nep-mac New Economics Papers
on Macroeconomics
Issue of 2018‒12‒03
85 papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. The stabilizing role of forward guidance: A macro experiment By Ahrens, Steffen; Lustenhouwer, Joep; Tettamanzi, Michele
  2. Measuring financial cycle time By Andrew Filardo; Marco Jacopo Lombardi; Marek Raczko
  3. Global inflation dynamics and inflation expectations By Martin Feldkircher; Pierre L. Siklos
  4. A Note on Krugman's Liquidity Trap By Stefano Di Bucchianico
  5. A monetary policy framework for the European Central Bank to deal with uncertainty By Grégory Claeys; Maria Demertzis; Jan Mazza
  6. Quantitative easing By Cui, Wei; Sterk, Vincent
  7. New Output Gap Estimates for Assessing Fiscal Policy with Lessons for Euro Area Reform By Heikki Oksanen
  8. Quantitative Easing By Wei Cui; Vincent Sterk
  9. Indicator-based estimates of the output gap in the euro area By Weiske, Sebastian
  10. News and Uncertainty Shocks By Danilo Cascaldi-Garcia; Ana Beatriz Galvao
  11. Unravelling the secrets of euro area inflation: A frequency decomposition approach By Gerdesmeier, Dieter; Roffia, Barbara; Reimers, Hans-Eggert
  12. Effects of monetary policy decisions on professional forecasters’ expectations and expectations uncertainty By Oinonen, Sami; Paloviita, Maritta; Viren, Matti
  13. The Financial and Macroeconomic Effects of SMP, LTRO and OMT Announcements By Gifuni, Luigi
  14. New fiscal policy? Lesson from the crisis By Ryta Dziemianowicz; Aneta Kargol-Wasiluk; Anna Wildowicz-Giegiel
  15. International business cycles: Information matters By Eleni Iliopulos; Erica Perego; Thepthida Sopraseuth
  16. Less bang for the buck? Assessing the role of inflation uncertainty for U.S. monetary policy transmission in a data rich environment By Herwartz, Helmut; Rohloff, Hannes
  17. Monetary Rules, Determinacy and Limited Enforcement By Jean Barthélemy; Eric Mengus
  18. Changes in Economic and Financial Synchronisation: A Global Factor Analysis By Alessandro Maravalle; Łukasz Rawdanowicz
  19. Measuring the Natural Rates of Interest in Germany and Italy By Bystrov Victor
  20. A Textual Analysis of the Bank of England Growth Forecasts By Jacob T. Jones; Tara M. Sinclair; Herman O. Stekler
  21. Explaining Monetary Spillovers: The Matrix Reloaded By Jonathan Kearns; Andreas Schrimpf; Dora Xia
  22. Sparse Restricted Perception Equilibrium By Volha Audzei; Sergey Slobodyan
  23. Model instability in predictive exchange rate regressions By Hauzenberger, Niko; Huber, Florian
  24. Different Property Sectors of Japanese REIT Market: Comparative Analysis of Determinants under Non-Traditional Monetary Policy Regimes By Takayasu Ito
  25. The missing link: monetary policy and the labor share By Cantore, Christiano; Ferroni, Filippo; León-Ledesma, Miguel A.
  26. Inflation and the Gig Economy: Have the Rise of Online Retailing and Self-Employment Disrupted the Phillips Curve? By Duca, John V.
  27. Some new insights on the empirics of Goodwin’s growth-cycle model By Ricardo A. Araújo; Marwil J. Dávila-Fernández
  28. The Missing Link: Monetary policy and the labor share By Cristiano Cantore; Filippo Ferroni; Miguel A. Leon-Ledesma
  29. The Pro-Cyclicality of Risk Weights for Credit Exposures in the Czech Republic By Simona Malovana
  30. International spillover effects of U.S. tax reforms: Evidence from Germany By Christofzik, Désirée I.; Elstner, Steffen
  31. Great Volatility and Great Moderation By Jakob Grazzini; Domenico Massaro
  32. Financial and non-financial global stock market volatility shocks By Wensheng Kang; Ronald A. Ratti; Joaquin Vespignani
  33. An Alternative Estimate of Canadian Potential Output: The Multivariate State-Space Framework By Lise Pichette; Maria Bernier; Marie-Noëlle Robitaille
  34. Financialisation, financial development, and investment: evidence from European non-financial corporations By Tori, Daniele; Onaran, Özlem
  35. Macroeconomic Effects of the Adoption of the Euro in Serbia By Reinhard Neck; Klaus Weyerstrass
  36. What do we know about the macroeconomic effects of fiscal policy? A brief survey of the literature on fiscal multipliers By Efrem Castelnuovo; Guay Lim
  37. Does a Big Bazooka Matter? Central Bank Balance-Sheet Policies and Exchange Rates By Dedola, Luca; Georgiadis, Georgios; Grab, Johannes; Mehl, Arnaud
  38. Political economic uncertainty in a small & open economy: the case of Uruguay By Bibiana Lanzilotta; Gabriela Mordecki; Victoria Umpiérrez
  39. Short-time Work Subsidies in a Matching Model By Volker Meier
  40. Long-Memory Modeling and Forecasting: Evidence from the U.S. Historical Series of Inflation By Heni Boubaker; Giorgio Canarella; Rangan Gupta; Stephen M. Miller
  41. On Sunspot Fluctuations in Variable Capacity Utilization Models By Frédéric Dufourt; Alain Venditti; Rémi Vives
  42. Lending relationships and the collateral channel By Anderson, Gareth; Bahaj, Saleem; Chavaz, Matthieu; Foulis, Angus; Pinter, Gabor
  43. Can Monetary Policy Lean against Housing Bubbles? By Christophe André; Petre Caraiani; Adrian Cantemir Čalin; Rangan Gupta
  44. Oil Price Dynamics and Business Cycles in Nigeria:A Bayesian Time Varying Analysis By Lartey, Abraham
  45. The dynamic impact of monetary policy on regional housing prices in the United States By Fischer, Manfred M.; Huber, Florian; Pfarrhofer, Michael; Staufer-Steinnocher, Petra
  46. Fiscal consolidation in Croatia and other post-transition countries* By Pa?ko Burna?
  47. Unemployment insurance and labour productivity over the business cycle By Rujiwattanapong, W. Similan
  48. Time-Varying Impact of Uncertainty Shocks on the US Housing Market By Christina Christou; Rangan Gupta; Wendy Nyakabawo
  49. Euro area sovereign yield spreads as determinants of private sector borrowing costs By Thomas Theobald; Silke Tober
  50. Wealth distribution in Uruguay: capitalizing incomes in the dark By Mauricio De Rosa
  51. Drivers of growth in the Philippines By Markus Brueckner; Birgit Hansl
  52. Does Output Influence Productivity? - A Meta-Regression Analysis By Ludwig List
  53. Remarks on financial crisis, speculative bubles and some specifics in the Czech Economy By Klára ?ermáková; Bo?ena Kade?ábková
  55. Turbulentes Jahr 2017, gedämpfte Aussichten für 2018: Deutschlands Pharmaindustrie 2017/2018 By Kirchhoff, Jasmina
  56. Spillovers from US monetary policy: Evidence from a time-varying parameter GVAR model By Crespo Cuaresma, Jesus; Doppelhofer, Gernot; Feldkircher, Martin; Huber, Florian
  57. Modelling interest rate pass-through in Rwanda: is the interest rate dynamics symmetric or asymmetric ? By Rutayisire, Musoni J.
  58. Endogenous Skills and Labor Income Inequality By Yang, Guanyi
  60. La importancia de las prácticas preprofesionales en la transición al empleo: un estudio en las ciudades capitales del Perú By Flor, Luciana de la
  61. Measuring Uncertainty of Optimal Simple Monetary Policy Rules in DSGE models By Górajski Mariusz; Kuchta Zbigniew
  62. Increasing competitiveness at any price? By Nora Albu; Heike Joebges; Rudolf Zwiener
  63. The growing impact of US monetary policy on emerging financial markets: Evidence from India By Lakdawala, Aeimit
  64. Current account dynamics under information rigidity and imperfect capital mobility By Akihisa Shibata; Mototsugu Shintani; Takayuki Tsuruga
  65. A continuous consumer price index for Norway 1492-2017 By Honningdal Grytten, Ola
  66. Essays on nominal rigidities : Identification, macrodynamic consequences and policy implications By Grajales Olarte, Anderson
  67. Research and Development Contribution to the Czech Industry Branch Growth By Jena ?varcová; Lucie Povolná
  69. The Financial Decisions of Immigrant and Native Households: Evidence from Italy By Bertocchi, Graziella; Brunetti, Marianna; Zaiceva, Anzelika
  70. Forecasting the 1937-1938 Recession: Quantifying Contemporary Newspaper Forecasts By Gabriel Mathy; Christian Roatta
  71. Can Job Search Assistance Improve the Labour Market Integration for Refugees? Evidence from a Field Experiment By Michele Battisti; Yvonne Giesing; Nadzeya Laurentsyeva
  72. Taxation of Savings and Portfolio Choices of French Households By Christian Pfister
  73. Impact of the ECB Quantitative Easing on the French International Investment Position By Rafael Cezar; Maéva Silvestrini
  74. The Economic Outlook, Monetary Policy, and Normal Policymaking Now and in the Future; 10.25.18 Money Marketeers of New York University, Inc., New York, NY By Mester, Loretta J.
  75. Agricultural Productivity and Food Supply Stability in Sub-Saharan Africa: LSDV and SYS-GMM Approach By Ogunlesi, Ayodeji; Bokana, Koye; Okoye, Chidozie; Loy, Jens-Peter
  76. Monetary policy strategies for a low-neutral-interest-rate world: remarks at the 80th Plenary Meeting of the Group of Thirty, Federal Reserve Bank of New York, New York City By Williams, John C.
  77. Labor Responses, Regulation and Business Churn By Marta Aloi; Huw D. Dixon; Anthony Savagar
  78. Production and Learning in Teams By Kyle Herkenhoff; Jeremy Lise; Guido Menzio; Gordon Phillips
  79. The Long Run Stability of Money Demand in the Proposed West African Monetary Union By Simplice A. Asongu; Oludele E. Folarin; Nicholas Biekpe
  80. Lessons from the money mania for money creation By Guo, Yanling
  81. Agricultural Productivity, Fiscal and Trade Policies Nexus in Sub-Saharan Africa: A Panel Structural Vector Error Correction Model Analysis By Ogunlesi, Ayodeji
  82. Rationally Inattentive Consumer: An Experiment By Civelli, Andrea; Deck, Cary; LeBlanc, Justin D.; Tutino, Antonella
  83. An aggregate welfare optimizing interest rate rule under heterogeneous expectations By Hagenhoff, Tim
  84. Missing wage growth in the euro area: is the wage Philips curve non-linear? By Byrne, David; Zekaite, Zivile
  85. Social Investment and youth labour market participation: a EU regional analysis By Giulio Ecchia; Francesca Gagliardi; Caterina Giannetti

  1. By: Ahrens, Steffen; Lustenhouwer, Joep; Tettamanzi, Michele
    Abstract: Expectations are among the main driving forces for economic dynamics. Therefore, managing expectations has become a primary objective for monetary policy seeking to stabilize the business cycle. In this paper, we study whether central banks can manage market expectations by means of forward guidance in a New Keynesian learning-to-forecast experiment. Forward guidance takes the form of one-period ahead inflation projections that are published by the central bank in each period. Subjects in the experiment observe these projections along with the historic development of the economy and subsequently submit their own one-period ahead inflation forecasts. In this context, we find that the central bank can significantly manage market expectations through forward guidance and that this management strongly supports monetary policy in stabilizing the economy. Moreover, forward guidance drastically reduces the probability of a deflationary spiral after strong negative shocks to the economy.
    Keywords: learning-to-forecast experiment,forward guidance,heterogeneous expectations
    JEL: C92 E32 E37 E58
    Date: 2018
  2. By: Andrew Filardo; Marco Jacopo Lombardi; Marek Raczko
    Abstract: Motivated by the traditional business cycle approach of Burns and Mitchell (1946), we explore cyclical similarities in financial conditions over time in order to improve our understanding of financial cycles. Looking back at 120 years of data, we find that financial cycles exhibit behaviour characterised by recurrent, endogenous swings in financial conditions, which result in costly booms and busts. Yet the recurrent nature of such swings may not appear so obvious when looking at conventionally plotted time-series data (that is, observed in calendar time). Using the pioneering framework developed by Stock (1987), we offer a new statistical characterisation of the financial cycle using a continuous-time autoregressive model subject to time deformation, and test for systematic differences between calendar and a new notion of financial cycle time. We find the time deformation to be statistically significant, and associated with levels of long-term real interest rates, inflation volatility and the perceived riskiness of the macro-financial environment. Implications for statistical modelling, endogenous risk-taking economic behaviour and policy are highlighted.
    Keywords: financial cycles, continuous-time autoregressive models, time deformation, behavioural economics, endogenous risk-taking behaviour, central banking
    JEL: E32 G01 F32 F34 E58 D80
    Date: 2018–11
  3. By: Martin Feldkircher; Pierre L. Siklos
    Abstract: In this paper we investigate dynamics of global inflation and short-run inflation expectations. We estimate a global vector autoregressive (GVAR) model estimated using Bayesian techniques. We then explore the effect of three source of inflationary pressure that could drive up inflation expectations: domestic aggregate demand and supply shocks as well as a global increase in oil price inflation. Our results indicate that inflation expectations tend to increase as inflation accelerates. However, the effects of the demand and supply shock are for most countries only short-lived. If domestic inflation accelerates due to a global acceleration of oil price inflation, however, effects are generally more pronounced and long-lasting. This implies that to assess the link between actual inflation and inflation expectations appropriately, it is important to disentangle the underlying sources of inflationary pressure. We also examine whether the relationship between actual inflation and inflation expectations has changed since the global financial crisis. We find that the transmission between inflation and inflation expectations was largely unaffected in response to domestic demand and supply shocks, while effects of an oil price shock on inflation expectations are smaller post-crisis.
    Keywords: inflation, inflation expectations, GVAR modelling, anchoring of inflation expectations
    JEL: E31 E52 E58 C32
    Date: 2018–11
  4. By: Stefano Di Bucchianico (Department of Economics, Roma Tre University)
    Abstract: The 1998 stylized model of Krugman constituted a ground-breaking contribution explaining the long lasting Japanese stagnation as the consequence of a ‘liquidity trap’ situation featuring a negative natural interest rate. Our critique to such a proposal will focus on three aspects. First, we will question the logical structure of the model, providing an alternative interpretation of its closure. Second, we will argue that aggregate demand has no role in the explanation, as the cause for the persistent excess of savings over desired investment is the result of a supply side shock plus a financial rigidity on the nominal interest rate. Finally, we will discuss the restrictive assumptions needed to get a negative natural interest rate, the concept that lies at the foundation of the entire theoretical apparatus. Our conclusion is that the explanation offered within the 1998 contribution does not provide a satisfying rationale for the Japanese stagnation.
    Keywords: Liquidity trap, Japanese stagnation, natural interest rate
    JEL: E31 E40 E52 E58
    Date: 2018
  5. By: Grégory Claeys; Maria Demertzis; Jan Mazza
    Abstract: This Policy Contribution was prepared for the European Parliament’s Committee on Economic and Monetary Affairs (ECON) as an input to the Monetary Dialogue of 26 November 2018 between ECON and the President of the European Central Bank. The original paper is available on the European Parliament’s webpage (here). Copyright remains with the European Parliament at all times. Central banks face new challenges. First, the potential long-term decline in neutral rates of interest in advanced economies could reduce the space for central banks to make policy-rate cuts. Second, the potential flattening of the Phillips curve (i.e. the weakening of the relationship between inflation and unemployment) in recent decades could reduce the ability of central banks to reach their inflation targets. Third, the discussion on whether central banks should also target financial stability has re-emerged as a result of the crisis. Fourth, the euro-area architectural framework remains incomplete. The problematic interaction between nineteen different fiscal policies and a common monetary policy, the lack of a stabilisation tool and differences in national macro-prudential frameworks would all suggest significant reforms are needed in these realms to strengthen the overall resilience of the system. However, the probability of seeing material changes before the next recession is relatively low, thus presumably leaving the European Central Bank’s pivotal role unchanged. More generally, fundamental uncertainty surrounding concepts at the core of the economy, and therefore demand management, has emerged. Monetary policy has to navigate without full knowledge of what the post-crisis ‘new normal’ is going to be. In light of these considerations, we recommend that the ECB should update its definition of price stability to target core inflation around two percent per year (allowing a tolerance band on either side of the two percent target), on average, over a longer time horizon. Compared to other proposals (such as increasing the targeted inflation level or price-level targeting), our recommendation has the advantage of not departing drastically from the current inflation target and is therefore easier to communicate. In our view, monetary policy should not target financial stability. Other more targeted (and country-specific) tools should be deployed to avoid the build-up of financial stability risks. Closer coordination with national macroprudential authorities and greater harmonisation in the use of macroprudential policies are however strongly recommended, as it is now acknowledged that financial and monetary policies are closely interlinked.
    Date: 2018–11
  6. By: Cui, Wei; Sterk, Vincent
    Abstract: Is Quantitative Easing (QE) an effective substitute for conventional monetary policy? We study this question using a quantitative heterogeneous-agents model with nominal rigidities, as well as liquid and partially liquid wealth. The direct effect of QE on aggregate demand is determined by the difference in marginal propensities to consume out of the two types of wealth, which is large according to the model and empirical studies. A comparison of optimal QE and interest rate rules reveals that QE is indeed a very powerful instrument to anchor expectations and to stabilize output and inflation. However, QE interventions come with strong side effects on inequality, which can substantially lower social welfare. A very simple QE rule, which we refer to as Real Reserve Targeting, is approximately optimal from a welfare perspective when conventional policy is unavailable. We further estimate the model on U.S. data and find that QE interventions greatly mitigated the decline in output during the Great Recession.
    Keywords: monetary policy; large-scale asset purchases; HANK
    JEL: E21 E30 E50 E58
    Date: 2018–11–16
  7. By: Heikki Oksanen
    Abstract: Output gaps (OG) identify economic cycles and the cyclical and structural components in government budget balances. A new simple method for estimating OGs is presented here. The new results are more transparent than those published by the leading economic policy institutions. - The retroactive changes to the OGs as such do not indicate that they would have been incorrect. Instead, they naturally depend on what will happen afterwards, including changes in the fiscal and other policies conducted. - Fiscal policy in the euro area was tight in 2012-13, contributing to an unexpected fall in the GDP. Fiscal policy has generally amplified cycles in the euro area, except in 2009. - Procyclicality is caused by short-sighted fiscal discipline stemming from the mistrust among the member states. Policy reforms should focus on long-term sustainability and diminishing conflicts and mistrust. The numerous reform proposals should be assessed under two key criteria: (1) reducing mistrust across the members and (2) implementation without changes to the EU Treaty. Focussing on long-term sustainability meets them both.
    Keywords: euro, fiscal policy, output gaps
    JEL: E42 E62 H10
    Date: 2018
  8. By: Wei Cui (University College London (UCL); Centre for Macroeconomics (CFM)); Vincent Sterk (University College London (UCL); Centre for Macroeconomics (CFM))
    Abstract: Is Quantitative Easing (QE) an effective substitute for conventional monetary policy? We study this question using a quantitative heterogeneous-agents model with nominal rigidities, as well as liquid and partially liquid wealth. The direct effect of QE on aggregate demand is determined by the difference in marginal propensities to consume out of the two types of wealth, which is large according to the model and empirical studies. A comparison of optimal QE and interest rate rules reveals that QE is indeed a very powerful instrument to anchor expectations and to stabilize output and inflation. However, QE interventions come with strong side effects on inequality, which can substantially lower social welfare. A very simple QE rule, which we refer to as Real Reserve Targeting, is approximately optimal from a welfare perspective when conventional policy is unavailable. We further estimate the model on U.S. data and find that QE interventions greatly mitigated the decline in output during the Great Recession.
    Keywords: Monetary policy, Large-scale asset purchases, HANK
    JEL: E21 E30 E50 E58
    Date: 2018–11
  9. By: Weiske, Sebastian
    Abstract: The output gap is a key variable of business cycle analysis and policy. Obtaining reliable estimates for it, is very difficult, though. Most real-time estimates are frequently revised over time. The idea of this paper is to use various indicators, for example from business surveys, that (i) were highly correlated with the output gap in the past and (ii) that are ideally not subject to revisions. According to a real-time analysis, indicator-based estimates prove to be more reliable than estimates from international institutions. Currently, estimates point to positive output gaps in the euro area.
    Keywords: Business Cycles,Output Gap,Real-time Estimation,Business Survey Data
    JEL: E32 E37 E6
    Date: 2018
  10. By: Danilo Cascaldi-Garcia; Ana Beatriz Galvao
    Abstract: We provide novel evidence that technological news and uncertainty shocks, identified one at a time using VAR models as in the literature, are correlated; that is, they are not truly structural. We then proceed by proposing an identification scheme to disentangle the effects of news and financial uncertainty shocks. We find that by removing uncertainty effects from news shocks, the positive responses of economic activity to news shocks are strengthened in the short term; and that the negative responses of activity to financial uncertainty shocks are deepened in the medium term as ‘good uncertainty' effects on technology are purged.
    Keywords: Forecasting error variance ; Structural VAR ; News shocks ; Uncertainty shocks
    JEL: E32 E44
    Date: 2018–11
  11. By: Gerdesmeier, Dieter; Roffia, Barbara; Reimers, Hans-Eggert
    Abstract: [Introduction] The role of money and credit for the economy, and especially for inflation, has always attracted a lot of attention in the economic literature (see, for instance, Friedman and Schwartz (1963), Bernanke (1993)) and, more recently, Nelson (2008), Benati (2009), Lucas and Nicolini (2015), Hevia and Nicolini (2017) as well as Anderson, Bordo and Duca (2017)). This paper addresses some key questions regarding the fundamental nature of the relationships among those variables and attempts to analyse them for the euro area by means of filter-design techniques. After decomposing the variables over different frequencies, regressions are carried out and the main drivers of inflation over different horizons are derived in a single-equation approach. Robustness checks are also carried out by choosing different combinations of explanatory variables, price measures (GDP deflator and house prices) and frequency horizons. The paper is structured as follows. After a review of the literature and methodology, the basic framework applied in the analysis as well as the relevant variables are illustrated in more details. Afterwards, the results at different frequencies for HICP, the GDP deflator and house prices are provided. The final section concludes.
    JEL: E31 E51 E52
    Date: 2018
  12. By: Oinonen, Sami; Paloviita, Maritta; Viren, Matti
    Abstract: In this paper, we examine how professional forecasters’ expectations and expectation uncertainty have reacted to the ECB’s interest rate decisions and non-conventional monetary policy measures during the period 1999-2017. The analysis makes use of a conventional dif-in-dif type set up with different time series tools. The results indicate that expectations have been sensitive to policy actions, but all forecasters’ reactions do not seem to follow the basic predictions of a standard New Keynesian model. Also the relationship between inflation and output forecasts does not seem to follow a Phillips curve type relationship. Moreover, short- and long term reactions to policy are often weakly related and of different sign. Interestingly, subjective forecast uncertainty measures are very sensitive to policy measures. Thus, there seems to be much heterogeneity in forecasters’ reactions to most policy decisions. All uncertainty measures, including long-term inflation uncertainty, have increased over time. This has to be taken into account when considering the anchoring of inflation expectations to the inflation target.
    JEL: E32 G02
    Date: 2018–11–20
  13. By: Gifuni, Luigi
    Abstract: The term Non-Conventional Monetary Policies refers to the Central Banks and indicates the possibility that they may implement policies of extraordinary nature. The motivation behind such a move may lie in the fact that conventional policies have temporarily lost their effectiveness. The events of the financial crisis of 2007 – 2009 are a good example to explain the use of an unconventional approach by the Central Banks. Previously, the monetary policies of many countries seemed to follow the Taylor rule, according to which the Central Banks (in reference to an inflation target) varied the nominal interest rate in response to changes in inflation and GDP. The financial crisis of 2007 has led the Monetary Authorities of the major countries to no longer consider the conventional criteria on which they had always based their interventions, pushing them towards these exceptional measures. This study evaluates the macroeconomic effects of three different Non-Conventional Monetary Policies in the financial and bond markets. Securities Market Programme (SMP), Long Term Refinancing Operation (LTRO) and Outright Monetary Transaction (OMT) represent the announcements of the European Central Bank (ECB) that have been evaluated. This paper will argue that the markets examined (France, Germany, Spain and Italy) have shown significant growth in terms of real activity, credit and prices, for the SMP and OMT announcement, whereas LTRO has displayed relatively muted results.
    Keywords: Securities Market Programme, Long Term Refinancing Operation, Outright Monetary Transaction, event study.
    JEL: C12 E52 E58
    Date: 2017–11–05
  14. By: Ryta Dziemianowicz (University of Bialystok, Faculty of Economics and Management); Aneta Kargol-Wasiluk (University of Bialystok, Faculty of Economics and Management); Anna Wildowicz-Giegiel (University of Bialystok, Faculty of Economics and Management)
    Abstract: The article aims to rethinking the role of fiscal policy in the process of macroeconomic stabilization which over 30 years has been strongly negated by neoliberal doctrine. The study is based on the analysis of premises for expansionary fiscal policy implementation both from theoretical and empirical perspective. In the face of strong economic shocks, such as the recent crisis, the special attention is paid on its size, instruments and time horizon. The content analysis of the literature supported by empirical evidence devoted to fiscal policy in context of its impact on the course of business cycles was conducted. The authors used Ameco and IMF data referring to the public finance with special focus on countries belonging to euro area and the US. It was claimed that the attempts to reduce increasing public debt via fiscal consolidation in early years of the crisis 2009-2011 have very likely resulted in a higher debt to GDP as euro area entered its second recession. At the same time, only countries with large fiscal space like the US could afford the bigger fiscal stimulus, and as a result registered output losses in these economies were smaller compared to Europe. In conclusion it should be emphasized that contractionary fiscal policy in a depressed economy had not only a negative short-term impact on GDP, but through hysteresis effects permanently affected the expected path of future growth. Despite this, the costs of expansionary fiscal policy are also worth to be taken into account and even in a depressed economy such policy surely should be timely, targeted and contemporary as sustainability of public finance in the long-term is recommended.
    Keywords: fiscal policy, austerity, fiscal consolidation, hysteresis
    JEL: E62 E63
    Date: 2018–06
  15. By: Eleni Iliopulos; Erica Perego; Thepthida Sopraseuth (Université de Cergy-Pontoise, THEMA)
    Abstract: We study the international transmission of shocks when agents form expectations under adaptive learning and imperfect information. To this aim we consider a two-country model featuring financial frictions, nominal rigidities, learning and Home information bias (as a source of information imperfection). We show that the more pronounced the Home information bias, the less agents track the international transmission of shocks, as it would otherwise be the case under rational expectations. The model succeeds in matching the low business cycle synchronization of consumption, while generating a positive output co-movement. In doing so, the model takes the theory closer to the data with respect to the output-consumption co-movement anomaly. The model also exhibits departure from the Uncovered Interest rate Parity.
    Keywords: financial frictions, interdependent economies, learning, uncovered interest rate parity.
    JEL: D84 E44 E51 F41 F42
    Date: 2018
  16. By: Herwartz, Helmut; Rohloff, Hannes
    Abstract: We investigate the relationship between inflation uncertainty and monetary policy transmission in the U.S. economy. Monetary policy shocks are identified within the framework of nonlinear structural factor-augmented VARs which allow us to analyze several complementary hypotheses connecting IU with reduced monetary policy effectiveness. We find that the real effects of monetary policy shocks are markedly dampened conditional on high IU. This can be traced back to, inter alia, real-option and precautionary savings effects which distort the traditional interest rate channel. Moreover, policy transmission through the external finance premium and the term structure of interest rates appears strongly dependent on inflation uncertainty and contributes to the reduced policy effectiveness.
    Keywords: inflation uncertainty,SVAR,monetary policy,sign restrictions,asset prices,smoothtransition
    JEL: C32 E44 E52
    Date: 2018
  17. By: Jean Barthélemy; Eric Mengus
    Abstract: This paper investigates the ability of monetary policy rules to coordinate private agents' expectations when the enforcement of rules is limited. We show that limited enforcement precludes diverging inflation paths ensuring that nominal variables remain bounded in equilibrium. When applied to Taylor rules this makes the Taylor principle necessary and sufficient for price determinacy. However, limited enforcement also allows agents to rationally anticipate multiple policies and we show that, in general, there is no policy rule able to recoordinate any private agents' belief on that rule. We finally provide conditions under which such recoordination may take place.
    Keywords: Policy Rules, Determinacy, Limited Enforcement.
    JEL: E31 E52 E65
    Date: 2018
  18. By: Alessandro Maravalle; Łukasz Rawdanowicz
    Abstract: We estimate dynamic factor models for two sub-samples between 1995 and 2017 for up to 42 advanced and emerging-market economies to investigate changes in the contribution of global and regional factors to fluctuations in real GDP per capita growth, inflation, 10-year government bond yields and equity prices. The combined average contribution of global and regional factors in explaining fluctuations of GDP growth and inflation increased between 1995-2006 and 2007-17. In contrast, for financial variables, the role of country-specific factors strengthened between these two periods. The general findings are robust to alternative specifications of the lag structure, data frequency and the country composition of the largest region. Country-specific factors explain a higher share of variation of financial variables in emerging-market economies compared with advanced economies. For all variables, there is large cross-country heterogeneity regarding the level of contributions of specific factors and their evolution over time.
    Keywords: co-movement, dynamic factor models, Financial and trade integration, international business cycle
    JEL: C38 E32 E44 F44
    Date: 2018–11–28
  19. By: Bystrov Victor (Faculty of Economics and Sociology, University of Lodz)
    Abstract: In this paper a semi-structural econometric model is implemented in order to estimate the natural rates of interest in two large economies of the Euro Area: Germany an Italy. The estimates suggest that after the financial crisis of 2007-2008 a decrease of the growth rate of potential output and the corresponding natural rate of interest was greater in Italy than in Germany which could have had important implications for the effectiveness of a common monetary policy. Unlike in other studies, it is found that the monetary policy stance was less expansionary in Italy as compared to Germany for the whole after-crisis period.
    Keywords: natural rate of interest, potential output, euro area, state-space model, Kalman filter
    JEL: C32 C51 E43 E52
    Date: 2018–10–22
  20. By: Jacob T. Jones (The George Washington University); Tara M. Sinclair (The George Washington University); Herman O. Stekler (The George Washington University)
    Abstract: The Bank of England publishes a quarterly Inflation Report (IR) that provides numerical forecasts and text discussion of their assessment of the UK economy. Previous research has evaluated the quantitative forecasts included in the IR, but we focus on the qualitative discussion of output growth. We use a textual analysis procedure to convert the qualitative assessments made by the Bank into quantitative scores. We compare these scores to real-time output growth data as well as to the corresponding quantitative projections published by the Bank. We find that overall developments in the UK economy were accurately represented in the text of the IR. Although the Bank failed to forecast the onset of the Great Recession ahead of time, they did perceive underlying weakness in the economy prior to the downturn, which was more clearly communicated in the text than in the quantitative forecasts.
    Keywords: Macroeconomic Forecast Evaluation, Qualitative Forecasting, Great Recession
    JEL: C53 E37 E58
    Date: 2018–11
  21. By: Jonathan Kearns; Andreas Schrimpf; Dora Xia
    Abstract: This paper examines whether euro area unconventional monetary policies have affected the loss-absorbing buffers (that is the resilience) of the banking industry. We employ various measures to capture the effect of the broad array of programmes used by the ECB to implement balance sheet policies, while we control for the effect of conventional and negative (or very low) interest rate policy. The results suggest that, above and away from the zero-lower bound, looser interest rate policy tends to weaken our measure of euro area banks' loss-absorbing buffers. On the contrary, further lowering interest rates near and below the zero lower bound seems to strengthen (or weaken less) such buffers, which points towards non-linearities arising in the vicinity of the lower bound. Moreover, balance sheet easing policies enhance bank level resilience overall. However, unconventional monetary policies seem to have increased the fragility of banks in the member states hardest hit by the 2011 sovereign debt crisis. In fact, the evidence presented in this paper suggest that the resilience gains of unconventional monetary policies have accrued mostly to banks headquartered in the so-called core euro area countries (Austria, Belgium, Finland, France, Germany, Luxembourg and Netherlands). Finally, unconventional monetary policies seem to have enhanced more the resilience of banks that were relatively stronger, i.e. that were in the higher deciles of the distribution of loss-absorbing buffers.
    Keywords: monetary policy spillovers, high-frequency data, financial integration
    JEL: E44 F36 F42
    Date: 2018–11
  22. By: Volha Audzei; Sergey Slobodyan
    Abstract: In this paper we study model selection under bounded rationality and the impact of monetary policy on the equilibrium choice of forecasting models. We use the concept of sparse rationality (developed recently by Gabaix, 2014), where paying attention to all possible variables is costly and agents can choose to over- or under-emphasize particular variables, even fully excluding some of them. Our main question is whether an initially mis-specified equilibrium (the restricted perceptions equilibrium, or RPE) is compatible with the equilibrium choice of sparse weights describing the allocation of attention to different variables by the agents inhabiting this RPE. In a simple New Keynesian model, we find that the agents stick to their initial mis-specified AR(1) forecasting model choice when monetary policy is less aggressive or inflation is more persistent. We also identify a region in the parameter space where the agents find it advantageous to pay attention to no variable at all.
    Keywords: Bounded rationality, expectations, learning, model selection
    JEL: D84 E31 E37
    Date: 2018–09
  23. By: Hauzenberger, Niko (WU Wirtschaftsuniversität Wien); Huber, Florian (University of Salzburg)
    Abstract: In this paper we aim to improve existing empirical exchange rate models by accounting for uncertainty with respect to the underlying structural representation. Within a flexible Bayesian non-linear time series framework, our modeling approach assumes that different regimes are characterized by commonly used structural exchange rate models, with their evolution being driven by a Markov process. We assume a time-varying transition probability matrix with transition probabilities depending on a measure of the monetary policy stance of the central bank at the home and foreign country. We apply this model to a set of eight exchange rates against the US dollar. In a forecasting exercise, we show that model evidence varies over time and a model approach that takes this empirical evidence seriously yields improvements in accuracy of density forecasts for most currency pairs considered.
    Keywords: Empirical exchange rate models; exchange rate fundamentals; Markov switching
    JEL: C30 E32 E52 F31
    Date: 2018–11–21
  24. By: Takayasu Ito (Meiji University, Scool of Commerce)
    Abstract: Stock price has a positive impact on the REIT (Real Estate Investment Trust) Property Sector Index Series (Office, Residential, and Retail & Logistics) in all three sample periods. Interest rate has no significant impact on any of the sectors in the REIT Property Sector Index Series under the comprehensive easing policy regime. On the other hand, interest rate has a negative impact on each of the sectors in the REIT Property Sector Index Series under the quantitative and qualitative easing and the negative interest rate policy regimes. The negative impact of interest rate on the REIT market is larger under the quantitative and qualitative policy regime than it is under the negative interest rate policy regime. As regards the sensitivity of the three REIT property sectors to stock price and interest rate, no significant differences are found in any of the samples; the three different sectors are almost equally influenced by stock price and long-term interest rate.
    Keywords: REIT Property Sector, Stock Price, Swap Rate, Non-Traditional Monetary Policy
    JEL: E44 E58 G19
    Date: 2018–11
  25. By: Cantore, Christiano; Ferroni, Filippo; León-Ledesma, Miguel A.
    Abstract: The textbook New-Keynesian (NK) model implies that the labor share is pro-cyclical conditional on a monetary policy shock. We present evidence that a monetary policy tightening robustly increased the labor share and decreased real wages and labor productivity during the Great Moderation period in the US, the Euro Area, the UK, Australia, and Canada. We show that this is inconsistent not only with the basic NK model, but with a wide variety of NK models commonly used for monetary policy analysis and where the direct link between the labor share and the markup can be broken down.
    Keywords: labor share; monetary policy shocks; DSGE models
    JEL: C52 E23 E32
    Date: 2018–11–16
  26. By: Duca, John V. (Oberlin College and Federal Reserve Bank of Dallas)
    Abstract: During the recovery from the Great Recession, inflation did not reach the central bank’s 2 percent objective as quickly as many models had predicted. This coincided with increases in online shopping, which arguably made retail markets more contestable and damped retail inflation. This hypothesis is tested using data on the online share of retail sales, which are incorporated into an econometric model. Results imply that the rise of online retail has flattened the Phillips Curve, reducing the sensitivity of inflation to unemployment rate changes. Improvement in fit from just including the online share is tiny—so far. Other results indicate that market-based price indexes are more sensitive to unemployment than measures such as core PCE, which puts a sizable weight on items with imputed prices that may slowly adjust to market conditions. Further, measures of online sales that internalize substitution between online and traditional mail order sales better help track the impact of online sales on inflation dynamics. {{p}} A complementary factor is the “gig” economy and the rise of self-employment, which by reducing the bargaining power of labor, could lower the natural rate of unemployment. Model performance and fits are improved using a hybrid approach in which the rise of online sales can flatten the slope of the Phillips Curve by reducing retail pricing power and the prevalence of gig or self-employment can lower the natural rate of unemployment. {{p}} By omitting important structural changes in both goods and labor markets, conventional Phillips Curve models have failed to track how the rise of online retailing has flattened the Phillips Curve and how the rise of the gig economy (self-employment) has lowered the natural rate of unemployment. One notable difference between the price-price and wage-price results is that the combined effects of online shopping and self-employment are more notable on wage inflation than on price inflation. This could plausibly reflect that improvements in information technology may have undermined the pricing power of workers in labor markets to a greater degree than they have affected the pricing power of producers in goods markets.
    Keywords: gig economy; self-employment; online sales; inflation; unemployment; wages; Phillips Curve
    JEL: E31 J30 L10
    Date: 2018–11–16
  27. By: Ricardo A. Araújo; Marwil J. Dávila-Fernández
    Abstract: Vector Autoregressive (VAR) models have been used for a long time now to study profit-squeeze cycles, most of the time using problematic Hodrick-Prescott (HP) filtered time series. In a recent paper, Hamilton (2018) has provided a simple alternative that overcomes the main drawbacks of the HP procedure. In order to evaluate the empirical relevance of the profit-squeeze mechanism, we compare both methodologies using quarterly data for the United States from 1948-67 to 2016. Furthermore, we present an extension of Goodwin's (1967) growth-cycle model that includes employment rates, income distribution, and capacity utilisation as endogenous variables. We show analytically that the system always admits a family of periodic solutions. The model is estimated econometrically using the Autoregressive Distributed Lag (ARDL) approach. Through numerical simulations and making use of our estimations, we confirm that fluctuations are persistent and bounded.
    Keywords: Distributive cycles; Growth-cycle; HP ?lter; VAR; ARDL.
    JEL: E32 E64
    Date: 2018–11
  28. By: Cristiano Cantore (Bank of England; Centre for Macroeconomics (CFM); University of Surrey); Filippo Ferroni (Federal Reserve Bank of Chicago); Miguel A. Leon-Ledesma (University of Kent)
    Abstract: The textbook New-Keynesian (NK) model implies that the labor share is pro-cyclical conditional on a monetary policy shock. We present evidence that a monetary policy tightening robustly increased the labor share and decreased real wages and labor productivity during the Great Moderation period in the US, the Euro Area, the UK, Australia, and Canada. We show that this is inconsistent not only with the basic NK model, but with a wide variety of NK models commonly used for monetary policy analysis and where the direct link between the labor share and the markup can be broken down.
    Keywords: Labor share, Monetary policy shocks, DSGE models
    JEL: E23 E32 C52
    Date: 2018–11
  29. By: Simona Malovana
    Abstract: This paper studies the pro-cyclicality of risk weights with respect to the business, credit and financial cycles using data for the Czech Republic. The empirical results indicate that risk weights behave pro-cyclically under the IRB approach and acyclically under the STA approach. The pro-cyclical behaviour of IRB risk weights for credit exposures is caused primarily by the procyclicality of risk weights for retail credit exposures, the strongest effects being in the highest and lowest quantiles of risk weights. The risk weights for retail exposures behave pro-cyclically not only with regard to the business cycle, but also with respect to the financial cycle and house price growth.
    Keywords: Housing market, internal ratings-based approach, procyclicality, quantile regression, risk weights
    JEL: C22 E32 G21 G28
    Date: 2018–10
  30. By: Christofzik, Désirée I.; Elstner, Steffen
    Abstract: This paper explores the international transmission of U.S. tax shocks and provides evidence for the German economy. Using structural vector autoregressions, we find that after a U.S. tax cut, German GDP increases moderately. While higher U.S. demand stimulates German exports, a deterioration of price competitiveness lowers this positive growth impulse. The current account increases significantly. Surprisingly, German prices fall as domestic companies reduce unit labor costs. The resulting increase of the real interest rate dampens domestic demand. German tax policy shows an opposite reaction to U.S. tax policy. The latter result, however, is driven by the decade of the 1970s. We find that significant changes in the transmission channels arise by distinguishing between different types of U.S. tax reforms. In particular, in contrast to U.S. personal income tax reforms, changes in the corporate income tax cause a depreciation of the German real effective exchange rate.
    Keywords: fiscal policy,tax policy,international spillovers,structural vector autoregressions
    JEL: H20 E32 E62 F44
    Date: 2018
  31. By: Jakob Grazzini; Domenico Massaro
    Abstract: We investigate the sources of the great changes in GDP volatility observed from 1966 to 2000. We develop a general equilibrium model and calibrate it to US data in order to characterize the contribution of micro level productivity shocks, inter-sectoral linkages and households' behavior to aggregate volatility. Our results show that changes in sectoral volatility played an important role in shaping volatility at the aggregate level. Moreover, asymmetries in the economic structure sometimes had an amplifying, and other times a dampening effect on aggregate volatility. We show that the different impact depends on the time-varying correlation between sectoral volatilities and the relative importance of specific sectors in the economy.
    Keywords: business cycle, micro-macro volatility, input-output network
    JEL: E32 E23 D57
    Date: 2018
  32. By: Wensheng Kang; Ronald A. Ratti; Joaquin Vespignani
    Abstract: We decompose global stock market volatility shocks into financial originated shocks and non-financial originated shocks. Global stock market volatility shocks arising from financial sources reduce substantially more global outputs and inflation than non-financial sources shocks. Financial stock market volatility shocks forecasts 16.85% and 16.88% of the variation in global growth and inflation, respectively. In contrast, the non-financial stock market volatility shocks forecasts only 8.0% and 2.19% of the variation in global growth and inflation. Beside this markable difference global interest/policy rate responds similarly to both shocks.
    Keywords: Global, Stock market volatility Shocks, Monetary Policy, FAVAR
    JEL: D80 E44 E66 G10
    Date: 2018–11
  33. By: Lise Pichette; Maria Bernier; Marie-Noëlle Robitaille
    Abstract: In this paper, we extend the state-space methodology proposed by Blagrave et al. (2015) and decompose Canadian potential output into trend labour productivity and trend labour input. As in Blagrave et al. (2015), we include output growth and inflation expectations from consensus forecasts to help refine our estimates. Our alternative model, which we call the multivariate state-space framework (MSSF), adds to the Bank’s existing set of tools for estimating potential output and the output gap in Canada. We find that while the MSSF shares similar dynamics to the main approaches used by the Bank, it also indicates that the economy experienced greater excess supply in both the 1990 and 2008 recessions than the Bank’s other tools would suggest. Finally, the MSSF estimates that the Canadian economy has been operating close to capacity since the end of 2017.
    Keywords: Economic models, Potential output
    JEL: C5 E0 E5
    Date: 2018
  34. By: Tori, Daniele; Onaran, Özlem
    Keywords: financialisation; financial development; non-financial corporations; fixed investment; Europe
    JEL: E2 E21
    Date: 2018–11–09
  35. By: Reinhard Neck (Alpen-Adria-Universität Klagenfurt); Klaus Weyerstrass (Institute for Advanced Studies)
    Abstract: In 2009, Serbia applied officially for EU membership; in 2014, membership negotiations started. After joining the EU, Serbia will have to adopt the euro as legal tender as soon as it fulfils the relevant Maastricht criteria. By means of simulations with a macroeconometric model of the Serbian economy, we examine likely macroeconomic effects from Serbia?s membership of the EU and the Euro Area. We show that EU accession and the introduction of the euro bring about higher real GDP, more employment, and more sustainable public finances. The benefits of joining the Euro Area are mainly due to increases in productivity.
    Keywords: Serbia; EU; Euro Area; open economy macroeconomics; econometric model
    JEL: E17 O52 E52
    Date: 2018–11
  36. By: Efrem Castelnuovo; Guay Lim
    Abstract: This article reviews recent research findings on the effects of fiscal multipliers in normal times, during booms/busts, and in the presence of the zero lower bound. Studies on the effects of fiscal policy in open economy settings as well as contributions on the fiscal-monetary policy mix are also considered. We conclude by outlining a few research avenues that are particularly relevant from a policy standpoint.
    Date: 2018–11
  37. By: Dedola, Luca (European Central Bank); Georgiadis, Georgios (European Central Bank); Grab, Johannes (European Central Bank); Mehl, Arnaud (European Central Bank)
    Abstract: We estimate the effects of quantitative easing (QE) measures by the ECB and the Federal Reserve on the US dollar-euro exchange rate at frequencies and horizons relevant for policymakers. To do so, we derive a theoretically-consistent local projection regression equation from the standard asset pricing formulation of exchange rate determination. We then proxy unobserved QE shocks by future changes in the relative size of central banks’ balance sheets, which we instrument with QE announcements in two-stage least squares regressions in order to account for their endogeneity. We find that QE measures have large and persistent effects on the exchange rate. For example, our estimates imply that the ECB’s APP program which raised the ECB’s balance sheet relative to that of the Federal Reserve by 35 percentage points between September 2014 and the end of 2016 depreciated the euro vis-á-vis the US dollar by 12%. Regarding transmission channels, we find that a relative QE shock that expands the ECB’s balance sheet relative to that of the Federal Reserve depreciates the US dollar-euro exchange rate by reducing euro-dollar short-term money market rate differentials, by widening the cross-currency basis and by eliciting adjustments in currency risk premia. Changes in the expectations about the future monetary policy stance, reflecting the “signalling” channel of QE, also contribute to the exchange rate response to QE shocks.
    Keywords: Quantitative easing; interest rate parity condition; CIP deviations
    JEL: E5 F3
    Date: 2018–11–02
  38. By: Bibiana Lanzilotta (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Gabriela Mordecki (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Victoria Umpiérrez (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: It has been well documented by the macroeconomic literature the negative effects of economic policy instability on economic uncertainty and investment decisions. In changing environments, agents prefer to delay investment decisions in fixed capital, ultimately leading to the depression of economic activity. Uruguay, as a small and open economy of South America, has historically faced strong external shocks. Therefore, not only local instability of economic policy affects, also international and regional ones affect macroeconomic volatility and growth. With the objective of quantifying and analyzing uncertainty and volatility in the Uruguayan economy, we built an uncertainty composite index adapting the methodology proposed by Baker, Bloom & Davis (2015). In order to address how local and global economic policy uncertainty affects the volatility of the Uruguayan economy we include in the composite index, local and external uncertainty indicators. We represent local uncertainty by agent’s divergence on expectations about the future of the exchange rate. In order to account for both, regional and global shocks, we include uncertainty indicators of the relevant economic-world for Uruguay. Empirical strategy is based on a combination of statistical methods of principal components analysis and time series techniques. We test two alternative indexes, both of them starting in January 2004. Our results show that although both uncertainty indexes seem to be good predictors of the volatility for the whole period, they losses predictability power in the last years.
    Keywords: Political economic uncertainty, volatility, principal components analysis
    JEL: E32 C54
    Date: 2018–05
  39. By: Volker Meier
    Abstract: We consider positive and normative aspects of subsidizing work arrangements where subsidies are paid in time of low demand and reduced working hours so as to stabilize workers’ income. In a matching framework such an arrangement increases labor demand. Tightening eligibility to short-time work benefits tends to reduce the wage while the impact on unemployment remains ambiguous. We develop a modified Hosios condition characterizing an efficient combination of labor market tightness and short-time benefit loss rate.
    Keywords: short-time work, unemployment insurance, employment subsidies
    JEL: E24 H24 J41 J63 J64
    Date: 2018
  40. By: Heni Boubaker (International University of Rabat, BEAR LAB, Technopolis Rabat-Shore Rocade-Sale, Morocco); Giorgio Canarella (University of Nevada, Las Vegas, 4505 S. Maryland Parkway, Las Vegas, Nevada, USA); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Stephen M. Miller (University of Nevada, Las Vegas, 4505 S. Maryland Parkway, Las Vegas, Nevada, USA)
    Abstract: We report the results of applying semi-parametric long-memory estimators to the historical monthly series of U.S. inflation, and analyze their empirical forecasting performance over 1, 6, 12, and 24 months using in-sample and out-of-sample procedures. For comparison purposes, we also apply two parametric estimators, the naive AR(1) and the ARFIMA(1, d, 1) models. We evaluate the forecasting accuracy of the competing methods using the mean square error (MSE) and mean absolute error (MAE) criteria. We evaluate the statistical significance of forecasting accuracy of competing forecasts using the Diebold-Mariano (1995) test. Overall, our results preforms slightly better than the Lahiani and Scaillet (2009) threshold estimator based on the MSE and MAE criteria. This improvement in performance does not prove significant enough to cause a rejection of the null hypothesis of equality of predictive accuracy. The Boubaker (2017) estimator, on the other hand, significantly outperforms the time-invariant estimators over longer horizons. Over shorter horizons, however, the Boubaker (2017) estimator does not exhibit a significantly better predictive performance than the time-invariant long-memory estimators with the exception of the naive AR(1) model.
    Keywords: long memory, wavelet analysis, time-varying persistence
    JEL: C13 C22 C32 C54 E31
    Date: 2018–11
  41. By: Frédéric Dufourt (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE); Alain Venditti (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE & EDHEC Business School); Rémi Vives (Aix-Marseille Univ., CNRS, EHESS, Centrale Marseille, AMSE)
    Abstract: We investigate the extent to which standard one sector RBC models with positive externalities and variable capacity utilization can account for the large hump- shaped response of output when the model is submitted to a pure sunspot shock. We refine the Benhabib and Wen (2004) model considering a general type of additive separable preferences and a general production function. We provide a detailed theoretical analysis of local stabilities and local bifurcations as a function of various structural parameters. We show that, when labor is infinitely elastic, local indeterminacy occurs through Flip and Hopf bifurcations for a large set of values for the elasticity of intertemporal substitution in consumption, the degree of increasing returns to scale and the elasticity of capital- labor substitution. Finally, we provide a detailed quantitative assessment of the model and conclude with mixed results. We show that although the model is able theoretically to generate a hump-shaped dynamics of output following an i.i.d. sunspot shock under realistic parameter values, the hump is too persistent for the model to be considered fully satisfactory from an empirical point of view.
    Keywords: Indeterminacy, real business cycles, sunspot shock, capacity utilization, externalities
    JEL: C62 E32 O41
    Date: 2017–12
  42. By: Anderson, Gareth (Oxford University); Bahaj, Saleem (Bank of England); Chavaz, Matthieu (Bank of England); Foulis, Angus (Bank of England); Pinter, Gabor (Bank of England)
    Abstract: This paper shows that lending relationships insulate corporate investment from fluctuations in collateral values. We construct a novel database covering the banking relationships of private and public UK firms and their individual directors. The sensitivity of corporate investment to changes in real estate collateral values is halved when the relationship between a bank and a firm or its board of directors increases by 11 years. The importance of long bank-firm relationships diminishes when directors have personal mortgage relationships with their firm’s lender. Our findings support theories where collateral and private information are substitutes in mitigating credit frictions over the cycle.
    Keywords: Collateral; lending relationships; SMEs; information frictions
    JEL: E22 E32 G32
    Date: 2018–11–16
  43. By: Christophe André (Organisation for Economic Co-operation and Development (OECD)); Petre Caraiani (Institute for Economic Forecasting, Romanian Academy); Adrian Cantemir Čalin (Institute for Economic Forecasting, Romanian Academy); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: This paper investigates whether the counter-intuitive result of Gali and Gambetti (2015), where stock prices react positively to a monetary tightening, also holds for housing prices. Estimating a Bayesian VAR model based on an asset-pricing framework and allowing for rational bubbles for the United States, the United Kingdom and Canada, we find that housing prices respond negatively to a monetary policy shock, as common intuition would suggest. We also show, using a Markov Switching VAR model for the United States, that the response of housing prices to a monetary policy shock is not sensitive to the state of homebuyers sentiment. Hence, monetary policy can prove effective in fighting housing price bubbles. However, “leaning against the wind" has costs in terms of lost output while inflation becomes lower. Hence, before implementing such a policy, its relative efficiency and interactions with other policies, notably macro-prudential, need to be carefully considered.
    Keywords: housing, bubbles, VAR, monetary policy
    Date: 2018–11
  44. By: Lartey, Abraham
    Abstract: The study investigated the dynamic relationship between oil prices and Real GDP growth in Nigeria over time by making use of time varying Bayesian VAR with Stochastic volatility. I distinguished between supply and demand shocks by means of a sign restriction. First, the study found that, the response of the Nigerian economy has been varying overtime. Also, GDP growth responds positively to both supply and demand shocks. However, the magnitude of the response to demand shock is larger compared to that of supply shocks. This suggests that overtime an increase in oil prices due to shocks in demand matter most for the Nigerian economy.
    Keywords: Crude oil Price, Real GDP growth, Time Varying Coefficients, Stochastic Volatility
    JEL: E30
    Date: 2018–10–01
  45. By: Fischer, Manfred M. (WU Wirtschaftsuniversität Wien); Huber, Florian (University of Salzburg); Pfarrhofer, Michael (University of Salzburg); Staufer-Steinnocher, Petra (WU Wirtschaftsuniversität Wien)
    Abstract: This paper uses a factor-augmented vector autoregressive model to examine the impact of monetary policy shocks on housing prices across metropolitan and micropolitan regions. To simultaneously estimate the model parameters and unobserved factors we rely on Bayesian estimation and inference. Policy shocks are identified using high-frequency suprises around policy announcements as an external instrument. Impulse reponse functions reveal differences in regional housing price responses, which in some cases are substantial. The heterogeneity in policy responses is found to be significantly related to local regulatory environments and housing supply elasticities. Moreover, housing prices responses tend to be similar within states and adjacent regions in neighboring states.
    Keywords: Regional housing prices; metropolitan and micropolitan regions; factor-augmented vector autoregressive model; Bayesian estimation; high-frequency identification
    JEL: C11 C32 E52 R31
    Date: 2018–11–16
  46. By: Pa?ko Burna? (University of Split, Faculty of Economics)
    Abstract: Recent global economic crisis and the concerns about sustainability of public finances have resulted in stronger implementation of fiscal consolidation measures. The literature does not offer a consensus on the impact of these measures. Empirical research offers a rationale for both contractionary and expansionary effect of fiscal consolidation on economic activity. Studies that examine the macroeconomic and fiscal effects of consolidation in developed countries are not frequent either have a long history, while the same effects in the post-transition countries are un-investigated. This paper tries to shed some light on this relationship. Additional contribution of this paper relates to the usage of the narrative approach introduced by Romer and Romer (2010). The research results do not support the expansionary fiscal consolidation hypothesis. Therefore, analysis suggests that fiscal consolidation in the Republic of Croatia and other post-transition countries was not successful in achieving macroeconomic goals such as economic growth.* This paper was supported by Croatian Scientific Foundation under the project ?Public Finance Sustainability on the Path to the Monetary Union? (IP-2016-06-4609).
    Keywords: fiscal consolidation, economic growth, narrative approach, Croatia, post-transition countries
    JEL: E62 H62 H69
    Date: 2018–11
  47. By: Rujiwattanapong, W. Similan
    Abstract: This paper quantifies the effects of the increasing maximum unemployment insurance (UI) duration during recessions on the drop in the correlation between output and labour productivity in the U.S. since the early 1980’s - the so-called productivity puzzle. Using a general equilibrium search and matching model with stochastic UI duration, heterogeneous match quality, variable search intensity and on-the-job search, I demonstrate that the model can explain over 40 percent of the drop in this correlation (28 percent when the Great Moderation is taken into account). More generous UI extensions during recent recessions cause workers to be more selective with job offers and lower job search effort. The former channel raises the overall productivity in bad times. The latter prolongs UI extensions since in the U.S. they are triggered by high unemployment.
    Keywords: business cycles; labour productivity; unemployment insurance
    JEL: E32 J24 J64 J65
    Date: 2018–08–20
  48. By: Christina Christou (School of Economics and Management, Open University of Cyprus, 2252, Latsia, Cyprus); Rangan Gupta (Department of Economics, University of Pretoria, Pretoria, South Africa); Wendy Nyakabawo (Department of Economics, University of Pretoria, Pretoria, South Africa)
    Abstract: This paper investigates the impact of uncertainty shocks on the housing market of the United States using the time-varying parameter factor augmented vector autoregression (TVP-FAVAR). We use a comprehensive quarterly time-series dataset on real economic activity, price, and financial variables, besides the housing market variables, covering the period 1975:Q3 to 2014:Q3. Besides housing prices, we also consider variables related to home sales, permits, starts, as well as housing market sentiment. In general, the results of the cumulative response of housing variables to a 1 standard deviation positive uncertainty shock at the one-, four- and eight quarter horizon tends to change over time, both in terms of sign and magnitude, with the uncertainty shock primarily affecting home sales, permits and starts over short-, medium and long-runs, and housing sentiment in the medium-term. Interestingly, the impact on housing prices is statistically insignificant.
    Keywords: housing market, stochastic volatility, time-varying parameter, FAVAR, uncertainty shocks
    JEL: C15 C32 E32 R31
    Date: 2018–11
  49. By: Thomas Theobald; Silke Tober
    Abstract: We regress long-term private sector interest rates on a money market rate, a term premium and credit risk. As a contribution to the current debate about European safe assets, our interest is in quantifying domestic spillover effects from euro area sovereign bond spreads. Panel estimates show significant, albeit rather small long-run effects. Our findings indicate large cross-country differences but no evidence that the effect has become stronger over time. Using linear country-specific estimates, we find the effect to be significant in only some countries, the size of the maximum effect exceeding the average one more than three-fold. For one country, we also find a highly significant asymmetrical effect with positive spread changes having greater impact on private-sector borrowing costs than negative ones. Overall, we conclude that contagion costs in the euro area are substantial and will remain so until an effective form of European safe assets is created.
    Keywords: autoregressive distributed lag, composite cost of borrowing, sovereign spread
    JEL: E43 G10 F36
    Date: 2018
  50. By: Mauricio De Rosa (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: Wealth inequality is arguably one of the key drivers of overall economic distribution and of major importance in its own right. However, relatively little is known about it, particularly in the developing world. In this article, Uruguay's wealth distribution and composition in 2012 are estimated -for the rst time-, based on the capitalization method. Wealth distribution estimations are mainly based on very detailed tax micro-data and own estimations of aggregate national wealth. Results show that at least one third of total wealth is owned by the wealthiest 1% and top 10%´s share is almost 60%, whilst 35% is owned by the "middle 40". Financial wealth and business property in particular are heavily concentrated among the wealthiest 1%. Sensitivity tests are performed to assess the method's key assumptions, showing that main results are robust. Moreover, estimations are consistent with a novel household wealth survey and with real estate tax data.
    Keywords: Wealth distribution, capitalization method, tax records, developing coun- tries, Uruguay
    JEL: D31 E01 E22
    Date: 2018–07
  51. By: Markus Brueckner; Birgit Hansl
    Abstract: During the 2000s PPP GDP per capita growth in the Philippines was modest. Transitional convergence accounted for almost half of the growth in the Philippines during that time period. Reforms to the structure of the economy boosted growth by less than one percentage point per annum. The most significant structural reform was improvements in telecommunication infrastructure that lifted growth by over half a percentage point per annum. The decline of domestic credit to the private sector reduced growth by about one quarter of a percentage point per annum. Successful stabilization policies positively contributed to growth but the effect is small, about one half of a percentage point per annum. The paper discusses the growth performance of the Philippines relative to comparator countries: ASEAN, lower middle income countries, countries where migrant remittances are large relative to GDP, young democracies, structural peers, and regional peers. The main message from the analysis is that structural reforms were not as significant in the Philippines as in comparator countries. The Philippines lagged behind in structural reforms and this significantly contributed to the country’s relatively modest growth performance.
    Date: 2018–10
  52. By: Ludwig List (Centre d'Economie de l'Université de Paris Nord (CEPN))
    Abstract: The goal of this paper is to conduct a meta-regression analysis (MRA hereafter) regarding the effects of the Kaldor-Verdoorn effect – the relation between output/demand and productivity. The Kaldor-Verdoorn effect has been subject to many econometric studies and while the overwhelming majority of them finds a positive overall effect, there is no consensus on its size - the results vary quite a bit, especially according to the chosen econometric specification. This MRA estimates a 'true value' of the Kaldor-Verdoorn effect without interference from potential publication selection bias via the use of multivariate MRA. A series of moderator variables is used to check for their effect of excess variation, including amongst others the year of publication, the sectors and the countries studied. This MRA study uses available data from 22 published studies with 303 estimations of the Kaldor-Verdoorn effect. When examining the primary literature as a whole, there seems to be publication bias. While there seems to exist a genuine Kaldor-Verdoorn effect, its size varies considerably depending on the specification chosen.
    Keywords: Kaldor-Verdoorn effect, Productivity, Meta-regression analysis, Effective demand, Learning by doing
    JEL: E24 O14 O25 O47 Q11
    Date: 2018–11
  53. By: Klára ?ermáková (University of Economics, Prague); Bo?ena Kade?ábková (University of Economics, Prague)
    Abstract: This paper deals with financial crisis and bubbles on financial markets. Authors first compare theoretical approaches to the crisis, then identify common characteristics of past financial crisis and the recent crises, then analyze price bubbles as a possible source of the crisis, ways of their estimation and possible responses of economic policies. The analytical part is focused on the case of the Czech Republic, as the paper finds some specific features in the bubble performance in the Czech Republic, as the Czech economy was characterized by the low cost of labour and very low price of properties, a heritage of the transformation era.
    Keywords: financial crises, speculative bubbles, specifics features in the Czech economy
    JEL: E32 G01
    Date: 2018–06
  54. By: DIPALI PRAVIN CHHAGANLAL PATEL (North west University); Ireen Choga (North west University)
    Abstract: The study empirically investigates the determinants of youth unemployment in South Africa using quarterly time series data from the period of 2008 to 2015. The main objective of this study is to investigate the main determinants of youth unemployment in South Africa. The study used or employed Vector Error Correction Model (VECM). The variables used in this study are Youth unemployment, education, Gross Domestic Product (GDP), inflation and Foreign Direct Investment (FDI), all these variables affect youth unemployment directly and indirectly. The data for this study was obtained from International Monetary Fund (IMF), World Bank and South Africa reserve bank (SARB). The results showed that education has a negative relationship and statistically significant to youth unemployment. Diagnostic and stability tests revealed that the model is good and stable in determining the impact of the determinants of youth unemployment.
    Keywords: youth unemployment, determinants, vector error correction model (VECM), South Africa
    JEL: E24
    Date: 2018–06
  55. By: Kirchhoff, Jasmina
    Abstract: Die deutsche Pharmaindustrie blickt auf ein turbulentes Jahr 2017 zurück. Dieses war geprägt durch drohende Handelskonflikte und politische Unsicherheiten - bei einer gleichzeitig weitgehenden Stabilisierung des Welthandels. Es zeichnete sich durch die Bundestagswahl und eine schwierige Regierungsbildung in Deutschland aus - und einer zunehmenden Belebung der Binnennachfrage. Neben diesen Einflussfaktoren auf dem inländischen und auf dem ausländischen Absatzmarkt der Pharmaindustrie gelten die Fundamentaltrends wie der demografische Wandel und die positive Wohlstandsentwicklung auch weiterhin. Im Ergebnis zeigte sich im Jahr 2017 der allgemeine konjunkturelle Aufschwung des Verarbeitenden Gewerbes auch in der Pharmaindustrie - wobei die treibenden Impulse für die ökonomische Entwicklung der Branche aus dem Ausland kamen, gleichwohl aber auch der Inlandsmarkt nach schwachen Vorjahren moderat zulegen konnte. Das laufende Jahr 2018 startete für die Pharmaindustrie mit Schwung - aber die Aussichten trübten sich im Verlauf des ersten Halbjahres aufgrund erneuter politischer Unwägbarkeiten und eines gedämpften globalen Umfelds wieder ein. Ein möglicher Handelskrieg mit den USA, die Gefahren eines ungeordneten Brexit, die Entwicklung der Rohstoffpreise ebenso wie die beständigen Uneinigkeiten der neuen Bundesregierung in zentralen Fragen hinterließen auch in der Pharmaindustrie ihre Spuren.
    JEL: E32 L65
    Date: 2018
  56. By: Crespo Cuaresma, Jesus (WU Wirtschaftsuniversität Wien); Doppelhofer, Gernot (Norwegian School of Economics); Feldkircher, Martin (Oesterreichische Nationalbank (Austrian Central Bank)); Huber, Florian (University of Salzburg)
    Abstract: This paper develops a global vector autoregressive (GVAR) model with time-varying parameters and stochastic volatility to analyze whether international spillovers of US monetary policy have changed over time. The proposed model allows assessing whether coefficients evolve gradually over time or are better characterized by infrequent, but large breaks. Our findings point towards pronounced changes in the international transmission of US monetary policy throughout the sample period, especially so for the reaction of international output, equity prices, and exchange rates against the US dollar. In general, the strength of spillovers has weakened in the aftermath of the global financial crisis. Using simple panel regressions, we link the variation in international responses to measures of trade and financial globalization. We find that a broad trade base and a high degree of financial integration with the world economy tend to cushion risks stemming from a foreign shock such as a US monetary policy tightening, whereas a reduction in trade barriers and/or a liberalization of the capital account increase these risks.
    Keywords: Spillovers; zero lower bound; globalization; mixture innovation models
    JEL: C30 E52 F41
    Date: 2018–11–16
  57. By: Rutayisire, Musoni J.
    Abstract: The main objective of this paper is to investigate the relationship between the policy-controlled interest rates (Repo and Treasury bill rates) and the bank interest rates (interbank, deposit and lending rates) in Rwanda with the view to empirically examine the size and speed of the interest rate pass-through in the long run and short run and determine whether the pass-through process is symmetric or asymmetric. The empirical results of the paper indicate that the lending rates are cointegrated with none of the selected policy rates; hence the interest rate pass-through has been estimated by means of a transformed ADL model. By contrast, a cointegration relationship has been established between the interbank, deposit and policy rates, hence a non-linear error correction model has been used to detect adjustment process to long-run equilibrium. The estimated long-run as well as the short run interest rate pass-through of the selected policy rates to deposit and lending rates is weak and sluggish. Regarding the adjustment process of the bank rates, empirical results provided evidence that depending on the policy rate, the interbank, deposit and lending rates react differently following a negative and a positive shock in the policy rates. These results have been obtained using cointegration and asymmetric error-correction models.
    Keywords: Interest rate pass-through, monetary transmission mechanism, asymmetric adjustment.; Interest rate pass-through, monetary transmission mechanism, asymmetric adjustment. JEL: E430, E520
    JEL: C1 E4 E52
    Date: 2017–12–03
  58. By: Yang, Guanyi
    Abstract: How much does inequality in life depend on conditions established at age 18? What role does post-18 higher education play? I use an education choice model with exogenous conditions from family wealth, established human capital at age 18 and shocks to human capital to examine these questions. Family wealth and established human capital at age 18 determine the post-18 education choices. Education builds up human capital and reduces future earnings volatility. Absent this transmission channel, previous studies dramatically underestimate the importance of initial family wealth in explaining lifetime earnings inequality. My model finds that family wealth at age 18 explains up to 15% of lifetime earnings inequalities, and human capital at age 18 explains 72%. Policy counterfacutals that encourage college education by providing financial aid reduce inequality and improve welfare.
    Keywords: Lifecycle inequality, college enrollment, human capital accumulation, idiosyncratic uncertainty, general equilibrium, heterogeneous agents, quantitative macroeconomics.
    JEL: C6 D31 D91 E24 E64 J22 J24 J31
    Date: 2018–01–24
  59. By: Shagufta Shabbar (Institute of Business Administration); Qazi Masood Ahmed (IBA); Farooq Pasha (State Bank of Pakistan)
    Abstract: Augmentation of investment is a primary goal for any government. To attain that objective it can resort to either tax or direct expenditures. In order to analyze which is a more efficient method in the case of Pakistan, the current study uses data from the country?s Manufacturing Sector. The time series data set since 1972 to 2013 is used. Bounds testing approach to cointegration used in the structure of Autoregressive Distributed Lag is employed for understanding the behavior of the different variables, applying Neo-Classical Investment theory. The results show the importance of tax expenditure policy, in the short run, through the cost of capital, as a determinant to boost private investment in the economy, under circumstances of low inflation. On the other hand, in high inflation periods, the direct expenditure is found to be more potent. The empirical evidence shows a strong role of direct expenditure in influencing both the short-run and the long-run behavior of investment in the economy.
    Keywords: Investment, cost of capital, tax expenditure, ARDL, manufacturing sector, Pakistan.
    JEL: H25 H54 E22
    Date: 2018–06
  60. By: Flor, Luciana de la (Grupo de Análisis para el Desarrollo (GRADE))
    Abstract: El desempleo profesional y el subempleo son problemas que afectan a miles de peruanos. Su incidencia generalmente se atribuye a un desajuste entre la demanda y la oferta de trabajo. La educación universitaria no garantiza un trabajo adecuado al nivel académico obtenido. Las prácticas preprofesionales son una intervención de bajo costo y alto impacto para atacar este problema. Lejos de ser una intervención gubernamental, muchas universidades peruanas han tomado cartas en el asunto y han introducido prácticas preprofesionales como parte de su plan de estudios. Este documento contribuye a la literatura sobre la transición al empleo, puesto que estima el efecto causal de las prácticas en los resultados del empleo. El objetivo de este texto es comprender cuánto influyen las prácticas en los resultados de empleo, una vez que los estudiantes se han graduado. Para ello, se evalúa la incidencia e intensidad de estas. Además, se exploran los mecanismos mediante los cuales las prácticas preprofesionales impactan en estos resultados. Usando el método de variables instrumentales, se encuentra que practicar un mes adicional incrementa en 2% la probabilidad de trabajar en un empleo relacionado con la carrera que se ha estudiado, eleva el salario en 4% y reduce la probabilidad de trabajar en un empleo informal también en 4%. Uno de los mecanismos mediante el cual operan las prácticas preprofesionales es el del primer empleo. Las prácticas funcionan, en parte, porque incrementan la probabilidad de que los estudiantes accedan a un mejor primer empleo, lo cual, a su vez, se traduce en mejores resultados laborales en trabajos futuros.
    Keywords: Empleo, Formación preprofesional, Perú, Employment, Prevocational training, Peru
    JEL: E24
    Date: 2018
  61. By: Górajski Mariusz (Faculty of Economics and Sociology, University of Lodz); Kuchta Zbigniew (Faculty of Economics and Sociology, University of Lodz)
    Abstract: This paper presents a new approach to measure the parameter uncertainty for optimal simple monetary policy rules in the New Keynesian dynamic stochastic general equilibrium models. More precisely, we propose a new algorithm which enables to directly introduce parameter uncertainty into the optimal simple precommitment rule problem. As a result we find distributions of the optimal monetary policy reactions and the minimized welfare losses. To compare the distributions of the monetary policy parameters and the welfare losses we apply the first order stochastic dominance ordering (SD1). The SD1 inequality between the probability distribution is verified by means of the Kolmogorov-Smirnov test. The proposed algorithms are applied to the Erceg, Henderson and Levine (2000) small-scale closed economy model estimated for the Polish economy. For the welfare-loss-minimizing central bank, we examine three types of the dynamic specification of its policy rule: backward-, current- and forward-looking. Finally, for a given set of optimal and implementable monetary policy rules, we show that the fully specified forward-looking monetary policy rule with interest rate smoothing mechanism minimizes the welfare-loss in the sense of the stochastic ordering SD1.
    Keywords: optimal monetary policy, DSGE, uncertainty
    JEL: E47 E52
    Date: 2018–10–15
  62. By: Nora Albu; Heike Joebges; Rudolf Zwiener
    Abstract: Dustmann/ Fitzenberger/ Schönberg/ Spitz-Oener (2014) praise the flexibility of German labour market institutions for the German turn-around from "Sick Man of Europe to Economic Superstar": The more decentralized, firm-specific wage-setting process since the mid-1990s increased wage inequality and reduced pay increases. According to the authors' novel calculations for unit labour costs of the "end product" the German export-oriented manufacturing sector experienced a very high decrease in unit labour costs between the mid-1990s and 2007. The authors claim that this increase in price competitiveness is behind exporting success and (implicitly) the turn-around in economic growth.While we value the authors' efforts to incorporate inputs from other sectors into the calculation of unit labour costs of the manufacturing sector through an input-output approach, we show that the calculation is unconvincing in several regards and overstates the costs reduction. Besides this, we also show that the link from unit labour costs to exports is weaker than implicitly assumed by the authors. We also criticize the implicit assumption that export success based on low wage growth furthers GDP growth, as the positive effect of low wages on exports has to be balanced against the negative effect on domestic demand. Overall, our findings suggest, the policy conclusions from the authors -real wage cuts were necessary to improve German competitiveness for turning around the economy - overstate the role of unit labour costs for GDP growth.
    Keywords: German export success, labour market reforms, Hartz reforms, price competitiveness, unit labour costs, REER, wage-led economy, bazaar economy, German unification costs
    JEL: E02 F16 J31 J32
    Date: 2018
  63. By: Lakdawala, Aeimit (Michigan State University, Department of Economics)
    Abstract: Much research has been devoted to studying the international spillover effects of US monetary policy. However, a lot of the focus has been on the recent unconventional monetary policies undertaken by the Federal Reserve. Combining high frequency financial market data with a time-varying parameter approach we show that US monetary policy decisions have had significant effects on the Indian stock markets well before the use of unconventional policy tools and that these effects have gotten stronger over time. In addition to the conventional channel of surprise changes in the policy rate, we find that US monetary shocks are also transmitted through an uncertainty channel, which is especially important for announcements about large scale asset purchases (quantitative easing). Using firm level stock prices, we also show that the higher sensitivity of the aggregate response is uniform across the stock market and is not driven by the increased exposure of any specific industry to US monetary policy. Instead, our results suggest that it is driven by the portfolio decisions of foreign institutional investors and the exchange rate becoming more sensitive to US monetary policy.
    Keywords: Monetary Policy Shocks; Emerging Stock Markets; Foreign Institutional Investors; Quantitative Easing; Monetary Policy Uncertainty
    JEL: E52 F30 F36 G12 G14
    Date: 2018–10–01
  64. By: Akihisa Shibata; Mototsugu Shintani; Takayuki Tsuruga
    Abstract: The current account in developed countries is highly persistent and volatile in comparison to their output growth. The standard intertemporal current account model with rational expectations (RE) fails to explain the observed current account and consumption dynamics. The RE model extended with imperfect capital mobility by Shibata and Shintani (1998) can account for the consumption dynamics, but only at the cost of the explanatory power for the volatility of the current account. This paper replaces RE in the intertemporal current account model with sticky information (SI) in which consumers are inattentive to shocks to their income. The SI model can better explain a persistent and volatile current account than the RE model but it overpredicts the persistence of changes in consumption. The SI model extended with imperfect capital mobility explains both the current account and consumption, provided that sufficiently high degrees of information rigidity and imperfect capital mobility are considered.
    Keywords: Capital mobility, Imperfect information, Inattentive consumers, Permanent income hypothesis
    JEL: E21 F21 F32 F41
    Date: 2018–11
  65. By: Honningdal Grytten, Ola (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: This manuscript presents a new combined annual cost of living and consumer price index for Norway covering the period 1492-2017. When previous Norwegian historical consumer price indices partly were constructed on the basis of very limited data, the new historical index is constructed on a significantly richer data material. This is made possible by the compilation of quantitative data from numerous sources, mostly originating from the eighteenth, nineteenth and early twentieth century.The new index makes it possible to follow annual living costs in Norway for 525 years. When comparing to existing price indices the new series reveals that it is needed to make some major revisions of Norwegian price history.
    Keywords: Price index; price history; purchasing power parity; economic history
    JEL: E31 N13 N14 N24 N34
    Date: 2018–11–28
  66. By: Grajales Olarte, Anderson (Tilburg University, School of Economics and Management)
    Abstract: The dissertation aims to shed light on the identification, measurement, macrodynamic consequences and policy implications of nominal wage rigidity. In the first chapter, a New-Keynesian DSGE model with heterogeneity in price and wage setting behavior is estimated using Bayesian techniques for the United States economy from 1955 to 2008. The estimation results show the relevance of heterogeneity in wage setting among households. Qualitative and quantitative business cycle features allowed by the heterogeneity in wage rigidity, such as the persistence in price and wage inflation, are identified. Standard New Keynesian model with only Calvo-type wage rigidity fails to achieve these features. In the second chapter, the stability and welfare effects of greater wage flexibility in an economy with limited asset market participation (LAMP) are analyzed. The results show that once LAMP is considered, greater wage flexibility increases the volatility of key macroeconomic variables. The volatility increases even more when the zero lower bound restricts the monetary policy. In a context of LAMP, greater wage flexibility is welfare improving only for implausible initial high degrees of wage rigidity; but the gains are small. Except that extreme case, greater wage flexibility reduces welfare when even a small fraction of households are financially constrained. In the third chapter, nominal wage rigidity in the Netherlands during the Great Recession is studied. The data used has three unique features: high-frequency, high-quality, and high coverage. Substantial heterogeneity in the frequency of wage changes due to explicit terms of the labor contract was found, and also between industries, year and months. It was found that wage changes have a time and state dependency component. The response of wage changes to the time and state component is heterogeneous across the different type of contracts.
    Date: 2018
  67. By: Jena ?varcová (Tomas Bata University in Zlín); Lucie Povolná (Tomas Bata University in Zlín)
    Abstract: GDP growth is one of the most closely watched macroeconomic aggregates. To predict its growth, it is very important to know the importance and development of individual structural components - this article has been focused on the Czech industry NACE C and its role for GDP growth in the Czech Republic. The research was mainly focused on the impact of research and development, as the revised methodology of the national accounts system in the Czech Republic has been pursuing this factor differently since 2014. For better outlook, the development has also been compared with the Visegrad countries, where the Czech Republic is a member. The years 2005 to 2016 were selected for the period under review, when the effects of the economic crisis were reflected. The end of the survey period has shown a boom in economic growth, so research has covered all the important phases of the business cycle.
    Keywords: GDP growth, ESA 2010, Visegrad countries, Research and Development, NACE C Manufacturing
    JEL: E30 F43
    Date: 2018–11
    Abstract: This study evaluates the effect of exchange rate volatility on economic growth in Nigeria from 1986 to 2014. It determines the extent and manner to which economic growth responds to exchange rate volatility in Nigeria. The empirical analysis of this study is to determine the degree of volatility of real effective exchange rate using the Generalised Autoregressive Heteroskedasticity (GARCH) model and the Generalized Method of Moments is used to determine the effect of real exchange rate volatility on economic growth. The study finds that there is high volatility of real effective exchange rate. It also reveals that real effective exchange rate is negatively and significantly related to economic growth. This finding suggests that exchange rate volatility is harmful to the growth of the Nigerian economy. This study recommends that government should constantly seek to maintain a stable exchange rate, increase its expenditure, particularly capital expenditure and implement sustainable reforms to increase the depth of the financial sector.
    Keywords: exchange rate, volatility, economic growth and GARCH
    JEL: E44
    Date: 2018–06
  69. By: Bertocchi, Graziella; Brunetti, Marianna; Zaiceva, Anzelika
    Abstract: Using rich Italian data for the period 2006-2014, we document sizeable gaps between native and immigrant households with respect to wealth holdings and financial decisions. Immigrant household heads hold less net wealth than native, but only above the median of the wealth distribution, with housing as the main driver. Immigrant status reduces the likelihood of holding risky assets, housing, mortgages, businesses, and valuables, while it increases the likelihood of financial fragility. Years since migration, countries of origin, and the pattern of intermarriage also matter. The Great Recession has worsened the condition of immigrants in terms of wealth holdings, home ownership, and financial fragility.
    Keywords: immigrants,household finance,wealth,financial portfolios,Great Recession
    JEL: F22 G11 D14 E21 J15
    Date: 2018
  70. By: Gabriel Mathy (American University); Christian Roatta (The London School of Economics and Political Science)
    Abstract: Economic analysts were not able to forecast the Great Contraction of the early 1930s, as previous work has shown (Goldfarb et al., 2005; Mathy and Stekler, 2016). In 1937, with full recovery from the Depression still incomplete, another severe recession struck which lasted about a year. We use a well-established method to convert qualitative forecasts into quantitative scores and use these scores to study forecaster performance in this period. For the peak of the business cycle, we find similar results for this recession as for the 1929-1933 recession in that forecasters largely failed to forecast this downturn. Forecasters also remained overoptimistic throughout the recession, seeing a recovery as imminent, and failed to forecast the recession’s trough. We discuss similarities and differences with the performance of business analysts in the 1929-1933 and 1937-1938 recessions, as well as the methods and heuristics used to construct forecasts in this period.
    Keywords: Macroeconomic Forecasting, Textual Analysis, Great Depression, 1937-1938 recession, Qualitative/Quantitative analysis
    JEL: E37 N12 C53
    Date: 2018–11
  71. By: Michele Battisti; Yvonne Giesing; Nadzeya Laurentsyeva
    Abstract: We conducted a field experiment to evaluate the impact of job-search assistance on the employment of recently arrived refugees in Germany. The treatment group received job-matching support: an NGO identified suitable vacancies and sent the refugees' CVs to employers. Results of follow-up phone surveys show a positive and significant treatment effect of 13 percentage points on employment after twelve months. These effects are concentrated among low-educated refugees and those facing uncertainty about their residence status. These individuals might not search effectively, lack access to alternative support programmes, and may be disregarded by employers due to perceived higher hiring costs.
    Keywords: refugees, labour market integration, job search assistance, field experiment
    JEL: E24 F22 J61 J68
    Date: 2018
  72. By: Christian Pfister
    Abstract: France is the European country in which, together with the United Kingdom, the taxation of saving is highest (6% of GDP in 2016, against on average 3.8% in the European Union and 3.5% in the euro area). This situation is evaluated with regard to the theoretical debate on optimal taxation. Although no clear-cut conclusion can be drawn from that debate, it appears that the “dual Nordic” is nowadays widely considered as satisfying. However, theoretical research tends to underestimate the genuine tax burden, as they do not take two factors into consideration, namely cumulated taxation and inflation. In fact, although taxation is only one the factors that influence the allocation of assets, it plays an important role in savers’ choices. As an illustration, an evaluation of the impact of the newly-created ‘prélèvement forfaitaire unique’ (single flat tax on saving income) is provided by Christian Pfister.
    Keywords: Taxation, Saving, Optimal Taxation, Asset Allocation.
    JEL: E62 G11 H21 H22 H3
    Date: 2018
  73. By: Rafael Cezar; Maéva Silvestrini
    Abstract: This paper aims at estimating the impact of the recent Asset Purchase Programs implemented by the ECB - known as Quantitative easing (QE) - on external assets and liabilities recorded in one economy’s International Investment Position (IIP). Our analysis focused on the case of France. We start by describing the recent evolution of the four main items constituting the French IIP; namely Portfolio Investments, Other Investments, Derivatives and Direct Investments. We observe ample, albeit temporary, variations of these items surrounding QE programs. This analysis is complemented by an econometric approach in which we consider as QE variables both the announcements of the programs and their actual implementation. QE measures do impact all the items of the French IIP. Announcements –and particularly the one of January 2015– play a stronger role compared to the amounts purchased. We also decompose changes in the IIP into flows and valuation effects and show that the latter is the most reactive to QE measures. Finally, we establish counterfactual scenarios to quantify what France’s IIP would have been in the absence of QE. The strong impact observed following the announcement of January 2015 is rapidly counterbalanced; which suggests an over-adjustment phenomenon at the beginning of the program. This analysis allows estimating the outcome of the policy on the net IIP and thus on international wealth transfer. Consistently with our previous findings, we observe a robust impact at the beginning of the program which is then partly offset.
    Keywords: Monetary policy, Quantitative Easing, Balance of payments, International investment position.
    JEL: E52 F32 G15
    Date: 2018
  74. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: I thank the Money Marketeers of New York University for inviting me back to speak tonight. When I was here four years ago, I discussed the important role that Federal Reserve communications play in making effective monetary policy and the need for these communications to evolve as we moved from a period of extraordinary monetary policymaking to more normal policymaking. At this point, that transition to more normal policymaking has been underway for some time, reflecting the health of the U.S. economy and the progress that’s been made on the FOMC’s monetary policy goals. Tonight, I’ll talk about the economic outlook and monetary policy, FOMC communications, and upcoming considerations that will help determine what normal policymaking will look like in the future. My remarks will reflect my own views and not necessarily those of the Federal Reserve System or my colleagues on the Federal Open Market Committee.
    Keywords: Economic Growth; Labor Markets; Inflation; Monetary Policy;
    Date: 2018–10–25
  75. By: Ogunlesi, Ayodeji; Bokana, Koye; Okoye, Chidozie; Loy, Jens-Peter
    Abstract: Food supply fluctuations remain a major challenge in Sub-Saharan Africa (SSA). In this regard, this study empirically examined the impact of agricultural productivity on food security stability in 37 selected countries in SSA from 1990 to 2016, using the pooled, least square dummy variable (LSDV), random and system generalized methods of moments (SYS-GMM) models. The study adopted per-capita food supply variability (PCFSV) as a measure of food security stability while agriculture value-added contribution to gross domestic product (AGVA) and crop production (CRPROD) were selected indicators of agricultural productivity. The LSDV and SYS-GMM model estimations revealed that agricultural productivity and the control factors contributed significantly, though with a mix of positive and negative effects, to food security stability in the selected countries in SSA during the period under review. The LSDV model showed that AGVA had no statistically significant positive effect on food security stability, however, this was corrected in the SYS-GMM model, but with a positive impact. The study concludes that stability in food security is achieved and sustained by improving agricultural productivity. Based on the findings, the study recommended that food security stability should be improved by enhancing agricultural productivity through ensuring effective implementation of pro-agriculture growth policies in SSA
    Keywords: Food Supply variability, Agricultural Productivity, Sub-Saharan Africa, Panel System GMM
    JEL: E00 O1 O13 Q1 Q18
    Date: 2018–01–02
  76. By: Williams, John C. (Federal Reserve Bank of New York)
    Abstract: Remarks at the 80th Plenary Meeting of the Group of Thirty, Federal Reserve Bank of New York, New York City.
    Keywords: systematic policy framework; inflation expectations; inflation targeting; low neutral interest rate; below-target inflation rates; inflation expectations; lower bound; average-inflation targeting; price-level targeting
    Date: 2018–11–30
  77. By: Marta Aloi; Huw D. Dixon; Anthony Savagar
    Abstract: We develop a model of sluggish firm entry to explain short-run labor responses to technology shocks. We show that the labor response to technology and its persistence depend on the degree of returns to labor and the rate of firm entry. Existing empirical results support our theory based on short-run labor responses across US industries. We derive closed-form transition paths that show the result occurs because labor adjusts instantaneously whilst firms are sluggish, and closed-form eigenvalues show that stricter entry regulation results in slower convergence to steady state.
    Keywords: deregulation, dynamic entry, endogenous entry costs
    JEL: E20 L11 O33
    Date: 2018
  78. By: Kyle Herkenhoff (University of Minnesota); Jeremy Lise (University College London); Guido Menzio (University of Pennsylvania); Gordon Phillips (Dartmouth College Tuck School of Business)
    Abstract: The effect of coworkers on the learning and the productivity of an individual is measured combining theory and data. The theory is a frictional equilibrium model of the labor market in which production and the accumulation of human capital of an individual are allowed to depend on the human capital of coworkers. The data is a matched employer-employee dataset of US firms and workers. The measured production function is supermodular. The measured human capital function is non-linear: Workers catch up to more knowledgeable coworkers, but are not dragged down by less knowledgeable ones. The market equilibrium features a pattern of sorting of coworkers across teams that is inefficiently positive. This inefficiency results in low human capital individuals having too few chances to learn from more knowledgeable coworkers and, in turn, in a stock of human capital and a flow of output that are inefficiently low.
    Keywords: human capital, knowledge diffusion, search frictions
    JEL: E24 J24
    Date: 2018–11
  79. By: Simplice A. Asongu (Yaoundé/Cameroon); Oludele E. Folarin (University of Ibadan, Ibadan, Nigeria); Nicholas Biekpe (University of Cape Town, Cape Town, South Africa)
    Abstract: This study examines the stability of money demand in the proposed West African Monetary Union (WAMU). The study uses annual data for the period 1981 to 2015 from thirteen of the fifteen countries making-up the Economic Community of West African States (ECOWAS). A standard money demand function is designed and estimated using a bounds testing approach to co-integration and error-correction modeling. The findings show divergence across ECOWAS member states in the stability of money demand. This divergence is informed by differences in cointegration, stability, short run and long term determinants, and error correction in event of a shock.
    Keywords: Stable; demand for money; bounds test
    JEL: E41 C22
    Date: 2018–01
  80. By: Guo, Yanling
    Abstract: The first attempt in the human history to consciously create money ended in a collapse in 1720, well-known as the money mania. This unfortunate start raises doubt on money creation as a whole such that today there are still voices questioning created money even though it is now indispensible for the world economy. But this misfortune also has the bright side in that it delivers an extensive example of risks which created money has to consider. In this paper, I review the central facts from the money mania and highlight lessons we can still learn from it.
    Keywords: money mania,money creation,convertible money,non-convertible money,John Law,risk
    JEL: B19 E40 E59 N23
    Date: 2018
  81. By: Ogunlesi, Ayodeji
    Abstract: Public expenditure on the agricultural sector targeted towards raising investments for increased agricultural productivity has been low in most countries in Sub-Saharan Africa (SSA). Also, existing empirical evidence on the impact of fiscal and trade policies on the improvement of agricultural systems remains mixed and inconclusive. In view of the above, this study employs a three-variable Panel Structural Vector Error Correction Model (PSVECM) in capturing the dynamic structure of the possible relationships among agricultural productivity, fiscal and trade policies in 37 selected countries within SSA, using annual data from 1990 to 2016. In imposing short- and long-run identifying restrictions, the cointegration structure of the PSVECM reveals an instantaneous impact of government expenditure and terms of trade on crop production in the transitory period. Likewise, terms of trade has a permanent significant effect on crop production and government expenditure within the reviewed period in SSA. The impulse response and variance decomposition analysis trace out a mixed result of both short and long run significant and fluctuating relationships among government expenditure, terms of trade and crop production in SSA. This finding implies that fiscal and trade policies are crucial in influencing agricultural productivity; and recommends that policymakers should adopt expansionary fiscal (in line with the Keynesian theory) and trade policies which stimulate both short and long run agricultural productivity growth in countries within SSA
    Keywords: Crop Production, Government Expenditure, Terms of Trade, Panel Analysis
    JEL: E61 Q17
    Date: 2018–10
  82. By: Civelli, Andrea (University of Arkansas); Deck, Cary (University of Alabama and Chapman University); LeBlanc, Justin D. (University of Arkansas); Tutino, Antonella (Federal Reserve Bank of Dallas)
    Abstract: This paper presents a laboratory experiment that directly tests the theoretical predictions of consumption choices under rational inattention. Subjects are asked to select consumption when income is random. They can optimally decide to reduce uncertainty about income by acquiring signals about it. The informativeness of the signals directly relates to the cognitive effort required to process the information. We find that subjects’ behavior is largely in line with the predictions of the theory: 1) Subjects optimally make stochastic consumption choices; 2) They respond to incentives and changes in the economic environment by varying their attention and consumption; 3) They respond asymmetrically to positive and negative shocks to income, with negative shocks triggering stronger and faster reactions than positive shocks.
    Keywords: Rational Inattention; Experimental Evidence; Information Processing Capacity; Consumption
    JEL: C91 D11 D8 E20
    Date: 2018–11–19
  83. By: Hagenhoff, Tim
    Abstract: In this paper, I propose an optimal interest rate rule under heterogeneous expectations derived from a welfare criterion that is a second-order approximation of heterogeneous household utility following Di Bartolomeo et al. (2016). Additionally, I explore the agent level of the Branch and McGough (2009) framework in a more detailed fashion which is important as the central bank's welfare criterion depends on consumption inequality. I find that the consumption decision of "rational" agents in Di Bartolomeo et al. (2016) is inconsistent with the higher-order beliefs assumption of Branch and McGough (2009). Hence, consumption rules are derived that are consistent with the micro-foundations of Branch and McGough (2009) including a possible specification of agent's long-run beliefs. Further, the welfare analysis shows that the optimal interest rate rule yields welfare gains that range between 0.1 and 7.1 percent under the considered parameter values relative to a rule that is optimized under a conventional inflation-targeting objective as in Gasteiger (2014). Welfare gains are high when the underlying economy features a high degree of heterogeneity.
    Keywords: optimal monetary policy,policy implementation,heterogeneous expectations,inequality
    JEL: E52 D84
    Date: 2018
  84. By: Byrne, David (Central Bank of Ireland); Zekaite, Zivile (Central Bank of Ireland)
    Abstract: This Letter examines the relationship between wage growth and labour market tightness in the euro area, frequently represented by the Phillips curve. It predicts that falling unemployment should lead to greater wage growth. A key question for policymakers post-crisis is whether this relationship has changed or broken down. We show that the euro area wage Phillips curve is non-linear. When labour market slack is elevated, tightening does not lead to greater wage growth. The relationship only returns when slack is at lower levels. This finding explains why wage growth did not increase when the labour market tightened between 2013 and 2016, and why stronger wage growth has been evident since 2017.
    Date: 2018–11
  85. By: Giulio Ecchia; Francesca Gagliardi; Caterina Giannetti
    Abstract: In this paper, we first rely on small area techniques to derive from EU-SILC survey new indicators of compensatory and investment policies at regional level. While compensatory policies have mainly the goal of protecting individuals from “old” risks (e.g. old-age), investment-related social policies tend to focus more on "new social risks" (i.e. skill deficits). We rely on these new indicators to perform a data-driven SVAR analysis to investigate the casual relationships between youth labour market outcomes and these two types of spending. Our results support the view that investment policies are more effective for tackling new social challenges.
    Keywords: small area techniques, investment policies, compensatory policies, SVAR analysis, ICA
    JEL: C18 C54 E02
    Date: 2018–09–01

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