nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒11‒12
94 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Unconventional Monetary Policy, Bank Lending, and Security Holdings: The Yield-Induced Portfolio Rebalancing Channel By Paludkiewicz, Karol
  2. What went wrong with Italy, and what the country should now fight for in Europe By Sergio Cesaratto; Gennaro Zezza
  3. The debunking the granular origins of aggregate fluctuations : from real business cycles back to Keynes By Giovanni Dosi; Mauro Napoletano; Andrea Roventini; Tania Treibich
  4. The German Labor Market during the Great Recession: Shocks and Institutions By Gehrke, Britta; Lechthaler, Wolfgang; Merkl, Christian
  5. The government spending multiplier, fiscal stress and the zero lower bound By Strobel, Felix
  6. Modeling Time-Variation Over the Business Cycle (1960-2017): An International Perspective By Martinez-Garcia, Enrique
  7. Varieties of Capitalism and post-Keynesian economics on Eurocrisis By Engelbert Stockhammer; Syed Mohib Ali
  8. Mortgage Prepayment and Path-Dependent Effects of Monetary Policy By David W. Berger; Konstantin Milbradt; Fabrice Tourre; Joseph Vavra
  9. Monetary Easing, Investment and Financial Instability By Viral Acharya; Guillaume Plantin
  10. A Behavioral Model of the Credit Cycle By Barbara Annicchiarico; Silvia Surricchio; Robert J. Waldmann
  11. Resurrecting the New-Keynesian Model: (Un)conventional Policy and the Taylor rule By Posch, Olaf
  12. On the Job Search and Business Cycles By Moscarini, Giuseppe; Postel-Vinay, Fabien
  13. Evaluating the Bank of Canada Staff Economic Projections Using a New Database of Real-Time Data and Forecasts By Julien Champagne; Guillaume Poulin-Bellisle; Rodrigo Sekkel
  14. Macroeconomic in the age of secular stagnation By Gilles Le Garrec; Vincent Touze
  15. Going the Extra Mile: Distant Lending and Credit Cycles By João Granja; Christian Leuz; Raghuram Rajan
  16. Euro area unconventional monetary policy and bank resilience By Fernando Avalos; Emmanuel C Mamatzakis
  17. Banks are not intermediaries of loanable funds — facts, theory and evidence By Jakab, Zoltan; Kumhof, Michael
  18. An intuitive method to improve the estimation of output gaps By Wilde, Wollfram; Beckmann, Joscha
  19. Negative Interest Rate Policy and the Yield Curve By Jing Cynthia Wu; Fan Dora Xia
  20. Price Points and Price Dynamics By Hahn, Volker; Marencak, Michal
  21. Non-Performing Loans, Fiscal Costs and Credit Expansion in China By Huixin Bi; Yongquan Cao; Wei Dong
  22. The Government Spending Multiplier at the Zero Lower Bound: International Evidence from Historical Data By Klein, Mathias; Winkler, Roland
  23. Inflation Expectation Uncertainty, Inflation and the Outputgap By Schmidt, Torsten
  24. The Rise and Fall of the Natural Interest Rate By Gabriele Fiorentini; Alessandro Galesi; Gabriel Pérez-Quirós; Enrique Sentana
  25. The information content of inflation swap rates for the long-term inflation expectations of professionals: Evidence from a MIDAS analysis By Hanoma, Ahmed; Nautz, Dieter
  26. Macroeconomic implications of Raising Income:The Nigerian Experience. By Okolo, Chimaobi; Attamah, Nicholas
  27. Slow Post-Financial Crisis Recovery and Monetary Policy By Ikeda, Daisuke; Kurozumi, Takushi
  28. Assessing Vulnerabilities in Emerging-Market Economies By Tatjana Dahlhaus; Alexander Lam
  29. Reforming Fiscal Institutions in Resource-Rich Arab Economies: Policy Proposals By Mohaddes, Kamiar; Nugent, Jeffrey B.; Selim, Hoda
  30. Estimación del Consumo a partir de sus Componentes Principales en la Tabla Insumo-Producto By César Carrera
  31. "Monitoring Money for Price Stability" By Constantino Hevia; Juan Pablo Nicolini
  32. On the long run Phillips Curve genus By Rod Cross
  33. Bank Capital in the Short and in the Long Run By Caterina Mendicino; Kalin Nikolov; Javier Suarez; Dominik Supera
  34. The Rise of Cloud Computing: Minding Your P’s, Q’s and K’s By David Byrne; Carol Corrado; Daniel E. Sichel
  35. The evolution of spanish total factor productivity since the global financial crisis By Chenxu Fu; Enrique Moral-Benito
  36. Sex and the Business Cycle By Wall, Howard J.
  37. Household Debt and Recession in Brazil By Gabriel Garber; Atif Mian; Jacopo Ponticelli; Amir Sufi
  38. The Effectiveness of Investment Stimulus Policies in Australia By J.M. Dixon; J. Nassios
  39. A Modest Proposal For Augmenting The Gross Domestic Product Of Italy, Allowing Greater Public Spending, Employment, And Graft By Fenoaltea, Stefano
  40. How active is active learning: value function method vs an approximation method By Hans M. Amman; Marco Paolo Tucci
  41. European fiscal rules require a major overhaul By Zsolt Darvas; Philippe Martin; Xavier Ragot
  42. Managing the Discontent of the Losers By Mark Setterfield
  43. Health Shocks and the Evolution of Consumption and Income over the Life-Cycle By Michael Keane; Elena Capatina; Shiko Maruyama
  44. Agent- based model of intra-day financial markets dynamics By Jacopo Staccioli; Mauro Napoletano
  45. Monetary and Fiscal History of Peru 1960-2010: Radical Policy Experiments, Inflation and Stabilization By Cesar Martinelli; Marco Vega
  46. Institutional and economic determinants of regional public debt in Spain By Mar Delgado-Téllez; Javier J. Pérez
  47. Income inequality, consumption, credit and credit risk in a data-driven agent-based model By Papadopoulos, Georgios
  48. The Impact of Migration on Productivity and Native-Born Workers' Training By Campo, Francesco; Forte, Giuseppe; Portes, Jonathan
  49. Vacancy Durations and Entry Wages: Evidence from Linked Vacancy-Employer-Employee Data By Kettemann, Andreas; Mueller, Andreas I.; Zweimüller, Josef
  50. Where We Stand: Assessment of Economic Conditions and Implications for Monetary Policy By Kaplan, Robert S.
  51. Labor market conditions and charges of discrimination: Is there a link? By Karl David Boulware; Kenneth N. Kuttner
  52. Path dependence, distributive cycles and export capacity in a BoPC growth model By Marwil J. Dávila-Fernández; Serena Sordi
  53. Exploring the Determinacy Dynamics in an Open Economy By Karagiannides, Gabriel
  54. U.S. Monetary Policy and Emerging Market Credit Cycles By Falk Bräuning; Victoria Ivashina
  55. Time-Frequency Response Analysis of Monetary Policy Transmission By Lubos Hanus; Lukas Vacha
  56. "Bond risk premia and restrictions on risk prices" By Constantino Hevia; Martin Sola
  57. Exchange Rates and Monetary Spillovers By Guillaume Plantin; Hyun Song Shin
  58. The Neutral Rate of Interest By Kaplan, Robert S.
  59. Longevity and Companionship in an Overlapping-Generations Model By Gylfi Zoega; Marias H. Gestsson
  60. Wavelet analysis for temporal disaggregation By Chiara Perricone
  61. Intangibles and the Market Value of Biopharmaceutical Startups By Morales, Rosa; Radoniqi, Fatos
  62. International Reserves Management in a Model of Partial Sovereign Default By Ricardo Sabbadini
  63. The Productivity J-Curve: How Intangibles Complement General Purpose Technologies By Erik Brynjolfsson; Daniel Rock; Chad Syverson
  64. Exploring the Driving Forces of the Bitcoin Exchange Rate Dynamics: An EGARCH Approach By Zhou, Siwen
  65. Paradise lost? A brief history of DSGE macroeconomics By Gulan, Adam
  66. Unemployment Insurance Take-up Rates in an Equilibrium Search Model By Stéphane Auray; David L. Fuller; Damba Lkhagvasuren
  67. La contribución del petróleo al desarrollo de Colombia. Mirada a las regiones productoras By Astrid Martínez Ortiz
  68. Nowcasting the Unemployment Rate in the EU with Seasonal BVAR and Google Search Data By Anttonen, Jetro
  69. Technical progress and growth since the crisis By Philippe Aghion; Céline Antonin
  70. Global Investors, the Dollar, and U.S. Credit Conditions By Niepmann, Friederike; Schmidt-Eisenlohr, Tim
  71. Financial sector bargaining power, aggregate growth and systemic risk By Emanuele Ciola
  72. Measuring Co-Dependencies of Economic Policy Uncertainty in Latin American Countries using Vine Copulas By Semih Emre Cekin; Ashis Kumar Pradhan; Aviral Kumar Tiwari; Rangan Gupta
  73. An Empirical Test for the Effectiveness of Central Bank Interventions in Foreign Exchange Markets: An Application to the Canadian and Swiss Central Banks By ABBUY, Kwami Edem
  74. Banking on the Boom, Tripped by the Bust: Banks and the World War I Agricultural Price Shock By Matthew S. Jaremski; David C. Wheelock
  75. Federalism and Foreign Direct Investment: How Political Affiliation Determines the Spatial Distribution of FDI – Evidence from India By Sharma, Chanchal Kumar
  76. From Classes to Individuals: Standardizing a Link Between Personal and Functional Distribution By Arthur Brackmann Netto
  77. Production and Learning in Teams By Kyle Herkenhoff; Jeremy Lise; Guido Menzio; Gordon M. Phillips
  78. Selective Hiring and Welfare Analysis in Labor Market Models By Merkl, Christian; van Rens, Thijs
  79. Econometric modelling of the link between investment and electricity consumption in Ghana By Asuamah Yeboah, Samuel
  80. Though this be madness: A game-theoretic perspective on the Brexit negotiations By Pitsoulis, Athanassios; Schwuchow, Soeren
  81. Loss Aversion and Search for Yield in Emerging Markets Sovereign Debt By Ricardo Sabbadini
  82. Capital Income Risk and the Dynamics of the Wealth Distribution By Khieu, Hoang; Wälde, Klaus
  83. A Fresh Look at Fiscal Redistribution and Inequality in the US across Electoral Cycles By Sala, Hector
  84. Implications of bank regulation for loan supply and bank stability: A dynamic perspective By Bucher, Monika; Dietrich, Diemo; Hauck, Achim
  85. Structural Change and the Wage Share: a Two-Sector Kaleckian Model By Beqiraj, Elton; Fanti, Lucrezia; Zamparelli, Luca
  86. Mesure du temps et temps de la mesure. Cliométrie des prix de gros en Allemagne avant la Première Guerre mondiale By Claude Diebolt; Magali Jaoul-Grammare
  87. Evaluating the implicit cost of CO2 abatement with renewable energy incentives in Pakistan By Hanan Ishaque
  88. Capital Flows in the Euro Area and TARGET2 Balances By Wollmershäuser, Timo
  89. Business Cycle with Bank Intermediation in Oil Economies By Hamid R Tabarraei; Hamed Ghiaie; Asghar Shahmoradi
  90. At Africa's Expense? Disaggregating the Social Impact of Chinese Mining Operations By Wegenast, Tim; Strüver, Georg; Giesen, Juliane; Krauser, Mario
  91. Why political risk matters for banking flows? By Ana Mafalda Vasconcelos
  92. Long Run Growth of Financial Data Technology By Farboodi, Maryam; Veldkamp, Laura
  93. Introduction : Whither the Economy ? By Xavier Ragot
  94. "Assessing the degree of international consumption risk sharing " By Constantino Hevia; Luis Serven

  1. By: Paludkiewicz, Karol
    Keywords: Unconventional Monetary Policy,Quantitative Easing,Portfolio Rebalancing.
    JEL: E44 E51 E52 E58 G21
    Date: 2018
  2. By: Sergio Cesaratto; Gennaro Zezza
    Abstract: In this paper we briefly review the evolution of the Italian economy in the post-war period, discussing the shift from a first period when fiscal policy was targeted – among other things – at full employment, to a later period when controlling inflation through a “foreign discipline” became the main policy target. We review critically the literature on the Italian productivity slowdown, suggesting that it neglects the role of aggregate demand, and of labor market reforms, on productivity. Finally, we discuss Eurozone imbalances, suggesting that Eurozone institutions adopt new rules to keep the interest rate low enough to make public debt sustainable, while using fiscal policy to stimulate growth
    Keywords: Italy; stagnation; Eurozone; imbalances
    JEL: E44 E52 E62
    Date: 2018–10
  3. By: Giovanni Dosi (Laboratory of Economics and Management); Mauro Napoletano (Observatoire français des conjonctures économiques); Andrea Roventini (Laboratory of Economics and Management (LEM)); Tania Treibich (Observatoire français des conjonctures économiques)
    Abstract: In this work we study the granular origins of business cycles and their possible underlying drivers. As shown by Gabaix (2011), the skewed nature of firm size distributions implies that idiosyncratic (and independent) firm-level shocks may account for a significant portion of aggregate volatility. Yet, we question the original view grounded on “supply granularity”, as proxied by productivity growth shocks – in line with the Real Business Cycle framework–, and we provide empirical evidence of a “demand granularity”, based on investment growth shocks instead. The role of demand in explaining aggregate fluctuations is further corroborated by means of a macroeconomic Agent-Based Model of the “Schumpeter meeting Keynes” family (Dosi et al., 2015). Indeed, the investigation of the possible microfoundation of RBC has led us to the identification of a sort of microfounded Keynesian multiplier.
    Keywords: Business cycles; Granular residual; Granularity hypothesis; Agent-based model; Firm dynamics; Productivity growth; Investment growth
    JEL: C63 E12 E22 E32 O4
    Date: 2018–09
  4. By: Gehrke, Britta (University of Erlangen-Nuremberg); Lechthaler, Wolfgang (Kiel Institute for the World Economy); Merkl, Christian (University of Erlangen-Nuremberg)
    Abstract: This paper analyzes Germany's unusual labor market experience during the Great Recession. We estimate a general equilibrium model with a detailed labor market block for post-unification Germany. This allows us to disentangle the role of institutions (short-time work, government spending rules) and shocks (aggregate, labor market, and policy shocks) and to perform counterfactual exercises. We identify positive labor market performance shocks (likely caused by labor market reforms) as the key driver for the "German labor market miracle" during the Great Recession.
    Keywords: Great Recession, search and matching, DSGE, short-time work, fiscal policy, business cycles, Germany
    JEL: E24 E32 E62 J08 J63
    Date: 2018–09
  5. By: Strobel, Felix
    Abstract: The recent sovereign debt crisis in the Eurozone was characterized by a monetary policy, which has been constrained by the zero lower bound (ZLB) on nominal interest rates, and several countries, which faced high risk spreads on their sovereign bonds. How is the government spending multiplier affected by such an economic environment? While prominent results in the academic literature point to high government spending multipliers at the ZLB, higher public indebtedness is often associated with small government spending multipliers. I develop a DSGE model with leverage constrained banks that captures both features of this economic environment, the ZLB and fiscal stress. In this model, I analyze the effects of government spending shocks. I find that not only are multipliers large at the ZLB, the presence of fiscal stress can even increase their size. For longer durations of the ZLB, multipliers in this model can be considerably larger than one.
    Keywords: Government spending multiplier,Fiscal stress,Zero lower bound,Financial frictions
    JEL: E32 E44 E62
    Date: 2018
  6. By: Martinez-Garcia, Enrique (Federal Reserve Bank of Dallas)
    Abstract: In this paper, I explore the changes in international business cycles with quarterly data for the eight largest advanced economies (U.S., U.K., Germany, France, Italy, Spain, Japan, and Canada) since the 1960s. Using a time-varying parameter model with stochastic volatility for real GDP growth and inflation allows their dynamics to change over time, approximating nonlinearities in the data that otherwise would not be adequately accounted for with linear models (Granger et al. (1991), Granger (2008)). With that empirical model, I document a period of declining macro volatility since the 1980s, followed by increasing (and diverging) inflation volatility since the mid-1990s. I also find significant shifts in inflation persistence and cyclicality, as well as in macro synchronization and even forecastability. The 2008 global recession appears to have had an impact on some of this. I ground my empirical strategy on the reduced-form solution of the workhorse New Keynesian model and, motivated by theory, explore the relationship between greater trade openness (globalization) and the reported shifts in international business cycles. I show that globalization has sizeable (yet nonlinear) effects in the data consistent with the implications of the model—yet globalization’s contribution is not a foregone conclusion, depending crucially on more than the degree of openness of the international economy.
    Keywords: Great Moderation; Globalization; International Business Cycles; Stochastic Volatility; Time-Varying Parameters
    JEL: E31 E32 F41 F44
    Date: 2018–10–01
  7. By: Engelbert Stockhammer; Syed Mohib Ali
    Abstract: The 2008 global financial crisis that began in the US housing sector mutated into a sovereign debt crisis and an economic depression for countries in southern Europe, threatening the very existence of the Eurozone. The paper contrasts analyses of the eurocrisis based on the Varieties of Capitalism (VoC) approach and post-Keynesian analysis. The VoC analysis has argued that the eurocrisis is ultimately a crisis of incompatible institutional settings, in particular wage bargaining institutions, tied together in a monetary union. The Mediterranean Market Economies lack the institutional capacities to restrain wage growth. The Coordinated Market Economies (in northern Europe) have managed to maintain modest wage growth and inflation because export-oriented sectors play the role of wage leader. Post-Keynesian analysis has interpreted the crisis as the outcome of the unsustainable growth models and neoliberal policies in Europe; i.e. a neo-mercantilist export-led demand regime in the North and a debt-driven demand regime in the South and the EMU policies of financial deregulation that accompanied European economic integration. What is specific to the Euro area is the absence of adequate central fiscal stabilization or effective lender of last resort facility for the member countries. The ECB was hesitant in its unconventional monetary policy and began buying government bonds of countries under pressure only at a late stage of the crises. The imbalances resulted in a full blown sovereign debt crisis. We argue that the VoC analysis has important shortcomings as it focuses excessively on labour market institutions and that the post-Keynesian approach integrates financial factors and economic policy in explaining the crisis.
    Keywords: Varieties of Capitalism, Post-Keynesian economics, Eurocrisis
    JEL: B00 E02 E12 E60 G01 P50
    Date: 2018–10
  8. By: David W. Berger; Konstantin Milbradt; Fabrice Tourre; Joseph Vavra
    Abstract: How much ability does the Fed have to stimulate the economy by cutting interest rates? We argue that the presence of substantial household debt in fixed-rate prepayable mortgages means that this question cannot be answered by looking only at how far current rates are from zero. Using a household model of mortgage prepayment with endogenous mortgage pricing, wealth distributions and consumption matched to detailed loan-level evidence on the relationship between prepayment and rate incentives, we argue that the ability to stimulate the economy by cutting rates depends not just on the level of current interest rates but also on their previous path: 1) Holding current rates constant, monetary policy is less effective if previous rates were low. 2) Monetary policy "reloads" stimulative power slowly after raising rates. 3) The strength of monetary policy via the mortgage prepayment channel has been amplified by the 30-year secular decline in mortgage rates. All three conclusions imply that even if the Fed raises rates substantially before the next recession arrives, it will likely have less ammunition available for stimulus than in recent recessions.
    JEL: E0 E2 E4 E43 E5 E52 E58
    Date: 2018–10
  9. By: Viral Acharya (Reserve Bank of India); Guillaume Plantin (Département d'économie)
    Abstract: This paper studies a model of the interest-rate channel of monetary policy in which a low policy rate lowers the cost of capital for firms thereby spurring investment, but also induces destabilizing “carry trades” against their assets. If the public sector does not have sufficient fiscal capacity to cope with the large resulting private borrowing, then carry trades and productive investment compete for scarce funds, and so the former crowd out the latter. Below an endogenous lower bound, monetary easing generates only limited investment at the cost of large and socially wasteful financial risk taking.
    Keywords: Monetary policy; Financial stability; Shadow banking; Carry trades
    JEL: E52 E58 G01 G21 G23 G28
    Date: 2018–07
  10. By: Barbara Annicchiarico (DEF & CEIS,University of Rome "Tor Vergata"); Silvia Surricchio (DEF,University of Rome "Tor Vergata"); Robert J. Waldmann (DEF & CEIS,University of Rome "Tor Vergata")
    Abstract: In a behavioral variant of a New Keynesian model, in which individuals use simple heuristic rules to forecast future in ation and output gap, if there are limits on the amount of debt that economic agents are allowed to bear, we observe occasionally severe downturns. Differences in beliefs combined with borrowing constraints tend to dampen expansions, but give rise to a chain reaction that exacerbates the recessions. The model is an example of endogenous credit cycles with expansions, severe recessions, and persistent inequality in the distribution of wealth. Monetary policy can both stabilize the economy and cause increased average output.
    Keywords: Credit cycle, heuristic rules, monetary policy
    JEL: E10 E32 D83
    Date: 2018–10–30
  11. By: Posch, Olaf
    Abstract: This paper explores the ability of the New-Keynesian (NK) model to explain the recent periods of quiet and stable inflation at near-zero nominal interest rates. We show how (conventional and unconventional) monetary policy shocks enlarge the ability to explain the facts, such that the theory supports both a negative and a positive response of inflation. Central to our finding is that monetary policy shocks may have temporary and/or permanent components. We find that the NK model can explain the recent episodes, even if one considers an active role of monetary policy and restrict ourselves to the regions of (local) determinacy. We also show that a new global solution, capturing highly nonlinear dynamics, is necessary to generate a prolonged period of near-zero interest rates as a policy choice.
    Keywords: Continuous-time dynamic equilibrium models,Calvo price setting
    JEL: E32 E12 C61
    Date: 2018
  12. By: Moscarini, Giuseppe (Yale University); Postel-Vinay, Fabien (University College London)
    Abstract: We propose a highly tractable way of analyzing business cycles in an environment with random job search both off- and and on-the-job (OJS). Ex post heterogeneity in productivity across jobs generates a job ladder. Firms Bertrand-compete for employed workers, as in the Sequential Auctions protocol of Postel-Vinay and Robin (2002). We identify three channels through which OJS amplifies and propagates aggregate shocks: (i) a higher estimated elasticity of the matching function, when recognizing that at least half of all hires are from other employers; (ii) the differential returns to hiring employed and unemployed job applicants, whose proportions naturally vary over the business cycle; (iii) within employment, the slow reallocation of workers through OJS across rungs of the job ladder, generating endogenous, slowly evolving opportunities for further poaching, which feed back on job creation incentives. Endogenous job destruction, due to either aggregate or idiosyncratic shocks, is countercyclical and thus raises the cyclical volatility of unemployment, closer to its empirical value; but it also stimulates job creation in recessions, to take advantage of the fresh batch of unemployed, and tilts the Beveridge curve up. OJS corrects this tendency and restores a vacancy-unemployment trade-off more in line with empirical observations.
    Keywords: labor reallocation, business cycles, search frictions
    JEL: E24 E32
    Date: 2018–09
  13. By: Julien Champagne; Guillaume Poulin-Bellisle; Rodrigo Sekkel
    Abstract: We present a novel database of real-time data and forecasts from the Bank of Canada’s staff economic projections. We then provide a forecast evaluation for GDP growth and CPI inflation since 1982: we compare the staff forecasts with those from commonly used time-series models estimated with real-time data and with forecasts from other professional forecasters and provide standard bias tests. Finally, we study changes in the predictability of the Canadian economy following the announcement of the inflation-targeting regime in 1991. Our database is unprecedented outside the United States, and our evidence is particularly interesting, as it includes over 30 years of staff forecasts, two severe recessions and different monetary policy regimes. The database will be made available publicly and updated annually.
    Keywords: Econometric and statistical methods, Economic models, Inflation targets, Monetary Policy
    JEL: C32 E17 E37
    Date: 2018
  14. By: Gilles Le Garrec (Observatoire français des conjonctures économiques); Vincent Touze (Observatoire français des conjonctures économiques)
    Abstract: The “Great Recession” that began in 2008 plunged the economy into longlasting stagnation with high unemployment, depressed output and very low inflation. This crisis, whose exceptional duration is difficult to explain using the theoretical tools of contemporary macroeconomics, invites us to enrich fundamental analysis. Conceptualizing secular stagnation is then based on the introduction of market imperfections such as credit rationing on the financial market as well as nominal rigidities on the labour market. The resulting equilibrium is characterized by the underemployment of factors of production (high unemployment, low capital accumulation) associated with a fall in prices (deflation) and monetary policy that is inactive because of the zero lower bound constraint on the key rate. In a period of secular stagnation, the impact of economic policies is affected, and many Keynesian properties appear: a deflationary impact of supply policies, ineffective conventional monetary policy and a positive effect of public spending, although limited by the crowding out of private investment.
    Keywords: Secular stagnation; Accumulation of capital; Budget policy; Zero lower bound
    Date: 2018–09
  15. By: João Granja; Christian Leuz; Raghuram Rajan
    Abstract: We examine the degree to which competition amongst lenders interacts with the cyclicality in lending standards using a simple measure, the average physical distance of borrowers from banks’ branches. We propose that this novel measure captures the extent to which lenders are willing to stretch their lending portfolio. Consistent with this idea, we find a significant cyclical component in the evolution of lending distances. Distances widen considerably when credit conditions are lax and shorten considerably when credit conditions become tighter. Next, we show that a sharp departure from the trend in distance between banks and borrowers is indicative of increased risk taking. Finally, we provide evidence that as competition in banks’ local markets increases, their willingness to make loans at greater distance increases. Since average lending distance is easily measurable, it is potentially a useful measure for bank supervisors.
    JEL: E32 E44 G01 G18 G21 G32 L14
    Date: 2018–10
  16. By: Fernando Avalos; Emmanuel C Mamatzakis
    Abstract: This paper examines whether euro area unconventional monetary policies have affected the loss-absorbing buffers (that is the resilience) of the banking industry. We employ various measures to capture the effect of the broad array of programmes used by the ECB to implement balance sheet policies, while we control for the effect of conventional and negative (or very low) interest rate policy. The results suggest that, above and away from the zero-lower bound, looser interest rate policy tends to weaken our measure of euro area banks' loss-absorbing buffers. On the contrary, further lowering interest rates near and below the zero lower bound seems to strengthen (or weaken less) such buffers, which points towards non-linearities arising in the vicinity of the lower bound. Moreover, balance sheet easing policies enhance bank level resilience overall. However, unconventional monetary policies seem to have increased the fragility of banks in the member states hardest hit by the 2011 sovereign debt crisis. In fact, the evidence presented in this paper suggest that the resilience gains of unconventional monetary policies have accrued mostly to banks headquartered in the so-called core euro area countries (Austria, Belgium, Finland, France, Germany, Luxembourg and Netherlands). Finally, unconventional monetary policies seem to have enhanced more the resilience of banks that were relatively stronger, i.e. that were in the higher deciles of the distribution of loss-absorbing buffers.
    Keywords: unconventional monetary policy, ECB, asset purchases, loss-absorbing buffer
    JEL: G21 E52 E43
    Date: 2018–11
  17. By: Jakab, Zoltan (International Monetary Fund); Kumhof, Michael (Bank of England)
    Abstract: In the loanable funds model that dominates the literature, banks are nonfinancial warehouses that receive physical commodity deposits from savers before lending the commodities to borrowers. In the financing model of this paper, banks are financial institutions whose loans create ledger-entry deposits that are essential in commodities exchange among nonbanks. This model predicts larger and faster changes in bank lending and greater real effects of financial shocks. Aggregate bank balance sheets exhibit very high volatility, as predicted by financing models. Alternative explanations of volatility in physical savings, net securities purchases or asset valuations have very little support in the data.
    Keywords: Banks; financial intermediation; loanable funds; money creation; bank lending; bank financing; money demand
    JEL: E41 E44 E51 G21
    Date: 2018–10–26
  18. By: Wilde, Wollfram; Beckmann, Joscha
    Abstract: Standard procedures for output gap estimates, such as the Hodrick-Prescott Filter or the Production Function Method, suffer from the sample phase shift issue at the end of the sample. This often provides unstable and unreliable estimates for the current output gap. However the current estimate of output gaps is the most relevant one for monetary and fiscal policymakers. The result from time series filters lack an economic founding and tend to produce economic implausible results for the output gap. This paper introduces and evaluates a new method which is able to reduce the uncertainty of output gaps at the end of a sample while allowing for an economic interpretation of the obtained estimate. Our estimates for 12 economies show that we are able to outperform the popular production function methodology (PF) when nowcasting the current output gap.
    Keywords: Output Gap,Policy Evaluation
    JEL: E52 E58
    Date: 2018
  19. By: Jing Cynthia Wu; Fan Dora Xia
    Abstract: We evaluate the implications of the ECB's negative interest rate policy (NIRP) on the yield curve. To capture various shapes of the short end of the yield curve induced by the NIRP, we introduce two policy indicators, which summarize the immediate and longer-horizon future monetary policy stances. We find the four NIRP events lowered the short term interest rate by the same amount. The impact is dampened at longer maturities for the first two event dates due to lack of forward guidance. In contrast, in the last two dates, forward guidance drives the largest effects in two years.
    JEL: E43 E52
    Date: 2018–10
  20. By: Hahn, Volker; Marencak, Michal
    Abstract: This paper proposes a macroeconomic model with positive trend inflation that involves an important role for price points as well as sticky information. We argue that, in particular, a variant of our model that allows for a general distribution of price points is more successful in explaining several stylized facts of individual price setting than a benchmark model that is based on Calvo price-setting. More specifically, it makes empirically reasonable predictions with regard to the duration of price spells, the sizes of price increases and decreases, the shape of the hazard function, the fraction of price changes that are price increases, and the relationship between price changes and inflation. Moreover, our model implies plausible aggregate effects of monetary policy in contrast with a model with a prominent role for price points but no information rigidities.
    Keywords: price stickiness,price point,sticky information
    JEL: E31 E37
    Date: 2018
  21. By: Huixin Bi; Yongquan Cao; Wei Dong
    Abstract: This paper studies how the credit expansion policy pursued by the Chinese government in an effort to stimulate its economy in the post-crisis period affects bank–firm loan contracts and the macroeconomy. We build a structural model with financial frictions in which the optimal loan contract reflects the trade-off between leverage and the probability of default. Credit expansion is introduced in the form of the government's partial guarantee on bank loans to (i) general production firms or (ii) infrastructure producers. We show that in the case of general credit expansion, more persistent credit shocks lead to higher credit multipliers at all horizons, as the benefits of persistently alleviating firms' borrowing constraint outweigh the costs associated with higher non-performing loans. We also show that a more persistent targeted credit expansion raises the production of infrastructure goods. However, higher infrastructure production not only boosts the public capital stock and generates positive externalities, it also crowds out private investment and consumption. With a short-lived targeted credit easing, the expansionary channel of public capital dominates, boosting output. As the credit expansion becomes more persistent, the contractionary channel of lower private investment starts to outweigh the expansionary channel in the medium term.
    Keywords: Credit and credit aggregates, Fiscal Policy, International topics
    JEL: E62 E44
    Date: 2018
  22. By: Klein, Mathias; Winkler, Roland
    Abstract: Based on a large historical panel dataset, this paper provides robust evidence that the government spending multiplier is significantly higher when interest rates are at, or near, the zero lower bound. We estimate fiscal multipliers that are around 1.5 during zero lower bound episodes and significantly below unity outside of it. We show that the difference in multipliers is not driven by multipliers being higher during periods of economic slack.
    Keywords: Government spending multiplier,zero lower bound,local projections
    JEL: E32 E62 E65
    Date: 2018
  23. By: Schmidt, Torsten
    Abstract: This article examines the effect of inflation expectation uncertainty on inflation, inflation expectations and the output gap. For monetary policy, guiding inflation expectations provides an instrument to affect economic conditions. However, expectation uncertainty may undermine monetary policy's ability to stabilise the economy. Using a VAR model with stochastic volatility in mean, this paper shows that inflation expectation uncertainty has negative effects on the inflation rate and the output gap. This result is replicable with a model, in which uncertainty is approximated by a cross-sectional survey measure.
    JEL: E31 C32
    Date: 2018
  24. By: Gabriele Fiorentini (Università di Firenze); Alessandro Galesi (Banco de España); Gabriel Pérez-Quirós (Banco de España); Enrique Sentana (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: We document a rise and fall of the natural interest rate (r*) for several advanced economies, which starts increasing in the 1960’s and peaks around the end of the 1980’s. We reach this conclusion after showing that the Laubach and Williams (2003) model cannot estimate r* accurately when either the IS curve or the Phillips curve is flat. In those empirically relevant situations, a local level specification for the observed interest rate can precisely estimate r*. An estimated Panel ECM suggests that the temporary demographic effect of the young baby-boomers mostly accounts for the rise and fall.
    Keywords: Natural rate of interest, Kalman filter, observability, demographics.
    JEL: E43 E52 C32
    Date: 2018–07
  25. By: Hanoma, Ahmed; Nautz, Dieter
    Abstract: Long-term inflation expectations taken from the Survey of Professional Forecasters are a major source of information for monetary policy. Unfortunately, they are published only on a quarterly basis. This paper investigates the daily information content of inflation-linked swap rates for the next survey outcome. Using a mixed data sampling approach, we find that professionals account for the daily dynamics of inflation swap rates when they submit their long-term inflation expectations. We propose a daily indicator of professionals' inflation expectations that outperforms alternative indicators that ignore the high-frequency dynamics of inflation swap rates. To illustrate the usefulness of the new indicator, we provide new evidence on the (re-)anchoring of U.S. inflation expectations.
    Keywords: Inflation Expectations Dynamics,Expectations Anchoring,MIDAS
    JEL: E31 E52 C22
    Date: 2018
  26. By: Okolo, Chimaobi; Attamah, Nicholas
    Abstract: Government, factor owners and investors share an intersecting objective, which is to boost income, notwithstanding its implications on the macroeconomy of Nigeria. More recently is the government drive to raise tax income, accompanied by the labour union agitation for a 110% rise in federal minimum wage in Nigeria. In line with the United Nations sustainable development goal 9, which is to build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation, this study evaluates the macroeconomic implication of raising income in order to achieve this goal in Nigeria. This study makes significant innovation in the unique adoption of minimum wage on labour productivity ratio, tax burden and capital utilization ratio to explain the variations in productivity and output growth in Nigeria. Over the 33 year period, minimum wage increase has caused an average of 12.33% significant reduction in labour productivity, 4.59% decline in capital productivity and 2.56% reduction in real output growth in Nigeria. In the same period, tax burden caused an average of 1.71%, 6.95% and 12.26% increase in the real output growth, labour productivity growth and growth in capital productivity respectively. Capital utilization on the average caused 2.83% increase in capital productivity growth, while declining real output growth by 0.52% in the same period. This signifies the need to boost tax income in the overall interest of productivity and output growth, which could lead to the achieving the UN-SDG-9
    Keywords: Capital, income, labour, minimum wage, productivity, tax burden
    JEL: E24 E25 H22 O47
    Date: 2018–10–22
  27. By: Ikeda, Daisuke (Bank of Japan); Kurozumi, Takushi (Bank of Japan)
    Abstract: Post-financial crisis recoveries tend to be slow and be accompanied by slowdowns in TFP and permanent losses in GDP. To prevent them, how should monetary policy be conducted? We address this issue by developing a model with endogenous TFP growth in which an adverse financial shock can induce a slow recovery. In the model, a welfare-maximizing monetary policy rule features a strong response to output, and the welfare gain from output stabilization is much larger than when TFP expands exogenously. Moreover, inflation stabilization results in a sizable welfare loss, while nominal GDP stabilization works well, albeit causing high interest-rate volatility.
    JEL: E52 O33
    Date: 2018–10–01
  28. By: Tatjana Dahlhaus; Alexander Lam
    Abstract: This paper introduces a new tool to monitor economic and financial vulnerabilities in emergingmarket economies. We obtain vulnerability indexes for several early warning indicators covering 26 emerging markets from 1990 to 2017 and use them to monitor the evolution of vulnerabilities before, during and after an economic or financial crisis. We find that different historical episodes of crises reflect different vulnerabilities in terms of their composition, buildup and responses. Nevertheless, most currency crises are generally preceded by a buildup of imbalances in the external sector followed by an increase in sovereign debt imbalances. Finally, we assess current EME vulnerabilities in our country sample and visualize them using a heat map.
    Keywords: International topics; Monetary and financial indicators; Recent economic and financial developments
    JEL: E E4 E41 E42 E5
    Date: 2018
  29. By: Mohaddes, Kamiar (University of Cambridge); Nugent, Jeffrey B. (University of Southern California); Selim, Hoda (Economic Research Forum)
    Abstract: This paper traces the evolution of fiscal institutions of Resource-Rich Arab Economies (RRAEs) over time since their pre-oil days, through the discovery of oil to their build-up of oil exports. It then identifies challenges faced by RRAEs and variations in their severity among the different countries over time. Finally, it articulates specific policy reforms, which, if implemented successfully, could help to overcome these challenges. In some cases, however, these policy proposals may give rise to important trade-offs that will have to be evaluated carefully in individual cases.
    Keywords: Fiscal policy; fiscal institutions; fiscal sustainability; public spending; efficiency; budget transparency; fiscal rules; volatility; oil curse; Arab World; oil exporters; Middle East; North Africa
    JEL: E02 E62 H50 H60 H61 O53
    Date: 2018–09–04
  30. By: César Carrera (Banco Central de Reserva del Perú y Universidad del Pacífico)
    Abstract: Una forma de entender el consumo privado es subdividir esta variable macroeconómica agregada en sus componentes y estudiar las partes. En este documento se estima el comportamiento de los componentes más importantes del consumo privado al cual se denomina componentes principales. Tomando como punto de inicio la información de la Tabla Insumo Producto para distintos años, se utiliza un conjunto de variables proxi para cada componente a partir de los cuales se obtiene una distribución del consumo por componente para cada año. Los componentes restantes forman parte de una serie denominada Otros, cuyo rol es de disciplinar los resultados mediante el registro de ciertas regularidades en su conducta. Esta metodología permite proyectar el consumo privado con un bajo error de proyección.
    Keywords: Consumo privado, Bottom – Up, Tabla Insumo Producto
    JEL: C13 C43 E01 E21
    Date: 2018–11
  31. By: Constantino Hevia; Juan Pablo Nicolini
    Abstract: In this paper, we use a simple model of money demand to characterize the behavior of monetary aggregates in the United States from 1960 to 2016. We argue that the demand for the currency component of the monetary base has been remarkably stable during this period. We use the model to make projections of the nominal quantity of cash in circulation under alternative future paths for the federal funds rate. Our calculations suggest that if the federal funds rate is lifted up as suggested by the survey of economic projections made by the members of the Federal Open Market Committee (FOMC), the fall in total currency demanded in the next two years ranges between 50 and 200 billion. Our discussion suggests that specific measures by the Federal Reserve to absorb that cash could be worth considering to make the future path of the price level consistent with the price stability mandate.
    Keywords: Inflation, Money Demand, Currency in Circulation
    JEL: E31 E41 E51
    Date: 2017–12
  32. By: Rod Cross (Department of Economics, University of Strathclyde)
    Abstract: This note points out that the long run Phillips curve genus contains upward and downward sloping species as well as the vertical species. Observers have found it difficult to sight the vertical species in certain countries, in certain epochs. This difficulty could well arise from the observers having looked for the wrong species.
    Keywords: Unemployment, Natural Rates, Vertical, Positive Loci, Negative Loci, Hysteresis.
    JEL: B22 E24 E31 N10
    Date: 2018–09
  33. By: Caterina Mendicino (European Central Bank); Kalin Nikolov (European Central Bank); Javier Suarez (CEMFI); Dominik Supera (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: How far should capital requirements be raised in order to ensure a strong and resilient banking system without imposing undue costs on the real economy? Capital requirement increases make banks safer and are beneficial in the long run but carry transition costs because their imposition reduces aggregate demand on impact. Under accommodative monetary policy, increasing capital requirements addresses financial stability risks without imposing large transition costs on the economy. In contrast, when the policy rate hits the lower bound, monetary policy loses the ability to dampen the effects of the capital requirement increase on the real economy. The long-run benefits of higher capital requirements are larger and the transition costs are smaller when the risk that causes bank failure is high.
    Keywords: Macroprudential policy, bank fragility, financial frictions, default risk, effective lower bound, transition dynamics.
    JEL: E3 E44 G01 G21
    Date: 2018–08
  34. By: David Byrne; Carol Corrado; Daniel E. Sichel
    Abstract: Cloud computing—computing done on an off-site network of resources accessed through the Internet—is revolutionizing how computing services are used. However, because cloud is so new and it largely is an intermediate input to other industries, it is difficult to track in the U.S. statistical system. Moreover, there is a paucity of systematic information on the prices of cloud services. To begin filling this gap, this paper does three things. First, we define the different segments of cloud computing and document its explosive expansion. Second, we develop new hedonic prices indexes for cloud services based on quarterly data for compute, database, and storage services offered by Amazon Web Services (AWS) from 2009 to 2016. These indexes fall rapidly over the sample period, with quickening (and double digit) rates of decline for all three products starting at the beginning of 2014. Finally, we highlight the puzzle of why investment in IT equipment in the NIPAs has been so weak while capital expenditures have exploded for IT equipment associated with cloud infrastructure. We suggest that cloud service providers are undertaking large amounts of own-account investment in IT equipment and that some of this investment may not be captured in GDP.
    JEL: E01 E22 E31 L16 O3 O4
    Date: 2018–10
  35. By: Chenxu Fu (CEMFI); Enrique Moral-Benito (Banco de España)
    Abstract: Total factor productivity (TFP) is considered the key determinant of long-term and sustainable economic growth. The dismal evolution of TFP characterized the Spanish economy since the foundation of the Eurozone until the outbreak of the Global Financial Crisis [see García- Santana et al. (2016)]. This article provides an anatomy of the recent evolution of Spanish TFP using both aggregate- and micro-level data available until 2016. Three conclusions emerge from our findings: i) while TFP growth remained subdued during the crisis, a TFP revival is taking place over the last years; ii) this pattern is mostly driven by the rise and fall of the capital-to-labor ratio (capital deepening) while the role of labor productivity is more muted, and iii) an across-the-board increase in firms’ capital-to-labor ratios accounts for most of the TFP decline during the first years of the crisis, while the subsequent TFP revival is explained by the reallocation of resources towards firms with low capital deepening.
    Keywords: Spain, firm level data, TFP, misallocation.
    JEL: D24 O11 O47 E44 G21 L25
    Date: 2018–10
  36. By: Wall, Howard J.
    Abstract: This paper estimates the differences between the sexes in the depths, lengths, timing, and overall effects of recessions in the United States. I find that, prior to the mid-1980s, recessions had roughly the same effects on male and female employment growth, but that male employment stayed in recession for longer. Since then, however, recessions have hit male employment much harder per month, although female employment suffered longer recessions. Accounting for the sex-specific timing of recessions, as well as for forgone employment growth, (1) the negative effects of recessions on both male and female employment are much larger than is usually found and (2) male employment is hit relatively harder by recessions, although the difference between the sexes is much smaller than the previous literature indicates.
    Keywords: Keywords: gender differences, business cycles, employment cycles, jobless recovery
    JEL: E32 J16
    Date: 2018–10–20
  37. By: Gabriel Garber; Atif Mian; Jacopo Ponticelli; Amir Sufi
    Abstract: Brazil experienced one of the most severe recessions in its history from 2014 to 2016. Following a pattern shown for previous economic downturns in other countries, the Brazilian recession was preceded by a substantial increase in household debt from 2003 to 2014. This study utilizes a novel individual level data set on household borrowing in order to provide details of the household debt boom. The data set allows for a decomposition of the rise in household debt by the type of debt and by the source of debt, and it allows for an analysis of the income of individuals taking on more debt during the boom. We conclude with an exploration of potential causes of the rise in household debt.
    JEL: E32 F44
    Date: 2018–10
  38. By: J.M. Dixon; J. Nassios
    Abstract: We present the results of three economic modelling simulations of changes to tax policy intended to stimulate investment in Australia. We begin with a comparison of a company tax cut and an investment subsidy, both unfunded and calibrated to yield equivalent Federal Government budget impacts. Our key findings (summarised below) illustrate that an investment subsidy is a more effective policy instrument for stimulating investment and improving domestic welfare: 1. With both policies calibrated to the same budgetary cost, the investment subsidy is more effective in raising the volume of investment; 2. The investment response to a company tax cut is skewed towards foreign investors, while the investment response to an investment subsidy is equitably proportioned across foreign and local investors; 3. The company tax cut induces an increase in net foreign liabilities and associated servicing costs while the investment subsidy has little long-term effect on net foreign liabilities; 4. Both policies lead to increases in gross domestic product (GDP), employment and real pre-tax wages; and 5. The impact on gross national income (GNI), an indicator of domestic material welfare, is positive for the investment subsidy but not for the company tax rate cut. In a final simulation, we revisit the investment subsidy to assess the net impact when the policy is fully funded. While many potential funding models exist, herein we assume partial funding via the denial of cash refunds of franking credits, with the remainder of the funding sourced via a small increase in economy-wide average personal income tax. We find that the investment subsidy still leads to a long-term gain in domestic welfare. When fully funded in this manner: 6. The investment response remains positive but skewed toward foreign investors; 7. Net foreign liabilities fall as a proportion of GNI; 8. The investment subsidy still returns positive results for employment, GDP and the real pre-tax wage; 9. The long-term gain in real post-tax wages is lower than in the unfunded case, but it remains positive; and 10. Fully funded, the investment subsidy still leads to a long-term gain in GNI. Based on these results, we strongly recommend that policy-makers consider an investment subsidy instead of a cut to company tax as a better value-for-money policy initiative to increase both investment and domestic material welfare.
    Keywords: Company tax, investment subsidy, CGE modelling
    JEL: H2 O16 E22 C68
    Date: 2018–04
  39. By: Fenoaltea, Stefano
    Abstract: Italy’s economy is stagnating, but a fiscal stimulus is ruled out by the Maastricht-limited deficit/GDP ratio. This paper presents a modest proposal for loosening the constraint on public spending by augmenting Italy’s female labor-force participation rate and therewith Italy’s GDP. Additional public spending would be popular, as it would increase employment; it would also be politically viable, as Italy’s elected and appointed officials would welcome the opportunity for increased graft.
    Keywords: Italy; GDP; Deficit; Growth
    JEL: A11 B23 B41 E62 H62
    Date: 2018–10–28
  40. By: Hans M. Amman; Marco Paolo Tucci
    Abstract: In a previous paper Amman and Tucci (2018) compare the two dominant approaches for solving models with optimal experimentation (also called active learning), i.e. the value function and the approximation method. By using the same model and dataset as in Beck and Wieland (2002), theyfind that the approximation method produces solutions close to those generated by the value function approach and identify some elements of the model specifications which affect the difference between the two solutions. They conclude that differences are small when the effects of learning are limited. However the dataset used in the experiment describes a situation where the controller is dealing with a nonstationary process and there is no penalty on the control. The goal of this paper is to see if their conclusions hold in the more commonly studied case of a controller facing a stationary process and a positive penalty on the control.
    Keywords: Optimal experimentation, value function, approximation method, adaptive control, active learning, time-varying parameters, numerical experiments.
    JEL: C63 E61 E62
    Date: 2018–10
  41. By: Zsolt Darvas; Philippe Martin; Xavier Ragot
    Abstract: This Policy Contribution was prepared for the French Conseil d’Analyse Économique. The reconsideration of the complex set of European fiscal rules should be a priority in terms of euro-area reform. The rules contributed to excessive fiscal austerity during the crisis, thus helping to aggravate and prolong its economic, social and political consequences. Moreover, either because countries did not abide by the rules or because the rules were not sufficiently strictly applied during good years, there was insufficient debt reduction in many countries in the 2000s, which reduced their fiscal capacity during bad years. In addition, the rules suffered from large measurement problems. They are based on a valid theoretical concept – the structural budget balance – but this is not observable and its estimation is subject to massive errors. The post-2010 pro-cyclical fiscal tightening caused by the fiscal rules also led to the European Central Bank becoming overburdened as the main remaining stabilisation instrument. The fiscal framework has also put the European Commission in the difficult position of enforcing a highly complex, non-transparent and error-prone system, exposing the Commission to criticism from countries with both stronger and weaker fiscal fundamentals. The rules are used as a scapegoat by anti-European populists because they are seen as a manifestation of centralised micro-management which infringes on national sovereignty. However, fiscal rules to ensure debt sustainability in the euro area are a necessity because the no-bail-out clause in case of fiscal crises is not credible in a monetary union. The fiscal rules need a major overhaul. They are not a silver bullet and cannot be substituted for the national democratic debate on fiscal choices and debt sustainability, but should help frame this debate. They should be as transparent and simple as possible, should set targets under the direct control of the government, should allow countercyclical fiscal policy and should incentivise the reduction of excessive public debt. This Policy Contribution assesses the current framework and proposes a major simplification. We recommend substituting the numerous and complex rules with a simple new rule - nominal expenditures should not grow faster than long-term nominal income, and they should grow at a slower pace in countries with excessive debt levels. Our simulations suggest that this rule would help reconcile fiscal prudence and macroeconomic stabilisation of the economy. We set out a national and European institutional framework that could implement such a rule. We advocate the credible enforcement of fiscal rules, mixing several instruments pertaining to surveillance, positive incentives, market discipline and increased political cost of non-compliance. Finally, one example of a country in which the national fiscal framework could be improved is France - we recommend the better integration of the French independent fiscal council (Haut-Conseil des finances publiques) into the national budget process by broadening its mandate to include endorsement of fiscal forecasts and debt sustainability analysis, by increasing its capacity to independently produce fiscal and macroeconomic forecasts.
    Date: 2018–10
  42. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: In the early-mid 1990s, Social Structure of Accumulation (SSA) theorists identified the solidification of a neoliberal SSA that included a capital-citizen accord based on “managing the discontent of the losers”. This created social stability by reconciling working households to material hardships emanating form the neoliberal labour market by means of either coercion or non-economic distraction. This paper argues that there was, in fact, a fundamentally material basis to the neoliberal capital-citizen accord, including the ability of households to accumulate debt in order to limit the growth of consumption inequality in the face of burgeoning income inequality. The material basis of the capital-citizen accord broke down during the financial crisis of 2007-09, destabilizing the accord itself. The result is that an SSA that has resisted top-down reform is now threatened by bottom-up “reform” in the shape of rising populism. The outcomes of this process are highly uncertain – a key characteristic of the periods of inter regnum that separate successful SSAs.
    Keywords: Social structure of accumulation, capital-citizen accord, household debt, consumption inequality, populism
    JEL: E21 B51 B52 P16
    Date: 2018–11
  43. By: Michael Keane (School of Economics, UNSW Business School, UNSW Sydney); Elena Capatina (Research School of Economics, Austrlian National University); Shiko Maruyama (Economics Discipline Group, UTS Business School, University of Technology Sydney)
    Abstract: This paper studies the effects of health on earnings dynamics and on consumption inequality over the life-cycle. We build and calibrate a life-cycle model with idiosyncratic health, earnings and survival risk where individuals make labor supply and asset accumulation decisions, adding two novel features. First, we model health as a complex multi-dimensional concept. We differentiate between functional health and underlying health risk, temporary vs. persistent health shocks, and predictable vs. unpredictable shocks. Second, we study the interactions between health and human capital accumulation (learning-by-doing). These features are important in allowing the model to capture the degree to which, and the pathways through which, health impacts earnings and consumption patterns. They are also very important in estimating the value of health insurance and social insurance. A key finding is that health shocks account for roughly half of the growth in offer wage inequality over the life cycle. Eliminating health shocks leads to a 5.5% decline in the variance of the present value of earnings across all individuals.
    Keywords: Health, Income Risk, Precautionary Saving, Health Insurance, Welfare
    JEL: D91 E21 I14 I31
    Date: 2018–05
  44. By: Jacopo Staccioli (Scuola Superiore Sant'Anna); Mauro Napoletano (Observatoire français des conjonctures économiques)
    Abstract: We build an agent-based model of a financial market that is able to jointly reproduce many of the stylized facts at different time-scales. These include properties related to returns (leptokurtosis, absence of linear autocorrelation, volatility clustering), trading volumes (volume clustering, correlation between volume and volatility), and timing of trades (number of price changes, autocorrelation of durations between subsequent trades, heavy tail in their distribution, order-side clustering). With respect to previous contributions we introduce a strict event scheduling borrowed from the EURONEXT exchange, and an endogenous rule for traders participation. We show that such a rule is crucial to match stylized facts.
    Keywords: Intra-day financial dynamics; Stylized facts; Agent-based artificial stock markets; Market microstructure; High frequency trading
    JEL: C63 E12 E22 E32 O4
    Date: 2018–10
  45. By: Cesar Martinelli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Marco Vega (Banco Central de Reserva del Peru’ and Universidad Cat’olica del Peru Ì)
    Abstract: We show Peru’s chronic inflation through the 1970s and 1980s was a result of the need for inflationary taxation in a regime of fiscal dominance of monetary policy. Hyperinflation occurred when further debt accumulation became unavailable, and a populist administration engaged in a counterproductive policy of price controls and loose credit. We interpret the fiscal difficulties preceding the stabilization as a process of social learning to live within the realities of fiscal budget balance. The credibility of policy regime change in the 1990s may be linked ultimately to the change in public opinion giving proper incentives to politicians, after the traumatic consequences of the hyper stagflation of 1987-1990.
    Date: 2018–08
  46. By: Mar Delgado-Téllez (Banco de España); Javier J. Pérez (Banco de España)
    Abstract: We analyze from an empirical point of view the evolution and determinants of Spanish regional public debt. Spain offers an interesting case study because of its high level of fiscal decentralization, implemented gradually during the past four decades, the parallel entry into force of a number of national fiscal rules in that period, and the heterogeneity of its regions, both in terms of economic fundamentals and some institutional features. Our main findings are the following: i) regional governments’ fiscal policies reacted to public debt increases, on average, over the sample of study; ii) fiscal rules played a limited role in controlling debt surges, being only marginally effective in some instances, like high debt situations; iii) a higher degree of regional fiscal co-responsibility tends to be linked to more subdued debt dynamics; iv) market-disciple indicators have encouraged some discipline at the regional level, and v) regional non-standard (commercial) debt surges present explanatory power on the standard measure of public debt.
    Keywords: regional public debt, fiscal rules, fiscal federalism, market discipline
    JEL: H6 E62 C53
    Date: 2018–07
  47. By: Papadopoulos, Georgios
    Abstract: The issue of income inequality occupies a prominent position in the research agenda of academic and policy circles alike, especially after the crisis of 2008, due to its potential causal link with the development of credit bubbles and therefore the emergence of financial crises. This paper examines the long-run effect of income inequality on consumption, consumer credit and non-performing loans through the means of a data-driven agent-based model. The data-driven nature of the model enhances its ability to match historical series and thus makes it suitable for policy simulations tailored for specific economies. The analysis indicates that higher income inequality has a detrimental impact on consumption and is associated with lower volumes of consumer credit. However, the ratio of non-performing loans as a share of total loans seems to be independent of income inequality.
    Keywords: Income inequality; Consumption; Consumer credit; Non-performing loans; Agent-based model
    JEL: C63 D31 E21 E27
    Date: 2018–10–30
  48. By: Campo, Francesco (University of Milan Bicocca); Forte, Giuseppe (King's College London); Portes, Jonathan (King's College London)
    Abstract: We investigate the relationship between migration and productivity in the UK, using an instrumental variable along the lines suggested by Bianchi, Buonanno and Pinotti (2012). Our results suggest that immigration has a positive and significant impact (in both the statistical sense and more broadly) on productivity, as measured at a geographical level; this appears to be driven by higher-skilled workers. The results for training are less clear, but suggest that higher-skilled immigration may have a positive impact on the training of native workers. We discuss the implications for post-Brexit immigration policy.
    Keywords: immigration, productivity, training, Great Britain
    JEL: E24 J24 J61 M53
    Date: 2018–09
  49. By: Kettemann, Andreas (University of Zurich); Mueller, Andreas I. (Columbia University); Zweimüller, Josef (University of Zurich)
    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.
    Keywords: vacancy posting, vacancy duration, recruiting, search, wages
    JEL: E24 J31 J63
    Date: 2018–09
  50. By: Kaplan, Robert S. (Federal Reserve Bank of Dallas)
    Abstract: An essay by Dallas Fed President Robert S. Kaplan from August 21, 2018.
    Date: 2018–08–21
  51. By: Karl David Boulware (Department of Economics, Wesleyan University); Kenneth N. Kuttner (Department of Economics, Williams College)
    Abstract: This paper’s goal is to determine whether the degree of labor market tightness affects the frequency of discrimination charges. State-level panel data on enforcement and litigation actions from the U.S. Equal Employment Opportunity Commission, along with disaggregated labor market statistics, allow us to assess the effects of labor market conditions on discrimination based on race or ethnicity, and how these effects vary across states and over time. Our findings have implications for how macroeconomic policies might be used to promote equal opportunity in the labor market.
    Keywords: labor market conditions, discrimination, EEOC, macroeconomic policy
    JEL: J15 J63 J71 E61 Z13
    Date: 2018–10
  52. By: Marwil J. Dávila-Fernández; Serena Sordi
    Abstract: In a recent article, we extended Goodwin's (1967) model to study the interaction between distributive cycles and international trade for economies in which growth is balance-of-payments constrained (BoPC). Building on that set up, we investigate the implications of allowing exports to be a function of the capital stock. Using the existence part of the Hopf bifurcation theorem, we show that the resulting 3-dimensional system admits a limit cycle solution. We rely on numerical simulations to verify if fluctuations are persistent and bounded. Applying panel cointegration techniques, we also provide empirical evidence for a sample of 19 OECD countries between 1950-2014 that gives support to the formulation adopted for the exports function. Our main contribution lies in providing a simple base-line model to study distributive dynamics in open economies in line with recent developments in the BoPC growth literature.
    Keywords: Growth cycle, Path dependence, Thirlwall?s law, Distributive cycles, Hopf bifurcation, Cointegration.
    JEL: E12 E32 O40
    Date: 2018–10
  53. By: Karagiannides, Gabriel
    Abstract: A crucial theme in macroeconomic dynamics concerns the issue of determinacy, that is, the question of uniqueness or multiplicity of admissible dynamic trajectories. Unlike previous studies which economy addressed this question in a closed, we explore the determinacy dynamics in a small open economy. The structure of the model set forth, is such that it leads to a higher degree characteristic equation which cannot be handled analytically. By using a specific algorithm developed, we solve it and show that a form of a Taylor rule implies, for the parameter space examined, determinate equilibrium dynamics. In line with previous findings on determinacy, the case for a form of flexible Price Level Targeting (PLT), does not only hold in a closed economy but, also, extends with some modification, to a small open economy as well.
    Keywords: Taylor Rule, Open Economy Dynamics, Flexible PLT, Determinacy
    JEL: C54 E52
    Date: 2018–09–29
  54. By: Falk Bräuning; Victoria Ivashina
    Abstract: Foreign banks’ lending to firms in emerging market economies (EMEs) is large and denominated predominantly in U.S. dollars. This creates a direct connection between U.S. monetary policy and EME credit cycles. We estimate that over a typical U.S. monetary easing cycle, EME borrowers experience a 32-percentage-point greater increase in the volume of loans issued by foreign banks than do borrowers from developed markets, followed by a fast credit contraction of a similar magnitude upon reversal of the U.S. monetary policy stance. This result is robust across different geographies and industries, and holds for U.S. and non-U.S. lenders, including those with little direct exposure to the U.S. economy. EME local lenders do not offset the foreign bank capital flows, and U.S. monetary policy affects credit conditions for EME firms, both at the extensive and intensive margin. Consistent with a risk-driven credit-supply adjustment, we show that the spillover is stronger for riskier EMEs, and, within countries, for higher-risk firms.
    JEL: E52 F34 F44 G21
    Date: 2018–10
  55. By: Lubos Hanus (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Pod Vodarenskou Vezi 4, 182 00, Prague, Czech Republic); Lukas Vacha (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic; Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Pod Vodarenskou Vezi 4, 182 00, Prague, Czech Republic)
    Abstract: In our study, we consider a new approach to quantify the effects of economic shocks on monetary transmission. We analyse the widely known phenomenon of price puzzle in a time-varying environment using the frequency decomposition. We use the frequency response function to measure the power of shocks transferred to different economic cycles. Considering both time and frequency domains, we quantify the dynamics of shocks implied by monetary policy within an economic system. While studying the monetary policy transmission of the U.S., the empirical evidence shows that low-frequency cycles of output are prevalent and have positive transfers. Examination of the inflation reveals that the frequency responses vary significantly in time and alter the direction of transmission for all cyclical lengths.
    Keywords: cyclicality, frequency, economic systems, monetary policy
    Date: 2018–10
  56. By: Constantino Hevia; Martin Sola
    Abstract: Researchers who estimate affine term structure models often impose overidentifying restrictions (restrictions on parameters beyond those necessary for identification) for a variety of reasons. While some of those restrictions seem to have minor effects on the extracted factors and some measures of risk premia, such as the forward risk premium, they may have a large impact on other measures of risk premia that is often ignored. In this paper we analyze how apparently innocuous overidentifying restrictions imposed on affine term structure models can lead to large differences in several measures of risk premiums.
    Keywords: Bond risk premia, affine term structure models, risk prices
    JEL: E43 G12
    Date: 2018–10
  57. By: Guillaume Plantin (Département d'économie); Hyun Song Shin (Princeton University)
    Abstract: When do flexible exchange rates prevent monetary and financial conditions from spilling over across currencies? We examine a model in which international investors strategically supply capital to a small inflation‐targeting economy with flexible exchange rates. For some combination of parameters, the unique equilibrium exhibits the observed empirical feature of prolonged episodes of capital inflows and appreciation of the domestic currency, followed by reversals where capital outflows go hand‐in‐hand with currency depreciation, a rise in domestic interest rates, and inflationary pressure. Arbitrarily small shocks to global financial conditions suffice to trigger these dynamics.
    Keywords: Currency appreciation; Capital flows; Global games
    JEL: C7 E5 F4
    Date: 2018–05
  58. By: Kaplan, Robert S. (Federal Reserve Bank of Dallas)
    Abstract: An essay by Dallas Fed President Robert S. Kaplan from October 24, 2018.
    Date: 2018–10–24
  59. By: Gylfi Zoega (University of Iceland; Birkbeck, University of London); Marias H. Gestsson (University of Iceland)
    Abstract: We derive a golden rule for the level of life-extending health care when the utility of the old depends not only their level of consumption but also on the number of old people alive. While previous work has emphasized the negative pecuniary externality from longevity, we derive the effect of the positive non-pecuniary externality of being able to consume with other members of one’s cohort.
    Keywords: Longevity, health care expenditures, companionship.
    JEL: E6 E2 I1
    Date: 2018–11
  60. By: Chiara Perricone (DEF,University of Rome "Tor Vergata")
    Abstract: A problem often faced by economic researchers is the interpolation or distribution of economic time series observed at low frequency into compatible higher frequency data. A method based on wavelet analysis is presented to temporal disaggregate time series. A standard `plausible' method is applied, not to the original time series, but to the smooth components resulting from a discrete wavelet transformation. This first step generates a smoothed component at the desired frequency. Subsequently, a noisy component is added to the smooth series to enforce the natural constraint of the series. The method is applied to national accounts for Euro Area, to study both ow and stock variables, and it outperforms other standard methods, as Stram and Wei or low pass interpolation when the series of interest is volatile.
    Keywords: wavelet, temporal disaggregation, sector financial accounts
    JEL: C10 C65 C32 E32
    Date: 2018–10–29
  61. By: Morales, Rosa; Radoniqi, Fatos
    Abstract: his paper investigates the relationship between various measures of intangible capital and the market valuation of young biopharmaceutical firms. We employ a non-linear model to measure the impact of R&D, patents, alliances, organizational capital, and mergers on the value of 349 newly-incorporated firms between 1980 and 2006. We find that, with the exception of mergers, our measures of intangible capital havepositive and significant effects on market values; the impact of R&D declines as firms mature; and the omission of either alliances or organizational capital leads to a significant overstatement of the influence of R&D.
    Keywords: Innovation, R&D, Intangible Assets, Market Valuation, Biopharmaceuticals
    JEL: E22 G32 L65 O32
    Date: 2017
  62. By: Ricardo Sabbadini
    Abstract: Despite the cost imposed by the interest rate spread between sovereign debt and international reserves, emerging countries’ governments maintain stocks of both. I investigate the optimality of this joint accumulation of assets and liabilities using a quantitative model of sovereign debt, in which: i) international reserves only function to smooth consumption, before or after a default; ii) the sovereign’s decision to repudiate debt determine the spread; iii) lenders are risk-averse; and iv) default is partial. Simulated statistics from the benchmark model match their observed counterparts for average debt and spread, consumption volatility, and the main correlations among the relevant variables. Due to the presence of partial default and risk-averse lenders, the model also produces a mean reserve level of 7.7% of GDP, indicating that the optimal policy is to hold positive amounts of reserves.
    Keywords: international reserves; sovereign debt; sovereign default; partial default; interest rate spread
    JEL: E43 F31 F34 F41
    Date: 2018–10–30
  63. By: Erik Brynjolfsson; Daniel Rock; Chad Syverson
    Abstract: General purpose technologies (GPTs) such as AI enable and require significant complementary investments, including business process redesign, co-invention of new products and business models, and investments in human capital. These complementary investments are often intangible and poorly measured in the national accounts, even if they create valuable assets for the firm. We develop a model that shows how this leads to an underestimation of output and productivity in the early years of a new GPT, and how later, when the benefits of intangible investments are harvested, productivity will be overestimated. Our model generates a Productivity J-Curve that can explain the productivity slowdowns often accompanying the advent of GPTs, as well as the follow-on increase in productivity later. We use our model to assess how AI-related intangible capital is currently affecting measured total factor productivity (TFP) and output. We also conduct a historical analysis of the roles of intangibles tied to R&D, software, and computer hardware, finding substantial and ongoing effects of software in particular and hardware to a lesser extent.
    JEL: D2 E01 E22 O3
    Date: 2018–10
  64. By: Zhou, Siwen
    Abstract: Bitcoin is a virtual currency scheme that is characterised by a decentralised network and cryptographic transfer verification which has been attracting much public attention due to its technological innovation and its high exchange rate volatility. In this paper, Bitcoin’s exchange rate movement from 2011 to 2018 and its relationship with the global financial markets are explored using an EGARCH framework. The results are as follows. First, fundamentals and Bitcoin-related events play a critical role in the exchange rate formation of Bitcoin. Second, the impact of regulation-related events on Bitcoin indicates that market sentiment is responding to market regulation statements. Third, news coverage is an essential factor in driving the volatility of Bitcoin. Fourth, Bitcoin may be a hedge in times of calm financial markets and a safe haven against uncertain economic policy but is likely to expose to flight-to-quality as global financial uncertainty increases. Lastly, the positive effect of the central bank’s announcements on Bitcoin is marginal enough to rule out the involvement of global expansionary monetary policy in inflating Bitcoin’s exchange rate over the past years, as it may have been the case with traditional asset prices after the great recession.
    Keywords: Bitcoin, EGARCH, event analysis, Reuters news, VIX, EPU, financial markets
    JEL: C22 C52 E52 F31 G12
    Date: 2018
  65. By: Gulan, Adam
    Abstract: Since the Global Financial Crisis, academic economists and policymakers have had to deal with uncomfortable questions about the quality of their models and the state of macroeconomics as a profession. This note offers a summary of this discussion, focusing on the Dynamic Stochastic General Equilibrium (DSGE) framework and its underpinnings. This class of models reflects both theoretical advances and perennial modeling challenges. While DSGE modeling developed in times of scarce micro data and limited computational resources, it has much room for improvement given progress along these dimensions and advances in other branches of economics. Key tasks on the to-do-list for model improvement include the modeling on the financial sector, departures from the representative agent and rationality, as well as clarification of the empirical relevance of the Lucas critique. The framework is likely to remain a major research and policy tool, although its limitations call for greater robustness, validation and open recognition of uncertainty in drawing real-life quantitative conclusions.
    JEL: B22 E13
    Date: 2018–11–07
  66. By: Stéphane Auray (CREST; ENSAI ; ULCO); David L. Fuller (University of Wisconsin-Oshkosh); Damba Lkhagvasuren (Concordia University; CIREQ)
    Abstract: From 1989-2012; on average 23% of those eligible for unemployment insurance (UI) benefits in the US did not collect them. In a search model with matching frictions; private information associated with the UI non-collectors implies the market equilibrium is not Pareto optimal. The cause of the Pareto inefeciency is characterized along with the key features of collector vs. non-collector outcomes. Non-collectors transition to employment at a faster rate and a lower wage relative to the Pareto optimal arrival rates and wages. Quantitatively; this implies 1:71% welfare loss in consumption equivalent terms for the average worker; with a 3:85% loss conditional on non-collection. With an endogenous take-up rate; the unemployment rate and average duration of unemployment respond significantly slower to changes in the UI benefit level; relative to the standard model with a 100% take-up rate.
    Keywords: Unemployment insurance, take-up, calibration, matching frictions, search.
    JEL: E61 J32 J64 J65
    Date: 2018–09–16
  67. By: Astrid Martínez Ortiz
    Abstract: En los últimos 20 años, el petróleo ha contribuido al desarrollo de Colombia. La contribución de los hidrocarburos a la economía colombiana se da en varios niveles: en el macroeconómico, contribuyen a la dinámica de las exportaciones y de la inversión extranjera, así como a las finanzas públicas; en el mesoeconómico, a través de sus multiplicadores, demanda insumos de otros sectores así como contribuye en la producción de otros bienes y. en el nivel regional, genera actividad y empleo, así como regalías para financiar gasto público.
    Keywords: Petróleo, Hidrocarburos, Economía Colombiana, Crecimiento Económico, Economía Regional, Inversiones Extranjeras, Finanzas Públicas, Gastos Públicos, Regalías, Arauca, Casanare, Meta, Putumayo, Colombia
    JEL: L71 F43 O47 R11 F31 E60
    Date: 2018–04–18
  68. By: Anttonen, Jetro
    Abstract: Abstract In this paper a Bayesian vector autoregressive model for nowcasting the seasonally non-adjusted unemployment rate in EU-countries is developed. On top of the official statistical releases, the model utilizes Google search data and the effect of Google data on the forecasting performance of the model is assessed. The Google data is found to yield modest improvements in forecasting accuracy of the model. To the author’s knowledge, this is the first time the forecasting performance of the Google search data has been studied in the context of Bayesian vector autoregressive model. This paper also adds to the empirical literature on the hyperparameter choice with Bayesian vector autoregressive models. The hyperparameters are set according to the mode of the posterior distribution of the hyperparameters, and this is found to improve the out-of-sample forecasting accuracy of the model significantly, compared to the rule-of-thumb values often used in the literature.
    Keywords: Nowcasting, Forecasting, BVAR, Big Data, Unemployment
    JEL: C32 C53 C82 E27
    Date: 2018–11–05
  69. By: Philippe Aghion (Harvard University (Cambridge, Massachusetts)); Céline Antonin (Observatoire français des conjonctures économiques)
    Abstract: The 2008 crisis revived doubts about growth and resuscitated the debate on secular stagnation initiated by Hansen in 1938. Particularly in a post-crisis context of zero or very low growth, Schumpeterian theory may seem to be outdated. Nevertheless, in this article, we show that it remains a valid conceptual framework. We begin by recalling the main highlights of Schumpeter's model of growth. We then argue that this conceptual framework remains relevant to many aspects of growth, notably secular stagnation, structural reforms and the debate on inequality. We show that because of creative destruction, the growth in productivity induced by innovation is underestimated. In addition, we explain why the Schumpeterian framework calls for a complementarity between structural reforms and macroeconomic policy. Finally, we show the positive impact of innovation and creative destruction on social mobility.
    Keywords: Technical progress; Growth; Schumpeter; Innovation; Secular stagnation; Inequality; Structural reforms
    Date: 2018–09
  70. By: Niepmann, Friederike; Schmidt-Eisenlohr, Tim
    Abstract: This paper documents that an appreciation of the U.S. dollar is associated with a reduction in the supply of commercial and industrial loans by U.S. banks. An increase in the broad dollar index by 2.5 points (one standard deviation) reduces U.S. banks' corporate loan originations by 10 percent. This decline is driven by a reduction in the demand for loans on the secondary market where prices fall and liquidity worsens when the dollar appreciates, with stronger effects for riskier loans. Today, the main buyers of U.S. corporate loans-and, hence, suppliers of funding for these loans-are institutional investors, in particular mutual funds, which experience outflows when the dollar appreciates. A shift of traditional financial intermediation to these relatively unregulated entities, which are more sensitive to global developments, has led to the emergence of this new channel through which the dollar affects the U.S. economy, which we term the secondary market channel.
    Keywords: commercial and industrial loans; credit standards; institutional investors; leveraged loan market; U.S. dollar exchange rate
    JEL: E44 F31 G15 G21 G23
    Date: 2018–10
  71. By: Emanuele Ciola (Economics Department, Università Politecnica delle Marche, Ancona-Italy)
    Abstract: During the last three decades Western economies have been characterized by an increasing role played by the financial sector. This process, called financialization, has been associated with lower economic growth, increased inequality and declining financial stability. In this article I develop a simple framework to study the effects of financialization on aggregate growth and systemic risk. The main driver of this mechanism is the bargaining power of intermediaries. Indeed, financial institutions, by absorbing a larger quota of income from their borrowers, can reduce the incentive for new entrepreneurs to enter in the market. Because of that, both the long-term potential growth rate and the overall stability of the system can be negatively affected by an overdeveloped financial sector.
    Keywords: financialization, entrepreneurship, firm financing, growth, systemic risk
    JEL: E44 G32 O43
    Date: 2018
  72. By: Semih Emre Cekin (Department of Economics, Turkish-German University, Istanbul, Turkey); Ashis Kumar Pradhan (Rajagiri Business School, Rajagiri Valley Campus, Kochi, India); Aviral Kumar Tiwari (CESD, Montpellier Business School, Montpellier, France and Department of Economics, IBS-Hyderabad, IFHE University, Hyderabad, India); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: We analyze the dependence structure of economic policy uncertainty in four Latin American economies (Brazil, Chile, Colombia, Mexico) using vine copula modeling with various forms of tail dependence. Our results suggest that there are significant dependencies in economic uncertainty among the economies considered. We also find that tail dependence is more prevalent in the period preceding the Global Financial Crisis and becomes less relevant in the post-crisis period. Previous works suggest that uncertainty in economic activity can have substantial effects on economic issues ranging from business cycles to contagion effects of financial crises. Due to this relevance, our results have significant implications on the analysis of a range of macroeconomic issues, especially for emerging economies.
    Keywords: Economic policy uncertainty, vine copula, emerging economies
    Date: 2018–10
  73. By: ABBUY, Kwami Edem
    Abstract: This paper investigates the effectiveness of foreign exchange intervention of central banks of Canada and Switzerland. We examine the effectiveness of Canada and Switzerland interventions policies on Canadian dollar against US dollar and Swiss franc against US dollar exchange rates volatility over the 1980-2014 period. A behavioral exchange rate equation is estimated with instrumental variables methodology. The main results indicate that interventions generally reduce exchange rates volatility. However, the Swiss National Bank seems to be more efficient by stabilizing the Swiss franc than the Bank of Canada, whose interventions, despite its effectiveness, remains weak.
    Keywords: Keywords: Volatility, Exchange rate, Official international reserves.
    JEL: E58
    Date: 2018–10–22
  74. By: Matthew S. Jaremski; David C. Wheelock
    Abstract: Bank lending booms and asset price booms are often intertwined. Although possibly triggered by a fundamental shock, rising asset prices can stimulate lending that pushes asset prices higher, leading to more lending, and so on. Such a dynamic seems to have characterized the agricultural land boom surrounding World War I. This paper examines i) how banks responded to the boom and were affected by the bust; ii) how various banking regulations and policies influenced those effects; and iii) how bank closures contributed to falling land prices in the bust. We find that rising crop prices encouraged bank entry and balance sheet expansion in agricultural counties (with new banks accounting disproportionately for growth in lending and banking system risk). State deposit insurance systems amplified the impact of rising crop prices on bank portfolios, while higher minimum capital requirements dampened the effects. When farmland prices collapsed, banks that had responded most aggressively to the asset boom had a higher probability of closing, and counties with more bank closures experienced larger declines in land prices.
    JEL: E58 N21 N22
    Date: 2018–10
  75. By: Sharma, Chanchal Kumar
    Abstract: This paper links the foreign economic engagement of India's states with the literature on federalism, thereby contributing to an understanding of the political economy of FDI inflows in a parliamentary federal system. More specifically, it studies subnational governments' international engagements to attract foreign direct investment (FDI) and investigates whether the political affiliations of states' chief ministers and parliamentarians determine the spatial distribution of FDI across the Indian states, correcting for the influence of per capita income, population density, urbanisation, infrastructure, policy regime, and human development. Although the central government plays no direct role in determining the state to which FDI goes, the centre-state relations in a federal structure play a role in creating perceptions about the relative political risk involved in different investment destinations. Employing multiple linear regressions to analyse time-series (2000-2013) cross-sectional (12 states) data using the panel procedure, the study finds that affiliated states attract relatively more FDI per capita in comparison to states ruled by opposition parties or coalition partners. However, some exceptions do result, primarily due to two phenomena: first, the presence of a strong state leadership and, second, the presence of a significant share of members of parliament belonging to the prime minister's party in the non-affiliated states. Further, states ruled by outside supporters have been most successful in attracting FDI inflows during the coalition period.
    Keywords: foreign direct investment,foreign policy,India,intergovernmental relations,economic growth
    JEL: F21 E22 G11 G23 P33 P45 P48 H70 H72 H73 H77
    Date: 2017
  76. By: Arthur Brackmann Netto
    Abstract: Although Post-Keynesian growth models have been already extensively extended, the issue of personal inequality has only recently started to be dealt with. The strategy, however, has been the insertion of additional functional classes or the observation of intra-class inequality. While theoretically credible, these strategies are empirically questionable and formally complex. This hampers the spread of their conclusions, which are normally of important changes in the main results of traditional models. In this context, this paper proposes a simpler formulation of the issue, both as a didactic introduction and as a way of disseminating the discussion. In this regard, the paper aims to provide intuitive and graphical tools for understanding and reading personal distribution in post-Keynesian growth models. The objective will be pursued by construing the model from the tautological fact that the total income of the economy can be represented by the sum of the income of all individuals in that economy. The functional form representing this sum is the Pareto distribution. This strategy provides two different interpretations for the model: class-conflict and earnings-composition. The second interpretation presents innovative non-linear results for post-Keynesian growth models, given that in it personal inequality may be beneficial for growth.
    Keywords: Personal Distribution, Functional distribution, Inequality, Post-Keynesian GrowthModels
    JEL: D31 E25
    Date: 2018–10–30
  77. By: Kyle Herkenhoff; Jeremy Lise; Guido Menzio; Gordon M. Phillips
    Abstract: The effect of coworkers on the learning and the productivity of an individual is measured combining theory and data. The theory is a frictional equilibrium model of the labor market in which production and the accumulation of human capital of an individual are allowed to depend on the human capital of coworkers. The data is a matched employer-employee dataset of US firms and workers. The measured production function is supermodular. The measured human capital function is non-linear: Workers catch-up to more knowledgeable coworkers, but are not dragged-down by less knowledgeable ones. The market equilibrium features a pattern of sorting of coworkers across teams that is inefficiently positive. This inefficiency results in low human capital individuals having too few chances to learn from more knowledgeable coworkers and, in turn, in a stock of human capital and a flow of output that are inefficiently low.
    JEL: E24 J24
    Date: 2018–10
  78. By: Merkl, Christian; van Rens, Thijs
    Abstract: Firms select not only how many, but also which workers to hire. Yet, in most labor market models all workers have the same probability of being hired. We argue that selective hiring crucially affects welfare analysis. We set up a model that is isomorphic to a search model under random hiring but allows for selective hiring. With selective hiring, the positive predictions of the model change very little, but implications for welfare are different for two reasons. First, a hiring externality occurs with random but not with selective hiring. Second, the welfare costs of unemployment are much larger with selective hiring, because unemployment risk is distributed unequally across workers.
    Keywords: labor market models; optimal unemployment insurance; welfare
    JEL: E24 J65
    Date: 2018–10
  79. By: Asuamah Yeboah, Samuel
    Abstract: The study examines the long run effect of investment (proxied by gross fixed capital formation) on electricity consumption for Ghana, for the period 1971-2011, by employing annual time series secondary data from World Bank database (World development indicator). The Augmented Dickey Fuller (ADF) and Kwiatkowski-Philips-Schmidt-Shin (KPSS) tests were used to analyse the stationarity features of the data used in levels and in their first differences. The empirical verification was done using the Autoregressive Distributed Lag model (ARDL). The findings of the study indicate the data used are non-stationary in levels, however, stationary in their first difference. Investment and electricity consumption are cointegrated according to the cointegration test performed. There are both stable short run and long run relationship between investment and electricity consumption. Investment is an appropriate policy tool for electricity consumption management in both short run and long run. Further studies in the area of stationarity with structural breaks, cointegration with structural breaks, causality analysis, and multivariate modelling of investment-electricity consumption link is worth doing since the current study did not consider these issues.
    Keywords: Cointegration, energy, long run, fixed capital formation
    JEL: D92 E22 F21 G31 H54 O13 O16 P28 P45 P48 Q42 Q43 R42 R53
    Date: 2018–10–28
  80. By: Pitsoulis, Athanassios; Schwuchow, Soeren
    Abstract: On June 19, 2017 the European Union and the British government officially commenced negotiations on the terms of the British exit from the union. The dominant view among most economic policy analysts and commentators seems to be that the cards are clearly stacked against Britain and that the high-handed behaviour of the British representatives is, at best, either a bluff or, at worst, a sign of a loss of reality. In this paper we develop a formal model to show how this uncertainty regarding the preferences and strategy of the British side may affect the dynamic of the negotiations and may lead to unanticipated outcomes.
    Keywords: Brexit,game theory,madman strategy,trembling-hand perfection
    JEL: D78 E65 H12
    Date: 2018
  81. By: Ricardo Sabbadini
    Abstract: A decline in international risk-free interest rates decreases emerging markets (EM) sovereign spreads. I show that a quantitative model of sovereign debt and default exhibits this pattern if foreign lenders are loss-averse and have reference dependence. This happens because investors search for yield in risky EM bonds when the risk-free rate is lower than their return of reference
    Keywords: sovereign spread; search for yield; loss aversion; low interest rate
    JEL: E43 F34 F41
    Date: 2018–10–30
  82. By: Khieu, Hoang (University of Mainz); Wälde, Klaus (University of Mainz)
    Abstract: In this paper, we develop and numerically solve a model of idiosyncratic labour income and idiosyncratic interest rates to predict the evolution of a wealth distribution over time. Stochastic labour income follows a deterministic growth trend and it fluctuates between a wage and unemployment benefits. Stochastic interest rates are drawn initially (ex-ante heterogeneity), fluctuate between two values (ex-post heterogeneity) and can differ in their arrival rates (financial types). A low interest rate implies a stationary long-run wealth distribution, a high interest rate implies non-stationary wealth distributions. Our baseline model matches the evolution of the wealth distribution of the NLSY 79 cohort from 1986 to 2008 very well. When we start in 1986 and target 2008, we obtain a fit of 96.1%: The fit for non-targeted years is 77.0% on average. When targeting the evolution of wealth, the fit is 88.9%. With a more flexible interest rate distribution, the fit can even be increased to 96.7%. Comparing calibrated mean returns with data shows that the flexible interest rate distribution has empirically not convincing "superstar states". In the baseline model, mean returns are empirically convincing. Surprisingly, the standard deviation of model returns is an order of magnitude lower than the empirical standard deviation.
    Keywords: dynamics of wealth distributions, NLSY 1979 cohort, capital income risk, Fokker-Planck equations
    JEL: C02 D31 E21
    Date: 2018–09
  83. By: Sala, Hector (Universitat Autònoma de Barcelona)
    Abstract: The evolution of the ratio of direct taxation (characterized by progressive rates) over indirect and payroll taxation (characterized by flat rates) is examined together with its distributional consequences for the Bottom 50%, Middle 40% and Top 10% shares of income. Oscillations of this ratio coincide with the US electoral cycles since the 1960s. We show that periods in which this ratio increases coincide with those in which Democrats rule the government and there is more redistribution from the rich (the Top 10%) to the rest of the population. Conversely, periods in which this ratio falls and Republicans hold the power are characterized by a fall in the ratio and less redistribution from the rich to the rest of the population. Based on a set of counterfactual simulations, we hypothesize that the rich, as informed economic agents, are able to protect themselves against tighter fiscal conditions, thereby curtailing the redistributive effects of enhanced tax progressivity.
    Keywords: electoral cycles, tax composition, income distribution, tax progressivity
    JEL: H20 H31 E25
    Date: 2018–10
  84. By: Bucher, Monika; Dietrich, Diemo; Hauck, Achim
    Abstract: A bank's decision on loan supply and capital structure determines its immediate bankruptcy risk as well as the future availability of internal funds. These internal funds in turn determine a bank's future costs of external finance and future vulnerability to bankruptcy risks. We study these intra- and intertemporal links and analyze the influence of risk-weighted capital-to-asset ratios, liquidity coverage ratios and regulatory margin calls on the dynamics of loan supply and bank stability. Only regulatory margin calls or large liquidity coverage ratios achieve bank stability for all risk levels, but for large risks a bank will stop credit intermediation.
    Keywords: bank lending,banking crisis,bank capital regulation,liquidity regulation
    JEL: G01 G21 G28 E32
    Date: 2018
  85. By: Beqiraj, Elton; Fanti, Lucrezia; Zamparelli, Luca
    Abstract: In this paper, we look at structural change, and in particular at the shrinking size of manufacturing in favor of the service sector, as one additional source of decline in the wage share. To the purpose, we build on Dutt (1988) to develop a two-sector Kaleckian model of growth and distribution, where the economy consists of the service and manufacturing sectors. The service good is only used for consumption while the manufacturing good is used both for consumption and accumulation of the capital stock. We assume that structural change is exogenous as it arises from a shift in consumers' preferences. We show that, when mark-ups are relatively higher in the service sector, a shift in the sectoral composition of demand in favor of the service sector good generates a rise in the pro
    Keywords: structural change, functional income distribution, manufacturing, service
    JEL: D33 E11 O14
    Date: 2018
  86. By: Claude Diebolt; Magali Jaoul-Grammare
    Abstract: Cet article prolonge les travaux de Jacobs et Richter (1935) sur les indices de prix gros en Allemagne avant la Première Guerre mondiale. Nous les complétons, d’une part en proposant une série originale des prix, d’autre part en développant une analyse cliométrique soulignant l’importance des guerres dans leur dynamique structurelle.
    Keywords: Allemagne, Cliométrie, Indice des prix.
    JEL: E3 N1 N4
    Date: 2018
  87. By: Hanan Ishaque (Alpen-Adria University Klagenfurt)
    Abstract: The use of renewable energy (RE) sources contributes to the sustainable development goals of climate change mitigation and access to clean and affordable energy. To diversify the electricity mix, reduce reliance on fossil-fuels and abate powers sector CO2 emissions, the Government of Pakistan developed a policy to incentivize RE deployment by offering upfront feed-in tariffs (FIT). This paper attempts to estimate the cost of CO2 emission abatement with RE incentives for solar and wind power plants for the period 2015-2020. The implicit cost of CO2 abatement defined as the ratio of net cost of RE to CO2 emissions avoided is estimated to be $116/tCO2 for wind and $78/tCO2 for solar power. The payment to generators guaranteed by FITs is a major determinant and explains the difference between the implicit abatement costs of solar and wind power. These estimates, however, are sensitive to the resources displaced by RE and the fuel prices. This study provides a framework to the policymakers for analysis of RE incentives recognizing the dynamic nature of the abatement cost metric and discusses policy implications in the light of the results.
    Keywords: CO2 abatement cost, renewable energy, feed-in tariff, Pakistan
    JEL: C54 E60 O13
    Date: 2018–07
  88. By: Wollmershäuser, Timo
    Abstract: We estimate a panel VAR model for the euro area to quantitatively asses the contribution of the TARGET2 system to the propagation of different types of structural economic shocks as well as to the historical evolution of aggregate economic activity in euro area member countries. Our results suggest that TARGET2 has significantly affected the transmission of capital ow shocks while leaving the macroeconomic responses to other aggregate shocks virtually unaltered. Furthermore, on basis of counterfactual analyses, we find that TARGET2 has contributed substantially to avoid deeper recessions in distressed periphery member countries like Spain, Italy, Ireland and Portugal, while to a smaller degree depressing aggregate economic activity in core member states, such as Germany, the Netherlands and Finland.
    Keywords: euro area,TARGET2 balances,capital inflow shocks,panel vector autoregressive model.
    JEL: E42 F32 F41
    Date: 2018
  89. By: Hamid R Tabarraei; Hamed Ghiaie; Asghar Shahmoradi
    Abstract: The structural model in this paper proposes a micro-founded framework that incorporates an active banking sector with an oil-producing sector. The primary goal of adding a banking sector is to examine the role of an interbank market on shocks, introduce a national development fund and study its link to the banking sector and the government. The government and the national development fund directly play key roles in the propagation of the oil shock. In contrast, the banking sector and the labor market, through perfect substitution between the oil and non-oil sectors, have major indirect impacts in spreading shocks.
    Keywords: Banking;Financial crises;Central banks and their policies;Oil-exporting countries, Oil-Reserve Fund, DSGE, Financial Markets and the Macroeconomy, General
    Date: 2018–10–02
  90. By: Wegenast, Tim; Strüver, Georg; Giesen, Juliane; Krauser, Mario
    Abstract: Qualitative studies and media reports suggest that the presence of Chinese oil or mining companies generates resentments among local extractive communities due to low wages, poor working conditions, environmental degradation, the employment of foreign labour, and perceived racial discrimination. At the same time, Chinese investment in the extractive sector appears to enhance local infrastructure. So far, these claims have not been empirically tested in a systematic way. Relying on novel data on the control-rights regimes of diamond, gold, and copper mines and geo-referenced information from Afrobarometer surveys, this paper examines whether Chinese-controlled mining promotes anti-Chinese sentiments among the local populations of sub-Saharan African countries. In addition, we test the effect of mining contractors' nationality on socio-economic indicators such as local employment rates and infrastructure levels. Our logistic regression analysis for the period 1997-2014 reveals that the effect of Chinese mining companies on African local development is ambiguous: while proximity to Chinese-operated mines is associated with anti-Chinese sentiments and unemployment, populations living close to Chinese mining areas enjoy better infrastructure, such as paved roads or piped water. Multilevel mixed-effects estimations using district-level data from the Demographic Health Survey for 20 sub-Saharan countries corroborate these findings.
    Keywords: natural resources,Africa,China,mining,unemployment,infrastructure
    JEL: O13 Q34 O55 L72 E24 O18
    Date: 2017
  91. By: Ana Mafalda Vasconcelos (Università degli Studi di Torino and Collegio Carlo Alberto)
    Abstract: In this paper we rely on an extensive dataset on cross-border banking flows to understand the effect of political risk on international lending. Moreover, our paper is the first that analyses the effect of several factors of political risk in cross-border banking flows using a sample that is larger than that of previous studies, i.e. covering the period 1984 ? 2013. Moreover - and given the importance of the 9/11 attacks as a turning point both in the political atmosphere and on the global economy ? our paper sets out to investigate how the September 11, 2001 attacks shaped the importance of political risk as a determinant of cross-border banking flows.We find that political risk is an important consideration for foreign investors and that it is perceived differently in developed and non-developed countries. Moreover, we find that the 9/11/2001 attacks change the perception of political risk, and the factors of the aforementioned risk that drive international lending - both in developed and non-developed countries - also changed with the September 11, 2001 attacks.
    Keywords: political risk, cross-border banking flows, international lending, 9/11/2001 attacks
    JEL: G15 E00
    Date: 2018–07
  92. By: Farboodi, Maryam; Veldkamp, Laura
    Abstract: "Big data" financial technology raises concerns about market inefficiency. A common concern is that the technology might induce traders to extract others' information, rather than produce information themselves. We allow agents to choose how much to learn about future asset values or about others' demands, and explore how improvements in data processing shape these information choices, trading strategies and market outcomes. Our main insight is that unbiased technological change can explain a market-wide shift in data collection and trading strategies. However, in the long run, as data processing technology becomes more and more advanced, both types of data continue to be processed. What keeps the data economy in balance is two competing forces: Data resolves investment risk, but future data creates risk. The efficiency results that follow from these competing forces upend common wisdom. They offer a new take on what makes prices informative and whether trades typically deemed liquidity-providing actually make markets more resilient.
    Keywords: Big Data; financial analysis; Fintech; growth; Information Acquisition; liquidity
    JEL: E2 G14
    Date: 2018–10
  93. By: Xavier Ragot (Observatoire français des conjonctures économiques)
    Abstract: The global economy is emerging painfully from the financial crisis that kicked off in 2008 in the United States and then hit Europe. The economic debate is now shifting from the urgencies of the crisis to taking a look at more distant horizons. Global warming is currently demanding investment in new technologies and changes in consumption patterns. More generally, current trends are once again raising the old but still topical question of the economic and social stability of market economies. This question has multiple ramifications: in addition to the issues of instability and financial crisis there are the dynamics of inequality and the distribution of income. Finally, with the emergence of digital technologies, technical change is posing new questions. While digital potentials are often formulated in ways that provoke anxiety, the ability of these technologies to improve our everyday lives is one of the key issues facing thinking about the economy over the next twenty years.
    Keywords: Global economy; Financial crisis
    Date: 2018–09
  94. By: Constantino Hevia; Luis Serven
    Abstract: This paper examines the extent of risk sharing for a group of 50 industrial and developing countries. The analysis is based on a model of partial consumption insurance whose parameters have the natural interpretation of coefficients of partial risk sharing even when the null hypothesis of perfect risk sharing is rejected. Results show that rich countries exhibit higher degrees of risk sharing than developing countries, and that the gap has widened over time. Other things equal, the degree of risk sharing is higher in smaller, more financially-open economies and in those possessing flexible exchange rate regimes.
    Keywords: Incomplete risk sharing, Financial globalization
    JEL: E21 F36 F41
    Date: 2018–03

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