nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒11‒19
108 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. How the banking system is creating a two-way inflation in an economy? By Mehedi Nizam, Ahmed
  2. The young, the old, and the government: demographics and fiscal multipliers By Henrique S. Basso; Omar Rachedi
  3. Assessing the Effects of Fiscal Policy News under Imperfect Information: Evidence from Aggregate and Individual Data By Luisa Corrado; Edgar Silgado-Gómez
  4. Financial Dollarization in Emerging Markets: An Insurance Arrangement By Husnu C. Dalgic
  6. The Impact of Consumer Credit Access on Unemployment By Kyle F. Herkenhoff
  7. Exploring the implications of different loan-to-value macroprudential policy designs By Rita Basto; Diana Lima; Sandra Gomes
  8. Labour market conditions and wage inflation in CEE economies By Simone Auer
  9. Inflation Decomposition Model: Application to Macedonian inflation By Danica Unevska-Andonova
  10. Stochastic model specification in Markov switching vector error correction models By Huber, Florian; Pfarrhofer, Michael; Zörner, Thomas O.
  11. Weakness in Italy’s core inflation and the Phillips curve: the role of labour and financial indicators By Antonio M. Conti; Concetta Gigante
  12. Leaning against housing prices as robustly optimal monetary policy By Adam, Klaus; Woodford, Michael
  13. Credit mechanics - a precursor to the current money supply debate By Decker, Frank; Goodhart, Charles A
  14. Fiscal Policy, Wages, and Jobs in the U.S. By Kim, Hyeongwoo
  15. What’s behind firms’ inflation forecasts? By Cristina Conflitti; Roberta Zizza
  16. Volatility Spillovers and Systemic Risk Across Economies: Evidence from a Global Semi-Structural Model By Javier G. Gómez-Pineda
  17. Household wealth in Italy and in advanced countries By Diega Caprara; Riccardo De Bonis; Luigi Infante
  18. Unemployment and Development By Ying Feng; David Lagakos; James E. Rauch
  19. Flight-to-safety and the Credit Crunch: A new history of the banking crisis in France during the Great Depression By Baubeau, Patrice; Monnet, Eric; Riva, Angelo; Ungaro, Stefano
  20. Wages and the Value of Nonemployment By Simon Jäger; Benjamin Schoefer; Samuel G. Young; Josef Zweimüller
  21. On the perils of stabilizing prices when agents are learning By Mele, Antonio; Molnar, Krisztina; Santoro, Sergio
  22. Cryptocurrencies: A Crash Course in Digital Monetary Economics By Jesus Fernandez-Villaverde
  23. The Rise and Fall of the Natural Interest Rate By Gabriele Fiorentini; Alessandro Galesi; Gabriel Pérez-Quirós; Enrique Sentana
  24. Nominal exchange rate dynamics and monetary policy: uncovered interest rate parity and purchasing power parity revisited By Saadon, Yossi; Sussman, Nathan
  25. An appraisal of Friedman's positively sloped Phillips Curve conjecture By Rod Cross
  26. Could a large scale asset purchase programme have mitigated the Great Depression? By Lozej, Matija
  27. Could a large scale asset purchase programme have mitigated the Great Depression? By Garabedian, Garo; Stuart, Rebecca
  28. Fiscal multipliers in bad times: does the nature of a recession matter? By Borsoi, Nicolas da Silva; Teles, Vladimir Kühl
  29. Credit Shocks and Equilibrium Dynamics in Consumer Durable Goods Markets By Gavazza, Alessandro; Lanteri, Andrea
  30. Firm dynamics and pricing under customer capital accumulation By Pau Roldán; Sonia Gilbukh
  31. Do Household Finances Constrain Unconventional Fiscal Policy? By Scott R. Baker; Lorenz Kueng; Leslie McGranahan; Brian T. Melzer
  32. Rent seeking activities and aggregate economic performance - the case of Greece By Stylianos G. Gogos; Dimitris Papageorgiou; Vanghelis Vassilatos
  33. Strong Growth Amid Increased Negative Risks By Amat Adarov; Vasily Astrov; Alexandra Bykova; Rumen Dobrinsky; Richard Grieveson; Julia Grübler; Doris Hanzl-Weiss; Peter Havlik; Philipp Heimberger; Mario Holzner; Gabor Hunya; Michael Landesmann; Sebastian Leitner; Isilda Mara; Olga Pindyuk; Leon Podkaminer; Sandor Richter; Hermine Vidovic
  34. Managers and Productivity Differences By Nezih Guner; Andrii Parkhomenko; Gustavo Ventura
  35. Managers and Productivity Differences By Nezih Guner; Andrii Parkhomenko; Gustavo Ventura
  36. History Remembered: Optimal Sovereign Default on Domestic and External Debt By Pablo D'Erasmo; Enrique G. Mendoza
  37. Monetary Policy Pass-through, Excess Liquidity and Price Spillover: A Comparative Study of Conventional and Islamic Banks of Pakistan By Muhammad Omer
  38. Immigrants, labor market dynamics and adjustment to shocks in the Euro Area By Gaetano Basso; Francesco D'Amuri; Giovanni Peri
  39. Euler Equations, Subjective Expectations and Income Shocks By Attanasio, Orazio; Molnar, Krisztina; Kovacs, Agnes
  40. Credit card debt and consumer payment choice: what can we learn from credit bureau data? By Stavins, Joanna
  41. Should I stay or should I go? A latent threshold approach to large-scale mixture innovation models By Huber, Florian; Kastner, Gregor; Feldkircher, Martin
  42. How slow is the recovery of loans to firms in Italy? By Ginette Eramo; Roberto Felici; Paolo Finaldi Russo; Federico Signoretti
  43. State Dependent Effects of Monetary Policy: the Refinancing Channel By Martin Eichenbaum; Sergio Rebelo; Arlene Wong
  44. Forecasting Financial Vulnerability in the US: A Factor Model Approach By Kim, Hyeongwoo; Shi, Wen
  45. A composite likelihood approach for dynamic structural models By Canova, Fabio; Matthes, Christian
  46. Estimating nominal interest rate expectations: overnight indexed swaps and the term structure By Lloyd, Simon
  47. Forecasting Financial Stress Indices in Korea: A Factor Model Approach By Kim, Hyeongwoo; Shi, Wen; Kim, Hyun Hak
  48. 所得階層別一般均衡型世代重複シミュレーションモデルの開発 By 島澤, 諭; 難波, 了一; 堤, 雅彦; 小黒, 一正
  49. The Lack of European Productivity Growth: Causes and Lessons for the U.S. By Jesus Fernandez-Villaverde; Lee Ohanian
  50. Political and institutional determinants of credit booms By Vítor Castro; Rodrigo Martins
  51. Dominican Republic; 2018 Article IV Consultation-Press Release and Staff Report By International Monetary Fund
  52. Family Economics Writ Large By Jeremy Greenwood; Nezih Guner; Guillaume Vandenbroucke
  53. Hysteresis via Endogenous Rigidity in Wages and Participation By Doniger, Cynthia L; López-Salido, J David
  54. State Dependent Effects of Monetary Policy: the Refinancing Channel By Eichenbaum, Martin; Rebelo, Sérgio; Wong, Arlene
  55. Burning Money? Government Lending in a Credit Crunch By Jiménez, Gabriel; Peydró, José Luis; Repullo, Rafael; Saurina, Jesús
  56. Should I stay or should I go? Austerity, unemployment and migration By Guilherme Bandeira; Jordi Caballé; Eugenia Vella
  57. Decision Rules for Precautionary and Retirement Savings By Dina Tasneem; Jim Engle-Warnick
  58. Has the American Output Growth Path Experienced a Permanent Change? By Thomas Lustenberger
  59. Optimal Taxes on Capital in the OLG Model with Uninsurable Idiosyncratic Income Risk By Dirk Krueger; Alexander Ludwig
  60. Forecasting house prices in Italy By Simone Emiliozzi; Elisa Guglielminetti; Michele Loberto
  61. Optimal Taxes on Capital in the OLG Model with Uninsurable Idiosyncratic Income Risk By Krueger, Dirk; Ludwig, Alexander
  62. Monetary Policy, Product Market Competition, and Growth By Aghion, Philippe; Farhi, Emmanuel; Kharroubi, Enisse
  63. Fiscal policy in the US: a new measure of uncertainty and its recent development By Alessio Anzuini; Luca Rossi
  64. Vacancy Durations and Entry Wages: Evidence from Linked Vacancy-Employer-Employee Data By Kettemann, Andreas; Mueller, Andreas; Zweimüller, Josef
  65. Avoiding the fall into the loop: Isolating the transmission of bank-to-sovereign distress in the euro area and its drivers By Böhm, Hannes; Eichler, Stefan
  66. The impact of tax structure on investment: an empirical assessment for OECD countries By José Alves
  67. Work productivity and employment in chosen EU countries By Adriana Csikósová; Katarína ?ulková; Mária Jano?ková
  68. Calibrating the Magnitude of the Countercyclical Capital Buffer Using Market-Based Stress Tests By Maarten van Oordt
  69. Labor supply and the business cycle: The “Bandwagon Worker Effect” By Martín Román, Ángel L.; Cuéllar-Martín, Jaime; Moral de Blas, Alfonso
  70. The Nativity Wealth Gap in Europe: a Matching Approach By Ferrari, Irene
  71. The sinful side of taxation: is it possible to satisfy the government hunger for revenues while promoting economic growth? By José Alves
  72. Reducing Medical Spending of the Publicly Insured: The Case for a Cash-Out Option By Svetlana Pashchenko; Ponpoje Porapakkarm
  73. Potential output and microeconomic heterogeneity By Davide Fantino
  74. Endogenous Retirement Behavior of Heterogeneous Households Under Pension Reforms By Börsch-Supan, Axel; Härtl, Klaus; Leite, Duarte Nuno; Ludwig, Alexander
  75. Macroeconomics determinants of the correlation between stocks and bonds By Marcello Pericoli
  76. Revisiting External Imbalances: Insights from Sectoral Accounts By Cian Allen
  77. Legal Harmonization, Institutional Quality, and Countries' External Positions: A Sectoral Analysis By Franziska Bremus; Tatsiana Kliatskova
  78. Declining Search Frictions, Unemployment and Growth By Paolo Martellini; Guido Menzio
  79. Bank capital constraints, lending supply and economic activity By Antonio M. Conti; Andrea Nobili; Federico M. Signoretti
  80. A General Equilibrium Theory of Occupational Choice under Optimistic Beliefs about Entrepreneurial Ability By Dell’Era, Michele; Opromolla, Luca David; Santos-Pinto,
  81. Nonfarm Employment, Inflationary Expectations, and Monetary Policy after the Global Financial Crisis By Willem THORBECKE
  82. Labor-market Frictions, Incomplete Insurance and Severance Payments By Etienne Lalé
  83. 消費増税を望むのは誰か? By 島澤, 諭; 難波, 了一; 堤, 雅彦; 小黒, 一正
  84. Leverage over the Life Cycle and Implications for Firm Growth and Shock Responsiveness By Emin Dinlersoz; Sebnem Kalemli-Ozcan; Henry Hyatt; Veronika Penciakova
  85. The EU-Japan Economic Partnership Agreement and its Relevance for the Austrian Economy By Julia Grübler; Oliver Reiter; Robert Stehrer
  86. Labor Market Concentration does not Explain the Falling Labor Share By Ben Lipsius
  87. The Price and Welfare Effects of The Value-Added Tax: Evidence from Mexico By Rodrigo Mariscal; Alejandro M. Werner
  88. A Large Canadian Database for Macroeconomic Analysis By Olivier Fortin-Gagnon; Maxime Leroux; Dalibor Stevanovic; Stéphane Surprenant
  90. Insurance-markets Equilibrium with a Non-convex Labor Supply decision, Unobservable Effort, and Incentive ("Fair") Wages By Vasilev, Aleksandar
  91. A Laboratory Study of Nudge with Retirement Savings By Dina Tasneem; Audrey Azerot; Marine de Montaignac; Jim Engle-Warnick
  92. Non-Tariff Barriers and Goods Trade: a Brexit Impact Analysis By Byrne, Stephen; Rice, Jonathan
  93. The transmission of uncertainty shocks on income inequality: State-level evidence from the United States By Fischer, Manfred M.; Huber, Florian; Pfarrhofer, Michael
  94. Self-Employment and the Economic Cycle in Spain By Lasierra, Jose Manuel
  95. Kenya; Staff Report for the 2018 Article IV Consultation and Establishment of Performance Criteria for the Second Review Under the Stand-by Arrangement By International Monetary Fund
  96. Where did inflation targeting matter? By Barbosa, Rodrigo dos Santos; Brito, Ricardo D.; Teles, Vladimir Kühl
  97. Runoff vs. Plurality: Does It Matter for Expenditures? Evidence from Italy By Cipullo, Davide
  98. Unlucky Cohorts: Estimating the Long-term Effects of Entering the Labor Market in a Recession in Large Cross-sectional Data Sets By Schwandt, Hannes; von Wachter, Till
  99. Sovereign debt maturity structure and its costs By Flavia Corneli
  100. Barriers to Entry and Regional Economic Growth in China By Loren Brandt; Gueorgui Kambourov; Kjetil Storesletten
  101. Measuring the fiscal multiplier when plans take time to implement By Kevin Lee; James Morley; Kian Ong; Kalvinder Shields
  102. Measured Productivity with Endogenous Markups and Economic Profits By Anthony Savagar
  103. Aggregation with a non-convex labor supply decision, unobservable effort, and incentive ("fair") wages By Vasilev, Aleksandar
  104. Trust & Informality in the Indian Credit Market: A Snapshot from Recent Data By Atanu Sengupta, Atanu Sengupta; De, Sanjoy
  105. Normality Tests for Latent Variables By Tincho Almuzara; Dante Amengual; Enrique Sentana
  106. Normality Tests for Latent Variables By Tincho Almuzara; Dante Amengual; Enrique Sentana
  107. Currency depreciation and emerging market corporate distress By Bruno, Valentina G.; Shin, Hyun Song
  108. Sovereign default, domestic banks and exclusion from international capital markets By Dominik Thaler

  1. By: Mehedi Nizam, Ahmed
    Abstract: Here we argue that due to the difference between the real GDP growth rate and nominal deposit rate, a demand pull inflation is induced into the economy. On the other hand, due to the difference between real GDP growth rate and nominal lending rate, a cost push inflation is created. We quantitatively measure the amount of nominal interest income the depositors spend on each unit of consumed goods and the amount of nominal interest expense the borrowers pay on each unit of produced goods which is not supported by the accompanying real GDP growth rate and thereby causing inflation in the economy. We examine the process of creating two-fold inflation by the interplay between real GDP growth rate and nominal deposit and lending rate and provide two metrics that tend to link the overall inflation prevailing at any point of time in an economy to the nominal deposit and lending rate in the long run. We compare the performance of our model to the Fisherian one by using Toda and Yamamoto approach of testing Granger Causality in the context of non-stationary data. We then use ARDL Bounds Testing approach to cross-check the results obtained from T-Y approach.
    Keywords: banking, nominal deposit rate, nominal lending rate, demand pull inflation, cost push inflation, Fisher Effect, Fisher Hypothesis, Fisher Equation
    JEL: E31 E43 E44 E52 E58
    Date: 2018–10–12
  2. By: Henrique S. Basso (Banco de España); Omar Rachedi (Banco de España)
    Abstract: We document that fiscal multipliers depend on the age structure of the population. Using the variation in military spending and birth rates across U.S. states, we show that local fiscal multipliers increase with the share of young people in total population. We rationalize this fact with a parsimonious life-cycle open-economy New Keynesian model with credit market imperfections. The model explains 65% of the relationship between local fiscal multipliers and demographics. We use the model to study the implications of population aging, and find that nowadays U.S. national fiscal multipliers are 36% lower than in 1980.
    Keywords: life-cycle, population aging, fiscal policy
    JEL: E30 E62 J11
    Date: 2018–11
  3. By: Luisa Corrado (DEF & CEIS,University of Rome "Tor Vergata"); Edgar Silgado-Gómez (University of Rome "Tor Vergata")
    Abstract: We study the transmission of fiscal policy under imperfect information where government spending is composed by permanent and transitory components. Agents learn about the previous processes by only observing overall public spending and a noisy signal. Under this setting and employing maximum likelihood techniques, we construct a novel measure of fiscal policy news and show that the estimated variable agrees with the historical narrative evidence for the U.S. economy. We then use macro and micro datasets to document the effects of this proxy on real wages and consumption. The qualitative responses obtained with aggregate data are significantly the same as those using individual PSID data at the median of the empirical distributions – on impact, real consumption falls and real wages do not move, whereas both increase after one year. A potential explanation for these results relies on expectations about future policy adjustments. When we consider the tails of the distributions, real wages fall (rise) upon impact for rich (poor) households. However, the effects on consumption only differ at longer horizons where poor households increase consumption more persistently than those at the top of the distribution.
    Keywords: Fiscal Policy News, Imperfect Information, Aggregate Data, PSID.
    JEL: C23 C32 E21 E24 E62
    Date: 2018–08–09
  4. By: Husnu C. Dalgic
    Abstract: Households in emerging markets hold significant amounts of dollar deposits while firms have significant amounts of dollar debt. Motivated by the perceived dangers, policymakers often develop regulations to limit dollarization. In this paper, I draw attention to an important benefit of dollarization, which should be taken into account when crafting regulations. I argue that dollarization repre- sents an insurance arrangement in which the entrepreneurs that own firms pro- vide income insurance to households. Emerging market exchange rates tend to depreciate in a recession so that dollar deposits in effect provide households with income insurance. With their preference for holding deposits denominated in dol- lars, households effectively starve local financial markets of local currency, which raises local interest rates. By raising local currency interest rates, they cause entrepreneurs to borrow in dollars. Consistent with my argument, countries in which the exchange depreciates in a recession have a higher level of deposit and credit dollarization. In those countries, I verify that the premium of the local interest rate over the dollar interest rate is higher. This premium is the price paid by households for insurance.
    Keywords: Emerging Markets. Financial Dollarization. Corporate Dollar Debt.
    JEL: E32 E43 E44 F32 F41 F43
    Date: 2018–11
  5. By: Gert Peersman (-)
    Abstract: This paper examines the causal effects of shifts in international food commodity prices on euro area inflation dynamics using a structural VAR model that is identified with an external instrument (i.e. a series of global harvest shocks). The results reveal that exogenous food commodity price shocks have a strong impact on consumer prices, explaining on average 25%-30% of inflation volatility. In addition, large autonomous swings in international food prices contributed significantly to the twin puzzle of missing disinflation and missing inflation in the era after the Great Recession. Specifically, without disruptions in global food markets, inflation in the euro area would have been 0.2%-0.8% lower in the period 2009-2012 and 0.5%-1.0% higher in 2014-2015. An analysis of the transmission mechanism shows that international food price shocks have an impact on food retail prices through the food production chain, but also trigger indirect effects via rising inflation expectations and a depreciation of the euro.
    Keywords: Food commodity prices, inflation, twin puzzle, euro area, SVAR-IV
    JEL: E31 E52 Q17
    Date: 2018–10
  6. By: Kyle F. Herkenhoff
    Abstract: Unemployed households' access to unsecured revolving credit more than tripled over the last three decades. This paper analyzes how both cyclical fluctuations and trend increases in credit access impact the business cycle. The main quantitative result is that credit expansions and contractions have contributed to moderately deeper and more protracted recessions over the last 40 years. As more individuals obtained credit from 1977 to 2010, cyclical credit fluctuations affected a larger share of the population and became more important determinants of employment dynamics. Even though business cycles are more volatile, newborns strictly prefer to live in the economy with growing, but fluctuating, access to credit markets.
    JEL: E2 E24 J01 J24 J6 J64
    Date: 2018–10
  7. By: Rita Basto; Diana Lima; Sandra Gomes
    Abstract: This paper evaluates the macroeconomic effects of macroprudential policy measures consisting of changes in loan-to-value ratios in the euro area. The analysis is carried out within a fully structural, multi-country model, that prominently includes financial frictions and a banking sector. Our main findings suggest that a permanent LTV tightening in a small euro area economy leads to a long-run decline in lending to the private sector. The short-run impact depends crucially on the policy design, being less pronounced when the measure is phased-in. This is consistent with policy goals of curbing credit growth but avoiding an abrupt immediate contraction in lending. A policy measure introduced at the euro area level implies larger long-run effects but the short-run recessionary impact is attenuated by the monetary policy response.
    JEL: E58 E61 F42
    Date: 2018
  8. By: Simone Auer (Bank of Italy)
    Abstract: In this paper, we test whether a wage Phillips curve can still be considered a reliable approximation of nominal wage determination in Poland, Hungary and the Czech Republic. The empirical evidence is broadly in favour of the existence of a negative relation between labour market slack and nominal wage inflation in the Central and Eastern European (CEE) economies between 2001 and 2017. However, after 2009 wage inflation was significantly below the value that would have been predicted by an estimated wage Phillips curve. The results of rolling OLS estimations confirm a weakening of the negative relation with the unemployment gap. A closer look at the recent evolution of labour market conditions in Poland, Hungary and the Czech Republic suggests that the composition effects on labour supply, especially those linked to demographic and migration trends, could be particularly relevant. Other possible explanations generally mentioned with reference to advanced economies - such as a large share of long-term unemployment, part-time and temporary workers or workers that are underemployed or marginally attached to the labour market - probably had no role or only a marginal one in the recent weak nominal wage growth in the three countries.
    Keywords: wage growth, Phillips curve, unemployment, labour supply
    JEL: E24 E31 J21
    Date: 2018–10
  9. By: Danica Unevska-Andonova (National Bank of Republic of Macedonia)
    Abstract: The purpose of the paper is to introduce the framework for decomposing the forecast of headline inflation, obtained by macroeconomic model of NBRM for monetary policy analysis and medium term projections (MAKPAM), into its components: food, energy and core inflation. The model for inflation decomposition is a small structural model, set up in state space framework. Kalman filter procedure is applied to filter the future paths of CPI components, given projected headline inflation obtained by MAKPAM model and exogenous determinants, such as output gap, world commodity prices, and foreign effective inflation. The results of the model’s forecasting performance suggest that this model can be a useful analytical tool in the process of inflation forecast, with relatively good fit of equations for food and domestic oil prices. This model serves as satellite model to MAKPAM and enriches the set of tools for forecasting and monetary policy analysis in NBRM. In this paper we highlight its most important equations, results and model performances.
    Keywords: Inflation, forecasting, Macedonia
    JEL: C53 E31 E37
    Date: 2018
  10. By: Huber, Florian (University of Salzburg); Pfarrhofer, Michael (University of Salzburg); Zörner, Thomas O. (WU Wirtschaftsuniversität Wien)
    Abstract: This paper proposes a hierarchical modeling approach to perform stochastic model specification in Markov switching vector error correction models. We assume that a common distribution gives rise to the regime-specific regression coefficients. The mean as well as the variances of this distribution are treated as fully stochastic and suitable shrinkage priors are used. These shrinkage priors enable to assess which coefficients differ across regimes in a flexible manner. In the case of similar coefficients, our model pushes the respective regions of the parameter space towards the common distribution. This allows for selecting a parsimonious model while still maintaining sufficient flexibility to control for sudden shifts in the parameters, if necessary. In the empirical application, we apply our modeling approach to Euro area data and assume that transition probabilities between expansion and recession regimes are driven by the cointegration errors. Our findings suggest that lagged cointegration errors have predictive power for regime shifts and these movements between business cycle stages are mostly driven by differences in error variances.
    Keywords: Non-linear vector error correction model; Markov switching; hierarchical modeling; variable selection; equilibrium credit level; Euro area
    JEL: C11 C32 E32 E44 E51
    Date: 2018–11–01
  11. By: Antonio M. Conti (Bank of Italy); Concetta Gigante (University of Exeter)
    Abstract: We investigate the dynamics of core inflation in Italy, with a special focus on the period of low inflation after 2014, through the lenses of a Phillips curve framework. Composite indicators of the Italian labour and financial market are constructed and included into a Phillips curve. A number of results emerges from the empirical analysis. First, a statistically significant trade-off between core inflation and economic activity is observed, especially when measures of slack are derived from labour market variables. Second, financial indicators can help to better characterize the dynamics of core inflation. Third, when controlling for financial indicators the slope of the Phillips curve turns out to be smaller, except for the case in which it is measured by the measure of slack based on broad labour market conditions. Fourth, a steepening in the Phillips curve emerges in the aftermath of the Global Financial Crisis, while a stabilization is evident at the end of the sample. Fifth, non-linear techniques suggest that weakness in core inflation may be dependent on the level of labour market tightness and of trend inflation especially. These findings have non-negligible implications for modeling and forecasting inflation dynamics in Italy.
    Keywords: low inflation, Phillips curve, labour markets, financial stress, time variation
    JEL: C32 E32 E50
    Date: 2018–10
  12. By: Adam, Klaus; Woodford, Michael
    Abstract: We analytically characterize optimal monetary policy for an augmented New Keynesian model with a housing sector. In a setting where the private sector has rational expectations about future housing prices and inflation, optimal monetary policy can be characterized without making reference to housing price developments: commitment to a "target criterion" that refers to inflation and the output gap only is optimal, as in the standard model without a housing sector. When the policymaker is concerned with potential departures of private sector expectations from rational ones and seeks to choose a policy that is robust against such possible departures, then the optimal target criterion must also depend on housing prices. In the empirically realistic case where housing is subsidized and where monopoly power causes output to fall short of its optimal level, the robustly optimal target criterion requires the central bank to "lean against" housing prices: following unexpected housing price increases, policy should adopt a stance that is projected to undershoot its normal targets for inflation and the output gap, and similarly aim to overshoot those targets in the case of unexpected declines in housing prices. The robustly optimal target criterion does not require that policy distinguish between "fundamental" and "non-fundamental" movements in housing prices.
    JEL: D81 D84 E52
    Date: 2018
  13. By: Decker, Frank; Goodhart, Charles A
    Abstract: This paper assesses the theory of credit mechanics within the context of the current money supply debate. Credit mechanics and related approaches were developed by a group of German monetary economists during the 1920s-1960s. Credit mechanics overcomes a one-sided, bank-centric view of money creation, which is often encountered in monetary theory. We show that the money supply is influenced by the interplay of loan creation and repayment rates; the relative share of credit volume neutral debtor-to-debtor and creditor-to-creditor payments; the availability of loan security; and the behavior of non-banks and non-borrowing bank creditors . With the standard textbook models of money creation now discredited, we argue that a more general approach to money supply theory involving credit mechanics needs to be established.
    Keywords: balances mechanics; Bank credit; credit creation; credit mechanics; money supply theory
    JEL: E40 E41 E50 E51
    Date: 2018–10
  14. By: Kim, Hyeongwoo
    Abstract: This paper empirically investigates the fiscal policy effects on labor market conditions, employing an array of structural vector autoregressive models for the post-war U.S. data from 1960:I to 2017:II. Fiscal spending shocks increase jobs in the government sector at the cost of private sector jobs, resulting in net losses to the total employment. Private wages increase insignificantly in the short-run, while government wages rise significantly and persistently in response to the fiscal shock. Consequently, the wage gap across the two sectors widens in response to the fiscal shock. The wage shock yields significantly positive responses of corporate profits in the long-run as it enhances productivity, which supports wage-led growth models. On the other hand, I report negligible in-sample and out-of-sample predictive contents for private jobs and wages from corporate profits, meaning that there's virtually no evidence of the trickle-down effect, which is essential for profit-led growth models.
    Keywords: Government Spending; Labor Market Condition; Trickle-Down Effect; Profit-Led Growth; Wage-Led Growth; Out-of-Sample Forecast
    JEL: E24 E62
    Date: 2018–10
  15. By: Cristina Conflitti (Bank of Italy); Roberta Zizza (Bank of Italy)
    Abstract: How do firms form expectations about future inflation? We investigate this issue by exploiting the Survey of Inflation and Growth Expectations run by Banca d’Italia and Il Sole 24 Ore on Italian firms. Several sources of information might matter in shaping short- and long-term expectations, inter alia media reports, professional forecasts, personal shopping experience, price increases experienced when dealing with suppliers, and the outcome of contract renewals. The specific feature of the wage setting process in Italy allows us to assess the reaction of inflation expectations to exogenous variation in the cost of labour borne by firms. We find that firms’ inflation expectations are significantly affected by contractual wage increases. As to the prices of goods for own consumption, proxied by house and fuel prices, only the latter affect inflation expectations; official inflation data and professional forecasters expectations are also important. Results are robust to several specifications using panel and cross-section estimates.
    Keywords: inflation expectations, survey data, wages
    JEL: C23 E24 E31
    Date: 2018–10
  16. By: Javier G. Gómez-Pineda (Banco de la República (the central bank of Colombia))
    Abstract: The paper presents some evidence on the overwhelming relevance of systemic risk and the lesser importance of US interest rates in the global transmission of shocks. This evidence suggests that the literature could benefit from incorporating global confidence variables into global frameworks in the study of the global transmission of shocks. As framework, we used a global semi-structural model (GSSM) augmented with common factors for country risk and country credit. We approximated country risk with historical stock volatility, a measure that is uniform and available across countries; in addition, we measured spillovers as the share of forecast error variance explained by different volatility factors. We found that systemic risk is the main volatility factor in all systemic economies, and also accounts for the bulk of spillovers into non systemic economies. Other volatility factors such as global credit, foreign interest rates and trade-related factors rarely accounted for shares of forecast error variance above one percent.
    Keywords: Spillovers, Systemic risk, Systemic Economies, Global semi structural model
    JEL: E58 E37 E43 Q43
    Date: 2018–11–01
  17. By: Diega Caprara (Bank of Italy); Riccardo De Bonis (Bank of Italy); Luigi Infante (Bank of Italy)
    Abstract: The paper studies the long-term evolution of household wealth in order to compare the changes in Italian financial wealth and real wealth with those of the most advanced countries. In Italy households’ real wealth is 5.5 times disposable income, while housing wealth is 4.6 times, and financial wealth is 3.8 times disposable income. Therefore total gross wealth is around 9.3 times disposable income. Given that household liabilities make up 80 per cent of disposable income, total net wealth is 8.5 times income. In France and Spain household non-financial wealth also exceeds that of financial assets, while the contrary holds in the United States and in Germany. In Italy the ratio of gross financial wealth to disposable income is in line with that in France, greater than in Spain and Germany, and smaller than in the USA, Japan, the UK, and Canada. With the exception of Germany and Japan, changes in financial assets are mainly due to price changes in financial instruments – holding gains or losses – rather than to financial transactions. In the last two decades the financial portfolio of Italian households has become more similar to the average portfolio of the advanced economies. Italian household debt is the lowest by international comparison.
    Keywords: financial wealth, households, non-financial wealth, debts, financial accounts
    JEL: E01 E21
    Date: 2018–11
  18. By: Ying Feng (University of California, San Diego); David Lagakos (University of California, San Diego); James E. Rauch (University of California, San Diego)
    Abstract: This paper draws on household survey data from countries of all income levels to measure how average unemployment rates vary with income per capita. We document that unemployment is increasing with GDP per capita. Furthermore, we show that this fact is accounted for almost entirely by low-educated workers, whose unemployment rates are strongly increasing in GDP per capita, rather than by high-educated workers, whose unemployment rates are not correlated with income. To interpret these facts, we build a model with workers of heterogeneous ability and two sectors: a traditional sector, in which self-employed workers produce output without reward for ability; and a modern sector, in which firms hire in frictional labor markets, and output increases with ability. Countries differ exogenously in the productivity level of the modern sector. The model predicts that as productivity rises, the traditional sector shrinks, as progressively less-able workers enter the modern sector, leading to a rise in overall unemployment and in the ratio of low-educated to high-educated unemployment rates. Quantitatively, the model accounts for around one third of the cross-country patterns we document.
    Keywords: unemployment, causal effects of education, ability effects, household survey data
    JEL: E24 E26 O11 O41
    Date: 2018–11
  19. By: Baubeau, Patrice; Monnet, Eric; Riva, Angelo; Ungaro, Stefano
    Abstract: Despite France's importance in the interwar world economy, the scale and consequences of the French banking crises of 1930-1931 were never assessed quantitatively due to lack of data in the absence of banking regulation. Using a new dataset of individual balance sheets from more than 400 banks, we show that the crisis was more severe and occurred earlier than previously thought, and it was very asymmetric, without affecting main commercial banks. The primary transmission channel was a flight-to-safety of deposits from banks to savings institutions and the central bank, leading to a major, persistent disruption in business lending. In line with the gold standard mentality, cash deposited with savings institutions and the central bank was used to decrease marketable public debt and increase gold reserves, rather than pursue countercyclical policies. Despite massive capital inflows, France suffered from a severe, persistent credit crunch.
    Keywords: banking panics; flight-to-safety; France; gold standard; Great Depression; Savings Banks
    JEL: E44 E51 E58 G01 G21 G23 G33 N14 N24
    Date: 2018–10
  20. By: Simon Jäger; Benjamin Schoefer; Samuel G. Young; Josef Zweimüller
    Abstract: Nonemployment is often posited as a worker's outside option in wage setting models such as bargaining and wage posting. The value of this state is therefore a fundamental determinant of wages and, in turn, labor supply and job creation. We measure the effect of changes in the value of nonemployment on wages in existing jobs and among job switchers. Our quasi-experimental variation in nonemployment values arises from four large reforms of unemployment insurance (UI) benefit levels in Austria. We document that wages are insensitive to UI benefit levels: point estimates imply a wage response of less than $0.01 per $1.00 UI benefit increase, and we can reject sensitivities larger than 0.03. In contrast, a calibrated Nash bargaining model predicts a sensitivity of 0.39 – more than ten times larger. The empirical insensitivity holds even among workers with a priori low bargaining power, with low labor force attachment, with high predicted unemployment duration, among job switchers and recently unemployed workers, in areas of high unemployment, in firms with flexible pay policies, and when considering firm-level bargaining. The insensitivity of wages to the nonemployment value we document presents a puzzle to widely used wage setting protocols, and implies that nonemployment may not constitute workers' relevant threat point. Our evidence supports wage-setting mechanisms that insulate wages from the value of nonemployment.
    JEL: D43 D83 E0 E2 E24 H0 H22 H55 J0 J2 J3 J30 J31 J41 J42 J5 J6 J64 J65 M5 M52
    Date: 2018–11
  21. By: Mele, Antonio (University of Surrey); Molnar, Krisztina (Dept. of Economics, Norwegian School of Economics and Business Administration); Santoro, Sergio (Bank of Italy)
    Abstract: The main advantage of price level stabilization compared with inflation stabilization rests on the central bank's ability to shape expectations. We show that stabilizing prices is no longer optimal when the central bank can shape expectations of agents with incomplete knowledge, who have to learn about the policy implemented. Disinating in the short run more than agents expect generates short-term gains without triggering an abrupt loss of confidence, because agents update expectations sluggishly. Following this policy, in the long run, the central bank loses the ability to shape agents' beliefs, and the economy converges to a rational expectations equilibrium in which policy does not stabilize prices, economic volatility is high, and agents su er the corresponding welfare losses. However, these losses are outweighed by short-term gains from the learning phase.
    Keywords: Price; stabilization
    JEL: C62 D83 D84 E52
    Date: 2018–10–26
  22. By: Jesus Fernandez-Villaverde (Department of Economics, University of Pennsylvania)
    Abstract: This paper reviews what cryptocurrencies are, and it frames them within the context of historical monetary experiences and contemporary monetary economics. The paper argues that, as pure duciary private money, cryptocurrencies are a bubble without a fundamental value and that they will not provide, in general, optimal amounts of money or deliver price stability. Nevertheless, cryptocurrencies can play a role in improving the current means of payments and in disciplining central banks into providing better government-run duciary monies.
    Keywords: Private money, currency competition, cryptocurrencies, monetary policy
    JEL: E40 E42 E52
    Date: 2018–09–03
  23. By: Gabriele Fiorentini; Alessandro Galesi; Gabriel Pérez-Quirós; Enrique Sentana
    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
  24. By: Saadon, Yossi; Sussman, Nathan
    Abstract: The increasing globalization of trade in goods and services and the deepening of financial markets have reduced frictions that may impede the operation of the PPP and UIP relationships in the short run. In this paper, we estimate the short term relative PPP and UIP relationships. Using data from Israel, which has a deep market for inflation expectations for 12 months, we show that relative PPP and UIP cannot be rejected. Deviations from equilibrium last less than a year. Data from Israel's capital account of the balance of payments shows that the deviations are not destabilizing. Our findings suggest that greater globalization and financial deepening contribute to the effectiveness of monetary policy.
    Keywords: Balance sheet effects; Exchange Rates; Inflation expectations; monetary policy; purchasing power parity; uncovered interest rate parity
    JEL: E52 F3 F31 F41 G15
    Date: 2018–10
  25. By: Rod Cross (Department of Economics, University of Strathclyde)
    Abstract: In this paper we ask what happens in the medium-term interregnum between the domain of the short-run Phillips curve and that of the long-run effects on the natural rate of unemployment, according to Friedman's conjecture. We discuss the new classical and hysteresis alternatives to Friedman's conjecture, and some of the methodological issues involved in appraising the conjecture. A simple model, and some data, are employed in this task.
    Keywords: Friedman, Nobel Prize Address, Phillips Curves, Short Run, Medium Run, Long Run.
    JEL: B22 E30 E31 N10
    Date: 2018–09
  26. By: Lozej, Matija (Central Bank of Ireland)
    Abstract: With the freemovement of labour in Europe, economic migration has become an important determinant of labour supply. Cyclical migration exceeds one percent of the population in many countries and affects (un)employment and wage setting. The main contribution of this paper is that it models migration as an endogenous decision in a search-and-matching framework, where labour market institutions play an important role. It shows that, contrary to typical beliefs, migration can amplify business cycles. After a positive shock to the economy, immigration increases the labour force and initially unemployment. The latter reduces a worker’s outside option in wage negotiations, resulting in a lower wage increase than when there is no migration. With cheaper labour firms post more job vacancies, which increases the probability that unemployed workers find jobs and attracts new workers to immigrate. Attenuated response of wages and the stronger response of employment to shocks result in a flatter Phillips curve. . . .
    Keywords: Migration; Search and Matching; Unemployment; Labour force; Business cycles.
    JEL: E23 E32 J21 J61 J64
    Date: 2018–07
  27. By: Garabedian, Garo (Central Bank of Ireland); Stuart, Rebecca (Central Bank of Ireland)
    Abstract: Since Friedman and Schwarz (1963), the role of the Federal Reserve during the Great Depression has been an issue of debate. In this paper, we focus on the purchases of government securities by the Federal Reserve over a four-month period in 1932. Using a Bayesian VAR model, we estimate the effect of an extension of this programme in conjunction with an interest rate cut on a range of variables capturing prices, output and macro-financial linkages. Our results indicate that this policy would have substantially shortened and reduced the impact of the Great Depression.
    Keywords: Federal Reserve, Bayesian VARs, Quantitative easing, Great Depression
    JEL: B16 E51 E58
    Date: 2018–07
  28. By: Borsoi, Nicolas da Silva; Teles, Vladimir Kühl
    Abstract: The literature measuring the magnitude of the fiscal multiplier has a considerable consensus that the stimulative effects of fiscal instruments depends on the current state of economic activity, whether it is expanding or facing a recession. However, none of the previous works studied how the nature of an economic downturn, if the economy is facing an adverse supply/demand shock, affects the effectiveness of fiscal expansions. We introduce in a simple New Keynesian model with a rich description of fiscal policy, the assumption of imperfectly informed policymakers (fiscal and monetary) to approach the question. Our results point out the existence of disparate effects of fiscal policy depending on whether the economy is facing a demand or a supply recession. Yet, we find out that cuts in taxes are an effective tool to counter the effects of adverse shocks on economic activity and aggregate consumption.
    Date: 2018–10
  29. By: Gavazza, Alessandro; Lanteri, Andrea
    Abstract: This paper studies the equilibrium dynamics in consumer durable goods markets after aggregate credit shocks. We introduce two novel features into a general-equilibrium model of durable consumption with heterogeneous households facing idiosyncratic income risk and borrowing constraints: (1) different qualities of durable goods trade on secondary markets at market-clearing prices; and (2) households endogenously choose when to trade them or scrap them. The model successfully matches several empirical patterns that we document using data on U.S. car markets around the Great Recession. After a tightening of the borrowing limit, debt-constrained households postpone the decision to scrap and upgrade their low-quality cars, depressing mid-quality car prices. In turn, this effect reduces wealthy households' incentives to replace their mid-quality cars with high-quality ones, thereby decreasing new-car sales. We further use our framework to study the effects of collateral constraints and aggregate income shocks, and to evaluate targeted fiscal stimulus policies such as the Car Allowance Rebate System in 2009 ("Cash for Clunkers").
    Keywords: credit constraints; Durable goods
    JEL: E21 E32 L62
    Date: 2018–10
  30. By: Pau Roldán (Banco de España); Sonia Gilbukh (Cuny Baruch College)
    Abstract: This paper analyzes the macroeconomic implications of customer capital accumulation at the firm level. We build an analytically tractable search model of firm dynamics in which firms compete for customers by posting pricing contracts in the product market. Cross-sectional price dispersion emerges in equilibrium because firms of different sizes and productivities use different pricing strategies to strike a balance between attracting new customers and exploiting incumbent ones. Using micro-pricing data from the U.S. retail sector, we calibrate the model to match moments from the cross-sectional distribution of sales and prices, and use our estimated model to explain sluggish aggregate dynamics and cross-sectional heterogeneity in the response of markups to aggregate shocks. We find that there is incomplete price pass-through leading to procyclicality in the average markup, with smaller firms being more responsive to shocks than larger firms.
    Keywords: customer capital, product market frictions, directed search, firm dynamics, dynamic contracts, price dispersion
    JEL: D21 D83 E2 L11
    Date: 2018–11
  31. By: Scott R. Baker; Lorenz Kueng; Leslie McGranahan; Brian T. Melzer
    Abstract: When the zero lower bound on nominal interest rate binds, monetary policy makers may lack traditional tools to stimulate aggregate demand. We investigate whether "unconventional" fiscal policy, in the form of pre-announced consumption tax changes, has the potential to meaningfully shift durables purchases intertemporally and how it is affected by consumer credit. In particular, we test whether car sales react in anticipation of future sales tax changes, leveraging 57 pre-announced changes in state sales tax rates from 1999-2017. We find evidence for substantial tax elasticities, with car sales rising by over 8% in the month before a 1% increase in the sales tax rate. Responses are heterogeneous across households and sensitive to supply of credit. Consumers with high credit risk scores are most able to pull purchases forward. At the same time, other effects such as customer composition and attention lead to an even larger tax elasticity during recessions, despite these credit frictions. We discuss policy implications and the likely magnitudes of tax changes necessary for any substantive long-term responses.
    JEL: D12 E21 G01 G11 H2 H31
    Date: 2018–11
  32. By: Stylianos G. Gogos (Eurobank Ergasias S.A.); Dimitris Papageorgiou (Bank of Greece); Vanghelis Vassilatos (Athens University of Economics and Business)
    Abstract: We built upon Angelopoulos et al. (2009) and we employ a dynamic general equilibrium model in order to examine the interrelated role of rent seeking activities, institutions and government policy variables, like tax rates and public spending, on Greece’s economic performance during the last fourty years. We focus on the period 1979-2001. According to Kehoe and Prescott (2002, 2007) this period can be characterized as a great depression. The model is the standard neoclassical growth model augmented with a government sector and an institutional structure which creates incentives for optimizing agents to engage in rent seeking contests in order to extract rents from the government. This behavior creates a cost to the economy in the form of an unproductive use of resources. Our main findings are as follows: First, in terms of the path of key macroeconomic variables, our model fits the data quite well. Second, by conducting a growth accounting exercise we find that during the period 1979-1995 a non negligible proportion of the decline of total factor productivity (TFP) can be accounted for rent seeking activities. Third, our model produces an index which can be interpreted as a measure of the quality of institutions in the Greek economy. Our model based index exhibits a resemblance with the internal country risk guide (ICRG) index which is widely used in the literature as a proxy for the quality of a country’s institutions.
    Keywords: Growth Accounting; Rent Seeking; Institutions; Dynamic General Equilib.rium
    JEL: E62 E32 O17 O40
    Date: 2018–10
  33. By: Amat Adarov (The Vienna Institute for International Economic Studies, wiiw); Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Alexandra Bykova (The Vienna Institute for International Economic Studies, wiiw); Rumen Dobrinsky (The Vienna Institute for International Economic Studies, wiiw); Richard Grieveson (The Vienna Institute for International Economic Studies, wiiw); Julia Grübler (The Vienna Institute for International Economic Studies, wiiw); Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Peter Havlik (The Vienna Institute for International Economic Studies, wiiw); Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw); Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Gabor Hunya (The Vienna Institute for International Economic Studies, wiiw); Michael Landesmann (The Vienna Institute for International Economic Studies, wiiw); Sebastian Leitner (The Vienna Institute for International Economic Studies, wiiw); Isilda Mara (The Vienna Institute for International Economic Studies, wiiw); Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Leon Podkaminer (The Vienna Institute for International Economic Studies, wiiw); Sandor Richter (The Vienna Institute for International Economic Studies, wiiw); Hermine Vidovic (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: The outlook for growth in CESEE remains generally positive, but downside risks have increased significantly since our last forecast. The main areas of concern are the developing US-China trade war and the potential for a renewed outbreak of the eurozone crisis.
    Keywords: CESEE, economic forecast, Europe, Central and Eastern Europe, Southeast Europe, Western Balkans, new EU Member States, CIS, Russia, Ukraine, Poland, Romania, Czech Republic, Hungary, Turkey, convergence, business cycle, overheating, external risks, trade war, EU funds, private consumption, credit, investment, exports, FDI, labour markets, unemployment, employment, wage growth, unit labour costs, migration, inflation, savings rate, DCFTA, Belt and Road Initiative
    JEL: E20 E32 F15 F21 F22 F32 F51 G21 H60 J20 J30 J61 O47 O52 O57 P24 P27 P33 P52
    Date: 2018–11
  34. By: Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Andrii Parkhomenko (Universitat Autònoma de Barcelona & Barcelona GSE); Gustavo Ventura (Arizona State University)
    Abstract: We document that for a group of high-income countries (i) mean earnings of managers tend to grow faster than for non managers over the life cycle; (ii) the earnings growth of managers relative to non managers over the life cycle is positively correlated with output per worker. We interpret this evidence through the lens of an equilibrium life-cycle, span-of-control model where managers invest in their skills. We parameterize this model with U.S. observations on managerial earnings, the size-distribution of plants and macroeconomic aggregates. We then quantify the relative importance of exogenous productivity differences, and the size-dependent distortions emphasized in the misallocation literature. Our fi?ndings indicate that such distortions are critical to generate the observed differences in the growth of relative managerial earnings across countries. Thus, observations on the relative earnings growth of managers become natural targets to discipline the level of distortions. Distortions that halve the growth of relative managerial earnings (a move from the U.S. to Italy in our data), lead to a reduction in managerial quality of 27% and to a reduction in output of about 7% ? more than half of the observed gap between the U.S. and Italy. We ?find that cross-country variation in distortions accounts for about 42% of the cross-country variation in output per worker gap with the U.S.
    Keywords: Cross-country income differences, managers, distortions, management practices, size distribution, skill investment.
    JEL: E23 E24 J24 M11 O43 O47
    Date: 2017–03
  35. By: Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Andrii Parkhomenko (Universitat Autònoma de Barcelona & Barcelona GSE); Gustavo Ventura (Arizona State University)
    Abstract: We document that for a group of high-income countries (i) mean earnings of managers tend to grow faster than for non managers over the life cycle; (ii) the earnings growth of managers relative to non managers over the life cycle is positively correlated with output per worker. We interpret this evidence through the lens of an equilibrium life-cycle, span-of-control model where managers invest in their skills. We parameterize this model with U.S. observations on managerial earnings, the size-distribution of plants and macroeconomic aggregates. We then quantify the relative importance of exogenous productivity differences, and the size-dependent distortions emphasized in the misallocation literature. Our fi?ndings indicate that such distortions are critical to generate the observed differences in the growth of relative managerial earnings across countries. Thus, observations on the relative earnings growth of managers become natural targets to discipline the level of distortions. Distortions that halve the growth of relative managerial earnings (a move from the U.S. to Italy in our data), lead to a reduction in managerial quality of 27% and to a reduction in output of about 7% ? more than half of the observed gap between the U.S. and Italy. We ?find that cross-country variation in distortions accounts for about 42% of the cross-country variation in output per worker gap with the U.S.
    Keywords: Cross-country income differences, managers, distortions, management practices, size distribution, skill investment.
    JEL: E23 E24 J24 M11 O43 O47
    Date: 2017–03
  36. By: Pablo D'Erasmo (Federal Reserve Bank of Philadelphia); Enrique G. Mendoza (Department of Economics, University of Pennsylvania)
    Abstract: Infrequent but turbulent overt sovereign defaults on domestic creditors are a "forgotten history" in Macroeconomics. We propose a heterogeneous-agents model in which the government chooses optimal debt and default on domestic and foreign creditors by balancing distributional incentives v. the social value of debt for self-insurance, liquidity, and risk-sharing. A rich feedback mechanism links debt issuance, the distribution of debt holdings, the default decision, and risk premia. Calibrated to Eurozone data, the model is consistent with key long-run and debt-crisis statistics. Defaults are rare (1.2 percent frequency), and preceded by surging debt and spreads. Debt sells at the risk-free price most of the time, but the government's lack of commitment reduces sustainable debt sharply.
    Keywords: public debt, sovereign default, debt crisis, European crisis
    JEL: E6 E44 F34 H63
    Date: 2018–09–14
  37. By: Muhammad Omer (State Bank of Pakistan)
    Abstract: This study investigates the comparative pass-through of policy rate to the retail prices, spillover of prices between Islamic and conventional banking systems, and the impact of excess liquidity on these pass-throughs using data from interbank market of Pakistan. The results suggest that the monetary policy shock affect retail prices of Islamic banks similar to conventional banks, confirming the findings of earlier studies. Moreover, there is a strong spillover between the prices of two systems; Islamic banks are following (leading) the conventional banks in pricing the lending (deposit) products. Islamic bank have acquired advantage in the deposit pricing by taping the religious depositors, which also has promoted financial inclusion in the economy. Our results suggest that the presence of excess liquidity have no effect on pass-through of policy rate in the Islamic system, which is contrary to the prevalent notion. However, excess liquidity significantly affects the spillovers of prices between the systems. These results support the hypothesis that the Islamic banks are investing in government securities indirectly via conventional banks.
    Keywords: Excess Liquidity, Islamic Banks, Monetary Policy Pass-through, VECM, Mediation
    JEL: C43 E31 F41
    Date: 2018–10
  38. By: Gaetano Basso (Bank of Italy); Francesco D'Amuri (Bank of Italy); Giovanni Peri (Univeristy of California, Davis)
    Abstract: We analyze the role of labor mobility in cushioning labor demand shocks in the Euro Area. We find that foreign-born workers’ mobility is strongly cyclical, while this is not the case for natives. Foreigners’ higher population to employment elasticity reduces the variation in overall employment rates over the business cycle: thanks to foreigners, the impact of a one standard deviation change in employment on employment rates decreases by 6 per cent at country level and by 7 per cent at regional level. In addition, we compare Euro Area mobility with that of another currency union, the US. We find that the population to employment elasticity estimated for foreign-born persons is similar in the Euro Area and the US, while Euro Area natives are definitely less mobile across countries than US natives are across states in response to labor demand shocks. This latter result confirms that in the Euro Area there is room for improving country-specific shock absorption through higher labor mobility. It also suggests that immigration has helped labor market adjustments.
    Keywords: business cycles, international migration, mobility
    JEL: E32 F22 J6
    Date: 2018–11
  39. By: Attanasio, Orazio (University College London); Molnar, Krisztina (Dept. of Economics, Norwegian School of Economics and Business Administration); Kovacs, Agnes (University of Manchester)
    Abstract: In this paper, we make three substantive contributions: first, we use elicited subjective income expectations to identify the levels of permanent and transitory income shocks in a life-cycle framework; second, we use these shocks to assess whether households' consumption is insulated from them; third, we use the shock data to estimate an Euler equation for consumption. We find that households are able to smooth transitory shocks, but adjust their consumption in response to permanent shocks, albeit not fully. The estimates of the Euler equation parameters with and without expectational errors are similar, which is consistent with rational expectations. We break new ground by combining data on subjective expectations about future income from the Michigan Survey with micro data on actual Income from the Consumer Expenditure Survey.
    Keywords: life cycle models; estimating Euler Equations; survey expectations
    JEL: C13 D12 D84 D91 E21
    Date: 2018–10–25
  40. By: Stavins, Joanna (Federal Reserve Bank of Boston)
    Abstract: We estimate a two-stage Heckman selection model of credit card adoption and use with a unique dataset that combines administrative data from the Equifax credit bureau and self-reported data from the Survey of Consumer Payment Choice, a representative survey of US consumers. Even though the survey data from the borrowers vary somewhat from the data provided by the lenders, the results based on the merged data are qualitatively similar to those based exclusively on self-reported surveys. This finding suggests that if administrative data are not available, it might be sufficient to use survey data to estimate consumer behavior. We find that credit card revolvers have lower income and are less educated than other cardholders. Although consumers who carry credit card debt might be liquidity constrained and not have cheaper borrowing alternatives, the high cost of paying off credit card debt could exacerbate existing inequalities in disposable income among consumers.
    Keywords: credit card debt; consumer payments; consumer preferences
    JEL: D14 E21 G21
    Date: 2018–10–01
  41. By: Huber, Florian (University of Salzburg); Kastner, Gregor (WU Wirtschaftsuniversität Wien); Feldkircher, Martin (Österreichische Nationalbank (Austrian Central Bank))
    Abstract: We propose a straightforward algorithm to estimate large Bayesian time-varying parameter vector autoregressions with mixture innovation components for each coefficient in the system. The computational burden becomes manageable by approximating the mixture indicators driving the time-variation in the coefficients with a latent threshold process that depends on the absolute size of the shocks. Two applications illustrate the merits of our approach. First, we forecast the US term structure of interest rates and demonstrate forecast gains relative to benchmark models. Second, we apply our approach to US macroeconomic data and find significant evidence for time-varying effects of a monetary policy tightening
    Keywords: Time-varying parameter vector autoregression with stochastic volatility (TVP-VARSV); Change point model; Structural breaks; Term structure of interest rates; Monetary policy; R package threshtvp
    JEL: C11 C32 C52 E42
    Date: 2018–11–07
  42. By: Ginette Eramo (Bank of Italy); Roberto Felici (Bank of Italy); Paolo Finaldi Russo (Bank of Italy); Federico Signoretti (Bank of Italy)
    Abstract: This paper studies the characteristics of the recent evolution of loans to non-financial firms in Italy from an historical perspective, with the aim of ascertaining whether the ongoing recovery is creditless; the main demand- and supply-side determinants of credit are also discussed. We find the following results. First, bank loan dynamics have been weak compared to the universe of recoveries in 13 euro-area countries since 1980; however, credit has evolved in line with the median pattern in the restricted sample of recoveries following deep and long recessions and/or recessions associated with banking crises. Second, the reduction in loans has been common to firms of all sizes, though it has been more pronounced for smaller ones. Third, based on a review of credit market indicators, survey evidence and econometric studies, the weakness of lending to firms has been in line with subdued dynamics of demand; the stringency of lending criteria has also contributed, in particular for smaller and riskier firms.
    Keywords: creditless recovery, credit demand, credit supply, small firms financing
    JEL: E32 E50 G20
    Date: 2018–11
  43. By: Martin Eichenbaum; Sergio Rebelo; Arlene Wong
    Abstract: This paper studies how the impact of monetary policy depends on the distribution of savings from refinancing mortgages. We show that the efficacy of monetary policy is state dependent, varying in a systematic way with the pool of potential savings from refinancing. We construct a quantitative dynamic lifecycle model that accounts for our findings. Motivated by the rapid expansion of Fintech, we study the impact of a fall in refinancing costs on the efficacy of monetary policy. Our model implies that as refinancing costs decline, the effects of monetary policy become less state dependent and more powerful.
    JEL: E52 G31
    Date: 2018–10
  44. By: Kim, Hyeongwoo; Shi, Wen
    Abstract: This paper presents a factor-based forecasting model for the financial market vulnerability, measured by changes in the Cleveland Financial Stress Index (CFSI). We estimate latent common factors via the method of the principal components from 170 monthly frequency macroeconomic data in order to out-of-sample forecast the CFSI. Our factor models outperform both the random walk and the autoregressive benchmark models in out-of-sample predictability at least for the short-term forecast horizons, which is a desirable feature since financial crises often come to a surprise realization. Interestingly, the first common factor, which plays a key role in predicting the financial vulnerability index, seems to be more closely related with real activity variables rather than nominal variables. We also present a binary choice version factor model that estimates the probability of the high stress regime successfully.
    Keywords: Financial Stress Index; Method of the Principal Component; Out-of-Sample Forecast; Ratio of Root Mean Square Prediction Error; Diebold-Mariano-West Statistic; Ordered Probit Model
    JEL: E44 E47 G01 G17
    Date: 2018–10
  45. By: Canova, Fabio; Matthes, Christian
    Abstract: We describe how to use the composite likelihood to ameliorate estimation, computational, and inferential problems in dynamic stochastic general equilibrium models. We present a number of situations where the methodology has the potential to resolve well-known problems and formally justifies existing practices. In each case we consider, we provide an example to illustrate how the approach works and its properties in practice.
    Keywords: composite likelihood; dynamic structural models; identification; large scale models; panel data; singularity
    JEL: C10 E27 E32
    Date: 2018–10
  46. By: Lloyd, Simon (Bank of England)
    Abstract: No-arbitrage dynamic term structure models (DTSMs) have regularly been used to estimate interest rate expectations and term premia, but are beset by an identification problem that results in inaccurate estimates. I propose the augmentation of DTSMs with overnight indexed swap (OIS) rates to better estimate interest rate expectations and term premia along the whole term structure at daily frequencies. I illustrate this with a Gaussian affine DTSM augmented with 3 to 24-month OIS rates, which provide accurate information about interest rate expectations. The OIS-augmented model generates estimates of US interest rate expectations that closely correspond to those implied by federal funds futures rates and survey expectations out to a 10-year horizon, accurately depict their daily frequency evolution, and are more stable across samples. Against these metrics, interest rate expectation estimates, and therefore term premia, from OIS-augmented models are superior to estimates from existing Gaussian affine DTSMs.
    Keywords: Dynamic term structure model; monetary policy expectations; overnight indexed swaps; term premia; term structure of interest rates
    JEL: C32 C58 E43 E47 G12
    Date: 2018–11–02
  47. By: Kim, Hyeongwoo; Shi, Wen; Kim, Hyun Hak
    Abstract: We propose factor-based out-of-sample forecast models for Korea's financial stress index and its 4 sub-indices that are developed by the Bank of Korea. We extract latent common factors by employing the method of the principal components for a panel of 198 monthly frequency macroeconomic data after differencing them. We augment an autoregressive-type model of the financial stress index with estimated common factors to formulate out-of-sample forecasts of the index. Our models overall outperform both the stationary and the nonstationary benchmark models in forecasting the financial stress indices for up to 12-month forecast horizons. The first common factor that represents not only financial market but also real activity variables seems to play a dominantly important role in predicting the vulnerability in the financial markets in Korea.
    Keywords: Financial Stress Index; Principal Component Analysis; PANIC; In-Sample Fit; Out-of-Sample Forecast; Diebold-Mariano-West Statistic
    JEL: E44 E47 G01 G17
    Date: 2018–10
  48. By: 島澤, 諭; 難波, 了一; 堤, 雅彦; 小黒, 一正
    Abstract: 本稿の目的は、財政健全化や社会保障制度改革等の政策変更により家計が被る影響が、世代間のみならず世代内でどのような点で異なり、どのような点で類似しているのかなどについて分析を行うために資するよう、家計を生年だけではなく所得階層に区分し、同一世代内における家計の異質性を明示的に考慮した一般均衡型世代重複シミュレーションモデルの開発を行うことにある。あわせて、現在の財政スタンスが持続可能か否かについてシミュレーションし、世代別・所得階層別生涯純税負担率の推計を行った。その結果、現在の財政スタンスを継続した場合、2040年に政府債務残高比率が457%に達したところで限界が訪れ、2041年には消費税率の抜本的な引上げが必要になること、また、政府債務残高比率を457%に維持するだけにしても、現在の歳出構造が続くならば、長期的に30%の消費税率が必要なこと、さらに、世代別では高齢層ほど、世代内では所得階層の低いほど、生涯純税負担率が小さいことが明らかになった。, This paper primarily aims at explaining the structure and properties of the newly developed overlapping generation model with four types of households grouped by income levels based on the latest Japanese data. Along with detailed account of the model structure and data, the sensitivity analysis on the key parameters, which are not fully supported by empirical studies, are conducted. Regarding policy simulations, we examine the fiscal sustainability of Japan under the current levels of debt and fiscal policy. Key findings are as follows. First, the financial collapse defined as a convergence limit, appears in 2040 when the debt-GDP ratio reaches 457%, implying that a significant tax hike is required to sustain the economy. Second, 30% of the consumption tax rate is necessary to restrain levels of the debt-GDP ratio from exceeding 457%, if the current structure of government spending lasts in the long run. Third, the lifetime net tax burden rate varies among households. The rate tends to be higher as they are born later (younger), and as they are richer.
    Keywords: 少子高齢化, 財政再建, 消費税, シミュレーション分析, population aging, fiscal sustainability, consumption tax, simulation analysis
    JEL: H30 C68 H61 E62 B41
    Date: 2018–10
  49. By: Jesus Fernandez-Villaverde (Department of Economics, University of Pennsylvania); Lee Ohanian (Department of Economics, Stanford University)
    Abstract: This paper draws lessons from post-World War II Western European economic performance for the current U.S. economy. We document that much of Western Europe grew very quickly from the end of World War II up to the mid-1970s, reflecting policies that incentivized technology adoption and investment in physical and human capital. But since then, European policies have changed considerably, with higher tax rates and increased regulatory barriers that have reduced competition and new business formation. We discuss how the U.S. has shown signs of becoming like Europe over the last decade, and argue why policy reforms are key to restoring U.S. growth.
    Keywords: Productivity growth, Europe’s economic performance, economic policy
    JEL: E02 E30 E60
    Date: 2018–09–07
  50. By: Vítor Castro (Loughborough University and NIPE); Rodrigo Martins (CeBER - Centre for Business and Economics Research)
    Abstract: The literature that investigates credit booms has essentially focused on their economic determinants. The purpose of this paper is to explore the importance of political conditionings and central bank independence. In doing so, a fixed effects logit model is estimated over a panel of 67 countries for the period 1975q1-2016q4. The results show that not only the economic but also the political environment influences significantly the likelihood of credit booms. Even though lending booms have not proven to depend on the electoral cycle, they are less likely when right-wing parties are in office, especially in developing countries, and when the political environment is more unstable. In addition, more independent Central Banks are found to reduce the probability of credit booms. However, when a country’s monetary policy in the hands of a single regional monetary union they are more likely to occur and spread. Some significant differences are also unveiled when comparing industrial with developing countries.
    Keywords: Credit booms; Logit model; Political cycles; Government ideology; Central Bank independence.
    JEL: C25 D72 E32 E51
  51. By: International Monetary Fund
    Abstract: 2018 will mark 15 years since the start of the 2003–04 financial crisis. Reforms put in place following the crisis have contributed to strong economic performance over the past decade and a restoration of external stability. The economy is now growing close to potential, inflation is within the central bank’s target range, unemployment is near historical lows, and the external current account deficit has narrowed. The economic outlook remains positive with broadly neutral monetary and fiscal policy expected to keep economic activity on trend and inflation within the target band over the medium term. However, risks around the outlook persist, with the main downside risks stemming primarily from external factors. In this context, the key challenge will be to build resilience to these risks by strengthening domestic fundamentals. Progress will be essential to increase potential growth and further reduce poverty and inequality.
    Date: 2018–10–24
  52. By: Jeremy Greenwood (University of Pennsylvania); Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Guillaume Vandenbroucke (Federal Reserve Bank of St. Louis)
    Abstract: Powerful currents have reshaped the structure of families over the last century. There has been (i) a dramatic drop in fertility and greater parental investment in children; (ii) a rise in married female labor-force participation; (iii) a significant decline in marriage and a rise in divorce; (iv) a higher degree of positive assortative mating; (v) more children living with a single mother; (vi) shifts in social norms governing premarital sex and married women's roles in the workplace. Macroeconomic models explaining these aggregate trends are surveyed. The relentless flow of technological progress and its role in shaping family life are stressed.
    Keywords: Assortative mating, baby boom, baby bust, family economics, female labor supply, fertility, household income inequality, household production, human capital, macroeconomics, marriage and divorce, quality-quantity tradeoff, premarital sex, quantitative theory, single mothers, social change, survey paper, technological progress, women's rights.
    JEL: D58 E1 E13 J1 J2 J12 J13 J22 N30 O3 O11 O15
    Date: 2017–01
  53. By: Doniger, Cynthia L; López-Salido, J David
    Abstract: We document that the past three "jobless" recoveries also featured asymmetries in labor force participation and labor compensation, with each falling to new lows during each cycle. We model these asymmetries as resulting from a strategic complementarity in firms' wage setting and workers' job search strategies. Strategic complementarity results in a continuum of possible equilibria with higher-wage equilibria welfare dominating lower-wage equilibria. Assuming that no economic agent deviates from an existing strategy unless deviation is a unilateral best response, the model exhibits (1) periods of endogenous rigidity in wages and participation, (2) persistent changes in wages, participation, and output in response to transitory movements in labor productivity, (3) sluggish recoveries including both a "jobless" phase, in which productivity recovers while unemployment remains elevated, and a "wageless" phase, in which employment recovers but wages remain depressed. Calibrating the model suggests that the U.S. unemployment rate may need to fall to as low as 2.8 percent before labor compensation recovers to pre-Financial Crisis levels.
    Keywords: hysteresis; Jobless; Kinked Labor Supply; monopsony; Real Rigid- ity; strategic complementarity
    JEL: D83 E24 J42
    Date: 2018–10
  54. By: Eichenbaum, Martin; Rebelo, Sérgio; Wong, Arlene
    Abstract: This paper studies how the impact of monetary policy depends on the dis- tribution of savings from refinancing mortgages. We show that the efficacy of monetary policy is state dependent, varying in a systematic way with the pool of potential savings from refinancing. We construct a quantitative dynamic life- cycle model that accounts for our findings. Motivated by the rapid expansion of Fintech, we study the impact of a fall in refinancing costs on the e cacy of monetary policy. Our model implies that as refinancing costs decline, the effects of monetary policy become less state dependent and more powerful.
    Keywords: monetary policy; Mortgages; refinancing; state dependency
    JEL: E52 G21
    Date: 2018–10
  55. By: Jiménez, Gabriel; Peydró, José Luis; Repullo, Rafael; Saurina, Jesús
    Abstract: We analyze a small, new credit facility of a Spanish state-owned-bank during the crisis, using its continuous credit scoring system, firm-level scores, and credit register data. Compared to privately-owned banks, the state-owned bank faces worse applicants, softens (tightens) its credit supply to unobserved (observable) riskier firms, and has much higher defaults. In a regression discontinuity design, the supply of public credit causes: large positive real effects to financially-constrained firms (whose relationship banks reduced substantially credit supply); crowding-in of new private-bank credit; and positive spillovers to other firms. Private returns of the credit facility are negative, while social returns are positive.
    Keywords: Adverse Selection; credit crunch; credit scoring; crowding-in; Real effects of public credit; state-owned banks
    JEL: E44 G01 G21 G28
    Date: 2018–10
  56. By: Guilherme Bandeira (Banco de España); Jordi Caballé (Universitat Autònoma de Barcelona and Barcelona GSE); Eugenia Vella (Move, Universitat Autònoma de Barcelona, and University of Sheeld)
    Abstract: High unemployment and fiscal austerity during the Great Recession have led to significant migration outflows in those European countries that suffered a deep deterioration of their economy, Greece being the most obvious case. This paper introduces endogenous migration in a small open economy DSGE model to analyze the business cycle effects from the interaction of fiscal consolidation instruments with migration. A tax-based consolidation induces the strongest increase in emigration, leading to the highest costs in terms of aggregate GDP and unemployment in the medium run. As a result, the unemployment gains from migration are only temporary. However, in terms of per capita GDP, cuts in the components of public spending that are either productive or utility-enhancing can lead to a deeper contraction than tax hikes or wasteful spending cuts. The introduction of potential migration by the employed implies even higher unemployment costs, a deeper demand contraction, and an increase in both the tax hike and the time required to achieve the same size of fiscal consolidation.
    Keywords: fiscal consolidation, migration, matching frictions, on-the-job search
    JEL: E32 F41
    Date: 2018–11
  57. By: Dina Tasneem; Jim Engle-Warnick
    Abstract: We report results from an experiment that compares precautionary savings behavior with retirement savings behavior. We find that more than 30% of precautionary savings behavior can be categorized as optimal or near optimal, while virtually all of this behavior disappears in favor of simple decision rules that specify constant consumption in each period when retirement savings is added as a motive. We discuss the the costs and benefits of these rules, which make a complex decision-making environment manageable. Our experiment is the first to identify how decision-making changes when agents are required to save for retirement.
    Keywords: Precautionary Savings,Retirement Savings,Dynamic Optimization,Decision Heuristics,
    JEL: C91 E21 C61
    Date: 2018–07–16
  58. By: Thomas Lustenberger
    Abstract: In this paper, I derive and apply three univariate methods and one bi-variate method to estimate permanent and transitory components of the American output growth path during the 1790 to 2017 period. The results show that statistical tests give little support to the hypothesis of significant permanent growth rate changes (univariate methods). The "special century" (1870-1970, as defined by Gordon (2016)) exhibited more volatile permanent shifts in the output level compared to recent decades (bivariate method).
    Keywords: Output growth, business cycle, permanent and transitory components
    JEL: E32 E47
    Date: 2018
  59. By: Dirk Krueger (Department of Economics, University of Pennsylvania); Alexander Ludwig (Department of Economics, Goethe-Universität Frankfurt)
    Abstract: We characterize the optimal linear tax on capital in an Overlapping Generations model with two period lived households facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium feedback of private precautionary saving. For logarithmic utility our full analytical solution of the Ramsey problem shows that the optimal aggregate saving rate is independent of income risk. The optimal time-invariant tax on capital is increasing in income risk. Its sign depends on the extent of risk and on the Pareto weight of future generations. If the Ramsey tax rate that maximizes steady state utility is positive, then implementing this tax rate permanently generates a Pareto-improving transition even if the initial equilibrium is dynamically efficient. We generalize our results to Epstein-Zin-Weil utility and show that the optimal steady state saving rate is increasing in income risk if and only if the intertemporal elasticity of substitution is smaller than 1.
    Keywords: Idiosyncratic Risk, Taxation of Capital, Overlapping Generations, Precautionary Saving, Pecuniary Externality
    JEL: H21 H31 E21
    Date: 2018–02–09
  60. By: Simone Emiliozzi (Bank of Italy); Elisa Guglielminetti (Bank of Italy); Michele Loberto (Bank of Italy)
    Abstract: Forecasting house prices is a difficult task given the strong relationship between real estate markets, economic activity and financial stability, but it is an important one. This paper evaluates the out-of-sample forecasting performance of various models of house prices in a quasi-real time setting. Focusing on Italy, we consider two structural models (using simultaneous equations) and a Bayesian VAR and compute both conditional and unconditional forecasts. We find that the models perform better than a simple autoregressive benchmark; however, the relative forecast accuracy depends on the forecast horizon and also changes over time. For the full sample period the simultaneous equation model, which takes into account credit supply restrictions and real estate taxation, shows the best performance measured in terms of root mean squared forecasting error (RMSFE). In the first part of the sample (2005-2010), medium-term forecasts of house prices greatly benefit from conditioning on the evolution of households’ disposable income, whereas from 2010 onwards the path of the stock of mortgages becomes important.
    Keywords: house prices, forecasting, structural model, BVAR
    JEL: C32 C53 E37 R39
    Date: 2018–10
  61. By: Krueger, Dirk; Ludwig, Alexander (Munich Center for the Economics of Aging (MEA))
    Abstract: [English] We characterize the optimal linear tax on capital in an Overlapping Generations model with two period lived households facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium feedback of private precautionary saving. For logarithmic utility our full analytical solution of the Ramsey problem shows that the optimal aggregate saving rate is independent of income risk. The optimal time-invariant tax on capital is increasing in income risk. Its sign depends on the extent of risk and on the Pareto weight of future generations. If the Ramsey tax rate that maximizes steady state utility is positive, then implementing this tax rate permanently generates a Pareto-improving transition even if the initial equilibrium is dynamically efficient. We generalize our results to Epstein-Zin-Weil utility and show that the optimal steady state saving rate is increasing in income risk if and only if the intertemporal elasticity of substitution is smaller than 1. [German] Sollten Kapitaleinkommen besteuert werden? Diese Frage hat in der Theorie der optimalen Besteuerung und in ihrer quantitativen Anwendung schon eine lange Reihe ökonomischer Literatur beschäftigt. Frühere Antworten zu dieser Frage, unter Verwendung relativ stilisierter ökonomischer Rahmenbedingungen, waren negativ. Das bedeutet, die Literatur kam zu dem Schluss, dass optimale Kapitaleinkommenssteuern null seien. Dies steht im Gegensatz zu den hohen Steuern auf Kapitaleinkommen, die in allen Industriestaaten zu beobachten sind. Eine aktuellere, größtenteils quantitative Literatur fand hingegen heraus, dass optimale Kapitaleinkommenssteuern positiv sein sollten. Gründe für diese Feststellung sind, dass zum einen Kapitaleinkommenssteuern ein effektiver Ersatz für fehlende altersabhängige Einkommenssteuern sein können, zum anderen dass sie ein effektives umverteilendes Steuerinstrument sind (von einkommensstarken zu einkommensschwachen Haushalten), und zum dritten, dass die Besteuerung von Kapitaleinkommen eine Absicherung gegen Einkommens- oder Renditeschocks aus der ex-ante Perspektive darstellen. Unser theoretisches Paper gibt neue analytische Einsichten für Gründe für optimale Steuern auf Kapitaleinkommen, die Aufschluss darüber geben, welche Mechanismen die Resultate in der überwiegend quantitativen Literatur treiben. Wir legen den Fokus auf einen Effekt, der bisher in der Literatur keine explizite Aufmerksamkeit erfahren hat, der jedoch implizit in zahlreichen quantitativen Studien über optimale Kapitaleinkommenssteuern präsent ist. In Gegenwart von Einkommensrisiken und unvollständiger Absicherung gegen diese, sichern sich Haushalte gegen niedrige Einkommensrealisierung durch privates Sparen ab. Wir zeigen, dass ein solches vorsorgendes Sparverhalten negative Effizienzwirkungen in der aggregierten Volkswirtschaft haben kann, insbesondere für die Renditen aus Kapitalanlagen. Der Staat internalisiert dieses negative Feedback. Wenn diese negativen Feedback-Effekte stark genug sind, dann sollten optimale Kapitaleinkommenssteuern positiv sein. Um diese Einsichten in all ihrer theoretischen Klarheit abzuleiten, halten wir das ökonomische Umfeld, das wir betrachten, sehr stilisiert. Während wir dadurch sehr klare und trennscharfe Charakterisierungen der treibenden Kräfte der optimalen Kapitaleinkommenssteuern liefern können, ist es trotzdem wichtig zu betonen, dass unser theoretischer Beitrag nicht beabsichtigt, ein realistisches ökonomisches Modell für eine quantitative Exploration zu stellen. Folglich ist der Hauptzweck unserer Analyse, hilfreiche Einsichten für eine verbesserte Interpretation der Erkenntnisse in der existierenden quantitativen Literatur über optimale Kapitaleinkommenssteuern zu bieten.
    JEL: H21 H31 E21
    Date: 2018–02–09
  62. By: Aghion, Philippe; Farhi, Emmanuel; Kharroubi, Enisse
    Abstract: In this paper we argue that monetary easing fosters growth more in more credit-constrained environments, and the more so the higher the degree of product market competition. Indeed when competition is low, large rents allow firms to stay on the market and reinvest optimally, no matter how funding conditions change with aggregate conditions. To test this prediction, we use industry-level and firm-level data from the Euro Area to look at the effects on sectoral growth and firm-level growth of the unexpected drop in long-term government bond yields following the announcement of the Outright Monetary Transactions program (OMT) by the ECB. We find that the monetary policy easing induced by OMT, contributed to raising sectoral (firm-level) growth more in more highly leveraged sectors (firms), and the more so the higher the degree of product market competition in the country (sector).
    Date: 2018–10
  63. By: Alessio Anzuini (Bank of Italy); Luca Rossi (Bank of Italy)
    Abstract: We use the dispersion of the Federal Budget Balance forecasts from Consensus Economics to produce a new measure of fiscal uncertainty; constant horizon forecasts are obtained through mixture distributions. The scheme we propose has several advantages over previous uncertainty measures. First (as opposed to recent proposals) it results in a forward-looking measure, which implies that any sudden development in (un)expected fiscal stance is immediately incorporated in the series. Second, the measure is by construction a real-time one. Third, being completely model-free it is not contaminated (inflated) by model uncertainty. Fourth, it is comprehensive in accounting both for the critical welfare component of public expenditures and for taxes, i.e. it does not simply track uncertainty stemming from public consumption and investment. Fifth, as opposed to uncertainty indexes which can be interpreted only dynamically, our measure has an obvious intuitive point-wise interpretation. Interestingly, the inception of the Trump administration has led to unprecedented uncertainty shocks which are shown to have put a non-negligible brake on the US slow recovery. On a more general level, we show that fiscal uncertainty shocks have clear recessionary effects. Furthermore, constraints on monetary policies during the ZLB have likely caused the recessionary effects of fiscal uncertainty shocks to be stronger.
    Keywords: VAR, fiscal policy, uncertainty shocks
    JEL: C2 E3 O41
    Date: 2018–11
  64. By: Kettemann, Andreas; Mueller, Andreas; Zweimüller, Josef
    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: Recruiting; search; Vacancy Duration; Vacancy Posting; wages
    JEL: E24 J31 J63
    Date: 2018–10
  65. By: Böhm, Hannes; Eichler, Stefan
    Abstract: We isolate the direct bank-to-sovereign distress channel within the eurozone's sovereign-bank-loop by exploiting the global, non-eurozone related variation in stock prices. We instrument banking sector stock returns in the eurozone with exposure-weighted stock market returns from non-eurozone countries and take further precautions to remove any eurozone crisis-related variation. We find that the transmission of instrumented bank distress, while economically relevant, is significantly smaller than the corresponding coefficient in the unadjusted OLS framework, confirming concerns on reverse causality and omitted variables in previous studies. Furthermore, we show that the spillover of bank distress is significantly stronger for countries with poorer macroeconomic performances, weaker financial sectors and financial regulation and during times of elevated political uncertainty.
    Keywords: sovereign-bank-loop,bank distress,instrumental variable estimation,bank exposures,macroeconomic performance
    JEL: E44 F3 G15 G21 G28
    Date: 2018
  66. By: José Alves
    Abstract: In the present empirical analysis we try to assess the impact of taxation on investment growth. In particular, and by using gross fixed capital formation as a proxy for investment, we intend to evaluate the impact of the taxation structure in investment dynamics, in a short and a long-run perspectives. This empirical exercise was conducted for all OECD countries, during the 1980-2015 period. Through panel data econometric techniques, we find optimal tax-investment threshold values, specially higher for short-term than for long-term evolution. Also, we find optimal income taxation rounding 9%, in percentage of GDP, an average optimal value 12.7% for consumption taxes to promote annual investment growth.
    Keywords: Investment Growth; Tax systems; Fiscal Policy; Optimal taxation
    JEL: E62 H21 O47
    Date: 2018–11
  67. By: Adriana Csikósová (Technical university of Ko?ice); Katarína ?ulková (Technical university of Ko?ice); Mária Jano?ková (Technical university of Ko?ice)
    Abstract: Work productivity presents one of the factors, influencing economic growth of the country. On the other hand work productivity is also influenced by various factors. There are raising differences in work productivity among individual countries. Human capital can influence work productivity through employment, which can be analyzed from various points of view. The goal of the paper is therefore to identify work productivity in EU-28 with emphasize to V4. The main analysis had been done by available database in European system of national and regional accounts and according introduced statistic classification of economic activities from European Parliament Decree. The main indexes of work productivity had been calculated according obtained data with using of descriptive statistics. According mentioned statistics we found which country is the best and which is the worst from the view of analyzed indexes. The last part of the paper presents following up of reason of determined state with setting of possible solutions.
    Keywords: Economic effectiveness, Employment, Performance, Productivity, Work quality.
    JEL: E24 J49
    Date: 2018–10
  68. By: Maarten van Oordt
    Abstract: This paper proposes a novel methodology to calibrate the magnitude of the cap on the countercyclical capital buffer (CCyB) using market-based stress tests. The macroprudential authority in our paper aims to contain the possibility of a breach of a minimum capital ratio in the event of a severe system-wide shock within a certain permissible failure probability. To meet its objective during periods of challenging macro-financial conditions, the macroprudential authority requires banks to build up the CCyB during credit booms. We show how market-based stress tests can be used to estimate the necessary magnitude of the CCyB. We apply the methodology to major banks in six advanced economies. Our estimates suggest a magnitude of the cap on the CCyB in a range from 1.4 to 1.7 per cent of total assets, depending on the ability of the macro-prudential authority to forecast macrofinancial conditions.
    Keywords: Financial Institutions, Financial stability, Financial system regulation and policies
    JEL: G10 G21 G28
    Date: 2018
  69. By: Martín Román, Ángel L.; Cuéllar-Martín, Jaime; Moral de Blas, Alfonso
    Abstract: The relationship between the labor force participation and the business cycle has become a topic in the economic literature. However, few studies have considered whether the cyclical sensitivity of the labor force participation is influenced by “social effects”. In this paper, we construct a theoretical model to develop the “Added Worker Effect” and the “Discouraged Worker Effect”, and we integrate the “social effects”, coining a new concept, the Bandwagon Worker Effect (BWE). To estimate the cyclical sensitivity of the labor force participation, we employ a panel dataset of fifty Spanish provinces for the period 1977–2015. Finally, we use spatial econometrics techniques to test the existence of the BWE in the local labor markets in Spain. Our results reveal that there exists a positive spatial dependence in the cyclical sensitivity of the labor force participation that decreases as we fix a laxer neighborhood criterion, which verifies the existence of the BWE. From the perspective of economic policy, our work confirms that “social effects” play a key role at the time of determining the economic dynamics of the territories.
    Keywords: Labor force participation,business cycle,regional labor markets,bandwagon effect,spatial dependence
    JEL: C23 D03 E32 J21 R23
    Date: 2018
  70. By: Ferrari, Irene (Munich Center for the Economics of Aging (MEA))
    Abstract: This paper uses a matching method to provide a first estimate of the nativity wealth gap among older households in Europe. This approach does not require to impose any functional form on wealth and avoids validity-out-of-the-support assumptions; furthermore, it allows not only the estimation of the mean of the wealth gap but also its distribution for the common-support sub-population. The results show that on average there is a positive and significant wealth gap between natives and migrants. However, the average gap may be misleading as the distribution of the gap reveals that immigrant households in the upper part of the wealth distribution are better off, and those in the lower part of the wealth distribution are worse off, than comparable native households. Although intra-European migrant households are better off than non-European ones, a heterogeneity analysis reveals that the former have also suffered most from migrating in terms of wealth, as their wealth gap is sizable and cannot be explained by observable characteristics. The same is true for households who migrated as adults, as opposed to those who migrated at younger ages.
    JEL: D31 J15 E21
    Date: 2017–12–01
  71. By: José Alves
    Abstract: In this study we try to evaluate both linear and non-linear relationships between each tax item and real per capita growth. Our analysis, conducted for all the OECD countries between 1980 and 2015 and by resorting to panel data techniques in a short and long-term basis, evidences tax items threshold values for all tax components (except for taxes on individual income). In particular, for long-run economic performance, we obtain optimal threshold values for social security contributions between 7.0% and 12.43%. Lastly, our results provide some conclusions, highlighting the raise of some taxes, in GDP terms, without harming economic growth evolution.
    Keywords: Economic Growth; Tax systems; Fiscal Policy; Optimal taxation
    JEL: E62 H21 O47
    Date: 2018–11
  72. By: Svetlana Pashchenko (University of Georgia); Ponpoje Porapakkarm (National Graduate Institute for Policy Studies)
    Abstract: Individuals' medical spending has both necessary and discretionary components which are not, however, separately observable. This paper studies ways to improve upon existing public health insurance policies by using a framework where both the discretionary and necessary components of medical spending are explicitly modeled. First, using a simple theoretical framework the paper shows that the key to reducing discretionary medical spending is to introduce a trade-off between non-medical and medical consumption. Next, using a rich quantitative life-cycle model the paper shows that this trade-off can be successfully implemented by introducing an option to substitute public health insurance with cash transfers.
    Keywords: medical spending, health insurance, optimal taxation, life-cycle model, ex-post moral hazard
    JEL: D52 D91 E21 H53 I13 I18
    Date: 2018–11
  73. By: Davide Fantino (Bank of Italy)
    Abstract: I estimate potential output growth using a production function approach applied to individual firm-level data for Italy. The dataset includes 360,000 non-financial corporations over the period 2004-15. I compare these estimates with those obtained from aggregate data, with a view to extracting additional information on the drivers of potential output in recent years. The approach based on individual firm-level data suggests a more sluggish potential growth before the crisis and a stronger recovery afterwards; the main reason is that estimates based on aggregate data are likely to suffer from aggregation biases and endogeneity problems. I find that the contributions of labour and capital to potential output growth decline over time and that unobserved firms’ productivity explains most of the recovery after 2009; turnover has a substantial negative impact during the crisis, but a positive one afterwards. All the main economic sectors are affected by the financial crisis; potential growth in manufacturing is less damaged during the crisis and recovers afterwards; the service sector is recovering slowly, while construction firms are still not recovering.
    Keywords: potential output, heterogeneity, aggregation bias
    JEL: D24 E23
    Date: 2018–11
  74. By: Börsch-Supan, Axel; Härtl, Klaus; Leite, Duarte Nuno; Ludwig, Alexander (Munich Center for the Economics of Aging (MEA))
    Abstract: We propose a unified framework to measure the effects of different reforms of the pension system on retirement ages and macroeconomic indicators in the face of demographic change. A rich overlapping generations (OLG) model is built and endogenous retirement decisions are explicitly modeled within a public pension system. Heterogeneity with respect to consumption preferences, wage profiles, and survival rates is embedded in the model. Besides the expected direct effects of these reforms on the behavior of households, we observe that feedback effects do occur. Results suggest that individual retirement decisions are strongly influenced by numerous incentives produced by the pension system and macroeconomic variables, such as the statutory eligibility age, adjustment rates, the presence of a replacement rate, and interest rates. Those decisions, in turn, have several impacts on the macro-economy which can create feedback cycles working through equilibrium effects on interest rates and wages. Taken together, these reform scenarios have strong implications for the sustainability of pension systems. Because of the rich nature of our unified model framework, we are able to rank the reform proposals according to several individual and macroeconomic measures, thereby providing important support for policy recommendations on pension systems.
    JEL: C68 D91 E17 H55 J11 J26
    Date: 2018–04–25
  75. By: Marcello Pericoli (Bank of Italy)
    Abstract: We analyze the correlation between the stock and bond markets in Germany and the US. We use a standard no-arbitrage affine model to decompose the correlation between these two assets into its main drivers. The correlation between bond yields and stock returns is a key determinant of asset allocation. Our results show that the correlation is primarily influenced by the uncertainty about inflation and real interest rates as well as by co-movement between inflation, real interest rates and dividend growth. Shocks to inflation, real interest rates and dividend growth can explain the correlation’s temporary deviation from its long-term dynamics.
    Keywords: bond market, stock market, macroeconomic shocks, money illusion
    JEL: C32 E43 G12
    Date: 2018–11
  76. By: Cian Allen
    Abstract: This paper revisits the period of substantial widening of external imbalances in advanced economies in the run-up to the global financial crisis and their adjustment since then. We take a granular look at these imbalances through the lens of their domestic counterpart: the net financial balance of the household sector, the government, non-financial corporations, and financial corporations. Our findings challenge the often-claimed view that the household sector lies behind most of the dynamics of the current account. In fact, we show that it is the non-financial corporation and the government sectors that account for the bulk of: (i) the co-movement with the standard set of fundamental covariates of the current account; (ii) the external adjustment and expenditure reduction in the aftermath of the global financial crisis; and (iii) the diverging dynamics during large and persistent current account imbalances. These results emphasize that analyzing domestic sectoral balances can lead to a better empirical and theoretical understanding of global imbalances.
    JEL: F31 F32 E21
    Date: 2018–11–07
  77. By: Franziska Bremus; Tatsiana Kliatskova
    Abstract: This paper analyzes links between institutional harmonization and bilateral portfolio debt and equity holdings at the sectoral level. Motivated by the action plan for the European Capital Markets Union, we examine the potential for legal harmonization and convergence in institutional quality to affect financial structures. Our analysis yields three key insights. First, legal harmonization across the EU promotes capital market integration via increased portfolio equity holdings. Second, discrepancies in institutional quality matter for cross-border portfolio positions: economic agents increase their portfolio debt investment in countries that are transparent and have efficient insolvency procedures, investor protection, and tax systems as compared to the domestic ones. Third, the relationship between external capital holdings and institutional harmonization varies significantly across sectors. The other financial corporations sector, which accounts for a large share of portfolio positions, tends to react more to institutional harmonization than do banks and the non-financial private sector.
    Keywords: capital market integration, legal harmonization, sectoral effects
    JEL: E02 F21 G15
    Date: 2018
  78. By: Paolo Martellini (Department of Economics, University of Pennsylvania); Guido Menzio (Department of Economics, University of Pennsylvania)
    Abstract: Over the last century, unemployment, vacancy, job-ï¬ nding and job-loss rates as well as the Beveridge curve have no trend. Yet, the last century has seen the development and diffusion of many information technologies—such as telephones, fax machines, computers, the Internet—which presumably have increased the efï¬ ciency of search in the labor market. We explain this phenomenon using a textbook search-theoretic model of the labor market. We show that there exists an equilibrium in which unemployment, vacancies, job-ï¬ nding and job-loss rates are constant while the search technology improves over time if and only if ï¬ rm-worker matches are heterogeneous in quality, the distribution of match qualities is Pareto, and the quality of a match is observed before the start of the employment relationship. Under these conditions, improvements in search lead to an increase in the rate at which workers meet ï¬ rms and to a proportional decline in the probability that the quality of a ï¬ rm-worker match is acceptable leading to a constant job-ï¬ nding rate, unemployment, etc... Interestingly, under the same conditions, unemployment, vacancies, job-ï¬ nding and job-loss rates are independent of the size of the labor market even in the presence of increasing returns to scale in search. While declining search frictions do not lower unemployment, they contribute to growth. The magnitude of the contribution depends on the thickness of the tail of the Pareto distribution. We present a simple strategy to measure the decline in search frictions and its contribution to growth. A rudimentary implementation of this strategy suggests that the decline in search frictions has been substantial, it has been caused by both improvements in the search technology and increasing returns to scale in the search process, and it has had a non-negligible impact on growth.
    Keywords: Search frictions, Unemployment, Growth, Agglomeration
    JEL: E24 O40 R11
    Date: 2018–04–09
  79. By: Antonio M. Conti (Bank of Italy); Andrea Nobili (Bank of Italy); Federico M. Signoretti (Bank of Italy)
    Abstract: We estimate a Bayesian VAR with a detailed characterization of the banking sector for Italy since the 1990s. We use conditional forecasting techniques to retrieve bank capital shocks related to regulatory and supervisory initiatives and quantify their impact on credit supply and economic activity. We study three episodes characterized by increased regulatory/supervisory pressure and large increases in the Tier 1 capital ratio (the discussion on the Basel III reform; the 2011 EBA stress test and capital exercise; and the ECB’s comprehensive assessment and the launch of the SSM). We find evidence of large and persistent shocks to bank capital in all three episodes, which had significant negative effects on loan supply and GDP. Our results are robust to taking account of possible instabilities in the estimated relationships. The analysis focuses on the potential short-run costs of the regulatory/supervisory initiatives and disregards the potentially much larger long-run benefits of high bank capitalization.
    Keywords: bank capital shocks, Bayesian VAR models, conditional forecasts, time variation
    JEL: C32 E32 F34
    Date: 2018–11
  80. By: Dell’Era, Michele; Opromolla, Luca David; Santos-Pinto,
    Abstract: This paper studies the impact of optimism on occupational choice using a general equilibrium framework. The model shows that optimism has four main qualitative effects: it leads to a misallocation of talent, drives up input prices, raises the number of entrepreneurs, and makes entrepreneurs worse off. We calibrate the model to match U.S. manufacturing data. This allows us to make quantitative predictions regarding the impact of optimism on occupational choice, input prices, the returns to entrepreneurship, and output. The calibration shows that optimism can explain the empirical puzzle of the low mean returns to entrepreneurship compared to average wages.
    Keywords: entrepreneurship; General Equilibrium; Optimism
    JEL: D50 H21 J24 L26
    Date: 2018–10
  81. By: Willem THORBECKE
    Abstract: Unemployment has tumbled since the Global Financial Crisis (GFC). This paper investigates whether news of a tightening labor market since the GFC has generated expectations of an overheating economy or excessive Fed tightening. Evidence from the response of interest rates, exchange rates, Treasury Inflation Protected Securities and other assets indicates that investors did not expect a strong labor market to produce inflation. Neither did they expect the Fed to overreact and derail growth. The Fed has thus succeeded so far in navigating between the shoals of overheating and premature tightening.
    Date: 2018–11
  82. By: Etienne Lalé
    Abstract: We analyze the effects of government-mandated severance payments in a rich life-cycle model with search-matching frictions in the labor market, risk-averse agents and imperfect insurance against idiosyncratic shocks. Our model emphasizes a tension between worker-firm bargains and consumption smoothing: entry wages are tilted downwards as a response to future severance payments, which runs counter to having a smooth consumption path. Consequently, we find that severance payments produce mostly negative welfare effects. We use the model to characterize the determinants of these welfare losses. We show that even when optimized jointly with unemployment insurance benefits, large government-mandated severance payments should be avoided.
    Keywords: Severance Payments,Labor-market Frictions,Precautionary Savings,Welfare,
    JEL: E21 I38 J63 J65
    Date: 2018–04–26
  83. By: 島澤, 諭; 難波, 了一; 堤, 雅彦; 小黒, 一正
    Abstract: 本稿では、世代内の異質性を組み込んだ一般均衡型世代重複シミュレーションモデルを用いて、我が国財政の持続可能性を維持するために必要な財政再建について、消費増税か累進労働所得増税かという二択問題を想定し、効用基準と現行の投票制度を前提とした投票によって決定する場合の分析を行った。その結果、消費税増税への賛成者は、中年より若い世代の高所得層だけであり、財政当局が目論む財政再建策は実現不可能である。そこで、ベンサム型政府を想定し、財政再建開始年に生存するすべての国民の効用変化の総和を考慮した場合には、消費税が選択されると確認された。しかし、この結果は、もっぱら高所得層の利益のため他の所得階層に犠牲を強いるに等しい選択であり、公平性に適う選択であるかは疑問の余地が大きい。最後に、将来世代のなかでも、消費増税による財政再建のメリットが帰属する生年・所得階層を特定化するシミュレーションによれば、より高い所得階層に属する者ほど、また、より後に生まれる者ほど消費税の増税から得られる恩恵が大きいことが分かった。投票によっては、2137年生まれまでの将来世代を投票対象者に考慮しなければ消費増税による財政再建を実現できず、実質的に不可能であることが示された。, We calculate welfare changes to reveal Japan’s preferred tax hike option to achieve fiscal sustainability by an overlapping generation model with four types of households grouped by income levels based on the latest Japanese data. Households vote on preferred taxation, i.e. the consumption tax or the progressive income tax, according to respective welfare changes under the current election system. Following implications are delivered. First, the consumption tax option is chosen when voters consider temporary welfare changes alone, i.e. myopic, while the progressive income tax is chosen when voters consider life-long welfare changes, i.e. rational. Second, the consumption tax option is chosen under the Utilitarian-type government setting even when life-long welfare changes are considered. However, this choice results in net benefits among higher income households at the cost of lower income households, giving rise to worsening income distribution and unfairness. Third, the fiscal consolidation by the consumption tax option tends to bring net benefits to those with higher income, and to those born later. Finally, the government intention to raise the consumption tax further for fiscal consolidation will not be achieved by the current voting system with rational voters. To realize it through voting, it is necessary to give the right of voting to those who will be born before 2137.
    Keywords: 少子高齢化, 財政再建, 消費税, シミュレーション分析, population aging, fiscal sustainability, consumption tax, simulation analysis
    JEL: H30 C68 H61 E62 B41
    Date: 2018–10
  84. By: Emin Dinlersoz; Sebnem Kalemli-Ozcan; Henry Hyatt; Veronika Penciakova
    Abstract: We study the leverage of U.S. firms over their life-cycle and implications for firm growth and responses to shocks. We use a new dataset that matches private firms’ balance sheets to U.S. Census Bureau’s Longitudinal Business Database (LBD) for the period 2005–2012. A number of stylized facts emerge. First, firm size and leverage are strongly positively correlated for private firms, both in the cross section of firms and over time for a given firm. For public firms, there is a weak negative relation between leverage and size. Second, young private firms borrow more, but firm age has no relation to public firms’ leverage. Third, while private firms switch from debt to equity financing as they age, public firms slightly reduce equity financing as they age. Building on this “normal times” benchmark and using the “Great Recession” as a shock to financial conditions, we show that, for private firms, firm size can serve as a good predictor of financial constraints. During the Great Recession, leverage declines for private firms, but not for public firms. We also provide evidence that private firms’ growth is positively related to leverage, as they finance their growth during normal times with short-term borrowing, whereas the relationship between leverage and firm growth is negative for public firms. These results suggest that public firms are not financially constrained during normal times or during crisis, but private firms are.
    JEL: E23 G32
    Date: 2018–11
  85. By: Julia Grübler (The Vienna Institute for International Economic Studies, wiiw); Oliver Reiter (The Vienna Institute for International Economic Studies, wiiw); Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Since the beginning of 2017, a paradigm change in international trade policy is observed. While protectionist agendas are on the rise, the EU and Japan signed an Economic Partnership Agreement (EPA) on 17 July 2018. It is the EU’s most ambitious agreement with any Asian state. The study estimates the effect of the EU-Japan EPA for Austria based on qualitative analysis and a structural gravity model. The model predicts small but positive effects of around 0.01% of GDP for Austria. Highest gains are expected for manufactured goods, particularly in the medium- and high-tech sectors. Abstract in German language Seit Anfang des Jahres 2017 vollzieht sich in der internationalen Handelspolitik ein Paradigmenwechsel. Während protektionistische Agenden an Fahrt gewinnen, unterzeichneten die EU und Japan am 17. Juli 2018 ein Wirtschaftspartnerschaftsabkommen (EPA). Es ist das ambitionierteste Abkommen der EU mit einem asiatischen Staat. Die Studie schätzt die Effekte des EU-Japan-EPA für Österreich mithilfe von qualitativen Analysen und einem strukturellen Gravitationsmodell ab. Für Österreich wurde ein kleiner, aber positiver Effekt von rund 0,01% des BIP errechnet. Es wird erwartet, dass vor allem der Fertigungsbereich in Mittel- und High-Tech-Sektoren von diesem Abkommen profitieren wird.
    Keywords: economic partnership, free trade, EPA, FTA, EU, Japan, JEFTA, South Korea, tariffs, non-tariff measures, structural gravity model
    JEL: D58 F13 O24 Q17
    Date: 2018–11
  86. By: Ben Lipsius
    Abstract: Using U.S. administrative data, this paper shows that the employment-weighted average labor market concentration has been declining since 1980 - the opposite of the change needed to explain the falling labor share. The relationship between wages and labor market concentration has also weakened (become less negative) over that time. Together, these results make labor market concentration an implausible driver of the falling labor share despite a strong, negative relationship between labor market concentration and wages.
    JEL: E25
    Date: 2018–11–09
  87. By: Rodrigo Mariscal; Alejandro M. Werner
    Abstract: In this paper we analyze the incidence of the VAT and its effects on the income distribution. To identify these effects, we rely on two tax reforms undertaken in Mexico that increased the VAT rate for a group of cities and left the rest unaffected. We compare the inflation rate of the affected cities with the exempted cities before and after the law changed. We find that the effect on prices is limited and conclude that the burden of the tax is indeed shared between producers and consumers. Regarding welfare, we find that the VAT is progressive in both absolute and relative terms to the overall expenditure. Finally, we show that an identical change in the VAT rate when inflation is high and persistent doubles its pass-through to inflation and its welfare loss for the average household.
    Date: 2018–11–08
  88. By: Olivier Fortin-Gagnon; Maxime Leroux; Dalibor Stevanovic; Stéphane Surprenant
    Abstract: This paper describes a large-scale Canadian macroeconomic database in monthly frequency. The dataset contains hundreds of Canadian and provincial economic indicators observed from 1981. It is designed to be updated regularly through StatCan database and is publicly available. It relieves users to deal with data changes and methodological revisions. We show five useful features of the dataset for macroeconomic research. First, the factor structure explains a sizeable part of variation in Canadian and provincial aggregate series. Second, the dataset is useful to capture turning points of the Cana-dian business cycle. Third, the dataset has substantial predictive power when forecasting key macroeconomic indicators. Fourth, the panel can be used to construct measures of macroeconomic uncertainty. Fifth, the dataset can serve for structural analysis through the factor-augmented VAR model.
    Keywords: Big Data,Factor Model,Forecasting,Structural Analysis,
    Date: 2018–08–07
  89. By: Emeka Okereke (University of Port Harcourt); Ufuoma Ofierohor (University of Port Harcourt)
    Abstract: This study, health finance and economic growth in Nigeria over a period of 1990-2016, aims at examining the effect of health financing on economic growth in Nigeria. It utilized secondary data, sourced from the Statistical Bulletin of Central Bank of Nigeria . Data on Gross Domestic Product (GDP), Capital Expenditure on Health (CXHE), Human Health & Social Services Output Investment (HHSS) and Recurrent expenditure on health (RXHD) were analysed using econometric package, E- view, to test for stationarity; Johansson cointegration test, and Error Correction Mechanism (ECM) were employed. It was found that a long run significant positive relationship exist between Capital Expenditure on Health (CXHE) and gross domestic product (GDP) with very marginal contribution, significant positive relationship between Human Health & Social Services Output Investment (HHSS) and gross domestic product (GDP), insignificant negative relationship between Recurrent expenditure on health (RXHD) and gross domestic product (GDP) in Nigeria. There is clear evidence of inequality in the access to health care services and low income characteristics of the country in view of the high level of Out-of-Pocket Health Expenditure of 77.7%, 77.5% and 72.2% in 2005, 2010 and 2015 respectively. It therefore recommends that Nigerian government should, as a matter of priority, increase budgetary allocation to the health sector by 40% yearly incremental allocation based on the current (2017) provision of 4.16%.They should also give deliberate attention to developing health infrastructures and providing quality health services. Investment in human capital and public health should be made a priority as, it not only increases labour productivity, but also generates greater income and economic growth.
    Keywords: Health Finance, Gross Domestic Product, Capital Expenditure on Health, Human Health & Social services Output Investment, Out-of-pocket health expenditure.
    JEL: E62
    Date: 2018–10
  90. By: Vasilev, Aleksandar
    Abstract: The purpose of this note is to describe the lottery- and insurance-market equilibrium in an economy with non-convex labor supply decision, unobservable effort, and incentive ("fair") wages. The presence of indivisible labor creates a market incompleteness, which requires that an insurance market for employment be put in operation to "complete" the market.
    Keywords: Indivisible labor,Lotteries,Insurance,Unobservable effort,fair wages
    JEL: E1 J22
    Date: 2018
  91. By: Dina Tasneem; Audrey Azerot; Marine de Montaignac; Jim Engle-Warnick
    Abstract: We report results from an on-line economics experiment that examines the effect of nudging retirement savings decisions. In the experiments, participants make decisions in a finitely repeated retirement savings game, in which income during working years is uncertain, and retire-ment age is known. Participants, who are household financial decision-makers, are nudged with automatic savings in each period of the game. We find that that the nudge simply replaced nat-ural decision-making observed in the absence of a nudge in this experiment, even to the extent that it resulted in nearly identical inferred decision rules. This surprising result highlights the unpredictability of the effect of nudging human behavior.
    Keywords: Precautionary Savings,Retirement Savings,Life-cycle Models,Dynamic Optimization,Decision Heuristics,Nudge,Choice Architecture,
    JEL: C91 E21 C61
    Date: 2018–07–23
  92. By: Byrne, Stephen (Central Bank of Ireland); Rice, Jonathan (Central Bank of Ireland)
    Abstract: This paper estimates the potential loss in trade between Ireland and the United Kingdom arising from increases in non-tariff barriers following the UK’s exit from the European Union. Using a difference gravity specification, we estimate a 9.6 per cent decline in trade flows between the UK and Ireland from an increase in border waiting times. This equates to a 1.4 per cent decline in total Irish exports and a 3.1 per cent decline in total Irish imports. We also present evidence of heterogeneity in the exposure (measured by time-sensitivity) across different types of goods, with beverages,fresh foods and raw materials being most exposed. For trade in fuels, chemicals and imperishable foods we do not find evidence of an effect from an increase in time.
    Keywords: Brexit, Non-tariff Barriers, International Trade, Gravity Model
    JEL: E5 G01 G17 G28 R39
    Date: 2018–05
  93. By: Fischer, Manfred M. (WU Wirtschaftsuniversität Wien); Huber, Florian (University of Salzburg); Pfarrhofer, Michael (University of Salzburg)
    Abstract: In this paper, we explore the relationship between state-level household income inequality and macroeconomic uncertainty in the United States. Using a novel large-scale macroeconometric model, we shed light on regional disparities of inequality responses to a national uncertainty shock. The results suggest that income inequality decreases in most states, with a pronounced degree of heterogeneity in terms of shapes and magnitudes of the dynamic responses. By contrast, some few states, mostly located in the West and South census region, display increasing levels of income inequality over time. We find that this directional pattern in responses is mainly driven by the income composition and labor market fundamentals. In addition, forecast error variance decompositions allow for a quantitative assessment of the importance of uncertainty shocks in explaining income inequality. The findings highlight that volatility shocks account for a considerable fraction of forecast error variance for most states considered. Finally, a regression-based analysis sheds light on the driving forces behind differences in state-specific inequality responses.
    Keywords: income distribution; inequality; uncertainty shocks; US states; global vector autoregressive model;
    JEL: C11 C30 D31 E39
    Date: 2018–11–01
  94. By: Lasierra, Jose Manuel
    Abstract: In periods of economic crisis, self-employment emerges as a potential alternative to unemployment. Literature on the subject identified two distinct basic theories according to which predisposition towards self-employment occurs as an opportunity (pull) or a need (push), closely linked to the business cycle. Here, due to our concern that self-employment might be incentivized in periods of crisis leading to both financial and personal failures, we attempted to verify the validity of both of these theories. To do so, we used a series of personal and job-related variables signifying certain characteristics of persons who want to be self-employed. Our results point towards greater substantiation for the pull theories and refute certain beliefs held by academicians and managers. Furthermore, there are two variables with high, significant coefficients that serve as a synopsis to describe opportunity: workload and money. We link both of these with working hours and net income.
    Keywords: Self-employment, Business cycle, Entrepreneurship, Labour Policy, Unemployment, Gender
    JEL: E32 J16 J64 J68 M21
    Date: 2018–10
  95. By: International Monetary Fund
    Abstract: Kenya has enjoyed strong growth in recent years and external imbalances have narrowed, strengthening resilience to shocks. The business environment continues to improve, supporting private investment. However, a severe drought, an extended presidential election, and weak bank lending—due in part to interest rate controls—slowed growth in 2017. With better weather and a stable political environment, growth should improve in 2018. But public debt has risen as revenue shortfalls have not been matched by spending cuts.
    Date: 2018–10–23
  96. By: Barbosa, Rodrigo dos Santos; Brito, Ricardo D.; Teles, Vladimir Kühl
    Abstract: We investigate the effects of inflation targeting (IT) adoption on industrial economies by comparing each inflation targeter country (ITer) with its synthetic control, defined as the convex combination of non-IT countries that best reproduce the ITer counterfactual inflation trajectory. We show that most of the ITers enjoyed lower inflation and higher output growth than their synthetics in most of the 1990 years’ IT experience. Although those gains could be transitory, they were economically important to justify IT Central Banks optimism with their regime choice, both case-by-case and on average.
    Date: 2018–10
  97. By: Cipullo, Davide (Department of Economics)
    Abstract: This paper compares the runoff system and the plurality rule in terms of the size and composition of public expenditures. I use the change in the voting rule in Italian municipalities at 15,000 residents to implement a regression discontinuity design. The results show that municipalities under the runoff system spend at least 20 percent more than those under the plurality rule, and that this effect is primarily driven by a large increase in administrative spending. Additionally, the greater number of candidates and the larger coalitions indicate lower accountability under the runoff system than under the plurality rule.
    Keywords: Voting rules; Fiscal policy; Runoff; Plurality; Regression discontinuity design
    JEL: D72 E02 H39 H50
    Date: 2018–10–11
  98. By: Schwandt, Hannes; von Wachter, Till
    Abstract: This paper studies the differential persistent effects of initial economic conditions for labor market entrants in the United States from 1976 to 2015 by education, gender, and race using labor force survey data. We find persistent earnings and wage reductions especially for less advantaged entrants that increases in government support only partly offset. We confirm the results are unaffected by selective migration and labor market entry by also using a double-weighted average unemployment rate at labor market entry for each birth cohort and state-of-birth cell based on average state migration rates and average cohort education rates from Census data.
    Keywords: Labor market conditions at graduation; long-term cost of recession; poverty; social programs
    JEL: E32 I14 I23 I32 J22 J31
    Date: 2018–10
  99. By: Flavia Corneli (Bank of Italy)
    Abstract: I propose a theoretical model of a debt contract between a sovereign and its international lenders that determines the optimal debt maturity structure and related costs. It is shaped by two financial frictions: limited liability (the country cannot guarantee that it will not dilute its obligations or default on them) and market incompleteness (only non-contingent assets can be issued). I find that, in equilibrium, debt dilution constrains the amount of long-term debt issuance. I then focus on two aspects that are currently widely debated in both academic and policy fora: the possibility of sovereign debt restructuring with private creditors and international official lending in the event of exclusion from the international capital markets. The possibility of restructuring after default stimulates long-term debt issuance. However, in equilibrium, the proposed crisis management tools are unable to loosen the constraint on long-term debt issuance. Consistently with the empirical literature, I find that even when these policy options for crisis resolution are available, the country tends to issue mainly short-term debt.
    Keywords: sovereign debt, optimal maturity, strategic default, crisis management, lender of last resort
    JEL: E43 F33 G15 H63
    Date: 2018–11
  100. By: Loren Brandt; Gueorgui Kambourov; Kjetil Storesletten
    Abstract: The non-state manufacturing sector has been the engine of China's economic transformation. Up through the mid-1990s, the sector exhibited large regional differences; between 1995 and 2004 we observe rapid convergence in terms of productivity, wages, and new firm start-up rates. To analyze the drivers of this behavior, we construct a Hopenhayn (1992) model that incorporates location-specific capital wedges, output wedges, and a novel entry barrier. Using Chinese Industry Census data we estimate these wedges and examine their role in explaining differences in performance across prefectures and over time. Entry barriers turn out to be the salient factor explaining performance differences. We investigate the empirical covariates of these entry barriers and find that barriers are causally related to the size of the state sector. Thus, the downsizing of the state sector after 1997 may be important in explaining the regional convergence and manufacturing growth after 1995.
    Keywords: Chinese economic growth; SOEs; fi rm entry; entry barriers; capital wedges; output wedges; SOE reform
    JEL: O11 O14 O16 O40 O53 P25 R13 D22 D24 E24
    Date: 2018–11–07
  101. By: Kevin Lee; James Morley; Kian Ong; Kalvinder Shields
    Abstract: The paper describes how to measure the fiscal multiplier using budget statements on planned government spending in the current and following years alongside the data on actual outcomes. The multiplier effects can be decomposed to distinguish the effects of ‘policy reactions’ versus ‘policy initiatives’, with the latter shown to be substantially larger than the former in a study of annual US data over 1957-2016. It is noted that the fiscal initiatives undertaken following the events of 2007/8 played an important role in mitigating the recessionary effects of the global financial crisis in the US.
    Keywords: Government spending plans, real-time data, fiscal multiplier
    Date: 2018
  102. By: Anthony Savagar
    Abstract: I develop a model of dynamic firm entry, oligopolistic competition and returns to scale in order to decompose TFP fluctuations into technical change, economic profit and markup fluctuations. I show that economic profits cause short-run upward bias in measured TFP, but this subsides to upward bias from endogenous markups as firm entry adjusts. I analyze dynamics analytically through a nonparametric DGE model that allows for a perfect competition equilibrium such that there are no biases in measured TFP. Given market power, simulations show that measured TFP is 40% higher than technology in the short-run, due solely to profits, and 20% higher in the long-run due solely to markups. During transition both effects contribute upward bias: initially the profit effect dominates, but by 5 quarters the two effects contribute equally, and by 10 quarters only the markup effect persists. The speed of firm adjustment ('business dynamism') will determine these timings and therefore the importance of each bias.
    Keywords: Endogenous Markups, Dynamic Firm Entry, Endogenous Productivity, Endogenous Entry Costs
    JEL: E32 D21 D43 L13 C62
    Date: 2018–10
  103. By: Vasilev, Aleksandar
    Abstract: The purpose of this note is to explore the problem of a non-convex labor supply decision in an economy with unobservable e ort and incentive ("fair") wages a la Danthine and Kurmann (2004), and explicitly perform the aggregation presented there without a formal proof, and thus provide - starting from micro-foundations - the derivation of the expected utility functions used for the aggregate household. We show how lotteries as in Rogerson (1988) can be used to convexify consumption sets, and aggregate over individual preferences. With a discrete labor supply decisions, the elasticity of aggregate labor supply becomes a function of effort.
    Keywords: Aggregation,Indivisible labor,Unobservable effort,Fair wages
    JEL: E1 J22
    Date: 2018
  104. By: Atanu Sengupta, Atanu Sengupta; De, Sanjoy
    Abstract: Credit is very important in the lives of the poor people. The benefits of credit are manifold. Even after more than six and a half decade since independence, the extent and important of informal credit have not diminished to a great degree in India. This paper aims at to understand the significance of personalized relations in the working of the informal credit market with the help of the All Indian Debt and Investment survey data. .Our analysis shows that there is distinct compartmentalization of the Indian credit market with respect to the disbursement of loan from various credit agencies. Each of these category of credit agencies has some definite target group to cater to. Apart from this clear division of loaning pattern, the importance of trust, personalized knowledge and mutual co-operation in the informal credit market has also been observed.
    Keywords: Credit, Informal credit, Trust, Informality
    JEL: E26 G21 L14
    Date: 2018–10–21
  105. By: Tincho Almuzara (CEMFI, Centro de Estudios Monetarios y Financieros); Dante Amengual (CEMFI, Centro de Estudios Monetarios y Financieros); Enrique Sentana (CEMFI)
    Abstract: We exploit the rationale behind the Expectation Maximization algorithm to derive simple to implement and interpret score tests of normality in the innovations to the latent variables in state space models against generalized hyperbolic alternatives, including symmetric and asymmetric Student ts. We decompose our tests into third and fourth moment components, and obtain one-sided likelihood ratio analogues, whose asymptotic distribution we provide. When we apply them to a cointegrated dynamic factor model which combines the expenditure and income versions of US aggregate real output to improve its measurement, we reject normality if the sample period extends beyond the Great Moderation.
    Keywords: Gross domestic product, gross domestic income, kurtosis, Kuhn-Tucker test, skewness, supremum test, Wiener-Kolmogorov-Kalman smoother.
    JEL: C32 C52 E01
    Date: 2017–02
  106. By: Tincho Almuzara (CEMFI, Centro de Estudios Monetarios y Financieros); Dante Amengual (CEMFI, Centro de Estudios Monetarios y Financieros); Enrique Sentana (CEMFI)
    Abstract: We exploit the rationale behind the Expectation Maximization algorithm to derive simple to implement and interpret score tests of normality in the innovations to the latent variables in state space models against generalized hyperbolic alternatives, including symmetric and asymmetric Student ts. We decompose our tests into third and fourth moment components, and obtain one-sided likelihood ratio analogues, whose asymptotic distribution we provide. When we apply them to a cointegrated dynamic factor model which combines the expenditure and income versions of US aggregate real output to improve its measurement, we reject normality if the sample period extends beyond the Great Moderation.
    Keywords: Gross domestic product, gross domestic income, kurtosis, Kuhn-Tucker test, skewness, supremum test, Wiener-Kolmogorov-Kalman smoother.
    JEL: C32 C52 E01
    Date: 2017–02
  107. By: Bruno, Valentina G.; Shin, Hyun Song
    Abstract: How do emerging market corporates fare during periods of currency depreciation? We find that non-financial firms that exploit favorable global financing conditions to issue US dollar bonds and build cash balances are also those whose share price is most vulnerable to local currency depreciation. In particular, firms' vulnerability to currency depreciation derives less from the foreign currency debt as such, but from the cash balances that are built up by using foreign currency debt. Overall, our results point to a financial motive for dollar bond issuance by emerging market firms in carry trade-like transactions that leave them vulnerable in an environment of dollar strength.
    Keywords: currency mismatch; emerging market corporate debt; global financial conditions; liability dollarization
    JEL: E44 G15
    Date: 2018–11
  108. By: Dominik Thaler (Banco de España)
    Abstract: Why do governments borrow internationally, so much as to risk default? Why do they remain out of fi nancial markets for a while after default? This paper develops a quantitative model of sovereign default with endogenous default costs to propose a novel and unifi ed answer to these questions. In the model, the government has an incentive to borrow internationally due to a difference between the world interest rate and the domestic return on capital, which arises from a friction in the domestic banking sector. Since banks are exposed to sovereign debt, sovereign default causes losses for them, which translate into a fi nancial crisis. When deciding upon repayment, the government trades off these costs against the advantage of not repaying international investors. After default, it only reaccesses international capital markets once banks have recovered, because only then are they able to effi ciently allocate the marginal unit of investment again. Exclusion hence arises endogenously. The model is able to generate signifi cant levels of domestic and foreign debt, realistic spreads, quantitatively plausible drops of lending and output in default episodes, and periods of postdefault international fi nancial market exclusion of a realistic duration.
    Keywords: sovereign default, banking crisis, endogenous cost of default, international capital market exclusion.
    JEL: F34 E62
    Date: 2018–07

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