogenizes education and mobility decisions, population growth, and income disparities across and within countries. First, our static experiments reveal that the geography of skills matters for global inequality. Low access to education and sectoral misallocation of skills substantially impact income in poor countries. Second, we produce unified projections of population and income for the 21st century. Assuming the continuation of recent education and migration policies, we predict stable disparities in the world distribution of skills, slow-growing urbanization in developing countries and a rebound in income inequality. These prospects are sensitive to future education costs and to internal mobility frictions, which suggests that policies targeting access to all levels of education and sustainable urban development are vital to reduce demographic pressures and global inequality in the long term.
    Keywords: human capital, migration, urbanization, growth, inequality
    JEL: E24 J24 O15
    Date: 2018–09
  73. By: Joao Lopes (UECE - University of Lisbon)
    Abstract: The main purpose of this paper is to contribute for a better understanding of the economic consequences of migration. In a first step, the different consumption patterns of nationals and foreigners are measured, using data from a Family Income and Expenditure Survey in Portugal (Inquérito às Despesas das Famílias, 2010/2011). Households are grouped according to the proportion of foreigners and the consumption structures of these groups are determined and compared. This information is useful in assessing the differences in living conditions across national and migrant families. In a second step, the sectoral and macroeconomic impacts (in Gross Output, Value Added, GDP and Imports) of these different consumption structures are simulated, using an Input-Output approach. These results allow us to project the demand led effects of a growing in-migration flow to Portugal, (both of workers and retirees) expected for the coming years. In a third (future) step of this research project, other consequences of migration will also be studied, namely, supply side effects (labor force, wages and profits, productivity), government budget and social security income and expenditure effects, demographic trend effects, etc.
    Keywords: Migration; Input-Output Analysis; Consumption Patterns; Macroeconomic and Sectoral Effects; Portugal
    JEL: D57 E27 F22
    Date: 2018–07
  74. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: BREXIT is a historical step for the UK and the EU27 which could bring a strong Pound deprecation, an increase in risk premiums for British bonds and a transitory rise of financial market volatility plus a long term reduction of economic growth in the UK. Macroprudential supervision thus is a crucial policy challenge for EU28 in the context of BREXIT and the European Systemic Risk Board thus should have a critical role in 2018 and the following years. The ESRB should timely analyze the potential risk of BREXIT and consider adequate policy options to reduce or eliminate risks. Contract continuity as well as cooperation in prudential supervision between the EU27 and the UK stand for BREXIT-related problems that could create financial market stability – as is the BREXIT-induced UK deregulation pressure. EU prudential supervision post-BREXIT faces problems since a very large part of EU27 wholesale banking markets are in the UK and thus not regulated by the EU after March 29, 2019. The EU Commission’s competence for EU trade policy as well as international investment treaties gives the EU the opportunity to offer the UK not only a – limited – Free Trade Agreement but an international investment treaty as well, including options for global cooperation. Several policy innovations are proposed which could help to limit risk associated with instability.
    Keywords: Macroprudential supervision, Brexit, EU, financial risk, economic policy
    JEL: E5 E58 N14 G32
    Date: 2018–07
  75. By: Ajide, Kazeem; Raheem, Ibrahim; Asongu, Simplice
    Abstract: This study contributes to the dollarization literature by expanding its determinants to account for different dimensions of globalization, using the widely employed KOF index of globalization. Specifically, globalization is “unbundled” into three different layers namely: economic, social and political dimensions. The study focuses on 25 sub-Saharan African (SSA) countries for the period 2001-2012.Using the Tobit regression approach, the following findings are established. First, from both economic and statistical relevance, the social and political dimensions of globalization constitute the key dollarization amplifiers, while the explanatory power of the economic component is weaker on dollarization. Second, consistent with the theoretical underpinnings, macroeconomic instabilities (such as inflation and exchange rate volatilities) have the positive expected signs. Third, the positive association between the accumulation of international reserves and dollarization is also apparent. Policy implications are discussed.
    Keywords: Dollarization; Globalization; sub-Saharan Africa; Tobit regression
    JEL: C21 E41 F41
    Date: 2018–01
  76. By: Youngjin Yun (Economic Research Institute, The Bank of Korea)
    Abstract: Global banks play an important role in international monetary transmission by allocating funds across the world through their foreign affiliates. Using monthly data on individual foreign bank branches in Korea from 2004 to 2018, this paper investigates the effects of foreign monetary policies and Korean macroprudential policy on the cross-border capital flows between global banks' headquarters and their Korean branches. I find that foreign branches reduce borrowing from their headquarters by 2.4% of their assets after a one percentage point hike in the home-country policy rates. The effect is more significant for the branches with higher loan-to-asset ratios as their asset maturities are longer. Korea introduced leverage caps on banks' FX derivative positions in 2010, and has been adjusting the cap depending on the macroeconomic situation. I find that lowering the cap makes foreign branches increase capital by receiving long-term capital from headquarters. The branches with higher bond-to-asset ratios respond more as they trade heavily in FX derivatives.
    Keywords: Foreign bank, Bank flows, Monetary policy, Macroprudential policy
    JEL: G21 F34
    Date: 2018–08–09
  77. By: Jordan Brooks; Michael Katz; Hanno Lustig
    Abstract: The sensitivity of long-term rates to short-term rates represents a puzzle for standard macro-finance models. Post-FOMC announcement drift in Treasury markets after Fed Funds target changes contributes to the excess sensitivity of long rates. Mutual fund investors respond to the salience of Fed Funds target rate increases by selling short and intermediate duration bond funds, thus gradually increasing the effective supply to be absorbed by arbitrageurs. Using FOMC-induced variation in bond fund flows, we estimate short-run demand for Treasurys to be inelastic, especially for longer maturities. The gradual increase in supply, combined with the low demand elasticity, generate post-announcement drift in Treasurys, which spills over to other bond markets. Our findings shed new light on the causes of time-series-momentum in Treasury markets.
    JEL: E43 G12
    Date: 2018–10
  78. By: Ehsan Latif (Thompson Rivers University)
    Abstract: Using province level panel data from the Canadian Community Health Survey (2007-2014), this study compares the mental health of Canadian before the 2008-2009 Great Recession with that of during the recession and after the recession. Mental health is measured using following indicators: self- reported mental health status, self-perceived life stress, and mental health care utilization. In the estimation, the study utilized following econometric techniques: ordered probit method, OLS method, panel data fixed effects method, logit method and conditional fixed effects logit method. The study found that self-reported mental health declined during recession and it remained at a lower level even after the end of recession. Similarly, self-perceived life stress increased during recession and it remained at a higher level in the aftermath of recession. Compared to pre-recession level, mental health care utilization increased during recession and after the end of recession. The study divided sample on the basis of gender, age categories and employment status. In all cases, the findings are similar: compared to pre-recession level, mental health declined during recession and mental health did not recover to pre-recession level even after the end of recession. The results of the study have important policy implications. The results suggest that recession not only has direct economic costs in terms of loss of employment and production, but it also has indirect costs in terms of its adverse impact on mental health.
    Keywords: Mental Health; Great Recession; Canada
    JEL: I19 E32 C10
    Date: 2018–07
  79. By: Diewert, Erwin
    Abstract: Statistical agencies increasingly are able to collect detailed price and quantity information from retailers on sales of consumer products. Thus elementary price indexes (which are indexes constructed at the first stage of aggregation for closely related products) can now be constructed using this price and quantity information, whereas previously, statistical agencies had to construct elementary indexes using just retail outlet collected information on prices alone. Thus superlative indexes can now be constructed at the elementary level, which in theory, should lead to more accurate Consumer Price Indexes. However, retailers frequently sell products at heavily discounted prices, which lead to large increases in purchases of these products. This volatility in prices and quantities will generally lead to a chain drift problem; i.e., when prices return to their “normal†levels, quantities purchased are frequently below their “normal†levels and this leads to a downward drift in a superlative price index. The paper addresses this problem and looks at the likely bias in various index number formulae that are commonly used. The bias estimates are illustrated using some scanner data on the sales of frozen juice products that are available online.
    Keywords: Jevons, Dutot, Carli, Unit Value, Laspeyres, Paasche
    JEL: C43 C81 E31
    Date: 2018–10–25
  80. By: Akinwande Atanda; W. Robert Reed (University of Canterbury)
    Abstract: In a recent paper, Atanda, Menclova and Reed (2018) use country-level panel data from the OECD and conclude that there is little evidence to support the existence of Baumol’s Cost Disease as an explanation for rising health costs. The result is surprising because Hartwig (2008), using similar data, comes to the opposite conclusion. We show that Hartwig tested an incorrect specification of a key hypothesis. When the correct specification is tested, his result vanishes, invalidating his conclusion. This provides a resolution for the conflict between the two studies.
    Keywords: Baumol's cost disease, health care expenditures, health care costs, OECD, panel data
    JEL: I11 J30 E24
    Date: 2018–10–01
  81. By: Raymond C. Niles (Department of Economics and Management, DePauw University)
    Abstract: This paper identifies how capital losses are unavoidably incurred in the discovery of viable entrepreneurial ventures. Losses are proportional to the novelty and perceived profit potential of a prospective venture, exemplified by the high risk/high return nature of high technology start-ups. Venture capitalists internalize the costs and benefits of this discovery process, and set up portfolios where the majority of funded ventures unavoidably fail or earn subpar returns. They incur these losses in order to discover the one Winner venture whose outsize returns will compensate for the capital losses in the failed ventures. The investment in failing ventures is unavoidable and necessary to discover the Winner because the winning business model cannot be determined ex ante. I call this investment “Entrepreneurial Discovery Capital.” This paper hypothesizes that many industry and economy-wide cycles may be the result of such a process that occurs at a much larger scale than a single fund. Venture capital in microcosm provides a model of an economy-wide process where the decisions of myriad market participants are coordinated “as if by an invisible hand” by signals from the capital markets.
    Keywords: venture capital, business cycle, Schumpeter, discovery, innovation, high technology, entrepreneurship, cognitive
    JEL: E32 G01 G24 L26 M13 O31
    Date: 2018–10
  82. By: Eric Bengtsson; Engelbert Stockhammer (King’s College London)
    Abstract: Wage restraint plays an important role in the conventional economic history explanation of the post-war golden growth experience of industrialized economies. Conversely, wage increases harming investment and increasing unemployment have been proffered as explanations for some of the high unemployment during the interwar period. This article argues that the conventional account implicitly only considers effects of wage growth on investment and not the advantageous effects on consumption. Thus, the evaluation of the effects on GDP growth is lop-sided. We employ a Post-Keynesian model to estimate effects of growth in the wage share of national income on consumption, investment, exports and imports separately, and weigh the effects together to estimate total effects on GDP growth, in Scandinavia (Denmark, Norway and Sweden) 1900–2010. Furthermore, we estimate the positive effects of wage pressure on productivity, showing it to be significant and positive in all three countries. We show that the postwar wage push had small positive effects on GDP growth in Denmark and Sweden, and a small negative effect in Norway. Thus, wage restraint is not a valid explanation for the postwar growth miracle. We propose a more comprehensive macroeconomic framework for understanding the implications of labour-capital distribution.
    Keywords: functional income distribution, inequality, consumption, investment, Scandinavia, Bhaduri-Marglin model, economic history
    JEL: E12 N10 N14
    Date: 2018–10
  83. By: Lemke, Wolfgang; Werner, Thomas
    Abstract: Starting in summer 2014, markets began to build up expectations that the European Central Bank (ECB) would embark on large-scale sovereign bond purchases. The ECB's Public Sector Purchase Programme (PSPP) was eventually announced on 22 January 2015 and purchases started in March. Both during the run-up phase to the PSPP announcement day and for the day itself, German government bond yields declined significantly. Using an affine term structure model, we evidence that the yield declines are almost fully attributable to a decline in the term premium as opposed to the expectations component. This speaks in favour of the conjecture that the PSPP transmits to long-term yields mainly via a portfolio re-balancing channel rather than a (policy rate) signalling channel. The results prove robust against changing the number of factors in the model, the estimation sample and the estimation approach.
    Keywords: term structure of interest rates,large-scale asset purchases,term
    JEL: E43 E52
    Date: 2018
  84. By: Vasilev, Aleksandar
    Abstract: We introduce an endogenous discount factor as in Uzawa (1968) and Schmitt-Grohe and Uribe (2003) into a real-business-cycle setup with Greenwood et al. (1988) preferences and augment the model with a detailed government sector. We calibrate the arti ficial economy to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of endogenous discounting for the propagation cyclical fluctuations in Bulgaria. The presence of an endogenous discount factor improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework with a constant discount factor, e.g., Vasilev (2009).
    Keywords: Business cycles,Uzawa preferences,endogenous discounting,Bulgaria
    Date: 2018
  85. By: Nalbach, Eva
    Abstract: Developments in digital technologies enabled the emergence and rapid growth of the sharing economy predicted to account for up to 5% of EU GDP in coming years. This paper contextualises these developments within a dynamic two sector model of the economy and analyses the effects of efficiency gains in the sharing sector on growth, income distribution and employment. We identify three sources of technological progress in the sharing sector and find that an expansion of this sector, in line with recent predictions, will lead to modest GDP growth and declines in both wage share and employment, if sharing is organised by profit maximising firms. We compare this solution to a case where households organise sharing directly and find that the sharing sector will be larger under the same technological conditions in the latter case.
    Keywords: Neoclassical Growth Model,Two Sector Growth Model,Technological Change,Macroeconomic Model,Aggregative Model,GDP,Sharing Economy,Wage Share,Employment
    JEL: O41 E10 J2
    Date: 2018
  86. By: Debrun, Xavier (International Monetary Fund); Jonung, Lars (Department of Economics, Lund University)
    Abstract: Abstract: Rules-based fiscal policy is under threat. Over the last two decades, it proved frustratingly complicated to strike the right balance between three essential properties of sound fiscal policy rules: simplicity, flexibility, and enforceability. Simplicity has been sacrificed to ensure that more contingent (i.e. flexible) rules remained enforceable. The resulting arrangements have failed to adequately guide fiscal policy, undermining formal compliance, and ultimately, popular and political support for rules. To mitigate the risk that countries abandon rules-based policymaking, we suggest downplaying enforceability—i.e. the role of formal sanctions through enforcement—and enhancing the reputational costs of breaching rules. At the limit, the rule could consist of a simple quantitative benchmark for a key fiscal indicator. To boost reputational effects, independent fiscal councils should focus on debunking the "fiscal alchemy", clearing the public debate from partisan smokescreens, and fostering popular support for sound fiscal policies.
    Keywords: Fiscal policy rules; Euro area; fiscal policy; independent fiscal councils
    JEL: E62 F42
    Date: 2018–10–31
  87. By: Quentin Perrier (CIRED); Philippe Quirion (CIRED, CNRS)
    Abstract: The threat of climate change requires investment to be rapidly shifted from fossil fuels towards low-carbon sectors, and this shift generates heated debates about its impact on employment. Although many employment studies exist, the economic mechanisms at play remain unclear. Using stylized CGE and IO models, we identify and discuss three channels of job creation resulting from an investment shift: positive employment impacts arising from targeting sectors with a high labour share in value added, low wages and low import rates. Results are robust across both models, except for the last, which only occurs in IO. We then undertake a numerical analysis of two policies: solar panel installation and weatherproofing. These investments both yield a positive effect on employment, a result which is robust across models, due to a high labour share and low wages in these sectors. The results are roughly similar in IO and CGE for solar; for weatherproofing, the results are higher in IO because of low import rates, by a factor ranging from 1.19 to 1.87. Our conclusions challenge the idea that renewable energies boost employment by reducing imports, but they also suggest that an employment double dividend might exist when encouraging low-carbon labour-intensive sectors.
    Keywords: Renewable energies, Investment, Employment, CGE, Input-Output
    JEL: C67 C68 E24 Q42 Q43
    Date: 2018–10
  88. By: Carin van der Cruijsen; Joris Knoben
    Abstract: For stakeholders in the payment system seeking to influence the usage of specific payment instruments, it is important to know what drives consumers' choice of payment instrument. However, little is known about how the social environment influences payment behaviour. This study fills this gap by researching the relevance of peer effects for payment behaviour. We used the detailed payment diary data of Dutch consumers. Our findings show that payment behaviour is strongly influenced by the environment that people live in, especially when the environment is characterised by strong social cohesion. Hence, our study offers new insights into the diffusion of payment behaviour.
    Keywords: payment diaries; payment behaviour; peer effects; consumer survey
    JEL: A14 D12 D14 E42 E58 Z13
    Date: 2018–10
  89. By: Berggren, Niclas (Research Institute of Industrial Economics (IFN)); Bjørnskov, Christian (Department of Economics, Aarhus University, Denmark)
    Abstract: Government debt is high in most developed countries, and while it may reflect short-term attempts to kick-start the economy in times of crisis through fiscal stimulus, the longer-term consequences risk being detrimental to investment and growth. This makes it important to identify factors that are associated with debt. While previous studies have related government debt to economic and political variables, they have not incorporated the degree to which the economy is regulated. Using regulatory freedom (absence of detailed regulation of labor, business and credit) from the Economic Freedom of the World index, we conduct an empirical analysis covering up to 67 countries in the period 1975–2010. The main finding is that regulatory freedom, especially for credit, affects debt development negatively. The effect is more pronounced when the political system is fractionalized and characterized by strong veto institutions, indicating policy stability and credibility, and when governments have a right-wing ideology.
    Keywords: Debt; Economic freedom; Regulation; Markets; Stimulus; Keynesianism
    JEL: E02 H63
    Date: 2018–10–10
  90. By: Fedotenkov, Igor
    Abstract: In this paper, we address the question of why voters tolerate corrupt politicians. Standard economic techniques such as expected utility maximization under uncertainty are employed. We show that a corrupt politician is less likely to institute reforms which can cause short-term losses for voters during a transitional period or lead with some probability to non-success. Voters' higher risk aversion causes an increased fear of reforms and higher tolerance for corruption. We also show that during an economic crisis the corruptionists' optimal strategy is not to institute reforms, as models with honest politicians predict, but to reduce the level of corruption. Using panel data techniques, we show that such a strategy is in line with the empirical CIS data; however, it follows with a short delay.
    Keywords: Corruption; politician; median voter; reforms; risk aversion
    JEL: D72 D73 D79 E60 I38 O43
    Date: 2018–10–18
  91. By: Hilde C. Bjørnland; Julia Zhulanova
    Abstract: We analyze if the transmission of oil price shocks on the U.S. economy has changed as a result of the shale oil boom. To do so we allow for spillovers at the state level, as well as aggregate country level effects. We identify and quantify these spillovers using a factor-augmented vector autoregressive (VAR) model, allowing for time-varying changes. In contrast to previous results, we find considerable changes in the way oil price shocks are transmitted: there are now positive spillovers to non-oil investment, employment and production in many U.S. states from an increase in the oil price - effects that were not present before the shale oil boom.
    Keywords: Shale oil boom, FAVAR model, Time-varying changes, Geographical dispersion
    Date: 2018–10
  92. By: Abreu, Maria (University of Cambridge); Öner, Özge (University of Cambridge, Department of Land Economy); Brouwer, Aleid (University of Groningen); van Leeuwen, Eveline (Urban Economics Group)
    Abstract: Our paper presents an empirical analysis of entrepreneurial well-being using a large-scale longitudinal household survey from the UK that tracks almost 50,000 individuals across seven waves over the period 2009–2017, as well as a number of exploratory case studies. We contribute to the existing literature by investigating how entrepreneurial well-being varies across locations along the urban-rural continuum, and across wealthy-deprived neighbourhoods. We use a Coarsened Exact Matching (CEM) approach to compare the well-being outcomes of individuals who switch into self-employment from waged employment, and show that entrepreneurial well-being, in the form of job satisfaction, is significantly higher for those living in semi-urban locations, relative to those living in urban and rural locations. We argue that semi-urban locations provide an optimal combination of ease of doing business and quality of life. Our results also show that individuals in wealthy neighbourhoods who switch into self-employment experience higher job satisfaction than otherwise comparable individuals living in materially deprived neighbourhoods, although the latter experience greater levels of life satisfaction following the switch.
    Keywords: Entrepreneurship; Well-being; Self-employment; Urban-rural; Neighbourhood effects
    JEL: E24 I13 L26 P25 R20 R23
    Date: 2018–10–30
  93. By: Jinsoo Lee (KDI School of Public Policy and Management); Bok-Keun Yu (Economic Research Institute, The Bank of Korea)
    Abstract: This paper studies whether export diversification mitigated the negative effect of the global financial crisis on exports using the Korean case. Specifically, we use annual data on the exports of 24 Korean manufacturing industries from 2000 to 2016 and examine whether the negative effect of the crisis on exports was less prevalent in industries that were more diversified in terms of country and product. We also examine whether export competitiveness, measured by the revealed comparative advantage index by industry, had a mitigating effect on trade during the crisis. In order to study these issues, we use a panel regression with a fixed-effect model for 24 Korean manufacturing industries. From our empirical analysis, we find that country diversification weakened the negative impact of the global financial crisis on Korea¡¯s exports, but neither product diversification nor export competitiveness did so.
    Keywords: Export diversification, Global financial crisis, Macroeconomic stabilization
    JEL: E60 F10 F40
    Date: 2018–08–20
  94. By: Hannes Schwandt; Till M. von Wachter
    Abstract: This paper studies the differential persistent effects of initial economic conditions for labor market entrants in the United States from 1976 to 2015 by education, gender, and race using labor force survey data. We find persistent earnings and wage reductions especially for less advantaged entrants that increases in government support only partly offset. We confirm the results are unaffected by selective migration and labor market entry by also using a double-weighted average unemployment rate at labor market entry for each birth cohort and state-of-birth cell based on average state migration rates and average cohort education rates from Census data.
    JEL: E32 J21 J31
    Date: 2018–10
  95. By: Selahattin İMROHOROĞLU; KITAO Sagiri; YAMADA Tomoaki
    Abstract: Japan leads all advanced economies in terms of aging and has the highest debt to gross domestic product (GDP) ratio. The public pension, medical and long-term care (LTC) expenditures are projected to far outpace revenues and create significant fiscal burdens. In this paper, we develop a detailed overlapping generations model that incorporates the social insurance programs in detail, use most recent estimates from Japanese micro data and government demographic projections to discipline the earnings and labor supply profiles of heterogeneous agents and their cohort shares, and simulate future paths of fiscal and macroeconomic indicators. Our numerical results suggest that absent any change in current policies, Japan will continue to run large pension, public health, LTC, and basic deficits and the debt to GDP ratio will continue to reach unprecedented highs, with interest payments on the debt becoming increasingly larger. Although no single policy tool can address fiscal consolidation, a combination of policies is found to achieve sustainability: raise the retirement age to 67, cut pensions by 10%, raise copays of health and LTC insurances to 20%, find policies to propel female employment and earnings to the levels of their male counterparts, and increase the consumption tax rate to 15%. Under these changes, the debt to output ratio in 2050 would be lower than that in 2020.
    Date: 2018–09
  96. By: Pablo Adrian Garlati Bertoldi
    Abstract: I characterize informal-formal employment transitions in Paraguay. Results indicate that some factors, such as education and firms size, improve workers' movement between informal and formal employment, and wage gains from moving into formality are modest. Workers who tend to stay indenitely informal are more likely to become unemployed or inactive. Estimates, based on a survival model, indicate that education and firm size highly increase informal-to-formal transitions, especially if workers have stayed informal for a long time. Older women have lower formal-to-informal transitions and, surprisingly, education plays no significant role. Mincer estimates point to high wages for formal workers, compared with informal, but that individual workers' wage gains from moving into formality are small.
    Keywords: informality, labor market dynamics, survival analysis, Paraguay
    JEL: C41 E26
    Date: 2018–10–09
  97. By: Parui, Pintu
    Abstract: In post-Keynesian literature, Hein (2012a) was the first to incorporate financialization as an influential positive determinant of the rate of technological change. However, financialization is more like a two-edged sword which can affect technological progress negatively as well. We capture both the positive as well as the negative effect of financialization on technological progress which encapsulates the possibility of multiple equilibria. In analyzing the long run of the model we endogenize the financialization parameter as well. We then show how two subsystems (technological progress and financialization dynamics) when interact with each other, can produce instability and cycles for the whole system. We show that under certain circumstances, higher speed of diffusion of technological innovation, more regulated financial markets, and higher intra-class competition among firms are desirable for stabilizing the economy. Finally, we provide some policy prescriptions for the same.
    Keywords: Capital accumulation, Distribution, Financialization, Kaleckian model, Technological progress, Andronov–Hopf bifurcation, Saddle-node bifurcations, Limit cycles
    JEL: C62 C69 D33 E12 G01 O16 O41
    Date: 2018–10–05
  98. By: Oscar Bajo-Rubio (Universidad de Castilla-La Mancha); Antonio G. Gómez-Plana (Universidad Pública de Navarra)
    Abstract: In this paper, we analyse the global effects, i.e., the effects on the world economy, from the austerity policies implemented in the European Union (EU) over the last years. Specifically, we simulate the effects of three alternative policies aimed to get a fall of one percentage point in the EU’s government deficit to GDP ratio, through a decrease in the level of public spending, and increases in consumption and in labour taxes. We examine their effects on the main macroeconomic variables of seven regions of the world economy, i.e., the EU, the US, Japan, China, Asia†Pacific, Latin America and Rest of the World. The empirical methodology makes use of a computable general equilibrium (CGE) model, through an extension of the Global Trade Analysis Project (GTAP) model. The three policy measures led to contractionary effects on the EU’s levels of activity, which were accompanied with changes in income distribution, always detrimental to labour. The effects on the rest of the world, however, were mostly negligible.
    Keywords: Computable general equilibrium, Austerity policies, Global economy, European Union
    JEL: C68 H62 H20 H50
    Date: 2018–03
  99. By: Gabriele Camera; Alessandro Gioffré
    Abstract: The theory of repeated games asserts that, when past conduct is unobservable, patient individuals can attain the efficient outcome if cooperators suffer large losses to defectors, and react by forever defecting. This extreme "grim" punishment is, in fact, counterproductive when losses are small, as it prevents cooperation among patient players. Here we show how to resolve this non-existence problem. A class of moderate punishments exists, which support full cooperation independent of the size of losses to defectors. Our theory provides a rationale for the empirical observation that grim punishment is uncommon in laboratory studies of cooperation.
    Keywords: prisoner’s dilemma, random matching, social norms.
    JEL: E4 E5 C7
    Date: 2018
  100. By: Chien, YiLi (Federal Reserve Bank of St. Louis); Lee, Junsang (Sungkyunkwan University)
    Abstract: This paper proposes an equilibrium model to explain the positive and sizable term premia observed in the data. We introduce a slow mean-reverting process of consumption growth and a segmented asset market mechanism with heterogeneous trading technology to otherwise a standard heterogeneous agent general equilibrium model. First, a slow mean-reverting consumption growth process implies that the expected consumption growth rate is only slightly countercyclical and the process can exhibit a near zero first-order autocorrelation as seen in the data. The very small countercyclicality of the expected consumption growth rate suggests that the long term bonds are risky and hence the term premia are positive. Second, the segmented asset market mechanism amplifies the size and the magnitude of term premia since the aggregate risk is concentrated into a small fraction of marginal traders who demand high risk premia. For sensitivity analysis, the role of each assumption is further investigated by taking each factor out one by one.
    Keywords: Limited Participation; Term Premia; Portfolio Heterogeneity; Household Finance
    JEL: E30 G11 G12
    Date: 2018–04–03
  101. By: Johnson, Paul; Papageorgiou, Chris
    Abstract: We examine the record of cross-country growth over the past 50 years and ask if developing countries have made progress on closing income gap between their per capita incomes and those in the advanced economies. We conclude that, as a group, they have not and then survey the literature on absolute convergence with particular emphasis on that from the last decade or so. That literature supports our conclusion of a lack of progress in closing the income gap between countries. We close with a brief examination of the recent literature on cross-individual distribution of income which finds that, despite the lack of progress on cross-country convergence, global inequality has tended to fall since 2000.
    Keywords: Economic growth, convergence, catching up, global inequality
    JEL: E01 E13 F41 O11 O47
    Date: 2018–08
  102. By: François Gerard; Lorenzo Lagos; Edson Severnini; David Card
    Abstract: A growing body of research shows that firms' employment and wage-setting policies contribute to wage inequality and pay disparities between groups. We measure the effects of these policies on racial pay differences in Brazil. We find that nonwhites are less likely to work at establishments that pay more to all race groups, a pattern that explains about 20% of the white-nonwhite wage gap for both genders. The pay premiums offered by different employers are also compressed for nonwhites relative to whites, contributing another 5% of the overall gap. We then ask how much of the under-representation of nonwhites at higher-paying workplaces is due to the selective skill mix at these establishments. Using a counterfactual based on the observed skill distribution at each establishment and the nonwhite shares in different skill groups in the local labor market, we conclude that assortative matching accounts for about two- thirds of the under-representation gap for both men and women. The remainder reflects an unexplained preference for white workers at higher-paying establishments. The wage losses associated with unexplained sorting and differential wage setting are largest for nonwhites with the highest levels of general skills, suggesting that the allocative costs of race-based preferences may be relatively large in Brazil.
    JEL: E24 J15 J31
    Date: 2018–10
  103. By: Abugamea, Gaber
    Abstract: This study analyzes the determinants of unemployment in Palestine over the period 1994-2017. It employs OLS econometric analysis to examine the relationship between unemployment and the variables of GDP, inflation, labor force, external trade and restrictions on labor movement. Empirical results show the variables of GDP, inflation, labor force, external trade, as a macroeconomic determinants, and restrictions on labor movement, as an institutional one, are main determinants of unemployment in Palestine. Whilst GDP impacted unemployment significantly with a negative effect, it is found inflation, labor force and restrictions on labor movement impacted unemployment significantly and with a positive effect. Also, external trade not affected unemployment significantly. The CUSUM and CUSUMQ are showing that the model is structurally stable within 5 % of critical bound. The study recommends a number of policy implications.
    Keywords: , Macroeconomic variables, Restrictions on Labor Movement, OLS, Palestine
    JEL: J64
    Date: 2018–10–14
  104. By: Bruno Ducoudre (Observatoire français des conjonctures économiques); Nicolas Yol (Observatoire français des conjonctures économiques (OFCE))
    Abstract: Ce rapport propose une évaluation des effets macroéconomiques du CICE sur la période 2013-2015. Nous réalisons des simulations à partir du modèle macro-économétrique de l’OFCE, lequel est calibré à l’aide d’estimations effectuées par le TEPP sur données d’entreprises. Nous intégrons les hausses de prélèvements obligatoires et les économies de dépenses publiques associées au CICE afin de prendre en compte leurs impacts récessifs sur l’économie. Outre les effets relatifs au financement du CICE, nos simulations intègrent également les effets de bouclage macroéconomique, contrairement aux approches micro-économétriques. Les résultats suggèrent que compte tenu de l’effort budgétaire, le CICE aurait permis de créer entre 111 000 (scénario bas) et 281 000 (scénario haut) emplois entre 2013 et 2015, alors que les effets sur le PIB seraient quasi-nuls. L’augmentation de la fiscalité et les économies de dépenses publiques exercent des effets négatifs sur la demande adressée aux entreprises, contribuant à limiter l’efficacité de la mesure sur les créations d’emplois. Le manque de données disponibles après 2015 ne nous permet toutefois pas de prendre en compte l’intégralité des économies de dépenses publiques
    Keywords: Crédit d'impôt; Simulation; Emploi; Croissance; Coût du travail; Compétitivté
    JEL: H0 J3
    Date: 2018–10

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